Nokia's chances

When someone writes the history of the handset business in the 21st century, 2009 will surely go down as the year it changed forever.

For different reasons the companies that have dominated the sector in the past decade are severely stressed. In the case of Motorola and Sony Ericsson, perhaps fatally so.

The new pacesetters, in case you've been in Patagonia for the last 12 months, are Apple, RIM, Google and HTC.

Nokia is still the market leader by volume and sales, but as the years go by without a device that can challenge the iPhone, it looks increasingly vulnerable. Where did it all go wrong?

Too complacent

Perhaps it's been a victim of its own success. As the iPhone bandwagon began gathering steam a couple of years ago, an acquaintance working the Nokia ad account said he thought it was too complacent to deal with the coming onslaught. 

In retrospect we can see that Nokia has responded to the iPhone as effectively as it dealt with the BlackBerry; not at all. Now RIM dominates the corporate segment and Apple the top-end consumer market. Coming down the pike are HTC and Android.

For all of Nokia's successes as the world's most-loved handset-maker for the past decade, it has a dreadful record in picking the market.

It missed the clamshell mini-boom in 2004, and about the same time went off on the ineffectual N-Gage diversion. It became convinced Microsoft was its biggest threat and that the key to success was the operating system.

In that time Apple has had a series of game-changing hits: the iPod, iTunes, the iPhone and now the App Store.

Personally, I started to wonder about Nokia when it began insisting on calling a phone a mobile computer. No one is ever going to say "Hey Bob, did you lose your mobile computer again?" So why bother?

Now that reality has struck, Nokia's been playing catchup. It's turned Symbian open source, it's hooked up with Microsoft to do Office for mobile. It splashed $8 billion on a mapping firm. It's experimented with Linux on its internet tablet and, in its foray into netbooks, Window Mobile.

With margins shrinking in the handset business, it's hard to understand the attraction of the low-end PC segment.  But it's been Nokia's ability to churn out hundreds of millions of low-cost phones each year that keeps it in the game. No one else has that scale. But, inevitably margins are being crunched.

So the real action is in smartphones. Gartner figures show that global handset shipments slid 6.1% in Q2, yet smartphone sales grew 27%. In the current environment, that's a boom.

The problem is Nokia's piece of it shrinks by the day. It shipped half a million flagship N97s in June. Apple sold a million new 3G S iPhones in just three days. 

Its smartphone market share fell 2.4 points in Q2 2009 over 2008. It still has a healthy 45%, but the market has grown by a quarter.

The handset business today is about software, where Nokia has struggled for years, and the new front of services.

Reportedly Nokia is considering Linux for a new device to take on the iPhone. Its years of nurturing Symbian count for little if developers won't support it. But there seems nowhere else for it to go.

In services, too, Apple has opened up a huge break. The App Store has clocked 1.5 billion downloads and climbing. 

Nokia has tied its fate to the much-derided Ovi Store, mapping and mobile transactions. There's no reason why Ovi can't be a success - Nokia after all has more mobile customers than anyone.

But apart from stocking the store with attractive content, it needs to find partners, and once more Apple is an example. Apple has created dedicated sales channels by exclusive carrier deals. Yet another lesson Nokia has to learn.

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