Communities Dominate Brands

Smartphone Realism Part 2; What is biggest factor to global market success

What is the single biggest factor, one that totally overrides all other factors in the global market success of any given smartphone? Is it design? Is it brand? Is it the Operating System (OS)? Is it ease-of-use? Is it the features set? Is it touch screen? Is it size of the phone? Is it size of the screen? Is it battery life? Is it camera resolution? Is it QWERTY keyboard? Is it price? Is it the apps store? What is it?

I'll tell you what it is. The smartphone market, differing from other markets for consumer technologies, like home electonics, the PC industry and cars for example, is not ruled by normal free market economics.

Yes, the smartphone market has two dramatic peculiarities, which so totally distort the market, that if you don't understand these two, you will never succeed in the market as a global player. And yes, the biggest factor to smartphone success is none out of the above list.

In the first essay about the realities of smartphones, I wrote about the scale of the smartphones market which now approaches 200 million units sold annually and is growing very strongly inspite of the economic downturn. In this second essay I'll discuss the role of the sales channel and of what is called "carrier relationships" ie operator relationships for the handset makers.

Within carrier relationships lie two factors. The handset subsidy distorts the market opportunity enormously for all countries where it exists. And the other distorting factor is that many smartphones in use are not actually purchased by the person using the phone. They are often provided as employee phones by larger enterprise/corporate users. Together these two factors cover about two thirds of all smartphones sold around the world. True free-market economics, where a smartphone is judged primarily on its merits and its marketing, only applies to one out of three smartphones sold worldwide.

 

GROUP 1 - ENTERPRISE

 

Lets start with the easiest part to consider: the enterprise/corporate sales of smartphones. By enterprise/corporate customer I mean the big employers in any country, the big industry and government institutions. This type of larger customer will negotiate with the carriers/operators, to purchase thousands of handsets as company-provided employee phones. They may be referenced as enterprise, corporate or business customers, but in this essay I will use the term enterprise customer to mean the largest types of corporate and government customers. There also are far more companies in the so-called SME (Small and Medium Enterprise) business customer cateogry. As SME customers tend to follow the large enterprise customers when it comes to choice of mobile telecoms providers and handsets, I will not devote time to the SME sector of business/corporate customers. The distortion with smartphone sales is most pronounced at the largest enterprise customer end of business users of smartphones.

With (large) enterprise customers, the employees get typically business-oriented smartphones like a Blackberry or Nokia E-Series, and the enterprise customer negotiates a heavily discounted rate for the telecoms traffic, usually the bigger the client, the bigger the discount. The enterprise customer usually has custom services such as secure connectivity like VPN (Virtual Private Netork). Secure wireless email was one of RIM's early competitive advantages in bringing the Blackberry to the market. Recently the Blackberry was even accepted for President Obama's use (with premium level security systems added).

 

CARRIERS SERVING ENTERPRISE CUSTOMER

While all operators/carriers will want to catch the big enterprise customers in every country, the reality is that serving dozens of large corporate clients with tens of thousands of employees is very different from serving millions of individual consumer customers. The larger the enterprise customer, the more they need specialized services and sales attention from their suppliers. So in the natural evolution of any liberalized telecoms market, there usually emerges one or two main national operators/carriers who have most of the enterprise customer market, and the other rivals have very few of these. So for example in the UK, arguably the most competitive mobile telecoms market in terms of parity of network operators/carriers in the world, of the five operators/carriers, Vodafone and O2 have the majority of enterprise customers, while Orange, T-Mobile and Three have very few enterprise customers.

This becomes a virtuous cycle, where the enterprise oriented carriers/operators become ever better at serving the needs of enterprise customers, and get ever more of that total business customer market segment including SME customers; and can devote more resources (sales support product management  and other such staff) to serve the enterprise customers ever better. The remaining operators/carriers almost abandon the top-end of the corporate/enterprise customer segment, and only provide telecoms services (and handsets/smartphones) to some SME (Small and Medium Enterprise) clients and tend to have a far smaller slice of the total business/corporate and enterprise customer market segment in that country.

SALES TO THE ENTERPRISE CUSTOMER

 

For the operator/carrier which serves the enterprise/corporate segment, the actual Sales Representatives (Key Account Managers) of the biggest enterprise clients are the real "kings" of the company. They personally deliver so much of the total sales volume, telecoms traffic, and profits to the operator/carrier, that what they want, they get.

 

If you have not worked inside a telecoms operator/carrier, you cannot imagine how powerful these key account managers are. They have absolute rule as it relates to their "own" enterprise customer inside the operator/carrier. They have dedicated support staff serving only their one customer. The key account managers can perform all kinds of special favors to some key staff in that enterprise/corporate customer. Oh, your executive Tomi Ahonen is a James Bond fan, and he would like a 007 phone number onto his company phone? No problem, let me find one and get back to you...

TRAFFIC AND HANDSETS

Let me show you the math. Take a typical large enterprise customer in a major European country, with 5,000 company phones. Those phones could be expected to be replaced very roughly speaking, every 2 years. So we can count new phone sales of 2,500 units per year. If we say an average smartphone costs 200 dollars, that means a total sales volume of half a million dollars. Sounds quite impressive. But remember, if those phones are sold to the customer by the carrier/operator (this is not necessarily so), then the operator/carrier was a bulk sales "store" and sold the smartphones on dramatic discount with truly bottom-barrel profit margins (far more likley with zero profit). So lets say for the sake of argument, that there was a 5% mark-up on the smartphones. So the actual sales commission that the operator/carrier earned on those 2,500 smartphones sold this year, was 25,000 dollars. The rest of the 475,000 dollars is money paid directly to the smartphone manufacturers who provided the phones, ie RIM Blackberry or Nokia E-Series etc. The operator/carrier only earned 25,000 dollars (in the "best case" scenario) out of this "sale".

But the telecoms traffic, generated by this customer annually, with 5,000 company phones, in a typical European large country say like the UK, would be about 60 dollars per enterprise subscription per month. Doing the math, the total value of that one enterprise customer annual contract is 3.6 million dollars in actual traffic revenues generated onto the mobile operator/carrier's network. Where typical mobile operators/carriers globally have about 35% EBITDA margins ("gross profit") this means that the annual contract would deliver 1.26 million dollars of profits to the operator/carrier.

In reality the industry is competitive and the enterprise customers are most aggressive in their price negotiations, so this number is certainly much smaller, probably half or less even, but if we say half, it means 630,000 dollars of profit earned on telecoms traffic, compared with 25,000 dollars earned on the handset sales (in the best case). So the profits from the traffic generate 25 times more profits than even the best case of handset sales. Any competent salesperson looks at this equation, and never let the part - handsets - threaten his livelihood and the 3.6 million dollar annual contract.

And as the handset manufacturer is a separate entity, the mobile operator/carrier often agrees to sell the handsets at zero margin. It makes sense to "cut the profit" to zero on the smaller amount, and show the customer that you are offering good value to them, while attempting to hold the maximum profit on the larger item that they are buying (the annual contract).

PURCHASING AT ENTERPRISE CUSTOMER

Meanwhile, on the side of the "client" ie the enterprise customer making purchases for thousands of handsets and bulk telecoms services; the driving factor is... IT maintenance. Yes. While enterprise customers are so large that they have a professional purchasing department and some staff to cover the telecoms services, who do handle the actual contract negotiations for the enterprise customer, that telecoms purchasing executive is a very modest power executive, compared to the IT department. The purchasing decision specifically relating to any smartphones, is for all practical purposes overridden by the enterprise custormer's IT department. And the IT department are not looking to find the "best smartphone" for their employees (??) but rather, they seek to prevent more headaches in the IT maintenance department.

I need to explain this a bit. The enterprise/corporate customer IT departments are all overwhelmed by ever escallating maintenance costs of sustaining multiple redundant and rival IT solutions of different departments. In many cases of IT costs, the maintenance costs can be as high as 80% of the total costs related to a given system in a given year. The last thing IT support in any enterprise/corporate customer wants, is to add complexity to their support headache. Because of typically dozens of separate IT systems interconnected, any new element introduces many dimensions of potential contlicts.

Please also note, that the existing enterprise/corporate smartphones tend to have either a Blackberry or Symbian or Windows Mobile operating system or mix of those. The IT department knows if they accept a new smartphone platform now, they have to support it for years to come with ever increasing staff, plus handle all conflicts that inevitably arise when their employees start to mess with these new phones and interacting with company soffware solutions and also with their private interests, you know, like wanting to Twitter or do Facebook updates ("for work reasons") etc. So the IT department resists doggedly the addition of any new systems to their world.

PLAY IT SAFE

Lets think back to the Key Account Manager (Sales Rep) at the operator/carrier who's full-time job all year is to sell to that one big enterprise customer. The key account manager will focus all effort to make sure that next year, when the multi-million dollar contract comes up for renewal, the customer will sign for another contract period with him/her and not switch to a rival network. Understand this dynamic. The phones are not what the operator/carrier makes its money on. The phones are only a risk that the enterprise customer may become upset with the operator/carrier. The Key Account Manager will not jeopardize that contract worth millions for the sake of some fancy new smartphone.

This means that for any smartphones that want to invade the enterprise phones space, they have to start from the smaller businesses, and then build up a porfolio of services, apps and reference customers. Then they can hope to start to sell to enterprise customers.  This is a VERY long process. This is years not months.

It does not mean that Android or iPhone or whatever new device cannot break into this segment, only that the decision is not based on 'which phone is best' type of logic. The decision is a long process. Here for example Windows Mobile has a long track record and obvious points of inter-operability with the Windows PC environment in the enterprise/corporate customer base.

For RIM it took five years of consistent sales effort to grow from zero to 5.5 million subscribers globally to their enterprise service. Comparing that to today when RIM has shifted to consumer markets, they sell another 5.5 million new phones every 2 months.

Or take Apple iPhone. Apple CFO Peter Oppenheimer revealed this week that out of Apple's total sales of 5.2 million iPhones for the April-June quarter of 2009, the iPhone had done well to Apple's opinion in the business customer segment. Then Oppenheimer revealed that the total number of iPhones sold to business customes of any size was 35,000 units. That is 0.7% of all iPhones sold that quarter.

INERTIA RULES IN BUSINESS PHONES

What does this mean? It means that for business-oriented smartphones, the market has severe 'damping' effects which reduce volatility, promote stability and reduce opportunity. Or in other words, inertia rules. Whether the next Blackberry or E-Series phone is truly a great phone or only mediocre; or even below par as a smartphone against its supposed rivals; it will still automatically get significant market success in the enterprise segment, because all variables are stacked against innovation and change.

How many of all smartphones are used as employee phones in businesses of any size? Early on almost all smartphones were sold for business use, but today, very roughly speaking, I'd say about a third of all smartphones fall into the business-oriented category, including sales to SME customers.

GROUP 2 - SUBSIDIES

After we remove employee phones, we are left with consumer oriented smartphones which is about twice as big as he first group. For this market, the world has roughly speaking two relatively similar-size markets, with one glaring difference between markets: handset subsidies.

Most who read this blog essay understand the industry well enough, to know that the real price paid in America for an iPhone 3GS is not 200 dollars. The 3GS is subsidised by AT&T. It is sold with a 2 year contract, which then includes an embedded mandatory installment payment plan for the rest of the price of the 3GS. Even so, many will not know the exact price of the 3GS. And worse, the public press talk of the 3GS being a 200 dollar phone, or talk of its 200 dollar price tag, so the mass market perception is that the latest iPhone costs only 200 dollars.

HOW MUCH DID YOU PAY FOR YOUR CAR

This is the murky science of handset subsidies and how it confuses markets. Let me explain. Imagine you are buying a car. The car costs 25,000 dollars. You come to the dealership and see a special financing deal for you, that you only have to pay 20% down payment and pay the rest over three years. So you have to have 5,000 dollars in cash to pay the car dealer, and the rest of the 20,000 dollars (plus usually quite a lot of interest) you pay in same size monthly payments for the next three years.

So you paid 5,000 dollars today and drove home in your fabulous new car. But you know fully well, that you are not buying a "5,000 dollar car" even though that is all you actually handed to the car dealer today. You are buying a 25,000 dollar car. You know that it was partial payment, you committed to three years of installment payments to pay off the remaining 20.000 dollars of the price of the car.

700 IS 700 IS 700

I can tell you that the real consumer price for the iPhone 3GS is about 700 dollars which is what customers pay in those markets where there are no subsidies, like Italy. Yes, anyone who thinks in America that the price of the iPhone 3GS is 200 dollars, has been fooled. Exactly like the 25,000 dollar car that you bought paying 5,000 dollars up front, did not transform into a "5,000 dollar car" the real cost 700 dollar iPhone 3GS is not somehow with a magic wand converted to a "200 dollar smartphone".

The iPhone 3GS is and continues to be a 700 dollar phone, in every country, whatever the actual payment plan. (Same is true of the N97 which in Italy costs about 700 dollars and in the UK is available "for free" with contract). Hidden within your two year contract, AT&T has factored in the monthly installment payment of about 21 dollars per month for 24 months (plus interest). AT&T then gives you some package or bundle of voice minutes, text messages and data access, and estimates how much that would cost; then adds some factor for fraud and delinquent customers; then adds a healthy profit margin, and forces you to pay that amount. Say 100 dollars per month.

It does not have to be that way. In advanced markets in the industrialized world, nobody flinches that a premium phone like the iPhone 3GS or Nokia N97 costs 700 dollars, and if you want it, you pay that amount. Its not a dramatic cost. Our plasma TVs and our laptop PCs can cost significantly more than that.

Meanwhile, in the developing world, almost always. almost all phones and mobile phone subscriptions are sold without any kind of subsidy and where subsidies might exist, they tend to be of more modest value to the full cost of the handset, typically far less than half subsidy of the full price of the phone.

IMPACT TO SMARTPHONE SALES

The psychological effect of the price differential in cases of a subsidy for one phone and not for another, is enormous, totally distorting the decision-making process for the average consumer. Then it doesn't matter how great your touch screen is, or how fancy your camera resolution is, or which operating system your smartphone runs, or how many apps you have in your apps store. In the USA where the 3GS was subsidised and the N97 was not, the 3GS outsold the N97. And in the UK, where the 3GS is subsidised to about 200 UK Pound cost, but the N97 is subsidised to be "free", the N97 outsold the 3GS. The subsidy totally distorts the market.

In markets where there are subsidies, the operator/carrier usually sells the phones in their stores. The carrier/operator will select a specific relatively small portfolio of between 50 and 100 phone handset models at any one time, as the total offering in their stores. That includes non-smartphones and smartphones. And the carrier/operator may not offer subsidies to all of those phones, or may offer differing levels of subsidies (some offered "for free" while others offered for a portion subsidy out of the total cost). To understand how rare it is for a given phone model to receive a subsidy with one carrier in one country, the world has between 500 and 1,000 actual phone models in production by over 30 manufacturers at any one point in time and the big 3, Nokia, Samsung and LG each have more than 50 models in production at any one time.

Who decides? The only entity that can decide and will decide, whether there is a subsidy for any given phone model (in those countries where subsidies are allowed, obviously) is the carrier/operator. The carrier/operator extends credit to that customer for 24 months, and takes a risk the customer runs away with the phone and defaults on the remaining payments.

BUT MY SMARTPHONE IS BETTER

But understand what this means in countries of subsidies. It does not matter one iota, in a subsidied phones market, if your phone is "the world's best superphone" by all reviews and experts, and is the coolest, slimmest, hottest, best smartphone with all the bells and whistles, endorsed by all supermodels and superstar athletes (and rap stars), with the best user interface and biggest apps store and all sorts of content. If the local carriers/operators decide not to offer subsidies for your phone, but there are significant subsidies for some of your direct rivals, then your phone will not become a hit phone in that country.

