Commvine

A couple of weeks ago I wrote about how Search is a key weakness in Nokia’s web plans, and highlighted the search in Ovi Maps as a key example.

Well Nokia has released an upgrade which brings:

• improvement in search
• overall speed improvement
• introduction of “Good Things” – social sharing of favourite places, on the PC version only so far
• limited functionality versions of the site for Linux, Chrome and Opera browsers, pending full plug-ins for these

The improvement in search is the most important of these right now, because the search was so poor.  And it is a good step forward.

Now, when you try my two litmus tests of “Wimbledon Tennis” and “Lords Cricket” the first hit is the right answer, just as it is on Google. Excellent.

It’s also good that the same search is available on the mobile device without upgrading the client software.

This is good progress – well done Nokia – and it fixes one of my two big issues with the Ovi Maps search.

But the other is still there.

“Pulteney” is one of those annoying English words that tie schoolkids’ brains in knots all around the world as they try to master the language. That’s because it could be spelled in several ways and actually it is spelled in different ways in different parts of the world – Poultney, Poulteney, Pultney are all valid somewhere.

So someone visiting the Nokia office in Great Pulteney Street in central London may not get the spelling right on the first hit. And Ovi Maps will not help them.

• If you do not spell the word correctly then Ovi Maps tells you”We could not find any results for Great Pultney. Please ensure that location, street and city names are spelled correctly“
• On the mobile device it’s even less helpful offering a blunt “No results found“, with no clues at all about what you should do next

Compare this with Google Maps.

• If you spell it wrongly with “Great Pultney” it says:”Did you mean:
  Great Pulteney St, Bath, Avon BA2, UK
  Great Pulteney St, Westminster, London W1F, UK”
• On the mobile device Google Maps also says “Did you mean ..” and offers the correct result

I’m convinced that people (not just schoolkids struggling with English) are much more likely to make spelling mistakes when using maps than in ordinary web searching. And, if they’re searching on their mobile phone, they are unlikely to have access to other sources to check out the spelling.

So map search needs to be even more tolerant of ambiguity and even more helpful than normal Google-style searching.

It’s difficult for Nokia because people expect Google-grade search coming from a non-search specialist company – Nokia is going to have to work hard to meet the minimum. Plus Google itself is moving quickly with developments on Google Maps, constantly raising the bar on the non-navigation side of mapping.

Sadly the search improvements do not seem to have been applied to other parts of Ovi such as the Ovi Store … yet. There a search for “Webcam” currently gives you different results on the device and the PC, and only finds some of the apps that relate to using your phone as a webcam.

The other big step with Ovi Maps is Good Things. This is a public feature that allows anyone to highlight a place, enter a short description of it and publish it to the map so that others can see it. Nokia will even be running big electronic signposts in some cities highlighting the Good Things people have put in.

This feature is a first step.  It currently does not integrate well with the UI of the maps – you cannot use Good Things from the normal map viewer; instead you have to go into Good Things, find the place again, and then identify it as a Good Thing.  You can’t easily turn your Favourites into Good Things.  You can’t make them in to MyMaps (as on Google). You can’t push them to certain people or groups. You can’t use, see or create them on your mobile yet. There is a Latest Good Things feed but you can’t filter it to things, places, people or languages that you’re interested in – you get the whole lot.

But Good Things gives a clear pointer to where Nokia is heading with the Maps service. It’s not hard to imagine a much richer service, like a global version of FourSquare, within the next 12 months.

Vodafone last week announced its new web-based services, Vodafone 360. The announcement is large and complicated and leaves lots of questions unanswered. But it clearly throws down the gauntlet to Nokia’s Ovi and puts Vodafone into competition with Facebook, one of its potential key partners.

Vodafone 360 is a suite of services consisting of:

• People - at the centre of the offering, a social network aggregation tool built on technology from Vodafone’s acquisition of Zyb. It will feed social address books on 360 phones, and special apps on others
• Shop - an app store
• Apps - applications built on the standards created for LiMo (another Linux operating system for mobile phones, mainly backed by operators) and the Joint Innovation Labs (JIL), an alliance of Vodafone, Verizon Wireless in the US, China Mobile in China and Softbank in Japan.
• Maps - a mapping and navigation service provided from Vodafone’s acquisition of Wayfinder 10 months ago
• Music - the latest incarnation of Vodafone’s music services, also announced last week with DRM-free downloads from the 4 major labels.

In addition to the services Vodafone announced 2 LiMo handsets with software designed by Vodafone around the services, and built by Samsung.  There is also an app for Nokia Series 60 phones to use the services, with versions for the iPhone and Android expected in future.

The phones and the services will be available before Christmas this year, and will be sold and supported by 25,000 staff in the stores owned by Vodafone in Europe and some key partners. Phone prices and tariffs for the services will be available nearer the launch.

The services will initially be available in 8 markets: – the UK, Germany, Italy, Spain, Portugal, Greece, Eire and Russia. During 2010 they will be further rolled out to Turkey, India, the Netherlands, South Africa, Australia and some Vodafone partner networks.

Analysis: Think of a big social network brand, with more than 300m users, popular in more than 30 countries, used addictively many times a day by its users to connect to their friends in a variety of ways. Facebook, right?

Now think of another one that meets similar criteria, but that also has annual revenue of over £40bn, an EBITDA margin of 35%, operating profits of more than £11bn and annual free cash flow of almost £8 bn. Must be Vodafone, right?

That seems to be at least some of Vodafone’s thinking here.

We have known for some time that Vodafone was warming up for a push into web services. Like most network operators it is terrified of being relegated to a bit-pipe business by people using the web rather than its services. That is a reasonable fear – stories are circulating about a major switch of users’ data traffic from 80:20 on the operator portal 2 years ago to a similar proportion now that is off-portal to other sites in the web, such as Facebook.

In gearing up for 360 Vodafone has run a social network in Italy, bought another called Zyb, bought navigation software provider Wayfinder, run music services, re-organised its network to deliver web services, re-organised its portal around a widget-based custom home screen, started implementing a full re-branding around the Web 2.0 theme of “Power to you”, announced the opening of some network APIs and kicked off a developer competition.

With the 360 announcement Vodafone is not revealing the full extent of its ambition, but there are some clues in the way it talks about what it is launching.

At the heart of 360 is People. This is basically a service that aggregates updates and photos from Facebook, Windows Live Messenger, Windows Live, Google Talk and Google Mail. More services will be added, such as Twitter. This stream is fed from Vodafone 360 to the phone – either to the contacts book in the case of the two new phones, or to a special app, or it can be used on the web through www.360.com.

There are now a number of other services and apps that do some or all of this job such as Friendfeed, Nimbuzz, Ovi Lifecasting.

