Nokia is the worldwide king of cellphones. But don’t tell that to U.S. customers. Nokia’s market share in the United States is on the decline, down to 8 percent last year, from 15 percent two years ago.
“Nokia missed a number of handset trends in the last few years — thin phones, clamshells, touchscreen devices, applications,” says Ross Rubin, an analyst with the NPD Group. “They have been pretty much out of everything.”
And that’s odd, given Nokia’s global dominance. Apple’s iPhone may get talked about more and Research In Motion’s BlackBerry devices may be must-have executive jewelry, but four in 10 cellphones sold worldwide last year were made by Nokia. Nokia sold 97 million phones in the first quarter of the year, nearly twice that of its closest competitor, Samsung.
But American customers are not finding much to love about Nokia.
It isn’t that Nokia is uninterested in getting its phones into the hands of more American consumers. The company has repeatedly said North America is a significant market. And analysts agree that Nokia cannot afford to stay out of this market.
“The danger is not so much that they will miss out on unit sales in the U.S. and get hurt,” says Michael Mace, who has worked at Palm and Apple and now runs his own strategy consulting firm, Rubicon Consulting. “The danger is if innovations start to happen here first.”
And Nokia is already seeing it happen. Apple’s App Store has changed how consumers view their phones and has given Apple a huge presence among independent developers of software for mobile phones.
Americans are also more willing to buy more expensive smartphones that hold the promise of greater profits for the handset makers, while cheaper feature phones dominate the market worldwide, says Mace.
“Nokia has a huge unit share but look at their share of profitability,” he says. “Those two curves are running in opposite directions for them.”
Nokia declined to comment for this story citing the ‘quiet period’ the company has to observe ahead of its earnings report July 17. But we polled four analysts and two industry experts to understand why Nokia phones get so little love in the U.S. Here’s what they told us is troubling Nokia.
A weak brand
When was the last time you saw a Nokia commercial on TV or an ad in the paper? While the company’s rivals such as Apple, Palm and Research In Motion have been competing to get more airtime for their products, Nokia has chosen to be more low-key in its approach. The result has been that the average American consumer doesn’t really lust for a Nokia phone.
That’s in contrast to how the company’s products are perceived in some of the biggest cellphone markets: India, China and Europe. Nokia phones there have a cachet that is unimaginable for most U.S. consumers. “In many countries if you have a Nokia phone it says something good about you,” says Mace. “It says you are sophisticated, stylish and successful.” Not so in the U.S., where the company’s phones rank much lower in terms of their aspirational value. “Using a Nokia phone here mostly means I am offbeat and not always in a good way,” Mace says.
In case of cellphones, a significant chunk of marketing support also stems from telecom carriers who take on the responsibility of promoting the handsets. Without major carrier support, Nokia has been at a disadvantage.
Lack of focus on CDMA handsets
Nokia has bet big on the GSM standard for wireless communication, a move that had paid rich dividends in international markets. But in the U.S. the battle between the two standards still rages on, with the Verizon and Sprint networks using the CDMA standard, while AT&T and T-Mobile use GSM.
“Nokia just doesn’t make good CDMA phones, so that right away cut their addressable market in half,” says Dean Bubley, principal analyst with research firm Disruptive Analysis. Glance through the Verizon website for phones offered in San Francisco and you can see just four Nokia phones available compared to 17 different models of Samsung and eight models of the BlackBerry.
Nokia has said it is focusing on getting more CDMA phones but some of the company’s latest devices, such as the Nokia E71, phone remain stubbornly GSM-only.
Poor execution
Two months ago Nokia launched a revamped app store called Ovi that featured games, applications, podcasts and videos. But the store got off to a rocky start, as users faced problems accessing it and downloading the programs. Nokia blamed the “extraordinarily high spikes of traffic” for the performance issues.
Nokia also botched the introduction of its Nokia 5800 XpressMusic phones. Nokia offered the 5800 phones for $400 as an unlocked and unsubsidized device in the U.S. through the company’s stores. But within hours of the launch, buyers reported crippling connectivity problems with the device. The complaints forced Nokia to pull the U.S. version of the phone off its shelves and try to find a quick fix.
The two incidents haven’t helped bolster Nokia’s image as a company whose phones should be on everyone’s must-have list.
Lack of carrier relationships
While Nokia sells some of its phones through telecom carriers, the company has often chosen to sell its handsets unsubsidized and unlocked. While that may mean more freedom for consumers, it also translates into unusually large price tags. For instance, the Nokia 5800 XpressMusic was priced at $400 for an unlocked phone. The latest Nokia N97 costs $700, which puts it out of the budget of most buyers.
“It’s a phone that most consumers will never see,” says Michael Gartenberg, technology strategist at analytics firm Interpret. “It’s also a device that has gotten okay to mediocre reviews and that’s not of interest to consumers in the age of the iPhone and Palm Pre.”
The prices aren’t out of whack with what similar unsubsidized handsets from other carriers would cost. But try telling that to the average consumer. Most customers would rather pay $100-$200 for a phone and sign up for a two-year contract. But without being able to strike those deals with U.S. carriers, Nokia has been forced to offer its phones at full price to consumers. Carriers view Nokia as a company that puts its own brand ahead of its telecom partners, says Bubley. “Nokia puts a lot more stock in its own branding and marketing worldwide than other handset makers,” he says. “In North America their unwillingness to play a secondary role to carriers has hurt them.”
Unusual design
Nokia phones are eye-catching but, unfortunately for the company, its devices don’t fit American standards of beauty. “Their design values don’t mesh with what customers here want,” says Mace.
Since Motorola introduced the RAZR, Americans have like their phones to be anorexically thin. Most handset makers were quick to catch on to this trend — except Nokia, which was the last phone company to do a really thin phone.
“Nokia doesn’t like to do flip phones because European customers don’t want it,” says Rubin. “And they haven’t embraced the touchscreen trend either completely.”
Symbian
For years, Nokia was the biggest supporter of the Symbian operating system. Last year the company put its money where its mouth is, and bought out its partners, making itself into Symbian sole owner. Nokia eventually turned Symbian into a non-profit foundation.
But Symbian is now seen by industry experts as a bloated OS that offers little flexibility and is just not ready the social networking generation.
“Nokia does beautiful, detail-oriented hardware but they don’t nearly have the same design skills around software,” says Mace. “Their software is too buggy, too hard to use and too awkward.”
An insignificant app store
Since Apple launched its app store on the iPhone 3G a year ago, customers have downloaded more than a billion apps. The idea has been replicated by competitors ranging from Palm, RIM and Android. A vibrant app store is a major selling point for many smartphone users, says Gartenberg. And Nokia just hasn’t put gotten it right there.
It isn’t for want of trying. Nokia relaunched its Ovi app store in May and said it can accessed by about 50 million Nokia device owners worldwid. The Ovi store had about 20,000 titles at launch, including both free and paid apps. But here’s the catch for U.S. users: Alhough U.S. consumers can access and purchase content from the Ovi store those purchases will require a separate credit card transaction. AT&T has said it will offer carrier billing so purchases from the store become a part of the monthly service bills later this year. But there’s still no confirmation on when that will be available. Meanwhile, compare the 20,000 or so apps in the Ovi store to the 55,000 or more apps on Apple’s apps store.
Photo: (bok_bok/Flickr)
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