The cellphone SKU wars: Why Apple isn’t like Nokia

There’s a strange blindness that obscures U.S. blog and news coverage of iPhone. If the measure was mindshare, iPhone would be the world’s most important handset. But based on market share, iPhone is a tiny fish in a pond of larger, wiser fish. Nokia is biggest of them all. Marketshare matters — and it will matter more as Nokia launches its Ovi Store rival to Apple’s App Store…Nokia shipped more than five times as many handsets in a single quarter than Apple expected to ship for all of 2009. Perhaps iPhone is more water bug than tiny fish in that big pond.

Nokia is the poster child of those whose incurable fetishism is market share. It recently announced shipments of 92.3 million handsets in a single quarter, for a 38% global share. Apple, on the other hand, has sold only a total of 17 million iPhones (and 13 million iPod touches) in nearly two years for less than 2% global market share.

What if Apple operated like Nokia?

There are many differences between Nokia and Apple, of course, but none more telling than these two pictures:

nokiaphones.jpg

Those are just a tiny fraction of more than 220 different models of Nokia phones in circulation. Apple, on the other hand, sells a single cellphone model:

iphone-uno.png

That’s it. One model (with more or less memory, black or white) for all demographics and markets, here and abroad.

What never shipped

Steve Jobs has famously said that he is proud not only of the products Apple has shipped, but also the products Apple has decided not to ship. Indeed, had Apple listened to its competitors, analysts and pundits, it would have shipped a plethora of devices two years ago, including:

iphone-not.png

It’s the SKU, stupid!

With so many products, Apple would have had to research, design, manufacture, quality check, ship, stock, market, track, analyze and upgrade at a level of expenditure an order of magnitude higher than what it currently has for a single product.

SKU promiscuity is a sucker’s bet, as is the opportunity cost of behaving like Nokia. By spreading itself far too thin over 220 SKUs, Nokia inevitably fell short of a vision and ability to innovate, getting blindsided by the birth of the truly usable handheld computer, also known as the iPhone.

Indeed, Nokia’s greatest asset — its market share — has all of a sudden become an albatross around its innovation neck. The vast majority of its devices in the market are dumb phones running an aging OS, incapable of competing with web-surfing, multi-touch, multi-media and multi-purpose devices of the burgeoning ‘smartphone’ genre. Reliant on volume and distribution for over a decade, Nokia has finally become the Microsoft of cellphone industry: ubiquitous, lethargic and beholden to its user base and SKU outlays.

In contrast, Apple uniquely leverages what’s essentially a single OS across desktop, server, mobile and set-top devices. Each innovation and improvement can not only quickly propagate across platforms through shared frameworks, but can also closely integrate them further to create the ‘halo effect’ that sells more Apple products. If Nokia’s strategy is ‘segment and conquer’ Apple’s is ‘integrate and cross-sell.’

And one more thing…

Nokia reported a 91% drop in Q1 earnings per share.

29 thoughts on “The cellphone SKU wars: Why Apple isn’t like Nokia

  1. Pingback: 애플과 삼성, 그리고 모델 T의 비유 | KMUG

  2. Pingback: Weekend Reader Woche 37 | fime

  3. Pingback: stratēchery | Apple, Samsung, and the Parable of the Model-T

  4. Pingback: Twitter Wochenrückblick vom 2009-06-08 | mobile zeitgeist

  5. Pingback: WAC’s most whacky adventure « counternotions

  6. Pingback: Stuck — UX Hero

  7. the biggest difference is that apple made a pradigm change in the way a handset like the future phone(s) is/are working. because of the touch interface this device can be anything. you are not tight to limitations the hardware interface with its buttons. this is one of the most reasons why there are so many apps and each with a different gui. so compared to that nokias handsets are still something like a industrial machine, whilst the iphone can be anything what a handset can be and with the many api the new iphone OS comes with the future just began.

  8. @JDT – your points are totally valid both as an individual (and thereby don’t need my nor anyone’s validation) and also as an example of the issue newspapers face: the greater point – how to stay relevant to a large enough audience and yet retain the “real” value of the product. Information is the core product – both news and advertising. Your points frame the issue well; many likeminded individuals are exactly the problem that my industry should try to address & fix.