Where Vodafone differs is in talking about the “Vodafone 360 Community”. Members of 360 will enjoy higher functionality in dealing with each other, than in dealing with people on the other social networks it aggregates. The additional features will include automatic contacts and content backup, automatic sync across multpile devices and automatic GPS tagging of photos. The People app will also work on other network operators’ phones, so that – for example – T-Mobile users can join up. This addresses the biggest dilemma for network operators, which is that social networks do not map neatly onto their own user bases. Vodafone seems to be aiming to build up a significant community of users, across networks, who prefer to use 360 because it offers higher functionality than using, say, Facebook.

And this will put Vodafone in head-to-head competition with Facebook, which is a position Nokia recently backed away from with its Ovi services.

At present there is no business model associated with the People app – users will get it free and will not be charged extra for using any part of it. Vodafone is doing this part for differentiation and loyalty reasons, aiming to provide a better experience than other operators.  In turn this should lead to more communications and a higher average revenue per user (ARPU)

Less detail was given about the other services in 360 at this stage, with much greater emphasis being put on the phones, which were pitched as the first 2 of a growing portfolio.

Here Vodafone is throwing down the gauntlet to several of the handset manufacturers. The software on the 2 Samsung phones looks and feels very different from other devices, with lots of innovation built in.

Vodafone 360 Contacts Book

The major new area is around the contacts book. Yes, like other phones coming onto the market, the contacts book is socially connected so that it shows the latest updates from your contacts on their various social networks. But Vodafone has departed radically from existing phone software and has implemented a contacts book in which your most popular contacts float to the front, while others drift to the background – borrowing some design ideas from the Social Pond invented by TAT in 2007.

This thinking reads across to the view of calls made, which will also act as a unified inbox, showing incoming calls and messages from all contacts.

Vodafone is aware that some people may prefer the classic approaches to the functions of their phone, so it will be possible for users to set the contacts book to boring old list-mode and the calls view to show phone calls only.

It has also gone for a non-standard button layout on the device with buttons for calling, people, apps and search. And it has allowed apps in the apps menu to have 3 states rather than 2: closed, open (full screen) and “expandable”, in which they are active (like widgets) in the apps menu area and take up more space than a single icon. Up to 5 apps can be in expandable mode at any time. Here Vodafone is neatly combining ideas from other areas.

Vodafone 360 is a big and important move by the company and it raises a number of issues.

First, only around 20% of users currently have a data plan, so many people buying into 360 will need to take a data plan first. In order for this not to be a barrier, Vodafone will probably need to bundle the data plan with the phone. That’s relatively easy while 360 is a contract offer, but how will it work as 360 expands and moves into pre-pay?

Second, 360 is a complicated proposition with lots of ifs, buts and maybes. Not all the features will be available in all phones or will work on all operators. It will be a major marketing challenge to put across the full concept of Vodafone 360 at launch without raising artificial expectations or confusing people hopelessly.

Third, Vodafone is not yet aggregating that many social sources. Where are MySpace, Bebo, Flickr, LinkedIn, Plaxo, Yahoo!, Orkut, Ning etc? In order to give 360 maximum usefulness and appeal Vodafone will need to enable a full list to be aggregated in a short timescale.

Fourth, how will the Maps and Music offers integrate with the rest? Vodafone mentioned that it will allow people to tag, rate and share locations along the lines of Brightkite or Foursquare, suggesting quite high integration with the People app. How will that read across to Music? Will the Music integrate with the Maps (which of the bands that I like is playing near here in the coming weeks?). How will Vodafone manage the development of the Maps app so that it remains competitive with current market leaders such as Nokia Maps, Google Maps and Telmap? What business models are going to exist to support the services? Will other social location based service be integrated?

Fifth, will people want their operator also to be their social networking provider – will they trust them that much? Vodafone argues that it has a close relationship with its users, thanks to the billing link, and that users already trust it with a lot of private data. I believe that many operators over-estimate the strength of the relationship they have with users and that trust is not a strong aspect of their brand values.

Lastly, is it a good idea to compete with Facebook and other social network partners? It is early days for social network aggregation on mobiles and it’s not clear if those services will provide enough functionality, or if users will prefer to carry on using their existing Facebook / MySpace / Flickr / etc application. Similar to Nokia’s stance, when it announced Ovi, Vodafone says it will not be exclusive and prevent other applications being used – it wants to give users the choice  – “Power to you”. But there is a basic conflict of interest when competing with your partners, and I expect Vodafone’s position to evolve in this area.

One of the big take-aways from this year’s show was that the Ovi web platform is now a tangible thing, which developers can work with, rather than a powerpoint presentation. Another was that Nokia has decided to narrow the focus  further on the consumer web services it will provide, leaving more to its partners.

So it was a good opportunity to check out various aspects of and queries on Nokia’s web strategy during the show. What follows is assembled from conversations with several people. It’s a long-ish post, but hopefully useful.

Nokia summarises its web strategy something like this:-

• Nokia’s mission is “connecting people with the things that matter to them”
• Alongside that it wants to “empower people to make the most of every moment by offering irresistable experiences providing true joy of use”
• Much of what matters to people is either already on or moving quickly onto the web
• Mobile access to the web is unique in being both highly personal and specific on where the user is
• Those 2 angles of People and Places provide “Context” data that can enrich the experience of using the web
• Users will be highly engaged with their Nokia mobile web experience and will want a deeper relationship with Nokia – this will become a source of value
• Nokia will continue to provide some of the relevant services itself
• And it will increasingly provide APIs so that others can use the context information Nokia holds to enrich their apps and services
• By having billions of phones around the world and a good web platform, Nokia will put itself at the centre of a large eco-system – and web eco-systems will be a key aspect of future competition in ICT.

The first new aspect in this is the irresistable experiences developed in conjunction with an eco-system of partners. This moves Nokia’s links with developers to centre stage.

The second new aspect is putting the user experience at the heart of design.  About time too, some S60 users would say.

The third is that Nokia is now explicit about wanting a direct relationship with consumers. Nokia made it clear that privacy and trust will form key aspects of this, but it was less clear at this stage exactly what else the relationship would consist of.

In narrowing its focus further on the consumer services, Nokia has now parked Ovi Share (social network), Calendar and Contacts, and is focusing Ovi on Music, Maps, Messaging and the Ovi Store.

My conclusions

Nokia’s web strategy is evolving as the company gets deeper into what it is doing and as the world around changes.

I think it is good that Nokia is doing fewer consumer services. It honestly wasn’t doing several of them well, and it was being pitched into unhelpful competition with key partners with them. It is unlikely that the recent Facebook deal would have been done if Nokia was still actively pushing its own social network Share on Ovi.

The company is now moving to a better thought-out position in which it has a broad view of the eco-system, has activities in various areas of the eco-system, has key competitive aspects in difficult areas such as high functionality maps and navigation services, and it is not dependent on any one business model.