GROUP 3 - UNSUBSIDISED MARKETS

That leaves roughly speaking one third of the smartphone market. If the carrier/operator does not subsidise phones, and customers tend to pay full price, then there is little incentive for the operators/carriers to support an expensive sales outlet network of carrier/operator stores. The phones are then often sold through independent dealerships, various electronics stores and dedicated handset stores etc.

That means many resellers. And for the handset maker, its totally a game of pure marketing. You have to build your brand. You have to have a good product that fits the current trends and is appealing to consumers. You have to segment your customer base and then offer targeted phones to each segment you want to compete in. The phone has to fit the local expectations which differ greatly between regions (ie Americans love clamshells, Europeans love candybars, etc).

The phone has to offer locally relevant technologies, ie in South Korea you need to install a DMB TV tuner or in Italy a DVB-H TV tuner or in Japan a 1seg TV tuner. You have to be available in as many retail outlets as possible and then manage your distribution channel(s). You have to price your phone competitively with thin margins. You have to promote your phone very visibly within that market so it means massive TV advertising, sponsoring the local sports teams, billboards, newspapers, magazines; and lots of internet advertising. And you have to have regionally localized after-sales support and service.

This group of countries with no or very few subsidies includes essentially the whole developing world. While the total living standards in the developing world are far lower than in the industrialized world, there still are wealthy people even in the poorest of nations. And those wealthy people will want fancy mobile phones, which tend to be smartphones. So any smartphone maker who wishes to be big, cannot ignore the customers of say Rio de Janeiro or Nairobi or Mumbai or Moscow or Manilla.

Have a guess who is the grand master at this game? Nokia. Yes, in the countries and for the segment where the decision is made by the individual phone user, and when the playing field is as even as it can be, that is where Nokia totally rules. In countries where there are no subsidies (excluding obviously the home markets of the handset makers), Nokia is the runaway master. Tends to have far over 50% market shares. Apple by contrast said just at the quarterly results call earlier this week, that they tend to do better in markets with subsidies, and do poorly in markets with no subsidies. It says something about being able to convince consumers, that your product is perfect for them (even if it technically might not be the ultimate phone).

SO THERE

Thats it. There are roughly speaking three main market segments for smartphones. One third is enterprise/corporate markets. The second is countries with subsidies. And the last group is the rest of the smartphones, where customers have to pay full price for phones. The enterprise oriented business smartphones for employees, are effectively selected by an IT department at any major corporation, that wants desperately to avoid any new systems to add to their complexity. Then in the markets where subsidies distort competition, the decisions of essentially awarding markets to given brands of phones and given phone models is with the carriers/operators; not with the handset manufacturers. Only in the unsubsidised consumer market, is there real undistorted competition to weed out the strong from the pack.

I know it will feel very "unfair" to many who believe that their fave smartphone (or maybe fave OS) is somehow "inherently superior" to all others, and "deserves to be the best-selling phone in the world". I hope this article helped bring some realism to that understanding. The smartphone game is not a free market economy. The smartphone handset market is particularly unfair.

THIS SERIES CONTINUES

Now, before you start to say, Tomi you did not discuss the role of the user interface or the apps store or whatever you think is also relevant, please remember, this is a series of blog essays about the smartphone market. I will get to all of those

However, I am 100% convinced that this one issue, the carrier relationships, is the single biggest determinant to which smartphone model prospers in the next quarter and which doesn't. But yes, there are many other matters to smartphones, which then take an effect, after we get past carrier relationshiops; and I will return to this series of essays to discuss the next issues that I think are relevant.

FURTHER READING

Part 1 in this series of Realism was on 13 July about the overall smarthone market size and who are the major players in Smartphone Hysteria

Earlier I also wrote about Comparison of Smarpthones vs Netbooks

The effect of the iPhone - Two Eras, Before iPhone and After iPhone (note this was written a month before original iPhone was launched, back in May of 2007)

Who Told You First? Now Apple confirms musicphones cannibalize iPod

Yes, congratulations Apple, very strong results in Macs and especially iPhones (the two iPhone models outsold all Nokia N-Series for the first time last quarter. Obvioulsy Nokia also has E-Series and far more mid-range smartphones, but this is a major achievement. As we've said, now finally 3GS is the iPhone worthy of the look and the Apple brand, and clearly the customers love it far more than they did the good looking but too flawed first and second iPhones)

Now, what I have to get back to, is the iPod argument. We had here at this blog in 2005-2006 several incredibly heated battles of arguments about the iPod compared to music phones. We started the debate back in our book Communities Dominate Brands where we first suggested that the mobile phone would win the battle of the pocket, including MP3 players like the iPod. We faced hundreds of viciously angry hatemails and comments and were crucified on mostly Apple-related forums.

In the summer of 2005, I was the first person in the world to state into the public domain (in the Financial Times and obviously also at this blog), that musicphones would exceed iPods in total sales already in the year 2006 (some others of my peers who had noticed the trend, suggested it would happen before the end of the decade). I became the target of a concentrated hatemail campaign.

We then examined the evidence, quarter after quarter, until January 2007, when Apple announced its iPhone and the issue became somewhat moot. But still today many say that these are not rival products, and that there can be no cannibalization of iPod style standa-alone MP3 players, and the musicphones that have embedded MP3 players.

Well, now we have the final word to lay this matter to rest. The Earnings Call Transcript for Apple's latest quarterly results, had a direct quotation from Apple CFO Peter Oppenheimer about this very issue. Peter said:

"I would like to discuss how we are looking at this market. We have three categories of what we call pocket products. Traditional MP3 players, iPod Touch, and iPhone. For traditional MP3 players, which includes Shuffle, Nano, and Classic, we saw a year-over-year decline which we internally had forecasted to occur. This is one of the original reasons we developed the iPhone and the iPod Touch. We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone."

So now we have categorical unequivical confirmation, officially from Apple. The musicphone can cannibalize stand-alone iPod (music player type) sales, and indeed, even Apple itself is now using the iPhone (a music-playing mobile phone) to cannibalize iPod sales.
 
But more than that, note that Oppenheimer confirms that the iPhone was developed explicitly for this purpose AND this thinking was already inside Apple HQ before the iPhone was announced - ie this was Apple straegy in 2006. They are smart people in Cupertino, they looked at exactly the same data as I did, and they came to exactly the same conclusion.

(I was right..)

So, think to yourself, when was it that you first heard an industry expert state that definitely in this decade, musicphones will cannibalize iPods. Not a hypothetical that it might happen, and not abstract future that sometimes in the next decade or beyond. Today, Apple Chief Financial Officer states beyond any doubt, that they knew musicphones would cannibalize the iPod, and wanted to have an iPhone so they could have their own product cannibalize their MP3 player. This was internal Apple strategy accofrding to the current statement, at least by the end of 2006, yet admitted only now, over two years after the iPhone was launched. So when was it that you heard for a fact that musicphones do cannibalize actual Apple branded iPod sales? Was it today (Oppenheimer) or was it some music executive or mobile telecoms analyst in 2006-2007-2008. Or did you read it here fist, a year before those?

Do we bring value to you at this blog? (and for free, with no banner advertising to annoy you) Do we give you early warning on truly major industry trends, before others see them. And even if we get attacked vicously for those statements, do we stand by them, explain them, and engage with all who leave comments here, including any of the hostile commments. If you really want to share in my pain, go tothe first 2005 link when I reported that the iPod was doomed, and read the comments thread..

Silly Silly Forbes: No its not Nokia's "Motorola Moment".. Very poor reporting

This is very incompetent reporting by Forbes. They get essentially all facts wrong on which they base their analysis. Very silly Forbes, reporting this sloppy will hurt the reputation of your magazine.

Lets examine the evidence shall we.

Parmy Olson wrote an article entitled "Nokia's Motorola Moment" today on 17 July 2009. In the article Forbes suggests that the "global champion is lagging behind an innovation shift spearheaded by Apple and even Toshiba". As evidence the magazine says that there is a "big shift happening in the mobile sector, with consumers more interested in easy Web browsing and applications than the look and feel of their phone."

Then Forbes quotes a clearly clueless analyst Lee Simson of Jeffries and Co, saying "All these guys who have nothing to do with mobile are coming into this space with better handsets than Nokia"

Of the trend to mobile phone and PC convergence, Forbes quotes the same Simpson who claims that Nokia doesn't offer details.Then Forbes suggests Nokia is in a position similar to Motorola a few years ago, and Nokia now is "failing to catch on to other innovations that are taking place in the handset space"

Forbes says Nokia was late to clam-shell phones, late to touch-screens and late to the applications store. Then they again quote clueless Simpson saying "there is nothing innovative about Nokia"

Forbes concludes observing that there is a trend in the West to smartphones, and mentions the iPhone and RIM's Blackberry as devices that Forbes thinks are successfully capturing this smartphone opportunity.

WHAT DO YOU THINK, TOMI?

What a load of crap. Rarely have I read a major publication get essentially all of its points so totally wrong. What is wrong with Forbes editors and Parmy Olson to not do the simplest, most basic research into the facts. Lets go through them one by one.

Lagging in innovation (vs who? Apple?). Forbes claims clearly that Nokia is lagging in innovation compared to Apple's iPhone. Now, the current iPhone 3GS is yes, a very impressive smartphone. Lets look at a few of the innovations we witnessed in this newest model, one month ago? Compared with the iPhone 3G from a year ago, the "innovative" 3GS upgraded its camera to 3 megapixels. Nokia is clearly not as innovative, as Nokia's first 3 megapixel cameraphone (and yes, smartphone) was released in 2006. The 3GS now added video recording ability to the camera feature of its phone. When did Nokia's (smartphone) cameraphones all incorporate this "innovative" ability? in 2004. Apple now offers video recording at 30 frames per second at so-called DVD quality. First Nokia smartphone to have 30 fps DVD quality video recording came out in 2006. The 3GS added MMS picture messaging support in 2009. Nokia's cameraphones have all been MMS compliant at least since 2003 (proabably 2002, I don't remember exactly). Apple added Autofocus in 2009. Nokia had autofocus early in 2007

Note that these all are improvements to Apple's "innovative" phone, after two changes, where each of these features existed on Nokia smartphones before the original 2G iPhone had even been launched. Who is innovative, if it took Apple two tries to get these features included. Who is following whom?

What of the previous edition of the iPhone? How innovative was the iPhone 3G in June of 2008? It offered three signifcicant changes to the handset (I'll talk about Apps store later), ie it added 3G, GPS and it added TV-out. Again, how does this innovative phone maker compare with the "follower"? Nokia's first smartphones with 3G high-speed connectivity were released in 2003. GPS? The other hot innovative feature of iPhone 3G? Nokia had it in the N95 more than a year before the iPhone 3G, in fact before the original iPhone 2G. And TV-out? Nokia offered TV out from 2006.

I can appreciate the admiration for Apple, and that its phones are sexy and extremely user-friendly and yes, its touch screen technology was quite innovative (back in 2007) but what have you done for me lately, Apple? Essentially every improvemnt to the iPhone has been a copy of Nokia innovations from years earlier. Not months, years. Six years in the case of MMS... Who is the innovative phone maker?

BUT WAIT, IT GETS WORSE

Really incompetent reporting, shame on you Forbes. Lets go on, it gets worse.  

Big shift to web browsing. Yes, there is a big shift to web browsing. But Parmy Olson, Apple did not invent this shift. Apple did not cause this shift. Apple did not originate this shift. Apple did not expose this shift. At best, in those markets where the iPhone is popular (mostly in lagging mobile telecoms markets like the USA), it has helped move this shift along. In Japan for example, where previous iPhone models have been total duds in the market (only now, the 3GS is finally accepted in Japan as an acceptable phone for that market), the existing internet usage has already shifted to mobile phones, and its not just the majority of users who now access the "real" full internet on their phones, but also the bulk of internet surfing time is on mobile phones. And this had happened by 2006, long before an iPhone. So no, this is not an Apple innovation. But yes, Apple did bring a smartphone to the market, that could access the real unrestricted full internet. And yes, Apple offered this on its iPhone already back in 2007. That is our "innovative" company.

Now, when did Nokia learn to offer the full unrestricted (non-WAP) internet on a cellular phone? How long did it take for Nokia to learn to do this amazing innovation? Not in 2007, not in 2008, not in 2009. In 1997 - exactly 10 years BEFORE the iPhone, Nokia released its first (pre)smartphone, that had full internet access, and yes, a similar width VGA screen 640 pixels across the screen, as Apple has today. Now yes, back in 1997 the Nokia 9000 Communicator did have a monochrome (black-and-white) screen, but hey, if you want to acknowledge a "big shift to web browsing" and then accuse Nokia of being less innovative than Apple - Nokia did not only do this before Apple, Nokia was the world's first phone to offer this, and yes, that was a decade before Apple. Who is the innovator? When the original iPhone launched, Nokia had about a dozen smartphone models that all featured the full internet. Not with the touch screens, but if the point was that somehow Nokia is not innovative because it missed the "big shfit" to web browsing, this is patently wrong. Nokia INVENTED this shfit. I personally wrote the first white paper when I was employed at Nokia, in 1999, on how to do the internet on cellular phones. Don't tell me Nokia has not seen this shfit coming - and done massive amount of education over the past decade before the iPhone, to teach the industry how to do it.

You know what, Parmy Olson. I have this nagging feeling that I've actually read abou this somewhere, quite a while back. Hmmm. Oh yes, a Richard C Morris wrote about the "tech-jammed" Nokia Communicator and how it gave access to email in 2001, for a publication called Forbes.

By the way, that 640 pixels wide Apple iPhone screen is VGA resolution. Now the latest Nokia E90 Communciator (from early 2008) has SVGA resolution ie 800 pixels wide. Makes internet surfing far more comfortable than having columns weirdly re-formated on the screen like on any iPhone that formats to basic VGA. But maybe thats "not innovative", eh? Apple didn't bother to add to its screen resolution in three models. Nokia's E90 is also wider - 4 inches vs iPhone's 3.5 inches, but again, whose counting.

IT GETS WORSE

Big shfit to applications. Yes, there is a shfit to applications. There is a lot of disagreement in the industry whether this is truly a "big shift" as today the "data services" side of the mobile industry (excluding SMS text messaging) is 10 times bigger than total applications sales; and 250 times bigger than total revenues of the Apple Apps Store, and many industry leaders, just yesterday Google's CEO for example, have said data services will  be bigger than data applications. But lets accept this shift. Yes, there is a shift to data applications, and yes, there are many experts who claim this is a "big shift", so lets not squabble about that issue. You can fairly report that such a shift is indeed going on, even if perhaps there is an even bigger shift as well. So apps? So apparently Apple is the big innovator with this "shift".

Apple's Apps Store is one year old. Nokia also has an apps store, it is called Ovi. Ovi launched its applications store in May of 2009. So how severly behind the times is Nokia? Its apps store was launched ten months after Apple's. So while Apple is six years behind Nokia, Apple is still innovative, but when Nokia is that quick-moving that it releases a rival service in ten months, Nokia is "failing to catch on" to innovations.

Yes, really? Apple took 12 months to build a portfolio of about 55,000 applications in its store. In two months, Nokia is already at 20,000 applications. Oh, just to see how impressive that is, Google's Android has 5,000 apps, RIM's Blackberry 2,000 Apps and Windows Mobile 600 Apps. But in 2 months, Nokia is already at 20,000. Is this really a slow-mover who is failing to move and take market opportunities? Really, Parmy Olson? Did you not bother to do the most basic Google search of your topic before writing this drivel?

