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Nokia's fifth last chance

The cellphone maker will unveil its new flagship model E7, which comes with a large touchscreen and full keyboard, at the show in London, two sources with direct knowledge of Nokia’s plans told Reuters.

via PREVIEW-Nokia bets on new smartphones for recovery | Reuters.

Analysts have been saying that Nokia has one last chance to fix (software, UI, strategy, etc.) for some time now.

Nokia sold 24 million smartphone units sold in Q2 which represented significant growth. Sales and Profits however were both down but to say that Nokia is facing imminent demise is misguided.

How is Nokia able to sell so many units when its portfolio elicits so much pathos?

The reason Nokia can still coast with poor products is that they have a vast distribution network. I don’t know the exact distribution but let’s assume that half their phones go through carriers and half through distributors who resell unlocked phones world-wide. Carriers will continue to carry the phones because they slot into well-established portfolio slots and distributors will continue to distribute because the product is competitive in markets where there are no other unlocked smartphones at the same price.

So predicting imminent failure without taking into account distribution inertia is showing a lack of understanding of the market. The same insensitivity to distribution is why so many predictions of Microsoft’s “death” or RIM’s “death” fail.

The less sensational but more accurate description of Nokia’s predicament is that their strength in distribution prevents them from reforming their business model in order to benefit from the disruption that mobile broadband is bringing to mobile telecommunications.

That’s a mouthful.

  • http://, Iphoned

    How is Nokia's distribution model preventing them from shipping more competitive smart phones – I don't follow. Can you elaborate?

    • http://www.asymco.com asymco

      I did not say that Nokia is prevented from making competitive smartphones. I'm saying something more sinister: Competitive smartphones are not the answer to Nokia's long term survival.

      The first rule of marketing is: listen to your customer. The first rule of disruptive innovation is: don't listen to your best customers.

      Nokia's most important customers are operators and distributors. By listening to them Nokia is making it very difficult to implement products it needs to build but which can damage their value network.

      I'll give one example. Nokia's first internet tablet came out in 2005 running Linux. That was a pioneering use of Linux as a mobile OS and it was entirely possible to implement a communications device like an iPod touch on this platform, years before the iPhone. However feedback from operators and the channel was negative: the product simply did not fit any of the consumption or pricing patters or form factor preferences that their marketing organizations were amassing. By listening to its channel, Nokia re-enforced an already existing camp in the company that insisted that the future lay with Symbian.

  • RobDK

    In reality Nokias position, as you have described it, resembles Microsoft. A large slow dinosaur which cannot respond to changing conditions, but which is to some extent protected by its size and dominance.

    I wonder if there is a suitable analogy in the Darwinian theories of evolution?!

    Great blog Horace, and great to have a reference frame that runs in a European timeframe!

    RobDK, Copenhagen

  • Iphoned

    So now that iPhone/ Android /iPad form factor has been established as successful, Nokia should no longer be constrained by faulty channel feedback, and in fact should be ablest leverage sits channel to it's advantage, right?

  • Iphoned

    Sorry for the misspellings – I am typing on my iPhone keyboard. Need to get used to more careful spell checking.

  • Priit

    Now you see how much you can sell having invested into distribution of normal phones. Apple should take a lesson?

    I'll give you an example. My buddies left and right are buying Android phones like crazy because? Because first, there's no iPhone 4 in sight and secondly because, to paraphrase one well known gentleman, iPhone is a bag of hurt. Noone wants to mess with it and with stupid its contracts. Steve Jobs fetish with locking and preventing servicing iPhone is not even funny. Yes, local Mac shops are forbidden to service iPhone and local carriers only service ones they sold, so if your iPhone is broken here, bad luck, if you have Macbook, no problems whatsoever. iPhone is first phone you CANNOT unlock until your 2 year contract runs out. I repeat, ONLY one, actually iPhone invented such bullshit. Also first is you can only have "special plans" with iPhone. iPhone invented that bullshit too.

    Not better with iPad. Noone knows when local Apple distributors have them. I can only play with it in the shop, but to buy that iPad I need to …. go 100m and there's gray importer with all 6 models freely available. We had at least 3 big advertising campaigns with mayor advertisers – do this, buy that, win an iPad. Only Apple shops do not have them :-)

    Sad story of distribution failure.

    • Famousringo

      Neither the iPhone nor the iPad have substantial distribution problems. Carrier exclusivity is actually the price Apple paid to get distribution in key markets. Lack of servicability is a design choice, and really has nothing to do with distribution. And finally, the shortage of available iPhone and iPad units points to a production problem, not a distribution problem.

