This is the second part of a two part blog on Apple reliving the mistakes that Nokia made 4-5 years back. Read Part I here.
Both Nokia (2007) and Apple (2012-13) were trying to time and control consumer preferences in terms of the features and the screen. Conversely, that was akin to letting the competition in thrugh the back door. Instead of creating the future by out-innovating on the feature roadmap – Both the companies were possibly trying to amass the cost benefits from standardized feature formats.
Tim Cook’s comment on this issue, “Our competitors have made some significant tradeoffs in many of these areas to ship a larger display. We would not ship a larger display iPhone while these tradeoffs exist. Some customers value large screen size. Others value other factors such as resolution, color quality, white balance, reflectivity, power consumption, compatibility of apps, and portability.”
The strongest parallel is how both companies started fighting the consumer preference for larger displays at the peak of their profitability… and then dug in as margins began eroding rapidly. Sample this: Phablets as a segment are already likely to make up more than 15% of smartphone market in 2013 – And Apple chooses to give this market a miss. At the peak of its prowess, Nokia executives talked about the performance trade-offs of big-screen phones: power consumption troubles plaguing big-screen phones; surveys showing that most consumers prefer smaller models. On and on and on, an endless stream of justifications and carefully constructed defenses, lecturing consumers about what they should want to buy. Do you see the pattern?
Apple already has a well learnt lesson – the iPad Mini which was sacrilegious in terms of Steve Jobs’ definition of a tablet is the one that is holding the fort for Apple against the medium/low cost Androids.
Secondly, Apple’s smartphone market shares now seem to be on the wane with Androids from Samsung doing the pincer attack – both from the top end and the economy smartphones. As smartphone penetration moves from early adopters to mass-market and laggard consumer segments, the smartphone as a product will be less dependent on technical superiority, and more dependent on reliability and value – and it is Apple’s market to loose. (The gainers will mostly be the ZTE, Huawei and Alcatels of the world). As reported by Juniper, Samsung’s smartphone volumes are 2X that of Apple’s. AllianceBernstein predicts that Apple’s market share in smart phones will fall to about 12% this quarter, compared to 23% in the same quarter of 2012. Further, the firm predicts that Apple’s market share may fall into single digits next quarter. IDC’s Q1 market shares also show Apple slowing down on its growth trajectory (YoY).
Apple needs to look at the next evolution of iPhone – the mid level low cost iPhone. The iPhone 5S is already confirmed to be only an incremental over the iPhone5 – and is not going to incite mass hysteria as iPhones normally have done. A low cost iPhone could also be critical for Apple especially because ABI estimates the low cost smartphone market will more than triple, in devices sold, between now and 2018 whereas the mid-range will grow at only (roughly) 50%.
For the present, Apple and Tim Cook look to be in a denial state – which is further going to bleed Apple. The high margin strategy is a great things for share holders – but then market presence and numbers is quite another thing. For the love of Apple, I hope it doesn’t going the Nokia way.
Addendum: Just read that Apple may finally be looking at iPhone low cost model and saw a couple of photos as well. Will this turn the tide or is the initiative lost already
Addendum 2: A further validation of loss of Apple’s grip in the smartphones segment is Apple’s declining profit share of the global smartphone industry. Between Q1,2012 and Q1, 2013, Apple’s profit shares of the global smartphone industry declined from 74% to 57%.
This is the first of a two part blog on Apple reliving the mistakes that Nokia made 4-5 years back.
In 2007, Nokia was the biggest thing in the mobile phone market. It held 60% of the global smartphone market and more than 40% of the overall handset market. Its handset operating margins briefly topped 25%, something that was thought to be impossible in the phone business. In the summer of 2007, Nokia released the N95 – a 2.4” screen dual slider phone with a 5MP camera which in 2007 was a package that couldnot be bettered. N95 went on to create a roar in the markets – but imperceptibly Nokia’s slide was beginning. 3 months after Nokia launched N95, Apple launched iPhone and the rest is history.
The initial iPhone and even the early Samsung phones played on the large screen format – 3.2” – 3.5” and the likes. Nokia’s response to the first smartphones, was a bettered N95 – the N96 – crammed with more features which failed to tickle the market. Touch was catching on – and Nokia was lethargic in its reaction. In an age when customers were falling head over heals in love with the iPhone, Nokia was lamenting the iPhone on subjects such as 2MP Camera and lack of Bluetooth and loaded up the 2.6″ N96 to fightback (in vain). By the time, Nokia responded with the 5800 XpressMusic, it had fallen behind on its tracks. It repeated the mistake with N97 – a large screen which was woefully resistive – in an era when the iPhone3GS ruled and the Androids were beginning to fly. Nokia was edged out of the market – and had fallen behind. Nokia’s next releases N900, N8 failed to woo customers clamoring for the iPhone.