But lets really look at the facts, who was the innovator in this? Nokia released its Ovi branded mobile services store in August of 2007, almost a year before Apple's Apps Store. Ovi was right from the start announced to be Nokia's all-inclusive store to deliver and to sell mobile services, applications and content. Note this is significantly more than Apple's Apps store in its scope - more innovative - and announced a year before the Apple "innovation". That Nokia did not rush apps to its store reflected its market presense and understanding of its customers - Ovi launched first in Europe and Asia - and it delivered such content and services as maps, screen savers, photos, music etc. And if you bothered to read that quarterly report from Nokia, you'd have seen that Nokia's "services business" (apps, services and content) earns to Nokia royalties in 2009 worth about half a billion dollars. Meanwhile just a week ago, the Wall Street Journal estimated that Apple earns about 80 million dollars this year as its royalty for apps sold at the Apps store. Who is following whom? Who is capturing the real opportunity and who is only pretending?

Even this is not the genesis of customizing your mobile phone with downloaded services, content and applications. The first phone maker to offer such as service did so back in 2000, first with downloadable ringing tones. And that company to offer a software/services store to download content 9 years ago was.. Nokia... This is years before Apple had launched the iTunes music store for the iPod, when the iPhone was not even a twinkle in the eye of Steve Jobs. Who's the real innovator?

And how far-sighted has this been? Nokia started in 2000, expanded the whole decade, then branded its store (as Ovi) as a supermarket for all content, services and apps, and added apps specifically to its store this May. Where are the other of the big 5 (remember, Apple only sells 1% of the world's phones, LG sells ten times that). Samsung released its Apps store in February of this year (and has about 10,000 apps). LG just released theirs now in June. SonyEricsson promises to open theirs in August. And Motorola is so far lost, they have not even announced an Apps Store. So who is really the innovator and how far ahead has Nokia been in this area? They had a dedicated "Mobile Internet Applications" division to the company as far back as 2000.

Now where was it that I read about Ovi a while back? Oh yeah, Parmy Olson, it was Forbes who was quoted about specifics of Ovi in November 2007. And Nokia's first step to allow customization of phones by downloads, in 2001, was actually singled out as being so innovative and exclusive to be for "Nokia customers alone" as reported by Forbes.

BUT IT DOES GET WORSE

(I really hate sloppy reporting, but this is one of the all-time worst and error-filled article I've ever read) Lets continue. Cue clueless analyst Lee Simpson (of Jeffries and Co). The statements by Lee Simpson are so ludicrous that one wonders what is his motivation. Has he bought Nokia stock options and now needs to push the stock price lower? Or is he just incompetent. Lee starts by saying "All these guys who have nothing to do with mobile are coming into this space with better handsets than Nokia."

Who is he talking about? Makers who were not phone makers? So he is talking about Dell? We don't have Dell's phones yet. Or Apple? Or who? HTC is a phone maker. ZTE is a phone maker, Huawei is a phone maker, Sendo is a phone maker. Google does not make phones. Toshiba is certainly not a newcomer to phones (but maybe they seem new to laggard markets like the USA). Panasonic? NEC? the Japanese makers have made Apple-magnitude amouts of handsets annually this whole decade, they are not newcomers (but they've focused on the far more demanding Japanese market recently). Microsoft doesn't make phones and their mobile phone OS has been around for years before the iPhone. Who are your "all these guys" Lee Simpson? If he means the new phone by watchmakers TAG Heuer, then again, that phone is not even launched yet. Who? The only oneof the "all these guys" with "nothing to do with mobile" making "handsets" with a phone on the market, is Apple. And they entered the phone market two years ago. Lee, you are seriously behind with your news about the industry. Perhaps time to get a Twitter acount? But yes, the only maker who was not a handset maker, who joined this industry, and has a phone already on the market, over the past several years, is Apple. The phone we have to consider then, when Apple truly did have "nothing to do with mobile" was the original iPhone, now known as iPhone 2G, back in June of 2007.

Yes, so Lee Simpson, you say these on-phone makers have brought phones that are "better than Nokia". Now was it really? Since the original iPhone launched, Apple has had to fix deficiencies ie add missing elements, of 3G, GPS and TV-out in 2008, and then even that was not enough to make it a full-featured normal smartphone, Apple had to add autofocus, MMS and video recording in 2009. So since Apple has voluntarily added these changes to the iPhone, it goes without saying, that Apple itself felt the original iPhone was not a complete phone.

But a Nokia smartphone released before the iPhone had all of those features in March of 2007, That phone, the N95, also included features that even the latest iPhone does not have, such as a 5 megapixel camera, a flash, a removable memory card expansion slot, an interchangable battery, stereo Bluetooth, Instant messaging, video calling, VOIP (Voice Over IP), 2D barcode reader and FM radio.

Well, maybe thats not fair, I mean, would this phone be covered in a magazine like Forbes? Or wait, Parmy Olson, The N95 phone was considered so relevant, that it actually was covered in Forbes well before the iPhone, in 2006. In addition to listing its main specs, and specifically four of those that the iPhone 2G would not later have - 5 megapixel, DVD video record, GPS and 3G - your collegue Bruce Upbin raved about it in these words, "the blogosphere is already drooling, and justifyably so."

The only recent "newcomer" who released a significant smartphone was computer-maker Apple. Yes, that phone had impressive innovations, in particular the size of its screen, touch-screen interface and accelerometers, all which have been since copied also (not touch-screen clearly yet as well) by Nokia. Three real innovations. But Nokia's equivalent model at the time had 6 major features that Apple has since copied, and 10 further features that the iPhone did not offer. When Lee Simpson says the non-phone-makers have come into the phone space and made "better" phones than Nokia, it is 100% totally not true. Apple itself had to fix the problems of its first iPhone. And obviously now, we can't even consider Apple as "guys who have nothing to do with mobile" when Apple has been selling phones for 2 years. No, this is totally bogus. Lee Simpson you are incompetent!

BUT IT GETS WORSE STILL

PC and phone convergence. So yes, this sounds so nice. There is a convergence trend happening. PCs are migrating via laptops and notebooks to netbooks. And the basic voice-only cellphones to basic data (SMS) phones to feature phones to smartphones. The current top-end smartphones are very close in abilities to the smallest of the netbooks. There is a renewed interest in "palmtop" computers like early PDAs from the last decade. And Apple's Steve Jobs is on record saying that the iPhone was Apple's entry into the netbooks market. A computer maker says that their smartphone is equivalent to a netbook computer. Yes, that sounds quite innovative. And where has Nokia been in this area? Two years before there was an iPhone, Nokia started to call its premium smartphone line of N-Series, not "mobile phones" but "multimedia computers." Sorry, Parmy Olson. If you did very basic journalistic research, and bothered to examine the facts, you'd see that Nokia was literally one of the first to suggest a smartphone is actually a small computer. Not only thinking that, Nokia was so obvious and vocal to communicate this, at the time radical view - that Nokia plastered that statement in all of their packaging and promtion for the N-Series. (isn't a radical view that is later adopted by your competitor, a sign of true innovation?)

Oh, Parmy Olson, have a guess who wrote about this in 2006? Yeah, your colleague Bruce Upbin at yes, Forbes. He actually used that Nokia marketing phase in the article "multimedia computer"

Failing to catch on to other innovations. Really? Why no examples? Lets turn to the evidence. I already mentioned the trend to services and applications. Most mobile telecoms experts (in advanced markets) feel that the services opportunity is far bigger than the applications opportunity. But Nokia has been innovating in both.

One of the big trends in the mobile industry is open systems. Using standards and with open APIs. With rivals collaborating. Apple's OS/X operating system, and the Apps store, is a tightly controlled monopoly by Apple. That is not the current trend, it is an archaic model from the time of mainframe computers of the 1970s. Apple is decidely against the current trend, totally anti-innovative in its operating system.

How is Nokia? It invited its most powerful rivals at the time, with Motorola (who was bigger than Nokia) and Ericsson as well as PDA-maker Psion. And to promote collaboration, even though Nokia was biggest shareholder, they expanded ownership to include Samsung, Panasonic and Sony. The Symbian operating system has since been turned into non-profit foundation, with fully Open Source Software. This is at the heart of all of Nokia's smartphones. And Nokia was a founding member of Symbian in 1998. Nokia was catching the trend eleven years ago, that still today Apple resists. Who is innovator? 

Hey, you know what, Parmy Olson, this very exact point, that Nokia is open source and Apple is a closed controlled environment, was reported by your colleague Bruce Upbin, in Forbes in 2006.

Another big trend is to embed full digital TV tuners into smartphones. Real crystal-clear broadcast digital TV, not streamed and jittery 3G TV. South Korea was the world's first country to launch these kinds of advanced superphones in 2005 and today 45% of Korean phone owners have them. 32% of Japanese phones are like this. Is Nokia involved? Nokia was creating a "European" digital TV standard called DVB-H at the start of this decade, and provided custom prototype phones for tests that were run for example in Helsinki and Oxford. And Nokia released DVB-H phones for sale in 2008. Where is your Apple, RIM/Blackberry or Palm with in-built digital TV tuners? Who is innovating?

And as to anyone really knowing this? Yes, Parmy Olson, your colleague there at Forbes, Elizabeth Woyke did report on Nokia's interests in mobile TV in 2008.

Then there is the trend to mobile advertising. While the global ad industry is experiencing unprecedented decline of TV ads, newspaper ads, radio, cinema, and even internet advertising, mobile advertising is experiencing phenomenal growth, most analysts suggest it will double this year. The Ad industry talks of this being the year of mobile advertising. Did Nokia notice? Nokia launched its Nokia Ad Service early in 2007 and expanded it to the Nokia Advertising Alliance last year - in line with open principles and collaboration again. Nokia not only has innovated in this area, it has again driven the innovation years before it broke into the mainstream. And while Google obviously does advertising for mobile, who else of the major players?

And there is the trend to full QWERTY keyboards. The article mentions RIM's Blackberries and Palm's Pre which illustrate this trend (as does the N97 also mentioned). The trend to QWERTY keyboards is far bigger than the trend to touch-screen phones. Touch-screens are not that new or innovative, as they originate from early in the previous decade, and even Apple had its touch-screen PDA, the Newton. (And incidentially, Nokia's first touch-screen phone was released 3 years before the iPhone, the 7700). But QWERTY keyboards are now the hot trend and have propelled for example RIM's Blackberries to outsell Apple iPhones by about 2 to 1. And yes, who invented this trend? Not RIM. Five years before the first Blackberry phone, there was the Nokia 9000 Communicator, the first mobile phone with a full QWERTY keyboard. Since then Nokia has expanded its range of QWERTY keyboard phone models and has always had more such models than any other maker. Who is the innovator?

What of 2D barcodes (aka QR codes)? Another invention from Asia, launched by NTT DoCoMo in Japan in 2005. Americans are now just starting to study this technology. In advanced markets it is revolutionizing how internet surfing is done on a phone, being far better than using a keypad or a touch-screen. Four out of five Japanese mobile internet users already use 2D barcodes. Europeans have been moving rapidly to 2D barcodes in countries such as Germany, Spain and the UK. Where is the 2D barcode reader on the iPhone 3GS or Palm Pre or Blackberry? Its not there. Apple will get you a 2D barcode reader software through its Apps Store. But Nokia started to ship phones with 2D barcode readers pre-installed and fully integrated, in 2006. Who is the innovator?

And there is the trend to "digital communities" or "social networking" or "user-generated content" best typified now by Twitter, Facebook and YouTube. Such a massive change in society, that Business Week wrote in its cover story in 2005, that this is the biggest change in mankinds's history, since the industrial revolution. Such a big change that the Economist wrote in 2005 in its cover issue that businesses which do not understand it, will not survive. Google's CEO Eric Shmidt said this March that this change is "the defining aspect of humanity over the next 10 or 20 years". So this shift is bigger than smartphones, bigger than mobile telecoms, bigger than the IT, telecoms and media industries. The biggest trend going.
And its interesting to see, that yes, RIM has just announced a Blackberry community and social network, for its users. This is clearly capitalizing on this trend and is truly yes, an innovation by RIM. There is no such social network by any other handset maker... except Nokia. Nokia started its path to capitalize on the social networking trend with the original Lifeblog .. in 2004. Now they offer for example Club Nokia to all Nokia phone owners.

And yes, this trend, and Nokia's interests in it has indeed been chronicled by Forbes, Parmy Olson, first in discussing Lifeblog in 2005, and then discussing the music recommendation community in Forbes in 2006.

It is irresponsible to print such rubbish with no evidence, claiming that Nokia is "failing to catch on the innovations happening in the handset market" when Nokia has invented several of the current strongest trends and been driving the industry to understand most of the others, and in almost every case, Nokia has been there long before its main rivals today, which truth be told, are not Apple or Palm or RIM, all tiny phone makers globally. The big five are Nokia, Samsung LG, SonyEricsson and Motorola. If Parmy Olson wants to write about a handset maker who is "failing to catch innovations" - then Nokia is definitely the least valid example to use, out of the top 5 biggest phone makers.

AND THE TREND TO SMARTPHONES

Finally, the biggest injustice. If the headline of this ridiculous article is "Nokia's Motorola Moment" and Forbes suggests Nokia's current lead is threatened by misunderstanding a change in the market, that is so big, it could destroy the company; and the article throughout uses the specific phone category of smartphones as this giant change which might cause the demise of Nokia, then lets examine that evidence.

First, I have to mention the alternate view, that very expensive superphones are not the engine of sustainable market dominance - 40% global market shares - but rather, that the only way you can control the mass market, is with low-cost mass market devices. The biggest car maker is not Ferrari, it is Toyota. GM made more Chevrolets than Cadillacs; Ford made more Ford branded cars than Lincolns. Even if Nokia was somehow unable to hold onto its share of top-end premium phones (smartphones), it is perfectly feasible to remain the biggest handset maker by volume if Nokia holds onto its market share in the lower end of the handset market. The biggest markets are China and India and teh vast majority of the phones that they buy are low-cost models. But lets leave this alternate strategic option to the side. Lets talk about smartphones.

Depending on the exact definition used, it can be argued that Nokia invented the smartphone market. The early smartphones were business-oriented phones (typified by the original Blackberry). Nokia was the first handset maker to separate a whole division to specialize on only business-oriented smartphones (E-Series), as distinct from the dvision selling mass-market consumer phones. Today we know the far larger smartphone opportunity is the consumer smartphone (typified by the iPhone). Nokia was the first handset maker to offer two separate lines of smartphones, one series of business phones and another consumer phones, setting the consumer smartphones unit as its own division (N-Series). This was years before anyone had seen an iPhone. Very literally Nokia was the first phone maker to even start to sell smartphones as consumer phones (as distinct from business phones). Note that recently RIM followed this same trend and released consumer-oriented smartphones and doubled its sales. Again a rival follows Nokia's lead.

Today Nokia is bringing the smartphone to mainstream consumers and sells more mid-range mid-price smartphones than top-end N-Series smartphones. Nokia has literally three separate divisions selling smartphones to different customer segments. Apple has two phone models in total. Nokia has powerfully driven the ever wider acceptance of smartphones.

Maybe this is too much of a finer point of nerdy techie geeky strategy details, that really go so obscure, that the Forbes reader would not really care, right, Parmy Olson? No, wait, Forbes did cover this very matter, Apple's iPhone vs Nokia mass market smartphones in volume, last year printing the Nokia strategy statement that these lwer price new Nokia smartphones are "for a much broader mass market."

