S40 crucial to Nokia's defense

OvumAt Nokia World 2011, Nokia announced a new product range called Asha that is targeted at emerging markets. The company announced that it would release four models based on its Series 40 (S40) platform, the Asha 200, 201, 300, and 303.
The prices of the phones will range from €60 ($80) to €115. “Asha” is a Hindi word meaning “hope”, but it also refers to aspirations and the drive to achieve them. Aspiration is an important factor in emerging markets, and Nokia is seeking to exploit this with its Asha product line.
While the announcement of the Asha product line was overshadowed by the launch of the Lumia smartphone, we believe that it is a significant advance for Nokia in their quest to reach their “next billion” users. The Asha feature phones will also build on the “halo effect” generated by Nokia’s recent success with dual-SIM phones in emerging markets.
The timing of the launch is important, and it shows that Nokia is aware that its strength still lies in feature phones. Nokia is increasingly dependent on its feature phone business, with the proportion of its total shipments made up of feature phones rising from approximately 75% in 3Q10 to 85% in 3Q11.
These figures demonstrate that Nokia needs to continue to drive feature phone sales while building bridges to “smarter” experiences. The company cannot afford to get caught between the iOS/Android smartphones at the high end of the market and the inexpensive devices made by Chinese vendors at the low end. While Nokia’s scale advantages mean that it is better positioned to compete with the Chinese-made devices, a more serious long-term threat is from low-cost Android devices. Nokia’s ability to successfully defend its dominance in the feature phone market will depend on its ability to quickly upgrade S40 and establish its developer ecosystem for the new platform.
The launch of the Asha range is timely as Nokia’s traditional strength in feature phones is under threat from inexpensive Chinese-made devices and the increasing affordability of Android smartphones. While Nokia can leverage its scale advantages to combat the threat from the Chinese vendors, low-cost Android smartphones represent a more serious long-term challenge.
To combat the threat posed by inexpensive Android smartphones, Nokia needs to upgrade S40 from a simple realtime operating system to a smartphone-like OS. Nokia’s strategy for this is twofold. Firstly, it is rumored that S40 will be upgraded to the Meltemi OS, which is likely to be a simplified version of MeeGo. This will allow Nokia to expand its delivery options of apps beyond the current method of embedding apps on S40 devices. Secondly, Nokia will try to convince the developer pool to create content and apps for the Nokia Store using the Qt framework, which promises to allow smooth and quick porting of apps to the S40 platform.
Even if S40 is upgraded to Meltemi soon, Nokia will still have to work extensively to entice developers to work with their platform. The lure of developing for Android and benefiting from its move into lower price tiers will be difficult for Nokia to overcome. We believe that Nokia’s ability to successfully defend its feature phone dominance will depend on its ability to quickly upgrade S40 and establish a developer ecosystem for the new platform.
The urban youth demographic in emerging markets typically has a limited disposable income. However, it is made up of tech savvy, opinionated, and conspicuous consumers that desire “smart” connectedness in an affordable package. This is the primary demographic that Nokia’s Asha range is targeting.
Nokia’s new Asha devices have the form factor and small displays that are typical of feature phones. However, a closer look at the devices reveals several features that are uncommon in the feature phone category. The Asha 200 includes “Easy Swap”, a feature that provides users with simple dual-SIM functionality.
The ability to swap SIMs is an increasingly essential feature in emerging markets as it allows users to customize their usage and profiles. It is therefore curious that the Easy Swap feature is only available on the Asha 200. While operators in several markets are yet to embrace dual-SIM functionality due to its negative commercial implications, we believe that Nokia could have built on the success of its dual-SIM range by including Easy Swap across the entire Asha product line.
The dual-SIM phenomenon will continue to increase in popularity in emerging markets, and it should account for a greater share of Nokia’s feature phone portfolio in the future. Other features that will be attractive to the youth segment include push email and social networking applications on the Asha 200 and 201, while the combination touch UIs on the Asha 300 and 303 will also attract users.
However, we believe that the most interesting feature of the Asha range is it single-core 1GHz processor. This will provide enough processing power for Nokia to achieve its goal of blurring the lines between smart and feature phones. The new Nokia Browser – a proxy browser based on the Novarra acquisition – is also a prominent feature of the Asha range, and will eventually replace the current Opera Mini browser. Given its primary target segments, Nokia had to ensure that the browsing experience was fast and affordable for prepaid and pay-as-you-go customers, and we believe that the Nokia Browser will achieve this.
Despite the advanced hardware features, the Asha range also needed some exciting software announcements to entice its target segments. While included apps such as Foursquare and WhatsApp are increasingly popular among emerging market consumers, Nokia is also taking a customized approach to different markets by embedding apps such as Flickr, Orkut, and RenRen for the Chinese market. Embedded apps that are downloadable through the app shortcut or Nokia Store represent a significantly enhanced experience on S40.
However, the biggest announcement by far was the deal to bundle a “lite” version of Angry Birds with the Asha 300 and 303 devices. While the immense popularity of Angry Birds alone would be enough to attract the youth segment, the bundled version should swing purchasing decisions in Nokia’s favor. Rovio, the makers of Angry Birds, will also stand to benefit from expanding their franchise to feature phones. While Nokia needed a big ticket announcement such as this to revitalize its feature phone lineup, its Asha range offers many more “smart” experiences in an affordable package.