MEOW! Mobile Entertainment Opportunity Watch #1, 2006

The New Year is starting with a bang and many of us are gearing up for a successful 3GSM in Barcelona next week. The glacier is starting to finally melt and there are some major new technologies and application areas starting to take off. Many of those were invented in the late 90s when I was still at Ericsson and it kind of takes that usual 5-7 years… It is even more encouraging if one tries to predict how 3GSM 2007 will look like and how much the industry will have changed by then. One of the big changes will be the deployment and adoption of HSDPA, the fast version of UMTS technology which will give you a “WiFi-like experience” in laptop use. I tried it out recently in Cingular’s network and I have to say finally I have something good to say about Cingular: the performance is clearly better than EVDO – I totally concur with Walt Mossberg in his earlier analysis and comparison. Now Cingular just has to get it out in more than 16 cities in the US – and the world has to follow during the next year or so. We might really see HSDPA widely deployed in the world by February 2007. I believe the carriers have to make the upgrades as soon as possible because let’s face it, the first generation WCDMA networks are not up to the challenge to provide the end users enough value.What else? I have gained recently a few new insights into how the mobile industry works from a customer service and ecommerce fulfillment perspective. I needed to buy for my project the wonderful Nokia 770 Internet Tablet. What a great device – check it out:www.nokiausa.com/770. It is so popular it is sold out everywhere else except at the Nokia web store in the United States. That is probably because the whole service experience by Nokia is so poorly planned and executed that nobody would want to go there even if they knew about it (it is sold out on Amazon here). In 2006 we are now pretty used to a great online shopping experience by companies like Amazon. And in comes a newbie like Nokia who never dared to sell anything directly to the consumer in fear of alienating the almighty carrier. So I buy the device and call back a week later to find out they have them in stock but I should have called in to verify my identity! The staff shows no emotion, no flexibility, no service-mindedness whatsoever. Then I ask whether I am talking to a Nokia employee or an outsource service. They are Nokia employees. That’s the problem right there: all Nokia needed to do to do this right was to copy what Amazon has done instead of pissing people off and damaging their brand. It is the only device Nokia sells directly to consumers in the US. I heard the fight within Nokia was fierce to get past the internal resistance and to prevent this product being killed before it hit the market. It’s the usual story – people don’t innovate unless they have to… Not in design, manufacturing, distribution, you name it. Nokia is run under the gun of stock analysts expecting conservative behavior and flawless execution for high volumes. New innovation needs new structures, risk-taking, spin-offs, agility. We saw this at Ericsson some seven years ago, it’s an old story.

Warmest regards,

Tapio Anttila

iPad First Take

Observations:

0. feature rationing in effect. Apple is also clearly demarcating the product as fitting in a continuum of usage behaviors. If there will be cannibalization, it will be affecting Mac, not iPhone.
1. it’s a new line in the income statement. Accessories and other revenues will add cream on top.
2. Guessing a $600 ASP (in line with iphone)
3. For margin I’d go with high 30s, maybe half way between Mac and iPhone.
4. units: 3 million this year, 100% growth for 3 years. Could range higher but distribution deals will tell story. So far this looks more like a Mac. However, will Operators run with it? If so, then we’re looking at much higher numbers.
5. Is Apple going to get revenue share on the data plan? I would not be surprised if they do get a cut.
6. iWork on it is a wild card. Does not fit use cases but they might be testing waters.

Some Further iPad Thoughts

I think it’s a logical evolution of mobile computing. A hop along the trajectory. When the iPhone first rolled out as an embodiment of the new touch-based UI–a disruptive technology, I said it was far too good as a phone. It could not be a better phone because phones were as good as they could be. It was a pretty lousy computer so I reasoned all it could become was a better computer. The iPad is a better computer.

Will it be a big hit? I think it will grow nicely and be profitable. It will take several iterations but eventually it will absorb usage from low-end laptops and move computing to new contexts. It will have amazing applications in certain verticals like education, health care, travel and automotive use.

All these steps are like checkboxes in the disruptor’s playbook. In 5 years, this will be as big a business as the Mac and then Apple will have to think how they break out of the 5% share ghetto.

Will there be a response? Yes, but, like with the iPhone, not for a long time, and not symmetrically. The PC guys will dismiss this and the phone guys will see it as outside scope. Once they begin the effort in earnest, it will fall well short of the entrenched, incumbent, integrated(*), rapidly evolving juggernaut that will be Apple Mobile Computing.

(*) Note the emphasis from Apple on its own CPU in the device. Apple does not talk about chipsets in their devices, but they did this time. Not only are they signaling control, but it also shows that value-chain integration down to silicon is what is needed to go up the performance trajectory for good-enough mobile computing.

Nokia vs. Apple, Financial Performance in Devices & Services

Nokia regained top spot in operating profit.  I’ll leave net profit assumptions aside this time, but Apple is sure to have beat by having far lower R&D as percent of sales.

Apple vs Nokia share

Nokia Smartphones had a good quarter due to new launches.  I attached share and ASP comparisons for smartphones in both companies.

Apple vs Nokia converged devices share

Much of Nokia’s growth is in so-called numbered devices (not N or E series).  This shows continued growth for Eseries sales driven by the advent of the E52, E55 and E72 mass market availability. Nseries devices sales remain relatively flat and are likely to included around 100,000 N900 (Maemo devices). Numbered devices also showed impressive growth against continuing good sales of the 5800 and the advent of the 5530.

Nokia phone model volumes

Confirmation of Apple Ad Strategy

When asked about the company’s recent acquisitions of Quattro and Lala after the recent earnings report, Apple’s chief financial officer Peter Openheimer answered, “In terms of Quattro and Lala we acquired Quattro because we wanted to offer a seamless way for developers to make more money on their apps, especially free apps.”

As we have said before: why bother with AdMob if Apple integrates ads into the SDK? Does AdMob offer better terms? Does AdMob offer more sponsors? It’s the developers (and Apple indirectly) who supply inventory.