In absolute numbers, Nokia today sells more smartphones than the four rival brands mentioned in the article, Apple, RIM, Toshiba and Palm combined. For the latest quarter, Nokia's global handset market share grew to 38%. That is for all phones. But for smartphones, Nokia's market share was 41%. Nokia, the world's biggest handset maker, is performing better in smartphones than overall in all types of phones. Which part of this performance signals a giant that is "lagging behind" and headed to a "Motorola Moment"?

The Forbes article suggests that the West "is trending" towards smartphones. Yes, the US and Canada are indeed now snapping up smartphones and about a quarter of all phones sold in these two countries are smartphones. But the phone market for Europe is twice the size of the USA, and is so far further ahead of America, that next year half of all phones sold in Europe will be smartphones (says the EU commissioner). And who is by far the best-selling smartphone in Europe, not Palm, not Toshiba, not RIM, not Apple. Its Nokia. The company has correctly anticipated the shifts in the market, and achieved the success in the most important market by size. Why is this leading Nokia to a Motorola Moment?

Now, the global economy is in the toilet. Hundreds of giant global branded companies have gone bankrupt. The recent economic news has been reports after reports of IT companies making losses. The handset market is shrinking. SonyEricsson just reported losses and all signs suggest Motorola will also post losses. Nokia has not only grown market share from the previous quarter, but did this while making profits. Yes, the profits are down but find me any global manufacturer whose profits did not decline from this time last year, before the global recession struck. That Nokia did make profits where rivals make losses, says that Nokia is executing particularly well, in exceptionally difficult economic times. And where did you Parmy Olson see a Motorola Moment in this?

This was one of the worst articles I've ever read about any mobile telecoms related topic, by any major periodical. Shame on you Forbes. Shame. Parmy Olson you have been negligent in your duties as a journalist to check sources for your story. And even worse, you have been patently unprofessinoally lazy to not even bother to read past Forbes stories about Nokia. Your colleagues have accurately covered essentially every item you managed to get wrong. (Management ahoy, perhaps this "journalist" is not really fit for the job?) and Lee Simpson, you are either incompetent or biased or both. Shame!

TWO CLARIFICATIONS

I am now (19 July) adding two clarifications, after reading all the comments left so far (thank you all who left comments!). I think it is very important to just keep these two issues clear

Innovation has nothing to do with usability. Many who have commented here, or on various forums, read between the lines in the Forbes article, and perhaps also inject their own personal experiences with recent Nokia smartphones (vs iPhone in particular) and think, but there is a point, the iPhone is far better to use than Nokia. That may be true, but it has nothing to do with innovation. If the Forbes article had been entitled "Nokia smartphones not as easy to use, this may be Nokia's Motorola Moment" - I'd have NO problem with that premise. I'd examine the evidence, but probably would agree. Certainly, I totally agree - totally agree - that Apple's iPhone is by far the best phone out there in terms of usability. (I said so earlier in this blog article!) But usability is not innovation and innovation is not usability.

It is like if I said, "it is raining", and you replied, "the sea is calm". They have nothing to do with each other. Each can be independently true or false, It can be raining and the seas be calm. It can be raining and the seas be stormy. It can be a day of sunshine and seas calm. It can be day of sunshine and seas wild. They both happen to deal with water but are not in any way linked.

Innovation is the introduction of some new technology or ability or gadget or feature etc into some industry. It is almost always "clumsy" at first intoduction. The first plane, Wright's Flier was very tricky to operate. So was the first car by Daimler Benz, so was the first computer in Bletchley Park. So was the first home video recorder by Philips. The first phones were so bad to use, that the user could not call anyone. You could only ask the switchboard operator to connect your call, even if you wanted to call your neighbor. It took 20 years until Almon Stowger looked at the phone, and decided it can be better, and invented the rotary dial, and for the first time, normal phone users could make phone calls. That does not invalidate the original invention of the telephone. Usability comes usually later. We can have total innovation with horrible usability. We can also have improved usability with no innovation. Most bug-fixes and minor software upgrades we all experience on our PCs are not innovations, but do make the usability better (or should do, ha-ha).

It is possilble to innovate in usability, but usability is only one element of a complex gadget as a mobile phone. It is very possible that usability is "the defining attribute" today in 2009, in the modern smartphone market and if Nokia was so horrible at it, that might be a Motorola Moment - But that would be a totally different Forbes article. But innovation is ONLY about doing something new, and doing it first. Whether it is usable or not, matters not at all on the FACT of innovation. It is very common that the original innovator does not create the most successful product and it is very common that companies that specialize in usability will refine such products (like for example Sony and Apple). I think you get my point. Forbes did no argue that "Nokia is facing its Motorola Moment because its Symbian OS is uncomfortable to use (vs the iPhone)". Forbes arrgued Nokia is facing its Motorola Moment because currently there is a lot of disruptive innovation going on (true) and many of its rivals are innovating like Apple, RIM, Palm and Toshiba (also true) but that Nokia is not innovating is TOTALLY untrue. I listed in this blog  Excluding all the items of features I mentioned about either the N95 or N97, in the blog I listed 9 truly giant innovations for the industry, where Nokia has been at the beginning, and far ahead of Apple, Palm, RIM and Toshiba. I could add many more, but those should be enough, as most of those innovations have been already mentioned in past editions of Forbes.

So please do not start another argument that this OS is better than that OS, it is TOTALLY not the point of the Forbes article and the errors in it. I'll grant you all arguments about the OS. It is irrelevant to the Forbes article. Has Nokia been innovative or not (however miserably poorly that may have been executed) is the only point. If Nokia has been innovative recently, and Forbes says lack of innovation causes Motorola Moment, then this argument by Forbes falls. Lets not argue after this ridiculously long blog, about whose OS (or usability) is better. Forbes claimed Nokia in trouble because Nokia does not innovate. Lets discuss whether Nokia is innovating (hwever poorly or well that is executed)

Innovation vs Strategy. Also there are some who like the conclusion of the Forbes article without considering the merits of the argument. There is a lot of feeling out there that Nokia is about to lose its market (totally irrespective of whether Nokia has innovated, some have even said Nokia innovates too much and needs control and discipline and focus, to select a few innovations and perfect those rather than to do everything). On any other issues, is it smart to sell ultra-cheap phones - to capture India, Afirca etc - or the shift in organizational abilities and staff competences from a haredware company to a software company, etc, that has nothing to do with innovation. I am happy to discuss Nokia strategies (or Apple, RIM, Palm, Toshiba; or any other handset maker; or any other player in the mobile space like Vodafone, Google, Microsoft, etc) but for you reading my blog for the first time - I have a treat for you. I am already into a series of strategy articles about the market wars of smartphones. We HAVE this discussion elsewhere. I will discuss all those factors, the role of OS, the role of software, the role of the user interface; as well as other complex matters such as handset subsidies, carrier relationsships, multiple handset ownership, replacement cycles (and price!), etc, in that series of articles about the smartphone market. Please lets move the discussion about Nokia strategies there, unless the Nokia strategy is about innovation.

Because innovation does not require a smartphone! Look at Nokia again. It sells many ultra-cheap handsets (non smartphones) in Africa, India, Latin America etc - which have the FM radio as a feature. It was Nokia who first deployed an FM radio into a phone, a true Nokia innovation for mobile phones. Now, in Africa most of the population is so poor that they don't own TVs or PCs. They cannot afford to buy a daily newspaper. More than half of the population do not have even a household radio (FM radio). Now, when Nokia offers FM radio as a feature on a phone - and about 30% of Africans already have a phone - it is a VERY compelling feature. Innovation yes. Do you (my reader) buy your hot new smartphone because it has FM radio - no. You probably didn't even notice if it had it. But in Africa (India, Paistan, Indonesia, China, Brazil, Russia....) that FM radio feature is currently among the most desired features. (and that conveniently brings my count of Nokia innovations to ten. Not just increasing the megapixel count on a camera, but true giant industry invvoations)

This blog and this counter-argument is only to Forbes articles silly statement that Nokia is not innovating (anymore) in this industry. If I have proven that Nokia is innovating, no matter how irrelevant that innovation is to you, or how poorly you think it is executed, then Forbes is wrong. It may still be true, that Nokia is on a wrong strategy on something else, but on innovation, they have been doing that very well in the past, including very recent past.

AM NOT APPLE-BASHING

And just to be clear, especially to any Apple fans and followers. I am not intending to "dump" on Apple. I am going through the facts of this silly Forbes article, which made those ourageous statements. It ws Forbes who did mention Apple/iPhone on seven separate occasions in the article (all other supposedly innovative smartphones, Palm Pre, Toshiba, RIM/Blackberry, get a combined 5 mentions). It was not me who drew a comparison of "Apple vs Nokia" in innovation, it was Forbes. I am not in any way against Apple (nor RIM, Palm or Toshiba), only correcting the blatant errors where they relate to innovation. It is not an opinion of mine, it is a fact, that the original iPhone was a 2G device. It was Apple, not me, who felt 3G was an improvement to the iPhone and so much so, that for the first re-design of the iPhone, they named the newer device "iPhone 3G". Thus 3G is recognized by Apple as an innovation. Now the reality is that Nokia's N95 was a 3G device more than a year earlier; and Nokia's first 3G smartphone was released in 2003. It is not "Apple-bashing" to report these facts, and I did not select the comparison, the "standard" of innovation to measure Nokia, to be Apple. Please don't blame me, blame that silly Forbes journalist.

But to be clear. Apple is a fantastic company, I have loved them for decades, I was a Macintosh trainer for an Authorized Apple Dealer in New York City early in my professional career. I loved the Lisa, the Mac, the Newton, the iPod. I thought so highly of iTunes that I made it the second case study of my fourth book, Communities Dominate Brands (the signature book for this blog). I eagerly awaited the "Apple iPod phone" for more than two years before the iPhone was announced. I was most supportive of the original iPhone announcement and posted immediate reviews and commentary, including the world's first prediction of how the iPhone would do in the market. Not overhype like some, not dismissing its chances like others, but I forecasted one day after the original iPhone was announced in January 2007, that yes, Apple would hit its 10M initial sales target, with a detailed analysis of why. That blog was very widely referenced. Then a month before the iPhone was launched, in May 2007 I wrote a comprehensive analysis of what its impact would be. Not only to phones, but to the IT industry, the internet business, media, and advertising. That blog was widely praised. My predictions proved very accurate.

I was very honest about the first iPhone, and explained clearly what was wrong with it, why it would not become a world hit (as it did not, the first iPhone was only a market success in America). Clearly Apple management completely agreed with all but one of my recommendations, because they have made those changes to the two revised editions, iPhone 3G and 3GS. I was not Apple-bashing, I was trying to help. And whether anybody in Cupertino happened to read my blogs or not, essentially all of my recommendations have been implemented, except for the slider QWERTY keyboard (which may still come, mark my words). Please understand, that I felt in 2007 that the original iPhone was a good phone, but an incomplete smartphone. Yet I boldly predicted that inspite of initial shortcomis, Apple would hit its sales targets. I will not let my personal views interfere with honest, factual reporting.

Since then the iPhone 3G, new pricing, better global availability and the Apps Store have all helped to bring Apple greater success. Now the iPhone 3GS is a brilliant device. Apple has achieved a lot of cross-sell and up-sell opportunities and the iPhone has helped the sales of both the Macs and the iPods. I don't hate Apple and I don't hate the iPhone. I greatly admire the company. Now recently I have been urging Apple to expand its product line (many Apple fans agree, hoping for an iPhone Nano as its often called). But for this article a journalist said Apple is more innovative than Nokia in phones. And it is honestly true, that while the iPhone is now teaching many new users to access the internet on a phone - and yes, the web surfing is BY FAR most user-friendly on an iPhone - yet Nokia did invent the real internet-surfing mobile phone ten years prior to the iPhone. Now, when that journalist explicity mentions "web surfing" as an area of innovation by which Nokia is behind - and a fellow Forbes journalist has acknowledged this ability in a Nokia phone 8 years earlier - then I have to mention this error.

I am not Apple-bashing. If the journalist had mentioned Samsung seven times or Palm or Motorola or RIM, I would have compared Nokia to that brand. It is not personal about Apple. I love Apple. But I needed to correct errors about Nokia. And trust me, if someone made as silly statements about Apple, I'd be as fiercely there to defend Apple. I defend the truth (and attack incompetence and unprofessionalism). I'm sorry if any Apple fans were offended. (Blame Forbes ha-ha..)

Habbo Not Only Second LIfe for Kids, over 40 virtual worlds have over 1M users - kids

Very very cool way to illustrate the virtual worlds for kids. Kzero has measured all virtual worlds for kids and mapped them showing user age, length of existence and size of users. Nice.

So what is your precious under 15 year old doing these days (80% of all registered users of virtual worlds are teenages..). Habbo Hotel, the grand daddy of them all (and was a case study already inour book Communities Dominate Brands) is still the biggest, and now has 135 M users. Note that this is about 10% of all internet users. Are kids registered to play in the virtual playground of Habbo. Wow.

But they are not alone, no way (way! no way! Whey! No Wh-hey!). Neopets (average age 11) has 54 M users (Gosh, thats the size of the total population of Italy). Stardoll (age 15) has 34 M. Club Penguin (age 12) has 28 M. Wee World (14) has 27 M. And so it goes, Girl Sense, Nicktropolis, Whyville, goSupermodel, Spineworld etc etc etc. Millions and millions. Kids. All under the age of 15. Meanwhile Second LIfe you ask? Is biggest adult aged virtual world, smaller than all those, at only 19M users..

And Habbo Hotel has been profitable on its youth customers for many years already (they invented the concept of charging for web content through the mobile phones using premium SMS, as kids don't have credit cards or bank accounts. I study Habbo in detail in my latest book Tomi Ahonen Pearls Vol 2: Mobile Social Networking).

Lets have some Realism to the Smartphone Hysteria, part 1: Scale

The past days have seen a a lot of hysteria about smartphones, with some on the fringes already predicting the end of Nokia. Yeah, right. Lets inject some realism to the issue of smartphones. I will post a series of shorter blogs (well, shorter by my standards ha-ha) and cover a few of the main issues. Lets start with scale today.

In 2008 the world sold 160 million smartphones, that was up 33% from the year before. While the overall economy is suffering, smartphone sales continue strong and will grow again this year. For all the hype about Android and the iPhone 3GS and Palm Pre etc, lets observe the big picture. Nokia sold 67 million smartphones. That was three times as many as total combined sales of all Apple iPhones, all Palm smartphones and all Android smartphones, put together. Even if we assumed each of those three operating systems would grow 50% annually, it would take three years for these three operating systems combined, to match Nokia's volume (in smartphones). With the rapid replacement cycles of phones (was down to 14 months last year before the economic crisis hit) and constant new models released, the picture one year is very different the next in mobile. Anyone remember the Razr? And obviously as we can see from the buzz, Android and Palm will also challenge the iPhone, not just Nokia, so these three will partly compete for the same customers, and thus cannibalize each other.

NOKIA IS NOT DOOMED

Now, before we go further, lets point out that smartphones are a small sub-sector of the mobile phone industry. Less than one in six phones sold worldwide is a smartphone. And the big giant of the industry truly is Nokia. Nokia could lose totally its market share in smartphones (literally to zero sold) and with its non-smartphone sales, it would still sell more than 2 phones for every smartphone sold in the world. Yes, Nokia sells more than a million non-smartphones every day. Most of those are cameraphones with color screens, browsers, media players, FM radio etc. (and obviously I am not suggesging that Nokia would stop selling smartphones)

So anyone who looks at today's smartphone gossip, and then extrapolates that Nokia is dying soon, is pretty silly. Nokia has massive market shares in the best growing markets like India, China, Brazil, Russia, Indonesia etc and a very powerful brand name. In less-developed countries there are customers who want to show how rich they are, and come to the phones store and say, "give me the most expensvie Nokia". They don't need its features, they want to show the world, they have "the" phone. Its a bit like the Mercedes Benz S-Class. Simply for the masses, the most expensive (semi-normal) car. The world's most expensive phone among consumer brands has usually been the Nokia Communicator and the latest model E90 last year cost almost twice the unsubsidised cost of the iPhone 3G - six times the cost of the subsidised iPhone; yet the Communicator has been the best-selling Nokia model many months in Indonesia, a developing world country. The most expensive (mass market branded) phone in the world..

