Nokia is in the enviable position of having a market share larger than its next three competitors combined. Despite this commanding lead, the handset manufacturer continues to look at ways to reinvigorate itself and continue to stay ahead of the industry’s development curve. Comm. speaks to Mark Selby, Nokia’s vice president of Industry Collaboration about how the company is adding value and remaining relevant in a fast evolving marketplace.
Nokia CEO Kallasvuo is keen to see the company take more risks as it bridges the convergence between mobile communications and the Internet. New products are expected to start shipping in Q3.
In a rare misstep from Nokia, the Finnish handset manufacturer missed its earnings expectations for Q108 to end-March, attributing a slowdown in the global handset market to its failure to reach its forecasted numbers.
Nokia stated the market will shrink in € terms this year for the first time, a forecast that quickly led to a 14 per cent plunge in the company’s share price the day the results and forecast were publicised.
“Nokia expects the mobile device market to decline in value in euro terms in 2008, compared to 2007,” Nokia stated in its earnings release. “The change from our previous estimate of value growth for this market primarily reflects the negative impact of the recently weakened US dollar, the general economic slowdown in the US, and possibly going forward some economic slowdown in Europe.”
The market’s negative reaction on the day Nokia issued this forecast came despite the company having shipped more than 115.5 million handsets in the three months to end-March, and recording a rise in profit to €1.22 billion (US$1.94bn).
“I do think the market’s reaction to Nokia’s forecasts was harsh,” says Carolina Milanesi, research director at Gartner. “It is my belief that Nokia will maintain its strong market position throughout the year and will continue to be a profitable, successful company.”
Mark Selby, who was recently appointed to a position that makes him very much the mouthpiece for Nokia’s strategy, as VP of Industry Collaborations, is unsurprisingly in agreement with the Gartner analyst. “We have a strong business and continue to innovate and lead the market,” Selby states. “We are our own worse critic, and part of the culture at Nokia is to still look at ways to improve even when things are already being done well.”
A case-in-point of this ongoing search for improvement is the restructuring programme that occurred at Nokia with effect from January 1, 2008. The reorganisation is aimed at taking advantage of new opportunities in the convergence of mobile communications and Internet technologies.
As of the start of the year, Nokia was reordered into three units: devices – charged with manufacturing of handsets; services and software – which will offer consumer Internet services and products for the enterprise market; and markets – which will manage the company’s supply chain, sales and marketing.
Nokia expects the new reorganisation to better manage its range of devices, speed up bringing new products to market, and increase marketing efficiency.
“The convergence of the mobile communications and Internet industries is opening up new growth opportunities for us, both in the devices business as well as in consumer Internet services and enterprise solutions,” Nokia CEO, Olli-Pekka Kallasvuo said. “We believe this new organisation can capitalise on these opportunities while allowing us to increase the effectiveness of our investments and the efficiency of our operations.”
Kai Oistamo, chief of Nokia’s mobile phones business group heads the devices unit, while the services and software division is led by Niklas Savander. Anssi Vanjoki, who was previously in charge of the multimedia business, now leads the markets division.
“The belief is to restructure the company whether things are going well or badly,” comments Selby. “And as of January 1, we had 60,000 staff-plus at Nokia all changing their jobs. That is to say, where they sat within the organisation changed for each of them.”
The area of collaboration is becoming an increasingly important one to Nokia as it actively pursues the convergence between mobile communications and the Internet. Such a move takes the manufacturer into unchartered territories, or at least areas in which it does not have historical competence; hence collaboration becomes a key consideration.
At the company’s annual product and strategy showcase last December, Nokia was adamant that multimedia content and the provision of online services lies at the heart of the company’s strategy going forward.
At the event, the handset manufacturer unveiled its ‘Nokia Comes With Music’ initiative, a programme that enables people to buy a Nokia device with a year of unlimited access to millions of tracks from a range of artists. Once the year is at its end, customers are able to keep all the music content they have downloaded. In December, Nokia already had a deal with Universal Music Group International in place, and said it was in discussion with other major international labels. Towards the end of April this year Nokia announced that Sony BMG Music Entertainment had officially joined Nokia Comes With Music.
Consumers will have a number of options for continuing to receive new music after their subscription is over: they will be able to continue to purchase additional tracks from the Nokia Music Store, or move on to a Nokia “unlimited access” subscription service to access new releases and catalogue tracks not downloaded during the initial year.
The music service is expected to launch in the second half of 2008 on a range of Nokia devices in selected markets.
“I believe this view of owning the customer is an outdated one,” suggests Selby, In everything we are trying to do, the point is not to try to control the customer; it is to give the customer what he wants, when he wants it and how he wants it.”
Market analysts tend to agree that Nokia is one of a few traditional telecommunications companies that is actively and successfully staking its claim to the modern interpretation of value and the serving of customer needs. Nokia’s Ovi content gateway is a prime example of this, and Ghassan Hasbani, vice president of Booz Allen Hamilton in the Middle East believes this is a compelling direction for the handset manufacturer to be going in.