    @Kontra and all the other readers – I apologize for going too far off the point of the post. I am guilty (though unashamed) of being a booster of the business / product I help produce.

    I didn’t respond to the article directly because prior posts cover my thoughts, including how much I enjoy the insightful non-link baiting commentary & responses!

  9. @JDT – Newspapers are hurting for two main reasons: first, there is a real decline (steady yet staggered) in people who want to consume their information and advertising via a print subscription model. Hence the ever increasingly echoed statements of the “death” of newspapers. Second, the economy is in the toilet, and though smart marketing people will tell you that’s when you should advertiser (as an entity with a product) more – most people and businesses cut their advertising budgets first.

    Disclosure: I’m in the newspaper (and commercial print) business.

    With the combination of difficulties facing newspapers, it is difficult to tell if the “real” scenario is which. The predictions of the death of newspapers is grossly over-exaggerated and current circumstances have more to do with a changing climate of information (and ad) consumption, along with the difficult economy. OR – Newspapers are slowly fading and in the next 5 to 10 years the large daily papers won’t have significant circulations and the poor economy is only exacerbating the issue.

    My opinion is the first scenario is the real one. Just look at Radio after TV as an example.

    • Brad I,
      You are far more involved with newspapers than I am. I had no idea what was going on in the industry. Thanks for informing me. :)
      Personally, I don’t read the newspaper much anymore because I (and that’s a big “I”) find it too opinionated without much research or analysis. I am not a big fan of blogs either, with a few exceptions. This does play into your point that “there is a real decline (steady yet staggered) in people who want to consume their information and advertising via a print subscription model”. Because I find the print media’s information biased, political, and uninformed, I don’t subscribe to it anymore. This is not a criticism to journalists or the newspaper industry. I am just stating the reason why I myself don’t subscribe to print media anymore (except for Mad magazine, those guys make me laugh). I know there are wonderful journalists out there that do a great job with research and analysis, but for the most part, I find this to not be the case.

  10. You know, the more I read analysts, pundits, tech commentators, and experts, the more I come to appreciate this website and websites like this one. You do a fantastic job at analysis and I believe you try to be as honest as possible in what you write. So thank you… really, thank you.
    I may not agree with everything, but that is irrelevant when you have the quality of analysis that you do. Because with good analysis, with correct data, and with journalistic integrity, you can present a point and we can then disagree with it with rational conversation rather than with passionate rhetoric and come to a better understanding of things. This would ultimately force you, if your conclusions were wrong, to then change your stance (if you are honest) or us to change ours. Not that anyone would have to change anything (again, that’s not the point), but with a solid analysis, it is easier to navigate through the points and exposition of the subject so that we all become more aware and enlightened by it.
    Sorry about the rant, and I’m sure it is something you probably hear a lot, but I do want you to know that I appreciate your insight and writing. I believe, that one of the reasons newspapers are hurting a bit is because people like me have become aware of this.
    Again, Thanks.
    -JDT

  11. I almost was upset about the quote you cited until I followed the link and found out who wrote it. Joe Wilcox has absolutely zero credibility with me. He has the nerve to have a blog called “Apple Watch.” He should re-title it “Observing Cupertino From Redmond.”

    Anyone who proports to be an Apple watcher should understand that market share is shallow as a sole barometer of business success. Wilcox’s focus on the plurality of Nokia’s offerings fails to acknowledge that Apple is not competing with them in a race to match hordes of dumb handsets. Apple has beaten them to a pulp in the flagship smartphone arena, and that’s where the stars are.

    • Interestingly enough, I recently stumbled upon Joe Wilcox’ personal blog. There was a post in which he very thoughtfully outlined the reasons why Apple does what they do and why he believes they will always be successful. Almost the complete opposite of some of the drivel he posts on “Apple Watch.” I’ve now come to the conclusion that the point of “Apple Watch” is to troll for internet hits with sensationalist crap, while he reserves his more sensible output for his blog.

