Nokia plots future in web services

Having effectively called the bottom of the handset market in its recent quarterly result, Nokia is now looking to the future.

The cellphone leader reiterated its ambitious web strategy at its annual general meeting last week, despite the short-term risks that this will bring.

CEO Olli-Pekka Kallasvuo told shareholders: “Nokia is fundamentally changing its business model to transform both the company and the industry. While we continue to compete with the traditional mobile device manufacturers, we also are dealing with new competitors entering the market from the PC and internet industries.”

The secret to success will be “to offer consumers irresistible solutions that improve their lives” and focus on integrated services in five key areas - maps, music, messaging, media and games. He believes combining these services with high quality devices will increase customer retention and add value, whether through the operator channel or less traditional routes to market.

“Our estimated consumer retention rate of around 55% is almost twice the rate of our global competitors,” he said, saying retention had increased every quarter since the start of 2007.

Kallasvuo talked up the 5800 Xpress Music touchscreen musicphone and its integrated Comes With Music unlimited download service as the first great example of the integrated device/web service model that he - along with Apple - probably spotted first in the mobile world.

The 5800 has seen strong initial uptake, having sold 3 million units since it launched in November 2008, and Kallasvuo says it accounts for 20% of all touchscreen devices sold worldwide this quarter.

He said part of its unique proposition derives from Comes With Music - yet some observers are less certain that consumers are yet tuned into the integration idea. The BBC reports that CWM has attracted only 23,000 subscribers in the UK and many analysts believe the value proposition has been poorly communicated so far, despite heavy media promotion.

Nokia Music's head of product marketing, Tim Grimsditch, did not confirm the figures but said: “It's a very new business model, we're live in five markets and the numbers only mention one. We're going to continue to develop the model and fine tune how we market it.”

Other negative reactions to Nokia's ambitious services strategy were coming this week from debt ratings agency Moody's, which revised its long-term outlook on concerns that the mobile phone business was saturated.

Moody's said the fast revenue growth of the past few years may not be restored even after the end of the recession and Nokia might not be able to keep its A1 credit rating. Moody's considers a return to double-digit margins for the group to be challenging, even with the shift to services.

Meanwhile, Kallasvuo repeated previous ambitions to move into new device categories and broaden the definition of the smartphone, working with Symbian on driving that into lower cost models, and also to new formats (presumably including the reported Sparrow project for a tablet/netbook).

Rethink Wireless