Nokia Gets No Respect Against Apple, RIM

On Tuesday my friend David Wood of Symbian published a passionate rebuttal to a Forbes article about how the iPhone (AAPL) has won the hearts and minds of Silicon Valley, while Nokia (NOK) has failed.

The article by Brian Caulfield aptly portrays Nokia as the Rodney Dangerfield of the cell phone industry:

Welcome to the kangaroo court, Silicon Valley style. Nokia may sell a phone somewhere on this planet every 18 seconds, but among the digerati in the Valley, that doesn't get the Finnish handset giant much respect. Here, the natives are all toting iPhones and BlackBerrys and raving about new horizons on the mobile Web.
…
Tech blog impresario Michael Arrington [said] "I believe that Nokia and Symbian [the software that powers its smart phones] are irrelevant companies at this point," he pronounced from the stage.

Quite a verdict, considering that Nokia sells close to half of all smart phones worldwide (and 40% of all phones) and has 9,200 applications written for its phones. In early July it plunked down $410 million to buy the portion of Symbian it didn't already own.

Unlike David, I think the article is pretty fair — at least from an American standpoint, which is all it claims to be. The article notes Nokia’s global dominance and calls the verdict a “kangaroo court” (i.e. completely unfair).

However, the point of the article is Nokia’s failure to have much of an impact in North America, either with the tech industry or with consumers. Lord knows that it’s trying, by moving its CTO to Palo Alto. It’s also clear that Nokia as the most aggressive US university outreach program of any mobile phone company, with multi-man year efforts at Stanford, UCLA and MIT. But its handset share and mindshare are almost off the radar.

So it’s indisputable that Nokia (and with it Symbian) so far has lost in the US market, including the high-end smartphone market that they dominate in the global market. The iPhone and Blackberry (RIMM) are winners and Nokia is an also-ran. The question that the Europeans (and Japanese and Koreans) are asking is: so what?

The "so what" is that before the iPhone, efforts to kickstart the mobile Internet have largely failed, at least in the developed countries. Operators and manufacturers come up with all sorts of technologies and businesses but they’re not getting adopted.

The iPhone is getting used and is getting the mobile Internet adopted. It’s also winning the hearts and minds of third party software and services — both for the cool factor, but also because it has users that will try these technologies. I know both geeks and housewives that swear by it, just as the Mac is gaining share on Windows in the desktop.

Ease of use is a big deal, and Forbes gets it even if Nokia doesn’t. I will probably never own an iPhone until they end the Cingular exclusive. However, I do own a Nokia E65, which is a pretty good phone, a mediocre PDA and a useless web device. Overall, the S60 user interface lacks the consistency and regularity of the iPhone or even the early Palm PDAs.

The iPhone-like design is certainly the way forward in North America. It’s possible (but by no means certain) that it’s also the way forward in Europe and Asia.

In a standards war, we assume that winning third party developers feeds the positive feedback loop driven by network effects. However, winning third party developers is no guarantee of success. The Mac had cool apps in the 1980s and 1990s but later got crushed by Windows 95. In Symbian, the UIQ APIs had far more apps but S60 sells more than 80% of the Symbian phones (and thus UIQ is being phased out in favor of S60). Palm did a great job of winning ISVs which did nothing to solve its long-term slide in new products (and thus market share).

Most marketing problems have a basis in fact. Successful companies usually assume that marketing problems are because the market isn’t getting their message (NB: Microsoft, Intel) — but often it’s because they’re not listening to the market. Nokia (and its soon-to-be subsidiary Symbian) can continue to shoot at the messenger, or they can respond to the iPhone challenge by making their products easier to use and more compelling.

My hunch is that Apple has at least another year or two before Nokia gets its software act together. (And if Nokia doesn’t, then Microsoft, RIM, LG or Samsung will.)  So, as when it faced Windows 95, Apple better have something up its sleeve to further advance innovations when competitors catch up to its first mobile phone act.

