T-Mobile is 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 its successful Web ‘n’ Walk offering. This means it is more threatened than most by vendors’ rival moves to take the lead in mobile web services, and it may be following up hostile remarks about Nokia’s Ovi strategy with real action. The operator is officially remaining tightlipped about reports that it plans to blacklist Nokia devices tied to the Ovi web services, but insiders say negotiations are ongoing and that T-Mobile senior executives are aiming for a strong deal on internet-enabled handsets, but one that excludes 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.
Nokia appears to be dealing with the issues on a case-by-case basis. In the US, it is being aggressive about direct-to-consumer services plans because its relationships with the cellcos are shaky at best (and it is excluded from the CDMA base anyway). As countries where mobile internet services are in their infancy, but where pockets of usage are emerging, such as India, Nokia is sure to push Ovi as a platform that operators could leverage.
In the most advanced mobile internet bases, Korea and Japan, Nokia either has little presence, or will downplay Ovi to keep a giant like DoCoMo onside. That leaves the really thorny problem – Western Europe, Nokia’s heartland and the territory where it most needs to push high end mediaphones in order to sustain any growth in a region where margins are under huge pressure. Though few European cellcos could afford to antagonize Nokia too far – given its market share, brand impact and marketing weight in the region ‘ they are also further down the road than their US counterparts in trying to create their own mobile internet services businesses in order to avoid the dreaded fate of becoming bitpipes. First they did this with closed portals like Vodafone Live! and now are opening up to genuine web offerings like Web ‘n’ Walk or 3 UK’s X-Series.
Hence the wariness that Orange, T-Mobile and others are demonstrating towards Ovi, perhaps heightened by their national deals to carry the Apple iPhone, which they will want to put at the heart of their mobile media marketing programmes, at least while it retains its current level of profile.
While the operators fight with Nokia over Ovi, they are still keen to work with the Finnish giant on other services. At the recent Mobile World Congress, Orange and Nokia announced a deal to co-market location-based services, maps, games and other offerings, largely geared around the Google engine, and not around Ovi. Similarly, at the CeBIT trade show in Germany, T-Mobile and Nokia jointly announced the 6650, an exclusive device equipped with integrated GPS and multimedia player capabilities.
This may show the way Nokia must work, at least for the next few years ‘ deepening its ties, and revenue share, with operators by luring them with its excellence in areas like location/GPS, and creating handsets around that; while developing Ovi separately and in non-conflicting markets. This might deflect some of the anger of the European cellcos, as highlighted by T-Mobile International chief Hamid Akhavan in a recent interview, where he said categorically that his company would ‘not be happy’ if Nokia made a big market push for Ovi and its own content and web services. ‘Nokia has to sell its mobile phones and we assume that the company will want to continue its successful partnership with T-Mobile,’ Akhavan said with a thinly disguised threat, talking to German newspaper Allgemeine Zeitung. “I cannot say that we are very pleased with Nokia’s direction.”
This is a threat that no operator would be in a strong position to carry out, given the market presence of Nokia, which has been enhanced considerably since the last time operators sought to grab the balance of power from handset makers, with limited success. The fuss around the iPhone has shown how, in advanced media and internet applications, a strong device and user interface is the most important factor in winning customers, and so the handset manufacturers are largely regaining their power over the operators, and Nokia is currently very strong in delivering the multimedia experiences that advanced cellcos require.
Some carriers will try to turn necessity into a virtue and forge a more complex and deep-seated business relationship with Nokia than T-Mobile and Orange are ready for. Vodafone is the best example so far, and despite its love-hate relationship with its largest phone supplier, it has taken a creative stance on the issue of operator-branded versus vendor-branded services. Vodafone knows the threat from Ovi, if it takes off, could be double-edged ‘ if Nokia decides to focus on new channels such as disruptive operators or direct-to-consumer, these could steal business from Vodafone; but if it embraces Ovi itself, keeping Nokia within its corral, it risks cannibalizing its own services and losing margin and brand power. Like Nokia, Vodafone realizes it will need a multi-faceted approach to try to cover all these bases.
So last November we saw Nokia launching MusicStore, the flagship service in Ovi, in partnership with Vodafone. Vodafone is to offer the Ovi series of services, which includes MusicStore, the N-Gage gaming platform, Mosh social networking, mapping and location services, and Nokia Search. This enables Nokia to offer these services directly to the whole Vodafone user base on certain premium handsets, outside of Vodafone’s own web services portal, Live! Customers will get access to communications, content, internet services and browsing from either party with one-button push, the two companies said, though Vodafone MusicStation is expected to take priority in the menu where both services are available (initially, only on the Nokia N Series).
Despite this, most observers expect Nokia to do better out of the deal because it has put more effort into making its services rich and user friendly. Richard Windsor of Nomura commented in an interview: ‘By offering its services through Ovi, Vodafone is likely to see better take up than going it alone, but we remain convinced that the lion’s share of the value will accrue to Nokia. This is because mobile operators have really struggled to create services that are compelling to users whereas Nokia seems to have a much [better] idea of what to do and how to do it.”
Nokia made a similar deal with Telefonica last fall, even though the Spanish operator’s O2 unit is the exclusive launch partner for the iPhone in the UK ‘ a good example of how European operators are rapidly adopting to the need to have a wide range of flexible and sometimes apparently contradictory partnerships, rather than having the luxury of the relatively black and white nature of the US market. This flexibility will be key to maximizing real revenues from mobile web services, and makes Orange and T-Mobile look rather old fashioned.
The new approach will encourage Vodafone subscribers to choose high value handsets and data plans, since Ovi is only available with the N Series ‘multimedia computers’, for now at least, in effect presenting this as a premium service and Live! as something more mass market, available on most Vodafone phones (some Nokia handsets will have an exclusivity period with Vodafone when running Ovi). This two-tiered approach has a certain logic for cellcos and is reflected in the AT&T/Apple deal ‘ keeping the bulk of the user base brand loyal, but for those that actively want a more high end service, making them pay for that through top end devices and plans. In time, Nokia will want to gain the mass market for itself, and is likely to move Ovi to non-Nokia devices, but for now, the two sparring partners seem to have found a workable and logical accommodation and a strong response to the European iPhone/iTunes proposition.