    • I’m sorry to hear that, in this day and age I certainly do not wish job loss on anyone. Perhaps he should have put some of his good stuff on “Apple Watch.”

  12. In ‘related’ news today, Apple announced that Q2 profits were up 15% and sales of iPhones up 225% from a year ago, in the best non-holiday quarter of its history.

  13. “Simplify man, simplify” :)

    Nokia is a smart company run by some really smart people, but if they don’t take recent developments as a reason to simplify their value equation and revise their entire product line, then they deserve whatever happens to them.

  14. The market share myth, it will be laughable if it was not so tragic. I do not care how much market share you have for profits to drop 90% is embarrassing and tragic. What it means (in this case) is that people do not care enough for Nokia’s products; they buy them only because they are cheap.

    Leaders of industries have to wake up to this over rated and often useless measure called market share!

    I laugh every time I see these dumb phones it is like these companies cannot wait for Apple to dominate and run away with the smartphone category.

    Apple/the iPhone/iPod/the Mac will be a case studies many moons after Steve Jobs…

  15. I think it would be fair here to see Apple as a mobile devices company more than a phone manufacturer. So add 4 basic types of iPod into the equation, with different color and memory variants… Of course your basic point will remain the same, even with the iPod Apple SKU will be more like 22 than 220. But it will show some of the dilemmas are universal and faced by Apple as well.
    Apple does provide games for the iPod Nano, using its motion sensor but on a smaller screen and without the Touch interface. It would be a dream to have these games compatible with iPhone or iPod Touch but that’s not quite how it is.
    Apple does serve different market segments with different price options, different colours and form factors. Big compliments for the clear product line they still have but it is a fact of life any large market share company needs some adaptation to different market segments.
    Nokias mobile devices used to be called “cellphones”, while Apples mobile devices used to be called “music-players”. All different kind of mobile devices tend to converge to one single category: smartphones. But it simply seems unfair to compare only the Apple smartphone to the whole range of Nokia phones.

    • The gigantic difference here is that Apple can and does kill off the best selling MP3 player in the world (iPod mini) and transition to a new form factor (iPod nano): it constantly prunes SKUs. For example, it’s in the process of pruning the higher-end of the MP3 market into the iPod touch. Even when it has what looks like multiple products in a ‘category’ it’s extremely easy for customers to make choices, based on color, memory, etc. And internally, they are consistent devices. 220+ is an obscene number any way you look at it.

    • “Apple can and does kill off the best selling MP3 player”

      Yes, that’s a big achievement.

      BTW
      When you observe the iPods people are listening to in a commuter train, the diversity appears at least as large as with Nokia. This diversity is caused by the incredible extravaganza of third party cases and protectors. So Apple is leaving mass customisation to third parties. WOW!

  16. Kontra

    You make a good point here, and I do agree with you. However, you are a bit hard on Nokia in my opinion.

    Nokia has been a maker of cell phones for many years. I believe they are respected for quality in that field, and they have to deal with many telecomunications systems and users around the world.

    Apple, on the other hand, is basically a computer company with a whole ecosystem of computing/entertainment products. The iPhone entered the cell phone market at a more advanced stage of development. Their product is indeed a groundbreaking system, but they need not deal with a long history of devices, and such a wide diversity of user needs. Let’s face it, not everyone wants a smartphone. For many the data plans are just too expensive at $30/mo over the basic plans.

    So Nokia fulfills its model well. Apple excels in what it does.

    • “they have to deal with many telecomunications systems and users around the world”

      That’s exactly what Microsoft says, when they fail.

      “a long history of devices”

      That’s right, that’s the albatross around Nokia’s neck.

      “not everyone wants a smartphone”

      That’s what people said about the “graphical” computer with a mouse, remember. Most phones in a few years will cease to be dumb devices.

      “Nokia fulfills its model well”

      Given Nokia’s continuing market share and margin erosion, that’s a debatable proposition.

      Now, obviously not every player can be another Apple, but that doesn’t make it any easier.

  17. Apple will almost certainly post bigger profits for iPhone in this weeks earnings release than Nokia have. Which makes a mockery of the market share myth.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s