Disclosure: No positions in stocks mentioned

Comments

[southbeach:]

Good and timely analysis. Nokia definitely has and achilles heel in the US, and as you said, they've recognized this and seem to be moving to address it. The JobsPhone phenomenon has changed the game, and the phone toting public are starting to 'get it' as a result. Its a huge breakthrough in phone use evolution. We'll see how long it takes NOK to crank their scale and operational assets and blend them with a form factor and more importantly UI that consumers can love. I would add that I just got a Nokia E71 and its actually pretty damn good. My last 3 phones have been crackberries, and the E71 now matches on style, features and usability. We shall see if this new QWERTY device presages a new and more US friendly approach from Nokia.

2008 Aug 22 06:50 AM

[dithers:]

The iPhone isnt a phone - its a small computer running OSX.
Just HOW is anyone going to match it?
Its also an iPod - in 6 years, no-one has even matched the iPod - its still at 70%.

Once again - just HOW does anyone beat Apple when they have ALL the pieces, and no-one else can use them?

2008 Aug 22 08:17 AM

[SmartphoneF...:]

Very good article, the arguments made look very sound and well-thought. However, it is very US-centric. Yes, Apple and Blackberry have the mindspace in teh US as well as cool products. Yes, Nokia has been slow to catch up here. But thinking globally, AAPL still has a long way to go and Nokia does have design, innovation, and manufacturing muscle to up the ante. The next 2-3 years will determine how this pans out. I think a couple, if not three major smartphone systems can co-exist side by side.

2008 Aug 22 08:20 AM

[icanpress:]

I'll just sit and watch my long position in Apple get bigger and bigger - market, distribution, innovation, cool factor - none of it's competitors even come close....wait till China and India cotton on to it.....

2008 Aug 22 08:28 AM

[Jon T:]

Just because Nokia has volume does not mean they have the leading product. Just look at awful Windows' market share for heavens sakes.

iPhone has leapfrogged, by perhaps three years, what Nokia provides.

In those immortal words: "Espoo, we have a problem".

2008 Aug 22 08:38 AM

[SmartphoneF...:]

"the leading product" ONE. And the world's 6 billion people will die for the ONE product...

2008 Aug 22 08:48 AM

[mollytjm:]

i agree with dithers. analysts seem to constantly compare the iphone with PHONES, when it's phone function is not why anyone buys it. there is no comparable product. apple continues to increase it's share of whatever market it's in. it's likely that will continue. i'm long apple and will stay that way.

2008 Aug 22 08:51 AM

[milos621:]

In Poland they realy like iPhone:

"Polish company hires fake iPhone customers"
canadianpress.google.c...

2008 Aug 22 09:02 AM

[MacDailyNew...:]

"My hunch is that Apple has at least another year or two before (insert company name) gets its software act together. And if (insert company name here) doesn’t, then Company A, B, C or D will."

That's exactly what they said when iPod was announced. Didn't happen.

2008 Aug 22 09:28 AM

[JaCheu:]

I think the key to the phones is software integration with the PC-- and Apple and Rimm have done it in the best way possible- Personally, I have no interest in any of Nokia's 10 new 3G phones coming this year.. I won't buy any device that has a mp3 player/ 5 megapixel camera unless its well integrated with my PC.

2008 Aug 22 10:07 AM

[Randall Arnold:]

Too many people are writing off Nokia as if they can't recover US market share. That's naive. The iPhone is fresh and novel, but so was Motorola's RAZR at one point.

Nokia has the devices; it's execution that has faltered, and that is not impossible to fix.

2008 Aug 22 10:26 AM

[Davey:]

Let me understand... iPhone design will remain stable, without improvements, while Nokia catches up to it in just two years? Clearly the author has no clue of Apple's history. It frequently EOL's highly successful hardware/software products that dominate their respective markets (e.g. iPod & Mac) and replaces them with even more stunning product features on a regular basis that captivates new users. Plus, old users get hooked on a brand whose products define every buyers expectations. (I too am long on AAPL.)

2008 Aug 22 10:53 AM

[Jon T:]

More than a bit laughable to compare iPhone with Razr...

2008 Aug 22 10:59 AM

[User 248379:]

Very poor analysis. It doesn't take into account that Apple's products are a moving target. Two years from now others may (MAY) get to where Apple is now. But by then Apple will be two years more advanced. As mentioned by others, no one has caught up to the iPod in the last 7 years. And in spite of throwing billions at its OS over the last 20+ years, Microsoft still has not caught up to Apple's OS (I'm talking quality, not quantity). Anyone who tries to understand Apple as if they were a typical tech company, like Microsoft, will never be very accurate in their analysis. Someday someone will threaten Apple's tech dominance, but that company doesn't exist today.

