Samsung was selling a large amount of well-designed feature phones that are inexpensive but limited in functions. However Samsung’s smart phones Galaxy II and Galaxy Nexus is receiving very good market reaction and opens the door for Samsung in the smartphone market. RIM’s Blackberry series smartphones were popular among business consumers with their convenience access to emails and “addiction-like user experience”. However their market shares have been shrinking as iPhones and Android-based smartphones are getting popularity. Apple successfully entered the cell phone market with its iPhone series.
They were innovatively fun and easy to use, and the success of iPhones changed consumers’ expectation of smartphones. Before iPhones, smartphones were viewed to be powerful machines that are to solve business needs on the go, and now consumers expect smartphones to provide not only timely information, but also entertainment and assistance on all other daily needs. The App Store is the key to Apple’s success. Up to November 2011, there are 503,636 applications available in App Store, most of which are developed by independent software developers (Apphopper, 2011).
These apps cover all areas including business, entertainment, lifestyle, reference, and even medical assistance. The apps greatly improved iPhones’ attractiveness. Android is a popular open-source platform with its own app store. Samsung, LG, and HTC’s many smartphones use Android system. It’s considered with great potential, but there are issues concerning security and system stability. Opportunities The following new trends will change market conditions, and open up opportunities for players in the market. Similarly, they may act as threats if firms do not capitalize on these trends and fall behind in the industry.
Data usage The U. S. has one of the strongest cellular phone coverage, with access in all major urban areas and expanding access in rural locations. The expansion of mobile communications has been a goal of the Obama administration, which announced plans for a $5 billion network expansion project in early 2011. The stated goal of the project is to expand high-speed wireless coverage to 98% of Americans within five years. Data revenues accounts for 31% of total revenues for carriers (EuroMonitor, 2011).
G networks The U. S.is one of the earliest countries to implement 4G networks. The United State`s biggest carrier, Verizon Wireless plans to cover 175 cities by the end of 2011, two thirds of the U. S. population by mid-2012, and completely replace the existing 3G network by the end of 2013. AT;T has similar plans of implement 4G networks by the end of 2011 also. 4G networks are reported to be ten times faster than 3G networks. This extremely fast network may serve as a disruptive technology and reshape the industry environment. M-commerce M-commerce stands for Mobile commerce.
“Mobile Commerce is any transaction, involving the transfer of ownership or rights to use goods and services, which is initiated and/or completed by using mobile access to computer-mediated networks with the help of an electronic device” (Tiwari ; Buse, 2007). The Near Field Communication (NFC) technology allows users to pay for goods and services using their cell phones and is heavily promoted by Google on the Android platform. NFC enables mobile payments, which is paying by touching the payment terminal with an NFC enabled device.
Google Wallet is an application on Android that stores a virtual version of credit cards that can be used to pay. An NFC enabled device can also purchase transit fares, movie and concert tickets, or serve as a boarding pass. Some NFC enabled devices can give users coupons. Besides touch required transactions, catalogue merchants can receive orders from mobile devices, and sometimes deliver via mobile devices too. ABI Research is predicting that in 2015, $119 billion worth of goods and services will be purchased via a mobile phone (Wikipedia, 2011).
Mobile financial services such as banking and brokerage are also feasible. Banks and other financial institutions allow customers to access account information and make transactions using mobile services. Mobile reverse auction is also viable. The reverse auction bills the bidder’s phone every time they place a bid. With functions of mobile devices expanding, security issues are more and more important to consumers. Viruses and malwares that attack mobile systems or steal private information will pose greater threats to phone users. Code Division Multiple Access
This network technology for mobile phones, also known as CDMA, is becoming increasingly popular in the U. S. CDMA is a “spread spectrum” technology, allowing many users to occupy the same time and frequency allocations in a given band/space. CDMA assigns unique codes to each communication to differentiate it from others in the same spectrum. In a world of finite spectrum resources, CDMA enables many more people to share the airwaves at the same time than do alternative technologies. The CDMA air interface is used in both 2G and 3G networks.
In other words, this technology allows numerous signals to occupy a single transmission channel, optimizing the use of available bandwidth. In order to compete with its rivals, Nokia has to increase the number of smartphones based on CDMA technology. The company has already started to make devices with this new technology, but its presence compared to the competition is still poor. Strategic Challenges Nokia, once known as an innovator in handsets manufacturing, has suffered as consumers have shifted from mass-market phones to smartphones.
This explains why profit is now in the smartphone market, even though Nokia maintains its position as the world’s largest mobile phone manufacturer by volume. In the smartphone world, iPhone and Android-based phones are the market share leaders. In fact, Nokia has lost around 66% of its market value since Apple releases its iPhone in the year 2007. In addition, the Finnish firm issued a profit warning last May, after cheaper Android smartphones reduce its sales in Europe, and it has announced more than 10,000 dismissals. The landscape is not too beautiful for Nokia.
Consequently, some measures need to be undertaken. In this section, we will be focused on how to target the U. S. market and which strategies to implement. It is true that China’s smartphone market is growing quickly, to the extent that it has overtook the U. S. as the world’s largest smartphone market by volume; however, the U. S. still is a key market in the industry. Nokia hopes of making a comeback in the U. S. , a market it once led.
