According to reports earlier this week, Nokia is looking to capture a little of that old Apple magic, working closely in partnership with a small group of operators to add some “exclusivity” to the launch of its Windows Phone 8 (WP8) handsets.
Indeed, when Apple first launched the iPhone, it was only available through AT&T in the US, before exclusive deals were also inked with Orange in France, T-Mobile in Germany and O2 in the UK to add some European markets into the mix.
But there are a huge number of reasons why aping Apple is not the right thing for Nokia to do.
It is easy to forget that the launch of the iPhone was an unusual event. Apple had no pedigree in the mobile space, and was looking to upset long established business models with an unproven product.
The company had no experience of working with multiple operators worldwide to launch a device simultaneously, including the massive logistical challenges this provides.
And it did not have deep relationships with operators, which take time to build, so more tightly focusing its attention at least made sense initially.
Looking at the sales figures for the iPhone paints a clear picture, however. In a little over twelve months from launch to the release of the iPhone 3G – the period when availability was tightly controlled through four operators in four markets – Apple said it sold 6.12 million units.
In its first full quarter of global availability with multiple operators (although with continued exclusivity in the four original markets), it shipped 6.89 million devices. It would take Apple another year, and the launch of the iPhone 3GS, to surpass this quarterly record. And the company has continued to add additional operator partners in the interim.
Learning from experience
One of the widely perceived strengths of the Nokia of old was its relationships with operators – albeit not without some friction from time-to-time – and the robustness of its supply chain. This enabled it to – not that long ago – have a market share that was the envy of its rivals.
The suggestion now is that it will move away from this to replicate a business model that was the result of circumstance, and which in actual numbers terms did not deliver results when compared with the alternative.
In Nokia’s conference call last week, Stephen Elop, the company’s CEO, said: “Clearly what we believe is the pattern that we saw, for example, at AT&T, is one where with heavy degree of focus saying, ‘Here is the device. Here is the operator. Here are the stores. This is what we’re going after.’ That works far better than broadly going across Europe as we did when we initially launched the product.”
But in the second quarter of 2012, Nokia shifted just 600,000 devices in total in North America, flat when compared with the first three months of the year. Bearing in mind North America does not just include the US, that AT&T was not the only sales channel for Nokia devices in this region (indeed, T-Mobile USA also has a Lumia device in its range), and that the total also includes feature phones and Symbian devices, this seems an odd definition of success.
Of course, Nokia is likely to limit exclusivity with one operator for a defined period of time before it becomes more widely available. But with the launch of a new flagship device powered by a new operating system, the better option would be to go for as large a bang for its buck as it can get.
The signs for Noka, with regard to consumer demand for its Lumia devices, are not good. So unlike the launch of the iPhone, the company is unlikely to get customers queuing around the block in the best of circumstances.
Take, for example, its most recent results update.
While Elop said that demand for its Windows Phone smartphones have been “flat to up” in the weeks after Microsoft announced its next generation WP8 platform – which Nokia’s current portfolio will not support – he also admitted the company expects there to be “some impact” in the current quarter. Until WP8 devices reach the market, Nokia is left with a portfolio of legacy devices, with the promise of something better just around the corner.
In Q2, the company also recorded EUR220 million of “inventory-related allowances,” related to its component sourcing, of which the lion’s share was for its Lumia activities. This indicates that sales are coming in below the company’s own expectations, landing it with bills for parts which will not now be used in products.
And, perhaps most concerning, and despite the recent launch of the flagship Lumia 900 smartphone, average Lumia selling prices declined to EUR186 in the second quarter from EUR220 in the first. However much Nokia is spending on its marketing activities, either customers are purchasing lower value Lumia devices in preference to more expensive ones, or Nokia is cutting its prices to drive volumes – or a combination of both.
So far, Nokia’s Lumia line has done little to excite customers.
The decision, therefore, to limit the reach of its portfolio by partnering with specific operators, at the expense of a broad geographic and cross-operator availability, seems bold. Certainly many of the decision made by Elop recently have fallen into this “bold” category. But so far, there has been little in the way of results.
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