Categories

Nokia's Lumia brand strategy for the US

Last July I asked the question “How many Lumia phones were shipped in the US?

My answer was 630k through the first half of this year.

I revisit this question following Nokia’s latest quarterly report.

As a quick review, Nokia reported the following performance for its mobile phones operations:

 

The most worrying thing of all however is that Nokia’s smartphone performance has collapsed. With only 6.3 million units shipped, the company may be the worst performer among eight competitors I track. They were below RIM’s shipment total.

The value of 6.3 represents only 7.6% of their overall phone shipments.

As the graph above shows, Nokia is going in the wrong direction with respect to moving to a smartphone portfolio.[1]

Of the total 6.3 million smartphones (aka smart devices, as per Nokia’s reporting nomenclature) 2.9 million were Lumia Windows Phone units.

Using information about average selling prices and total volumes into North America, I was able to estimate that there were about 180,000 units sold into North America during the last quarter.

Since launch, my estimate is that Lumia has sold 810k units in the North American market.

This cannot be seen as a good performance. There are mitigating factors such as the lack of upgradeability to Windows Phone 8 which probably deflated demand[2]. However, it’s a poignant observation that during the last quarter the US reached 50% smartphone penetration by users. As traction is still absent from both Nokia and Microsoft in the US market, we are back to the question of how to compete.

As the market in the US transitions from competition against non-consumption to competition among rival platforms, the Lumia brand is being forced into targeting smartphone “switchers” rather than smartphone “adopters”. The switching option is expensive, requiring aggressive advertising (see Samsung Electronics’ $11 billion ad budget).

There’s only one source of cash for that sort of strategy.

Notes:

  1. The caveat is that they market some of the Series 40 phones are “smartphones” on the basis of having “smartphone-equivalent” performance. However, smartphone equivalency is and has been purely subjective. On that basis there were many times in the last decade and a half that we could have counted Java-based or BREW-based or i-Mode-based phones “smartphone-like”. Smartphone has been defined on the basis of running an operating system with native APIs for developers.
  2. I imagine that the upgrade path could have been known to Nokia, AT&T and Microsoft nine months ago when the Lumia was unveiled for the US by the three CEOs and therefore expectations could have been modulated accordingly.
  • http://www.isophist.com/ Emilio Orione

    I think that the upgrade path was known nine months ago when Lumia was unveiled too.
    Question is: 9 months ago they knew and they were developing the windows phone 8 alternative that will ship in this quarter, they accepted to sell a not upgradable product, that’s OK, they obviously thought to have a better success but it didn’t, so why announce that Lumia wan’t be upgradable months before its end?
    They could say nothing, make the new model, start selling it and then announce old model wouldn’t be upgradable. I don’t see a great difference between the first months of sales in which they already knew that the phone they were selling was not upgradable and selling it for the whole period without informing it want be upgradeable.
    Every Android phone is sold without upgradeability certified, even worst most of them are said to be upgradable and then they won’t. New google’s motorola phones are not upgradeable too.
    No ethic is in question, that is what happen in commerce, you like it you buy it and what happen next does not have to bother you (except you are apple but that seem to be a unique position, even if I hope time will change that).
    So what stopped Nokia from being brutal? They already announced symbian’s end an year before its dismissing with catastrophic results and then they did it again with Lumia.
    What’s the strategy? Why search Osbourne effects with this perseverance?
    Where they just seeking a justification for awful sales?

  • gprovida

    It would be interesting to see ZTE and Huawei smartphone numbers in the future. Regarding Nokia in US, as I recall, they have never had much presence in the US and so small number of sales may more represent their distribution challenge in the US in general.

  • obarthelemy

    What was Nokia’s share of the US smartphone market before ?

    • http://www.asymco.com Horace Dediu

      In the first quarter of 2006 when Nokia had global share of 35% they were selling 8.4 million units in North America. Share in the US is not usually available as public data.

  • sfmitch

    Is the only source of cash for that sort of strategy………Microsoft?

  • http://www.hc-marketing.com/ David Pinto

    The question is: how much longer Nokia can support this situation? With no cash flow from the low end, any kind of strategy has no time and no money to be supported. Bad clouds in the sky!!

    • http://twitter.com/dkirkd david kirkdorffer

      By some people’s calculation, at current burn rate, they have about 2 years before the house collapses.

      • http://www.asymco.com Horace Dediu

        The trouble with this calculation is that financial distress leads to non-linear costs. The more trouble you are in the more trouble you get. There is a definite tipping point beyond which the slide becomes unstoppable. It’s very hard to predict and depends on many variables. Basically, Nokia cannot shrink its costs as fast as its sales are dropping and if sales don’t stabilize there is no hope for recovery.

