Focus: Can Nokia save us?
by Paul Durman, the sunday times
The world’s mobile industry is pinning its hopes on a new generation of camera phones
When Andrew Harrison went on holiday to Italy recently, he thought he would send his colleagues in London a quick reminder of what they were missing.
He could have sent a postcard. But Harrison is the UK chief executive of Carphone Warehouse, and this was a perfect opportunity to try out one of the new camera phones, an innovation that carries the hopes of an entire industry.
With his phone, Harrison took a picture and, via e-mail from the handset, sent the snapshot of Tredozio near Bologna back to Carphone’s headquarters in Acton, west London.
“By five past nine on the first day everybody in the office had a picture of the view from my window,” says Harrison.
If the mobile industry has its way, this is a vision of the future, and sending postcards home to friends will soon become a thing of the past. Instead of writing a short note on a card, Nokia and the others want you to send a high-tech text message — complete with your own snapshot and a brief recording.
The phones that will make these “multi-media messages” possible are already in the shops. Last week Carphone Warehouse began selling the Nokia 7650, the first camera phone from the world’s leading handset maker.
Harrison says: “The initial reaction is very positive indeed. Everybody who sees it is absolutely blown away by the quality of it and the reasonableness of the price. We are selling as many as we can get hold of.”
On the Vodafone network, Carphone is selling the 7650 for less than £200, although it still costs £249 on O2, the rebranded Cellnet. These prices will inevitably come down. The industry is banking on camera phones being huge sellers this Christmas, particularly in the youth market.
At 154 grams, the 7650 is only a little heavier than most modern mobile phones. The casing is unexciting but everything works with all the familiar ease of Nokia handsets.
Clearly, one wouldn’t buy a £200 mobile phone to send a few postcards from far-flung holiday destinations. But it is not hard to think of many other applications for camera phones.
For example, when out shopping, a wife could show her husband the shirt she planned to buy him. When looking at houses, a prospective buyer could take pictures of the rooms, and send them back to a home computer. And for business, there are numerous monitoring, security and surveillance applications.
Most of all, it is easy to see how camera phones could be used for simple amusement, for larking about in the pub, the club — or in bed. Picture mail, or sha-mail as it is known, has already been a huge hit for Vodafone in Japan.
After two dreadful years for the mobile industry, Vodafone, Nokia and the rest sorely need a big success. The industry has invested tens of billions of pounds on the promise of “data services” — such as the transmission of pictures, video and music. The technology is here at last. But will there be the demand? There is a lot resting on Nokia and its latest gizmo.
NOKIA’s importance lies in the scale of its dominance in an enormous consumer market. Since overtaking Motorola in 1998, it has continued to extend its lead over its rivals. The latest figures suggest it sells almost two out of every five mobile phones.
In Britain, Nokia’s clean industrial design has proved more popular than almost anywhere else outside its native Finland, and has captured about two-thirds of the market.
And although sales have stalled in Europe, they continue to grow strongly in China, which now has more than 100m mobile-phone users. Worldwide, there are now more than one billion handsets in use — providing a huge replacement market if the new generation of phones catches on.
There are threats on the horizon, not least from the Japanese manufacturers that missed out on the first generation of digital phones. Richard Ward, the departing head of UK operations at Trium, the mobile arm of Mitsubishi Electric, says: “The way mobile-phone technology is heading is towards multi-media, audio-visual technologies, which are the core competence of the Japanese companies. And some of the technology that networks are being asked to adopt has already been used in Japan.”
Sony’s involvement with Ericsson, Nokia’s great Swedish rival, has already sharpened the look of its products. Sony Ericsson beat Nokia to market with its phone with a plug-in camera, the T68i.
In its polite Finnish way, Nokia is dismissive. Lauri Kivinen, a senior vice-president, says: “Competitive pressure has been there all the time from Japanese, Korean and other electronics manufacturers that have entered the field and grown. I don’t see that there would be a change.
“What counts more is who can grasp the complexity of the various radio standards, the software and the globality (of the industry). Each requires size, each requires investment in research and development.”
Even those who believe Nokia needs to do more to capture the early-adopting “opinion formers” recognise its enormous strengths.