2008 Aug 22 11:18 AM

[jbelkin:]

The problem is that a year ago, everyone dismissed Apple & the iPhone as a newcomer who would NEVER get any traction against the big boys - guess what - the big boys have been asleep at the switch for YEARS and what has been the response? our next phone will be better - they are what now, 3? 4? generations behind the iPhone - the Instinct the collective brainpower of Samsung or Nokia stll touting features and claiming they have the best camera? Remember they claimed the iphone would never gain any traction because people didn't want to use a touchscreen (or browse the mobile web?) - yea, THEIR mobile web or their touchscreen. That's why Nokia is ignored, for ALL their supposed prowess, as you yourself noted, phone portion & camera is fine but the rest - not much of a smartphone. The facts are the other comapnies are too laden where the project manager cannot override engineering or marketing to say this feature is crap - do it again - that's the bottom line. It's not that they don't have the brainpower, they cannot bring it to market ... nor the attention to detail (just look at the Instinct's icons - some are 2D, some are 1D and some are 3D in appearance - if you cannot even create cohesive icons, how else can you take on the iPhone) ... and NOW the app store - suddenly Nokia is all about an app store ... much like the music store? No ... basically, Apple will take about 70% of the HIGH MARGIN smartphone market, RIM will hold onto to about 15% and the other 3 /4 will fight over the remaining 15%. They are all fine on creating/adding features but as a cohesive gadget, they'd had 15 years and all have failed REPEATEDLY ... because they cannot get their act together on the UI, on creating an app store and of course, creating the Apple mystic.

2008 Aug 22 12:31 PM

[Caltorguy:]

The problem is that AAPL's 'tech dominance' has never, with the exception of the iPod (which is not an expensive product), translated into market share. How is it that the company got creamed again and again by inferior products? I think it may have to do with market positioning. Owning an Apple product says I am a tech-savvy, creative, early adopter type, which isn't a message that the mass majority cares to make about themselves. I think the iPhone will do well but it is the Cadillac in a world where most are content with Hondas and Chevys.

2008 Aug 22 12:34 PM

[RattyUK:]

"The problem is that AAPL's 'tech dominance' has never, with the exception of the iPod (which is not an expensive product), translated into market share."

From a low of around 2% to something approaching 10% I think you have forgotten just how far Apple have come. I bought shares when the market share of the Mac and share price was low. Now they have approached 10% of the PC share in the US and, let us not forget, that is 10% of the MOST PROFITABLE section of market share, I think it is not the time to underestimate Apple.

2008 Aug 22 03:04 PM

[RattyUK:]

"The problem is that AAPL's 'tech dominance' has never, with the exception of the iPod (which is not an expensive product), translated into market share."

From a low of around 2% to something approaching 10% I think you have forgotten just how far Apple have come. I bought shares when the market share of the Mac and share price was low. Now they have approached 10% of the PC share in the US and, let us not forget, that is 10% of the MOST PROFITABLE section of market share, I think it is not the time to underestimate Apple.

2008 Aug 22 03:04 PM

[Caltorguy:]

The bigger question is whether the smartphone market will come to dominate the overall wireless market. An analyst I like made the comment that most aren't willing to see their wireless bill double (or more here in Canada where you can lease a Hyundai for about the same price as it costs to have an iPhone...) to have a mobile internet interface that the iPhone offers. You can't use it while driving or being mobile in general (and whether most airlines adopt wifi is an open question). I think you're dreaming in technicolor if you thing AAPL will get 70% of the overall wireless market, or even of the smartphone market. RIM was making smartphones 2 years before anyone even heard of an iPod, and to this day has a product that better meets the day to day use requirements of most business users, has huge loyalty, and is getting better every day. The iPhone is certainly more technically savvy, but history is littered with such "better" products that ultimately failed to win over the marketplace.

