Nokia, the world's largest cell phone maker, is under assault as companies like Apple challenge it in the increasingly popular smartphone market.
The Finnish device maker says it's fighting back with its own cool phones and an Internet services platform called Ovi that will allow consumers to buy digital content, such as music and videos, get maps for navigation service, and manage contacts and photo files online.
The Ovi storefront is now up and running in eight countries: Australia, Germany, Ireland, Italy, Russia, Singapore, Spain, and the United Kingdom. And as of May it was available on an estimated 50 million Nokia devices across more than 50 Nokia phone models, including the flagship Nokia N97.
In available countries, customers can access the Ovi Store by selecting the Ovi Store icon in the "Download" folder on their device. The mobile client is available in English, German, Italian, Russian, and Spanish.
In May, Nokia said that AT&T plans to make Ovi Store available to its customers in the U.S. later this year. So far, it hasn't come yet.
CNET News recently sat down with Niklas Savander, Nokia's executive vice president of services, to get the latest scoop on Ovi and to hear more about Nokia's services strategy. In a candid interview, Savander shared his thoughts on everything from lessons learned from Apple to why the Ovi store still isn't available on AT&T's network.
Q: Nokia has had a services business for a long time. But with all the hype around the iPhone and Apple's App Store, you'd think that Apple was the first to have an application storefront. What do you think about that?
Savander: Actually, we had our own application store three years before Apple did. But I have to give Apple credit. They taught the industry a painful lesson. First, you need discoverability. The App Store is right there on the iPhone. It's not hidden in some menu. It's very prominent. Also the billing is done automatically through the iTunes account. Apple already knows who you are when you come to the App Store because you have to activate it through iTunes. And the third thing is that it is a very good implementation of an app store. And it works very well.
So are you saying that Nokia didn't do these things?
Savander: We were falling short on all three. Take our download service. Every carrier had one, too, and the stores and the applications were not easy to discover. It was cumbersome to register. And the implementation was limited by the device software platforms. Believe me, I've had long discussions about this with my team. It's disappointing that we needed a company external from the industry to shake us off our comfortable path. The App Store came along and we had to accelerate our own plans.
I have to admit I wasn't really sure what Ovi was when Nokia first talked about it over a year ago. It seemed a bit confusing. Can you briefly explain what it is?
Savander: There was a reason to go out with the Ovi story early, but in hindsight we probably went out too early.
Ovi is the umbrella for all of our services. Two years ago we decided to combine our different service initiatives into one. The first year was all about cleaning up our portfolio and deciding which businesses we should be in and which we shouldn't. At the same time we needed consistency in our road map. Then we had to put it all together and give it a consistent look and feel. To accelerate the road map we have bought about 20 companies.
How far along are you on getting all this done?
Savander: We had all the businesses already. But we originally went to market with these services in silos, and it's not a trivial task to combine them into a consistent look and feel. It has taken us a while to get single sign-on for every service, for example. But now we have one billing integration system and one payment gateway. And we're starting to see commonality emerge across the services. We had gotten a lot of criticism last year and some this year, depending on the market, about the consistency of the services.
The Ovi store is offered in some countries as simply the Ovi store. And in other countries it's combined with a carrier's application store. And in some places like the U.S., there is no Ovi access. Why?
Savander: There are three types of markets. There is the totally independent distributed market, where wireless carriers are either a little present or not present at all. The price of the phone is not subsidized by anyone. The biggest challenge in this market is how you present yourself in a simplified manner. There are 5,000 phones to pick from, so why choose my phone? We can put Ovi directly on these devices. And maybe someone will choose the Nokia device because of the services it comes with. Maybe they want access to Ovi. We see this model mostly in relatively low income markets, such as in Asia, primarily India and China, as well as in some Eastern European countries.
Then there is a middle ground, which is how most Western European markets are. And 50 percent of phones are sold through operators and 50 percent are sold independently. The same device may cost 99 euros with a carrier contract, or it could cost 555 euros with no contract.
In this mid-ground market, carriers can't risk not having a service on their phone because they know people can go down the street and get the very same phone with all the services. So the independent channel forces the carriers to be more open. France Orange offers our phones with the Nokia Ovi services plus they offer a co-branded service.
The third market category is totally operator controlled. And those markets are mainly, South Korea, Japan, U.S., and smaller markets. The independent channel is nonexistent. The only way to do business is to cooperate with the carrier.
None of these types of markets is good or bad. They are just different. In hindsight, as a company, we have struggled in the market where the carrier driven dynamic is the strongest. We've been very successful in the more open markets where we are taking queues from consumers. But that is masked in an operator-driven market. Still, in operator-driven markets, we are seeing more and more signs of consumers wanting to choose. They want to configure their devices the way they want to.
So does that mean you have to give the carrier a piece of the action if you work with them to co-brand the service?
Savander: Yes, in exchange they market and handle the point of sale. They integrate their billing with the Ovi services. It's just good business for us.
How much of a cut do they usually get?
Savander: I can't say specifically what it is. It's often different. The split equals the work they put in. So if a carrier wants to do more, then it gets a bigger share. There are no free rides on the other's coattails.