It also seems to be coming out of a difficult period in which there was a huge amount of work to bring the various assets together, but few benefits visible on the outside. This has come quicker than I expected. Cashing in on this will be important as Nokia seeks to carry all areas of the company along the services path and convince the stock market.

I believe that Nokia is right to do various services for emerging markets, such as Nokia Money and Life Tools. Nokia is in a great position to build a substantial business with these – even if some of them are high risk.

I also have some worries remaining about the strategy.

First, the long running issue of how Ovi plays out with mobile operators.  It’s true that Nokia has secured Ovi deals with more operators over the last few months and that the services APIs can be beneficial to operators. But there are still plenty of stories circulating about how some operators are very frustrated with Nokia in this area. And Nokia’s wish to have a direct relationship with consumers will not make them feel better.

Second is Search. This will be such an important component of everything Nokia does in services and it is still weak.  Try typing “Lords cricket” or “Wimbledon tennis” into both maps.ovi.com and Google Maps to see the issue. The problem Nokia has is that users’ expectations in the western world come from Google. Nokia needs a clear plan.

Third is that Context is difficult, complicated and new. For things like live road traffic information the value is clear.  In other areas it is much less clear.  There could be only subtle differences between a service that I love because it’s so helpful, and one that I never use because it annoys me with information and adverts that are near-misses. Nokia is pioneering here – no-one has built this area into a significant business before.

Fourth is advertising, now played down a lot in Nokia.  But there’s still a sense that quite a lot of future business models will depend on advertising. The contextual side of advertising will need to be excellent to be accepted on mobile.

Fifth is the area of user information. At present Nokia is a highly trusted brand and that gives it an advantage over some players, such as Google and the mobile operators. Now that Nokia has sidelined its own social networking ambitions, we do not know in detail what user information it will be holding nor how it will use it. But it’s clear that running a direct relationship with users, while using information about them to provide Context information to a range of 3rd party apps has risks.

Last is the area of investment. I’ve said before that Nokia needs a hit service in order to convince the stock market of the value of what it is doing. With Facebook having just declared that it is cash-flow positive, one year ahead of schedule, the pressure on Nokia will increase.

And now here’s the update. The main areas I questioned were on the general value of “Context”, several aspects of the web platform and also of the retail consumer services Nokia will provide.

Context

Two trends in the mobile web are very clear – the rise of social networking on mobiles emerging as the biggest single mobile internet service; and the growth of location as a service in its own right (navigation), or as a component of other services (e.g. social networking).

But there is a lot of mobile web use that does not need People and Places. For example checking the footy score or the F1 result, looking something up on Wikipedia, finding a game on an operator’s portal, doing a Google search, buying an App off the App Store, downloading a song.

Q: So is “Context” really the future of the mobile web, or is it an interesting aspect for a small share of web use?

Nokia’s answer is this:

• Web use has gone through stages:- 1-way access to information, social use, geographic information, real-time conversational use
• The last 3 of these rely on good connections with people and places, and are increasingly time-sensitive
• There are several industries that have not made maximum use of the web yet, such as Travel, which could do much more using Context information – e.g. the Lonely Planet is moving quickly in this area
• There will be more stages of web use – especially using meta data plus crowd-sourcing, for example geographic data as used by Sense Networks
• Nokia is not saying that other ways of using the web will disappear
• Nokia is saying that the newer patterns of use are here to stay and will take a growing share of web activity, especially on mobile

A year ago you might have questioned the scale of the new patterns of use. But the growth of social networking on mobile has been so strong recently that at least part of Nokia’s bet is coming good.

Other areas are much more speculative, such as social location funded by advertising.  Venture funded companies such as Brightkite and Gypsii are certainly providing interesting services. But none has proven the business model yet.

Nokia agrees and says it’s keen to enable innovation here without investing heavily in providing its own services.

Nokia expects 99% of the content to come from users and third parties, but 99% of the context information to come from Nokia.

Q: Are People and Places enough? Surely you also need to know about whether the user is available (Presence) and what they’re up to at any given time (Projects? Purpose?) otherwise information you present, or adverts you serve could just spam the users.

Nokia agrees and said that “People and Places” is a nice, easy to understand phrase for marketing purposes.

Actually it is also working on several other areas of data that add in to Context including time, presence and what you’re doing. These are more ambiguous and difficult than People and Places, so are likely to come through more slowly.

Web Platform

When Nokia announced Ovi 3 years ago it was clear that it planned to run a web platform that it and others could use to develop apps and services. However it’s only during the last few months that we have really seen concrete examples of that coming to market.

The main reason for it taking so long was that Nokia acquired its way into several of the Ovi areas, and has had a hard task trying to integrate the various things it bought.

The main web services provided today are around People and Places.

For People the first step is Nokia’s new social network connection framework, first talked about earlier in the year. In connecting to Facebook, for example, Nokia does not use Facebook Connect but uses its own framework to feed messages and content to and from Facebook.

The first reason for this is scale. With its own framework Nokia will be able to connect to a large number of other social networks quickly, and I expect to see this over the coming months.

Interestingly, this is also intended to be friendly for network operators – they are similar in many ways to a social network in the user data they hold and the way links are made. Nokia envisages that they could connect into Nokia phones and services in a similar way.

The second reason is technical. Messaging to and from social networks is done a little differently by each social network and is generally not optimised for mobile. This means that battery life would suffer if it is handled only on the phone.

Nokia is trying to address this by having a highly optimised interface between the phone and Ovi, then having the different social network interfaces handled within the Ovi platform in the web.

For Places the first step has been to open the APIs for maps and navigation, deliberately positioning the functionality closer to Google Earth than Google Maps in order to attract developers. This is attracting considerable interest from developers and there are some good examples of apps in development, such as one from Deutsche Bahn.

Q: People’s use of the web is changing quickly and presents a moving target – if you’re providing clever services for this, how on earth will you keep up?

It’s true, and this was one of the key reasons for focusing on developing fewer consumer services and opening the APIs. It will be better to enable others to develop lots of new applications, rather than attempt to do all of that in-house.

Q: In order to do good Context services is it necessary for Nokia to have a much more integrated set of functions in its web platform than, for example, Google needs for its services?

To some extent yes, but apparently it’s not so big a deal.

The task is slightly simpler now that Nokia is focusing on fewer end-user services. But it’s also down to the type and quantity of data collected.

Google mainly indexes content in the web. Nokia keeps track of things in the real world – this is a smaller and cleaner data set.

Where there will need to be good integration across the various data stores is in the data mining, so that the data can be put to good use.

The main investment priority at present is on functionality that works across the platform and the services in order to improve integration, rather than on adding functionality to individual services. For example single sign-on to the services was a high priority recently.

