Is Nokia Looking for Revenue in the Wrong Places?

MacDailyNews has a great note on how Nokia wants an Apple-style cut of service revenues from its handsets. While I think that type of deal unlikely on top of Nokia's (NOK) existing subsidy stream for many of its handsets (note to Nokia: who do you think pays those subsidies for your handsets? Hint: it's not the carrier), what's more interesting is the color provided by long-time Nokia veteran Mike from Helsinki about a conversation he had two years ago with a Nokia SVP:

I flatly told him that Nokia should considered Apple (AAPL) to be a very serious threat.

With a straight face, this SVP told me that I was hallucinating.

He proposed that iPod and iTunes was an exception, and would be eclipsed by a Nokia/Microsoft (MSFT) partnership in short order. Why wouldn't he believe that? The largest maker of consumer devices in the world teamed up with a company that has 95% market share of the computer OS business [seems like a sure thing].

He further pointed out to me that Apple could never match Nokia's legendary and titan logistics chain throughout the world, and that Apple, an MP3 device maker, had no clue as to the complexities of the mobile phone world, how mobile phones should be built, how to deal with operators, etc. Apple, said this SVP, was simply out of their league.

He also pointed out to me that Nokia already had umpteen gazillion MP3 players existing on their phones (never mind that NO ONE used them), and that they had just acquired white label music aggregator Loudeye and would parlay the Nokia/Microsoft/Loudeye team into a competitive offering - be damned their operator customers.

This SVP is a keenly smart, competent, accomplished guy, supremely educated and also a person who I consider a friend. And he was utterly clueless.

That conversation echoes the one that nearly every music player manufacturer on the planet has had to date. And Microsoft's DRM and poor business decisions has managed to undermine the business of every single one of them, especially now that Microsoft's Zune competes with them and yet isn't compatible with Microsoft's own PlaysForSure music software. If Nokia continues to pin its hopes on Microsoft and rights-managed music -- which, by the way, fights the DRM-free trend that Apple, Amazon, and now Wal-Mart have successfully deployed -- there's no limit to the revenue cuts it could negotiate with the carriers. After all, 20% of zero is still zero.

Disclosure: Author is long AAPL.

Comments

[samij:]

I'd say underestimating Nokia would be just as bad a business decision that would be underestimating Apple. The steps Nokia are taking prove that they're very much alert regardless of what this "Mike" guys random encounter might have suggested.

2007 Dec 10 05:37 PM

[Try Reading It:]

My impression is that Apple tries to do its best and creates an amazing product, while the others hope their competition will do poorly. I laugh in their faces! Just like the US auto industry for years has refused to give us fuel efficient cars...now they wonder why Toyota is so big. Ha ha! I laugh at the unions and the old school detroit auto co's. In the end, the consumer and the free market will work. It sometimes takes time, but the bigger they are, the harder they will fall...

2007 Dec 10 06:53 PM

[Stefan Cons...:]

You're kidding me right? You do realize that Mac fans make anything up in order to appear to have the upper hand. "Mike from Helsinki" is a fantastic and credible source for information. Sell all your Nokia share!

2007 Dec 10 07:15 PM

[Rich4REITs:]

Excellent article! It reminds me Zander and V3 series. Remember how bossy and confident they once were...... Who else can recall Wang now? Only company confront its competitor bravely and tactically can win, eventually.

2007 Dec 10 08:53 PM

[Jon2Mobile:]

Is Carl stating that it's not the carrier that provides the subsidy for Nokia and most other mobile devices? Exactly who is providing these subsidies then?

2007 Dec 11 09:49 AM

[Texrat:]

Yes, Nokia SVPs can be incredibly oblivious. They tend to forget that once upon a time Nokia was a rubber boot maker with no clue about cell phones. So why couldn't Apple acquire the same expertise? Obviously they did, at least to an extent. The iPhone phenomenon is still far more hype than reality, and until it gains significant market share I'll remain skeptical.

That said, Nokia apparently focused so highly on Motorola that Apple (and Samsung) were essentially ignored. The RAZR's ironic downfall for Moto boosted some Nokia egos, but I know that they're in the process of self-deflating now. Nokia will recover from the iPhone "surprise". Relying on 2-year-old interviews to paint the current landscape is disingenuous. As Moto learned to their dismay, this industry turns much quicker than that these days.

2007 Dec 11 10:34 AM

[squawk:]

I think the author does a good job describing the hubris of NOK. NOK & its employees are the ones who will say anything, as well as resort to anything, to hold onto its market share for revenues generated by the sale of handsets. One need only look to the tactics NOK has resorted to in its many battles with QCOM. NOK's disdain of AAPL & its ability to penetrate the mobile handset market is not at all surprising.

NOK is not necessarily looking for revenue in the wrong places; they're looking for revenue in ANY place, as the world moves beyond GSM, a tide they've controlled for many years. JMO.

2007 Dec 11 05:30 PM

[Texrat:]

Squawk, that's way too broad and hyperbolic. You're firing from the hip with a shotgun and hitting many of the wrong targets. Very ironic.

I acknowledged the hubris of Nokia execs, but it pretty much stops there. The Nokia rank and file are far more realistic in my experience. So no, in general the employees will not "say anything, as well as resort to anything, to hold onto its market share". That's a very unfair characterization. It's not even entirely accurate of the execs, either-- there are limits, as objectified by Tyco and Enron, that Nokia execs will not breach.

As for tactics vis-a-vis QCOM, let's be objective. QCOM can get just as dirty. There is no clear white hat or black hat in that tired debacle. Why do you think QCOM's former litigation lead quit? Think about it.

2007 Dec 12 03:09 AM