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Nokia, coming soon to a war near you

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Nokia CEO Stephen Elop’s visit to South Africa came a year after he declared the company’s platform burning. A year later, Nokia is not only revived, but it is listening to its markets and taking the phone wars local, writes ARTHUR GOLDSTUCK.

Stephen Elop takes clear delight in confounding expectations. When he arrived in South Africa for meetings with network executives, media and developers, he also took the time out to do something few global CEOs of major brands ever attempt: he mingled with shoppers.

He may have been surrounded by an entourage of lieutenants and minders, but he was accessible to anyone, had anyone guessed who he was. Of course, given his limited media exposure outside the business world, no one knew. And he liked that just fine.

The low-key Canadian, representing a Finnish-based cellphone giant that has been hammered by innovations coming out of the United States, acknowledges that an understanding of the varied markets of Africa is critical to Nokia’s survival.

For that reason, he focused his trip on two African markets where Nokia is dominant in the overall phone market, but facing powerful competition: Kenya, where Huawei has taken over smartphone leadership, and South Africa, where BlackBerry has done the same.

Kenya in particular is close to Elop’s heart, as it is the hub of development for Nokia’s India, Middle East and Africa operations.

‚The African market is a really special market. There is a real smartphone market in Africa but if course the vast majority of the sales as you look at the emerging economies are across that lower tier of the mobile phone segment.

‚And this is why we announced a year ago the increased investment in those lower price tier devices because of the opportunity to take a smarter phone experience to those consumers that does consume data that does connect the next billion people to the Internet.

‚But it is related to societal development. For example, how can we help with healthcare and agriculture?‚

The high-end, smartphone market is where the critical battle lies, however. It is in high-priced phones that Apple has shaken up the market, and it is the high margins on those phones that has turned it into the most valuable company in the world. Elop sees this price and margin issue as a key challenge for Nokia.

‚When you see that type of price shift, it’s a statement of the competitiveness of what we need to do from a product perspective. So for example in the smartphone segment, a critical reason for us changing our strategy was to say we need to introduce new devices that are more competitive phones that could attract premium prices, higher gross margins and that is precisely what we’re doing. So for example the Lumia 800 is at a price point and with margins that will help us move the average price points in a different direction.

‚That being said, it is always the case and will continue to be the case that Moore’s law and competition drives prices down. So our challenge of course consistently is not only to make sure that we are competing at those lower price points, but that we are adding more value on top.‚

But Nokia is able to do one thing that Apple has yet to learn: take developing markets seriously.

‚To give you the African example and some of what we’re engaged in here on the continent, when people buy a Nokia device at some of the lowest price points, part of the promise they’re buying is not just the device, but also the whole experience that’s delivered with that, including in some countries in Africa healthcare services, in other countries agricultural services, different things that round out that experience. So to compete effectively, you have to be good on the price of the device, but your brand and its value proposition has to stand out from the others and we’re very focused on doing that.‚

There is one market that has not bought into the Nokia value promise, and it is arguably the most important market in the world, given the extent to which it is driving smartphone innovation: the United States. Elop agrees.

‚The North American market is a very important market. If you look at historically what has happened in terms of innovation in and around the mobile sector, many years ago it was centered in Japan and Korea, Europe had a period of time with the advent of GSM and so forth. But more recently with some of the development of the new ecosystems, innovation’s been coming out of the US quite heavily, and therefore it is critical for us to play well in the US and have success there. That is very important.‚

The Consumer Electronics Show in Las Vegas in January marked the beginning of Nokia’s invasion of America. The event saw the announcement that the Lumia 710, the lowest-priced Lumia, was immediately selling through T-Mobile and other US networks. Nokia also announced that the 800 and 710 would be made available through Canadian operators.

‚But the largest piece of news that we announced at CES was the introduction of our third Lumia product, the Lumia 900,‚ says Elop. ‚The Lumia 900 we specifically designed for launch initially in the US. What that means is, for example, the radio technology. In the United States, the two big operators, AT&T and Verizon, are competing on the basis of the speed of their network. So we’ve moved from 3G past 3.5G to full 4G networks.