Q: The Ovi platform now seems to be moving more quickly – to what extent is it necessary for handset operating systems to keep up, so they do not become a roadblock?

One of Nokia’s big messages to developers over the last 6 months has been the emphasis on developing apps using web runtime (working in Maemo and S60, not yet in S40).

For a large number of applications this breaks the link with the roadmap of the handset operating system, so the evolution of the operating system is not a roadblock.

But there are some areas where it’s currently necessary to program in native code (e.g. games, contacts book) and for these there is a need for co-ordinated roadmaps. There will be stronger co-ordination thanks to the formation of the new Solutions group, which combines the Devices and Services divisions.

Q: What about search? It was poor on Nokia Maps, and weak on the Ovi Store when it launched, though both have improved recently. Won’t it be a key area, and what is Nokia doing about that?

At present the search set up is different in each of the services. And, yes, it’s correct that search has been weak on some Nokia services.

Without giving anything specific away, Nokia said it recognises that search is a key area and is putting a lot of effort into it. It pointed out that there is a lot of R&D activity going on in search within smaller companies and that the progress of good quality search is not dependent on an Ovi competitor such as Google.

Consumer services

Q: Why narrow the focus further now?

Nokia now wants to focus on services where it can bring a clear competitive advantage and win in the market. The competitive advantage can come from scale or difficulty. There is an obvious position in Maps, Music and Messaging here and the current service offerings are mature and competitive.

In other areas there are already a number of mature offerings in the market and the investment needed from Nokia to bring early-stage services up to a competitive position does not make sense right now.

Also, there are benefits from the platform development being easier with fewer own-brand services to support.

Q: The senior management at Nokia World were emphatic that “one size does not fit all”, yet so far Nokia has only launched Ovi services in 1 size, with the result that there has sometimes been a mismatch between the simplicity of the services and the more sophisticated needs of the segment they are aimed at. How will Nokia achieve a better fit?

Nokia feels that the lead customers for web services are in the more exploratory segments, and that they should be served with a combination of services. Initially that combination was made up of some mature services (e.g. Maps) and others in their early development (contacts, calendar). Some of those services fell short and they have now been parked. Nokia is focusing on areas where it can do the job properly and win market share. For other areas Nokia plans to use partners’ apps and services.

For other less adventurous segments Nokia has put out point solutions, such as Comes With Music and the 6210 Navigator.

It is also looking at ways of personalising services. With good personalisation segmentation becomes less necessary.

Some of this will come through by allowing users to choose what information to display on maps (there is a limited set of this already in Nokia Maps, and it’s easy to envisage more).

Another approach is to use recommendations, as we see in the Ovi Store. Most users will not have noticed much in the way of personalised recommendations yet on the Ovi Store, but it is early days in the development of the recommendation engine. Again it is easy to envisage much more here, such as the Amazon approach “people who bought X, also bought Y, Z”.

Q: Where do other Nokia consumer services fit in, such as Life Tools and Nokia Money?

Nokia is investing in a few other key areas notably commerce, financial services and entertainment enriched by context (maps and social aspects in music, for example). Again, this is a more focused list than before, and again Nokia will work a lot with partners.

The reasons for not using the Ovi brand at this stage are:

• markets – several of these services are aimed at emerging markets where the Ovi brand is unknown. Nokia is also experimenting in some markets with “Ovi by Nokia” to increase take up of new services
• trust – Nokia is one of the most trusted brands worldwide and some of the services rely on a high level of consumer trust. It would not be appropriate to use the Ovi brand for these

The most important announcement at last week’s Nokia World 09 show was the arrival of Maemo 5, the company’s new smartphone software, together with the N900 – the first device using it.

Maemo 5 and the N900

The announcements have been widely covered in the press, but it’s worth reflecting on the relevance of them to Nokia and the market.

Maemo 5 is the next evolution of the company’s Linux operating system, used in earlier products such as the N800 and N810. It has been fermenting quietly within Nokia for about 5 years and the improvements in the latest version are mainly aimed at bringing a desktop computing experience onto a mobile device.

This fits the aspiration of the top end of Nokia’s product range, which is to push mobile devices up into the computing space. Nokia’s Windows 7  based Booklet 3G laptop / netbook, which was also announced for Nokia World, is a complementary step.

The main upgrades to Maemo for this version are in the areas of speed, performance, PC-style multi-tasking where you leave the apps running all the time, a brand new user interface (UI), a Mozilla based browser, integration of VoIP into the operating system, adding support for Microsoft Exchange and designing in renewability at all layers of the software to enable a healthy roadmap.

When announcing Maemo 5 Anssi Vanjoki, EVP of Nokia’s Markets Unit, said that Nokia had always envisaged 5 steps to achieving the ideal new software platform, and that this is step 4 of those. That does not mean that the current version is just work-in-progress, more that there is already work going on for the next release, which will presumably incorporate greater integration with the Qt framework, HD media and other goodies.

With the release of Maemo 5 came the launch of the N900, the first device to use the software. This is a slightly smaller, but higher spec version of earlier tablet devices with cellular connectivity built in for the first time.

The N900 was designed to fit the features of the software and has been welcomed for its speed, memory, screen, improved keyboard, gaming abilities, range of media formats supported plus better handling of video. However, it has also been criticised for its blocky shape and general ugliness, with one person unkindly describing it as a “stepping stone”.

The core applications on the device (contacts, messaging etc) are all new for the N900 and are designed around web use cases. For example the contacts book shows VoIP addresses next to phone numbers, as well as social network links.

In addition there are 20 other applications available for it at launch including Ovi Maps, Skype and others. There is a lot of work going on porting Linux applications from earlier Nokia devices and desktop Linux to the N900, so the range of applications will rise quickly. Initially these will be available through a special site – Maemo Select – but we can anticipate that the Ovi Store will carry them soon.

Importance

For Nokia the release of Maemo 5 is a logical next step. It has not had a major software platform release for about 8 years since Series 60 on top of Symbian, and there is a clear need for a new platform that is designed from the outset to work with the web.

From a short time of testing the N900 at Nokia World, I think the software looks very capable and introduces a number of interesting new ways of doing things.

The N900 is of secondary importance to the software – though of course you need devices to ship the software. But we should think of the N900 as only the first attempt to exploit Maemo 5.

Actually, although it is not beautiful, the N900 feels much nicer to use than the N97 and starts to show what Nokia is capable of at this level. It is almost what the N97 should have been.

One key task for Nokia will be to turn the applications side into a consumer proposition. For earlier versions the apps were easily available and well organised but very geeky, with names like “gstmjpg” and “irtrans-irserver”. Nokia will need to make it as easy and user-friendly as on the Apple App Store to get applications, but without alienating the Linux community who have contributed such a lot to the development path.