So before all the techno-nerds get all glossy-eyed about the iPhone 3GS, remember, there are plenty of "ignorant" mass market customers who will buy a top-end Nokia, regardless of its exact feature set or how much better some other might be. Think about that when you read the review of the N97. I can promise you, the N97 will sell well in the world, simply because of Nokia's reach and existing customer base, regardless at all whether it happens to be, or not, technically a "better phone". Just like the next Mercedes-Benz S Class will sell well, regardless of how competitive it is against the BWM 7 class or Audi A8 etc.

But the battle is not going to be fought in the top-end of the smartphone market. The battle is won at the lowest end of the smartphone price range. Here we get Nokia scale and a wide range of products in the N-Series, the E-Series and increasingly the numbered mainstream phone models by Nokia like 5800 Xpress Music and the brand new Nokia Surge. Nokia has kept aggressively expanding its portfolio of Symbian operating system based phones from the top end to the mainstream down in the price range, and today has a wide range of devices - dozens - running it today. The battle is not one Nokia model N97 vs one Apple model iPhone 3GS. The battle is a swarm of Nokia Symbian phones vs iPhone, if you want to consider that match-up. A totally mis-matched battle, even before we look at other factors like operator/carrier relationships. Nokia will have several Symiban powered smartphone models which will outsell the iPhone.

NOBODY IS SAFE

Now, does this mean that Nokia is safe. No, of course not. I've said many times that this is the most competitive industry. But Nokia's biggest threats currently are not Palm or Android or the iPhone. Its rivals are Samsung, LG and RIM. Yes, RIM, the Blackberry. All three of those Top 6 handset makers grew sales volume, sales revenues and two of the three also profits last year. These three are the threat to Nokia.

Why not Apple? The iPhone 3GS is supremely loved by the (mostly US based) IT press and tech bloggers and sold a massive amount in the first days right after it was released. Sure. Its a great phone now, finally, in its third edition, after it fixed the massive faults we chronicled here at this blog even before the original 2G iPhone had launched. Yes, its a great phone, now in July 2009. But the mobile phone industry moves very fast. 3 megapixels may seem hot for most Americans, but Koreans have had 12 megapixel cameraphones for several years and they have already been brought to Europe. The most common camera resolution for new phone models last year in the UK was not 3 megapixels, it was 5 megapixels. Last year! So even the 3GS is starting to appear mediocre by its camera now, in Europe where they have far more advanced smartphones and where next year half of all phones sold will be smartphones according to the European Commission. The specs of a hot phone become very boring in six months and nearly obsolete in 12 months. Just compare the 3G iPhone and the iPhone 3GS. Big difference in just one year. And yes, nearly half of all smartphones sold in the world, are sold in Europe, far more than in the US, where smaretphones sell roughly on par with Asia. european also buy far more expensive smartphones on average than Americans.

So, lesson to Apple: You have to expand your product range from one model to several. The 3GS is a hot phone now, it is an ok phone for the Christmas sales, and then a boring last year's phone in February. You have a horribly inefficient sales cycle right now, big spike in the summer and a second spike for Xmas, but its down hill ever since. Very bad. You need more models, Apple, if you want to climb past 10% of smartphones sold (ie 1% of total mobile phones sold) per year.

That is what RIM did. They expanded their Blackberry model line and now have essentially a model per quarter per year. Very good. They have been able to attract new customer segments, going from enterprise/business phone to consumer/youth phone, without losing the core business cusomers. Very smart and astute strategy, executed brilliantly. What RIM now needs is to ensure customer satisfaction with the new segments whose loyalties are more ficle. Also managing a product line is different from supporting one model, so RIM need to ensure each device meets their brand expectations.

Android? Its a hot new grouping of smartphones, which like any devices, is easy to love before you've used one. The total number of handsets is still not that many but is expanding fast. There is much hope and hype around Android. Lets see how it develops. But they are coming form a tiny base. No sense in speculating about their relevance until Android devices pass about 1% of global phones (near 10% of smartphones). If they don't reach that level, they will be mostly irrelevant to the industry. To all in the Android camp: Good luck and work hard. We need new blood in the industry and right now, you are it. But to all others, don't hold your breath. Android will not have more 1% of the installed base this time next year, they have to fight for their market share and they won't be as successful as Appple was with the iPhone, which only after 2 years sells 1% of the world's phones. Give Android time. I mean years, not months.

Palm, is really fighting back, on the brink of oblivion. They say bravely that the Palm Pre is not a hail-mary pass, but seriously, there are that many smartphone operaing systems, that all can't continue. If Palm wants to remain, they need to break out of the tiny US market (the world market is 12x biggger, ("Palm-ahoy, anyone listening?"), like RIM managed to do the past two years with the Blackberry models. To succeed with that, it means learning what the rest of the world want. It was a lesson that Apple has learned and RIM has learned (but Motorola and Microsoft mostly have not)

Talking of Microsoft. What of Windows Mobile. I don't see any promising signs for this player. Certainly I don't see any reason why they should grow global market share. If one OS is destined to suffer in the next months, I think the Microsoft OS based phones are most at risk, much more so than Symbian. Not because Windows Mobile would be somehow inherently worse than Symbian (or Palm) which are all smartphone OS software which is showing its age; its because Nokia and Palm are fighting hard, while Microsoft seems lost.

So Nokia? They rushed really fast to extinguish that rumor that there was an Android smartphone in Nokia's future. I think this signals how strongly Nokia is committed to Symbian (the categorical denial came within 4 hours from the rumor starting.) Last year 2008 they had 38% of the worlds' phones, but 42% of the world's smartphones. For all that Nokia-basing we're reading, last year Nokia outperformed in smartphones, compared to its total corporate performance. This is a very powerful rival. Don't count them out if one quarter goes badly. This is an industry where carrier/operator relationships are very important and in most markets Nokia has those all solidly in place.

And yes, the Symbian operating system is not only exclusively Nokia, it is even bigger. last year over half of all smartpones sold had an OS by Symbian.

The industry is also peculiarly split where a North American smartphone concept is quite different from that of the rest of the world. It is nearly true, that what works in America, will hinder success elsewhere, and vice versa. Today the smartphone market is being shaken by the sudden fad of apps stores. Yet truth be told, most smartphone buyers worldwide will never probably not in the near future install an application onto their phones. Not even the majority A littie more than half of iPhone users (59% in US, 55% in UK according to ComScore) install apps vs about 1 in 5 globally for smartphones; and remember the iPhone users are the most fanatical lot of all apps users. I think its a bit like the big 4-wheel-drive SUV vehicles, where most SUV owners never drive one into the off-road environment, and have the vehicle for other reasons such as size, power, status, ride-height, safety etc. Similarly most smartphone users will not particularly use the "smartness" of their phones. But these matters wil be discussed in the next installments of Realism into the Hysteria of Smartphones. This first installment was about the scale.

All data in this blog that is not otherwise credited, is source: Tomi Ahonen Almanac 2009. You may freely reference this blog and quote it and link to it.

Update July 14: I heard from Colin Crawford and Johan Ragnevad who pointed out that my original statement "majority of iPhone users don't download apps" was not what they had seen. I went digging for the facts and found rather clear ComScore data from this Spring, so I corrected the story. I wanted to leave the original so you can see what I had said, and see the corrections. But apps stores were not the point of this blog, so at least not a very big harm done, I hope. I'm sorry for the error. Thanks Colin and Johan for noticing it.

FURTHER READING

Part 2 in this series of Realism has been released on July 24: The biggest factor to smartphone success globally is..

Comparison of Smarpthones vs Netbooks

The effect of the iPhone - Two Eras, Before iPhone and After iPhone (note this was written a month before original iPhone was launched, back in May of 2007)

Why Location-based spam ads will fail, but also LBS-based event ads will succeed

We are having a good discussion at Twitter about location-based services (LBS) and location-based ads and location-based search. Regular readers of the blog or my books know that I consider it a myth and have written also here extensively with tons of evidence to illustrate how futile it is to launch LBS-based services. But it is a widely loved myth, so it keeps coming back. This time I won't write a new blog, let me take two excerpts from my 7th book, Tomi Ahonen Pearls Vol 1: Mobile Advertising (2009).

First, let me show why location-based spam ads will fail. In the book I am referring to the world's first ever conference on mobile advertising, which I chaired in 2001 in London. Excerpt from the book Tomi Ahonen Pearls Vol 1: Mobile Advertising:

This is perhaps the most important discovery to me, from the February 2001 London conference. Note that this was only a conceptual idea from my Consulting Department, but an idea not invented by us, and one which was to appear for years in just about every presentation and study and report about mobile advertising.

 

The (underlying) idea is similar to what Tom Cruise experiences in the movie Minority Report, that you walk into a shopping mall, the network detects your location (that you have entered the mall) and knows you by your phone, so now fully-personalized ads can be served to you. If Tomi likes whisky, well, there is a whisky shop with Glenlivet, Tomintoul and Cragganmore on sale, here is the map, come over and get a 10% discount.

 

We've all heard that idea a hundred times. But it is totally a myth. That idea will not deliver significant advertising revenues in any format, ever. The unsolicited, location-based spam ad, was a standard part of the Nokia 3G story (with the slide in the above, without the yellow part) since the middle of 2000, and I had promised hundreds of audiences that this idea was wonderful. For example I'd say "A florist had suddenly a cancelled wedding and now lots of flowers about to go bad. So use location-based ads, spam the neighborhood and sell them at half price rather than see them expire."

 

Yeah, technically this is a nice "solution" and the engineering geeks loved it, and the store-owners would like it too. But at the London Wireless Advertising conference in February 2001 we discussed this idea with the other early experts of the industry, and I learned that this was totally a myth. It would not fly.

 

Why? Because the end-user would still see it as spam. We would hate it. We had already shown a love and affection to incoming SMS text messages. We would not tolerate abuse of random spam just because we happened to walk by a given space. Most of the time we were not in the mood for that kind of shopping. We did internal calculations at Nokia and the economic case very rapidly proved that this was a dead duck. Totally a myth.

 

So in my internal workshops from the end of February, and in the public domain since June 2001, I went on record saying that this LBS Spam idea was totally busted. And I would usually add the WAA (Wireless Advertising Association, one of the fore-fathers of the current Mobile Marketing Association) Code of Conduct for mobile advertising. All ads, all of them, on mobile had to be on the basis of opt-in. And now the florist could no longer spam the neighborhood to try to find Tomi Ahonen in the mood to pick up a dozen flowers at the cost of 6 to surprise his girlfriend. I would not opt in for the random florist; and this technically elegant, but practically non-viable business idea would start its slow death-spiral.

 

Still it would take years for the idea to be accepted as dead. I would see many companies attempt to launch location-based unsolicited ads. But I also put this warning into all of my books from M-Profits on in 2002, whenever or wherever I would discuss mobile advertising. Yes, you could do location-based ads, perhaps, in certain situations, but not just to spam random walkers-by, no matter how accurately we figured out their profiles, etc. However, at the February London conference, this concept was killed by a wide consensus of the industry leaders, and from that point whenever advertising was discussed in private workshops, I pointed out that this model is dead. The first public conference that gave me the chance to show this Pearl was in June 2001 in London at the M-Commerce conference.

Now, I have also said that location-based advertising can be big, but not in this above form, but rather as events-based campaigns. We are now starting to see many emerging. Here is how I wrote about events-based LBS ads, also in Pearls Vol 1:

As I had been explaining to people that the Location-Based Spam ad was not viable, I also had come up with a variant, which was viable. I called it the "Madonna Plays at Wembley Stadium" story and included it in my second book M-Profits in 2002, and the story has been very widely referenced since.

 

The story has evolved since 2002 and in my latest book Mobile as 7th of the Mass Media I devote two pages to the idea, so I'll just summarize it here.

 

Madonna sets up a service to locate all mobile phones when they enter the concert stadium area, like Wembley Stadium in London or Yankee Stadium in New York City etc. When a fan enters the stadium, the network will send a free ad message to the fan, like the one I show in the slide in the above. Originally this would have been an SMS message, today it would be an MMS message. She gives a free ringing tone to the fan as a gift, as a custom ringing tone, only given to those who attended her concert. She also sends a screen saver, of Madonna posing in front of the stadium, so it is clearly a unique picture only from this tour.

 

Then Madonna asks the fan to join her fan club (and thus asks permission to contact the fan later). Anyone who attends a paid rock concert will understand that the artist would like to communicate with the fans, there won't be hostility against this kind of one-time greeting. 95% of the recipients will agree to the fan club and sign up (the remainder being perhaps corporate hosts or janitors and other venue staff, who will also understand that this is part of working at the venue).

 

Madonna's benefit is that now she has the mobile phone numbers of her most passionate fans, 20,000 at this major stadium. She repeats this across her global concert tour of 50 cities and she will have the cellphone numbers of approximately one million of her best fans worldwide. If the fans were willing to pay 50 dollars for the concert ticket, then these fans will be wanting to buy Madonna's next album.

 

So when Madonna releases her next album, she can send a message to her fans to pre-order the album or even buy the songs directly downloaded to her phone as is reality in South Korea today. The costs of promoting her next album will be slashed to 100,000 dollars by which her new album is snatched up by her most loyal fans on the first week of its release, and hits number one on most national charts. This will be the future of music promotion. And the same is true of her next world tour. "Would you like the same seat at my new tour?" This kind of SMS message will sell out her next world tour, with a 20,000 seat stadium sold out with 20,000 messages sent at a cost of 2,000 dollars. Obviously there are a multitude of other benefits out of this interaction with her fan club.

 

Where the location based spam is a dead concept, this kind of location-based venue advertising is a very viable way forward for mobile advertising and marketing.

 

Moreover, it does not stop with pop and rock music. How about all other events arranged at stadiums. Football. Baseball. Hockey. Basketball. Golf. Tennis. Motor racing. The Kentucky Derby, etc etc etc. Anywhere that people gather in the thousands to one venue for one purpose, for, which there is a charge for attending, these are all ripe for location-based ads. In addition, the fans will love the advertising, not hate it.

 

We are now approaching these kinds of events-based marketing activities, and I'll show you a few Pearls towards the back of the book with the Virgin rock concert in Australia and the Shanghai Formula One race in China.

So there. Location-based spam ads will fail. Location-based events ads will succeed. If you want to read more, please pick up a copy of my eBook Tomi Ahonen Pearls Vol 1: Mobile Advertising. It has 50 case studies into successful mobile ad campaigns and concepts from aroudn the world, and has a foreword by Russell Buckley from Admob, the Chairman of the Mobile Marketing Asscociation. You can read many sample pages including several of hte cases at Tomi Ahonen Pearls Vol 1: Mobile Advertising.

Godzilla vs Reptilicus? Clash of titans: Netbooks vs Smartphones, the preview

Pick your gigarivals of choice. Godzilla vs Reptilicus? Alien vs Predator? Spiderman vs Batman? Kirk vs Picard? Venus vs Serena? Coke vs Pepsi? We will be witnessing a classic clash of true titans over the next few years, between the shrinking personal computer and the ever-smarter mobile phone. Lets handicap that contest.

