When Will Nokia’s Smartphone Transition End?

If you were in the handset business and were about to launch a flagship device, how would you build buzz around it? I can think of a number of ways, but with the Nokia N8, the Finnish company has done the opposite of every one of them. The new phone has the dubious distinction of being both the first and the last N-series handset built atop the new Symbian^3 platform. Nokia (s nok) this week confirmed to CNet that going forward, all N-series phones will run on MeeGo, the open-source Linux-based operating system created by the merger of Intel’s (s intc) Moblin and Nokia’s Maemo platforms this past February.

To some degree, Nokia’s move towards MeeGo for high-end smartphones is actually old news. This past December, Nokia outlined a strategy that included delivery of the first Maemo 6 device in the second half of 2010. Maemo morphed into MeeGo two months later, so while the planned platform did shift, it was clear late last year that a change was underfoot. But Symbian was still in the mix at that time, with Nokia saying it would “re-engineer our Symbian user interface” in 2010. From what I’ve seen of  Symbian^3 so far, Nokia is making progress, but now that progress will be applied to lower-end smartphones — even after it designed a potentially high-margin, flagship Symbian^3 device. As far as I’m concerned, that means Nokia still hasn’t quite figured out what it takes to compete well in today’s high-end, smartphone market.

Rafe Blandford from All About Maemo provides an interesting editorial take on Nokia’s strategic plans for MeeGo and the N-series devices, suggesting the web is making much ado about nothing:

One of the consequences of the narrowed scope of Nseries devices and fierce competition at the high end is that Symbian-powered Nseries devices make up only a small proportion (12% in Q1 2010, less now) of Nokia’s total Symbian device sales. The perception that the majority of Nokia’s Symbian devices are Nseries is simply inaccurate. As such, the end of Symbian-powered Nseries devices will have a relatively small impact on Nokia’s overall Symbian sales.

The figures Rafe quotes actually indicate to me that the problem is bigger than some perceive. If Nokia’s high-end smartphone series — where profit margins and opportunities for value-add services are greater — is small and shrinking, how is that a good thing? Yes, Nokia rules the worldwide roost when it comes to feature phones and the company has stemmed somewhat its smartphone market share losses. But Nokia would face a bleak future by relying on low-cost, low-margin feature phones over the long term as trends indicate a gradual shift away from feature phones to smartphones.

Perhaps I’m reading into Nokia’s reliance on feature phones too much. If that’s the case, how does the company plan to compete against Apple, Google, and Research In Motion (s rimm)? A history lesson might answer that question — how has Nokia competed over the last few years?

  • 2007 — This year brought the first Apple (s aapl) iPhone as well as the highly touted Nokia N95. Running Symbian S60 3rd edition, the slider had no touchscreen and just a QVGA display. Even with an excellent 5-megapixel camera paired with Carl Zeiss optics and front-facing camera, Nokia’s worldwide smartphone share began to decline. According to figures from Canalys, Nokia’s share in the fourth quarter of 2007 fell to to 52.9 percent from 53.8 percent in the same quarter of 2006.
  • 2008 — Apple introduced both the App Store and iPhone 3G, while very late in the year, Google (s goog) launched its first Android device. Nokia’s revised the N95 with the N96, still running Symbian S60 3rd edition, but with feature pack 2. Others in the line included candy bar handsets such as the N78, N79 and the N85 slider, none of which helped Nokia add market share. In the second quarter of 2008, Canalys data measured a 45.5 percent share for Nokia smartphones worldwide.
  • 2009 — Google Android devices really begin to proliferate, especially in the last quarter of the year due to Android 2.0 and the Motorola Droid (s mot) , while Apple launched the iPhone 3GS. Nokia introduced the Symbian-powered N86 and N97 but also took experience from Internet Tablet products — the N770, N800 and N810 — and created the N900 handset running Maemo. Om felt that Nokia was on the right track, but “on a very slippery slope and unless it fields a competitive device, it will continue to see its share of the smartphone market erode.” For the third quarter of the year, Canalys reported Nokia’s share to be 39.7 percent of worldwide smartphone sales.

If the history lesson were to end here, one would expect that the N900 would be Nokia’s gateway to the future in this world of iPhones and Android handsets. But along came Symbian^3 in February of 2010 and with it, many expectations that this platform would be used for high-end Nokia phones. In April, I said that Nokia needed to step on the Symbian^3 gas pedal and a week later, the Nokia N8 was announced, which brings us full circle as both the first and last N-series device to use Symbian^3. Making matters slightly worse: Nokia hasn’t announced future upgrade support for the N900. In effect then, both the 9-month old N900 and the unreleased N8 already have an end-of-life tag on them. Meanwhile, Apple sold an estimated 1-1.5 million iPhone 4 devices on launch day and Google is enjoying 160,000 Android activations daily — an annual rate of 58.4 million units, assuming no additional growth.

With such a rich history as a leader in the handset market, the sentimental side of me wants to see Nokia succeed in the smartphone space. But a product strategy that appears to be in constant transition isn’t one that attracts either developers or customers, which makes it difficult to combat Apple and Google. So far the only thing such an approach has attracted is declining market share and reduced revenue forecasts. My hope is that the trend reverses with MeeGo — or will it turn around with the next platform after that?

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