It’s Time to Jump!

Nokia’s desperate move to regain smartphone market share just won’t work, but it may delay the inevitable for a while.

Finnish company Nokia, the once dominant smartphone manufacturer, is struggling badly. In the third quarter it shipped just 6.3M units, giving it a 4% market share, and it has now slipped outside the top three manufacturers for the first time. In its defence they have some pretty amazing competition out there: Samsung has done pretty well of late, now with a market share of 35%, up from 23% in the same period last year; then there is the ubiquitous Apple – I went into a mall in Austin, Texas, yesterday and whilst most of the vast shopping space was pretty empty it would have taken an Apple Genius to squeeze another person into the Apple store; and if that wasn’t enough, it also has Google’s Android smartphone to contend with!

AT&T have just announced it will sell Nokia’s new Lumia 920 smartphone for $99.99 on a two year contract, somewhat below what it was selling for on Best Buy’s site a month ago. You will be able to buy a less advanced Lumia 820 for just $49.99 for the same contract period. The most affordable Apple iPhone5 is priced at $199.99 for a two year deal with a 4G enabled Samsung Galaxy S111 selling for $149.99. While AT&T may have subsidised the handset price somewhat Nokia is relying an awful lot on the size of the price sensitive segment to rebuild its market share and credibility in the smartphone space: sadly, for Nokia, it just won’t work.

While price and some of the clever technology, like wireless charging, may attract a bunch of folk to try the new Nokia the other dominant brands have so much market inertia at the moment that it is hard to see how this is going to achieve much for Nokia as style, fashion, and peer pressure, all driven by market momentum to a significant extent, are far more important to most than cost alone.

Apart from my inherent scepticism of such a strong reliance on price, in building market share and changing Nokia’s fortunes in smartphones, past experience of collaboration between the two companies is not too encouraging.  Since its launch in March sales of the previous Lumia handset have not been great, with only 300,000 units sold in the last quarter.

Nokia is in an impossible position and I personally can’t see how it expects to do much more than stem the tide for a while in the smartphone space with this new Lumia product launch. Its CEO once wrote an open memo that said that this was no longer a competition between products but between competing ecosystems of manufacturers, developers and application providers and Nokia has well and truly lost that battle. He famously put all his smartphone ecosystem hopes on Microsoft’s unproven mobile operating system.

Nokia is fighting on other fronts though, with 29% of the mobile handset market globally, but that is also under treat. Nokia’s crown jewels are no longer its smartphones, or its handsets, but it owns a valuable list of 30,000 patents, a profitable mapping business, and its joint venture with Siemens, Nokia Siemens Networks, is doing rather well too.

That famous CEO memo used the metaphor of standing on a burning oil platform for how he found Nokia when he took up his job a couple of years ago now. He contemplated a jump into icy water and the perils that entails as the inevitable, and uncertain, future for the business. Well, it is slowly coming to pass and my guess is that Nokia will look a very different business after Lumia fails to make a dent in group performance and it eventually capitulates in the smartphone space and maybe even in handsets too.

If we take value creation as a yardstick then Nokia hasn’t been in the smartphone business for some time, in anything other than name, and soon it will have to stop pretending that it is. It really is time to jump into the unknown for this famously resilient company; perhaps it will be picked up out of the sea refreshed and ready to move forward once again, but it isn’t going to be a very pleasant experience.

Mark

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