Thursday, February 4, 2010

Nokia's Key to Long-Term Relevance : Emerging Markets

A version of this post appeared first in VentureBeat

Cellphone maker Nokia may not get as much love (or press) in the US as Apple does, but internationally, it's putting on quite a show. The company has 39% of the global smartphone market, according to a new report from market researcher Strategy Analytics.But put the smartphone market to the side for a moment, and take a look at some other markets Nokia's currently building out -- markets most other device makers have largely ignored. The company has been rolling specialized services out to emerging markets in Brazil, China, India, and parts of Africa where there's a high demand for affordable, practical mobile services.

Yesterday, the company announced its latest progress on this front. It has already offered English-language services on Nokia phones and via mobile portals in China since 2007 (a service called MobileEdu), but now it's partnered with international education firm Pearson to bring other types of educational content to phones in China in a joint venture called Beijing MobileEdu Technologies.

The MobileEdu service to date has over 20 million subscribers in China, according to Nokia, with over 1.5 million active users every month. The site offers downloadable courseware that appears to be typically priced at 2 Yuan (~$0.3). The new venture will obviously seek to expand that market.

Services such as these, coupled with a strong presence in low-cost handsets, have resulted in Nokia gaining a significant leg-up on competition in emerging markets across the world, including two of the biggest -- China and India. Be it in terms of coming up with highly cost-competitive, yet utilitarian, phones (think of the 1100 series), or in terms of carefully building up a brand that endears itself to the bottom of the pyramid, Nokia has demonstrated that its understanding of emerging markets is next to none. While other vendors such as LG/Samsung/Motorola have traditionally focussed on LC (Low-Cost) and ULC (Ultra Low-Cost) handsets to drive sales, Nokia is probably the only handset vendor taking an active interest in services that it can bundle along with its low-cost phones.

One of these services, similar in intent to the MobilEdu initiative, Nokia Life Tools (currently available in India and Indonesia), is offered through partnerships with content providers such as Reuters and forms a key part of this services thrust. The SMS-based service offers agriculture, education, and entertainment services through an on-demand or a subscription model. The service has been available in India at prices of Rs.30 - Rs.60 ($0.65 - $1.3) since mid last-year. It is targeted at rural consumers, for whom the mobile phone is the primary means of connectivity to the external world. The agriculture services enable farmers to get market rates directly on their mobile, without having to travel to distant towns. That means they can accurately identify the right price and right market for their produce. And it means those farmers no longer have to go through a middleman to conclude a sale. Nokia promotes this service with its strong existing distribution channels and with its innovative "Nokia Vans" with which it reaches into the hinterland. The service is currently available in over 10 languages. And with India's adult literacy rate of ~66%, the company indeed has a sizeable target market for the service. While Nokia hasn't disclosed any uptake numbers in India thus far, I assume they're good, since the company extended the service to Indonesia and has announced plans to introduce it in Africa too.

Life Tools is only one example of Nokia's push into emerging markets through unique phone/service bundles. Others services include money-transfer solutions such as Nokia Money, a basic service that provides banking services to the unbanked, and Nokia Tej, a mobile order and supply chain management solution.

A focus on these markets is also likely to help the company over the long-term. These are markets where subscribers wouldn't be able to afford $30+ monthly data plans and where literacy levels aren't high enough to justify deployment of complicated mobile applications. And that's precisely why Nokia is going behind these subscribers with a two-pronged strategy of low-cost phones + highly relevant services. While the margins may be slim on the actual phones, the volumes are significant. And so is the opportunity. For instance, India just added over 19 million mobile subscribers in December 2009, and this is a country in which Nokia holds a 50% market share.

It also greatly helps that the company has built a solid brand that is valued high for reliability. The company was voted the most trusted brand for the second year running in the annual brand survey conducted by India's Economic Times business newspaper.

Nokia certainly has to figure out how to deal with North American carriers and sort out how to create phones that appeal to a North American audience. However, in the meantime, it's putting up a strong show in the global smartphone market. And whether its hold on that market is sustainable or not, one thing that it can safely lay claim to is an understanding of consumer behavior and needs in emerging markets. And these markets are the reason Nokia is not going to vanish anytime soon.
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