An executive at one big network operator says: “Their products have become increasingly popular. One of the winning factors has been their ability to offer a simple lead into services — one or two clicks, and you are sending messages.”
YET 15 years ago, when Nokia floated on the London Stock Exchange, the company was little known in Britain. The group was a sprawling conglomerate still heavily reliant on its original businesses making paper, rubber footwear and cables.
Worse still, Nokia was heading towards a crisis that could have seen it disappear. A dash for growth during the 1980s had led it to invest heavily in television manufacturing, buying companies in Finland, Sweden, France and Germany.
A botched integration of the big German acquisition made at the end of 1987 plunged the consumer electronics division into loss and, shockingly, prompted the suicide of Kari Kairamo, Nokia’s long-serving chief executive.
This traumatic period is described in Nokia — The Inside Story, an officially blessed history that will be published later this month by Financial Times Prentice Hall. Martti Haikio, the book’s author, writes: “The acquisition of the television set manufacturing units in central Europe was Nokia’s equivalent of Napoleon’s campaign into Russia.
“It was a grand strategic play but resulted in the biggest losses in Nokia’s history. Without the tremendous growth of telecoms and mobile phones, Nokia’s very existence as an independent company could have been jeopardised.”
This difficult episode provoked the shake-up that gave birth to the modern Nokia. First the company sold its tissue paper business, which could trace its origins back to 1865 and was the oldest of the three companies that came together to form the group in the years after the first world war. “Emotionally, dumping forestry was comparable to selling the small cottage in the countryside where your grandmother had lived all her life,” says Haikio.
Other disposals soon followed. The rubber footwear business was sold in 1990. Nokia today says the rubber business benefited from an early example of its design and fashion-consciousness; in the 1960s it claims it was the first to introduce brightly coloured wellington boots.
Yet consumer electronics remained the group’s biggest business, and in 1991 it fell heavily into loss as Finland’s trade with the Soviet Union collapsed. The group’s banking owners considered selling out to Ericsson but the deal collapsed, prompting another change of management.
Amid this disarray, Jorma Ollila took over as chief executive. A somewhat enigmatic figure, Ollila had begun his career with Citibank in London, where he had collected a master’s degree in science from the London School of Economics.
The former head of Nokia’s fast-growing mobile-phone business saw immediately where the group’s future lay. The advent of the GSM standard for digital phones was attracting new network operators and would usher in a phase of rapid growth. And as the phones grew smaller, the sales grew faster.
From making 1.6m handsets in 1992, Nokia’s output rose to 2.5m in 1993, 5m in 1994 and 11m in 1995. Last year the company made 140m mobile phones.
NOKIA’s huge success is largely a 1990s story, based on the proliferation of mobile phones and the spread of digital phone technology. This decade will bring a move to “third generation” devices — no longer just phones, but also handheld computers, cameras, and music and games players — and a more crowded and more complicated market that will include media and games companies.
It also includes Microsoft. The software giant has made a big commitment to the mobile market, where it is promoting the adoption of Pocket PC, an operating system for handheld devices. This is a challenge to Nokia’s Symbian software.
At the heart of this dispute is a fundamental difference over the essence of future mobile communications.
Annemarie Duffy, wireless marketing manager for Microsoft in Europe, says consumers “don’t want mobile internet and PC internet. They want an internet where they can access information and services from any kind of device.”
In other words, Microsoft is backing a world where mobile devices can talk seamlessly with the personal computer world that it already dominates. Microsoft says it now has 41% of the (still small) market for handheld computers, up from less than 10% three years ago. Last week it announced an important alliance with AT&T Wireless of America. Pocket PC is also the operating system on the xda handheld from O2. Nokia’s vision centres on the specialness of the mobile world. Kivinen says: “Our bet is on mobility, and the background and the knowledge we have in the mobile field.”
He points out that there are twice as many mobile-phone users as computer users, and they are typically less tolerant of complexity. “We want a simple phone that always has a connection.”
With such a large share of the market, Nokia will inevitably find it difficult to return to the explosive growth of the 1990s. The 7650 is the first chance to see whether it will be able to defend what it already holds.
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