Business – Q&A Nokia’s executive vice-president and head of the mobile phones entity Rick Simonson
Joji Thomas Philip
‘Nokia targets to have 115 m active users by first half’
4 Jan 2010, 0407 hrs IST, Joji Thomas Philip, ET Bureau
Will Nokia turn around its fortunes? This question was often the topic for much debate all through 2009, despite the handset maker commanding a 37
per cent market share globally in this space. But analysts say 2009 was a year that Nokia would rather forget, especially considering that the Finnish company continued to lose ground to Research in Motion’s (RIM) BlackBerry and Apple’s iPhone in the lucrative smartphone segment.
Research firm Gartner in a recent report had highlighted that while sales of smartphones boomed in 2009, the rest of the market remained flat. But, the same report also pointed out that smartphone sales, while growing, were also disappointing due to lack of attractive phones in this category from Nokia, whose market share here fell to 35 per cent in the third quarter of 2009, compared with 41 per cent in the previous quarter in the same year.
Nokia’s executive vice-president and head of the mobile phones entity Rick Simonson, in an exclusive interview with ET, speaks about the challenges Nokia faces globally, even as he seeks to address many of the ‘misconceptions’ in the media’s reporting of Nokia’s performance. He also explains why the company remains bullish on winning the war in the long term. Prior to November 2009, Mr Simonson was the CFO of Nokia Corporation with responsibility for group finance and control, internal audit, treasury, investor relations, M&As, indirect sourcing and venture capital investments. Excerpts:
Nokia’s weak selection of smartphones has been the talking point. This is the most lucrative segment in terms of revenues. Nokia has also announced recently that it would reduce its portfolio of smartphones in 2010. When you say Nokia competes in every spectrum, why is it not associated with the smartphone segment? Why has the Nokia’s stock taken a beating over the past couple of months?
Yes, we have lost ground in the smartphone space over the past 18 months, but the decline has stopped and stablised in the second and third quarters of 2009. The New Year will see (our) recovery in smartphones with the introduction of Maemo and the stabilisation of the Symbian operating system, which by the way, continues to be the platform for the largest number of smartphones, globally.
If we look at the figures, 50 per cent of smartphone devices globally are on Nokia/Symbian. In smartphones, we are not well positioned in North America, which is a huge market. The media reports are not really wrong, but then we are also seen by the media through American and English speaking lenses. And it is made to seem that what is happening in North America is true to the rest of the world as well. In BRIC countries — we prefer to call them BRIC, and not emerging markets — where people don’t just use expensive, high-end devices, where everything is big from very basic phones to high-end smartphones, we are right up there in every segment.
We shipped over 200 million smartphones last year and our strategy is volume driven. We have been stable in this segment and are trying to strengthen our position in the North American market. There is a lot of money to be made in the North American market and since we are not doing too well there, it has resulted in our stock performance — this issue has played up and media coverage makes it appear it the same across the world, which is not the case.
But while you talk about volumes, your competitors’ business models are different. For instance, BlackBerry maker RIM may earn more than Nokia makes in the whole of Maharashtra in the smartphone space by just placing their handsets with enterprise customers in Mumbai alone. Does your volume translate into revenues?
Let me explain our strategy. The Nokia Corporation is focusing on ‘messaging’ in a very big way. For large sections of the world, their first experience of the Internet and email will be mobile handset — this can mean that it may be on a Nokia handset because we are dominant player in Asia, Africa and Latin America, where Internet penetrations are low. While the likes of RIM are known for their success in high quality, very expensive email solution, Nokia’s strategy is to bring inexpensive mail for everyone.
Our success is best explained by the fact that Nokia is growing the email market faster then incumbents — we are growing faster than Gmail, Yahoo! and all other email providers. The math does not work according to the business model employed by companies such as RIM. You have to be in the mass market to win. To answer your question, let us take the Mumbai enterprise market — will they win here, if they do what they did in the US? But, this can happen only if the rest of the world does not change. Not every customer looks for a high-end email solution as the sole criteria when picking up a smartphone. They want a slew of other factors, which works to our strength.
