Nokia CWM: The Inconvenient Truth

Approximately 7 days earlier, i had blogged about Nokia CWM, "Has Nokia got its CWM strategy wrong?". This was published on 13th January 2009. This followed an article on www.uk.gizmodo.com, "Nokia 'Comes with Music', not shaping up as expected".

In 2 days from now, Nokia is going to share its 4th quarter results. Very intriguingly and aptly, i found a release in the UK telegraph yesterday morning which allayed fears that consumers will act responsibly and not abuse "all you can eat music". I would call this a very amateurish attempt to signal press and investors around the world that its CWM startegy is doing fine because Consumers are behaving responsibly. Indeed! The article in Telegraph is sited below:
http://www.telegraph.co.uk/culture/music/4285381/Nokia-Consumers-will-not-abuse-all-you-can-eat-music.html. Not putting stops there, there was another release http://www.electronista.com/articles/09/01/19/nokia.music.to.expand/, where in the mobile giant also hinted roll outs of CWM in Singapore, Australia, Latin America, US and Europe within this year.

All this, with no major operator pledging alliance to CWM. Nokia's CWM has been a "go alone" venture. As is, all ventures start with a good purpose. In this case, bringing music free to consumers for a one time fee on certain Nokia Handsets. The company thus expected a foothold in the Music space, which so long has been Apple's strong hold. In the US, where Nokia would squarely take on Apple on music as a part of convergence, none of its smart phones feature in operator portfolios yet!

Interestingly, the first proponents of CWM in Nokia, Ed Averdieck (MD, Nokia Music) has been fired and Tommi Mustonen (Head of Multimedia, Nokia) has been given a "punishment assignment". Analysts consider the CWM to be "a step too far in Freetardonomics" and "a reckless business move". At $129 one time payment and .70 - .90 cents per download, Nokia could have to pay for heavy downloads through its nose. Nokia has not made public any information on other sources where by it can justify the additional cost/losses in heavy downloads.

Another "unofficial" word from a Nokia Executive (anonymous) explained the motive, i.e the insight, Nokia has been working upon in terms of justifying the CWM. Only 1 out of 5 users uses the service to tyhe full effect. Which means, 4 others forego taking advantages of the service or forget about it altogether after paying $129. Which also means that Nokia, is betting on a self defeating purpose. If only 1 out of 5 users uses the service, isn't it limiting the spread of Nokia CWM?

This insight, that Nokia seems to have is being backed by its offices. Its "sort of" tested in UK. Now Nokia would extend the same logic around across the world. Nokia's success (Not bleeding in loyalty payments) would depend on consumers not "abusing" the service. This could be tested! If it successful, Nokia will get only 1 out of 5 conusmers to use the service effectively and make profits or break even at the cost of usage being low. If Usage is high Nokia may have to pay for the heavy downloads and make losses on the venture.

This at a time, when, OPK announces that profitability is more important than just the sales numbers!

Nokia faces two choices: Either it can shut the service down ( which means it conceedes a defeat in the music space) or it can get more partners (operators) to work on other revenue streams for the CWM business!

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.