Since smartphones are used like computers, I do not think MP3 players are a natural analogy. A better analogy is netbooks, which are becoming dominated by Windows/x86, though Linux does have some market share, too. There are no premium-priced products in the netbook segment. One possible future of smartphones is Windows/Linux/x86. The iPhone would become a low-volume product like the Mac is in the PC world.

I was visiting Nokia HQ several years ago, and in the lobby was a brochure outlining their aspirations – to their credit, Nokia had outlined a “stretch goal” of being one of the most loved brands in the world. Clearly, they’ve fallen short of that in the U.S. – in contrast, owners of Apple products are typically effusive and do use terms reflecting extraordinary loyalty, including “love.”

The key distinction between Apple and other OEMs is that Apple has recognized the importance of innovating product platforms – spanning devices, apps, the app store, etc. By thinking more holistically, Apple has removed many (but not all) of the barriers that detract from end-users’ experience, something Nokia and competitors have not done successfully. For a detailed graphic that nicely illustrates components of Apple’s iTunes platform, see Figure 2 in Fraser (2007), The Practice of Breakthrough Strategies by Design (download at http://www.rotman.utoronto.ca/facbios/viewFac.asp?facultyID=heather.fraser).

Phil Hendrix, PhD
immr

the Nokia stock is down for two reasons:

1. Apple, HTC and other companies pose hard competition in the smartphone market. Apple’s strength is in its great brand and an innovative product, the iPhone.

2. Samsung and LG have advanced in mid-priced phones, due to their speedy development process, the strength of their consumer brands, and the weakness of the Korean won.

My posting was about smartphone markets in general. If we think of the PC market as a precursor, in the long run there is no room for high-premium products like the iPhone or the BlackBerry.

Personally I am not a fan of the restrictive iPhone and HTC android phones (locked to carriers, locked to app stores). Hope nokia can build some great smartphones and sells them at a lower margin so that they need not be subsidized by carriers…

Personally, regarding features, I’d say most handset makers have ticked all the buzzwords, probably several times over. That’s irrelevant: somehow Apple made it happen and they and Google are now leading the charge. My guess is the reason for this is the incumbents have been mired in the telco mindset, meaning slow and expensive and a path to market packed with gate keepers. Net result: unfriendly, unexciting. So far we have had a backwater, but, as you note regarding PCs, wireless is now moving into a very differently structured market. This will IMO have big consequences for the current wireless companies, vendors as well as operators.

Basically, that’s the challenge to the market leader that the stock market has been pricing. Nokia is considered a next-gen follower. Let’s see if they can swing back.

I would instead ask the question why do you expect Apple and RIM to be able to keep their high margins in smartphones, when Nokia, Samsung, and HTC are introducing similar, or even better, phones?

Apple was able to cash in on the innovative design of iPhone. But now there are similar phones coming from all the major cell phone players. Why would a consumer pay a premium price for an iPhone, and in addition, be bound to a certain operator for 2 years?

RIM, in turn, seems to be charging money from subscriptions. Since one can send/receive email with any phone that can connect to the Internet, why would people pay for the subscription that RIM sells? In Europe, there is no company like RIM, and no one wants to pay extra to be able to send emails.

If we look at the PC market as a comparison, we see that it is the processor company Intel and the software company Microsoft that make most of the profit from the PC market. Apple may make some profit from their fashionable Macs. But there is no parallel for iPhone or Blackberry in the PC market. No one is willing to pay a premium price for a PC. The PC market is a mass market which has one standardized OS, Windows, and one eminent hardware manufacturer, Intel. Why would the phone market be any different that the PC market in the long run?

The claim that Nokia is not Internet-aware is absurd in the light that Nokia has had the Communicator line of Internet-oriented phones for over a decade. And I have been surfing the web with my Nokia 6600 and N73 phones for 5 years.

Concerning applications and application stores, Nokia phones have had an application market for many years. One could buy applications to Nokia 6600. The main problem in the application market has been that it is hard to invent applications that people really need and are willing to use in their cell phone besides the standard email programs and GPS navigation programs. You are not able to sell the Microsoft Office suite to a smartphone owner, for the obvious reason. The PC is the tool that people use at work.

The central problem of the new era is the appstore, in particular its stickiness, both for developers and consumers — all of a sudden, switching brands becomes such a chore. Apple is in the clear lead, but hardly has the perfect platform for selling apps: the appstore is cluttered and it’s difficult to get any visibility, there is rampant piracy of apps, and the profits clearly seem to go to Apple, not the developers. On the other hand, it’s actually an attractive, uniform platform for creating and selling apps. In comparison, Google downplays the appstore concept, which I guess means their vision is ultimately client-side software as loss leaders that connect to various web services, i.e., the way software now works on the PC and pretty comfortable to Google.

A client-oriented competitor, such as Nokia or other handset manufacturers, could in principle take the best parts of Apple’s offering and plug the various holes: provide a corresponding uniform platform but make piracy harder, have better commercial terms for third-party developers, and provide a better organized appstore. (Why not partner with Amazon?) Some big questions: Is Nokia (or other legacy handset manufacturers) capable of sustaining such a vision? Given the horrible Symbian experiences, will they be able to attract modern developers? And, of course, what role will the dark horse, wireless operators, play in all this?

Nokia needs to change but they have room to manuveur.

But will Nokia have the courage to focus laser-like on this emerging market, and forget the smartphone market. I doubt it. They will probably muddle along in both watering down both efforts.