2008 Aug 22 03:30 PM

[chanat:]

Caltorguy makes a good point: "I think the iPhone will do well but it is the Cadillac in a world where most are content with Hondas and Chevys".
But, Dithers comment: "The iPhone isnt a phone - its a small computer running OSX." is the VERY MOST IMPORTANT aspect of this whole discussion. The iPhone is actually probably misnamed. It's a fact that the mobile browsing percentage is dominated by the iPhone. The iPod has 70% market share. Emailing will surely increase as Enterprise usage increases. I didn't say it would dominate RIMM, but it will surely increase with Exchange compatibility now. But, the biggest potential--and it's already becoming a reality--is the apps in the App Store. Soon, developers will not only make cool or fun or entertaining apps, but truly necessary apps for our daily life. When that happens, the iPhone will NEED to be renamed. Image when we speak of an Apple product and say: "oh and it has a phone too.".

2008 Aug 22 04:13 PM

[KenC:]

Good analysis, but I'm not so sure about your conclusion.

You said, "My hunch is that Apple has at least another year or two before Nokia gets its software act together. (And if Nokia doesn’t, then Microsoft, RIM, LG or Samsung will.) So, as when it faced Windows 95, Apple better have something up its sleeve to further advance innovations when competitors catch up to its first mobile phone act."

These companies have all had years and even decades to develop the best software they could, and they haven't. Where are they going to get the software chops now? Alot of it is structural. Can they build a great UI on top of the Mobile OSes they are currently using? That's a technical question, and as far as I've read, Symbian isn't going to work, why else did Nokia turn to Linux for its internet devices like the N800? WinMobile has been around for a decade and they're playing catchup. They can't shoehorn XP or Vista into a cellphone, so they've had to write a Mobile OS from scratch. How do they catch up to OS X which is the basis for Apple's computer, TV, iPod and iPhone OSes? Apple's OS structure allows them to develop faster, and more efficiently at lower cost, as they can share the costs over a variety of products. Look at Sony, Steve Jobs said a decade ago, that their weakness was software. It still is. The problem facing these companies isn't new, and yet, they've never addressed it. Look at Palm. They've had to scrap their OS and build another based upon Linux.

We know that Apple is not going to rest on its laurels. They are pushing PA Semi to come up with their own ARM design. They are pushing OS X into new areas with Open CL. They are rewriting Leopard for greater efficiency in Snow Leopard. They aren't standing still, just like the iPod, the greater conclusion is that the other companies will only get further behind, as Apple's software will optimize for its hardware, differentiating it even more. The fear for the other cellphone companies is if Apple is able to bring its great functionality to cheaper phones, like it did with iPods. Right now, Apple plays at the upper end of the smartphone market, sort of like Apple's first iPod was at the premium end of the harddrive-based MP3 players. Eventually they moved down to flash-based iPods and cheap shuffles, taking over 70% of the market. No one things Apple will take over 70% of the cell market, but if it takes a majority of the profitable segment, then the other cell companies are in trouble. They'll end up in the commodity segment, like Dell in PCs.

2008 Aug 22 04:16 PM

[Ted13:]

"The problem is that AAPL's 'tech dominance' has never, with the exception of the iPod (which is not an expensive product), translated into market share." iPod, not an expensive product? My 20GB second gen. iPod cost $500 and the top of the line iPod Photo was originally $600. Sure shuffles are cheap now, but the iPod was already the dominant MP3 player by the time Apple started to down-market the iPod.

The one advantage that Apple had with the iPod is that at that point Apple had never had a market share dominating product, and all its competitors though they could Windows it -- release a cheaper piece of junk, and walk away with the mass market.

I don't think they'll make the same mistake again (not all of them, anyway). Their problem is that the 2001 iPod/iTunes was a relatively simple product to match (I am especially talking about the iPod's controlling software).

The 2007 iPhone on the other hand is a VERY difficult product to match (heck, even Apple is having problems doing it in 2008 :-) So, even if Nokia, et al have their hearts in the right place, their chance of catching Apple are slim, unless Apple self-destructs.

2008 Aug 22 04:26 PM

[Ted13:]

@Caltorguy -- While Apple may never rival Nokia in marketshare I think you're wrong about RIM and the Blackberry. Businessweek just said that Apple will produce 40 million iPhones between July 2008 & July 2009. Is there anyone predicting that RIM will move that many Blackberries in the same 12 months? If not, that means Apple wins the marketshare war against RIM before 2009 is over if not mush sooner.

