Watch out Apple, Nokia wants to take a bite out of you. In a typically far-sighted strategic move, the Finnish juggernaut is ready to take full control of Symbian, the software consortium that provides the operating systems for millions of smart phones, including devices provided by Nokia, Samsung, Sony/Ericsson, and others. Although the signals have been visible for several years, the gauntlet has been thrown and all parties look ready to rumble. What was basically a manufacturing industry has just transformed into a content business, and Nokia is poised to win. Ideas over assembly lines In this year’s Supply Chain Top 25 we argued that a new era of economics had dawned, one based more on ideas and art than metal and oil. With Apple in the No. 1 slot and Nokia right behind at No. 2, this seemed like the right time to call out the new set of rules that will govern supply chain management in manufacturing and retail from now on. The main rule is that consumer and financial value is a function of intellectual property, not low cost manufacturing and distribution. This includes all kinds of IP from music downloads to pure science to iconic brand experiences. Examples of each include Apple, Genzyme, and Harley Davidson. The universal aim of these kinds of companies is to add value rather than cut cost. Content and market share A fair rebuttal to this notion has been that many such companies are really niche players more than true industrial titans: Apple’s share of the mobile phone market, for instance, is only 0.6% in 1Q08 (though it holds a 19% share, the No. 2 slot, in the smartphone market) and Harley, while a manufacturing icon, is only a $5.7B company. But Nokia, which was No. 1 on our Top 25 last year, breaks the back of this argument. With global market share of 39.5%, annual unit volumes of 437 million phones, and growing market share, Nokia is the titan to beat. Having seen how investors feel about zero marginal cost products (iTunes), Nokia is now going hard after the digital revenue stream consumers regularly pump through their handsets. The big boys in manufacturing are ready to compete in the content economy. So who wins? My bet is that Nokia’s blend of manufacturing scale, technology influence, and rapid innovation cycles are harder to replicate competitively than Apple’s usability and content partnerships. With its demonstrated ability to collaborate across the value chain for better operating performance, Nokia is positioned to give Apple déjà vu all over again. What Wintel did to Apple in the desktop computer market 20 years ago, Nokia is poised to do to Apple in the mobile handset market: copy what consumers love about the iPhone but make it available more widely and affordably. As the PC software industry showed back then, scale matters and Nokia has it. Nokia also has something Apple should think about getting more of: friends. Samsung and Nokia, although rivals, are also partners with Samsung serving as a very strategic supplier to its Finnish cousins. On top of that, Samsung supports the Symbian standard with dollars and technology in hopes of creating mass market availability of ever more digital content and service consumables. In addition to Samsung and Nokia, The Symbian Foundation, which will oversee the open-sourcing of its software, includes LG Electronics, Sony Ericsson, and Motorola as well as AT&T, NTT DoCoMo, Vodafone, and key chipmakers STMicroelectronics, and Texas Instruments. That’s a lot of technology, marketing and supply chain muscle pulling in one direction. This is poised to be a significant battleground as Chris Fletcher explains. And how will service providers respond? As Apple’s iPhone and Motorola’s RAZR have demonstrated, consumers sometimes care more about the device than the network. What increasingly matters most to consumers, however, is digital content from music downloads and photo sharing to GPS service and web-browsing. Service providers may seem a logical competitor for this revenue stream, but in practice get around 90% of their revenue from minutes rather than royalties and are happy enough to just give consumers more reasons to get onto the network. We have argued in the past that the mobile communications industry is the hottest competitive market for supply chain innovation anywhere in the world. The moves being made to enter the content business make sense, especially for the likes of Sony Ericsson whose Japanese parent is a leader in the entertainment business. Apple has demonstrated how the content economy can merge with the physical economy to make lots of money. Nokia is getting ready to demonstrate how dominance in the global supply chain makes a great jumping off point for building sustainable strategic advantage in this new content economy. And even more money. Let us know your thoughts at komarah@amrresearch.com.
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