Nokia the iPod Killer? I Think Not

An article by Alexander Dryer entitled "Apple Chomper: How Nokia can knock the iPod from its perch " that was kindly forwarded by Neil Kothari has me wondering, once again, about what sorts of hallucinogenic substances they must put in the coffee over at Slate. Dryer, it seems, is convinced that Nokia's (NOK) N91 is the long-awaited Apple (AAPL) iPod killer.

He cites all sorts of reasons: it has an 8gb hard drive, it's software is usable, it's a "good" music player (only good, huh?) and a superb phone. Nokia has purchased Loudeye so it can build online stores for carriers. Also, Nokia sold 89 million phones last quarter vs a mere 8.7 million iPods. Oh, and it is opening sleek retail stores that copy Apple so slavishly that it has actually hired the same designer.

That's why Nokia is the Apple killer?

Sorry, but I'm somehow not convinced.

I suppose it was inevitable that Nokia would try, given the long and distinguished list of firms that have gone before them. But the history of the consumer products industry over the last five years is replete with the corpses of companies that have tried to knock the iPod from its perch by a range of means and have returned from the fight mauled by wounds mostly self-inflicted. I'm afraid Nokia will be no more successful trying to kill the iPod with it's candy-blob phones than it was when it tried to whomp Sony (SNE), Nintendo (NTDOY), and Microsoft (MSFT) in the portable game player business with the über-flop N-Gage.

Here are the reasons I would say this effort is a non-starter, in general but especially in Asia:

One Expensive Candy-Blob
Charging $599 retail for a "good" 8gb music player and a great phone will kill this. I can buy a great 80gb music player and a great phone for less money. I'm hardly a music aficionado, but after I loaded my 300-odd CDs and some podcasts onto my player, I was well into 20+ gigs, and that's before adding video and any data files I want to carry. And I'm sorry, but I can't be bothered with having to choose what songs go into my player and what songs stay on my drive, and if I wanted something that loaded only a playlist or two for jogging or commuting, I don't need 8gb. I need 1gb.

The other problem with the device is storage. Dryer is quick to dismiss flash. He should slow down and think about what happens to battery life when you throw a winchester hard-drive drive into a phone. All those moving parts suck juice. I can live with 12 hours battery life - less - on my iPod. I cannot live with charging my mobile phone every 12 hours, or even every 24. You buy an N91, and you had better be ready for the music function to make your "great phone" less than adequate in use. "Yes, I'd like three batteries with that, please."

Oh, and one more thing on price: competitors like Motorola and Samsung have already introduced phones in different parts of the world that do everything this product does, PLUS provide satellite TV, for the same or less money. So even on the basis of functions, the N91 is a loser.

Help Us North America - You're Our Only Hope
Fighting Apple in North America is just plain bad strategy. It is Apple's home market, the one where it is most deeply embedded, and where the total Apple ecosystem is strongest and, frankly, where Nokia's brand name is weakest. Europe, Latin America, and Asia, on the other hand, are much less Apple country and are places where Nokia traditionally has stronger market presence. (Indeed, I've been involved in long, late-night debates over whether or not Apple really sees Asia (ex Japan) as a strategic market. Corporate structure and marketing efforts to date leave that in question.)

Further, they are parts of the world where the mobile music usage model is still in its formative stages. People aren't used to carrying music players, but they ARE used to carrying mobile phones, and are already proving more amenable to using their phones as their primary music players.

Of course, Nokia is losing these battles as well, especially in Asia. Against the N91, over 75% of Motorola's phones are music enabled. The second-generation ROKR - the E2 - has been doing brilliantly, as has Motomusic.com, which is the largest legitimate music download service in greater China. Sony-Ericcson, Samsung, and LG have taken up large chunks of the mobile music market, and Nokia is showing up late at the party with a product too large for the Asian hand, pocket, or purse.

So perhaps Nokia is putting so much focus on the U.S. because it hopes the lighter competition will help. Or maybe they think U.S. consumers will be less sophisticated than their counterparts in Japan, Korea, China, and Hong Kong.

