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Nokia Seeks Customer Input for New Mobile Products

Posted on: Tuesday, 18 March 2008, 14:15 CDT

Leading mobile handset maker Nokia is changing its product development rules by openly sharing futuristic new product ideas on sites such as YouTube, and inviting bloggers and other tech savvy specialists to brainstorm with the company on ideas for future mobile products.

The move represents a drastic change for the company, which formerly operated its product development under secrecy and seclusion.

Nokia recently made a video of its new ‘concept phone’, called Morph, available on YouTube. The new phone is stretchable and flexible, and literally bends to fit on a person’s wrist. The phone’s concept calls for a solar-powered, self-cleaning device which also has a sense of smell.

"For Nokia this is probably the biggest throw of the dice since they entered the cell phone business," Ben Wood, a CCS Insight researcher who has followed the Nokia since 1994, told Reuters.

"We realized in early 2005 that if we only focused on innovation from within, we were limiting our scope for real breakthroughs," said Nokia’s Chief Technology Officer Bob Iannucci during a Reuters interview. "We want more wild ideas."

By market capitalization, Nokia is the world's largest non-U.S. technology firm,  controlling 40 percent of the global mobile device market. However, the company is seeking growth, and believes its new paradigm will increase its share of the next phase of Internet growth while simultaneously offsetting the commoditization and shrinking margins of Nokia's signature products.   

According to Forrester Research, the number of mobile Internet will triple to over 125 million over next five years in Western Europe alone.  In addition to Nokia, other leading tech firms such as Apple and Google are also embracing the mobile Internet trend.  

For its part, Nokia plans to consult with its broad base of one billion customers to determine what works, what doesn't and what will ‘take their breath away’.  Compared with Apple's iPhone, which to date has sales of just 5 million, Nokia’s customers put the company in a strong position.

The Internet services market is approaching 100 billion euros, and Nokia is the first big mobile device manufacturer to embrace the business.  Although rivals Sony Ericsson and Samsung could follow, they would be a few years behind .  

Shares of technology company stocks are valued on sales growth expectations, and Nokia currently trades at around 1.4 times the company’s 2008 sales. Reuters Estimates data show that Nokia’s numbers are deeply discounted compared with Google's 6.1 times and Apple's 4.4 times.  Shares in Research in Motion, which makes the Blackberry that dominates the mobile email market, trade at 10 times 2008 revenues.

But if history is a guide, change may be a part of Nokia's DNA.   Nokia was founded in 1865 as a timber company, and made paper goods, wellington boots and television sets before shifting its focus to the mobile market 16 years ago.    Today its brand is valued at $33.7 billion, ranked fifth in the world by Interbrand.   

But its new product development processes were always held in high secrecy, with often haphazard results.

Wood, of CCS Insight, told Reuters that in the past Nokia would develop products "behind closed doors in a room with no windows. With some products I asked them: had they shown them to anyone?"

Five years ago reviewers and customers of Nokia’s gaming phone laughed at the  new product, which had to be held awkwardly, sideways, to make calls.  The same year Nokia introduced its bulky 7700 model, its first media phone, but cancelled production amid heavy criticism.

Although its conservative designs have been widely popular, Nokia has also missed significant design trends in mobile devices over the years, such as touch screens, clamshells and thin phones.

Nokia’s Morph concept, which the company is exploring with nanoscience researchers at Cambridge University, is one example of a more collaborative and consultative approach of combining nanoscience and electronics to determine if such nimble circuitry can be made. Another example is its idea, made public in February, of a phone made almost entirely from recycled materials.

"The ability to include large numbers of users into the development cycle means you can have a much more collaborative approach to development and you can try ideas out, refine them and move forward -- or fail fast and get out," said Iannucci.

Oliver Thylmann, a technology blogger (http://blog.thylmann.net/)  who took part in a Nokia’s product development workshop this month, believes many European companies will begin leveraging customer input to follow a more open product development model.

"Working with your customer is something where the world is going to," Thylmann told Reuters.

"As a company you cannot close yourself off from the world anymore. If you're locked in your ivory tower and there is discussion about you going on, it makes sense to get out there and take part in that conversation."

Nokia is not the first technology company to turn from hardware to software and services.  As the personal computers became commoditized, companies such as IBM and HP have similarly sought to expand into new businesses.

Nokia hopes its efforts will result in users turning to its Internet services instead of Google's, and to its music stores instead of Apple's iTunes.

Meanwhile, as it makes the transition, Nokia’s 23.6 percent mobile phone profit margins will provide the company a nice cushion.  Margins at Samsung and Sony Ericsson, Nokia's best-performing rivals, are at only half that level.

But even with the cushion, Nokia’s shift to services will require agility.  

"In services it is hugely important to be on the market as early as possible," said Niklas Savander, head of Nokia's Internet services unit. "You will see a lot of beta launches, or limited-function launches, or limited-geography launches from us." Betas are early public product tests.

The company is looking to replicate Google's approach to new business, namely to try as many things as possible, as quickly as possible.

Its Beta Labs Web site www.nokia.com/betalabs, where it posts software for public testing, receives more than a million visitors each month. The internal company mantra is "Fail fast, learn fast, scale fast."

The company's online music stores are also in test mode and new global gaming service is set to launch soon.  Millions of people have downloaded various media and programs from Nokia's new mobile activities site Mosh, which is also still in beta.

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On the Net:

Nokia

The Morph Concept

Forrester Research

Cambridge University

Source: redOrbit Staff and Wire Reports

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