2008 Aug 22 05:03 PM

[argosy:]

I'm not a technical wizard, but there are several already big (and getting bigger) moats which Apple is building.

Can't really expand an what I read about OSX, but seems no other mobile OS can match OSX on iPhone. True or not, I don't have the technical background to argue either way.

The big ones are the Apps store (and the developers that come with it), and iTunes store (iTMS). If the Apps store plays out like it seems to be doing it will be to the iPhone what the iTMS is to the iPod. Sure one can load music on an iPod several ways, but it is just so easy to find and buy new music on the iTMS, that is what I do 90% of the time. Now how much better would an iPod 'killer' have to be to get me to move off of iTunes and learn a different system/ecosystem??? Pretty F*%#ing good.

Now in two years how many Applications am I going to have on my iPhone??? Free or ones I've paid for? How good is a 'smartphone' going to have to be to move me off the iPhone??? I'm not even mentioning the fact that now my iPhone is my MAIN iPod!!!

This is Apple's game to lose as far as I can see. I have an iPhone and I love using it but, I don't pretend it's perfect. Certainly don't see anything that will rival it in the next 6-12 months.

Even if you don't have an iPhone, as a potential Apple investor, go visit the Application store within iTunes on your computer. Just browse through all the different categories. Tell me there is nothing there that looks compelling! A lot of the apps there are games and silly do-nothing-real-useful type of Apps, but keep digging... Many of the early applications have already been updated, refined and have new features added and the Apps store has only been open for a couple of months. Wait till the more mature/complex applications really hit the apps store...

Sure other phones have Apps, maybe even a lot of Applications, but hardly any one I know looks for them or even know where to look for them.

Cheers...

2008 Aug 22 05:41 PM

[J.W. West:]

I think the iPhone fans on this board are way too complacent. I started to write a reply, but it got too long, so it’s now posted on my blog.

blog.openitstrategies....

2008 Aug 22 06:25 PM

[neutrino23:]

Nokia and RIMM didn't see Apple coming. By now they've figured it out and it must be scaring them plenty. OS X/Next has been in development for something like fifteen years not counting UNIX itself. This was the key to their success. They had all this time out of the limelight to work on their technology and get it right. There are now probably more than 25 million computers running some flavor of OS X. OS X has acquired multiple layers of technology for handling audio, video and graphics. To put this technology into a small device like a phone is astonishing. Apple is just scratching the surface with what the iPhone can do. Every June, if not more often, for the next several years Apple will release a new iPhone with major new capabilities. This year it was the Apps store, 3G and GPS. Next year what? Built in video projector? 32GB memory for movie storage? Much faster processor? A digital signal processor for enhancing the reliability of the phone connection? To think that Nokia or RIMM can cobble something together in a year or two with Linux or Symbian is just not realistic. Yes, they and LG can come up with a price competitive phone, but not an iPhone. You can talk about battery life or pixel density but it is hard for newcomers to get their minds around the amount of IP condensed into OS X.

2008 Aug 22 11:05 PM

[DavidInGA:]

Apple's goal is 1% market share. Nokia has 43% marketshare worldwide. I got a Nokia E71 this week. It has a very usable Webkit-based web browser. It plays YouTube videos just like the iPhone. It has Corporate email syncing far superior to what Apple offers (they have Mail for Exchange plus the while Intellisync Mobilesuite which does email plus calendar, PIM, and device management). It syncs music with iTunes, and syncs pictures with iPhoto. It has a GPS, an AM/FM radio, works as a tether for letting your computer access the internet over 3.5G HSDPA. It also has a 3.5 megapixel camera capable of capturing full motion video. Another thing I like is you have "work and home" modes, so you can keep your work applications and contacts separate from your personal ones.

The UI isn't as good as Apple's but it's far better than the E61 that it replaced. It's a nice looking phone to boot. Nokia isn't sitting around doing nothing, they are innovating and improving all the time.