Another key task will be to ensure that the applications are computing-grade and really serve the high end, rather than simply parroting what’s currently available in Symbian / S60 and constraining the appeal of the device by bringing historic Nokia smartphone-think to it. So, for example, it needs a proper office suite, a high quality RSS reader and high-grade PIM applications.

Both of these tasks are really important for the market’s development since consumer users have so far rejected the relative unknowns of Linux on netbooks in favour of the tried and trusted Windows, with all the applications and file format compatibility that comes with it.

Nokia intended the N900 to appeal to Tech Enthusiasts – one step out from the Geek group who bought the N800/810, but not mass market. However, the interest this device has generated suggests that it could appeal much more widely, especially if there is a good range of useful apps available in an easy way. We can expect to see it ranged and subsidised by a number of carriers.

The N900 is also likely to play a useful role in helping Nokia re-build its brand in the US.

And what about Symbian?

There has been a lot of poor quality journalism in the last month about how Maemo will quickly be the death of Symbian. This is based on the perceived weakness of Symbian in serving high-end devices.

We should remember that Symbian in its new organisational form incorporates both the original Symbian operating system and Nokia’s Series 60 UI and runtime layer.

Although the original OS is now old, actually it is highly capable and it is good at running on devices which do not have a high spec processor and Gb of working memory. This makes it a sensible choice for smartphones lower down the range.

As far as I can tell most of the major weaknesses in the current Symbian come from Series 60, especially the touch UI which was a huge missed opportunity that set Nokia back at least 2 years. Nokia is fully aware of this and is sick of hearing about it. As I understand it there is a proposal in the Symbian system for a major overhaul to parts of S60 which, if approved, could appear in release 4, due in around a year’s time.

So, yes, that gives Nokia a problem in that it must get through the next 12 months making the best of a poor UI in its top-end Symbian smartphones (or sell the N900 to those buyers). But it still has a strong platform for serving lower smartphone price points, and for giving its competitors a hard time at those levels. The newly launched 5230 at a recommended price of €127 is a great example of what can now be done.

And this means that Symbian is a real growth story, with much higher volumes likely over the coming 2-3 years than ever before.

This is the first of a series of posts on various things coming out of the Nokia World show that took place this week in Germany. To start with I’ll focus on the corporate issues. In other posts I’ll focus in on key areas within the business.

At Nokia World this week the company’s management continued, strengthened and expanded on the themes it used in the last results call – namely that the mobile phone industry is in the early stages of the biggest change in its 20 year history.

The key messages from the management were:

• In the new world it will be solutions that will drive the market, rather than just devices or just services
• In the new world competition will take place between competing eco-systems of industry players, rather than those active in a single category such as phones
• Nokia intends to be at the heart of one of the eco-systems
• Nokia is undergoing a transformation to address that opportunity
• It has recently fallen behind in some areas of the phone market, but has listened and is fixing things quickly – it is also on an aggressive push with smartphones
• It is further focusing its efforts on a few key services for retailing to consumers
• And it is also starting to scale its internet infrastructure, so that others can start to play a fuller role in its eco-system
• We will be able to judge the success in 14 months if it hits its target of 300m active users of its services generating revenue of €2bn per annum

Much of this is what Nokia has been saying for the last 2 years since it launched its Ovi strategy. It continues to remind people of the case it is making, presumably because it feels there are many people who either don’t get it yet, or don’t buy into it.

For example, its share price is up on its low for the year, but is roughly where it was in September 2004. The financial markets are currently attaching very low value to its long-term push into services.

I suspect the biggest issue is that many people do not yet believe in Nokia’s ability to make it work.

The company’s reputation has suffered this year with the lack of an “iPhone killer”, the Ovi Store launch and the issues people have had with the new N97 flagship device. In its efforts to catch up Nokia seems to be rushing things to market even though it knows they are not properly ready,

This is dangerous in the same way as it was for the dreadful British Leyland car manufacturer in the 1970s, which worked out that it would cheaper to cut down on Finished Goods QA and to fix things when customers brought their cars back and complained. It was cheaper, of course, but it had a disastrous effect on the company’s reputation and brand.

That is an unfair comparison. British Leyland was a mess from top to bottom and a standing joke in its industry – Nokia is an awesome competitor and highly respected. But Nokia just cannot afford to launch things that are as poor as the Ovi Store and N97 were at launch.

So has Nokia listened and fixed things? Yes … and no.

Olli-Pekka Kallasvuo, CEO, said in his keynote that the apps and services he was announcing are all “available today on the Nokia Betalabs site”.  Naturally the site was immediately swamped and it took me most of the day before I could download them. When I came to install the new Maps application it took 7 attempts, a lot of unhelpful error messages and 30 minutes help from a Nokia employee before it would work.

In fairness to the app this was because of (known) N97 issues, not because of anything wrong with the app.

To address those issues it is launching its first pure software product – the N97 2.0 software – in October.  Yes this has large number of bug fixes, but it’s also the first step to providing incremental value on a device by upgrading the software, as Apple does with the iPhone. This is a good new position for Nokia.

But it’s clear that there is still work to do before all parts of the company glide along beautifully in sync.

And to address that Nokia has recently announced that the Devices and Services division will become be supplemented with a new Solutions division, under a single head, with the aim of ensuring that plans are properly co-ordinated and executed. An essential move.

On the services side Nokia showed real progress with two good moves and an update on existing services.

First was the announcement of closer integration with Facebook. Interestingly this does not use Facebook Connect, but is built on a framework that Nokia has built for pulling feeds in from a wide variety of social networks. Facebook is (quite naturally) the first to go commercial, but we can expect large numbers of social networks to be integrated in the coming months, something no other handset vendor is in a position to do. In the long term this will work with the Contacts Book in the phones but for now it is used in separate apps.

Incidentally, this integration with Nokia will be the first time that Facebook will be using location information on its site. And it is real kudos for Nokia as a web platform provider that Facebook chose Nokia for this, rather than Google.

Second was the opening of the APIs for Maps and Navigation, allowing web and mobile app developers to use the functionality in their sites or apps. This follows 6 months of collaboration with a select group of developers and is a very important step. By allowing the use of high functionality APIs, Nokia will start being taken seriously as a web platform provider by large numbers of developers. It will also strengthen the Ovi proposition for users, making it more worthwhile for them to sign up to an Ovi account.  For now this is limited to Maps and Navigation but we can expect to see other APIs coming along in areas such as messaging, music, contacts.

On the existing services Nokia said that its Life Tools service trial in India has been a success and will be scaled up, and that its Ovi Messaging service is getting good uptake in the market.  Both have the potential to generate many millions of users and revenue.

So Nokia’s Services target is interesting.  It will ship around 500m phones between now and the end of 2010, plus it has many more in the market which can already get access to Ovi. So it needs something like a 50% take rate to hit its Active Users target (an Active User is one who has used an Ovi service in the last 6 months). This is quite ambitious, but looks achievable.