  • Walt French

    Horace wrote, “There’s only one conceivable source of cash for that sort of strategy.”
    Fixed that for ya. Microsoft seems to be a bit too “patient” in its promotion of Windows8 (hoping to leverage their spending by letting people associate the brand with desktops, tablets and phones?) to rush out promotions that’d primarily benefit Nokia. Here in the Bay Area, the pursestrings have already been loosed; Surface ads were all over the SF Civic Center train station last night. There’s no reason they couldn’t have had a tie-in series for Win8 phones.

    To my eye, the straightforward “tiles” UI of Windows phones seem exactly designed to go after new-to-smartphone customers. Microsoft and Nokia have apparently screwed up massively by positioning them for Android and Apple users who want to come into the comfortable Microsoft fold. Not only does that not speak well to consumers (I don’t meet many who think of their Microsoft desktops as “comfortable,” but it does nothing to drive new customers to the carriers. The carriers would all be happy to step up feature phone customers to a pricier monthly plan, but for just a switch there’s no financial incentive.

    Ergo, instead of a major marketing campaign for Lumia — remember just a few months ago how the carriers were all pining for consumers’ “choice”? — you see Verizon announce that Verizon billing will be an option for the Google Play store. Nokia, never strong in the US, perhaps constrained by Microsoft’s insistence on high-end, flagship products, has fumbled their chance in the US. The fact that in Q3 Verizon sold more of its second-favorite (iPhone) than Nokia sold smartphones worldwide, tells us that this is not merely a US phenomenon.

    I wonder what Plan B looks like. I don’t think it will be pretty.

    • http://www.isophist.com/ Emilio Orione

      “promotions that’d primarily benefit Nokia”
      I think Microsoft is at a point where it is ready to benefit everybody or do anything to become relevant in mobile selling something. The confusion they are deliberating putting on customer about win rt (http://www.theverge.com/2012/10/17/3514556/windows-8-vs-windows-rt-surface-confused-microsoft-store-employees) says it all, they are desperately trying to sell at any cost.
      If making Nokia sell some Lumia is the road they will take it.

      “Microsoft and Nokia have apparently screwed up massively by positioning them for Android and Apple users who want to come into the comfortable Microsoft fold”
      I think Horace said that they are now constrained to target existing smartphone users because non smartphone users are ending and they failed to get any traction in the past market where new smartphone users where available.
      Windows phone 8 is a new o.s. launched in a new market where you do not run against non consumption anymore, you compete with other leading ecosystems and starting up is harder.
      With Lumia they choose to compete with a flagship product and not trying to enter from the low end, but nevertheless they where addressing new smartphone users.

      • http://www.asymco.com Horace Dediu

        To your point about trying everything, being in a Ballmer-de la Vega sandwich is not exclusive to Nokia.

      • Benjamin Alexander

        This photo just creeps me out.

      • http://twitter.com/zzeed Ahmad Zidni Mat

        Indeed it does.

      • Walt French

        @Emilio Orione wrote, “Windows phone 8… launched in a new market where you do not run against non consumption anymore…”

        I couldn’t quickly lay hands on a recent chart of smartphone brand as % of all phone users, but my recollection is that smartphone usage is still growing rapidly at feature phones’ expense. That’s also Nokia’s traditionally strongest market in terms of brand identification, etc. … what could have been Nokia’s best market to upsell.

        Trouble is, increasingly many of those new smartphone users are lower-cost Android smartphones—more features for the same cost. How would a person who’s unfamiliar with the fine points of smartphones be able to say why a $600 Lumia is so much better a device for her needs than a $200 Huawei or LG?

        We’ve seen surveys of buyer satisfaction and “would buy again” figures, but dislodging even a moderately-satisfied user is hard—there has to be some good reason, such as EVERYBODY is doing it, or a trusted spokesperson tells you to, or you see some unique features that meet your needs. Microsoft, by aiming the WP at the 2010 market, is positioning itself to be disrupted by high-resolution phones, by low-cost phones, by smart-talking phones, and any other nifty innovation that comes along; disrupted even before becoming an incumbent.

    • Tatil_S

      WP8 is not as far along the development cycle as Win8, so I suspect MS wants to wait until WP8 is better refined before starting its advertising push. With two out of three words in its name same as Win8, WP8 advertising may get lost in Win8 hoopla, too. I think it is wise for MS to hold off until early next year.

      • Walt French

        Normally, I’d agree with you. If, however, doing so presents an existential threat to Nokia, they will lose their best ally.

        The best problem Nokia could have right now is to worry about having a few million Lumia customers who need to be upgraded to WP8.0.1.