Chris Weber, Nokia’s U. S. head, said that the Finnish company plans to launch a full portfolio of unique devices with multiple operators in the U. S. market by the beginning of the next year. But there are other structural problems that must be solved. For instance, Nokia still ships a third of all handsets, but Apple draw more than half the profits, despite having a market share of just 4% (The Economist, 2011). Source: The Economist, “Nokia Falls into the Arms of Microsofts” This example demonstrated that scale is not the solution; now software and services development is the real battlefield. Nokia cannot win this war itself; this fact explains why it has teamed up with Microsoft. Will they lead the U. S. smartphone market?
It is difficult to answer that question, but this alliance will surely change the landscape of the industry. Nokia and Microsoft: The Third Ecosystem The first generation of cell phones were devices for conversation and text messages. The money lay in designing trendy devices, manufacturing them at a low cost and distributing them widely, and Nokia was very successful fulfilling that needs. But now the rules have changed. Nowadays, cell phones are becoming hand-held computers and most of their value is in software and data services. In fact, the smartphone battle is now a war of ecosystems rather than just hardware.
A new alliance is born But turning Nokia into a provider of software and services is not an easy task. Consequently, the Finnish company announced plans for a broad strategic partnership with Microsoft that will combine their respective strengths. As we know, Microsoft is a leading company in software and services; besides, it has a lot of expertice in platform development. Combining all these capabilities with Nokia’s ability to innovate in hardware, and with its global hardware scale, will result in an appealing to alternative to today’s most successful platform developers: Apple and Google.
As mentioned before, value is now in software and data services, Google and Apple know it. For this reason, if a company wants to succeed in the smartphone market, it needs to develop a superb ecosystem. An ecosystem consists of devices, services, third-party providers, a strong app market and thrilled customers. Microsoft, Nokia and its partners will need to form a strong and sustainable ecosystem to bring innovation and alternatives into the market. Without a doubt, both companies together have the ability to establish an alternative platform to Android and the iPhone in North America.
Nokia has a great distribution system and scale, which will make possible to sell the new smartphone almost everywhere. On the other hand, Microsoft has very popular brands such as Microsoft Office, Bing, and other software and services. All these features together in a smartphone will guarantee a favorable market penetration. Windows Phone Stephen Elop, Nokia’s new chief executive, rely on this new strategy for fishing the company out of the bad situation in which it has been for the last years.
But Elop’s plan not only consisted on making smartphones that use Microsoft’s Windows operating system, but also on getting them to market as quickly as possible. In fact, on October 26th Mr Elop unveiled the first of these new smartphones, the Lumia 800, and a cheaper version, the Lumia 710 (The Economist, 2011). According to Mr Elop, Nokia’s first Windows phone models had a positive reaction in European markets as they were released. Nokia’s newish CEO also said that the first think they have to do is to get consumers to try it because “we know that once they try it they will like it.
” (Rahn and ben-Aaron, 2011) Thus, one of the main objectives now is to make consumers familiar with the product. A strong marketing campaign is required, and Nokia has already started to run advertisement campaigns focusing on the handsets’ interface of square tiles that dynamically update with new information. Nokia’s new smartphones will surely be a good alternative to Apple and Android for carriers. Firstly, because Microsoft’s operating system is more reliable than Nokia’s own, Symbian. This fact is very significant since software is a key element to achieve high sales and to gain market share.
The smartphones contain applications to differentiate them from competitors, and some specialists in the industry expect further differentiation with new versions of Windows. Source: Wall Street Journal, “It’s Crunch Time for Nokia” by Christopher Lawton In addition, these new smartphones will benefit as Microsoft has put a similar interface on its Windows 8 software for both computers and tablets, which will be used by millions of people. This is one of the main advantages of teaming with Microsoft. As we know, Microsoft’s share in personal computers is extremely high; people are familiar with its features.
Thus, if these features are integrated in Nokia’s devices, they will probably have a good consumers’ reception. Moving Faster In this industry, there is no time for hesitation. If a company is a few months late releasing a product, it will lose great market opportunities. The technologies improve extremely fast, thus companies need to be constantly innovating and responding quickly to the market. This is a quite challenging environment, and companies in this market must be ready to face it.
That is why if Nokia wants to produce the new smartphones in a short period (eg. less than a year), it has to improve or even change some of its practices. Some specialists claim that Nokia usually spent too much time thinking about things and does not make decisions as quickly as its competitors do. Nokia is aware of this situation, and it has already adopted some measures. To produce smartphones in less than a year, Jo Harlow, Nokia’s executive vice president for smart devices, restructured the company’s smartphone division to benchmark Microsoft’s operations (another advantage of teaming up with it: benchmarking best practices).
In the past, Nokia has the practice of having a single product manager for each product, which originated decision-making bottlenecks. But now, she created product teams composed of workers from different fields, and she increased their management authority. Ms. Harlow said that the new structure has encouraged the smartphone teams to make more decisions and have more initiative. All this has helped to reduce the time it takes to develop a new smartphone by 35% (Lawton, 2011). To penetrate the U. S. market with its new smartphones, Nokia has to be focused primarily on getting them to consumers as quickly as possible.