2013 – Apple’s incredible run through from 2007 onwards is slowly running out of steam and gross margins had peaked in early 2012. Apple played economies of scale on standard screen sizes to keep its BOM (Bill of Materials) cost low – driving operational efficiencies in production. However, they seem to have been reading the market wrong as the era of large screen devices was stepping up considerably against the 4” iPhone. Premium buyers were increasingly flocking to the 4.5” segment smartphones and the 5.5”+ phablet space and Apple’s roadmap to large screens is already a couple fo years behind.
The sense of déjà vu is not wasted – as Apple repeats the same mistakes in 2013 that Nokia made in 2007.
Continues to Part II
If the results from Nokia are any indication, Stephen Elop is in a tight spot – and unless the Lumia launches in Q4, 2012 reap a rich harvest, Elop may be under a huge pressure. Nokia has reported a third-quarter net loss of $1.27 billion as revenue plunged 19% and sales of its flagship Windows Phone fell to 2.9 million units. Revenue dropped to $9.45 billion and furthermore, Nokia has given a grim outlook for the rest of the year. While the numbers seem to have reversed as against Q2, 2012, Nokia is now pinning all its hopes on the Lumias – a desperate and a dire situation to be in. Given the dominance of the iPhone5 and the Androids, Nokia’s comeback kid, Lumia may risk a lukewarm response which may not re-kindle the comeback hopes for Nokia.
Nearly 20 months after the announcement of the Windows smartphone polarization, Stephen Elop really hasn’t much to show in terms of smartphone numbers. While Nokia’s reliance on the strategy of third platform option against Apple and Android is definitely true, but Elop just seems to be talking more Microsoft. As a phone maker, Windows has not really turned things around for Nokia. Has it? Instead over the last 2 years, Elop has steadily and unfailing ditched every other promising option – be it Meego, Maemo, Meltemi and now Symbian Belle in favour of Microsoft Windows.
So, Q4 is now the crunch quarter – Nokia will have to our perform with the Lumias – make it a smashing success. Anything less than smashing success will not inspire anyone. Given the Apple iPhone5’s 58 million numbers and the march of Samsung Android’s, it is difficult to imagine customer interest and instore-purchase of Nokia Lumias to be moonbound in the 1st quarter of its launch. What really beats me – is that Nokia has now put Symbian in maintenance mode and all the future roadmap of Symbian is cancelled. Nokia Symbian devices still outsells Windows-powered Lumias, by 3.4 million to 2.9 million, in Q3, 2012. Pulling the (investment and development effort) plug on your cash cow isnt the wisest thing – is it?
About 3 months back, I had been musing about the change that was afoot at Microsoft – The 30 year old OS centric company was for the first time shedding its old feathers to look, feel and compete with the new kid on the block – Google and a resurgent old rival – Apple. Ballmer’s letters to Microsoft share holders clearly signals that Microsoft is moving away from its make the OS & the service, let the partner handle the device model, which is what Ballmer terms as “significant shift, both in what we do and how we sees ourselves”. This is clearly necessitated by Internet and cloud centric business models, which puts the Microsoft traditional server, desktop and OS centric model. Given the momentum that Apple has now in mobile workforce and cloud space and the initial cold shrugs that Microsoft’s high price tablets have seen, Micorosft will take more batter before they get better. Also, the head start that Apple and Android have in the mobility space can be hard to overcome. Microsoft has to play the game changer and it needs its OEMs to support it while it does so. However the device route would mean that it will expend itself trying to integrate things into the user experience and the device. May be Google and Apple are doing this bit – but Microsoft will have to really execl to take the game away from Google and Apple.
The Windows centricity still remains as per Ballmer the intent to “firmly establishing one platform, Windows, across the PC, tablet, phone, server and cloud to drive a thriving ecosystem of developers, unify the cross-device user experience, and increase agility when bringing new advancements to market.” With Windows8, Microsoft is pushing to have unified messaging across all platforms. More than just sharing the same name, the various versions of Windows for different devices will now share a common foundation. It’s a move not dissimilar to what Apple does with OS X and iOS and its an essential part of making it easy for developers to target specific platforms.