IN THIS CORNER HEAVYWEIGHT CHAMP

The undefeated heavy-weight champion, the Personal ''PC" Computer. At 33 years of age, the PC comes in after decades of a steady diet and weight-loss regimen and features superfast processors, enough of a hard drive to fit the text from all the books in the Library of Congress, and so much memory to run even Windows Vista. With a full QWERTY keyboard and a mouse, and big 10 inch TFT display the PC is fast at its inputs and outputs. Taking lessons from the mobile phone, the netbook has wireless and mobile connectivity from WiFi and WiMax to 3G and 3.5G for broadband speeds. The heavyweight champion has been dieting and enters the fight weighing only 2.6 pounds (1.4 kg)

The PC has an undefeated record and in its illustrious career the heavy-weight champion has crushed the stand-alone typewriter, the desktop calculator, the filing cabinet, the encyclopedia, the desktop calendar, the yellow pages, the atlas; and in a tag-team doubles match, with the scanner and printer, has also crushed the stand-alone photocopier and fax machine. In its latest bouts it met up with the television and newspaper, and at the time of this edition going to print, the two were out for the count, no doubt the PC will emerge victorious against also the TV and newspaper.

IN THIS CORNER FEATHERWEIGHT CHAMP

The undefeated featherweight champion, the Cellular "Mobile Phone" Phone. At 30 years of age the mobile phone steps into the ring slightly younger but also weathered veteran of bruising battles in the digital space. The mobile phone has been bulking up with abilities and capabilities to exceed the wildest dreams of superspies and joins the clash in full smartphone form, with not just one inbuilt camera but two, for that special someone, one person in a million, who actually makes 3G video calls. The mobile phone has studied the laptop and bulked up from a puny keypad to full QWERTY keyboard and then adding a touch-screen. To compensate for no mouse, the smartphone has learned to take inputs via 2D barcodes. The smartphone has picked up abilities recently to gather contextual data from the networks, in location-based data. While never having a huge display for its featherweight size, the mobile has grown its screen and new measures a full 3 inches. To add versatility, the phone offers real time screen orientation and augmented reality overlays as well as live camera feeds for megapixel microscopy (what in layman's terms could be called a magnifying glass). Also dieting a lot over the past three decades, the mobile phone now enters the the match at 4.5 ounces (130 grams).

The mobile phone brings an undefeated record against the stand-alone PDA, the digital camera, the wristwatch, the pocket calculator, the landline phone, the alarm clock, the pocket calendar, the MP3 player, the address book and the white pages and portable maps. Its latest bout was with the compass, which according to all early reports was also decided by knock-out.

PREVIOUS MATCHUP

The amazing thing is that in their full professional fighting careers, the two world champions have never met up face-to-face before in a championship bout. In some junior series they have met, briefly, when a Blackberry took on emailing use of tethered laptops early in this decade, and more recently when an iPhone took on web surfing on WiFi enabled notebooks but neither contest was decisive. This no-holds barred death-match between undefeated world champions PC and mobile phone has been anticipated with great excitement for many years already.

MATCH

The battle between the netbook and the smartphone is about to commence and will last the full 12 rounds in other words up to the end of 2020, unless ended by knock-out by either contender prior to that.

ODDSMAKERS

Vegas oddsmakers in America feel the PC is the front-runner and give the netbook the odds to win. Meanwhile Monaco betting in Europe is firmly on the side of the smartphone, and European betting is heavily in favor of the mobile phone. Macau betting in Asia is almost even. The match will be an epic battle and could go either way.

TOMI AHONEN HANDICAPPING

We have received exclusive handicapping of the upcoming bout by famed author in digital convergence, Tomi T Ahonen, who has previously followed closely the careers of both champions and written extensively about them. Mr Ahonen gives us his inside scoop on the upcoming bout.

The PC has to come out swinging. It will take the fight directly to the smartphone, and attempt to approach the compactness of the smartphone, and achieve the same level of mobility in a small portable and dare I say it, sexy casing of the most desirable smartphones, while adding the richness of the PC applications and web surfing experiences. With a 3G dongle in addition to WiFi, the netbook will become a formidable opponent in its broadband connectivity. By adding Skype, the netbook has neutralized much of the mobile phone's inherent advantage of voice communications. And with a comfortable large keyboard and mouse, the netbook can deliver volleys of Twitter updates in an attempt to overwhelm the smartphone.

The mobile phone will rely on its mobility and pocketability to go where the netbook cannot go, from the bathroom to the disco, cinema and even climb right into the bed, to deliver that last SMS text message of the night. The mobile will use innovation and creativity and compact features to match the sheer power of the netbook, such as the camera also used as 2D barcode reader, to bypass some keyboard entry in web surfing, and adding real-time context based information in augmented reality. Its recent addition of money-payment skills will come in handy to conjure up new virtual money plans to use revenue streams to pick up points from the judging.

These are top top-notch, disciplined, highly trained and prepared contestants, with an illustrious legacy of defeating long-standing champions. The office typewriter and desktop calculator (PC) and the landline phone and the wristwatch (mobile phone) have been iconic champions ruling their domains for more than a hundred years each, yet defeated easily by these two champions. Do not under-estimate either one of them. They are formidable.

HOW IS YOUR REACH?

But I do think it does come down to one decisive item in the smartphone's arsenal that the netbook simply cannot match, and it is something we've coined the term "Reachability" (from the Finnish "tavoitettavuus"). The most powerful need for humans is not to be entertained, nor to be informed. It is not either to compute, The most powerful need for us humans is to communicate. That is why we carry the phone with us every day, 24 hours a day, literally taking it to the bathroom with us, and we do sleep with the phone in bed with us, but not with the laptop. To communicate.

With netbooks there are ever more powerful means to initiate communications. We can skype, we can email, we can Twitter, and depending on the 3G contract on the netbook, we can also send SMS text messages straight from the netbook. In the netbook format, the PC is catching up to the abilities of the mobile phone and may well be as good or perhaps in some cases even better at initiating communciations. Initiating communications.

But the PC falls completely in the ability to receive communcations by others in real time. Even in a netbook format, the PC will need to be on, connected, and physically open, to receive Skype calls or Facebook updates or to view a picture sent by a friend. It cannot deliver our calls and messages while we walk on the sidewalk, stand in line at the Starbucks, rush on the platform from one train to the other to make our connection. The phone can always deliver in real time, because it features reachability.

That is why the original Blackberry email was so addictive in America they called the device the "Crackberry". And then for exactly the same reasons, reachability, the rest of the world did not fall for email on the Blackberry, because by then the rest of the world had discovered SMS text messaging, something even more rapid and addictive, the "hard drug" if you will, as SMS is even more dependent on the element of reachability. Once Blackberry adjusted to become the texting-phone of choice, it found even bigger success among SMS users. Reachability is why mobile phones replace the fixed landline. We don't answer the family landline phone, because we know the call is not for me. My friends know to call me on my mobile phone. Reachability.

SERIOUSLY

Ok, enough with the supermatch. I'll take Godzilla. The netbook market is a vitally important market for the existing PC industry. It is the big frontier where the next generation of PC winners and losers will be made. There will be a long-lasting major market for the personal computer and it will have many uses where it totally trumps the best of smartphones. The PC is not going away. I have created a metaphor of 30 minutes/30 secondsto explain the different market needs, the PC serves a "30 minute" need while the mobile phone serves a "30 second" need. These two have very little overlap.

Understand what I wrote about in Reachability. While a netbook can do much the same as a smartphone, the netbook cannot replicate reachability. That means, that the netbook is a 'nice to have' device while a mobile phone is clearly today a 'must have' device. The more the smartphone can cram abilities into it, the more it will also own those activities.

All economically viable people on the planet have a mobile phone (4.2 billion subscriptions today). Many of them, but not all, will want some kind of "computing ability", which more today than ever, means some form of "internet access" which can be very basic WAP access. Some may use a netbook, laptop or other PC to do their web surfing, but increasingly as smartphones get better, many will be happy with their smartphones to do the web surfing ("computing") they want.

POCKET TEST

Remember McGuire's Law, the utility of any activity increases with its mobility. A laptop PC is more portable (more "mobile") than a desktop. A notebook fits a smaller briefcase and weighs less, is more portable than a laptop. Now ultra-tiny netbooks are even more portable. But a phone is more portable still. All modern mobile phones, even the "near-brick sized" E90 Communciator from Nokia, fit the pocket. The netbooks do not.

So if you have the ultimate greatest perfect does-absolutely-everything you ever wanted, in a netbook, but it does not fit the pocket, it won't replace the mobile phone. When you go clubbing or to the restaurant or to the sporting event or wherever, the phone must fit the pocket. If it is too big to fit into your pocket, it won't replace the phone. It is an additional gadget, inherently, not a replacement gadget.

Now bring back reachability. If we are limited to only one device that we'll take along, it will be the phone, and any additional functionality that happens to be built-into the phone. Because of reachability, if its only one thing we pocket, it will be the phone.

RINGING IN POCKET TEST

So what if it truly merges into the exact same device? A laptop-notebook-netbook-ultra-ultra-compact tiny keys pocketbook? ie the next generation "pocket PC" or any such "palmtop" form factor full-functioning PC first explored successfully by Hewlett-Packard about 20 years ago with their classic LX-100 series? This is of course quite possible.

Then I'd say the ultimate test of "is it really a phone or is it only a tiny PC" is "does it ring in the pocket". So when it is in its closed state (perhaps in sleep mode), will it still be able to receive calls (and incoming SMS messages) and ring the alarm. If  the tiny PC in your pocket really rings when someone calls you, and you then are able to take it from your pocket and take that call (or not); then yes, its a phone. Else it is a pocket-sized PC, and we've had those for more than 20 years now to tiny market success. They are now called stand-alone PDAs and their annual sales linger in the 4 million units per year when.

What is then the impact? I say the smartphone "wins". In the longer run, during the next decade, the pocketable super-smart convergence device will succeed in mass markets if it is based on a phone metaphor (ringing in pocket test) and not succeed in anywhere near that scale if it is merely a tiny PC (non-phone) netbook. It has to pass the ringing in the pocket test. If it does that, it is a phone. It not, it is a tiny PC. Lets examine these two.

REGARDLESS, NETBOOKS WILL DO WELL

The Tiny PC type of netbook is an attractive option for many reasons. It is more portable (remember McGuire's Law) so we can take it with us more often than larger PCs. The netbook is lighter, fits better, because its screen is smaller, it needs far less battery power (biggest power hog of the laptop is the screen) and with scale, it can be mass-produced to large numbers, helping push down the price. Many of the installed base of 1.2 Billion PCs in the world need to be replaced.

Don't think it will be total shift to netbooks. The laptop PC was introduced by Toshiba in 1985. It took the laptop and all portable PC types (netbooks and notebooks too) a turtle-crawling speed of 23 years, to reach just slightly greater sales annually than desktop PCs. Yes, 2008 was the first year when more laptop format PCs were sold than desktop PCs, and it took all portable PCs to achieve that for laptops, counting laptops, notebooks and netbooks to just edge out the desktop PC format. 23 years of chasing the desktop PC.

Some existing desktop PCs will never go mobile. Imagine a corporate user, with a calling center with 500 agents at a cubicle farm, with desktop PCs with flat screen monitors, reading their customer-service scripts on their PCs, and speaking on Skype-enabled headsets serving customers. That calling center operator will want absolute max optimized costs, and has zero added value from mobility of the computer. The calling center operator would not want to let workers roam around the town supposedly working, from smartphones with tiny screens. The desktop metaphor is perfectly suited for the calling center operator, and no matter how wonderful the next E-Series or Samsung or LG or Blackberry of iPhone 4G might be, they will not replace their desktops, not even with laptops or ultra-super-cheap netbooks.

In rough numbers the world sells about 150 million desktop PCs annually and the installed base is in very rough terms about 750 million desktop PCs in use today. Maybe half of them might migrate to portable computers? and perhaps a majority of those portable computers will go to netbooks eventually?

Not all. Many laptops need to be big. The netbook evolved partly from the ideas of an ultra-cheap laptop for the developing world. But many who have laptops for work needs, for example travelling salesmen who make customer presentations daily to small audiences in conference rooms using the 14" screen of their laptop, will not want a 10" or smaller screen of a subnotebook sized netbook. Others want the laptop as a multi-purpose multimedia device, to edit photographs and videos, to watch DVDs and play videogames. For them too, a larger screen is desirable. So not all will go to netbooks.

Very roughly speaking, about 150 million laptop PCs will be sold and this year about 20 million of them will be netbooks. The installed base of laptop PCs globally is about 450 million (netbooks under 25 million end of last year).

SHIFTS TO AND FROM SMARTPHONE

There is a growing shift of existing PC users shifting to smarphones. We first saw it with the Blackberry and early Nokia Communciator models at the start of the decade with a trickle of email users abandoning laptops; and its now been a more pronounced stream of converts with the iPhone recently. Obviously nowhere near even a majority of their users, there nonetheless is an undeniable trend of some existing laptop users shifting to high-end smartphones for all their "computing needs" (usually that means internet access needs) This trend will accelerate as the distinctions between a "real PC" ie netbook and "very smart" smartphone (think next year's iPhone or Blackberry, or Nokia's follower to N97 and E90). As the devices become ever more similar, the shift-over becomes ever more appealing.

Mostly those who would consider this choice - you reading this blog for example - are the wealthy part of the industrialized world, where we are lucky enough to be one of the 1.2 billion people who have a PC. For PC users in the industrialized world this is a question of choice, and also needs to consider the old PC, is it "good enough" for web surfing for another year. Would I need to re-install (perhaps re-purchase) the various software apps we've installed onto the existing PC, from Windows to the office suite to the anti-virus software etc. The phone is replaced about every year and gets ever more powerful. Maybe I'll make do with the existing PC if the new smartphone is "just good enough" to do my Twitter updates and check on CNN news and watch YouTube..

We are in the minority of the digital divide. There are 3 billion more people out there who do have a mobile phone subscription, but who do not own a PC of any kind. Most in the developing world do not even have this choice.

But please understand, it is not the only shift. There is an opposing shift too from phones to PCs. These users will not stop using their phones (for browsing etc) but may want to expand their web or computing use to a "real" PC. There are current mobile phone owners, of feature-phones or smartphones, who don't own any kind of PC, who wish to have a real PC (notebook or netbook). They currently are doing their surfing on their phone, and they perhaps also use a PC at an internet cafe or at school or with friends, and they aspire to own a netbook sometime soon. And among the middle-class in the developing world, this is a significant new market niche. So there is a reverse trend as well. Very roughly speaking, these two will cancel each other out, but my gut says the PC-to-smartphone trend will become bigger. However, considering the math involved, in the big picture, it really won't matter which off-setting trend is marginally bigger than the other. These two roughly cancel each other out.

NETBOOK MARKET SIZE

The total market for PCs may grow somewhat from the 1.2 billion in use today, to maybe 1.5 billion by the middle of the next decade. It won't reach 2 billion. And the replacement cycles for PCs have been relatively stable at 3.5 years on average so we can expect a top end annual market size of at best 400-450 million PCs sold annually, at the end of the decade.

Still, of those personal computers under perfect conditions by 2020. perhaps 300 million netbooks can be sold annually, towards the end of the new decade. That is the rosy scenario, remembering they sell about 20 million netbooks this year says Gartner. Netbooks may well never sell more than 100 million units per year. The 300 million is very very optimistic, but it is plausible. (for those more econometrically inclined, note that this means sustained annual growth rates of 28% per annum, for 11 years in a row. Reality is most likely only half this rate, sustained over more than a decade, for an industry as mature as the PC industry)

But again, I want to be clear, I do believe in a strong robust market growth opportunity for netbooks to reach into quite possibly hundreds of millions of netbooks sold per year, towards the end of the upcoming decade.