It's the Music, Stupid
The one thing I haven't seen in all of this discussion of Nokia's supposed ascendancy has been any relationships the company might be forging with record labels and artists. If you will recall, it is exactly those relationships - with the actual owners and creators of content - that gave iTunes its legitimacy among consumers and gave sales of downloads legitimacy with artists and labels. Unless Nokia lines up the backing of major labels - and the independent artists who are generating more and more of the world's leading music - the ecosystem will not materialize, and the operators will go elsewhere.

This all assumes, of course, that Nokia is genuinely interested in making the legitimate discovery, purchase, enjoyment and sharing of music part of its overall strategy. The other possibility - far more likely, IMHO - is that it could care less about whether the music is legitimate or not, as long as the phone sells. Short of a clear commitment to digital rights management and relationships with labels and artists at all levels, it would be hard for Nokia to claim that the N91 and its siblings do much more than provide pirates with a way to enjoy music.

It's the Experience, Stupid
Mobile music is about much more than "stick it in the phone and listen." The full experience includes discovering the music, purchasing it, storing it, playing it, and sharing it. From what I can tell, storing and playing seems to be covered, but as noted above actually discovering the music, purchasing it, and sharing it are missing.

Finding new music - or at least a song we've heard that we like - is an essential part of the entire experience. If it wasn't, then HMV, Amoeba, Tower Records and the Virgin Megastore would have exited the business long ago. In countries like Asia where radio is basically a dying medium, other means of musical discovery are becoming ever more critical to the health of the music industry. The ability to conduct limited sharing of music, to provide an online alternative to radio, and to share information about music and artists with others of similar taste lies at the core of a successful system. I don't see that coming from Nokia so far, and given that they've got music devices out there, it's pretty clear that in Espoo Finland, the device comes first, and the experience is an afterthought - an unnecessary evil.

Clearly, Nokia has it backward.

This is the company that's going to beat Apple? I think not.

Comments

[Ruski:]

David, you are so right on the feature differences here and now between an iPod and a Nokia phone like the N91.

However, I would claim that within 3 to 4 years from now, separate portable devices that perform "just one" basic simple feature like - a music player, a FM radio, a digital camera, a video camera, an email device, portable TV, portable GPS navigator etc. will become a marginal niche business.

Users will go for more and more integrated devices, "all in one portables" including the 'coktail' of features they need as the convenience of that kind of digital convergence devices will be very evident. AND, most importantly, the cost will be MUCH lower than many separate devices (a combined device can share what all devices typically have in common - processor, memory, display, battery, charger ...).

And add to that, that combining the mobile phone with the other features like a music player gives you added combined features like "over the air" downloading of music, wireless sharing of music with friends, etc.

And this kind of "digital convergence" has already happened => Who has in their pocket these days a travel alarm clock, a pocket calculator, a separate electronic calendar (or paper...), a separate electronic dictionary, ... they don't as their mobile phone takes care of such simple tasks well enough. And the list will get longer.

As technology develops, features will improve and we will move from "nice to have features" on mobile phones to real substitution (or cannibalism). Take a look at the specs of the Nokia N95, feel it in your hand, and tell me you still prefer to have a separate 5Mpix camera, separate Blackberry for e-mail, separate GPS navigator, separate music player, separate ... oh yes, mobile phone.

And Apple can either play along (iPhone ...) or get marginalised. Because this is simply going to happen.


reg,
Lauri

2006 Nov 02 09:18 AM

[David Wolf:]

Hi Lauri,

Thanks for your input. You quite accurately echo Nokia's world view of the consumer electronics field. Unfortunately, I'm not entirely certain that, as expressed, the "convergence" model is necessarily accurate, for several reasons.

First, I am inherently suspicious of any rhetoric that is universalist in nature. All consumers will want a single device? Doesn't that make a rather bold assumption that all consumers want the same thing?

Second, the model assumes that standalone devices offer no significant advantage over converged devices. For some devices this is true, and you mention several - an alarm clock, a pocket calculator. But to this point I find phone-based calendars and PIMs - even in Treos and iPaqs - to be far inferior in utility than the PIM/CRM on my laptop, or even in a paper-based DayTimer. I find the same is true for dictionaries.

