Nokia: Reinventing Business Model

19 04 2009

Telecom is a democratic field. Unlike Software where you would have only few choices like Microsoft, Google or Oracle, telecom has always played itself as a level playing field. And that could be the one reason, Nokia the Global Conglomerate is trying to reposition itself in telecom service domain.

If you classify Telecom in layered architecture, the level zero i.e. the bottommost layer is of Telecom Equipment manufacturers where most of research & development of telecom sector takes place. Based on the products developed by these layer zero companies layer one provide services to layer two and above layers. So now it is easy to understand the Telecom Sector as a whole. Nokia, lies till date to layer zero, in developing telecom equipments which are used by telecom service providers or Telecom Operators like Airtel, Voda, Idea (in India) etc to provide different Voice & Non voice services. So in short layer zero always relieved the operators of R&D expenditure & products innovation which would otherwise make job of an Operator very tough. This made it easy for an operator to enter into service sector with complete reliance on vendors like Nokia or Ericsson.





Now coming back to Nokia, come 2008 where world’s number one handset manufacturer is finding it tough to rely completely on sells of handsets. Reason? Nokia Annual report-08.  In 2008 alone 1.2 billion handsets were sold, but the rise in sales is lowest to 6%.  And for Nokia, the market share shrank to 37.7% in last quarter. Revenues from devices dropped almost 7% to 35 billion euros, still accounting for 70% of Nokia’s revenues, operating profit margin fell to 16.58% from 20.12 % in 2007. Nokia & its Symbian OS are hurting most in high end mobile segment where companies like RIM (Blackberry) & Apple are eating up market share very fast. Nokia could leverage the loss partially in India, but rise of Samsung as No.2 handset sellers in India is real concern for company. So it short company decided to turn around its business model & enter into service provider segment.



Telecom services can be classified into two broad categories namely Voice & Non-Voice. In India Voice service are still accounting for 90% revenues for telecom operator, non voice services are catching fast like SMS, Ring Back Tones, Data(Internet) etc.  Broadly speaking if we are talking about next big thing in Telecom Revenue market then these services, also called as Value Added Services (VAS) will be playing major role. Broadly we can classify them into six major services namely Music, Location Based Services, Mobile Internet, Mobile TV, Information service (railways, bollywood) & Mobile Agriculture Service (Mobile Farmer). 

Nokia has recently conducted a pilot service program in District of Pune, Maharashtra under brand name of “Mera Nokia” (Maza Nokia in Marathi). The aim was clear, tap into Mobile Farmer services. Mera Nokia is actually a NLT i.e. Nokia Life Tool application coded into 2300 and 2323 handsets being used in pilot. Farmers & Villagers pay Rs 2 per day every 10 days, for the latest on crop pricing, weather, farming tips etc. This relived the farmer from hassles of making phone calls for all these information saving lots of time & money. Rs 2 is a decent deal, as far as farmers are happy with quality & validity of information provided. Nokia is also planning to take Pune Pilot program to other countries in Africa & Asia where there is larger scope of these kinds of services. NLT will certainly going to be global services in coming days with number of pilots in India, Asia & Africa.

So what about Urban Customer services? Broadly when we are speaking about services, besides Type of services other entity Type of market plays major role while taking into account telecom service domain. There are two diverse market exists in India, rural & urban and need of consumers vary widely in these two segments. In Rural, where we could only have services related to daily work of people, in Urban we could have leisure of providing other services where consumers are willing to pay for it.

For Urban Subscribers, Nokia offers N-Gage gaming platform which has seen start & stop ever since its launch. Though Gaming & Navigation services will differentiate Nokia from other service providers in high end segment, in India there is need to be created for these services. And in the current scenario both VASs are yet to kick of revenue generation in India, as a payment gateway issue is yet to be worked out.

So at bottom of Nokia’s services lies NLT i.e. Nokia Life Tool targeting Rural segment, while Gaming & Navigation is targeting high end customers. However, the big chunk of revenues for Nokia will come from middle of the market with its “Xpressmusic” range of devices, which will come with service title “Come With Music (CWM)”. Here consumers will be able to download unlimited amount of legal music directly from their devices. Cost of music is already bundled with cost of handset, so consumers needn’t worry about music charges. These Music services will be launched by 2010 in India; there is lots of scope available for such services in Tier 1 & 2 cities where youth population is relatively large who could be easily targeted.

So in coming months of year 2009, we might get the taste of Nokia’s Global Service Brand ‘Ovi’ (Finnish ‘Door’). At Nokia, the current business model of Product development will soon be getting transformed into Product Plus Service model, and yes in India where services are playing major role in transforming lives of common man, Nokia will be front runner in making it happen. Telecom in India is metamorphosing itself from basic telephony provider to Value Added Provider helping masses to solve their local issues. And the reinvention of existing business model by Nokia to enter into service domain is surely a positive step in the direction.