Nokia 2011 Annual Report Download - page 62

Competition
The mobile device market continues to undergo significant changes, most notably due to the broad
convergence of the mobile telecommunications, computing, consumer electronics and Internet
industries. With the traditional feature phone market continuing to mature, a major part of volume and
value growth in the industry has been in smartphones offering access to the Internet. Additionally,
other large handheld Internet-centric computing devices, such as tablets and e-readers, have
emerged, trading off pocketability and some portability for larger screen sizes, but in many cases
offering both cellular and non-cellular connectivity in the same way conventional mobile devices do.
Due to their larger size, such devices are not replacing conventional mobile devices, but are generally
purchased as a second device. Nevertheless, larger-screened Internet-enabled devices have captured
a significant share of consumer spend across the broader market for mobile products and digital
content and in different ways. For example, some competitors seek to offer hardware at a low price to
the consumer with the aim of capturing value primarily through the sale of content.
The increasing demand for wireless access to the Internet has had a significant impact on the
competitive landscape of the market for mobile products and digital content. Companies with roots in
the mobile devices, computing, Internet and other industries are increasingly competing directly with
one another, making for an intensely competitive market across all mobile products and services. At
the same time, and particularly in the smartphone and tablets segments, success for hardware
manufacturers is increasingly shaped by their ability to build, catalyze or be part of a competitive
ecosystem, where different industry participants, such as hardware manufacturers, software providers,
developers, publishers, entertainment providers, advertisers and e-commerce specialists are forming
increasingly large communities of mutually beneficial partnerships in order to bring their offerings to the
market. A vibrant ecosystem creates value for consumers, giving them access to a rich and broad
range of user experiences. As a result, the competitive landscape is increasingly characterized in
terms of a “war of ecosystems” rather than a battle between individual hardware manufacturers or
products.
At the heart of the major ecosystems is the operating system and the development platform upon
which devices are based and services built. In smartphones, our competitors are pursuing a wide
range of strategies. Many device manufacturers are utilizing freely available operating systems, the
development of which is not paid for from device sales revenue or software license fees. The
availability of Google’s Android platform has made entry into and expansion in the smartphone market
easier for a number of hardware manufacturers which have chosen to join Android’s ecosystem,
especially at the mid-to-low range of the smartphone market. For example, some competitors’ offerings
based on Android are available for purchase by consumers for below EUR 100, excluding taxes and
subsidies, and thus address a portion of the market which has been traditionally dominated by feature
phone offerings, including those offered by Nokia. Accordingly, lower-priced smartphones are
increasingly reducing the addressable market and lowering the price points for feature phones.
In general, we believe product differentiation with Android is more challenging, leading to increased
commoditization of these devices and the resulting downward pressure on pricing. In addition, there is
uncertainty in relation to the intellectual property rights in the Android ecosystem, which we believe
increases the risk of direct and indirect litigation for participants in that ecosystem. Google, HTC, LG,
Motorola, Samsung and Sony Ericsson are among competitors which have deployed the Android
operating system on their smartphones. Samsung is among our strongest competitors, competing with
us across a broad range of price points.
Other companies favor proprietary operating systems, including Apple, whose popular high-end iPhone
models use the iOS operating system, and Research in Motion (RIM), which deploys Blackberry OS on
its mobile devices. Both Apple and RIM have developed their own application stores, through which
users of their products can access applications.
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