      • Tatil_S

        If the customers stand by Nokia through the buggy early days and lack of apps that can take advantage of WP8 only features, sure, no biggie. However, what happens if a substantial number of customers try the phones and return them after a week?

      • Carpenter

        I think they still can wait for optimal moment for it. Nokia is facing very difficult situation but they still seem to have enough cash to run their current operation long enough for WP8. One would presume that MS and Nokia are coordinating their marketing efforts and that they already have agreed the best timing.

  • http://claes.com @claes

    The source “X” in the Oliver Stones excellent movie about JFK asks attorney Jim Garrisson: “Why? Well that’s the real question, isn’t it? Why? The how and the who is just scenery for the public.”

    When everybody tries to untangle the how and the who, I’m more curious about “why”. Stephen Elop is not an evil moron, nor is he without experience and skills.

    Windows 8 will be a UX/UI experiment that Steve Ballmer for some reason has decided “bet the company” on. Not only Microsoft but also a lot of their accomplices, busy producing ridiculous hardware at loss, trying to get some attention away from Apple.

    In the massive rollout of Windows 8 in the next couple of weeks, how legitimate would the mobile leg of the Windows 8 strategy have been without Nokia?

    Can you see Steve Ballmer on stage “Eh, um, maybe Samsung and maybe LG have maybe promised to maybe release a phone or two maybe with Windows Phone 8…”?

    I’m convinced that the takeover of Nokia is part of the plan to ensure Windows 8 will be a success.

    It’s probably worth a billion AND destroying Nokia in the process to be able to present a full Windows 8 strategy, including phones from one of the best known brands in the world.

    Sorry but Nokia is a decoy, a sacrifice.

  • BoydWaters

    The implosion of Nokia makes me angry.

    While I don’t have a pair of Nokia rain-boots, I owned a Nokia monitor long before they had any mobile-phone presence in North America. Former CEO Jorma Ollila is a fellow alumnus, although I’ve never met him.

    The Qt engineer-“trolls” of Oslo deserved better. Nokia deserves better.

  • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

    How much of Lumia brand strategy is nokia’s? How easily is to distinguish Lumia’s marketing message from the way Microsoft advertises Windows 8, the unifier of everything and anything?

    Microsoft’marketing is going into the opposite direction compared to Apple, emphasising the ties to the PC. When Apple announced iOS 5, “cutting the cord” received standing ovations from developers. Very few people will want to be tied to their PCs or laptops. Consumers want a truly mobile and portable device, not the “companion to PC”.

    • http://www.asymco.com Horace Dediu

      Success has many fathers. Failure is an orphan. This failure of Windows Phone is rooted in many things, just like success is often rooted in many things. Certainly Microsoft is one of the causes, but not the only one.

      • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

        I agree completely. My comment was only an example of the difficulties faced by Nokia in sending a coherent marketing message regarding Lumia brand. It is certainly not the only factor.

        and apologies for the double posting.

  • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

    How much of Lumia brand strategy is Nokia’s? How easy is it to distinguish Lumia’s marketing message from the Windows 8 marketing?

    One example of a possible clash of messages: Microsoft’s marketing is going into the opposite direction when compared to Apple, emphasising the ties with the PC. When Apple announced that it is “cutting the cord” in iOS 5 it received standing ovations from developers. I think that People want a truly mobile and portable mobile computing device, not a “companion to PC”.

  • Lars

    Lumia 920 is the second generation of the brand and its NR1 allready. Iphone 5 looks like its 1 year behind in everything compared to the 920. The future is looking so good and thats why i think nokia will be a great investment for future

    • Just_Iain

      Lars,
      The question for user’s isn’t always how good it is but will it stay relevent for the next several years. The fact that System 7.0 users were abandoned (I beleive) then shortly thereafter 7.5 users abandoned does not speak well for customer relations.

  • mrad

    Nokia will not find success with Windows Phone because there is no successful Windows Phone strategy. The absolute failure of Windows Mobile/Phone as a brand and as a platform has been incontrivertably proven at least a half dozen ways by now. Even at this late stage Nokia is better off dumping Windows phone and reverting back to thier previous incremental strategy with Meego, albeit with lower expectations, or jumping to Android.
    If they continue, they will share same fate as fellow Microsoft partners Palm and Sendo: utter extinction. At that point, Microsoft, if they have the cash, will devour yet another phone maker and steer them into the rocky shores of “Windows (insert trendy mobile-sounding name here)”.

  • http://twitter.com/zzeed Ahmad Zidni Mat

    Nokia should seriously talk to Rovio about future plans…

    • http://alexandersmith.co/ Benjamin Alexander

      Rovio needs more space, and the Nokia House is very nice.