SMARTPHONE MARKET

Meanwhile, the smartphone market last year was also very roughly speaking about 150 million units sold. This year smartphone sales are growing strongly inspite of the economic downturn, will be near 200 million (but very unlikely to pass 200 M this year.). The mobile phone industry has a long history of migration patterns as the phones have picked up new abilities. These  show a perfect S-Curve, just like the shift from 1G (analog early cellphones) to 2G (GSM/CDMA etc) digital mobile phones did in the 1980s (a shift that has reached  100%).

Then we saw the S-curve pattern for SMS capable phones (up to 100% already), then in this decade several early innovations: WAP capable phones (already past 90%), then color screen capable phones (past 80%), then MMS capable phones (past 70%) then cameraphones (past 70%). All follow the same adoption pattern. Smartphones are on a similar pattern and will eventually form the majority of all phones sold in the world, the pattern is obvious and undeniable. We cannot say for certainty, if all phones will become smartphones; but certainly more than half will be, that much is clear from the numbers so far. So, roughly speaking, we'll pass 250 million smartphones sold annually in 2010, 300 million in 2011 and pass 400 million sold annually no later than 2013.

Last year, 2008, was the first year that more smartphones were sold than laptop PCs. In less than four years from now, more smartphones will be sold than all PCs sold, including all desktops, laptops, notebooks and netbooks.

Understand the scale. Netbooks are far smaller in size, their total addressable market is smaller, their adoption ceiling is far lower and they will never ever ever catch up with smartphones. Smartphones are bigger already, growing faster and with a far far far greater accessable market size.

WHO NEEDS WHOM

Lets think a bit. The PC industry has to go where their customers want them to go, to ever more mobile devices. The netbook is a natural evolution for the computer, ever smaller, ever lighter, ever more portable, ever more compact, ever more stuffed with abilities, and ever cheaper.

The phone makers have many options. Go the smartphone route is one option, which is currently very popular, or the featurephone route (SonyEricsson has been taking a beating at that option recently, with Walkman musicphones and Cybershot cameraphones) or the low-cost phones option (you need scale, so this is only for the big 5) or up the value chain to services and apps (think Apps Store). The phone makers don't need to bother with netbooks, their smartphones are close enough and have that key competitive advantage, Reachability, guaranteeing them the victory in the long run vs (non-phone) netbooks.

ONE DOLLAR PC

Ok, a couple of other thoughts. Some will say, but Tomi, the PC makers now offer deals with mobile operators/carriers to sell one dollar netbooks (with 2 year annual contracts). No difference. It is the same price for the netbook, hidden in the price of a 2 year contract. The subsidised netbook is not a one dollar PC, any more than the iPhone 3GS in America is not a 200 dollar smartphone (its real unsubsidised cost is about 700 dollars which every AT&T customer ends up paying, over the life of the contract. There is no free lunch. In other countries like Italy they pay the full unsubsidied price for the iPhone).

There is absolutely no difference in the concept, to buying a gadget from an electronics store with a monthly payments plan, or to putting the full price on a credit card and paying that off in two years.

But please do not think that pattern can hold globally. It can't. The global trend is away from subsidised phones, they are illegal in many countries (like Italy and Belgium), over half of the industrialized world don't offer any subsidies and they are even more rare in the developing world. Many countries have recently studied the phenomenon of subsidied phones, found it to be very bad practise, and moved away from them, such as South Korea and Israel recently. The countries where the subsidised netbooks will mostly be offered will tend to be the wealthiest countries like the US and UK, and even then to only the wealthier segments of the customer base, those with monthly contract "post-paid" accounts, rather than prepaid (voucher) customers who often are the poorest. The one dollar subsidised netbook will not suddenly eliminate normal rules of economics, and this is not a magical way to get poor people to afford PCs. Sorry.

SOFTWARE COSTS

A point that is often missed in the netbooks discussion is that the netbook buyer will need software to the PC, which typically is pre-installed on (most) smartphones. The netbooks tend to come out of the box relatively "dumb" that can be then customized by the new owner, by installing lots of software. The smartphone, on the other hand, tends to come out of the box fully operational, and by far the vast majority of smartphone owners never install an actual application onto their new phone.

It takes a far greater level of sophistication to install apps to PCs ("computer literacy"); even more so, to do it with free software downloaded from the net, often needing to be unzipped, which can require several steps to installation. Most mobile phone apps, can be done with over-the-air download and one or two accepting verifications on the phone screen to complete the installation.

LITERACY, COMPUTER LITERACY

I want to mention literacy. An illiterate user can easily learn basic use of a mobile phone, even to the point of sending and receiving money as millions do in Kenya for example;  but illiterate people will be bewildered by a netbook (the world has 800 million illiterate people and vast more who are marginally literate, all can happily use a mobile phone). The PC is far more demanding on its users. Remember what the World Bank just said a few days ago, that it is the mobile phone which is the most powerful platform to deliver services in the developing world. Don't kid yourself, its not the PC or broadband. Mobile is.

PHONE PLUS X EQUALS PHONE

Lets end on some fun with math. I stole this idea from Glyph Lefkovitz of Divmod, when he was discussing the computer. Glyph said anything the PC wants, it gets, and gave a cool formula:

Computer + X = Computer

Thsi is very good. Think of the PC's past. Computer + modem = computer. Computer + mouse = computer. Computer + stereo speakers = computer. I liked that theory, but saw immediately that in my mind the formula is even more compeling for the mobile, that it is

Mobile Phone + X = Mobile Phone

Now think of the history of phones. Mobile phone + camera = mobile phone. Mobile phone + MP3 player = mobile phone. Mobile phone + alarm clock = mobile phone. Mobile phone + web browser = mobile phone. Now with the the crash of the netbook and smartphone, we will see what happens when:

Mobile Phone + Computer = ?

I say it is mobile phone. Mobile phone plus computer.. will equal mobile phone. Even if both devices are identical in form factor (pocketable), it comes down to Reachability. If you can receive calls while the device is in your pocket, then its a phone and will "take over" from the PC. Both will have their own markets, the smartphone "own" market far bigger than the netbook market, but when they clash, I do think the phone "wins". So thank you Glyph, but I think I will be using that revised formula in upcoming discussions.

This is obvously my view today. I have been thinking about it a lot and many hold other views, which are equally valid. Regardless, I think this question, "which form factor, netbook or smartphone, will be predominant in the next decade" has tremendous implications for not only handset makers and PC makers, but for operating systems (Chrome vs Android for example), how that OS is structured (around a PC use metaphor, lets install apps; or a smartphone metaphor, it has to work out of the box); and of course, for applications developers. I say smartphones several times larger total market in the next decade than netbooks, similar in scale to mobile phones vs PCs today (4 times bigger).

That is what I think of now, as we brace for the clash of the titans, when the netbook enters from one corner and the smartphone from the other corner. We will see this battle rage for long into the decade, but it will not take to 2020 to see the winner. I believe we'll have a winner by round 6 or 7 in this battle, near the middle of the decade. I think I can hear the rumble and roar of Godzilla approaching..

Let me know what you think...

Anatomy of a False Rumor in the Age of Twitter

We had an interesting experience yesterday on Twitter. Around 10 AM my time in Hong Kong, I spotted a story on Twitter referred by some of the early mobilists, relating to a story by the Guardian, by Richard Wray where he wrote "Nokia is understood to be developing".. without citing any sources, and making a very dramatic statement as if Nokia had been involved with a device to use the Google Android operating system (if you missed this rumor, please note, it is totally untrue. Not a single thread of evidence to the story).

Had this been true, it would have been a dramatic shift in the smartphone operating system wars, where Nokia's Symbian has about half of the worldwide market, and currently the next largest OS platforms are RIM/Blackberry, Microsoft Windows Mobile, and the Apple iPhone OS/X. Other makers like Palm and yes Android, have very small market shares today. If Nokia (and thus Symbian) which totally dominates the market, was found indeed to suddenly abandon Symbian and go with the tiny upstart Android, it would have been as if JVC had, after demolishing Betamax video recording system in the market share wars for VCRs, suddenly announced they abandon the global market giant standard they had created, VHS, and rather release recorders on the Philips VC2000 video cassette format (the "flip cassette") which while technically innovative was a miniscule share of VCRs in the early 1980s. Totally bizarre, but indeed would have been giant news.

The Twitter technologist and mobilist contributors seized upon this item of news - the Guardian is a legitimate news source and reputable UK paper usually very good with tech news - and started the speculation rumors. So these had been buzzing around for a while and started to pick up steam around 10M Hong Kong time when I posted my first comment "Rumor is gaining, I still don't buy it (Android NOK phone)". I posted some additoinal comments on Twitter why I thought it was not likely.

Then the Twitter effect part 1 kicked in. The discussion of the original story. People who understand the smartphone OS world much better than I do, started to weigh in. Those who clearly knew what they were talking about came very decisively against this rumor, how devastatingly damaging it would be for Nokia's current strategy and position, and also started to pick apart the Guardian story, having no sources etc. I thought the strange rumor would quickly die. But it didn't.

Its so easy to retweet the story and it had a lot of appeal to many who are not very close to the facts. So the rumor mill on Twitter got hold of the story. The original Guardian article, which by now the "real mobilists" had already all agreed was false, was now being circulated by those who are interested in mobile but who do not really know it deeply. It was a juicy rumor and it was based on a legitimate newspaper story. It had a lot of credibilty (for a rumor).

Several mobile related bloggers (who shall remain nameless, no need to shame them, they were only repeating what had been an erroneous story in the Guardian) started to blog about it. This Twitter effect part 2 fed the flames at Twitter and updates mentioning Nokia and Android were now coming every few minutes. So we got the first voice of sanity from Staska at Unwired View who explained clearly that this rumor was unfounded and had no merit. By my timing this was about 2 hours after the original story broke on Twitter. I (and many others obviously) started to retweet this story by Unwired View and try to bring some sanity to the rampant rumors.

About an hour later we got Stefan Constantinescu's unequivocal rebuke in his story at Into Mobile, where Stefan put it plainly into the headline: "Do not listen to the Guardian, there will be no Nokia devices running Android any time soon." Stefan wrote it would be a cold day in hell, etc. (yes, funny). This should have put an end to the story by now, but it was still morning in Europe and many were Tweeting the original story either as fact "Nokia to switch to Android" or asking about it "could it be true that Nokia.." and linking either to the Guardian original news, or some of the early bloggers who reported on the Guardian. So we also started to see the types of Tweets commenting, "yes its true, because also blogger X is reporting it" where actually all reported stories linked back to the Guardian story and its uncited sources.

I was doing a lot of replies to friends and to followers and to also some random Twitter users, linking now to Stefan's story and saying, is totally untrue, only rumor. Around this time the new Nokia Android search stories were about 70% thinking it is true, and 30% saying its not true. Then about 4 hours into the story, Nokia issued an official denial via Reuters, "Absolutely no truth whatsoever." We started now to retweet this link and put out the rumor.

You would think that would rapidly end the story. It didn't. About 6 hours into the story and 2 hours after Nokia's denial, we saw the peak of the hysteria and Twitter effect 3, as the volume of new Tweets on Nokia Android was several per minute and the mix of new tweets was still 50/50 reporting it as true, and reporting it as having been denied. It would take another 3 more hours before the main buzz would die and the clearly majority reported it as a false rumor and most who did report just the Guardian story or early bloggers on it, would receive immediate replies that this was a rumor already denied.

I don't know what to make of this little storm in a tea cup. It was fascinating to be on Twitter and to see it unfold. It was yes an experiment in how a news story (and in this case story that turned out not to be true) would spread and also how it would evolve. Later we also heard from Steve Litchfield at All About Symbian who explained it rather categorically, and David Meyer at ZD Net jumped in to explain where the likely confusion was, as Nokia does have a strategy for a Linux Open Soure OS around Maemo.

I am disappointed that today, after clearly the Guardian's story has been proven not to be true, they do not update the story online with the comment of the Nokia denial or the rather universal mobilist blogosphere consensus that this is not going to happen. Shouldn't the Guardian correct its own mistake?

I ended up sending hundreds of Twitter comments to those who posted the Guardian story either as true, or asked could it be true, or speculated about it, with links to the stories where it was exposed as not true, and obviously after Nokia issued the denial, always included that link.

Literally, hundreds. Only a handful retweeted the correction to something they had tweeted. I find that disturbing. We are as humans very willing spread a story that appeals to us, but not to follow up with a correction if it proves to be false. Its sad. Also on more a personal side, only a few of those hundreds did get back to me, with discussion, or comment or thanks. And a couple who did (only really a few) said that even after the Nokia denial, they did not believe the rumor was false (what does this tell us about how little we trust major brands anymore in this day and age? Communities dominate brands?)

From Adsense to Flirt-Words; Virtual ice cubes that melt on arrival: Flirtomatic!

We love Flirtomatic here at this blog and have chronicled its rise and rise and rise since its launch in 2006. Flirtomatic's CEO Mark Curtis is a close friend of ours and has been remarkably generous in sharing detailed information about the service. I discussed the melting ice cubes two weeks ago at my mobile-specific blog www.7thmassmedia.com but they have again innovated and also picked up some recognition. So its time to do a bigger review of perhaps the most innovative social networking service of them all, Flirtomatic.

FLIRTOMATIC IS NOT

Lets start by what it is not. You might think its a dating service. It is not. There is an 18 year age limit and some of the often-mentioned (and seen) graphics from Flirtomatic included the girl swirling the bra, and the "virtual boob job", so its easy to think Flirtomatic is sleazy sexy nudity. It is not. The content guidelines for Flirtomatic say that the user-generated content must be of the kind, that the BBC would be willing to broadcast the content over the air. All messages and pictures are monitored by real live people and when members approach or cross the line, they are gently advised of the guidelines. The members greatly appreciate it. Flirtomatic is not a place for sick, perverted "dirty-old-men" (like me, ha-ha).

So its not dating and its not porn, what is it then? Its a fun flirting service for adults. Mostly young adults. A social networking service for that age who hang around in the clubs, pubs and discos. Who are perhaps a bit tipsy and drunk, wanting to flirt a bit, not really looking for anything serious. Twitter but with the fun added. In fact, Mark Curtis said that Flirtomatic members "buy extra fun from us" that is what they do.

BIG GROWTH

Ok, weird experiment in social networking? Lets look at the numbers. Today Flirtomatic has over a million users and has spread from the UK to Germany and USA. It is available on the PC and on mobile, but far more than half of users are currently on mobile. What does it cost? Nothing. Even on mobile, Flirtomatic abandoned its subscription fee as "unnecessary" in 2007 as we reported here at Communities Dominate.

To sign up its that simple that you only need a minimum of two details and you can be up and flirting. Yes, there are profiles you can fill out (later) if you want, but Flirtomatic understands that users especially on mobile are in a hurry and don't want to go through many clicks and pages of forms to sign up to something. Its as near-instant as possible.

So how do they make their money, it has to be advertising then, eh? Banner ads? Well, yes, Flirtomatic does have advertising also, but their ad revenues are a small minority of total revenues. So small that they really would not suffer if ads disappeared. (What? no subscriptions and negligable advertiser revenues? What kind of voodoo magic financing is this based upon?). Flirtomatic is the most creative developer of real money-making opportunities from their user base, that are possible in a virtual world.

