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July 24, 2009

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Marat

Good essay, Tomi! Nokia really rules in the unsubsidised markets as they are masters in distribution and logistics. But it doesn't mean they should rest on their laurels. Apple's strategy is to milk the current market to the fullest as evidenced by the fact Apple and RIM are expected to have almost 60 % of total operating profits in the market (http://news.cnet.com/8301-1035_3-10290660-94.html). Why bother going to developing markets building distribution and logistics networks when you can just reap the developed markets as long as it goes? When Apple decides to target the developing world is up to them, but they usually eschew this market. It's a game of maximum returns for Apple, not the economies of scale.

Tomi T Ahonen

Hi Marat

Very true and I think from those three industry sectors, there is fascinating movement. On the business phones side, Blackberry is shifting aggressively to consumer phones, while Apple is cautiously adding to its focus on the enterprise side. Then in consumer phones, I think fascinating rumors that T-Mobile in the UK is trying to source grey market iPhones, because O2 UK the operator with exclusive iPhone deal, is taking so many T-Mobile customers.. Meanwhile big NOK is pushing very aggressively to mid-price smartphones, at price points below the N-Series; and obviously Palm Pre is also a strong move to shift Palm more to the consumer oriented smartphone field.

Thanks for writing

Tomi Ahonen :-)

Acauã

Except for Oi/Brasil Telecom operator, the Brazilian handset market is mostly subsidized.
(Full disclosure: I work for Oi/BrT. Since we don't have the Scale of Carlos Slim or Telefonica/PT, we'd rather not subsidize the handsets, instead offering credit for the costumers.)

Shelter28

Hi Tomi,

Very interesting as usual. never crossed my mind to look at the industry like this.

But maybe just some observations. To tell the truth, I've never seen Nokia as a strong player in enterprise before. My own organisation (we have 200k employees worldwide) only uses carrier tied Windows mobile devices. I've not even seen Blackberry devices listed as supported on my Company's Intranet IT support site. It's just Windows and Windows all the way. Conversely, I think I've seen articles somewhere else that says Nokia's E-series is more popular with consumers, or in your classification - those unsubsidized phone buyers. Do you have any numbers to share with you with regards to E-series sales to corporate customers?

Henry Sinn

Hi Tomi,
Another excellent article.
3 markets: Corporate, subsidised and the rest. In line with my e-mail to you the other day [sorry readers], I think there is an un-tapped opening to sway a potential purchaser down an alternative track that they may go down on the subsidised path. For those of you that don’t know about the likes of http://www.phonescoop.com/phones/finder.php or http://www.phonearena.com/htmls/phone_filter_advanced.php I highly recommend a look. Most people I know that have purchased an iPhone [for example] have been astounded by the fact that they can’t [until 3GS] forward an SMS [along with a few other things readers here know all too well about]. Ie They DO NOT KNOW WHAT THEIR PHONE CAN and CAN’T DO.
Would they have” bought it” if they knew about or were frequent visitors to site as those above? Regardless of subsidy? There is a way to change this market and consumers buying habits.
Henry

kevin

Thanks, Tomi, good article that gives us insight into the business of selling smartphones.

I'd like to add though that in the subsidized markets, the carriers/operators aren't just whimsical in determining which phones get subsidies and how much. The phones that the carriers expect to be the best in bringing in new subscribers (enterprise or consumers), reducing churn, and increasing ARPU, are the phones that will get the highest subsidies and get the most co-marketing. I also know the world isn't ideal, and there could be other non-merit factors that are a bigger factor. Handset makers either can bend to the carriers demands for only a certain set of features, or make a phone that directly appeals to consumers. Apple chose this latter more unusual route -- we need more time to fully determine how successful it will be, and whether other handset makers can follow in this path.

In unsubsidized markets, handset makers need to rely on appealing directly to users, AND on having the most efficient production and distribution systems. Nokia, Apple, and Samsung have excellent production systems in place. Nokia clearly has the best worldwide distribution system. Apple has been building its distribution system through its iPod line in many countries (but still not as many or as extensively as Nokia). But as you can see, subsidized or not, building the "best" or "most appealing" phones is still important - on that note, I'll wait for the next parts of your series.

Tomi Ahonen

Hi Acaua, Shelter28, Henry and kevin

Thank you for the comments, I will respond to each individually

Ciao Acaua. Thank you, I was generally aware of the Brazilian market but not intimately aware of it. I hope to learn much more when I visit with Mobile Monday in Sao Paulo now shortly. Hoping to see you there?

