12 August 2007

Will Nokia make the same mistakes it made in 2004?

At the end of 2003, Nokia had 34.6% of the global handset market. By the end of the first quarter, 2004, that share had slipped to 28.4%. This 20% drop in market share was despite a year-over-year increase of mobile shipments of 29.3%. Nokia found itself in this desperate position because it was slow to introduce clamshell style phones and colour displays.

Fast forward to 2007 and Nokia is currently humiliating Motorola in the handset stakes. In the first quarter of 2007, Nokia shipped 92 million units, a 20.6% growth compared with Motorola’s 47.5 million units shipped during the same period. Since then, Nokia’s global market share has climbed to 38% whilst Motorola’s slumped to a dismal 13%. Analysts think that Nokia’s share of the global market could climb to an all-time high of 40% by the end of 2007. On 2nd August, the Finnish behemoth announced an astonishing 57% increase in second quarter operating profits to US$3.2 billion. And when the definitive metric for measuring brands is profitability, Nokia sizzles again with operating margins for the combined mobile device business of 20.9%. The company also has US$9.5 billion in cash and no debt.

Nokia’s success is based on its rapid expansion into emerging markets, in particular here in Asia where Nokia sold 23.7 million phones in 2Q07. Much of this expansion is at the low end where Nokia offers phones for as little as US$45. However, also key to this continued dominance in the handheld market has been the launch of the Nokia N series. Nokia shipped close to 8 million units of the N series during this period.

At first glance, the N series are nothing short of extraordinary. Way ahead of the competition due to a list of features that includes integrated GPS functionality, a 5 megapixel camera (N95) and support for high-speed mobile networks and impressive functions that make it easy to record and later watch video, take still pictures, listen to songs, browse the internet, or even catch up with email while on the move. Throw in a provocative tagline, “It’s what computers have become” and you have what can technically be called multimedia computers in the palm of your hand. Nokia really is way ahead of the competition. The Apple Mac of the cell phone market. The problem is that it also puts the N series way ahead of Nokia. And herein lies the problem.

One of the unique features of the N series, and the N95 in particular, is the GPS feature. For anyone traveling to foreign lands, the opportunity to hire a car, key in the destination address and then be told how to get there is irresistible. In fact, in Kuala Lumpur, where I’ve lived for 14 years and still get lost, I’ve calculated that it could improve my productivity due to a reduction in lost time on the road by as much as 15%.

As Nokia prepares to launch the exciting N800 and the Apple iPhone stutters over its ridiculous battery policy and limited availability, there is a real chance for the Finnish company to take control of as much as half of the mobile market. This could possibly drive Motorola to extinction and rain heavily on the iPhone and other handset makers’ parades for good. But whilst Nokia’s skills in the logistics and distribution areas are legendary, it must get all of its peripheral ducks in a row to create a truly global brand that can dominate for a significant period.

And right now it isn’t doing so. Once the novelty factor of the GPS capability has worn off, one realizes that, well it seems to take forever to get a GPS fix. Nokia has promised a patch to speed the process up but it hasn’t arrived yet. Assuming it does fix this problem, the next step is the ability to integrate your N series phone into your vehicle. This is a logical next step because the screen on the N95 is only about 2 inches wide so it’s impossible to view from a distance of more than a foot. Squinting at a 2 inch screen when you should be focusing on the road is not in the highway code.

And this is where the wheels, so to speak, fall off. Once you are in your vehicle, where does the device sit? To be at its most effective, it needs to have the keyboard visible and be held at a 45 degree angle. This rules out any of the windscreen holders currently on the market. Anyway, this option isn’t practical because the battery life of the N95 is no more than 2 hours with the GPS running which rules out a stand-alone position on your windscreen. Plus, that 2-inch screen is not designed to be viewed using peripheral vision.

Surely the N95’s Bluetooth capability will allow the user to integrate it with the in dash screen of your in car system? Negative. There is nothing on the market that will allow the user to sync the N95 with the in car audio/visual system of any car. In fact there isn’t even a cable that allows the N95 to be plugged into the in car audio/visual system, unlike the fully integrated ipod and, when it finally arrives, the iphone.

Nokia needs to take a leaf out of the Apple book and start licensing the development of third party peripherals. Nokia makes good, no, great phones. It doesn’t do peripherals. My local Nokia store offers a charger that plugs into my lighter jack. That’s it! My Apple store offers numerous peripherals for my ipod video to enhance the in car experience. By licensing the development of peripherals Nokia can quickly integrate its great phones into cars and consumers lifestyles, thereby taking it even further ahead of the competition.

Nokia must work with partners, especially in the automotive industry, to integrate phones with the on board entertainment systems, especially those with VCD screens.

This is critical because, as global sales of handsets are forecast to slow in 2008, the successful brands, and by successful I mean profitable, are going to be those that produce cutting-edge technology, neat features and the ability to integrate the handset with consumers' cars, homes and PC’s. Nokia needs to understand that it needs to provide more than just phones or multimedia experiences some of the time. Nokia must provide the complete package or we will see a repeat of that dismal end to 2003.

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