Nokia's Strategy
I have been hearing recently about Nokia's move to transition to software and services company.
http://www.redherring.com/Home/22805
I would like to hear comments on what this strategy means to the wireless value chain. I would be grateful on any insights. Does this mean a fundamental shift in the mobile device industry?
Answers (13)
Hi, earlier this year I wrote several marketing whitepapes for Nokia's Technology Licensing group, which licenses its (application) mobility enablement platform to companies like Mirapoint and several hundred others. I interviewed numerous Nokia executives and customers, and also read through a couple of dozen research reports on Nokia and its foray into mobility software, which it did by acquiring IntellSync. Although there has been some turmoil at Nokia -- my client and others in the sales/marketing organization left -- the business model appears to be fundamentally solid, as there is growing interesting in mobililizing enterprise apps, and Nokia has the product and street cred to pull it off.
Clarification added September 17, 2007:
Unfortunately I can't go back and edit typos! Aaack!
Desai N
Director, Institute of Innovation and Management and Professor of Information Systems at Singapore Management University
Dear Ram
As you well know the margins in the hardware market will reduce slowly. So, it is not surprising that Nokia is repositioning itself.
Cheers
Desai
I would say Nokia is spreading its wings and diversifying. Instead of outsourcing, they just buy over the company. This is common place in the IT/Telco world. Buy over the supplier or competition and strengthen themselves.
They seem keen to keep everything within rather than maintain the "open source" work methodology. Scary indeed. A force to be reckoned with, I would say.
from a soon to be former market analyst.
It is important to look at Nokia in 2 parts. There is the Nokia Mobile Phone division and Nokia Networks (now NSN after merger with Siemens) and are 2 separate companies.
NSN looks after the Networks side of the telco infrastructure which includes providing Base Stations, Core networks, switches, OSS software and so on.
Traditionally Nokia has not been strong in software in the infrastructure side and hence relies on working with partners to deliver an integrated solution. With new technology coming up and the move towards more computing power on the mobile phone, Nokia of course will be forced to respond in kind.
While on the services side, there are many different business segments, the RF Optimisation and delivery services side, Nokia is fairly strong and relies a lot on an outsourcing model. Whereas in the systems integration side for OSS and BSS segment, they are a smaller part of the business within Nokia.
Outsourcing of RF Optimisation and delivery services has totally destroyed the value chain leading to ever lower prices. Nokia resorts to local RF consultants as well as foreign consultants from lower salary countries. For bigger projects, Nokia primes for the project, defines the scope, issues a contract (mostly back-to-back) to RF optimisation contractors to take on entire portion of work as well as risk while the prices remain very low.
In other words, the net benefit of this destroy in value accrues to the telco operator.
However the segment is very large, perhaps you would need to define more narrowly what software segment you mean and what services.
Let me know if you need further help.
Mark N
Head of Strategy at Hyro
Best Answers in: Venture Capital and Private Equity (2), Starting Up (2), Business Plans (1), Blogging (1)
Ramanath,
I thinking this is both a sign of a maturing market and an early indicator of a subtle change in future revenue models.
The mobile handset market is now becoming 'commoditised' - there are an increasing array of handset vendors and component suppliers. The end result is a lowering of margins for all concerned. Nokia would be very sensitive to this, and is undoubtedly eyeing adjacent markets that would allow it to leverage current resources (hard + soft assets) and knowledge/people.
An equally important factor is the decline in ARPU (average revenue per user) for telcos. Call costs (both domestic and international) are lowering, again due to increased competition in the telco sector. As a result, telcos are themselves moving increasingly into content and services to replace lost revenue.
Mobile handset providers will be positioning themselves in the software/services market as a slight hedging strategy - either to compete for end-user spend ($) directly or, alternatively, so they can provide a bundle of both hardware and services to telcos, who will on-sell to consumers.
On the specific issue of advertising, while the current revenue model in the mobile space is to charge directly for data and services, in the future there is going to be increasing demand (by advertisers) to get in front of consumers via this 'third screen' and, equally, demand (by consumers) for cheaper/free services. To facilitate this, telcos and device manufacturers will not only need to develop robust platforms for segmenting, targeting and deliverying ad-supported content and services.
Regards,
Mark
Nokia realeased this press http://www.nokia.com/A4136001?newsid=1152776 september 11 - on maps and moore,
To obtain Enpocket http://www.nokia.com/A4136001?newsid=1153772 as a mobile advertising is just to make things easier when it comes to local based advertising.
-------------------------------
In my mind - they can now make a location based advertising product that can be reached from several chanels.
sample - i am looking for a chinese restaurant with nokia maps, when i arrive in the area a bluetooth triggerd advert telling me about todays special offer at the nearby steak house. ( all you need is a bluetooth advert machine, make it if it is not there).
By owning the maps that got me there, and the location based advert company, nokia can earn a cent on all referals. They can even make a discount program - show a sms code to get a free treat.
IF the SIM with A Gps http://www.blueskypositioning.com/products.htm
comes to life, we will all have 10 meters gps posistion on our cell phones.
and location based advertising is going to bloom.
PS i have a tool for this at www.travelbee.org i some one is intrested in making a world wide service.
Morten
Dear,
I believe that it is a logical outcome of a saturating device market. To attract customers buying your product (the handset) you can differentiate yourself on features of the device itself, or a more holistic user experience, i.e. a solution platform which involves services as an add-on. Also other consumer hardware product manufacturers may consider this (i.e. imagine what you could do in home entertainment markets ...), so in this sense I would see this as a very innovative move. You can open up your platform to a lot more features than before ...
