Who says there’s no honesty in tech marketing? We beg to differ, and present Nokia product manager Janne Jalkanen as proof to the contrary.

Speaking at a marketing website called Nokia “Conversations” (“Stories from around the neighborhood” – it says), Jalkanen gives a very frank overview of the grassroots enthusiasm for Nokia’s S60 platform.

“Pretty much the only community around S60 is the community we pay to be there,” says Jalkanen, “a few lone, strong, awesome warriors notwithstanding”.

He’s speaking in a personal capacity, but is actually saying much the same as Symbian’s John Forsyth said here, only without the wishful thinking. But what a great metaphor for the Finns’ oh-so-earnest attempts to manufacture grassroots enthusiasm.

Nokia didn’t invent the idea of astroturfing, but more than any company in the Noughties, it’s taken it to heart.

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Ten years ago to the day, I attended the surprise foundation of Symbian. I was in Norway and sorry to miss the event today that closed the chapter – and probably the book – on the great adventure.

I find it exquisitely ironic that the philosophy behind the decision to end Symbian’s independent existence as a joint-ownership, for-profit consortium has its roots in the Microsoft antitrust trial. Symbian was created because the leading phone manufacturers desperately wanted to avoid Microsoft’s desktop monopoly being extended to mobile devices. They didn’t want a dependency on high license fees, rigid requirements and poor code.

Well. Philosophy might be a grand way of putting it – it’s more of a fashionable buzzword. This is the idea of “multi-sided markets”, which when you get down to it, is really just a fancy way of describing cross subsidization. The case for a “multi-sided business model” was made in an economic defence of Microsoft’s strategy of bundling Windows Media Player with Windows in the EU antitrust case. So take a bow, economist Richard Schmalensee, Microsoft’s favourite economist. It was Schmalensee who in the US antitrust trial argued that the true price for Microsoft Windows should be around $2,000 per license. The idea that emerged from the EU trials was that WMP created a “platform”, and therefore consumer benefits. The idea here is that Nokia, which now entirely owns Symbian, will cross-subsidize the market by giving away the Symbian OS, er … platform, royalty free.
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If you think everything that could have been written about the iPhone already has been written, prepare to be surprised. One vital aspect of Apple’s strategy has been overlooked – with multi-billion consequences for complacent network operators.

Over at Telco 2.0, the blog of analysts STL Partners, we learn that networks who partner with Apple must install Apple gear at the data centre to support its services – specifically, the Push Notification service that wakes up the Jesus Phone. Forget the revenues from sales of extra server gear – the key point is that Apple now sits in the middle of the data stream, capturing the customer’s data. The analyst outfit describes the iPhone as a potential “poison” for the networks.

STL wrote this week:

“Apple can data mine the application message stream — and it’s been a telco’s dream for years to mediate such flows.”

Nokia sell two out of every five mobile phones in the world, and they’ve ruled the roost for a decade now. But they’ve failed to convert that market clout into mobile data revenue – for themselves, or the operators. When you discount application-specific services such as RIM’s Blackberry Connect and new music services such as Omnifone’s MusicStation, mobile data use is negligible.

Because the iPhone makes mobile browsing more of a pleasure than a pain, for the first time, this is changing. And because de facto standards are defined where the people are, this means Apple, not one of the traditional incumbents, could call the shots. Or as the STL boys put it:

“… it doesn’t take massive market share (stimulated by the new low price point) for the iPhone to de facto become the mobile web.”

So, sorry, Nokia and Microsoft – you may have turned out to be the Osborne and the Altair of the 21st Century.

And bang go the commercial prospects of turning the bitstream into money:

“You don’t have to be too bright to realise that one of the most likely things to be pushed to a phone in future is an advert, mediated again by Apple,” they add.

STL tempers this possibility with the very sensible point that the iPhone has may have limited it appeal. Apple has yet to prove it can break out of the niche in which it reigns supreme. Indeed the biggest threat to mass market adoption of the iPhone may yet be Apple itself, by refusing to add a numeric keyboard or hard-QWERTY keyboard. But if there’s growth at the high-end, it will reaped by Apple, with its superior, easier to use technology which is now sensibly priced.