Shelter28 - good comments, and no, I don't have any deeper data on E-Series and its penetration into the enterprise market, as Nokia does not release such details and I haven't seen independent analyses of that market either, broken down that way. But you make a really good point which kind of proves my point. The individual enterprise customer will certainly pick only one or two of the platforms to support - like in your case Windows Mobile; and will resist all urges to expand that - even to the point that they have not approved the Blackberry to your organization. This is so typical in concept, only the actual selected platform will vary by maker.

I should mention, that Windows Mobile has probably its best natural market any US based global corporation. Blackberry also would have best penetration into North American enterprises, and where Apple iPhone has been making inroads, they would probably me the media and advertising oriented corporations with HQ's in the USA.

Nokia's E-Series would probably have best natural market share in global 500 companies that are based out of Europe. Japanese and South Korean global giant corporations would obviously prefer their domestic suppliers and the enterprise solutions offered by those (plus perhaps the industry further tilted by the Keiretsu and Chaebol style of families of industrial companies that group together; so each of the mobile operators/carriers will have their own family of auto maker, home electronics maker, bank etc within their group).

And the rest of the world is mostly open to competition ha-ha..


Henry - very good point, yes, most people especially who buy an iPhone, are stunned to find there are some things you really expected "every phone" to be able to do, and then find that the iPhone is not able to do that. Very true. This is what has been causing some very dissatisfied iPhone users - the vast majority are very satisfied, but there is a minority who are really upset, where they really wanted something they're already accustomed to (like in past, MMS and video recording for example) or even now, replacing a battery or having a memory card slot - which all rivals have but only iPhone doesn't. It will make some users of high-end smartphones, ie Europeans and Asians - very upset. In the US, where smartphones were far more simple and used far less, there are relatively few who would even have been exposed to these matters and thus are far less "upset" with the iPhone..

kevin - excellent point, and I am so sorry if I left the impression that the carriers/operators are "whimsical" (ha-ha, great word) in selecting the handset brands and models. No, they are very systematic (mostly) and have real strategic reasons with their decisions. They start off with phones that fit the carrier/operator services portfolio and intended strategic direction. In the early part of this decade, that was what forced Nokia to incorporate the second (VGA) camera to 3G phones, as early Nokia 3G phones did not support video calling, but the operators/carriers insisted it had to be there. Nokia must be pretty steamed that then the carriers/operators conveniently forgot this (somehwat expensive) additional element when they saw the iPhone and still today, third iPhone model does not support video calling. But yea, the carriers do not make those selections whimsically, you are totally right, and in the blog article, I did not more clearly explain, that this is a thoughtful process and is driven by the carrier/operator strategies (and partnerships). Good point, thanks

Thank you all for writing

Tomi Ahonen :-)

Jonathon

We've been hearing rumors for a few days now that an 8GB 3GS iPhone was on its way, destined to be the replacement for the 3G at the $99 price point. Of course, this is extremely exciting news, especially for anyone looking to get a budget smartphone. Selling 3GS's at that low a cost would give Apple even more of an edge than they already have.For more details http://www.i4u.com/article26294.html.

arabyana


I was really glad to read your writing.

Thank you for the great post .

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A&F

This is great news. Best of luck for the future and keep up the good work.

Tomi T Ahonen

Hi Jonathon, arabayan and A&F.

arabayna and A&F, thank you kindly for the comments.

Jonathon, I will respond to your point a bit more in detail. Yes, it may seem like 'good news' when the price seemed to be dropped to 200 dollars (3GS) and 100 dollars (3G) but in reality there was no price change. Apple's CFO Oppenheimer clearly admitted in the Apple investors quarterly call, that the iPhone series has an average price of 600 dollars.

That means, that the AT&T price 'drop' was totally just a marketing trick, a bogus price drop, to fool consumers. The real price has to be paid and Apple says the real price is 600 dollars. AT&T will not eat that price and Apple gives no discount. The consumer pays it on a 'must take' 2 year annual contract, paying the missing hundreds of dollars in monthly payments.

So while it looked good, this is totally the standard pricing trick that the industry uses - and in the USA unfortunately often in very under-handed ways. The consumer is not even told the real value of what they are committing to. In most other more mature and more user-friendly markets, if the consumer is offered a phone under contract with a big subsidy - ie a 600 dollar phone sold for 200 dollars (or free, as for example many similar phones sold in the UK) - then the consumer is told what is the 'sim free' ie non-contract price - in this case obviously 600 dollars - and you the consumer are offered the identical phone for that price if you want to take it without the onerous 2 year contract. This is for example the situation in the UK.

