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Smoke free Nokia looks for a spark

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MWC Trade shows tend to expire pretty quickly once the biggest exhibitors pull out. The small fish are there to do deals with slightly bigger fish, and if they're absent, or only present half-heartedly, there's a chain reaction down the industry.

While Nokia is in Barcelona this week, it isn't at Mobile World Congress. Nokia had a simple message, and it didn't let announcements of any new smartphones distract from its message. Because there weren't any.

So what else wasn't Nokia doing? Attendees at Monday's press conference heard a relentlessly upbeat pitch for Nokia's Ovi services. Ovi Store, the Music Stores, Messaging, Comes With Music… they're all going to be great successes, Niklas Savander assured the audience. The revamped Ovi Maps is popular, but giving away free sweets always is. Savander sidestepped concerns about recouping on Nokia's big mapping acquisition. Nokia plunked down $8bn for Navteq, and in the last quarter the division made a profit of €54m on revenue of €225m. So it'll be around 37 years before it pays back on the investment.

"[Free] Ovi Maps helps monetize Navteq," said Savender. As if anticipating the puzzled looks, he said that billing costs were lower if you gave stuff away for free. Which is undoubtedly true - just as you save on solicitor's fees if you give away your house. To be fair, he hinted that advertising could support the Great Maps Giveaway, which is something that hasn't been tapped by anyone yet.

If you want an eloquent analysis of such strategies, look no further than Fake Steve's "It's Official: Java now worth nothing" from 2006. Which also foresaw, quite uncannily, some of the problems spinning out Symbian would have. All we know for sure is that Sun got really popular with guys who don't like to pay for stuff. Err... Win?

The Trouble With Ovi

I can't help feeling there's something a little complacent here. Profitable services tend to exist where there's very little competition, and where switching is complex and costly. Banking, insurance and utilities are profitable services, if not an excuse to print money, because you don't need to spend a lot on R&D once you're there. Consumer software services aren't like that at all. Switching to another phone or service provider is a call away, and trivial to do. All the software giveaways, could end in tears, but Nokia's exposure here is the greatest.

But more troublingly - and I can't believe analysts don't pick up on this - is the fact that most services essentially evolve in a bottom-up fashion. Nokia is hand-picking the ones it thinks we would like to use, and hoping their design fits the market. Apple cleverly avoided this dilemma. I'll bet most iPhone users didn't know Apple wanted to sell you a cloud offering (and these days quite a good one) in the shape of MobileMe. It's a very low key sell. So Nokia could spend its entire value on market research and still make Soviet-style production errors.

Nokia has approached geolocation courteously and cleverly, by encouraging application developers to create apps using the platform, rather than hyping it to the heavens. But equally, this tends to deter serious investors. The presumption is that anything with potential value will be hacked together by amateurs and given away.

Finally, I think the entire industry misinterprets the demand relationship between devices and services. If you have a great device, like using it, and need not worry about the cost of the data, then you'll go and find things to do with it. If it isn't a great user experience, then you won't.

Savander used a curious phrase in his presentation. Twice he told us there was, "no smoke coming from the Engine Room." I think this was intended to be an assurance that Nokia's engineers were creating ever-improving services without having to break sweat. But given the state of its smartphone portfolio a bit of smoke would assure nervous investors. Nokia's future looks much rosier once it has a stronger device line-up - and that was the main thing we didn't hear about this week.

Nokia only appointed a new phone chief in November, so we'll find out soon enough how it's shaping up. The company's place in the business is quite clear: just make great phones. ®

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