Ballmer closes his shareholder letter by noting that “it truly is a new era at Microsoft ” and that the company has “an unprecedented amount of opportunity for both this year and the long term.” However given the number of competitors that it has to contend with, and the umbrage of the OEM makers who see Microsoft’s device designs as a challenge to their own competencies – it will be a complex equation, making the revenue and profits strategy work in a dynamic environment. Already the new game that Microsoft is playing itself is hurting itself as it suffered its worst loss ever in its 26 year old history in April-June quarter 2012.
However, it does make sense for a possible take over a beleaguered Nokia by Microsoft. Doesn’t it?
The Nokia Lumia has a lot of small details .From a device perspective, the key is that lots of these small details add up to a holistic experience that creates aspiration. However, what ultimately sells is a collection of details properly integrated into a whole experience which needs a complete end to end eco-system integration. That could be a concern for Nokia given the Amazon and Apple strategies of putting their eco-systems as points of differentiation as against just the devices.
Being from the Nokia stable, there is little doubt these devices will stand out from the crowd in terms of hardware which will help the extra delta at retail. A quick look at whats in offer from Nokia -
The Nokia City lens Augmented reality app
- Nokia Maps is refreshed to include an add-on functionality is that of Offline availability. This is not the usual cached units, but a true offline feature which is important for data conservation. To top it, it has free turn by turn voice navigation.
- Nokia Maps also gets augmented reality. The Nokia City Lens is pretty slick in delivering augmented reality in what’s useful and not just a gimmicky manner. In scheme of things of Nokia’s business as a whole, Maps will be a big revenue driver going forward on top of a differentiator on their devices and City lens can be an important enabler in terms of the AR browser to provide a simple, fluid and intuitive experience to the user . Nokia location platform is now a core part of the WP8 platform
- The new Lumia range will support NFC with the only drawback that it connects only to other Windows devices. NFC plays music by placing it on the speakers.
- Glove dial is another good to have app which allows the capacitive screen to respond to touch by elements other than the human hands – for instance gloves.
- A first in the industry which was supposed to be Apple’s thunder is stolen by Nokia as it premiers the Wireless charging across the board. This is actually a new meaning to the term – Power Nap and the wireless charging keeps the battery topped off. Nokia has partnered the Fatboy recharge pillow such that the phone left on this recharging pad will top up the battery charge. Interestingly enough, even before its launch, Nokia has eco-system partnerships to promote its wireless charging feature through Virgin in its Heathrow Airport lounge, and Coffee Bean on its countertops using the wireless power consortium standard
- There is also an awful lot that has been integrated into the camera space
- Pure view on the new range of Lumia phones is more than a Megapixel count. SO there’s no point in getting misled by a 8MP count on the camera. The Pure View captures between 5-10x the light of any other camera in a phone and easily surpasses image stabilization of most DSLRs. The Floating lens technology used is used to stabilize the lens for HD video stabilization as well.
- Cinemagraph which essentially adds a video experience on a still photo. A hybrid between the still and video – it also allows frames customization.
- The Smart Shoot feature allows to get rid of unwanted parts of an image automatically.
- Nokia integrates the Photosynth augmented reality app too create a hyperlink navigated real time picture of the world indexed by photographs in the web. Photosynth takes a large collection of photos of a place or object, analyzes them for similarities, and displays them in a reconstructed 3-Dimensional space. Now that once done is a WOW!
The Microsoft Photosynth feature
The Nokia Cinemagraph feature
The Nokia fatboy Recharge pillow
The message through the launch event of Lumia is loud and clear -Nokia ecosystem is growing and Nokia has a direction. Music, Navigation and Imaging are the Nokia mantras – as Nokia delves deep into the consumer psyche of why and how the phones are used. While the absence of a launch date and pricing are huge dampeners, the new direction that the Nokia-Windows partnership is taking is pretty interesting.
The only problem remains is that Apple’ event scheduled for 12th September may see an immediate launch – and the absence of Nokia for the next 2 months will mean that the iPhone5 will take all the shelf space, operator space and consumer space – leaving Nokia out to fight its way back. But so far – it’s a new direction for Nokia and personally I am glad that Nokia-Windows seems to be putting a spirited comeback. The only silent fellow in this interim is Android which seems to be fast fading and loosing its colors.