For the future, a GPS device? Absolutely. But a dive computer? No way.

A digital camera? Maybe as a replacement for a disposable point-and-shoot. But don't even begin to suggest that a mobile phone will, in the next 3-4 years, displace the function of my Canon digital SLR camera. Don't get me wrong - photography is not my hobby - I'm going to get one shot at great pictures, and I want a system that delivers. Mobile phones are a long way from that stage, and it is not merely a matter of a higher-resolution CCD or more storage that makes it so.

An e-mail device? Possibly. But I've got big hands, and I want to use a keyboard that's large enough so I'm not hitting two keys by accident. I'd also like to be able to talk on the phone while doing e-mail, and I'm sure I'm not alone. Frankly, I don't want to heft a heavy device just to chat on the phone - I want something light and sleek with a decent wireless headset.

A music player? You're right. Apple has got to give up on the standalone music player, and I think they will. But it's no longer about music alone, is it? It's about video, which takes up immense storage space, and about podcasts, and about our photo collections, and recordings of lectures or conversations, and games, and books, and all of the media we carry around in our lives.

My bet is that Sony is dead in the water with a standalone book reader, but I'm not going to read an e-book on a screen that will fit next to my ear. Nor will I play games on such a screen. The ignominious end of the N-gage certainly proved the latter.

So there are a lot of ways a media player can still converge before it can practically get sucked into a phone.

I could go on, and we're STILL only talking about the device problem, Lauri. We still haven't addressed three important problems:

1. JUICE - As much as I only want to carry one adapter, I also don't want to shlep extra batteries. But if you put all of this stuff into a single device with adequate storage, pray, where is all of the juice going to come from? I, like many people, absolutely rely on my mobile phone being available at all times. I own a business and I have a family. I can afford to let my camera, my media player, my Blackberry, and even my laptop run out of juice. NOT my phone. I want 72 hours of talk time and two weeks of standby, because on some trips I don't slow down long enough for days to plug in - and sometimes I just plain forget. That won't happen with a "converged" device, and the more you "converge" the more you tax current battery technology.

2. Content - Until Nokia integrates its devices into a system that provides users with a superior selection of content and fairly compensates (and protects the rights of) artists, authors, labels, studios, and publishing houses, at best Nokia's media devices will fail to gain traction. At worst, they will become vectors for piracy.

3. Experience - Just because you can stick it all into 300 grams of plastic, glass, and silicon doesn't mean the experience of any of this is going to get better. The experience is about much more than cramming more features into a single device - it's about a complete ecosystem to deliver on those experiences.
> Camera? Sure. Now how do I manipulate, store, print, share and archive those precious memories? The device doesn't provide the whole answer.
> Video? How do I transfer that video to my 42" flatscreen or burn it to a DVD- and what will it look like when I do? How do I get it to YouTube - and how do I edit and add credits before I do so?
> Email? How do I view an e-mail attachment - especially if it is an important document - and make changes, then store it?
> FM Radio? What about satellite? Does anyone really want to pay for FM anymore?
> Portable TV? How do I record for later viewing? For viewing on another device? You need a service for that, don't you?

But you get my point. Nokia remains of the conviction that the device should be sufficient to deliver a superior experience. Despite the introduction of increasingly converged, feature-laden devices, all Nokia does is prove that the device is no longer sufficient. There must be more.

Whether that "more" comes from a single-provider (a la Apple) or from a system of specialist providers will be determined in each major market in the world. But until Nokia really gets their arms around the "more" and what it will take to deliver it for increasingly picky consumers, the most converged devices in the world will fail to live up to their promises.

The ghost of N-gage calls as the wind blows through the trees around the glass house in Espoo. The question is - is anyone listening?

Many thanks,

David

2006 Nov 02 10:52 AM

[Ruski:]

Great stuff David, good conversation. A couple of arguments, if I may

1. I did not say they want the same thing. They will want convergence features that fit them specifically. I do not believe convergence devices will be "one device fits all" (hardware & software), which, by the way is very much the PC/laptop and Windows Mobile device offering. In particular Microsoft still seems to pack all their software practically into one package and then it is up to the user to decide what he needs to use.

