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Spillikins #102. Sony Ericsson Revival: first correct steps
The last week happened to be so packed I even don't know what to begin with. I have to mention the words of James Choi responsible for marketing in LG that Windows Phone 7 sales did not meet the expectations. He made this claim in an interview for Pocket-lint blog. To my mind, nobody expected greatness from this OS, but even the results we have today missed the target by quite a margin.
I will start with sad news. Due to ill health Steve Jobs will take a break from leading day-to-day operations at Apple. This announcement triggered so many discussions that I feel sympathy for him as an individual. This is the opposite side of publicity. I cannot but express my dismay how some commentators show joy that now Apple will surely collapse or blame Steve Jobs for all evils. You can treat a company differently, but a life of a human should always remain sacred. No single device in the world is worth ill wishing addressed at anybody. That's it. I think that those who used the occasion to express their negative attitude must be embarrassed.
Different media sources asked me questions about the events and how it may influence the development of Apple and its market share. Undoubtedly, the success of the company was associated with the charisma of Steve Jobs. At the same time, look at Apple today and decide is it so reliant on its leader now? Financial results break all possible records and the niche of tablet PCs single handedly established by Apple a year ago is turning into a cash cow today. There is a deficit of iPads, which cannot be eliminated in the near future. During its entire history Apple has never been so strong and stable. Taking this into account the situation is unlikely to change in future, whether Steve Jobs stays as its CEO or not. If he is no longer the leader of the company at some period than we will remember his era with nostalgic feelings afterwards. Emotionally, the company will be different. In all other respects Apple will remain the same.
Apple disclosed its 4th quarter results for 2010 (1st quarter of the financial year) to the envy of all rivals. During these 3 months they sold 16.24 million iPhones, 7.33 million iPads, 4.13 million MAC computers and 19.45 million iPods. According to forecasts the revenues of Apple had to reach $23 - $24.5 billion, but the final data beat all expectations and reached $26.7 billion. Apple can be quite assured in its future.
One of our readers remarked "when Nokia will generate positive news after all", but even the company itself cannot answer this question. Let's concentrate on events happening around Nokia today and not waste our time on futile forecasts. Last week Nokia announced it would wind down OVI Music Unlimited service in 27 countries. Initially, this service was named Nokia Comes with Music and had to offer unlimited choice of music together with handsets to be played on PCs as well. All tracks had DRM protection to avoid copying onto other devices. During the subscription period you could download unlimited number of tracks onto your PC or phone. They were not blocked afterwards and you could use them indefinitely.
The main issue was the price. Annual subscription added €100 to the model, which made them uncompetitive even inside Nokia lineup. You have to get the price right. For €10-20 it would have been a bestseller. Nokia always understood that and fabricated the data to show that the market has whole-heartedly embraced this innovation.
My impression from Nokia Comes with Music quickly moved from elated to negative. I became an active user of the service, but within months it became clear that the selection of music was inadequate, new tracks appeared very rarely and I had to use iTunes. The software was also an issue. OVI player often made my PC freeze due to library problems. Nokia claimed it was connected with DRM and they could not handle it. Sadly, a potentially attractive service was dogged with implementation issues and the lack of content. In China and India the service was launched without DRM protection and it is still relatively popular in these countries.
In September of 2010 I wrote the following in Spillikins No 83: "Nokia Comes with Music was killed and then resurrected as OVI Music Unlimited. It is a matter of time when the new version is dead, because this model proved hopeless. Otherwise Nokia would not have splashed millions on the promotion of CWM with its subsequent renaming. The service will exist in some form or another, but it will not play the intended role".
It's a pity that my predictions were realized so fast. OVI Music Unlimited will be shut down in 27 countries, while the phones with the service will remain in shops throughout 2011 and the service can be activated until 2012. New subscriptions will not be sold at all. It means that a purchase of a handset with OVI Music Unlimited cannot be justified by any means. You will buy a service, which does no longer exist.
The service will continue in China, India, Brazil, Turkey and South Africa. It will only be a niche product, which means that Nokia has no plans to resurrect this business model and will concentrate on OVI Music store instead. Interestingly, with the closure of OVI Music Unlimited the number of downloads from OVI store will plummet. Nokia has been using a subjective approach to service data by showing the number of downloads instead of financial results without classifying such downloads or disclosing the information on the income generated. For example, they cite the number of records in OVI Store, which can be interpreted by some as the number of applications. Nokia counts here logos, pictures and other trifles alongside real apps. Believe me, the number of applications is much lower than 30% of records in OVI Store. Nokia uses these data to put on a good performance. The number of downloads from OVI Store is not a direct indication of purchases made. Follow the link below for some background information on the collapse of OVI. Taking into account latest Google innovations I wonder how quickly a maps development company NavTeq purchased by Nokia will lose its value. It seems the process is only gaining momentum.
Articles on OVI services:
Do you remember Nokia X7 - a gaming and music model on Symbian^3, which was considered to be one of the models to lead Nokia return to the US market. Technically, Nokia was present in the USA before, but sales were so negligible that you can hardly see a person with a Nokia model in hands. During one week in Las Vegas I saw only one Nokia model owned by a Polish journalist. I have not heard Nokia Tunes at all. It could have been a coincidence, but it still shows low popularity of Nokia in the country. Nokia repeatedly fails in its negotiations with local carriers. This time there was a tussle between AT&T and Nokia. It is not clear to determine who is right here.
First issues arose when pictures of Nokia X7 with the logo of the carrier appeared online. Everybody started discussing if the model was made for the US market only, which was not really the case. Nokia got distressed that the carrier could not keep confidential information in secret.
