It seems I was right, never grow complacent, never take your market position for granted!

http://www.itnews.com.au/News/252196,nokia-stalls-painful-job-cut-talks-to-end-of-april.aspx

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Beware The Vortex of Doom!

Competition is heating up, your suppliers exerting upward pressure, your customers are exerting downward pressure, your products and strategies are being imitated.

Sooner or later no matter how successful your product based business is, you will hit a wall unless you are very lucky.

So how did Apple beat this game?  Lets look at the smartphone market.

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Why is Nokia a potentially portent example of organisational Group Think?  Read on and find out…

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Android is currently riding on a wave of euphoria having blasted in the global and Australian smartphone market this year.  However, is this  just a honeymoon period, or is Android here to stay?  Android is based on a radically different business model to the established players of the declining Symbian and the mature Apple iOS (hardly breaking new ground with a naming convention there).

The Android business model is based on the open source Linux operating system – founded on a passionate merging of socialist ideals and advanced technology where software is poured in to a creative commons to be shared by all of humanity, free of charge.

Android is no exception, however Google is no charity either.  Google have chosen Android because it suits their business model of supply chain integration to drive down costs, and broaden their market for their core business of search and advertising.

This business model, by driving down costs, will commoditise everything it touches, the process by which consumers come to expect products and services to be low cost, undifferentiated and possibly even free.  This suits Google just fine, but offends established players such as Apple who rely on healthy gross device profit margins, while Google’s business model relies on broadening their market reach to more consumers with free or cheap services and products.  Apple and Google could not be any more different, and Apple are not happy about it having launched a proxy lawsuit against Google via HTC.

A comparison of relative profit margins in mobile device manufacturers reveals that on company operations, Apple enjoys EBIT(1)  profit margins of 40%, compared to Microsoft at 38%, Nokia at 4.9% and Dell at 4.1% (Forbes Magazine 2010).

In terms of gross margin on products, on the iPad alone, Apple enjoys gross margins of up to 55%, with concerns raised when the gross profit margin falls to ‘only’ 40% (Forbes Magazine 2010), with up to 60% gross profit for the iPhone (Elmer-DeWitt 2010)

Conversely, Nokia and HTC fall to almost half of this figure at just over 30% gross product profit margin.

So there is a lot to lose, as Nokia have shown with their declining profit margins and their CEO coming under increasing pressure to do something about it.  Meanwhile Android, based entirely on ‘free’ is becoming very popular with device manufacturers, who don’t have to pay royalties to use Android, and consumers, who enjoy cheaper devices and a more ‘open’ platform, in contrast to the Apple ecosystem ruled over by the benevolent dictator Steve Jobs.

2010 will be a very interesting year in the smartphone market, and only one true winner will emerge: the consumer.

Definitions

(1) Earnings Before Interest And Tax, otherwise known as Operating Profit is a measure of profitability that takes in to account the operating structure and expenses of the organisation such as marketing and R&D.  EBIT does not include potentially anomalous measures such as depreciation and asset write-downs structured to minimise taxable company income.

References

Forbes Magazine. “Apple Suffers Mildly From Slimmer iPad Margins.” Forbes.com. 14 April 2010. http://blogs.forbes.com/greatspeculations/2010/04/14/apple-suffers-mildly-from-slimmer-ipad-margins/ (accessed June 07, 2010).

Elmer-DeWitt, Philip. iPhone gross profit margin nears 60%. 02 March 2010. http://tech.fortune.cnn.com/2010/03/02/what-doth-it-profit-an-iphone/ (accessed June 07, 2010).

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Apple just won’t give up.  Having entered the ‘mobile space’ and declared sovereignty against any other newcomers such as Google (likely due to their joint chairman Eric Schmidt ‘defecting’ to Google a year or so ago), Apple has declared all out war against many mobile companies and is now embroiled in a fight with Nokia, HTC and Google

This is likely to be a long and very dull drawn out lawsuit that Apple hopes will stall the development of Android, perceived as being its main competitor.

What is curious though, is that until Apple decided to sue everyone else, Nokia had quietly accepted Apple violating Nokia’s mobile patents.

Is there a slight scent of hypocrisy in the air?

via Apple Filing Another Case Against HTC « Moby1 blog.

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For those who are interested in what happened to Nokia (Remember them?  Apparently they still make phones), Symbian 3 is starting to make an appearance although it has not yet appeared on any devices, and Nokia is reported to be moving to the Mego platform (a Linux derived OS like Android, except backed by Intel rather than Google).

http://www.mobile-review.com/review/symbian-3-en.shtml

I am really not sure what all these manufacturers hope to achieve by dazzling developers with a bewildering array of mobile platforms to choose from, and I don’t think it bodes well.  Some platforms may find niche markets such as in the developing world or for certain market segments, however I don’t see a mainstream future beyond Android and iPhone for the foreseeable future.

The CEO of Nokia has recently come under some criticism for this and has stated that Nokia needs to improve their execution.  Well, no significant platform improvement since the Nokia N95 in 2007, 3 years ago, would suggest that yes, there appears to be a problem with execution.

Lets hope Nokia regain their strength however, as the mobile market has benefited greatly from their innovation and contribution to technologies that they have generously allowed other companies to use.

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Are Nokia making a come back?  Would this explain their apparent lack of innovation for several years?  Perhaps Nokia are quietly beavering away on something of a game changer..  Well lets wait and see.. 

Nokia Purchases MetaCarta | Top Tech Reviews.

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