Three summits Nokia must climb to succeed

Nokia launched its anticipated Lumia 900 last week, to quite decent reviews (but thinner crowds than anticipated as seen below from the “line” at Bellevue Square’s Microsoft Store). Within hours Nokia also warned investors that its profits were suffering from a decrease in its core market – feature phones.

A week later it seems the Lumia 900 is doing well with some models running out of stock at AT&T stores and online. Without more actual sales data the question remains – can Nokia make it in this very competitive market, dominated by Apple and Samsung/Android?

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To get there, Nokia has 3 challenges to tackle:

1) It needs to rethink the business it is in and shift its portfolio to smartphones and super phones

2) It has to establish its brand in the US as leading, winning, “best in class” brand in Superphones, not just Smartphones.

3) It needs to accelerate a roll out of convincing and competitive portfolio of Superphones and Smartphones across all carriers

1) Shifting the business to Superphones and Smartpones.

Nokia made the (wrong) strategic bet to continue to invest in feature phones that had to date dominated the mobile handset sales volume world-wide. Nokia is finding out the hard way that while the market for entry-level phones remains substantial, the world has shifted its expectation of what a simple phone should be. Pull out a flip phone or keyboard slider out these days and people look at you like you just came out of a time capsule. The expectation world-wide is that simple phones should look and behave like what Apple, Samsung and others are advertising as “the phone to have” – touch screen bar phones with a nice display that can access the web and take pictures.

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It’s one thing for Nokia to milk a mature business with aggressive cost control and economies of scale. It is another to put all your eggs in the mature business (graph courtesy of asymco.com) and not aggressively invest in the rising star business (as Samsung did to its benefit). It is very disconcerting to see Nokia “skating to where the puck has been for a long time” as we exit Q1.2012, with a massive upgrade wave of handset to Smartphones and Superphones happening in the next 12-18 months. Can Nokia really turn the ship around in time to take advantage of this upgrade wave?

2) Nokia must brand and market itself as a “best-in-class” leader for what people really want
Nokia and Windows Phone are adopting a marketing strategy that is straight out of Microsoft (unsuccessful) strategy playbook (cf Zune, early Bing): if you can’t beat the leader (iPod, Google) in the market where they matter, aim for the “anti-matter” market (the people who don’t want an Apple product or who don’t want to search with Google, etc.).
Nokia aims to appeal to the masses of people that have not bought an iPhone and will upgrade to Smartphone with their next purchase. Great. But can they correlate “have not bought an iPhone” with “do not want an iPhone”? Unfortunately no. EVERYBODY wants an “iPhone”.
In classic technology adoption theory, the next wave of smartphone adopters wants what the early adopters have – an iPhone. Not everybody can afford an iPhone, and many want “an iPhone” that is different or made by someone else than Apple. But for the foreseeable future, the market is defined by the iPhone and “being an iPhone” is the starting point for any handset, the reference spec, the minimum bar. WIthout establishing a clear and compelling “why to buy instead of an iPhone” across a market leading audience, Nokia can’t win by defining itself just as “not what people want”. Nokia must define itself as something new, different and more valuable than the iPhone standard. So far Nokia and Windows Phone have not done that convincingly. They must give all of us reason to want a Nokia Windows Phone for being able to do all that an iPhone does, AND MORE.

3) A stronger portfolio of devices, coming faster to market.
The iPhone is coming to version 5 this fall. It’s now a 5 year old franchise. So is Android, which has blossomed into a market leader 3 years ago.Nokia and Windows Phone are 3-5 years late to the game. Nokia has only launched three Lumia phones in the US market to date – Lumia 610, Lumia 700 and Lumia 900
Nokia stated that it had sold 2 million Lumia phones in Q1 of 2012…when Apple sold an average of 18 million iPhones per quarter in their last fiscal year (and 37 million in the 1st quarter of FY2012) and Android estimated at about 3x that figure. Assuming a quarterly world-wide market of 115 million Smartphone units, Nokia captured about 2% only. Hardly the kind of volume necessary to become a player.
Nokia’s portfolio is much too thin and distribution is insufficient. As of April 2012, Nokia’s US offering includes two handsets, the Lumia 900 with AT&T and the Lumia 710 with T-Mobile. Nothing at Verizon or Sprint. Given the share of these carriers and the phone categories, Nokia is effectively competing in about 12% of the US market. Apple by comparison is competing in 45%+ of the total market.
To fight for relevancy, Nokia needs to have a portfolio of two to three well priced ($49, $99 & $199) and spec’ed (Superphones and Smartphones) handsets with at least three of the four main US carriers. We’re talking 9+ SKUs for the US, from the 2 SKUs currently in market.

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