Yet the mere prospect of Apple sitting in the middle of their network, capturing customer data must make a mobile operator’s blood run cold. They’re unlike to accept a cuckoo in the nest – but who can help them?

Alas, the operators’ strongest potential ally has decided to have a mid-life crisis. That’s Nokia, of course, which is in a stronger position than ever after acquiring most of Siemens’ COM division in 2006. Nokia can help with both back-end and devices, but it’s decided that it, too, wants to shaft the operators. It’s splurging on services such as music and maps that cut revenue opportunities for the networks.

As STL wrote last year in an excellent summary:

“The way Ovi has been positioned at its announcement could prove to be a mistake. It will confound Nokia’s efforts to address and bring to market answers the most important unmet user needs. Ovi annoys Nokia’s most important go-to-market partners for any new and better personal communications services.”

Just when you need a friend…

When, a few years ago, I described Sony and Nokia as the only two companies who could call the shots in consumer electronics, a few eyebrows were raised. Sony, yes. But Nokia?

I anticipated that success in smartphones would be a beachhead into a bunch of other consumer electronics markets. Few noticed that Nokia already made TVs and set-top boxes. It had just launched a games console, too.

In fact, Nokia had began planning for “mobile multimedia convergence” in the mid-1990s, when it began sniffing out a next-generation operating system – it eventually opted for Psion’s Epoc, which became Symbian OS. For years Nokia put its best brains on the task – and sat back and waited. And waited.

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Nokia faces a crippling financial bill for its strategy of bundling free music with handsets, which will give users unlimited song downloads with Nokia phones.

The world’s biggest label, Universal Music, joined the “Comes With Music” initiative at launch last December, and Sony BMG joined last week. The Register has learned that Nokia must pay the wholesale per-unit rate for downloads over a certain ceiling – believed to be 35 songs per user per month.
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You could be forgiven for thinking that Nokia’s music announcement yesterday was yet another subscription service. The phone giant didn’t help dispel the notion by omitting some details from the official press material. However, we were able to put more flesh on the bones of the announcement last night. It’s beginning to look as if Nokia’s move, blessed by the world’s biggest and most aggressive record company, represents a radical new direction for the music business.

Essentially, the deal bundles digital music for “free” with a Nokia phone. You can acquire unlimited songs for a year through the Nokia Music Store, then keep the music you’ve acquired if you don’t want to continue the deal. You’ll be able to play the songs on a PC (alas, not a Mac or Linux) and your Nokia.

By contrast, most music subscription services on offer today time-bomb the music, so that when you leave the service, it dies. That’s fine if you think of it as a sort of “cached” on-demand radio, but not as a way of acquiring a permanent collection; it’s proved unacceptable to consumers, who are used to keeping the music they’ve acquired for life… or until they’re burgled, or the house burns down.

In other words, it’s a loyalty program for Nokia customers, with music as the bait.
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Nokia’s Music Store went live last week – but look in vain for anything by Led Zepp, John Coltrane, or Smokey Robinson. That’s because Warner Music Group (WMG) is refusing to license its catalogues to the phone giant, in protest at its Web 2.0 file swapping site, Mosh.

WMG says Mosh is a hotbed of copyright infringement. Nokia has responded by saying it employs humans round the clock, as well as using Audible Magic software to weed out unlicensed content. Warner sources have told Billboard that the two sides are far from a deal, and that litigation is a possibility.

Nokia launched the fully buzzword-compliant “social media” site back in August, we reported here, prompting reader Pascal Monett to hail it “a Nokia-centric happy slapping database”. In June, even before the public “beta” launch, we’d received emails pointing out cracked applications were being freely traded.

But unlicensed music isn’t really in evidence; it’s buried beneath mountains of user-generated crud. Much more in keeping with the tone of the site were gems such as “conservative party i love you” and “you-fat-bastard.mp3″: material at the vanguard of the User Generated Content revolution.