      There are important markets where iPhone distribution could be improved if it were available on more carriers or unlocked, but since it's selling out anyway, the bigger problem is production. What phones are getting made are having little trouble making it into the hands of customers.

      • Priit

        Lack of serviceability I was talking about is not that. Let's say you have iPhone and iPod an fly to visit me to have some beer at terrace and they both broke and you have a warranty etc. iPod can be repaired at any local Apple shop, but iPhone cannot, because Steve does not like that. As simple as that.

        And yes I see only distribution problems for iPad, because more or less the only place I cannot buy it is Apple shops :-), local grey dealers even have all models in stock. Only price is terrible.

      • RattyUK

        hmmm so let me get this right… You care complaining that Apple can't make enough iPads to supply their own stores where you are but the grey, illegal, importers do have them but the price is too steep?
        hmmm I wonder why that is? Maybe because the grey importers paid retail somewhere and are slapping on a huge profit? And that is Apple's fault? Would you care to explain how this is Apple's fault. If a guy walks into say a best buy in the states and buys iPads to sell in your country what is to stop him?
        This is not "bad distribution" this is you misunderstanding how product roll-outs work.

    • Tom

      So, if a reasonable person does not like a product because of perceived weaknesses, then that reasonable person should purchase another product which doesn't share those perceived weaknesses. Yet one must ask, why all the rant? What is served? Gained? Nothing visible, unless an audience is craved for venting ones life frustrations…

    • RattyUK

      @Priit
      Methinks yo are trying too hard.
      "My buddies left and right are buying Android phones like crazy… because first, there’s no iPhone 4 in sight " So you are buying Android phones like crazy because there are no iPhones. I think you should look up cause and effect.
      I believe that you are posting on a website to feed some kind of Android frenzy, but as this article is about Nokia you are way off topic.

      "Sad story of distribution failure."
      But you have already said that you are buying Android… But never mind, the couple of sales that Apple lost to you are but a drop in the bucket in this quarter's figures.

      So I am calling you out on your Android posting. I think that you wouldn't buy an iPhone at all. But are just using this as some kind of smug excuse to score brownie points.

    • Ted T.

      @Priit: Sorry, what country are you in, if it isn't a secret?

      I am presuming that the iPad simply hasn't gone on sale there yet. Now that store.apple.com is offering 24 hour shipping on iPads, I would guess that supply is starting to catch up to demand and Apple will start opening new countries for the iPad shortly.

      So far the iPhone, the locking/exclusivity is a problem in some countries but not others. In Italy and Belgium for instance all iPhones are sold unlocked — locking would be illegal. Plenty of countries have banned carrier exclusivity as well — France for instance.

  • Iphoned

    @prior

    That was quite an anti-iPhone rant. Perhaps next time you can post something more factual or rational.

    • Priit

      My rant had nothing to do with iPhone. It was against stupid Apple sale practices. But I understand that you spotted some non-facts in my rant. Care to be more specific?

  • yet another steve

    @pritt

    This thread was about Nokia. It's not like there is a shortage of blogs and threads in this world where you anti-Apple rant would be on topic.

    Nokia's continued volumes are an interesting topic, poorly covered, and I actually drilled down into the comments because of that. Right or wrong, factual or not, you're a troll in this thread… waaaay off topic.

    • Priit

      Obvously you cant read, you cannot even write my name correctly.

      This post is about wondering why Nokia sells so well, Horace expresses an opinion that this is due to good distribution of unlocked phones. My comment (rant if you like) is all about supporting Horace's opinion. I too wonder how is Nokia selling so well and I have first hand experience of lousy Apple distribution.

  • yet another steve

    Attempting to be on topic: While Nokia has a well functioning distribution machine, is it making them any money? Or have they evolved into the equivalent of the US auto makers selling at deep discounts to rental companies just to keep the factories running.

    I also think "smartphone" has to be bifurcated to "app phone" and "web phone." And by "app phone" I don't mean that it can run apps, I mean that it has a vibrant ecosystem. Vibrant ecosystems create something mobile has never had before–switching costs.

    Does anyone buy a Nokia because of their investment in the Nokia ecosystem?

    • http://www.asymco.com asymco

      The distribution machine is making money, although far less than it used to.
      How much is detailed here:
      http://www.asymco.com/2010/08/17/androids-pursuit

      Here's a gem of a data point regarding the bifurcation of smartphones into "app phones" and "web phones":

      My estimate is that a significant portion of Nokia's smartphones are sold to users who do not have data plans. Could a phone that's used only for voice and SMS (and photos) really be classified as a smartphone?

      • Knijert

        In essence yes, in use probably not.

        Is a PC that is used only as a coaster still a PC?
        Is an automobile that never sees the motorway, but always stays on the same local roads, because its 87-year old owner doesn't drive any further than that still a car?