MOBILE, THE MAGICAL MONEY-MAKING MACHINE

Personalizing for premium cost. You can have your basic character and customize it, post your picture etc. But if you want to customize your character and be a bit special - and who doesn't want to be a bit special - then yes, customization. Flirtomatic created their virtual money system, flirt points. And they started off by accepting premium SMS based payments to buy flirt points. Today they accept a wide range of payments including credit cards, paypal, direct debit, and yes, mobile premium SMS payment. Obviously this was not invented by Flirtomatic, it is a direct adaptation of the idea first launched by Habbo Hotel. But its one way to make money. Latest ideas of this concept include yes, boob jobs and tummy tucks at one UK pound each. They sold 10,000 virtual boob jobs for last summer (and bear in mind, its only visible in bikini, there is no nudity..)

Then they decided to add gifting. Virtual gifts. Again, this is not an invention of Flirtomatic, it is an adaptation of the stunningly popular virtual gifts first invented by South Korea's Cyworld. The first famous Flirtomatic virtual gift was the virtual red rose, which back in 2007 (when they only had 400,000 users) sold 3.5 million units at about 23 UK pence a piece and generated 800,000 UK pounds (1.4 million dollars) in revenues. That is what I mean. Flirtomatic was proving that mobile was indeed a magical money-making machine. Not everyone of their members needed to buy these premium gifts, but as some did, the others saw them, and more bought them, and rapidly Flirtomatic made tons of money. Since then they've done wonderful stuff in the virtual gifts space, such as the sprinkled red rose and then the innovation of real world gifts sent to virtual friends (a true invention) when they launched  a set of real world gifts for Valentines's day this year. Now they carry a big inventory of real gifts you can send to your flirting partner(s). Latest in this space is the gift of the virtual ice cube, that melts upon arrival.

MELTING ON ARRIVAL?

What? What good is a virtual ice cube? You see it in the phone screen, you can't drop it into your drink. And then it melts on arrival? Who in their right mind pays to send such a gift? Not in their right mind, remember, the Flirtomatic users buy more fun from Flirtomatic. They may be a bit drunk when flirting. Ice cubes can mean many things from cooling a drink to sensual sexual fun. An ice cube is fun. You are flirting, you may be in a pub or bar. Your friend may be stuck in a meeting that is running late and is getting upset at the boss who wont' let them leave (send an ice cube! Show you care). Then your friend is in the train that is crowded and hot (send another ice cube). Your friend finally arives, orders a drink - you see her, you wink, she orders her drink, drowns it fast, and with the phone hidden behind your back, you send another ice cube.. its fun. Did it sell? They sold 5,000 melting ice cubes in the first week.

Its not just selling such gifts to the Flirtomatic members, they also can turn these into sponsored content, so its a form of advertising. Not a boring banner ad, but a sponsored "big wet kiss" for example by L'Oreal or a sponsored virtual drink like a glass of champagne or a beer. Again, Flirtomatic is blending the line between reality and virtuality, they had for example a gift of a sponsored real glass of Guinness beer, redeemable at authorized Guinness pubs. Not virtual beer but real beer from your virtual friend. Who would NOT want to give this gift to a friend? See how Flirtomatic delivers more fun to its users?

EGO SERVICES

But the really funky part of where Flirtomatic has truly shown the way for the 10 billion dollar social networking industry worldwide (over 2/3 of the revenues is generated on the mobile side, obviously, most of the Facebooks and YouTubes and Twitters are very poor at generating revenues while mobile social networking is usually very lucrative), is with what Mark Curtis labeled as "ego services". Paid premium services that deal with the users' ego. For example your ratings. All Flirtomatic members can rate each other so you get 5 stars or 3 stars or perhaps you get 1 star. Nobody wants bad scores, and it is typical of human relationships that sometimes there is unfair play, perhaps "revenge" etc. So you have mostly great scores and the one 1 star review spoiling your record. Wouldn't you want to be able to just eliminate that bad score? With Flirtomatic you can. They call it "delete your freak". But obviously you need to pay (I wish I could delete one freaky review of one of my books on Amazon ha-ha).

This also is a class of services, there are many. Another is to pay to reveal who gave you that score, whether particularly good score (really loves me) or particlarly bad score. But pay to reveal. Yes. Ego-services, a true innovation by Flirtomatic.

AUCTIONED USER ADS

And they keep on and on. So while yes, there are banner ads on Flirtomatic and yes, traditional brands as advertisers; and Flirtomatic has also pioneered virtual branded gifting; the most amazing part is how they've brought auctioned ads to the service. They started with the First Face. If you want to be the first picture all Flirtomatic users see when they log into the service, that is easy to do. Bid on it. outbid the others, and you are the First Face for the next 6 hours. You'll definitely gain new friends in the next 6 hours, fastest fingers first...

Now they've just today announced Flirt-Words, a variant on adsense type of auctioned words, rented for the next 24 hours to the member who bids the most. Want to own "cool" or "sexy" or "fun" for the next day, when Flirtomatic members search the service? If you win the bid, you get it and be prepared for incoming messages from new friends.

GRAND PRIX OF NEW MEDIA AWARDS

We love Flirtomatic. It is the most fun side of our thesis that communities dominate, and we really do appreciate it, that Flirtomatic keeps validating that you can make money on social networking (primarily on the mobile side, obviously). Last week the New Media Age, a UK publication focusing on digital media but with a strong history and focus on the internet side, had its annual awards. Flirtomatic was not only the mobile winner, but given the Grand Prix top prize of the gala event. I wish I could have been there but we joined very warmly celebrating with Flirtomatic via Twitter and Forum Oxford and now here at the CDB blog. Congratulations to all at Flirtomatic.

Now, several really important additional comments. First, Mark Curtis is of course also an author, his book Distraction: being Human in a Digital Age is very VERY warmly recommended. Its in paperback, if you want something great to read this summer, pick it up. If you like our blog, you will love the book.

Then Fjord. Mark Curtis is a founder and board member of Fjord, the digital design agency specializing in digital convergence, between mobile, web and media. Truly a world-class talent, Fjord is used by the BBC, Nokia, Yahoo, T-Mobile, etc. And yes, Fjord designed Flirtomatic originally. Certainly its own staff have evolved Flirtomatic very far, but please, in your mind, go back to 2005-2006. Four years ago, who was promising new ways to make money on social networking? on a converged service? Who was even offering mobile social networking back then, apart from some unfamiliar names from Japan and South Korea.

Yet back then, long before Twitter, when Facebook and YouTube were not known, some UK digital agency named Fjord, conceived of Flirtomatic. If you today need help with gaining success in this difficult digital convergence space that includes mobile, then please consider Fjord. They have expanded past the UK with offices in Germany, Finland and USA. They are truly world-class.

And lastly, if you want to read more about Flirtomatic and also those other services I mentioned like Habbo Hotel and Cyworld, then I am most proud that Mark Curtis wrote the foreword to my latest, my 9th book, Tomi Ahonen Pearls Vol 2: Mobile Social Networking. You can read many sample pages of the 171 page eBook, that has 50 case studies of success in mobile social networking, at this page: Tomi's Pearls Vol 2.

(Rant) Deeply Disappointed in CNN: is now Celebrity News Network: Shame!

(Yeah, this is a rant.) I'm a news junkie. Ever since I moved from my native Finland to the USA to study at the university for my undergraduate degree, I discovered US based cable TV in 1983, and the two channels I fell in love with were CNN and MTV (in that order). Ever since, I've insisted every home I ever had, to have cable TV and both a 24h news channel and a 24h music video channel. Here in Hong Kong out of 24 hour news channels, I get CNN Headline News (US feed), CNN international, BBC World News, Sky News, CNBC, Bloomberg, Euronews, and Al Jazeera English. I even get the Fake News Network (aka Fox News). My preference has always been to follow CNN International.

So Michael Jackson died on 25th of June. I mean no disrespect to Michael Jackson and his fans. He was indeed a pop icon, sold 750 million records, and his album Thriller is the best-selling music album of all time. He was on the charts over a period spanning 4 decades; he was truly one of the greats of the music industry of all time, up there with Elvis, the Beatles, Sinatra, Edith Piaff etc.

And I personally truly did like his music all over the years, with songs such as Dont' Stop (Till You've Had Enough), Billie Jean, Bad, Smooth Criminal and Scream having been among my fave songs of their time(s) and I've danced to just about every Michael Jackson song he ever released. Regular readers know I'm not really a pop music fan, my tastes go to the much more hard-edged dance music in hip-hop and rap, but I always thought that Michael's use of Vincent Price to do the rap on Thriller (and it works far better on the album version than the music video, to my taste) was pure genius.

And its not just Michael. I've enjoyed the dance tunes from all the Jacksons, and his sister, Janet more than Michael even, due to her music having more of an edge due to the production by Jimmy Jam and Terry Lewis; and even Michael Jackson's collaborations from the duets like Say Say Say with Paul McCartney to the background vocals Michael sang to Rockwell's under-appreciated song Somebody's Watching Me.

So please Michael Jackson fans, do not crucify me as being somehow "anti-Michael Jackson" with this rant. I honestly do like most of his music, some of his big hits have been among my all-time fave songs.

CELEBRTIY NEWS NETWORK

So it is the evening of the 1st of July here in Hong Kong today. I am watching CNN International and CNN Headline News. A moment ago, the top story on CNN Headline News was Michael Jackson. On CNN International Michael Jackson was the third story. Its been six days since Michael Jackson died !  Yes, we do understand that there is family who mourn him, yes. And yes, we do understand that there are tens of thousands of fans who mourn him. But now to explore gossip about how he may have died and what might be on the will etc, that is gossip about a dead celebrity. It is beneath a "24 hour news" channel to devote 6 days of continuous headline coverage, and being the main story on the network - even usually very competent Anderson Cooper 360 degree has been diminshed to Anderson Cooper AC1, its been only Michael Jackson - still this morning MJ was the main story for AC-1. Shame!

WORLD NEWS

So lets start with the world. Maybe its been a slow news cycle and international news could be forgiven to devote extra time on the big pop star and global celebrity who passed away (last week). Maybe not much is going on in the world. Lets examine the evidence, shall we.

There was another death as well. I'm not talking of other celebrities like Farrah Fawcett Majors the former Charlie's Angel. I mean ordinary people. An airplane crashed into the Indian Ocean. Jemen Airlines went down and 153 died (and miraculously a 14 year old girl survived). I would think these 153 international deaths would warrant some more attention than the follow-up gossip of one dead celebrity from last week.

Oh, you want death? Iraq reports deaths every day. 35 died in a car bombing in Kirkuk today. Are these Iraqis not worthy of remembering? A freight train killed 17 in Italy. 

Then there are non-death but "important" news from the world. Like July 1 being the day that US troops withdraw to bases, out of the cities of Iraq. This was one of the deciding issues of the past US presidential election. Is a dead celebrtiy from last week really more important than the sovreignty and the troop withdrawals of one of the USA's longest wars?

Talking about sovreignty, there was that election in Iran, a contested election with tens of thousands on the streets. But when a celebrity dies in America, suddenly the rule in Iran is no longer newsworthy.

Talking of who rules whom, Honduras had a coup. A legitimately elected President was disposed and thrown out of his country. The UN voted that he must be re-instated. But CNN tells us that Michael Jackson had some nurse who said this and that about the medications.

The European Union has a new Presidency effective today, Sweden. But a dead celebrity is more important.

In Pakistan a fragile truce between the government and rebels in Wasiristan has broken down, in part because of US spy drones. This all impacts the second-longest war the US has ever been involved in, Afghanistan. You'd think the Pakstani-US relationship and fighting rebels in the mountain regions on the border of Afghanistan would be of importance - the rebels ambushed a military convoy. But no, there apparently was a celebrity who died last week.

There is much more in a dangerous world, from North Korean nuclear ambitions to signs of possible advances in the Israel-Palestinian issue. But we hear more and more repeats of the aftermath of the death of one celebrity.

US NEWS

So we have an American major celebrity who died, it is more understandable that CNN Headline News, with its US focus, will cover this story more tha you'd expect CNN International to do. But really, Michael Jackson has been the top story virtually uninterrupted for six days. Really? Has the US been such a sleepy time in the news cycle, a really slow week for news, that a 24 hour news gathering station could not find other stuff to cover?

Iraq war pull-out. This was major theme by Republican Senator and presidential candidateJohn McCain - and for a long time was the stated position of the Bush Administration - that a timeline would invite death and chaos and failure in Iraq. Repeating President Bush and Senator McCain repeat those phrases "was news" week after week, month after month last year; but now when it actually HAPPENS, it is not top news because a celebrtiy died last week.

Same or Afghanistan and Pakistan and North Korea and Iran (see above). All items that seemed central to US foreign policy and were regularly repeated in sound-bites on CNN all last year, but now when there is action on these fronts, they are not big news, because of the death of a celebrtiy last week.

Franken. So the US senate, of 100 senators, has had only 99 senators since the US election in November 2008. Today the 100th senator election was finally decided and Al Franken becomes the last winner of the last election. Is the election result of a US senator today really less important news than the death of a celebrity six days ago.

Filibuster-proof Democratic Majority. While Franken alone is news, it is very rare for the US senate to be so lopsided, that one party controls what is called a "filibuster-proof" majority, ie 60%. The last election saw a "distant" chance, that the Democrats just might, if Barack Obama did win, gain such a "super majority" in the Senate. Now Franken's victory gives them the 60 vote majority. This is not only news, it is rare and historical shift in power in America. Yet CNN reports as its top story about a celebrity who died last week.

There was a Governor (Sanford of South Carolina) who was found to be unfaithful, but also to secretly (and apparently against government procedures of South Caolina) left the country to visit a lover in Argentina for many days. 

The state of California ran out of money and started to send IOU's to its employees. President Obama talked of health insurance. The Secretary of Defense spoke about changing the "don't ask don't tell" plicy about the gays in the military. Embezzler Madoff got a 150 year sentence in prison. But no, these are not top news to CNN, CNN feels top news is, was and continues to be the death of a celebrity six days ago.

CNN HAS CELEBRITY REPORTER 
 
There is already an established celebrity gossip reporter on CNN, Larry King Live (someone that I avoid religiously) so let Larry King do his thing with the dead celebrities. He has all the soundbites and can replay all the interviews and call up all the friends of any dead celebrity. That is what he is good at.

CNN has a global talent pool of competent journalists, who do a great job digging up the real stories even when others ignore them. CNN has a reputation to deliver balanced news. Now somehow CNN has gone from being a legitimate 24 hour news channel, to be a gossip channel of memories of one pop star.

I think it really is revealing to see how little mention Farrah Fawcett Majors got in the same time span, who died at the same time. A little before Michael Jackson's career took off, Farrah was arguably the most popular female entertainer on TV, around the world. Not nearly as prolific over a long career as Michael Jackson had been, but Farrah also did not embroil herself with sensationalist stories in her career (Neverland Ranch, elefant man remains, a pet monkey, several allegations of child abuse, two fake marriages, artificially inseminated children, etc). And lets be real, Michael Jackson has not hit a number 1 in America since 1995 with You Are Not Alone. For anyone saying Farrah is a "past star" so was very legitimately Michael Jackson as well. its not like he'd died with songs on the charts this year or indeed, essentially not even this decade, his last Top 10 hit (barely) was You Rock My World in 2001.

If CNN honestly feels that digging into the aftermath of celebrity death is worth their while, then please CNN, do limit it to your Larry King Live show, it is such bogus news that it is perfect for this. Yes, Michael Jackson's death was news, on 25 June. Not today six days later. Its a 24 hour news cycle for a reason. The world - and indeed the USA - have moved on during this period. If you want to honor the man and recognize his funeral, etc, that I can understand. But please do not waste the time of millions of viewers worldwide, who tune in not to watch a Music TV channel, or to watch a Celerity Channel, but who really want to learn what is happening in "real" news. Please give us real news on CNN. Stop with the Celebrity News Channel.