If it does hit it, those users only need to spend €6.7 each per year to achieve the revenue target.  Clearly some of the services have very low revenue per user, but others are much more valuable. Maps, for example, is ~€60 per year; Comes With Music adds ~€50 to the value of a phone. So the revenue target is not so ambitious.

Interestingly, when asked if the Services would be profitable in their own right on hitting 300m active users and €2bn revenue by end 2010, a senior spokesperson became uncomfortable and evasive. Looks like break-even is some time after 2010.

Also, Nokia’s definition of Active Users is not ambitious. One activity on Ovi in 6 months is not very interesting. Roughly 50% of Facebook’s users log in daily. A high proportion of Google’s base use its service many times a day.

In ramping up the services there is a balance to strike and some big opportunities to get it wrong.  Some network operators do not want Nokia’s services and there are stories of tension in sales meetings as Nokia is being forces to sell just the handsets without bundling the services in. There are also rumours of investment trade-offs between services and handsets, leading to gaps in the handset portfolio for next year.

Nokia’s strategy is very carefully thought out and – if it works – the company will occupy a clever and valuable position in web services as mobile usage goes more and more onto the web.

Success with this is going to be all about executing it properly and we are starting to see real progress.  Demonstrating that the solutions approach is adding value to the company will also be a key aspect, so that it can carry all of its stakeholders and a sceptical financial community with it.

Samsung’s second quarter results came in last Friday ahead of its own recently raised guidance, driven by growth in semiconductor prices, in flat panel TVs and – to some extent – in mobile phones.

Overall company revenues grew almost 12% over the year to KRW 32.51trn, also up from KRW 28.7trn in Q1. Operating profit rose 5% over the year to KRW 2.52trn from KRW 2.4trn, but this was a huge 536% increase over Q1.

The biggest growth in revenues came from Semiconductors, LCD panels and Digital Media (mostly TVs). The growth in profits came from Semiconductors and LCDs returning to profitable trading, and from growth in the TV market.

In mobile phones, Samsung shipped 52.3m units, up from 45.8m in Q1 and 45.7m a year ago. Samsung no longer reports handset revenues, but the revenues from the Telecoms part of the Digital Media and Communications division (which includes some network sales) were KRW 10.44trn, up from KRW 9.77trn in Q1 and KRW 7.88trn a year ago.

However, the profit of that division fell slightly from KRW 1.12 trn in Q1 to KRW 1trn, although that is up year on year from KRW 0.89trn in Q2 08.

Samsung described its overall results as “outstanding” and said they were based on the consumer electronics business remaining strong, with a solid performance from the still challenging components market.

In giving its outlook on the handset market, Samsung said it expects market volumes in Q3 to rise 5%, while it expects it will gain market share “steadily” and should ship 200m plus devices this year.

Analysis: This is a great turnaround for Samsung – it is clearly much healthier to have all divisions profitable than to have the position it saw earlier in the year, when handset profits were propping up the rest of the company.

However, because of changes in the accounting presentation it’s actually very hard to see how well the handset unit is actually doing.

Volumes were up strongly, rising 14% both sequentially and year on year to 52.3m, helped along by touch screen phones in Europe and the US as well as greater strength in emerging markets and the weakness of the Korean Won.

Because of the change in reporting, the only consistent measure of Samsung’s handset revenue is [volume x average sales price (ASP)], which does not correlate well to reported revenues and contains significant currency fluctuations.  However, on this measure handset revenues were $6.49bn, down from $6.54bn a year ago but up 14% from $5.68bn in Q1. The average sales price was flat from Q1 at $124.

More worrying was that the operating margin in the handset group fell back from 11.5% in Q1 to “double digits” in Q2. Samsung said that operating margin held up because of mid- and high-end phone sales and cost-cutting measures, although it was taken down by higher marketing expenses.

This reduces the operating profit per phone by about 25% at a time when Nokia and LG both grew theirs strongly. Either Samsung was pricing aggressively to support its volumes, or it had especially high launch costs on its latest devices.

Samsung’s outlook is slightly confusing.  It is expecting 5% market growth in Q3 and also expects to take market share steadily, which implies its own growth will be higher than 5%.  But its volumes now only need to remain flat for the next 2 quarters for it to pass its target of 200m shipments. It looks as if a shipments target of more than 210-220m would be more realistic.

Like LG, Samsung has not announced a major services move although it has already done more than LG.  It launched an App Store earlier in the year, then a Movie Store in the UK in March.  It also has a music store for downloads onto phones.  Samsung is, of course, one of the few companies in the world that is in a position to do a large scale cross-device move, enabling easy use of content across PCs, TVs, mobile phones and other consumer electronics.

At the end of last year it re-organised all its finished products into a division call Digital Media and Communications, which has potentially set the stage for a grander plan. Now we just need to know what that plan is.

LG’s 2nd quarter results earlier this week saw high demand for its mobile phones as one of the key factors pushing revenue and profits to record levels.

The company shipped 29.8m phones in the quarter, up 32% on Q1 and 8% over the year.

The average selling price (ASP) of its phones grew about 4% to $127, lifting phone revenue to KRW 4.88 trn, which is growth of 25% over Q1 and almost 30% over the year.

Operating profit in the Handsets division more than doubled to KRW 538bn, from KRW 263bn in Q1. That lifted the operating margin to 11% from 6.7% in Q1, although it is not back to the almost 15% seen 12 months ago before the market turned down.

Almost all other divisions also improved their performance, with notable gains in air conditioning, so that company revenues grew 13% over the year to KRW 18.7trn while operating profit slipped 3% to KRW 1.41trn, although operating profit was up almost 7% on Q1.

In its outlook on the handset business LG said that it expects the market to grow 7% sequentially to 280m units, which would be a 6% drop from Q3 08. It said that its own sales are expected to grow steadily although it is expecting margins to decline slightly because of a move to lower tier models and increased marketing costs.

Analysis: This is a thumping set of results, brought on by having got key parts of its phone portfolio right at a time when other players are in transition with theirs. These results take LG emphatically away from the danger zone it was in at the end of last year.

It is especially good to see improving performance in most of the divisions of LG.  During 2008 the handset division was the main profit source for the company. Now there are reasonable margins in most areas.

LG was on a strong upward trend in handset volumes in the 18 months to mid 2008, when the market turned downwards. Since then, volumes have fallen slightly but LG suffered low margins at the end of 2008, having fought very hard to sustain market share.

The volume increase in the current quarter is impressive, with growth coming in all regions. There is some boost for Korean vendors from the current weakness of the Won.  But LG is clearly taking considerable share from Sony Ericsson and Motorola at present.