No surprise there, then.

More puzzling is the question – what on earth was Nokia thinking when it launched the file-sharing site?

It looks like another Dad-at-the-Disco attempt from a company so desperate to “get” the internet, it leaves common sense behind. Mosh would be a disaster even if it was never tainted by copyright infringing material.

Nokia has long been regarded as a soft touch by California technology evangelists and consultants. Now it has created a feedback loop for itself by only listening to buzzword-spouting bloggers.

Having to choose between Motown and “you-fat-bastard.mp3″ is just the sort of reality check Nokia needs. Perhaps it can bring the space cadet tendency at Nokia back down to Earth.

So was nine months of relentless iPhone hype and froth just a distraction? Not quite, but you could be forgiven for thinking so. I believe Apple’s most important product of 2007 was actually announced this week, and its significance has been slow to sink in. It might be one of the cleverest moves Apple’s ever made.

The ‘Jesus Phone’ today looks like it was really ‘John the Baptist’.

I hope Apple has ordered enough parts, because the iPod Touch is going to be a sensation – at least for one Christmas shopping season, if not more. Not only does the Touch bring Apple’s big gimmick breakthrough, its capacitive multi-touch interface, to its key music products, it does so at a very low entry point: $299 (or £199). That, rather than $499, is the market sweetspot.

But the whizzy interface is simply a means to an end. Because the Touch has Wi-Fi, so you get the most attractive web browsing device at a very low cost, too.

And as a bonus, the importance of which few pundits or bloggers have realised yet, Apple stealthily enters a new market altogether: the connected PDA. This ‘Second Box’ business is one that almost everyone has neglected, because they’ve followed the conventional wisdom that Everything Must Be Converged. But what if that isn’t true?

Unlike the iPhone, which is locked down at the carrier’s request, third-party applications will not be restricted on the Touch. All it’s lacking is Bluetooth – which was apparently in early specifications, but didn’t make it into version 1.0 – and removable storage.

In short, the Touch brings much of the value proposition of the iPhone to people who are perfectly happy with the phone they’ve got – or who are locked into a long contract with a network operator. All along, I’ve pegged the iPhone as a defensive move disguised as an offensive strategy. If Apple hadn’t introduced a phone, it would be marked down for imminent death at the hands of the mobile phone companies – Sony Ericsson does music very nicely indeed.

My, how that script is going to need a rewrite, after this week…

Perhaps the clues were there all along. iSuppli pegged the bill of materials for the iPhone at just over $200, giving Apple a profit margin of over 50 per cent. That suggested Apple could put much of the technology in a much lower-priced device, which it’s gone and done.

As we can now see, Apple has fulfilled its primary responsibility to its shareholders: to strengthen and extend the appeal of its most successful product line, the iPod.

Where does this place Apple in the great ‘convergence’ debate?

Sitting very nicely, actually. With the iPod Touch, Steve Jobs is saying: ‘Look, you can have your One-Box converged device if you really, really want it. But people won’t mind two – if the second is attractive enough.”

Opting for ‘best of breed’ actually gives you much more choice, of course. In Europe and Asia – although not, alas, the US market – small and stylish phones are available for next to nothing. These do 3G, are so small you can wear them as jewelry, and they’ll also run Mobile24 or Google Maps, or Opera Mobile, very nicely. Because of a strange bug for which Nokia and Zimbra can both be blamed, my ‘dumbphone’ actually does IMAP email fetches more reliably than an E61i. The consequence is that the ‘smartphone’ category has really become a distinction without a difference.

What the introduction of the iPod Touch implies is that you can keep your beautiful, small, low-end or mid-range phone. The Touch will take care of music, and once it has Bluetooth, the rest. Long live the PDA!

The losers in this are manufacturers of do-it-all converged devices, particularly high-end smartphones. Nokia has most to think about here because, as the champion of One Box converged products, it’s been undertaking some very ill-advised marketing recently.

