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During this year’s Mobile World Congress in Barcelona, Spain, Nokia and Mozilla announced new products and plans for the affordable smartphone market. Following up from our recent case study about Firefox OS launch in Latin America, this comment will discuss what we can learn from the recent developments from these two players.
Nokia X
Nokia has unveiled a new family of devices, Nokia X, which uses Google’s Android OS. However, Nokia is not using Google Mobile Services, much like what Amazon had done with its Kindle tablets. Instead of Google apps, Nokia X uses Nokia’s own services as well as those of Microsoft.
Initially, Nokia will keep its existing Asha Series as its entry-level smartphones and Lumia as its premium brand. Nokia X will be placed between the two as an intermediate range of devices. The idea is to lure users from Android ecosystem, from there it is expected that it will be possible to up-sell part of them to Windows Phone Lumia or buy time until Microsoft and Nokia can produce Lumias at the price points seen at the mid-range market.
By adopting Android, Nokia can benefit from economies of scale of that ecosystem, so some parts of the hardware are less expensive than for Lumia, and, more crucial, it can tap into the more than one million apps available to Android. However, Nokia will need to deal with some difficulties, for example that Nokia X will not feature Google Play store, but will support other app stores. In addition, those apps that use Google APIs will need to be ported to Nokia X and adapted to use Nokia services. For instance, a service that uses Google Maps will need to be adapted to use Nokia’s Here maps. Therefore, one of the first tasks will be to lure developers to the platform.
Not surprisingly, Nokia X is primarily aimed at emerging markets. In countries like Brazil, Mexico and India, the market is still dominated by feature phones, and Nokia enjoys a robust market share, as well as strong brand equity. So, the combination of Android OS and apps with Nokia hardware and services, not to mention Nokia’s powerful distribution channels, can be attractive enough to convince developers to port apps to yet another platform. Nokia and Microsoft services pre-loaded on Nokia X also make a compelling proposition, including services like Here maps; a free music streaming service, MixRadio; and VoIP service Skype. Alongside a user interface that resembles Windows Phone “live” tiles clearly differentiates Nokia X from the regular Android phones.
Firefox OS
Mozilla’s plans for Firefox OS in 2014 include the launch of seven new devices, among them the first tablet powered by Firefox OS and the first devices with dual-core processors. The expanded portfolio will advance Firefox OS to segments beyond the entry-level. The operating system is also expanding to bigger screens – for example Panasonic announced that it would be using it in a family of smart-TVs.
Nonetheless, one announcement in particular stands out: Mozilla and China-based chipset maker, Spreadtrum, announced a chipset designed for USD25 smartphones. Even though the chipset specifications for such a device is quite frugal, with some analysts even comparing it to the original iPhone launched in 2007, this is yet another indication that Mozilla is willing to push forward with its low cost smartphone strategy, potentially launching smartphones at feature phone prices. And low price is one of the main selling points for Firefox OS, a crucial one as it is targeting a price-sensitive market.
Apart from that, Mozilla has not announced any new global operator launching Firefox OS, but its current partners are launching in new countries, and now Firefox OS is available in 15 countries.
Common patterns in Nokia X and Firefox OS
A comparison of Nokia and Mozilla strategies shows how these companies are approaching the issue of facing a market with competitors already established in a dominant position. In summary these are the main topics:
Focus on entry- and mid-level, and emerging markets. Competition in the higher-priced premium segment is fiercer than ever, smartphone penetration is already high, and Apple’s iOS and Android are already established brands. Nokia fights in this segment with its Windows Phone powered Lumia, which has been gaining market share, but is far from a position to threaten the leaders yet. On the other hand, at the mid- and entry-level, especially in emerging markets, the situation is different, with the biggest opportunity being the replacement of 2G feature phones for 3G smartphones. For a new entrant it is an easier proposition to convince a first-time buyer than one already using a smartphone. This is partly because there are exit barriers to overcome, for instance all photos and videos backed up in a proprietary service like iCloud, and it is likely that the user will not find all their favorite apps in the new ecosystem. Mozilla chose to target these first-time buyers, while Nokia uses its Asha Series for this segment and Nokia X will be used to attract Android users.
Partnering with operators. Nokia already has long-standing relationships with operators, especially in emerging markets, and Mozilla debuted in the market with strong support from operators like Telefonica and Deutsch Telekom. This is a crucial success factor for these companies because operators can offer marketing support, distribution channels and carrier billing, which is particularly relevant in countries where only the minority of the population has credit cards. Nokia X is launching in Latin America with a carrier billing agreement already in place with the most important operators in the biggest countries. This sort of engagement seems to be lacking in Google and Apple in Latin America, as both still rely only on credit cards in the region.
Make life easier for developers. Apple’s App Store and Google’s Play Store have more than one million apps each and any new OS will face the problem of how to match that. Firefox OS and Nokia X had different approaches. In the case of Firefox OS the OS was built based on Web standards, including HTML 5, which enjoys the support from a huge community of developers so these professionals have a smoother learning curve to port their apps to Firefox OS. On the other hand, Nokia is going after (potentially) all Android developers by using Android Open System Platform. However, by stripping Nokia X of Google Mobile Services, Nokia made the porting of applications a process a little more cumbersome as developers that use Google apps and APIs will need to replace them by their equivalent in Nokia X.
Tying services and handsets. The purchase of the handset is only the first step in winning the customer endorsement. Customer experience with the whole ecosystem is crucial, and in this front Nokia and Mozilla have invested to differentiate from competitors. In Brazil, for instance, Mozilla and Telefonica’s local unit, Vivo, are selling Firefox OS handsets bundled with a six-month free 100-megabyte data pack, and Telefonica is using a similar strategy in other Latin America markets. Telefonica also announced that it will be pre-loading the messaging app Line in its Firefox OS devices. It is not common to offer such benefits to customers in the entry-level smartphone segment and it can certainly have a positive impact in customer satisfaction. Nokia went a similar route, but apparently without the data plan benefit for now. It is offering Nokia X customers the already mentioned services like Skype, Bing and MixRadio, among others. All in all, there is an understanding that the device is only part of the puzzle to win customers hearts and minds, and the more added value it is offered, in the form of free services, the better in building differentiation for its ecosystem.
Finally, as growth and even innovation slows in the premium segment in the smartphone market, the industry is changing its focus to the mid- and entry-levels, where there is still high potential for growth. In this context, the fact that emerging markets like Latin American countries are behind in terms of smartphone adoption made them the ideal launch pad for new entrants in the market, as a consequence, the competition for the customers in these countries will be fierce.
Arivaldo Lopes is a Principal Analyst with Informa Telecoms & Media for Latin America. He leads Informa’s efforts in understanding the Latin American operators’ strategic options for investment in 4G technologies, as well as providing competitive benchmark analysis, country profiles and analyzing the opportunities for mobile virtual network operators in the region. Lopes joined Informa Telecoms & Media in April 2012. Prior to that he was a senior financial analyst with Google, where he was in charge of capacity planning and forecast for the SMB Customer Services organization. Lopes also has eight years’ experience in the telecoms market, having worked at Vivo as a CRM analyst, and as pricing manager at Brasil Telecom and Oi. Lopes holds a Masters degree in Communications Management at the University of Strathclyde, and has a degree in Economics from the University of Campinas.