I believe you will see a lot of different combinations of convergence devices, but the core is always the mobile phone. Why? - because it is, without doubt, 'the highest priority personal terminal'. And it provides the beauty of wireless communication (also data). And in my view, Nokia is doing a lot of product differentiation in this respect already (too much in my view) and that will continue.

2. When we talk ‘consumer masses’ it is not about having ‘superior convergence devices’ over a standalone device to be successful. It is about convergence devices being ‘good enough’ for ‘the masses’, i.e. the majority of users. You will always have the “serious hobbyists” with a special device like a high-end camera, high-end music player, etc. Like you still have people with an analogue Hasselblad camera (a beautiful piece of machinery by the way), or people travelling with a separate alarm clock. But the real biz is where the volumes are. And that will be in convergence devices, because of 1) everyone ‘needs’ a mobile phone anyway, 2) ease of use (just one user interface to learn, just one thing to remember to take with you), 3) the cost aspect (cheaper as argued before) and the technical aspects (‘extra’ features of the combination).
David, the ‘next to my ear’ is not an issue, Bluetooth headsets takes care of that (already out also in stereo for hassle-free music enjoyment). And you can definitely talk on the same phone (with a headset) that you are reading/writing e-mail on. And do that at the same time.

And then to your ‘problems’
1. JUICE => as you rightly point out, the mobile phone is the highest priority 'terminal' you do not want to risk being left without 'juice' in. So battery time is definitely an issue, I admit. But it is still easier to have a couple of extra batteries (also externals available), and a charger (one) handy for those occasions than having all those separate devices, all with separate (and different) batteries and different chargers to take care of. And why not have an extra miniature plain mobile phone as ‘a last resort’ (with a parallel SIM card and same telephone number ... I do).

2. Content => DRM is in place, but if you refer to Apple’s proprietary technology approach as the right way to avoid piracy, I disagree. The iPod/iTunes approach is not for proper DRM, it is to protect Apple’s own biz model. I think the (Internet) world is already passed that kind of an approach.

3. Experience => How many user interfaces do you want to learn? Camera – would you like to immediately send those precious memories to friends and relatives? Post them directly on your blog or Flickr? Or send them directly to be printed ... and then sent forward as a postcard to grandma? With a converged device you can, without wires, anywhere, at anytime. And it is not science fiction or even difficult, it works here and now. Video – smart phones already have TV-out connections (most Samsung and newest Nokia N-Series and Motorolas at least) and you can immediately look at photos and videos on any TV you can hook up to. The same way you can naturally also use a nearby TV (in you hotel for instance) for “big screen” Internet browsing, e-mail reading with those attachments, etc. Directly from your mobile phone. What do you need the laptop for really ...? FM radio - on a mobile phone is as free as any FM radio. Don’t get you here. Portable TV – you already have systems out there where you can actually program your set-top-box at home from your smart phone anywhere and then “order” those saved programs to be streamed over a 3G network to your smartphone. And again, if you hook that phone up to a nearby TV, you get to see the stuff on a bigger display. Not HDTV, though. What standalone device can (at what price) do the same? With convergence you can.

David, it is really not about ‘superior experience’ as such (despite Nokia saying so), it is about ‘good enough’ technology on a converged device at an affordable ‘bundled price’ COMBINING in the highly intriguing features you can create (mainly with software) because the fact simple fact that the device can communicate (be it CDMA/GSM/3G/Bluetooth/... WiMAX etc.).
N-Gage => We all make mistakes, and Nokia does a lot. However, Apple’s Newton (was it officially called MessagePad?) also failed miserably, but it was not proof of PDAs being the wrong thing to do. Ask Palm, they got it right ... for a while. Who really gets it right in convergence devices, I don’t know, time will tell. But Nokia sure has an advantage from its current scale benefits, technology knowhow, brand name and distribution capability.

But you need to produce good devices too, and I definitely agree David, that the Nokia N91 you commented on is a clumsy failure. The N95 is already so much better that it sends good vibs. And don’t rule out Sony, David, look at their Sony Ericsson JV and you see that they are getting it right with the Walkman and Cybershot smart phones.