‚So this is our first ever LTE device, very large battery, front facing camera, 4,3‚ screen, taking the same design principles of the 800 and taking them up in size and scope for the 900.‚

The 900 was introduced at a press conference on the afternoon before CES began. Elop says that this was just the beginning of a buzz that built up during the course of the show. And it led to a major climax for Nokia:

‚The moment that we were most proud of, for the first time in Npkia’s history, was winning the Best of Show award. We had never achieved that before in that market.

‚Is it a hard battle? Do we have to re-establish the brand and win the hearts and minds? Of course. We’re going to be establishing the beachhead ‚ that’s a word I’ve been using a lot lately ‚ and clawing our way forward and that’s okay, that’s the challenge. But with great products, and a good strategy, we’re going to make some progress.‚

The subtext of Elop’s comments is that Nokia is going to war against Apple and Samsung for a slice of the US market. But there is also a broader, more global war to be fought. The enemy is the iOS operating system of the iPhone, and the Android OS that runs on almost all other phones. Can Windows Phone compete?

‚ We fundamentally look at world as war of three ecosystems. And our focus is on making sure the Windows Phone ecosystem, with us being a major participant in that, is a primary competitor in that space

‚So we’re investing very heavily, whether is in the contribution of Location Based Services for the use of the whole ecosystem or ‚ I just finished a meeting with a group of developers here in SA, and we are investing heavily, as is Microsoft, in the attraction of developers in helping with the transition to Windows Phone.‚

This war will be fought most fervently in the apps markets of the various ecosystems. And, finally, the Windows market is beginning to make headway.

‚There were 6000 Windows Phone applications a year ago. It’s well over 55 000. Its growing at an accelerating rate, so the sense of, is that flywheel beginning to go? Yes, it’s beginning to go.

‚Part of the reason for that is that people see that we’re not just doing a device and seeing how it goes with Lumia. Its like they’re seeing, wow, there’s more and more and for those people who see the future plans, its like wow, we’re really putting the muscle in. You combine that with recognition of the distribution capability of Nokia and the fact that we’re getting into so many countries so quickly with these devices, and that is very attractive to developers.‚

He acknowledges that, in markets like South Africa, the ecosystem war has different flavor, due to the strength of BlackBerry.

‚The dynamics are a little different in South Africa because there’s another competitor that’s quite strong in this country, but we still think its fundamentally it’s about the war of ecosystems and that will come to bear in South Africa as well.‚

However, the real secret weapon for Nokia is not the operating system, but the company’s new culture: of listening.

‚This type of change is one that we know is going to take really hard work. In every session with every group of employees around the world, it’s very much about learn and adjust. So we put these products in the market, and we discover, ‚Äòwow, people love this’, they love our mixed radio capability, they love what we’re doing with navigation, but there are elements of it that we could do better. Learn, adjust.

‚As consumers give us feedback about the things that are important to them, our job is to react, to improve those things, and push through. So what these devices and the software and everything looks like over time will certainly evolve and change. So if there are problems and things aren’t working right, it will change, but we have a foundation of something on which to build.‚

Clearly, Nokia’s platform is no longer burning. But it may well be sizzling before long. And it’s unlikely we will soon see the kind of dramatic shift that followed last February’s ‚burning platform‚ memo. Rather, continual evolution will become part of the Nokia culture.

‚It’s not about making a sharp turns,‚ Elop confirms. ‚It’s about constantly refining and improving and being comfortable in taking that approach. So you will see changes constantly.‚

* The round-table interview with Stephen Elop was conducted by Gadget editor-in-chief and World Wide Worx MD Arthur Goldstuck, TechCentral editor Duncan McLeod, Talk Radio 702’s Techno Byte host Aki Anastasiou, Finweek technology editor and ZA Tech Show anchor Simon Dingle, and Moneyweb production editor and IT columnist Hilton Tarrant.

Read Arthur’s column here about Nokia droppingnstrong hints of entering the tablet market.

* Follow Arthur Goldstuck on Twitter on @art2gee,

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