Apple Vs. Nokia: The Smartphone Rivalry

Whose Side Are You On?'' asked Fortune in August 2009. The cover story featured the BlackBerry versus iPhone battle. Nokia was barely mentioned. It was as if only the U.S. marketplace existed.

When Steve Jobs, Apple's CEO, recently unveiled his company’s latest iPhone, it was headline news in the United States. Meanwhile, Nokia introduced its Nokia3 in ten Indonesian cities. Again, that news was largely ignored in the United States.

What is the real story? In 2009, the worldwide market volume of mobile devices amounted to 1.14 billion units. Of the total, Nokia accounted for 432 million units and Apple for only 20 million units.

Yes, the iPhone was growing explosively — but its market share was barely a third of Nokia's 68 million smart phones.

Despite the massive coverage of the iPhone success in the United States, RIM with its Blackberry still leads the U.S. smartphone market, with a share of over 30%. Apple had less than 30%, while Android-based phones (Google) were catching up fast.

In the second quarter of 2010, Nokia held onto 33% of the mobile phone market. In the smartphone market, Nokia sold 24 million such devices, up 42% from a year earlier.

The overall smartphone market grew at about the same rate, so Nokia held its share from a year ago, at 40.3%, and actually grew share slightly from the first quarter of this year. So in the global smartphone rivalry, Nokia still had the lead, while RIM and Apple followed.

The winners of the smartphone market will be determined by global success. So is Nokia — in so much internal turmoil that it is reportedly considering replacing its CEO — toast? And will Apple and RIM eat its cake?

Emerging markets shape global leadership

Nokia has a global strategy, while Apple still has a largely U.S.-centric strategy.

Sounds good. However, soon after Olli-Pekka Kallasvuo was appointed CEO of Nokia in 2006, he pledged to increase Nokia's market share in the United States. At the time, it was 20%. Today it is less than 8%. Nokia now ranks behind not just RIM (think of Blackberry) and Apple — but also Samsung and LG.

Despite the softening of Nokia’s market share in the United States, Nokia has managed to expand its global position, especially in the high-growth large emerging markets — including China, India, Brazil and Indonesia.

In a global rivalry, it would be a fatal mistake to think of these markets as second-tier. True, until the 1980s, the lead customers in the most advanced industries were still in the United States, Western Europe and Japan. The G-7 nations dominated talks on international economics. And what was good for California was good for the world.

Today, the lead customers are increasingly in the emerging world. The G-7 has been replaced by the G-20. The U.S. market is no longer enough for global leadership.

In the global markets, the new mantra is, to paraphrase Frank Sinatra: If you can make it in Shanghai, you can make it in New Delhi, too.

And yet, as Nokia has found out the hard way, the United States remains necessary for sustained global success. And the U.S. market is the main source of concerns about Nokia's corporate future. In high-tech business, a solid presence in the United States is not just about a market share. It is about ensuring a role in cutting-edge innovation.

Nokia's challenges in the United States

It was not always this way. In the late 1990s, Nokia was still the darling of Wall Street. Back then it was presented as a success story whose stock price would grow indefinitely.

"In the United States, we don't have more than 300 million potential clients, but only half a dozen customers," says Jorma Ollila, chairman of Nokia and its former CEO.

The Nokians believe that the U.S. operators are monopolistic gatekeepers.

And there is validity to the argument. The U.S. marketplace in mobile communications is exceptional, in comparison to other geographic regions. In most markets, cell phone operators represent one stage of the value chain. In the United States, they tend to control the value chain.

But there may also be another reason for Nokia's weakening in the United States. In the boom years, whatever worked in Europe seemed to work in the United States as well. And Nokia benefited from the U.S. operators' eagerness to embrace its highly segmented phone portfolio.

However, by the early 2000s, these very same operators — shaken by the turmoil of the technology sector — opted for cheaper and more accommodative Korean producers.

In China and India, Nokia has been more flexible, willing to tailor products and services and localize its work force. In the United States, such responsiveness came belatedly.

The case of Apple is exactly the reverse. It knows its home base. Its problem is that, unlike Nokia, it is not well-positioned globally.

This is Part I of a two-part essay based on Dr Steinbock’s new book, “Winning Across Global Markets: How Nokia Creates Strategic Advantage in a Fast-Changing World” (Jossey-Bass, April 2010) — the first independent account that is based on interviews with all of Nokia's senior executives in the past two decades.

Read Part II here.