In the last quarter Nokia sold 28.3 million Symbian phones. The average selling price was €156 or approximately $210. That price was down 17% year-on-year.
According to the company,
The 17% year-on-year decline in our converged mobile devices ASPs was mainly driven by general price erosion and an increase in the proportion of lower-priced converged mobile devices sales.
ASP erosion has been a fact of life across all of Nokia’s products for quite some time, checked only by the increasing mix of smartphones. However the smartphones it sells have been consistently positioned for lower price points. This is consistent with Nokia’s long-term goal of serving “billions” of users.
The trouble with the new strategy is that the Windows Phone product lines currently in the market are not likely to be priced in the $200 range. The reason is that the minimum specifications for Windows Phone 7 are:
- Capacitive, 4-point multi-touch screen with WVGA (480×800) resolution
- 1 GHz ARM v7 “Cortex/Scorpion” or better processor
- DirectX9 rendering-capable GPU
- 256 MB of RAM with at least 8 GB of Flash memory
- Accelerometer with compass, ambient light sensor, proximity sensor and Assisted GPS
- 5-megapixel camera with an LED flash
These don’t add up to a product that can be sold profitably at $200. The bill of materials is likely to be in that range (and one has to add $15 for Microsoft).
So there are two possible implications for Nokia’s new smartphone strategy.
- Windows Phone will be ported to lower spec/cost hardware to allow the traditional Nokian market growth model to continue and perhaps combat Android proliferation
- Nokia’s smartphone portfolio will consist of high-priced products, and exclude mid-to-low price products.
Option 1 is difficult to imagine. The user experience that Microsoft is putting forward as its differentiation depends on significant hardware which is unlikely to become very cheap very soon. It is an interesting exercise to think through however. What would we have to believe for this option to become real?
Option 2 is more likely as Nokia conforms to this a new definition of smartphone as “high-end” only. This seems to be the default option given what is visible to observers today.
If Option 2 is in fact the outcome of the new strategy, then it leaves Nokia very vulnerable to a low-end disruption (after it’s succumbed to a new market disruption.) The $50 smartphone will be reality this year.
Option 2 also most certainly guarantees that Nokia’s current market share of 30% in smartphones is likely to be lost and never regained.
Some might argue that’s no great loss. After all, Apple does very well with low share and high prices. However, Nokia is almost religious about market share. The reason being that scale offers significant purchasing power and logistical leverage. It sustains a cost structure, distribution network and a business model that is central to the company’s core competency. It’s also presumably the reason Microsoft partnered with Nokia in the first place: volumes and wide distribution.
So we’re back to the old question: how does the new deal lead to a thriving ecosystem? Does it depend on vendors other than Nokia? If so how does Nokia benefit from the sale of Samsung phones?