Scale and polarisation in mobile

There are lots of ways to look at the global handset industry, but the polarisation evident in this chart is pretty compelling. Not shown - the hundreds of 'other' manufacturers, mostly in China.

The CFO of Qualcomm recently described the industry as a barbell - Apple and Samsung at one end, then the smaller and mostly sub-scale players (though some, such as Sony, are showing signs of increased health, albeit from a low base), and then at the other end, invisible, the Chinese. 

As an aside, this also illustrates the way that Apple has become so cyclical that it's really only the December quarter that gives a good directional steer.  

Microsoft and Nokia

It’s been very clear that for some time that Windows Phone was not working. It isn’t failing, exactly - sales are drifting slowly upwards and it’s ahead of Blackberry in some markets (as though that was an achievement), but it sold 20-25m units in the last 12 months where Android sold 430m or so (and perhaps another 150m in China) and the iPhone 143m. It’s irrelevant in the scope of the industry, and for Microsoft that counts as failure. For Nokia, meanwhile, simple finance was an issue: Microsoft’s announcement says that operating break-even is 50m units, a long way off at current growth rates. So, something had to change.

There’s lots of detail in the transaction structure to pick over. Why is Nokia licensing the brand instead of selling it when it has no consumer-facing business? Why isn’t Microsoft buying Here, the location platform? Why are the patents licensed instead of sold? Why did Microsoft take on the featurephone business?

I have thoughts on some of these, but they’re not really important. What matters is what happens next.

My initial reaction, like many, was that this changes nothing. Windows Phone is failing because of a classic vicious circle: consumers will not buy it because it has very few apps, and developers will not target it because very few consumers own one. There may be 20-30m Windows Phones in use, but there are 250m iPhones and over 900m Android phones out there. As a developer, any investment you make in Windows Phone is investment you’re not making in iOS or Android, and that opportunity cost delta is huge. There are other issues (distribution and sales commissions most obviously) but those are secondary: the ecosystem itself is sub-scale and that is self-perpetuating.

So, the acquisition solves Nokia’s problem (running out of cash) and hence is a tactical move by Microsoft: it prevents the only significant Windows Phone OEM from exiting the market. It is possible that Nokia threatened to switch to Android otherwise (the relevant contracts are getting close to renewal), rather as Motorola threatened to sue other Android OEMs before Google bought it.

But ownership by Microsoft will not of itself change the sales of Windows Phones. If anything, it will decrease them, since it prompts other OEMs to give up on it entirely. It will not make more developers make Windows Phone apps or more consumers buy the devices. And it does little or nothing for Windows on tablets. Something else needs to change.


Microsoft IS going through a fundamental strategic change. Steve Ballmer is leaving - possibly pushed out. It is moving from a business line to a functional structure, and reorganising to become a devices and services company. The (misfired) Surface was one step towards devices, but owning a handset manufacturer is a much bigger one.

Suppose, for the sake of argument, that Microsoft does make a significant change in strategy - something that would give it a much better chance to become relevant in mobile. Owning Nokia - both the featurephone and smartphone parts - might well be part of that.

That is, is this a doubling down on the existing, failing strategy, or a foundation for a new one?

Nokia then and now

These two charts show the handset business in Q2 2007 (when the iPhone launched) and Q2 2013, 6 years later. The players have changed a fair bit.  

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(Note: the axis scales are the same but the bubble sizes are relative within the chart. Industry revenue is a fair bit larger now).

Blogging in haste over a 3G connection on the Eurostar - which was a crazy Nokia vision, once. 

Polarisation, continued

A simple picture: this is global handset revenue for the major branded OEMs. Samsung and Apple dominate, Apple is very cyclical, everyone else looks very sub-scale. 

(All revenue, not just smartphones. Sony and Blackberry haven't reported their most recent quarters yet.)

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Nokia: Trust

Durability turned out not to be a useful competitive weapon against the iPhone or Android. Will it help Nokia against the cheap Chinese? Given the target market, it could be rather more relevant, much like battery life. 

Lumia and BB10

Interesting to compare the replacement of the legacy platforms with the 'future saviour' platforms at RIM and Nokia. Neither is going terribly well.

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Of course, the underlying problem is that though both platforms are perfectly OK (though with their flaws), they're radically sub-scale. iOS now has about 400m active devices (iPhone, iPad and iPod Touch, though obviously with overlapping users) and Android over 800m, plus China. Lumia and BB10 combined have sold a little over 23m units in the last 18 months.  As a developer, why would you target these?

It's also interesting to ponder what would have happened if both companies had swallowed their pride and gone with Android, or even forked Android. I don't actually think Blackberry would be in a better position, but Nokia might have been. 


Interesting that both Apple and Nokia are running campaigns around the camera. For Nokia this is a real point of differentiation: the Pureview camera tech is very good. For Apple it's part of the broader lifestyle positioning: don't worry about widgets, just enjoy your phone. 

The poignant thing, of course, is that Nokia doesn't have Instagram, or many of the other photo-sharing services: it had to launch the new 925 with Hipstamatic (remember that?)

Both, incidentally, are doing good advertising at the moment, unlike some others in the space. Although I'm not sure about the wisdom of a close-up on the ISO settings in the Nokia spot...

Polarisation, continued

Playing with a new chart format. This shows quarterly handset unit revenue at the 8 'branded' handset OEMs, over the past three years. It includes all phones, not just smart.

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The polarisation of the industry is pretty clear. Not shown: the 'other category - Chinese OEMs making up increasingly large volumes for which this sort of data simply isn't available.


This is how Nokia saw the world in Q1 2008, a year after the iPhone launched. I could comment, but I think the image speaks for itself.

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The end of black and white

The Nokia 105 rightly got a lot of attention last week: a €15 phone with a 35 day stand-by battery life. This will improve tens of millions of peoples' lives.


Almost unnoticed in the press release, though was another milestone: Nokia says it has made its last phone with a black & white screen.

One of these plus a small 3G tablet or phablet might be a good combination for some people. After all, 12.5 hours talk time is longer than the standby time for some smartphones.