N97-Nokia Strikes Back iPhone-Apple

News Analysis. Apple and its partners should not underestimate the importance of the Dec. 2 announcement at Nokia World: the debut of the first N-Series touch-screen smartphone.


For all Apple's recent market share gains with the iPhone, Nokia still dominates the worldwide cell phone market, both in device and operating system shipments. Record third-quarter iPhone shipments blasted Apple's mobile device into the No. 2 spot for smartphones. But Nokia leads the broader market by a huge margin—118 million cell phones shipped in the third quarter to Apple's 6.9 million. Today, Nokia made clear that it won't be cast down without a fight.



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At Nokia World in Barcelona, the cell phone manufacturer unveiled the N97 as its new flagship mobile. The N97 is scheduled to ship in the first half of the year internationally with a U.S. version to follow some time later. As with previous N-Series mobiles, Nokia will offer models with separate U.S. and international 3G frequencies rather than one global device.

By no means is the N97 a revolutionary device. Even Nokia's own Conversations blog says "the N97 isn't a device that will trigger knee-jerk hysteria. But instead it should breed cool-headed excitement at the prospect of a new era of mobile experience." The blog uses "evolutionary" to describe the new smartphone.

The design reminds one of the HTC Tilt 8925 or Sony Ericsson Xperia X1. The N97 is a touch-screen phone with slide-out QWERTY keyboard. Like the X1, the N97 comes with informational, Net-connected widgets linking to Facebook and other services.

What distinguishes the N97 from every other smartphone, particularly iPhone, are the digital media features, including the 5-megapixel camera and video recording and playback capabilities. While the N97 might be "evolutionary" for an N-Series mobile, it's revolutionary for smartphones. No mass-market mobile currently available or announced brings together communications, content consumption and content creation the way the N97 promises to. The iPhone doesn't even come close.

In his book "Grown Up Digital, Don Tapscott observes that Millennials—otherwise known as Generation Y or Net Gen—are content creators more than content consumers. I see this in my daughter, who constantly complains that she can't make videos on the iPhone. On Friday, we were shopping at an outlet mall when two other teens approached and asked my daughter if she was [YouTube identity withheld]. Startled, she said yes. "We love your videos!"

Turned out my 14 year-old had been video blogging behind my back about fashion and makeup. She has over 1,000 subscribers, nearly all teens and tweens. I may next take lessons from her on maximizing blog audience.

The point: Younger consumers in particular create content, but the iPhone fails to deliver in that area, which is strange considering that on the desktop content creation tools distinguish Macs and Windows PCs.

Nokia's base for continued dominance dwarfs upstart Apple. Manufacturers shipped 309 million cell phones in the third quarter, more than a third of them by Nokia, according to Gartner. The first chart (above) shows the third quarter compared with the same period a year ago, and the second chart (below) compares second and third quarters of 2008. Nokia definitely is showing some weakness in shipments. Year over year, Nokia unit shipments and market share rose, but they declined sequentially. Apple and Samsung picked up most of Nokia's lost share. By the way, Apple ranked seventh in worldwide mobile phone shipments, just behind Research In Motion.

But Nokia, for all its big market share, is playing catch-up in one crucial area where Apple has the lead on pretty much everybody: the mobile platform. Apple's App Store, which now boasts 10,000 applications, is trendsetting. Through App Store, Apple is creating a viable mobile platform to replace the PC as primary computing platform.

In retail it's location, location, location. In computing, it's applications, applications, applications. As mobile phones take on more and more computing characteristics, particularly connected to the Internet, applications become a bigger selling point. Apple has got plenty—and they're nicely packaged in App Store—while Nokia has much fewer choices spread out. Additionally, Apple's MobileMe provides sync services for personal content. That said, Nokia's Ovi service is hugely promising for syncing content and contacts that matter to you back to the cloud.

Nokia's full acquisition of Symbian, in June, makes the phone manufacturer the dominant mobile operating system provider, too. Pulling from Symbian's open-source roots, Nokia's challenge now is to woo more developers to make applications for its mobile platform. Symbian has developers, but its platform is too fragmented. It's a weakness Apple can and should exploit through App Store.

The problem is this: Nokia ships different S60 versions on different phones. For example, N97 predecessor N96 comes with S60 3rd Edition, Feature Pack 2. The E71 comes with S60 3rd Edition, Feature Pack 1. Meanwhile, Nokia's two touch-screen mobiles, the 5800 Express Music and N97, come with S60 5th edition. Nokia's mobile platform is hugely fragmented, and I purposely chose digital media and smartphones—those with greater developer appeal—for comparison.

Apple's platform is unified. Both generations of iPhones run the exact same software, and there's a bonus: iPod Touch. Most of iPhone's non-telephony capabilities are available for iPod Touch, particularly from App Store. Apple's mobile platform is measured by more than just phones shipped; by iPod Touch models, too.

Nokia's early widgets and broader developer message do entice, but the N97 won't be platform enough, considering that N- and E-Series phones account for just a fraction of the company's worldwide shipments. Apple has a huge price advantage, too. Higher-end N-Series phones cost hundreds of dollars more unsubsidized in the United States than the $199 subsidized iPhone 3G. The N97 will sell for about $550 unsubsidized.

But it's a big world, and it's outside the United States where the clash between Apple and Nokia will be greatest. Apple is rapidly expanding into markets where Nokia is dominant, and Nokia is ceding some markets to competitors, such as last week's pull out of Japan. That said, Nokia phones, particularly the higher-end digital-oriented models, are more commonly available subsidized in international markets than in the United States.

Time is now against Nokia. The N97 isn't expected to be released until some time in the first half of 2009. Nokia can't delay. Apple will sell millions more cell phones between now and then. That said, the U.S. recession is reaching international markets, curbing some iPhone purchases and give Nokia more time to get its device, mobile platform, services strategy and developer story together. After all, Nokia has the advantage of incumbency.

There's fun ahead. Apple and Nokia are two of the world's most creative marketers. The brands are strong in part because the companies know how to sell them well. Nokia has launched some of the best viral Web campaigns anywhere. Let the rivalry begin.