Nokia Versus Apple’s iPhone

Implications: In terms of volume the iPhone is indeed a “niche product” for Nokia.  However, the impact the iPhone is having on the handset market is much greater than its market share might indicate.  Nokia needs to address their steadily dropping US market share, although the iPhone is only one small piece of that problem.

Analysis: In retrospect, questioning the Nokia CEO about a slipped product launch at the same time he announced disappointing earnings and forecast was unlikely to elicit a positive response!  It is not surprising that under the circumstances he would brush off the success of Apple’s iPhone as insignificant.  It is indeed true that in terms of worldwide market penetration the iPhone is a niche product, so his statement is factually accurate.  It is also important to keep in mind that while most of the media in the US has an understandable US bias, the Nokia CEO considers the US as only one among many markets.  An important market, to be sure, but arguably no more important (possibly even less) than Europe or China. Finally, while the iPhone has been very successful in the US, it has not generally matched that success outside of the US.

Some people look at the iPhone and compare it to the iPod, which has come to dominate the music-player market.  The handset market was much more competitive when the iPhone was introduced than was the music-player market when the iPod was introduced.  It was never feasible that the iPhone could come to dominate the handset market.  A better comparison is probably the Macintosh computer.  The Macintosh never dominated the PC market.  At best it was never more than a “niche product” in terms of market share.  Yet the impact the Macintosh had on the PC market was huge.  Much of the impetus behind today’s Windows was the Macintosh.  It’s impossible to say what Windows would look like today (or if there would even be Windows!) without the Macintosh, but certainly it would be very different.  The iPhone seems positioned to have a similar effect on the handset market – although it may never dominate in terms of volume, it may well dominate as a design driver.

Nokia needs to address their slumping market share in the US, which by some accounts has dropped from 20% to 7-8% in the last couple of years.  Releasing an iPhone look-alike will help that, but the key issue seems to be their rocky relationship with US carriers.  Since carriers effectively control the handset market in the US, Nokia must improve that relationship to regain market share.  Along the way they need to get their iPhone look-alike out the door.  Early reports suggest that it still needs a lot of work on the user interface, which is the key to the whole product.  The fact Nokia has now slipped its release to later in 2008 suggests they understand the problem and are working to resolve it.

It is very unlikely that in five years the iPhone, or its successors, will dominate the handset market.  Nokia’s market domination worldwide (40% market share) is likely to continue.  It seems very likely, however, that in five years the influence of today’s iPhone will be strongly felt throughout the entire handset market.  Not all the products are going to look like today’s iPhone, but the best features of today’s iPhone will be integrated in with the best features of other handsets to create an overall superior product.  Apple’s products don’t dominate most of the markets they sell in, but their design influence does.  The iPhone’s design and features will forever change the way handsets are viewed.