        In my opinion it's a matter of how you want to see things.

  • anonymous

    It remains a mystery to me how Google was able to turn on a dime from copying RIM and come out with a credible iOS alternative by copying iPhone OS, but Nokia somehow can't. I mean all Google had done is slapped a mobile JVM clone on a linux kernel. Even Microsoft is turning on a dime (by MS standards) and is about to ship what looks like a credible knock off. But Nokia shows no sign of doing so. The "channels mislead us" is a good explanation as to why Nokia didn't invent the "iPhone), but now that the format is clear to see/copy, one would think they should be able to copy very quickly.

    Any thoughts?

    • http://www.asymco.com asymco

      Google responded to iPhone much more rapidly because they had a very lightweight development process and did not have much code to write. First, they used open source for much of the OS, second they used Java APIs (with workaround to avoid infringements of patents–we'll see how successfully).

      Microsoft and Nokia/Symbian had huge legacies of code. Old, crufty code that hit the wall long ago. Organizational inertia kept both from copying rapidly. Microsoft had to abandon most of the WM code base and Nokia is facing the problem of dumping Symbian. Here again, the fact that Symbian has such market share keeps the company from doing the right thing and putting all weight behind MeeGo. Microsoft actually was blessed by having massive share loss due to exposure to iPhone in the US. That allowed product teams to finally veto the marketing teams in architectural review sessions.

      Of course, these issues of inertia can be short-circuited by strong leadership–a decisive blow against internal innovation antibodies. I have not seen symptoms of strong leadership in these companies.

  • Priit

    @ RattyUK,
    too deep loevels, must answer here.

    I don't think that grey import suits Apple well, especially concerning the iPhone. First there's problems with warranty and service and second, prices are too high. Those people who buy them are mainly wealhty early adopters and they have also bog mouths. So the opinion on the street here is that iPhone is a bag of hurt with long and bad contracts. The opinion is that only stupid ones sign those contracts. And this tarnishes Apples brand. Btw I have actually seen more original iPhones than 3G(S) :-)

    Also I remember reading that half of original iPhones was exported. Half! None of them cannot be serviced officially. Talking about iPad I think that the best solution distribution-wise would be roll out them online globally, with global warranty. Because, if judging by the original iPhone, the shortage in the US was artificial, not real.

    • RattyUK

      "I don’t think that grey import suits Apple well"
      It's not supposed to. That's why it is a grey import… You haven't said where you are actually from. Apple have no control over them so it can hardly be blamed for them.

      "Talking about iPad I think that the best solution distribution-wise would be roll out them online globally, with global warranty. Because, if judging by the original iPhone, the shortage in the US was artificial, not real."
      Oh conspiracy theories abound! Look Apple have rolled out the iPad to the places they can service in the order they can service them. Artificial shortages is a myth. How many other companies who released a phone this year or a tablet this year managed to ramp up production as quickly as Apple have managed?

      You may think that Apple have managed distribution badly but honestly you are completely misreading what is happening and painting the whole thing with your ideas.

  • C

    @Priit
    1) you're talking nonsense. Possibly English isn't your first language, but it would still help if you were to explain where you are and what you have observed directly, and built an argument in a logical, step-by-step fashion rather than writing whatever appears in your forebrain.

    2) you're clearly innocent of everything involved in being a very large company trying to organise manufacture, distribution and servicing of a consumer item such as a smartphone or tablet. You might see if you could learn something on the topic (there's a whole web with management tutorials and case studies out there) instead of waffling on.

    3) saying things like "I remember reading that.." really doesn't cut it when you're posting on the web and a search engine is a new browser tab or window away where you could find a link to your evidence (such as it might be).

  • Carniphage

    Apple have disrupted the structure of this market.

    It’s no longer driven by what carriers want. It is driven by what consumers want. Consumer demand for Apple’s phone has driven profits way past Nokia in a few short years. Despite its small market share.

    The consumer does not care about carriers. They hold those brands largely in contempt. They just hate some less than others. And if Nokia are indeed tied to the demands of carriers, then instead of avoiding the icebergs they are tethering their ship to them.

    Plotting lines on a graph does indeed reveal increasing sales of so-called smartphones for Nokia. But these devices are not the ones that matter. It is only the N-Series devices that are a competitor for iPhone – and N-Series sales are declining as rapidly as Nokia’s profits.

    This is not a co-incidence. Only the N-Series class of devices are really capable of delivering substantial profits.

    So while extrapolating lines on these graphs will tell you that in 18 months time Nokia will be selling even more smartphones.

    But those same extrapolations also say that Nokia will be trading at a loss.

    C.

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