Nokia might have to limit the number of features in its products, to make sure they are launched on time. It is true that this strategy opposed to differentiation. However, the primarily objective is to sell as many smartphones as possible, and then focus on differentiation. Dealing with Operators Nokia is working closely with U. S. carriers Verizon Wireless, AT;T and T-Mobile. To be successful in the carrier-dominated U. S. market, you need the operators support, you need to have a business model that works for them, you have to help them to optimize their service.
If you obtain that support, they might provide a subsidy on the smartphones, an ideal way to reach customers. But, how can you achieve their support? You have to give them what they want, i. e. customized handsets, as well as cutting-edge innovative products. If you cannot commit them, you are out. However, Nokia rarely customized phones for operators, and given the current situation of Nokia, maybe it is time to consider the creation of new contracts with beneficial deals for both parties. But things are changing; the way of customizing a product is not as it used to be.
Now it is not about giving special features to the hardware, but offering customized services. In this matter, Microsoft will have an important role as a leading software developer. Instead of providing operators with customized hardware, which is very expensive and will lead to delays, Nokia and Microsoft should create customized software and services for operators. Furthermore, this will contribute to lock in customers and reduce churn (customers switching to another operator). Smartphone Virgins As we have mentioned before, to succeed in North America Nokia needs the operators support.
In order to achieve that support, apart from the things mentioned, you will also need to demonstrate them that your product will be a complete success. However, it is not about stealing market share from the competition (e. g. Android and Apple), it is about providing further value to carriers’ business, increase the market size, reach new consumers. In fact, Nokia plans to target first time smartphone users in the U. S. These kinds of purchasers usually are intimidated by technology or worried that they will not be able to learn how to use them.
In this sense, including Microsoft’s software into the device will be an advantage since people are familiar with Windows applications. Different Price Ranges In addition, to reach as many new market segments as possible, it is necessary to sell the product at different price ranges. Among the first Nokia’s Windows Phone smartphone, consumers will have different models. The Lumia 800, and it will have a cheaper version, the Lumia 710. In fact, the Lumia 710 will be the cheapest Windows smartphone available; it may be the first to be offered free to low-tariff customers after operators’ subsidies (Francisco Jeronimo, IDC).
As we have seen, Nokia intends to widen its range of products to target different market segments. Attracting Customers To assure a successful comeback to the U. S. marker, market it once lead, Nokia will have to invest a significant amount of money in marketing. The goal of this campaign will be to make Americans think Nokia + Windows = cool. This is not easy to undertake since Apple and Android have built a very strong brand equity in the smartphone market. But Nokia is looking for new customers, smartphone virgins as the title suggests.
Therefore the campaign should also be aimed to provide confidence to first time purchasers. This first time purchasers need to know that Nokia’s devices are friendly and easy to use; and that they will have access to Microsoft’s products, among other things. Suppliers Bargaining Power When Nokia -the world’s leading handset manufacturer- is in trouble, it is not alone. The company’s major suppliers also suffer from its problems. Moreover, two of the big competitors, Apple and Samsung, manufacture parts of their own design and this has worsened the landscape for smartphone component suppliers.
Apple and Samsung, the industry’s two biggest smartphone players by volume, have locked them out of the market by designing and manufacturing chips for their devices on their own. All these problems led to a decrease in revenue for supply companies (Lawton, 2011). Some companies as STMicroelectronics, a semiconductor company, saw the sales of its wireless division fall in the second quarter after Nokia issued a profit warning in May due to its poor performance in smartphone sales. Texas Instruments, another semiconductor vendor, is also suffering because of Nokia.
According to Strategy Analytics, last year the Dallas-based company shipped 85% of its application processors to Nokia, covering 93% of Symbian smartphones. This could be a great opportunity to sign new contracts, and lower the prices of handset components. As showed before, these companies such as the semiconductor vendors have great dependence in their customer, as it is the case with Nokia and Texas Instruments. This dependence could lead to increase Nokia’s bargaining power over suppliers, and now more than ever because the smartphone market is expected to grow fast in the following years.
Conclusion The global smartphone industry is changing fast, there is no time for hesitation when companies have to take decisions. As shown before, Nokia has been in trouble dealing with this situation. Despite the fact that the Finnish firm is the world’s leader handset manufacturer by volume, Apple and Google’s Android are the market’s big players in terms of profit. They know that smartphones are software, not hardware. Nokia also knew it, and it tried to compete with its own platform, Symbian.
However, Nokia’s platform was not as successful as the competitors’; this fact reflects Nokia’s poor market share in the smartphone market, primarily in the U. S. However, not everything is lost. The new alliance between Nokia and Microsoft is the solution to Nokia’s problems. Both companies have complementary skills and the means to develop a new ecosystem which will compete with Apple and Android, the market leaders. This is not easy to undertaken. But implementing the measures previously provided as well as catching all the new opportunities will provide Nokia with the necessary means to succeed in the North American smartphone market.
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