One key phone in the mix is the Cookie, the mid-range touchscreen device. Another is the KS360 consumer qwerty messaging device, whose success caught most people by surprise. Both have sold very well in the mid-range at a time when other vendors were guilty of not paying enough attention to that part of the market while they were focusing on producing higher-end smartphones.

The average sales price (ASP) for LG has recovered steadily over the last 6 months from $117 in Q4 08 to $127 now, refelecting improvements in the product mix. Some of that is seasonal, with a greater weight of lower end phones normally sold in the 3rd and 4th quarter.

The most impressive feature of the results, though, is the improvement in profitabilty. Shipping 7m extra phones is clearly a huge help. But LG has also benefited from improving the product mix towards mid- and high-end devices, and has seen results come through from its cost cutting programme.

As with other vendors I think LG is right to give a cautious guidance – and not just because of the overall market conditions. The factors that have helped it to be so successful in H1 of this year will not be as favourable in H2. Other vendors have addressed their mid-range portfolio weaknesses and will provide much stronger competition with similar form factor devices during the second half, plus there will be a greater share of lower-end phones in the mix.

Also, we have not seen much from LG yet in the way of services – unlike most of the other major vendors. LG has just launched its App Store in Australia and Singapore, supporting just 2 phones today. I would expect to see signficant investment from here on in various service areas as LG plays catch up with Samsung (and others) in this area.

Qualcomm results yesterday showed strong improvement on calendar Q1. But – like other players in the sector – it gave a cautious outlook which was lower than market analysts were hoping for.

Revenues were $2.75bn, almost flat over the year but up from $2.46bn in Q1. Thanks to cost cutting measures operating income was $894m, up over the year from $824m and ahead of earlier guidance.

The company shipped 94m chipsets, which is year over year growth of 9% and estimates that it took market share, since relevant device shipments were up 4% to 111m.

CEO, Paul Jacobs, described this as a “strong quarter” in which Qualcomm continues to benefit from robust migration from 2G to 3G devices.

He said that Qualcomm expects to have fiscal 4th quarter pro forma revenues of $2.55-2.75bn and operating profit of $0.95-1.05bn. Qualcomm expects to ship 88-92m chipsets in the quarter.

Analysis: Qualcomm is the latest player in the tech sector to improve its results, give a cautious outlook and then find that they are marked down as the markets crave stronger signs of economic recovery.

Personally I think Qualcomm and others are right to be cautious. It would be reckless to forecast a strong recovery until we have had at least 3-4 quarters of the new market conditions (we’ve had 3 since the market turned down and only 1 of stability at a new level).

The results this time around were healthy.  Chipset volumes were boosted by demand from China, higher demand to support some specific operator launches and also by a stabilisation of inventories among customers, although close to historically low levels.  The average chipset selling price was flat over the year, so chipset revenues grew with volumes.

The profit improvement came from an overall cost reduction, with the bulk of that coming from SG&A and reduced litigation costs.

This helped boost free cash flow to $1.09bn, up 47% year on year, leaving Qualcomm with an enviable $15.7bn in cash and marketable securities.

In looking forwards Qualcomm’s caution is not driven by an overall nervousness on demand.  It has not changed its forecast of strong growth in the total market for 3G devices for the year, up from 480m last year to 540-590m this year.

Instead the cautious tone came from:

• prudence on the likely regional mix of demand
• a likely fall in the average sale price of 3G devices
• financial nervousness – on valuations of marketable securities and a pending fine from the Korean fair trade commission

Qualcomm found in the current quarter that the mix of demand was higher in developed markets than it had expected. This drove the average sales price up slightly, helping revenue growth. For the next quarter it has seen a little of this going into the quarter, but is not banking on that continuing throughout the period.

The average sale price of 3G devices is projected to fall from its level in fiscal Q4 08 of $216 to $189.  Sales of high-end phones are growing well but the average will be pulled down by handset vendors pushing 3G steadily down the range into lower price points,  by growing demand in emerging markets, and by USB modems taking a larger share of device sales. All three will shift the mix for Qualcomm towards cheaper chipsets, but should also drive volumes higher in the medium term.

On the financial side, the company suffered in calendar Q1 with writedowns in the value of marketable securities, and is being cautious on what it might experience in the coming quarter.

Also, when it reported it acknowledged that the South Korean Fair Trade Commission was about to issue a decision on a case of potential anticompetitive practices.  It has now done so and has fined Qualcomm $208m – it’s largest ever fine – a figure that Qualcomm described as “very regrettable” and is contesting.

Given the transition to 3G that the world is experiencing, and the growing strength of its customers in the handset market, Qualcomm remains well placed to benefit over the next year as long as the market conditions do not deteriorate further.

But its business mix will change gradually towards lower cost, higher volume – at least until LTE or Snapdragon powered netbooks get going.

Apple posted very healthy fiscal Q3 results yesterday beating its own and analysts forecasts.  They were powered along by the iPhone 3G S and sales of the reduced price iPhone 3G.

Overall the company grew its revenues 12% year on year to $8.34bn, while operating income grew 20% to $1.67bn, setting new records for a non-holiday quarter.

Apple shipped 2.6m Macs during the quarter, a rise of 4% over the year, 10.2m iPods down 7%, and 5.2m iPhones up 626% over the year. It would have shipped more iPhone 3G S devices but was (and still is) supply-constrained. It also announced the 1.5 billionth download from the App Store, opened just 12 months earlier and now stocked with 65,000 applications.

The company gave a relatively cautious guidance about the next quarter with revenues expected at $8.7-8.9bn.

Analysis: The growth of the business, and the iPhone in particular, is very impressive given current economic conditions. But digging below the surface shows that the next quarter’s results will be more illuminating than this set.

The growth of Mac shipments was strongly related to a refresh of various models, linked to reductions in prices. Apart from the iPod Touch, sales of other iPods are (deliberately) now being cannibalised by iPhone sales.

That does not mean non-touch screen iPods are on their way out – Apple was at pains to stress that they should run for a number of years yet, appealing to lower price points and especially useful in specific markets where the iPhone and iPod Touch are out of reach of mass-market pricing. In fact roughly 50% of non-touch iPod volumes go to new Apple users, so they are great as an on-ramp for later iPhone sales. iPod Touch also sold strongly in the quarter, up 130% on Q2 2008.

But it was the iPhone that stole the show this time.

In order to set the iPhone sales picture in context it’s useful to look at a graph of smartphone sales.

There has been much excitement in the press about the 626% growth rate on iPhone volumes, but this is misleading.  It compares this quarter to Q2 08 when iPhone sales were more or less stopped by expectation of the launch of the iphone 3G, as shown in the graph.

It’s notable that Apple had announced the new iPhone operating system last March, then released the software in June, so that existing iPhone (and iPod Touch) users could upgrade their device. Second, there was widespread expectation of the new iPhone due for launch in June.

