Has Nokia got its CWM strategy wrong?

http://uk.gizmodo.com/2009/01/06/nokia_comes_with_music_not_sha.html#comments

This discussion is about Nokia's Comes with Music. It follows the above given web clip on the "Nokia CWM not shaping up as expected".I have always believed Nokia CWM initiative to be flawed. But Can Nokia make such a monumental mistake or is there something bigger at hand.

Original report: www.theregister.co.uk/2007/12/05/nokia_free_music_analysis/ (5th December 2007); www.reghardware.co.uk/2007/12/04/nokia_comes_with_music (4th December 2007)

Six months back, i had read up a lot about Nokia and its CWM (Comes with Music) strategy. Essentially, it was an attempt by Nokia to boost its standings in the Music space. Well, if you are thinking, what has Nokia got anything to do with Music, its time to think again. Over the last 2 years or so, Mobiles have become the primary convergence device and Nokia has significant stakes in the mobile handset space which it needs to hold on to. Towards this objective Nokia has emerged strongly into the convergence space making its high end devices more internet friendly, with the ability to carry more music, videos and multimedia content. In doing so, it challenged Apple which had a very elaborate music download portal in its portfolio, where in consumer could buy their music and keep it on thier iPods and iPhones. ( At a later date, Apple was to subvert the mobile industry rules of the game by releasing its iPhones).

Back to Nokia for now, Nokia had tied up with Universal and Sony BMG to offer tracks under these banner to its users. Its users could download the tracks from the Music store (A part of the Ovi services platform). CWM came later. Its USP was that it provided free music to the user of certain mobile handsets for an year. The cost of this was factored into the $100+ premium charged over the price of the phone. The devices so long carrying CWM are 5310, N 95 and N 96. Users could opt to pay the extra money and download as much music as they could for an year. The constraint was that the music could not be shared and its usage was limited to the Nokia phone and a computer of choice.


Pretty neat on the surface untill you got into the mathematics. It was reported that the premium for the CWM service for the consumers was $129.95 (at the time of purchase). While Nokia didnot make public its deal details with Universal and Sony, it was assumed that the price per download that Nokia had to pay to the music labels was around 90 cents. Apple it seems pays the same for a single track download. Assuming some hard ball bargaining, this floor price of such a deal would be 70 cents. Thus the consumer using the service was paying for 129.95/.70 = 185 track downloads! And more, Nokia would be paying 70 cents to the music labels for every 186th and onwards track downloaded in a calendar year. Did the Finns leave their brains around somewhere? Nokia was doing a Hoover!
www.theregister.co.uk/2008/04/17/nokia_comes_with_music
www.theregister.co.uk/2008/05/01/nokia_defends_music_giveaway/
www.theregister.co.uk/2008/04/28/nokia_comes_with_hoover/

In providing the consumer unlimited music of his choice, did Nokia goof up on the break even canculations. How could that be? (Apple had a pay per song as you download charge to the consumers)

There was speculation about the profits. It was assumed that such a liberal promotion could really eat into the operating profits of the Finn gaint! Apparently, there was also a lot of dissatisfaction with the operators as well, who were not at all figured in this deal. It would be understandable if Operators and Nokia would have done this in a partnership with the operator making money out of the downloads through their channel.


It was difficult to understand why Nokia would be a part of such a deal apart from its desperation to get into the music space as a serious challenger to Apple iTunes. Even that wouldnot have warranted these losses. It was on a discussion with a higher up at Nokia, that i understood the rationale of this strategy. Nokia had it seems worked on an insight that only one out of every five people availing the CWM would actually use it in terms of heavy downloads.


Well, this did not sound to me to be quite a reason. Basically, it is undoing of the base idea, which is to get maximum people hooked onto the CWM. However, the pricing and the break even is a math that is confounding.


However, over some time now, Nokia has not actively promoted this idea with marketing money. This leads me to think:

Is this really a mistake that Nokia doesnot want to support and hence the silence?

Or is there a bigger strategy (probably Ovi led) which will unfold in the future?


That i think, only time will tell though i think the Finns have stepped on this without adequate coordinates on what they should be doing and how to go about doing it.

Nokia Oyj: Why would a market leader follow?

Originally published on October 29th 2008, i had taken this blog off because of some professional reasons. I am happy to be able to re publish it yet again.)