2008 Aug 23 09:45 AM

[Constable Odo:]

Nokia's N95/N96 series handsets certainly have better hardware than the iPhone, no doubt about it. Still, there were many music players that had better hardware than the iPod, but it wasn't enough to gain much market share. Apple's iTMS probably has a lot to do with it. Plus the retail stores where you can go in and play with all their products. And Apple's customer support is very good, too. It's going to be the same way with iPhones.
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I'm not entirely happy that iPhones lack many hardware bells and whistles because I'd also like things such as full-motion video and a higher resolution camera with flash. It's great to have an microSD slot to boost memory.
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The iPhone doesn't have these things yet in the end the iPhone will outsell the top-of-the-line Nokia with the greatest of ease which is understandable due to the N95's high cost. The iPhone has the whole Apple ecosystem to feed demand to sell more and more iPhones. We just have to wait for Apple to finish the OSX Mobile framework and then the iPhone will be nearly untouchable.
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If Apple wants to it could easily afford to build iPhones with the best hardware money can buy, but I think that's down the road a bit. Apple has already bitten off more than it can chew for now, so they just need to concentrate on improving the software and helping developers to build better iPhone apps. By the end of 2010 Apple should have the smartphone market lead with about 60 million iPhones throughout the world. That's no small feat for a company that had no handset experience until a bit over a year ago.
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It's hard to understand why the media rags on Apple so much because of a few growing pains. Sure, the iPhone is far from perfect yet I doubt if there are a lot of iPhone returns. Very few new ventures have ever started out as well as the iPhone has. I don't see why the media can't appreciate that fact.

I'm sure the Nokia N96 and the BlackBerry Bold are very capable handsets than many people would be happy to own. If so many potential smartphone users are choosing iPhones instead then there must be something about the iPhone that is attracting buyers that the other handset manufacturers just don't offer.

2008 Aug 24 10:19 AM

[KenC:]

@DavidinGA, you do realize that the "Webkit-based browser" in your Nokia handset was developed by Apple's Safari team, and is their contribution to the Open-Source community. It's also being used by Google for Android, and Adobe for AIR.

2008 Aug 25 01:21 AM

[dragon10:]

good point kenC, pozdrav

2008 Aug 26 09:41 AM

[Chinaski:]

It feels strange to read these comments about iPhone's uniqueness and advanced features, being years ahead of competition and so on.

In fact, iPhone has copied a limited set of features that have been around for years in European (such as Nokia) high-end phones and made them more user-friendly. The end result is obviously pretty good.

Still, Nokia made its first "multimedia computers" that had music players, web browsers, multimedia messages, downloadable apps and so on for _five_ years ago already.

American smartphone market is six years behing the Japanese and four years behind the European market, and iPhone is the first real multimedia smartphone for sale in the USA. Even so-called experts don't know what is going on in the rest of the world, and that's why arcane stuff like GPS and 3G can make them extatic.

If you want to know what features iPhone 5 will have in 2010, look at the features Nokia phones have today: video calls, voice-assisted navigation, direct image uploading to Flickr, multimedia messages, acting as web server or as an FM radio station, video recording, Java and Flash support, FM radio, MS Office document reader/editor and much, much more. Much of it is already available even in standard mid-range phones over here, but not in iPhone.

To be sure, there is a lot Nokia can learn from iPhone regarding user interfaces and usability, and I'm sure they are learning fast.

2008 Sep 01 07:38 AM

[denis345:]

"I'll just sit and watch my long position in Apple get bigger and bigger - market, distribution, innovation, cool factor - none of it's competitors even come close....wait till China and India cotton on to it....."

Again, very us centric thinking. Here in Asia, Nokia is still very exclusive and "cool". iphones are around but seeing the iphone as the Nokia killer is not just gonna happen like that.

Also, not everybody likes touchscreens (including me). For me, they are still not perfect and far frmo being as efficient or fast as hardware buttons like on a blackberry, nokia e71 or even a normal candy bar phone with hardware buttons......

Like it was said before.... Apple will be successful but it will not be the phone for everybody, especially not at the current pricepoint. Several smartphone systems can coexist i think. why not?

But for now, Nokia has a proven smartphone system that has been around for more than a decade and the software amount and quality is unbeatable.

2008 Sep 12 01:45 AM