Is this why Ovi is not yet on AT&T? Have you not been able to come to an agreement?
Savander: You might be able to look at this and say that perhaps the business conditions have not been attractive enough to AT&T. It's hard to dispute that. You can't say it's because the device is not good enough or the service is not good enough.
(Nokia clarified that AT&T agreed in May that it will offer Ovi services by the end of the year. Details of the co-branded service have not been finalized. And the service is not yet live. But Nokia says it expects Ovi to be on AT&T's network this year.)
Nokia is the largest cell phone maker in the world, and yet it has very little presence in the U.S. Can you explain why this is?
Savander: Yes, we've been lacking here in the U.S. In other parts of the world, we've done a better job capturing the consumers' needs and closer to what they want. Here is a good example. Look at touch screens. We went with a resistive touch screen first, not because we didn't think of using capacitive technology, but because we thought people would rather use a stylus to write Asian characters and send SMS messages. It wasn't like "Oh Gee, we hadn't thought of that." Rightly or wrongly the decision was to put consumers' needs first.
But the argument gets kind circular here, because when you are strong in one market and not strong in another market, you tend to favor inputs from the market where you are strongest. For us that was Asia. And we heard it loud and clear from our Asian consumers that they needed a stylus. In hindsight, I guess we didn't do a good enough job balancing the value of what each market needs.
That's what the San Diego facility is for, right? Are there any new phones you can point to where you've tailored it more to an American consumer?
Savander: One tends to forget that the cycle to develop phones is quite long, about 12 months or more from the time you think of an idea until it lands on a store shelf. Most times, it's longer, maybe 18 months. Therefore, when we look at San Diego and the impact that facility has had on our business, most of it is not visible yet.
What does it take to be successful in the U.S. market
Savander: There are really three things you need to be successful in the market. Having the right device is one. And the second is developing relationships with the carriers in offering services. And with subsidies so high here in the U.S., it's necessary to have service relationships with the major carriers. The third thing you need to be successful is magic in the service. The service needs to be really, really good. And you can't avoid that. It's a three-legged stool. And without one missing, it will tip over.
How is Nokia doing in terms of meeting these three criteria?
Savander: You'll have to talk to Kai Oistamo (Nokia's executive vice president for devices) to get a full picture of what new devices we have planned for the market. But when it comes to the relationships, the CEOs from the major wireless operators are really wanting to work with us. And why wouldn't they? It makes good business sense for them to have a relationship with largest cell phone manufacturer in the world. And it makes bad business sense not to.
It's more a question of how transparent the relationship is so you know what's needed to get the technology right. That's what San Diego has been helpful in doing. Sometimes we'd submit a phone for testing at a carrier and it wouldn't meet specifications. Somehow what they were asking for from us here in the U.S. got lost in translation when it made it China or Espoo (Finland) or wherever the device was developed or manufactured. So in some cases, we were not able to get through the certification process.
But we've improved our carrier relationships, especially with Verizon and AT&T. We haven't seen the fruits of that cooperation yet. The U.S. is definitely an important market and it's having a bigger influence on our products. You look at the QWERTY keypad and touch-screen devices we have in the market now.
AT&T is already selling one of your smartphones, the E-71x. But the Ovi service isn't yet available for that device. What will the Ovi service look like on AT&T when it eventually arrives?
Savander: It will be a co-branded service. The brands are not in any way conflicting, but they're complimentary. They will be visible on the devices, so we can create a setup where both parties' assets are being valued and there is a fair exchange. But you never know how it will eventually turn out until you have the ink on the paper.
We already have co-branded stores in Europe. And in some cases there is specific content in the carrier store or the content might be tagged within the carrier store. But the biggest thing is that it's integrated into the carriers' billing. So it adds a level of convenience in buying.
After you launch this co-branded Ovi store with AT&T, will unlocked phones that were not bought through AT&T be able to access the AT&T co-branded store?
Savander: No, they won't. The store will be preloaded on the phones, and there will be an identifier on the SIM card. But you can download the generic Ovi store client on a Nokia phone.
What about the third leg of this stool. Is the Ovi service ready for prime time?
Savander: I'd say that the magic isn't quite there yet. For example, we are getting feedback that the services need to be more intuitive. But every version has more magic than the previous one. For example, Ovi Maps 3.0 is better than the 2.0 version. And we have single sign-on between services.
We are still dealing with the basics rather than the magic. But we are working on it. And we've recruited lots of talent from companies, such as Yahoo and Microsoft and many of the content companies. We have a very user-driven team. We can release updates when we need to, so we don't need to wait for a 24-month cycle. So we are updating about every three months.
It seems like Nokia sees services becoming a big part of its strategy. Is it going to contribute a lot to the bottom line? Or is the company still mostly focused on selling devices?
Savander: We are on target for $2 billion in revenue for services in 2010. But out of the total revenue for Nokia, that's not really enough to make a difference. The biggest contribution Ovi will make is making our devices better and more attractive. If you look to the future, devices will be sold in combination with services.