Nokia 2011 Annual Report Download - page 93

Increasing Importance of Competing on an Ecosystem to Ecosystem Basis
The increasing importance of ecosystems is, to a large degree, driven by the convergence trends
mentioned above and the implications for the competencies and business model adjustments required
for longer-term success. In the market for smartphones, we have seen significant momentum and
emphasis on the creation and evolution of new ecosystems around major software platforms, including
Apple’s iOS platform and Google’s Android platform, bringing together devices, software, applications
and services. A notable recent development has been the increased affordability of devices based on
the Android smartphone platform, which has enabled them to compete with a portion of the market that
has traditionally been dominated by feature phone offerings. As Android is available free of charge and
a significant part of the source code is available as open source software, entry and expansion in the
smartphone market has become easier for a number of hardware manufacturers that have chosen to
join Android’s ecosystem. Additionally, the success of an ecosystem and its ability to continue to grow
may also depend on the support it lends to different kinds of devices. With multiple products available
to suit different needs, such as mobile devices, tablets, computers and televisions, there is demand for
greater seamless interaction between these devices. A number of vendors across different ecosystems
are pursuing multi-screen strategies to capitalize on these opportunities.
Our partnership with Microsoft brings together complementary assets and competencies with the aim
of creating a competitive smartphone ecosystem. We believe that together with Microsoft we will
succeed in attracting the necessary elements for the creation of a successful ecosystem and that by
extending the price points, market segments and geographies of our Windows Phone smartphones, we
will be able to significantly strengthen the scale and attractiveness of that ecosystem to developers,
operators and partners.
Increased Pervasiveness of Smartphones and Smartphone-like Experiences Across the Price
Spectrum
During the past year, we saw the increasing availability of more affordable smartphones, particularly
Android-based smartphones, connected devices and related services which were able to reach lower
price points contributing to a decline in the average selling prices of smartphones in our industry.
This trend affects us in two ways. First, it puts pressure on the price of our smartphones and potentially
our profitability, as we need to price our smartphones competitively. We currently partially address this
with our Symbian device offering in specific regions and distribution channels, and we plan to introduce
and bring to markets new and more affordable Nokia products with Windows Phone in 2012, such as
the Nokia Lumia 610 announced in February 2012. Second, lower-priced smartphones put pressure on
our higher-end feature phone offering from our Mobile Phones unit. We are addressing this with our
planned introductions in 2012 of smarter, competitively priced feature phones with more modern user
experiences, including software, services and application experiences. In support of our Mobile Phones
business, we also plan to drive third party innovation through working with our partners to engage in
building strong, local ecosystems.
Increasing Challenges of Achieving Sustained Differentiation and Impact on Overall Industry Gross
Margin Trends
Although we expect the mobile device industry to continue to deliver attractive revenue growth
prospects, we are less optimistic about the gross margin trends going forward. The creation and
momentum of new ecosystems, especially from established Internet players with disruptive business
models, has enabled handset vendors that do not have substantial software expertise or investment in
software development to develop an increasingly broad and affordable range of smartphones and
other connected devices that feature a certain user interface, application development and mobile
service ecosystems. At the same time, this has significantly reduced the amount of differentiation in the
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