These two factors could have slowed sales of the existing iPhone 3G drastically in this quarter, as we had seen before.  But they did not, partly because Apple dropped the price of the earlier iPhone 3G in the US to open the market up to other segments.

The iPhone 3G S sold a spectacular 1m units in the first 3 days after its launch on June 19th and it’s reasonable to estimate shipments of 1.5 to 2 million units in the quarter. This would mean that the earlier model shipped around 3.2 to 3.7m in the quarter, which compares favourably to 3.8m in the previous quarter.

It’s notable that Apple had growth while RIM did not.  Apple released some figures about enterprise use of the iPhone, saying that 20% of the Fortune 100 companies have purchased more than 10,000 iPhones each, while “multiple” companies have purchased more than 25,000 iPhones. These are sales that might have gone to RIM, who reported slowing sales in the enterprise segment in this quarter (although RIM said this was not mainly because of the iPhone).

Nokia’s volume growth in its converged devices (Series 60) is also notable here.  Like Apple, Nokia is pushing smartphones down the range to lower price points, with devices like the 5800.  This will bring strong growth in volumes but, for both companies – and the operators they work with – there could be profitability issues since smartphones are more expensive both to build and to support.

The launch figures for the 3G S are certainly amazing and Apple is to be congratulated on pulling off such a successful launch.  But there has been some speculation just recently that the majority of sales went to existing iPhone users who were trading up, and that sales have now slowed.

Apple also said that one of the main reasons for its cautious outlook is that it does not have much experience of dealing with seasonality across the broad set of channels it now uses for the iPhone.

The acid test of both of these will be the next quarter’s results.  How will they compare to Q3 08, which was the iPhone’s biggest ever quarter?

Digesting Nokia’s results from last week highlights a few key difficulties it will face from here on, of which the biggest is how to convince the world of the value of its services push.

Having said that, Nokia posted much improved results for Q2.

Phone shipments were up 11% on Q1 to 103.2m. Its average sales price (ASP) was down roughly in line with the last 15 months trend to €62, which meant that revenue for its Devices and Services division was up almost 7% on Q1 to €6.6bn.

Operating profit in the Devices and Services division improved from 10.4% to 12.2% giving operating profit up 25% at €802m, compared to €642m in Q1.

Operating conditions improved in all of Nokia’s divisions in Q2 as market conditions stabilised and efficiency measures produced savings.

CEO, Olli-Pekka Kallasvuo, described it as a solid performance in a tough market, with devices market share rising and notable gains in the smartphone market.

In the investors call he stressed heavily that the mobile phone industry is in the early stages of “the biggest change in its 20 year history” into a solutions market, in which services will play a large role. He said employees will all have Active Users of services as one of their KPIs for incentive schemes.

However, Nokia disappointed the market by lowering its outlook. It said that its market share would remain flat for the year rather than grow, and that its operating margin in Devices and Services would be similar in the second half of 09 to the level in H1, rather than rising to the mid-teens as it had previously said.

Analysis: After a pre-announcement from Samsung and strong results from Intel, the market wanted a more upbeat outlook from Nokia signaling a recovery in the tech sector.

Nokia said that the market definitely is more stable than in Q1, but its shares fell sharply when it also said that its services should improve long term (2010) profitability but that its devices market share and margins would meanwhile stay flat.

Profitability improved in Devices and Services in Q2 thanks to cost cutting measures feeding through, stabilisation of channel inventory and strong sales of key devices – notably the 5800 mid-range smartphone  and the E71 enterprise device. In fact the E-Series did substantially better in Q2, overtaking N-Series volumes, helped along by a broader portfolio and Nokia’s (now very good) email service.

But there are still several factors weighing on profitability which will affect H2 09:

• The flagship N-Series range has previously contributed a large share of profit but volumes are currently just 42% of where they were 18 months ago. This is because of vastly increased competition in smartphones, lack of winning new models and the decline of the N70 and N73 – old devices that were still contributing large volumes last year.The N97 is the big hope for retaking the high ground and, although it is said to be selling well, there are signs that the software was not ready when it launched simultaneously in 75 countries in June. This may lead to a high return rate -ouch, ouch, ouch.

• Lack of large volumes in the mid-range – the “golden middle” – where Nokia traditionally made most money.  This is something most vendors got wrong over the last 12 months but, actually, Nokia’s 6700 and its baby brother, the 6303 look set to deal with it. The 6700 in particular is being bought in very large volumes by operators, I hear.

• Services have not hit a winning streak, are not yet profitable and still require considerable investment to achieve the necessary scope and scale to contribute properly. We cannot see the impact of this on Nokia’s numbers because the company does not break out Services costs.

When it launched Ovi and the move into services I wrote that the direction is right and everything depended on the implementation.  Given that it started from a variety of disparate acquisitions I said I expected a few difficult years with Services before the strategy started to pay off.

I believe Nokia’s services strategy is now going into its darkest hour.

So far the implementation has not gone as well as Nokia hoped.  Its Maps and Music Store are good, but have not had enough impact. I’m not sure why operators are not promoting a service like Maps, which has mass appeal, is relatively easy to sell and attracts new revenue. But generally they are not. Nokia will probably need to sink a large amount of its own marketing budget into them to give them a good push.

Nokia’s Messaging service is also good, and is (I hear) starting to pick up serious volumes of users. This is partly a threat to RIM’s consumer market, but – more importantly – has the potential to grow the mobile email market a lot. But consumers’ believe email is free and the service is currently being offered for free.

The Life Tools service for emerging markets is very interesting and has the potential to do well. But it has entered a market where operators are already active with some of their own similar services, and Google is also entering in some countries.

The Ovi Store launched 6 weeks ago to a very mixed reception.  I think it has the ingredients to be a good App Store, but will need to stand out from the crowd better than it does today.

Other services such as N-Gage, the advertising network, Share on Ovi, Files on Ovi and Comes With Music have not performed and are becoming a stick with which people can beat Nokia.

There are five basic issues with Nokia’s services strategy:

• developing a substantial web services platform supporting a number of retail and B2B services is a large, difficult and expensive task
• building a suitable partnership programme is also a large task
• winning support from operators to help sell the services has been a long slow process, and is a far from complete
• the stock market is skeptical and currently values the services at or below €0
• most importantly – consumers’ use of the web is changing quickly, so Nokia will constantly be aiming at a moving target. And this means that both development and marketing costs will remain high.

Nokia really needs a hit service that generates significant volumes and revenues. This would provide a proof-point that its claims about fundamental change in the industry are correct.

Maps is the obvious one. And the run up to Christmas 09 should provide a good opportunity for a big push on this from Nokia.

Without a winner the external pressures will make it increasingly difficult to sustain the level of investment through 2010 and there will be a growing risk of internal strife.