Kind regards,
Lauri

2006 Nov 02 12:28 PM

[Matt D:]

Hi David,
You have made some valid points on why Nokia is unlikely to dominate the industry in the same way that the iPod/iTunes model has, but at the same time I would like to state that the industry is too fixated on the iPod/iTunes model for now and the search for an iPod killer could very well be a Sisyphean task with everyone barking up the wrong tree. Considering that billions of songs are being traded on P2P networks and downloaded openly via search engines in many countries, it is time to instead search for a more viable business model that might more favourably reward the artist rather than the labels' self-interest in preserving the hitherto exploitative model that we were previously conditioned to accept. It is simply mind boggling to note (based on Media Sentry data) that in just a single day this year, Pink Floyd's Dark Side of the Moon generated 250,000 downloads over the P2P networks - and this is 33 years after its original release date, and makes us realise how much money is being left on the table!
The iTunes Music Store is just a drop in the ocean currently and one day, its current incarnation may itself well end up as simply just a footnote in music retail history and our pursuit of the model could also be a fool’s errand.

A couple of points that I would like to comment on, under your section 'It's The Music, Stupid'
1) I think that at this point, it is too much to expect a lumbering hardware manufacturer Nokia to engage any major label or artiste in the same manner as the flamboyant Steve Jobs and his much more nimble Apple setup - which is precisely why Nokia bought Loudeye as Loudeye already has relationships with the major labels and also hundreds of independent labels and as their press release states '1.6 million tracks'

2) I think that to be fair to Nokia, the whole DRM movement is currently screwed and the onus should not be put on them to try and right the sinking ship. The genie is out of the lamp and all efforts to sell music with proprietary DRM are currently doomed as it only serves to splinter the legal music download market further and penalizes the legal music buyer further with a negative user experience. Until the industry gets together and agrees on a standard DRM format, it is unfair to place the responsibility on this to any one particular manufacturer or service - but of course special mention should be accorded to Apple for excacerbating the situation further in this respect, as Lauri rightly pointed out "The iPod/iTunes approach is not for proper DRM, it is to protect Apple's own biz model."

2006 Nov 08 07:04 AM

[carleast:]

I completely agree with Lauri on this one. And I think some of your arguments as to why convergence won't happen are poor at best David.

For instance how is anyone going to expect a phone to replace your digital slr camera? How ridiculous. A digital slr is specialist that is used for hobby purposes. A compact camera is what you take out for nights out where you want to capture moments. The phone will eventually replace compact cameras.

What on earth are you talking about regarding a dive computer? That's not convergence. That's insane. You may as well argue that the phone is never going to have a microwave oven in it.

Batteries are a problem but again I think your argument is weak. Batteries, I agree are the big potential problem to all of this but it's not as if the companies are standing back and ignoring the problem. Anyway, as Lauri says you can carry one or two spare batteries around a lot easier than you can carry a phone, camera, mp3 player, gps system, etc. You seem to be arguing for the sake of arguing there.

As for convergence itself it does present potential problems with content and the experience itself. But once we embrace 3g (or 3.5 and 4g) then the experience will be made easier by having high speed internet access to provide us with all sorts of software developers out there willing to provide us with software that will make it easier to use each device. On the phone you'll simply have a button that switches the software to what ever you're using. So you're using your camera and then you want to upload that image to some website. With a click of a button it's uploaded to your online photo library. Or a video is uploaded to youtube. Or you switch to mp3 and you stream music live from your online storage system that holds the whole of your mp3 collection on it. And that's the beauty of it. None of it will be stored on your phone. It will be used as a portal to the net where you will send and access all the information you need from your own library of information. You own bespoke library of information. And who says you'll even need to press a button. Voice recognition could make things even easier if you wanted it to. Although I think I'd still like to press the buttons.

Times are a changing David and you need to look at how other technologies and services can benefit the possibility of convergence. The internet is changing all the time. Now we just need to wait for those benefits to reach mobile phones.

2006 Nov 08 08:57 AM