Nokia Corporation is the 5th most valuable brand in the world with a brand value of $ 36 billion (sales of $50 billion and more) and has been consistent in the ratings for over 6 years now in the Interbarnd survey. In fact it is one of the very few European Brands in a list that reads excessive US Brands. Yet everything is far from Hunky Dory with this Telecom giant which sits at 40% of the world market pie. Its stock price hasnot been buzzing for some time now and as with all market leaders it is the favourite passtime of analysts over the world to point out to whats-not-right sort of thing with Nokia. It is trading with a P/E ratio close to 1 in the stock markets which is very average compared to Google, Apple, RIM. It is much better than Motorola though.It had over an year back made certain allusions about a fundamental move in its thinking towards services and internet with its fledgeling brand, Ovi. This was a forward looking step towards a world of convergence! There was a organizational restructuring that happened soon after. The stock markets applauded the efforts as being forward looking. There also have been pro active steps with acquisition of Navteq and Symbian, which indicate that the company is securing its end to end business structure. This is again positive.Yet there are seeds of doubt... RIM is gaining ground in the eMail space as is Apple with its breakthrough I Phone. Google is muscling its way into the Mobile space with its Android. Then there are other more competitors like Samsung and HTC which have been more innovative. Bottomline: Nokia seems to have lost a bit on its innovation leadership position to its nimbler competitors.I am not debating whether Nokia has lost of any of that bit or not... it definitely has. It has not created a wow in the market for some time. There was N 95 and there was E 71 and thats about it for almost 2 full years. To me, E 71 and 5800 Tube are just improvements over a market standard. Hence these are not what i would call innovations. There has been some buzz with the Ovi, but it has not been significant.

The strength @ Nokia is its diversified portfolio. However, straddling over so many segments with such a large portfolio can also be a fatal flaw. While Nokia is a world leader in Mobiles, especially in Asian and African markets, it has hedged itself on Music, e-mail, gaming, Navigation, Internet space, other market services and more. This adds a huge layer of complexity to the structure which is good in terms of all round consumer facedness and bad in terms of diffusedness of the focus. Lately, there is a thought running thru the leadership of the corporation, where in they are selling off functions not immediately relevant to its future. Case in point is, Nokia letting go development of its business mobility solutions which it can primarily source from the market. Another aspect, where Nokia and Google have been playing similar strategies is the development of Open Source architecture (something that Microsoft and Apple do not have). Thus the point i am trying to make in here is that, Nokia has a large offering base within different portals, which makes it less dynamic. However, there is a move within the organization to integrate critical business structures (NAVTEQ and SYMBIAN) while offloading non critical structures (development of Business Mobility solutions).

Before i proceed further, there are two charts that i would like to revisit. One being the age old SWOT analysis (Exhibit 1) and the second one being the Competitive context (Exhibit 2:havent used Porter here).Each of the Portals is a investment game where you need to develop the market and create the demand. Most of these portals have gestation periods and the early birds with deep pockets would survive gestations. Given that Nokia chiefly works on its ability to massify platforms, it makes sense that it waits for the any other organization (innovator, ex. Apple for Touch phones) to first create the market and then moves in quickly to massify the platform ( Tube 5800). The ability to massify comes from its end to end business models, supply chain integration, direct presence in markets, economies of scale which lead to cost leadership. So while Apple could skim the market with its $700 I Phone, its Nokia 5800 Tube which takes the Touch technology deeper into the masses with attractive price points like $395.It may well be that markets such as America and Japan which are technically advanced have a different view of this approach, but Finns are known to place safe bets and raise the moolah.

That probably makes them lag at the early game, but with their might and bulk they are able to cpitaulate on opportunities mid game onwards. Only Recently i heard Olli Pekka, Nokia CEO admit that Nokia has been late to wake up to the "Touch Trend". However, from looks of it, Nokia will play catch up and massifywith its 5800 codenamed the Tube and then mid next year, you can expect that N 97, which could redefine tech leadership in the mobile phone space!

Nokia Oyj: Why would a market leader follow?

Originally published in early November, i am re releasing this post , which serves as an addendum to the first part on Nokia Oyj.

I shared my thoughts on the SWOT analysis of Nokia, which has been featured in my earlier blog with a friend of mine. His additions to the list of weaknesses are as follows:1. Understanding of business models is a threat -- Nokia thinks of monetizing first, Google builds scale first and then monetizes . Web 2.0 is all about mostly free services2. Being device lead is a threat in itself3. There is no culture of innovation - and there is no localization. Google creates nimble products for each market4. Current implementation of EMS is not a strength.I would agree wholly to Points 2,3 and 4. There are weaknesses in the system that do not enable Nokia to be a swift and nimble entity. Instead there are organizational layers. What ever and how ever one sees it, points 2,3,4 are somewhat beyond question in terms of weaknesses.As far as the business models (point 1) is concerned, i think it is debatable.