This is the first of two post series on Amazon
Amazon killed it … or very nearly did. Amazon’s device and service announcements in the 6th September event have just gone to show Amazon a few notches above Google, Nokia and Microsoft put together.
Post the launch of Kindle Fire tablets last year and a record sales in the holiday season, Amazon spent a lot of time understanding their customers and how the customers use digital media. In the course they have managed subverting the long held notions of device pricing – and managing the margins without any device contributions. After all, when you make your money through services, device margins are obliterated. That is going to put a awful lot of pressure on the earlier generation of device makers – Samsung, Nokia, HTC and the works. What that means is that Amazon is willing to make the Kindle and the Kindle Fire a loss leader to lure shoppers inside its virtual store. This principle is where disruption @ Amazon begins.
People don’t want gadgets anymore; they want services, and the new ranges of Amazon devices have a clear perspective- to provide a dedicated sales channel for Amazon’s digital storefront with an end-to-end set of services. By taking off the device bit, Amazon signals that it is ecosystems not devices that will drive consumer purchases. As Bezos puts it- “We want to make money when people use our devices, not when they buy our devices.” When business isn’t built on HW margins, the larger ecosystem and services you can do a lot of things competitors can’t – that’s an innovation principle that Apple and Amazon would hold as the key.
Amazon is stepping up ecosystem efforts but is focussing on its own features, services. Third-party apps still seem like an afterthought. Similar is principle to the Apple “Walled Garden”. Given Apple’s iOS app selection & large ecosystem of it’s own, I don’t think iPad is under major threat. But Apple cannot afford to be complacent.
The 6th September event was an act of declaration of war and the whole eco-system and market just got a whole lot more interesting in the course rebuilding the DNA of Amazon. The only other company who is thinking of business in the manner that Jeff Bezos is thinking about it, is Apple! As per Bezos – “We have our own patents, our own hardware, can afford to subsidize, and we’re going after Apple”. That’s setting the perspective.
In short, this is all about Amazon positioning itself as the future in digital distribution
Too often technology is being used to protect old business models rather than unlock new ones. Fortunately for Nokia, it seems to have broken this paradigm as it embarks on a slow climb upward from it Symbian to Microsoft Windows 8 OS. O 5th Septmebre 2012, Nokia went to show the first Windows 8 devices for the record. The event tagline - SwitchtoLumia is very apt, timely and relevant as RIM & some Android users are looking for something different. Unboutedly, iPhone5 will pick up many of the BB/Android dissenters, but the latest Lumia launches by Nokia, gives it a chance – its real one in over 3-4 years.
The success story has rolled over from devices to platform and now on to eco-systems. Devices and apps are only a part of the story. Nokia’s latest efforts with Lumia has shown that it is focusing on the right thing: owning up eco-system and improving service delivery user-experience. Apple still has the big marketing edge as long as it’s the only company to consistently do this and owns end to end delivering the experience – it’s what happens when you control the end to end experience… it does matter. But the good part for Nokia and Microsoft is that they have made a start. Unlike iPhone and iPad, no single product shall define this approach for Nokia/Microsoft -
The good thing for the Nokia- Microsoft duo is that no one will ever confuse Windows Phone with Android or iOS. The challenge is can Nokia and Microsoft explain how different is better. Nokia’s second challenge is to differentiate Nokia devices from other Windows Phones. Samsung has already tried one-upp’ing Nokia by pre-announcing the ACTIV S 5 days before Nokia announced the Lumias.
Nokia has clearly raised the bar in terms of core hardware features. Visible differentiation is there in terms of the device look, finish and feel. On the positioning front, Nokia is betting big on Imaging,Music and Location as core differentiators that can drive adoption. WP8 is the enabler but getting the eco-system to ride on the top and provide key differentials is what’s going to differentiate these devices versus the Android Army. Thats a hell of a ask, with the number of partners involved and the fact that everyone needs to be in sync.
If the IBM PC was created in this patent environment there would be no Apple. They would have sued them out of existence.
If cars were invented today, one manufacturer would have a patent on using 4 wheels and all others had to pay a license fee for it.