So yes, it did superficially seem like a nice deal, that suddenly the super-expensive iPhone became very cheap - but in reality, no change. The price did not change, only the 'cash down' prepayment portion to get an iPhone was reduced. The final price did not change. And again, in many countries such as Australia, Italy etc the consumer pays the full price without any complaints...

Thank you all for writing

Tomi Ahonen :-)

KristaIg


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cycnus

Hi Tomi,

Great article. I would give you another insight to 3rd world country in term of handset subsidizing.

I live in Indonesia, and as most operator in 3rd world country didn't do much subsidizing in american/iphone way, we have a different kind of market subsidizing here.

First, the iphone way. Telkomsel, the largest network provider in Indonesia sell iphone the apple way. US$200 up front, and the rest of payment were settled by credit card. Only the one that have good credit card history can buy it.

For the rest of the customer that don't have credit card there were another kind of subsidize. If that person gonna buy a US$ 240 phone. The phone operator would be giving the phone + US$20/month top up value inside my sim card. and a 1 year active period. So, when it's active it have a US$20 inside, and each month the operator will be giving a US$20. Until it reach US$240. The money didn't get lost if not being used it's carried over to the following months. It's a prepaid system since this type of buyer don't have credit history. By doing this, the operator hope that after 1 year using their number, the number become attached to the user, and the user would still use the number. The handset manufacture that often sell this way were: Nokia, Huawei, ZTE, Haier

The Nokia handset is the better handset, whereas the Huawei, ZTE & Haier handset mostly priced around US$10-US$30.

Baron95

The article was a good analysis of the phone market as it WAS and to some extent still is. I.e., it is a rear view analysis.

If you failed to note how the smartphone competitive environment has changed, you have binds on.

First thing you failed to notice. Different smartphone manufacturers have different ability to influence subsidies.

Apple, for instance, could subsidize their iPhones to a very large degree, because they'll make money on iTunes and apps for years on each phone. The same is not true for (to the same extent) for other platforms.

Second, on highly user friendly phones, like the iPhone for example, the Operatr can charge more for the data plan. The Dataplan for the iPhone in the US is more expensive and more restrictive than for other phones (RIM, WinMo). Therefore, AT&T can offer more subsidies to the iPhone. Because iPhone users are willing to pay.

Third, every Smartphone platform now offers effective support for Microsoft exchange. I can buy a personal iPhone or Android, and I can set them up as an exchange client, and my IT department will have no way of knowing if that is a WinMo device or not.

In fact, lots of users are using their personal iPhones to access corporate email without telling their IT departments.

So the WinMo/RIM lock on corporate email and IT control is fading.

Put it all together and you will understand why Apple came from nowhere and in a short 2 years is taking away 1/3 of the entire mobile phone market profit margins.

Apple could care less how great the Nokia supply chain is and how many $20 phones they can sell. Apple is taking the high paying customers, they are taking the high cost data plan, the iTunes downloaders, the app downloaders.

Those are the value customers. Not some 3rd world pre-paid customer.

Wake up, will you. You did a great job describing the 2006 Smartphone market.

Now try describing for us the 2011 Smartphone market. That is the interesting discussion.

Baron95

Oh, and Android and its manufacturing partners (Motorola et al) will take share even faster than the iPhone.

Nokia, Palm, and perhaps even RIM, run the risk of being marginalized very fast.

Jonathan

Obama's "Blackberry" is actually a Windows Mobile phone.

http://news.cnet.com/obamas-new-blackberry-the-nsas-secure-pda/

Alex

I’d like to thank you for posting this fantastic and very informative and helpful article! I’m interested in marketing and I guess this post is a real help for any custom writing service I hope you post more interesting articles! Regards!

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First Aid Kit Refils

Here's another look at how this program is a clunker. I had an old SUV on which I put about 1000 miles a year. It ran fine, but it was 15 years old and would just die of old age and rust within a few years. I took the Feds $4500 and bought a new SUV. Does it get better gas mileage? Absolutely! However, since I only put on about 1,000 miles a year, the 'advantage' to the environment on the 20 gallons less a year in gas I'm using is more than outweighed by the energy expended in building my new SUV by perhaps 100 fold! I hurt the environment and added to the budget deficit at the same time. But who turns down free money?? The program is nuts.

Navel Rings

Great post. re: "RDF is worth learning for a different reason..." The same goes for REST.

Of all the topics I've explored and experimented with over my time working on web applications those two have had the greatest pay-off in terms of changes of my development as an architect and an engineer.

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Great work done there. Thanks for sharing your story.

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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