Global Economics

Nokia Won't Play iPhone's Tune


Its new deal with Universal gives subscribers a year of free tunes, takes a swipe at Apple—and ties clients more tightly to Nokia products

Nokia managers would never admit to being influenced by the Apple iPhone, which mobile phone industry insiders regard as clever but technologically unimpressive. "We don't determine strategy based on the competition," insists Anssi Vanjoki, Nokia executive vice-president and general manager for multimedia. "The consumer is our compass."

Yet Nokia (NOK) announced a new initiative Dec. 4 that seems aimed squarely at Apple (AAPL). Beginning next year, higher-end Nokia phones will come with a built-in music service offering unlimited downloads of songs for a year. Nokia has signed up Universal Music (VIV.PA) to provide its catalog, including top contemporary musicians such as Amy Winehouse and Kanye West. And the handset giant is already negotiating with other major music companies, Vanjoki says.

A Challenge to iTunes

"Mobile is inevitably one of the keys to future growth," Lucian Grainge, chairman and chief executive offiicer of Universal Music Group International told journalists and analysts at a Nokia event in Amsterdam where the new music offering was unveiled.

"Comes With Music," as Nokia is calling the service, seems aimed at preventing Apple from dominating mobile music the way the U.S. company's iTunes service has dominated sales of digital music on PCs and MP3 players. Consumers will certainly have less incentive to buy music from iTunes if unlimited downloads from the Nokia service are included in the price of a new phone. The songs can be played on both the Nokia phone and on a PC, and all the material downloaded in the first year can be kept after the end of the free subscription period—a first for the recording industry.

Vanjoki wouldn't disclose terms of the deal with Universal except to say that it will be profitable for both companies. In any case the music companies have an interest in ensuring that the online music business isn't dominated by a single company such as Apple with the power to dictate prices.

Of course, the unlimited downloads deal is good only for a year. But Nokia is betting that by then customers will be so hooked on the service they will be willing to pay more. The fee after a year hasn't been determined, Vanjoki said in an interview. Nokia will begin rolling out the new service in mid-2008 to selected countries, which Vanjoki also would not disclose.

Ovi Web Site Ties Products Together

The new music service is a part of Nokia's stepped-up effort to transfer its domination of the handset business to the Internet (BusinessWeek.com, 8/29/07). The company also unveiled in Amsterdam details of its new Ovi Web site, which will allow Nokia owners to organize music, photos, personal contacts, and other content on their PCs, synchronizing the data with their Nokia handsets. Vanjoki described Ovi as "a personal dashboard to your life."

Ovi is the Finnish word for "door," but Vanjoki insists the service is not a portal. Rather, it's supposed to be the medium between Internet, PC, and mobile phone, one that puts Nokia in more direct competition not only with Apple but also the likes of Yahoo! (YHOO) and Google (GOOG), which has announced plans to push its own mobile phone operating system (BusinessWeek.com 11/6/07). Nokia will add features continually to Ovi following the official launch in early 2008, Vanjoki said.

Though Ovi will generate revenue directly for Nokia, for example via agreements with partners who will pay for preferred placement, the ultimate goal is to generate sales of more handsets. "The main way for us to monetize our services is with devices," Vanjoki says.

Nokia obviously has put considerable investment into making Ovi as cutting-edge as possible. One attention-getting feature uses neural network software to display photos as clusters of images seemingly floating in three-dimensional space, with links to information such as e-mail addresses of people depicted, or maps showing where they were when photographed. If that's too much for some users, they can still organize their photos in two-dimensional rows the old-fashioned way.

And Don't Forget the Handsets

Nokia also is revamping the software in its high-end handsets, adding a so-called "scrollable" panels interface. Menus for music, photos, contacts, games, and other content appear on floating surfaces that rotate into view and are supposed to make it easier for users to keep track of all the media they have collected on their phones. The interface somewhat resembles that of the iPhone.

But Nokia disappointed anyone waiting for it to introduce a handset to compete directly with the iPhone. Nokia managers say their strategy is to offer a wide range of handsets, targeting special groups of users such as tech freaks or young people. "It's not one size fits all," said Kai Öistämö, Nokia executive vice-president and general manager for mobile phones, in an obvious dig at the iPhone.

Ewing is BusinessWeek's European regional editor .

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