While many have condemned the patent laws to be anti-thessis of innovation, the fact as of yesterday, the 25th of August 2012 remains that Apple has dealt a know-out blow on Samsung in the ongoing patent infringement case. Apple was awarded $1.05 billion for patent infringements by Samsung. Apple’s $1bln patent victory against Samsung is the third biggest patent victory. Centocor Ortho $1.67bln vs. Abbott Labs & Lucent $1.52bln vs Microsoft are higher. The current jury award of more than $1 billion isn’t going to kill Samsung, but the forthcoming possible injunctions against selling current devices is going to hurt Android more than anything. There are “others” who will re-evaluate the cost of licensing the patents on the ‘free’ Android OS.Expect Apple to be drafting invoices in the very near future.Most of these manufacturers will now want a fully licensed, covers all the patents and a user-accepted OS. The answer is obvious – the only alternative to Android is Microsoft. The timing is actually great for Microsoft too with Windows Phone 8 announcements coming in just a week and a half in New York.
As far as Samsung is concerned, the last thing Samsung will want to do is be left stranded in the courts holding their Android football while everyone else runs ahead to score with Windows Phone handsets. Nokia are all-in on the new platform, HTC could see it as a way to bypass Samsung’s dominance in Android, and both Huawei and ZTE are ready to leverage Microsoft’s OS. Samsung’s risk mitigation strategy of investing in multiple OSs and even in Windows will be very handy for them. Imagine where such a thing would leave Nokia, who are averse to distribute risks over multiple OSs.
Speaking of Nokia and Microsoft then – God could not have been kinder. 2 years into the Smartphone act, Microsoft was no-where with Windows and an year with Lumia, Nokia has barely cut through. Now Microsoft gets a few serious partners and Nokia benefits from an enhanced interest in the Windows phone. While there are many other factors that have benefitted Nokia’s share proce which has increased by 78% in the last month, the patent battle would be one of the underlying factors for the spike at Nokia.
Overall, Apple took the victory, Samsung lost in court, but the true winner looks to be Microsoft.
As against Android which has gone all out, Microsoft is reportedly pursuing the policy of “Less is more”. Microsoft is making a concerted effort to keep the Windows RT tablet market as uncrowded as possible and is forcing NVIDIA, Qualcomm and Texas Instruments to each choose only two OEM partners that will be allowed to develop Windows RT tablets at the launch of the new OS in October.
Lenovo and Asus are NVIDIA’s picks, Qualcomm opted for Samsung and HP while TI nabbed Toshiba. These five vendors will be producing ARM-based Windows RT tablets from October and come January, Microsoft lift the licensing restrictions on the operating system.
The interesting question and the notable omission in this list is Nokia. Now, wasn’t Nokia the blue –eyed boy for the Microsoft tablet? Or are we missing something?
Even while this is expected and anticipated, such a move would still create ripples.A couple of soft indications were provided by Eldar Murtazin. For readers who havent heard about Eldar, he has been watching the phone space and especially Nokia with a lot of interest for the past few years and was the first one who hinted at the movement towards Windowss Phone by Stephen Elop.
The details of the deal would get clearer in days to come. Nokia may have to break up its businessses – feature phone and smartphone and sell the feature phone unit to a buyer before merging/ getting acquired by Microsoft.
Last month’s Windows8 announcement by Microsoft with a no crossover between Tango (Windows 7.5) and Apollo(Windows8) was a big confidence breaker for Nokia. A win-win for both Nokia & Microsoft
1. Micros0ft gets access to Nokia’s 30K mobility centric patents. The patent quagmire has gotten a lot ugly with the Apple injunction of Samsung Galaxy Tab sales in US. One can also see how Nokia is getting active in the patent space with the latest series of mild reminders to Google, that Nexus S transgresses Nokia patents.
2. After the sucess of XBox and Surface, Microsoft’s focus has taken a positive bias for devices as well. Nokia provides a very rich comptency in device experience
3. For Nokia, it means splitting up the low end and the smartphone and salvaging value. Nokia has been in a dead drop in terms of valuation for a while now.
4. If this works out for Nokia, it can create a second life for itself riding on the Windows platform and re-focussing only into smartphones as a path to profitability. In the past few months, Nokia has been on an overdrive to prune costs.
Nokia is the most invested of all Microsoft’s hardware partners in Windows Phone 8′s success, so this move makes sense. Microsoft is rumoured to have walked off from a Nokia purchase intent some time late last year. Between then and now, Nokia’s valuation has taken over a ~60-70% tumble. Lumia’s havent really ignited the sales registers at Nokia and Nokia really didnot invest in a plan B when going for Windows8.
So we watch this space. While an unconfirmed rumour currently, this bit has a high possibility of becoming real.