The story then received a comic twist. According to a person aware of negotiations between the companies Nokia always made demands regarding the subsidies from the side of the carrier and insisted on a large shipment of X7. AT&T got tired of whining on behalf of the "largest manufacturer of mobile phones" and the project lost its priority.
An article in Wall Street Journal gives additional information. It appears that Nokia decided not to sell Nokia X7 exclusively to AT&T as the carrier declined to subsidize the model in accordance with Nokia wishes. The bigger picture is becoming clearer now. After Nokia explained its position to AT&T online pictures of the model angered employees of Nokia, though it was a pure coincidence.
Finally, a piece of good news to finish with. A trade union in Finland agreed to keep 500 employees in Finland. It means that Nokia will fire 500 people in other countries. That's it.
Miracles do not exist in the world of mobile devices. You can make profits by cutting overheads and firing almost all employees from your R&D department, but the market share will be lost. This is what happened in Sony Ericsson. If you cannot offer competitive products the market share will continue its decline and carriers will not cooperate with such a manufacturer. During 2009-2010 Sony Ericsson was making silly things. They wanted to beat Google and offer their own vision of Android models, but suffered from delays every time, could not update firmware and selected cheap components for new handsets. We have already discussed it on numerous occasions, so there is no reason to repeat it again. I will only remind you how developers wasted their time to add multitouch support in the flagship of 2010 Xperia X10.
In November of 2010 I described the portfolio of SE for 2011 and questioned that the company was moving in the right direction. You can revisit the article and give it a second look:
Between the end of October and start of December many things happened in the company and they offer faint hopes for cautious optimism. There was no dramatic U-turn, but only a glimmer of reason in actions of the manufacturer. What has happened? After the announcement of Sony Ericsson Arc (X12/Anzu) many saw it as a sign of resurrection, but this model offered nothing special apart from design, which was always present even in the darkest days of SE. Another thing is Vivaz2 and subsequent mid-range offerings. For the first time in several years SE unveils models on par with rival manufacturers. Prior to that either features or price were not up to the mark. Now they got it right in both respects. I will put it differently now. The latest models can stop the rot and keep the market share from free falling. The next big question will be if we finally see models to beat the rivals. It is no longer enough to be like everybody else. You need to offer more to customers for the same price.
In November Sony Ericsson made several "painful" decisions. In particular, they decided not to support "outdated" models, including a recently released Sony Ericsson X8. Support means the update of Android. This move is dangerous and unpopular and will scare even more customers. In the absence of adequate resources and developers SE decided to start anew. The company needs all resources for 2011 portfolio, which is a turning point in history.
Another decision I totally approve, which should have been taken a long time ago is to ditch all features doubling Android developments. In new models we will not see Mediascape, which proved to be redundant. Now SE adds minimal improvements to Android and makes sure they can be transferred to other versions of OS, which is necessary for quick integration of new versions at old models.
For the first time in years the company makes wise moves. There are some downsides as always. There is no strong marketing team globally and locally (historically it was not crucial as products sold themselves) and the company invents something to undermine the belief in the success of SE. Once again we will be spoon-fed with marketing terms: BRAVIA Engine, EXMOR, etc. We have mentioned the issue in our article on VIVAZ2 (Halon/MT15i). Consumers must be explained the nature of technologies and not bombarded by terms. BRAVIA Engine is a useful feature, which can be beneficial in certain areas, but excessive expectations created by the marketing can lead to a negative backlash. Somehow the company does not understand it and creates problems for itself.
The press release of Sony Ericsson sounds very victorious as the company managed to stay profitable throughout 4 quarters in a row. The report fails to mention any disadvantages and highlights only achievements. Nevertheless, during 2010 4000 people were fired and now it cannot offer a fully fledged R&D support. The investment in innovations was severely cut. Restructuring paid off, but related expenses were not included into calculations. Otherwise SE would not have been profitable. They borrowed half a billion Euros from parent companies and posted profits. It is only a trick. In real life the picture is not that rosy. As of December 2010 accounts balance was €375 million, while in December of 2009 the same parameter reached €620 million. The company keeps on wasting external loans without attracting attention to this phenomenon. The lack of cash is explained by seasonal factors and not by real problems. In 4th quarter these factors claimed €128 million. More expensive models do not sell well and the company has a stockpile of handsets, which costs money (storage, maintenance, repairs, etc). This is a vicious circle.
Unfortunately, during this year SE showed not sustainable growth, but wonders of accounting. Those who are calm because of profitability must give the books a closer look. Additional expenses and painful measures take some gloss off overall performance indicators. Not many people would like to indulge in this sort of analysis, but everybody will remember 4 profitable quarters in a row.
In the 4th quarter SE lost its market share even further. The company estimates it to be 3% for the quarter and 4% for 2010. If we compare first forecasts of SE and data from research companies we may say that these figures are inflated and in real life the market share is even lower.
Unfortunately, there will be no positive news here in the first 2 quarters of 2011. We will see if the company manages to stop the fall with the help of new products. There is already some hope.
The table gives key indicators for the 4th quarter.
Canalys created a report signaling the slowdown of Android in 2011. You should not feel pity for the platform as in 2010 it recorded a 1000% growth. Canalys mentions the slowdown in growth, but in absolute numbers the growth will be tremendous. In the 3rd quarter of 2010 more than 20 million Android handsets were sold and their share reached 25% of the entire smartphone market. This growth is still continuing. Our faithful readers are accustomed to victorious updates on the proliferation of Android, but this particular report offers a new insight. Researches from Canalys think that Android will grow 2 times faster than iOS and other rival platforms in 2011. It means that Android will beat any competition. I would like to see how Nokia will start measuring the smartphone market in a way to prove they can still come up with interesting products. The Finnish manufacturer will surely invent something new.
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Published 24 January 2011
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