Being the subscriber, you then do not need to worry where to get the material which satisfy your new device capabilities. Seen from the mobile operators view, it could be highly attractive to offer a fully enabled solution to their client base, as apparently this would bring them one step away from just being the "dumb pipe", and outsource risk and investment typically involved with such projects. Certainly, Nokia can provide a solution which solves integration issues in such scenario, so it is even enabling a wider market where we do not only see on and off deck but also outsourced solutions and device-content bundles. It will be interesting to see what kind of services will be offered over time ... If that model turns out to be the safer, more transparent pick for both operators and subscribers, it is likely to cause such fundamental shift you asked about.
Sayeed C
Owner, cassim unlimited
Best Answers in: Small Business (3), Internationalization and Localization (2), Supply Chain Management (2), Using LinkedIn (2), Occupational Training (1), Economics (1), Staffing and Recruiting (1), Corporate Law (1), Employment and Labor Law (1), Lead Generation (1), Writing and Editing (1), Manufacturing (1), Packaging and Labeling (1), Career Management (1), Ethics (1)
ramanath
i only hope that nokia improve their customer care and have some customer focussed products and policies. we have been driven nuts by their lack of basic common sense in some areas and a very bad customer care department. they also specialise in re-inventing the wheel very often.
unless they change this i don't see them holding on to market share for long.
sayeed
Nokia are the dominant device brand on the planet. They invest huge sums in the development of platforms and devices to create compelling experiences for their customers. They don't get everything right (there are many examples where they have failed to meet the grade) but their general strategy is sound. Create devices which expand the importance of the mobile phone to your lifestyle. Indeed create the most personal computing device for your pocket.
Games, Music, Camera, Internet Browsing, Mobile TV, Etc. etc. are all key to increasing the depth of interaction with the device. The more a device becomes part of your lifestyle the more the committed you get to the brand.
But! there is a problem... Operators and Retailers sell the handsets not based on the technology inside or the customer use-cases, but based on physical design and price. Even after the sale of the device few Operators do a particularly good job of enticing the customer to use the content and services available. Typically only 12% of customers regularly use mobile content. However, if you do focus on content this can be raised to between 50-80% something I believe 3 (Hutchison Whampoa) has achieved in UK, Italy, Austria and Australia.
If a customer doesn't use a function (or make a purchase on the portal) within 8 weeks of purchasing a device they will never do so.
The other trend which has been picked up is the desire that consumers have to access the real internet on the Mobile. Not the 'Mobile Internet' based on WAP! The Nokia Browser is one of the best mobile browsers around and is based on Safari. Fortunately, the Operators have also picked up on this trend and have started to offer fixed-cost internet access to consumers. This means that for the first time its practical for someone other than the Operator to offer the content services on a large scale.
So if you were Nokia and knew that content was an essential part in increasing the connection people have with their mobile device and you felt that this wasn't being served by the Operator community what would you do? You control something like 38% of the global device market and if you do it better than other organization you might attract even more people to buy your phones as well as making the one who use the service more committed to you.
Its a very sensible strategy.
From my understanding the guys running this business have also made some really sensible choices. They are using a range of third parties to white-label provide the content required. This means that they are leveraging true content experts who deliver content not just to Nokia. That makes this not only more scalable, but more responsive to consumer trends in the market. That's a really smart approach.
Key to me is that they have tied this up with a visually appealing retail experience which helps customers discover the content and find what they want. Its not perfect - but its much better than most portals. (I'll not go into detail on what make mobile retail work here - that would go on too long)
Does this mean that there is a fundamental shift in the mobile device industry - yes! but... I'm not sure that many of the other handset providers could pull this off.
The key over the next 3 years will be the emergence of the cross-operator; cross-handset manufacturer mobile retailer... will that be Google/Yahoo?; or Jamba?; or perhaps even Nokia?
We'll just have to wait and see.
Yes. Nokia sells a million phones a day and even if they are only mildly successful that means a lot of money. On the high end, Nokia has and continues to shape the handset experiences around the world. They were early in on the Symbian operating system (the number one in the world) and they have upped their ownership. It commands a premium in areas outside of the US and they are working to develop more of a presence here. They have also been working in the wireless gaming space for a while now-albeit with little success.
By getting into the network side and adding features to their handsets they are helping to mold the customer experience. Location Based Services, Social Networks, Mobile Web, etc. are all aspects of this that are developing across carriers and will push up ARPU.
While the handsets have been seen as a commodity by many, Nokia is defying this and making the handset a portal to mobile customer experiences and their wallets.
We could say it is a fundamental shift in handset manufacturer's space, in one way. We now hear a similar story from SonyEricsson. Nokia has identified mobile internet services as the future and it has even made Service division as one of its core BUs. This heralds two striking trends
1) Nokia has a better brand pull than operators and in mobile music services space they could create more efficiencies than what the telcos managed so far. Also with dwindling hardware margins across spectrum of handsets (high margins only on high end phones) the shift is inevitable.
2) They are also evangelising sideloading i.e. downloads off operator network.
It will be interesting to see how they fare against Internet brands such as Apple. With Apple crossing over to mobile phones space and Nokia crossing over to internet service the mobile internet space is hotting up.
Definitely this is a move to diversify the revenue base. Google also
announced similar product (mobile advt) recently.
http://www.informationweek.com/news/showArticle.jhtml?articleID=201807325
Can Nokia prove itself better than Google in this service?
We have to wait and see..
- Ravi.
Fundamental shift in mobile user experience and also company's history since around thirty years in telecommunications!