To make money, RIM must now focus on mass email — this is an area that we own. Unless, they beat us here, they cannot occupy this area. In the high-end space, we have closed down the data compatibility gap with RIM. About 90 per cent of corporate email boxes today are with Microsoft and IBM and through our partnerships with them, we can mobilise all of them — at no extra fee.
All that is required is the data plan. But, RIM cannot adopt this business model. We are partnering with Microsoft and several others to build a whole range of email solutions — 100s of Microsoft engineers working side by side with 100s of Nokia engineers — these are the biggest companies in their respective spaces and they have put their best minds to the business. We are redefining mobilisation of all aspects of the office — and combining context with it — something that our competitors who are making huge profits are unable to do.
In fact, RIM’s revenues are already coming down. In the second quarter of the fiscal 2010, the sales of our E-series range of smartphones was over three times that of RIM’s figures, and we are growing faster than them everywhere, except in North America.
I can even make a prediction for 2010: In Latin America, we will grow faster than them. By 2011, our efforts will start producing results, as we will be at par with Apple and RIM in smartphones. Not only we draw level with them, we will also win the war because, in addition to email, we will be adding content, chat, music, entertainment and several other features, which will soon become very critical for success of any company in this space.
Another crucial factor that will play a large role in our success is that we have the power of open operating system coupled with the open distribution model that is not restricted by geographical or technology boundaries. Look at our targets for any segment of our devices for 2010 — they are all 2-10 times that of any of our competitors.
But, isn’t this whole thing about building an open system almost like an excuse for not winning in other areas like smartphones? Also, do you see any consolidation in the 10-12 odd existing OS platforms for mobiles? Currently, with so may OS platforms, will developers prefer to work on only few ones leading to the inevitable death of others?
We are not winning in certain pockets and we are trying to change that, but our open system is not the excuse for this. We have three operating platforms — Maemo (for mobile computers), Symbian (for smartphones and our own proprietary platform OS for our mobile phones, which also happens to be the largest in the world in terms of installed handset volumes. In 2010, Nokia will ship over 500 million units across three platforms, which will be about 40 per cent of the global market share and will reach everywhere, from the remotest village in Kenya/parts of Africa to India, to the US.
Through an open system we are encouraging innovation — we are helping more people — I mean developers who produce applications for our system — make money. They stand to make more money with us because, our OS is used not just by Nokia, but several other handset makers since it an open system.
Next, their apps will be used across the world, as our reach is unmatched and therefore, we present them with the biggest audience to sell their products. An open system enables us to work faster at beating competition in the pockets we are not doing too well, by doing things differently. That is precisely why 14-15 operating systems cannot survive.
There is definitely not enough room for more than 4-5 operating systems. Scale is critical. For instance, Palm’s OS is very good, but with less than 1% of the global volumes, it won’t be too appealing to developers.
There have been several reports of Nokia buying out Palm.
We have been hearing that for a long time now — maybe it is like one of those things that you keep predicting and hope that by 2010, or in the next 10 years, it will actually come true. It’s like you keep saying, ‘it will rain, it will rain’ and one day it finally rains, and then you say you predicted it!
Nokia has a large number of developers, but you are way behind competitors, when it comes to the number of apps you offer?
We started late on this front, but we have already crossed one million downloads a day — we are ahead of the both the BlackBerry Store and Google’s Android Store, which puts us No. 2, right after the Apple Store. In May 2009, when we launched, we were present in about 60 countries, but now we have expanded to over 180 countries. We don’t think that people in emerging markets need hundreds of thousands of apps, but rather they need ones that are relevant to them, those that can improve the quality of their lives.
We will emerge successful here because an application that has relevance for emerging markets can be used across Asia, Africa and Latin America because of our reach. We will win because our size and scale enables us to have an active dialogue with over a billion customers who use our products. We describe an active user as a Nokia consumer who has used at least one of our services or any other service in the past six months at least once and we have reached out to him/her at least once during this period (with his/her permission).
For instance, we can ask them: ‘Hi, we realised that you have activated Nokia Messaging on your E72. Would you like us to activate your Music Store too?’ And then we do it very simply. Thus, this active dialogue also opens up a very cheap way of marketing our services too. We have 80 million active users now within months of launching this concept. By the first half of 2010, we target to have 115 million active users and 300 million by end of 2011.
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