Wireless Watch: Nokia wins T-Mobile over in breakthrough for Ovi services May 7, 2008 – Rethink Research
Nokia has made a major breakthrough for its Ovi mobile web services portal,
getting formerly hostile T-Mobile International on its side. The two
companies have signed a Europe-wide content and handset deal, that shows the
German-owned cellco acknowledging what AT&T has highlighted with its
iPhone deal – the power of an exclusive handset, optimized in its
interface and functionality for mobile internet use, to drive uptake of data
services and the mobile operator’s ARPU and customer loyalty.
In a mirror of Nokia’s flagship deal with Vodafone, T-Mobile will make
Ovi available, and Nokia will make handsets that provide easy access and
navigation to its own portal and T-Mobile’s Web’n’Walk
service, one of the most sophisticated and wide reaching of the early
attempts at delivering a real mobile internet experience comparable to that
on a laptop. In the Nokia-Vodafone agreement, some handsets are geared to
both Ovi and Vodafone Live, but the leading cellco has also tended to
differentiate the two portals more clearly, keeping Ovi mainly for its higher
end smartphones and, by implication, most advanced web-using customers.
The T-Mobile agreement also highlights another factor that cellcos are
starting to realize, especially in Europe – that the ‘killer
app’ beloved of 3G business plans may have proved mythical, but it is
still necessary to showcase a particularly popular application as a hook for
the broader mobile internet services, the key drivers of increased mobile
usage in mature markets. The difference is that this application is likely to
come from a third party internet provider rather than being devised
particularly for the cellco. So the Vodafone-Nokia deal was centered on their
music offerings, although all the Ovi services are supported, and the
T-Mobile equivalent will major on social networking, including Nokia’s
fledgling Mosh offering but with T-Mobile’s main interest being to
drive usage of its MyFaves option. This started as a calling plan for close
contacts, but is being developed into a full social networking service to
challenge the growing mobile presence of the majors, MySpace and Facebook.
The looking to third parties for ‘killer apps’ will lead to a
complex mixture of brands being relevant to attracting a subscriber. Some
carriers, like 3, are happy to downplay their own brand to some extent,
riding on the back of making apps like Skype a central and highly visible
element of their handsets. Others are still trying to brand their own portals
– like Vodafone Live or T-Mobile Web’n’Walk –
heavily, but are being forced to let other brands, whether web services or
handsets, to have space on the mobile screen. As the application and its
brand becomes as much of a draw as the phonemaker’s logo per se, Nokia
is aiming to control the hardware and software brands, and to deliver an
experience where the app and the device are optimized for one another. This
will help drive uptake of its phones, and despite its direct to consumer
ambitions most of this will still go through the cellco channel for many
years to come. If it succeeds in offering an integrated web service/device
experience that users like, as Apple has tried to do with iPhone, it will
gain even greater traction among operators, even those that would rather
reduce their dependence on the market leader. This view tends to fly in the
face of the Google view of the mobile internet – that it is the same as
the PC internet, with the software brands paramount and the experience
consistent across networks and devices, reducing the power of companies
owning those elements in the chain. This is a view that some cellcos, notably
3, have even embraced, accepting the reality of the ‘bitpipe’
business model that Google’s vision implies for the operator. Nokia, by
contrast, believes that the mobile internet can only be delivered effectively
for users with specific interfaces, services and functions, which are (of
course) best created by the mobile specialists and the makers of the devices.
T-Mobile, which will launch its exclusive Ovi handset, the 6550, in July, has
joined fellow European heavyweights, Vodafone, Telecom Italia and Telefonica,
in signing deals with Nokia. It has joined the fold somewhat reluctantly,
because it has been one of the most advanced of the western cellcos in terms
of embracing the mobile internet business, from its early adoption of Wi-Fi
hotspot services to Web ‘n’ Walk. This means it is more
threatened than most by vendors’ rival moves to take the lead in mobile
web services, and earlier this year it was reported to be planning to
blacklist Nokia devices tied to the Ovi web services, or to insist on a deal
for internet-enabled handsets that would exclude Ovi. This would mirror the
relationship that seems to be developing between Nokia and Orange, which
recently extended their jointly marketed web services deal, but again without
reference to Ovi, which incurred Orange’s hostility when it was
launched last year.
All this shows that Nokia has a difficult balancing act to achieve as it
pursues its strategy of turning itself into a mobile internet services
company. Ovi, the portal that is the flagship for this strategy, has the
potential to turn carriers into dumb bitpipes, or even to bypass them
altogether with Nokia’s direct-to-consumer moves. That means Nokia can
either decide to go head-to-head with its largest handset customers, a move
that would be high risk and would not bear fruit for many years; or find
common ground with the operators, at least for the medium term, keeping Ovi
away from stepping directly on their toes, and using it to expand into new
businesses and channels, such as new entrants to the mobile world, or tier
two or developing economy cellcos, which will not have the resources and
brand power to create their own portals, but which will represent major
growth opportunities for Nokia handsets.
Another difficult challenge, for Nokia and the carriers, is to work out how
to make a profit on web services. Doubts have already been cast over how
Nokia can make real money – let alone the kind of margins it is
accustomed to – on its much anticipated Comes With Music service, for
which it has signed various major content partners like Sony BMG. Nokia
claims it will be a profit model for every member of the value chain,
including the music publishers. "I can assure you that we are looking
out for everyone's interests in creating these new business models, including
our own," Liz Schimel, head of Nokia's music business, told the Reuters
news agency. Schimel said the model, which allows users to keep all music
downloaded in a year, is "innovative" and "creates a positive
situation for all stakeholders”. Reuters estimates that the digital
music market was worth $2.9bn in 2007; and that, if all the music phones
Nokia sold last year (146m) had included the Comes With Music bundle, an
extra $20 per phone would make Nokia's service larger than the total market.
"Comes With Music has the potential to equal - and even exceed - the
current value of the business," Tero Ojanpero, head of entertainment and
communities business at Nokia, said recently. "If we sell a single
percentage of our total sales as Comes With Music bundles, the revenue for
the music industry would be almost the same.
But critics say that, with no ceilings on the amount of music downloaded,
Nokia faces higher costs as quantities rise, and has failed to take account
of consumption patterns.
The per-handset royalty to UMG is about €10 (less than some have
reported, but this will need to be replicated for each music partner), and
each download incurs a cost of about 45 eurocents ($0.7). According to
calculations by The Register, Nokia's profit margin is about 23%, and the
average selling price of a music phone is about $200 – so there will
need to be an additional revenue stream, presumably from operators. It may
be, at least in the short term, that Nokia is being generous to the music
business and taking a hit on its margins, in order to fight off Apple and win
market share, which in the medium term should drive handset sales and uptake
of other Ovi services.
CourtesyRethink Research, publisher of Wireless Watch, a
weekly assessment of the impact of events that have happened this week in the
world of wireless and mobile technology.
Wireless Watch: Nokia wins T-Mobile over in breakthrough for Ovi services