Firstly, it’s selling its easy-to-use consumer devices – phones – as “multimedia computers” – reminding us that computers are hard-to-use, and using a word, “multimedia”, that no civilian has ever, ever used. And it’s been making fun of the public who choose several best-of-breed devices, with its Great Pockets ad campaign:

Now my first thought on seeing this was not, ‘how stupid, carrying several devices’, but ‘Hey! What a fantastically useful pair of trousers!’

But don’t listen to me – I’m funny like that.

I’m the contented user of a Nokia N800 tablet – it has a great radio and a decent browser. But even with its generous removable storage slots, and its 800-pixel screen, I can’t imagine many people opting to pay a premium – it’s around $385 retail in the US – to buy the tablet over an iPod Touch.

At a stroke then, Apple makes one market category look ridiculous, while stealthily entering another.

At times you can feel sorry for Nokia. The company is damned when it dares to plan for the future, and it’s damned if it doesn’t.

But that illustrates the depth of its dilemma. Today, Nokia is phenomenally successful in one business – handsets – which generates £27bn ($54bn) a year, with a margin of between 15 to 20 per cent.

However, Nokia relies on a small number of powerful customers as its route to market. This isn’t a problem for every business. If you sell fighter aircraft, you know who your handful of customers are, and can schmooze them directly. If you sell bangles from a market stall, you can choose which market you sell from. Nokia doesn’t have the luxury of either: its channel is its market.

And “getting from here to there” is the problem.

At great expense last week, Nokia began to imagine itself as a very different kind of company: a vertically integrated services business. Mobile users would flock to the company’s new portal, Ovi, for games, music, information and “social” interaction. You might call this a “post-operator” world, but it’s also a “post-Nokia” world, as it presumes that both data and devices are commoditised. It’s a Plan B.

However, the strategy takes today’s complex mobile data eco-system and promises to torch it. Today, there’s room for a Real Networks selling games or ringtones, for example, or an AQA providing an answers service. Nokia’s Ovi portal effectively declares war on all these smaller service providers. That can be considered bad manners (or a business necessity) – but it isn’t fatal to Nokia’s plans. It’s the biggest, would-be service companies who are the most threatened.
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When one looks at the prime assets of the Nokia of five years ago, it’s alarming to see how many have been discarded. At the turn of the decade, the Finnish giant boasted a formidable reputation for reliability, security and ease of use. Now it’s thrown all three out of the window, with security being the last to go.

The diminishing reliability of these devices isn’t unique to Nokia, and it may be a consequence of having so many products, in so many markets, all at once. But engineers deep in Nokia we’ve spoken with describe how they grew weary at being conditioned only to fix a proportion of bugs. It offends an engineer’s pride to release a flawed product, but this became a way of life. There was simply too much to do.

As for usability, the company which pioneered an interface that helped popularize the digital mobile phone – NaviKey™ – now falls far behind much of the competition. With feature phones, Nokia’s interface has failed to evolve with the tactile and graceful interface of Sony Ericsson, for example.

At the high end, the story is far worse. The S60 UI initially provided Nokia with a clever bridge to the future, but it looks pedantic and cumbersome besides Motorola’s MotoRizr 8, let alone Apple’s iPhone. Nokia answers the perennial S60 user’s question, “Why so many clicks?” by adding extra hardware buttons, such as the slow and inflexible “Multimedia” key. S60 is incredibly poorly written in parts, but Samsung has demonstrated that it doesn’t have to be sluggish, by using its own chip to speed up its first European S60 phone. Yet Nokia has ensured most of its smartphone users have a substandard experience, by starving the devices of sufficient memory or fast enough processors.

It doesn’t augur well that the company’s skill at exploiting the emerging markets owes little to its recent R&D work: it’s succeeded with low cost models in China by dusting off older, more reliable, and easier-to-use technologies. In other words, it’s living off past glories, rather than looking to the future.

In fact, Nokia now appears to quite relish the complexity of its devices. Quite bizarrely, a company which had no need for an inferiority complex appears to have acquired one.
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