“With the emergence of Web 2.0 players, the telecoms industry has to deal with them one way or another,” Hasbani advises. “Some network operators are turning into infrastructure providers and the value is being taken by new players. What Nokia is trying to do is the reinvention of vendor structure and the creation of value beyond the hardware it supplies,” he adds.
Indeed in his previous position as head of multimedia at Nokia, Vanjoki described the mobile screen as the “fourth screen”, with the third screen having been the personal computer; the second screen being the television set, and the first being the human eye. “Nokia has identified seven experience suites around which the company will be organised explained Vanjoki at the last Nokia World event in December. “These suites are games, music, video and television, contacts, maps, photos, and the Internet.”
The Finnish manufacturer has already embarked on a programme to build up competence in all of the above-mentioned areas, and as Vanjoki described it, Nokia will continue, “taking decisive steps throughout 2008”.
Telecom Italia, Telefonica Moviles and Vodafone are amongst the early adopting service providers that have identified the potential benefits of working with Nokia and partnering on its Ovi mobile services platform. It proves that the handset manufacturer’s vision to grab a larger slice of the mobile communication value chain is no longer seen as being overly threatening to mobile operators’ own value added aspirations.
“Ovi is your personal dashboard to life,” commented Vanjoki. “It is not a portal, it is a door to your digital life.” Internal beta testing of Ovi continues, with the view to it being rolled out commercially during 2008. According to Selby things are well on track and he believes applications around mapping and navigation have already started to prove their worth.
“We don’t view the developments taking place as Web 2.0. We view them as Web Next Generation, because the parameters are changing constantly,” Selby explains.
Nokia expects to have some game-changing devices shipping in the third quarter of the year, and like senior executives before him, Selby does not view products like the Apple iPhone as competitive threats significant enough to make Nokia alter its own course. “We were thrilled when Apple announced the iPhone because it helped raise awareness of the world that multimedia devices could open subscribers up to,” suggests Selby. “Now if you look at the number of iPhones Apple is looking to ship, and you compare that to our shipment volumes, you see there are different objectives.”
Looking ahead to the rest of the year, Selby says the market can expect a continued roll out of services, with mapping placing a central role in that. Contextualisation is an important prong for Nokia’s services to be developed along, as the company continues to look to penetrate all levels of handset price points.
It is clear that last year, one which Nokia CEO Kallasvuo described as “amazing”, will be a hard one to emulate given the tightening of the telecoms market as well as the general state of the global economy. Despite the success and dominant market position, Kallasvuo continues to drive the business to produce more and do even better.
He still views Nokia as very much a devise manufacturing business and credits the breadth of the company’s handset portfolio for its impressive 40 per cent market share globally. Selby reckons it is hard to remain at the top without shipping around 50 different models of mobile devices a year.
“We predict there will be 300 million devices that are fully Internet-capable by 2010,” Kallasvuo stated at the Nokia World event. “You can expect to see a Nokia that takes more risks in order to shape the future of communications,” he added. Thus going back to the issue of the change in organisational structure that came into force at the beginning of the year, its main aim is to give Nokia the continued impetus to drive innovation and create a strong value proposition around its products and services.
Kallasvuo has also spoken out about improving Nokia’s customer retention rates, which he believes are below what they ought to be, and as such is working to improve them. The definition of customer retention is the percentage of repeat purchasers (in last 12 months) whose current brand of handset is the same as the brand of their previous device.
Nokia already leads in retention rates amongst mobile handset manufacturers, with a 53 per cent retention rate compared to 29 per cent for Motorola, 30 per cent for Samsung, 32 percent for Sony Ericsson and 29 per cent for LG, according to Nokia estimates. “Our goal is to improve retention rates from over 50 per cent to over 60 per cent,” Kallasvuo stated.
“Historically we did not pay as much attention to retention as we could have. The levels we are currently at are not where we should be, and this has led to the start of an incentivising programme for retention.”
Having already made significant gains in its market share by device volume, Nokia is now turning its efforts to improving its market share by value. While the company’s volume share stood at just under 40 per cent at the end of September 2007, its value share was closer to 33 per cent at that time.
Given the success Nokia has been enjoying together with the evolution of the mobile telecoms space to include players with a background in the Internet world, the competitive threat is growing all the time, and Nokia remains steadfast in its belief that continuing to follow its own strategy is key to maintaining a long term future. Kallasvuo believes competitors can be divided into the older, more traditional types such as Alcatel-Lucent, Siemens and BenQ, while companies such as Research In Motion, Google and Apple symbolise the new breed of competitors.
“The new competitors do not apply the same business model as the old ones,” Kallasvuo commented. “We need to have a strategy against each of our competitors individually, and I don’t think one camp is more of a competitive threat than the other,” he added.
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