On Nokia, Microsoft, Apple and post-PC era - interview with Horace Dediu from Asymco

23.02.2011 15.45
On Nokia, Microsoft, Apple and post-PC era – interview with Horace Dediu from Asymco

Horace Dediu ? an independent mobile market analyst ? has enjoyed a tremendous rise in popularity recently. His blog Asymco has quickly become the number one source not only for bloggers and journalists writing about the mobile industry but for mobile industry executives as well. It was my great pleasure talking to Mr Dediu at the Mobile World Congress in Barcelona last week. This is what has come of it.

Przemyslaw Pajak, Spider’s Web: Nokia is now at the turning point in its history after it has announced partnership with Microsoft. Do you consider it to be a failure? A couple years ago nobody would have thought Nokia would lose its position of a market leader. Now it has actually lost its heart. If you give up your operating system on the mobile market you simply lose you heart, don?t you think?

Horace Dediu, Asymco: Well, a couple days ago if you had asked me whether Nokia was a failure I would have said – probably not, I think they?re going to make it. But after all announcements we have heard I?m afraid I have to agree it is actually a loss. The information we have so far is indicating abdication, a complete abandonment of independence. Nokia as a Finnish company has always valued its independence. This is actually playing very badly right now.

I think people at Nokia treat it as an insult.

It is an incalculable liability that Nokia?s management has not anticipated. This is not going to go as they thought it would. This is because they lost confidence of their workforce. I also believe that the population of Finland, which is closely interwoven with the employees, also feels betrayed. This is not something that you can put into the spreadsheet. Their calculation has failed here. They did not understand this complication. It is not that the company did not need to be restructured in its architecture and technology but the way it?s been done is irreversible. They cut the R&D budget so drastically that it will be impossible to reverse the scenario in case the strategy fails.

Did it have to go like this?

Actually, I predicted more than a week in advance almost exactly what happened. What I didn?t predict was that Mr Elop would destroy Symbian without an option to recover. That shocked me. I thought there would be a multiple strategy. You need to remember that you have a portfolio, which includes the high, the middle and the low and today Windows Phone 7 does not actually cover the middle and the low. The low-end right now is covered with Series-40 but that too has a limited life and you will have to replace it at some point in the future. So are they going to find a way to make Windows Phone go down all the way to a 100-dollar point? I don?t think it?s designed for that.

You know, I really appreciate what Microsoft has done with Windows Phone 7. It is a good system. I?ve been using it for a couple of weeks and I?m really surprised how good it is – how simple, how innovative UI it has. But still, I don?t think WP7 is ready to become such a huge platform as it is expected. This system still has so many little drawbacks. It will be impossible to get all these things done in a very short period of time. I?ve been hearing that this huge update of Windows Phone 7 comes no sooner than in October this year. You know, October seems like pretty far away from here.

Sure. Platforms take a lot of time no matter how agile and wealthy your employer is. The problem is ? if you look back and measure the time to market for all of the platforms in mobile – none has been faster than about three years. Windows Phone has arguably been cooking for one year and I think they?re going to be in a good situation in two years from now. The statement from Nokia has been they would still sell 150 million Symbian devices. The problem is it will be very hard to sell these devices when operators, your partners, do not believe they have any future. Nokia used to understand how to sell its products to operators, even more than they know how the users will use them. I?m sure by now every competitor of Nokia has made a phone call to the operator and said: we will take those slots of Symbian, thank you very much. That?s the problem. I don?t know how they think they?re going to find 150 million buyers.

Do you think that this path that Mr Elop has laid out ? that there will be three mobile ecosystem ? is right?

I think there will be more than three. They conveniently left out of the discussion RIM and HP. This is an arrogant point of view. Everyone would have dismissed Palm years ago and suddenly it has come back. No one ever considered Apple to be a competitor. Go back to 2006 and read the analysts? reports about the future. They probably said Microsoft Mobile would be the winner and now it?s off the market. So I think it is extremely arrogant of them to suggest there will be only three ecosystems. Innovation is happening very rapidly in this space. I would say there would be four or five platforms and that Windows Phone may have 10 to 20% of the market. Let?s not forget that Symbian used to have 90%. In that sense ? would they have survived with Symbian and MeeGo and maintain 20% of the market? I think they could have and they would still be independent. Yes, they would have lost the market share from what they are now but it was inevitable anyway.

How will it affect Apple?

I think it will be positive. For the next two years all of Nokia?s competitors will benefit from this decision – most of all ? Samsung, but Apple too. Even without this deal it is likely that Apple will go down to lower price points.

Do you think they really will?

I think it made sense many years ago but you need to be careful when to make this decision because they just can?t make enough of the phones. If you only have the capacity to make 40 ? 50 million of something, why make a 100-dollar product when you can sell a 600-dollar one?

The question is about the fragmentation of the platform. If you introduce a new smaller screen?

No, Apple will not break the platform. I think it will be smaller and it will be cheaper but after they went to the double resolution of the Retina display, the possibility still exists to create half of the screen with the same number of pixels as the original iPhone. What they need to do is to make sure it?s still touchable. So what I expect is not that the new device will be half the size but actually two-thirds of the size. You can see this in other products. The new one from HP and a couple Samsung products that are fairly compact and yet have the same user interface elements. I think it is possible to shrink the product both in cost and size and then, they will be in a new business.

Do you think it would be good for Apple? They position themselves in premium…

So was the iPod in the beginning. I think they?re going to broaden the market. You know, it just makes a huge lot of sense. When I was at Nokia everyone was asking the same question ? when is the iPhone nano coming? This was expected road map. It didn?t come and didn?t come and everyone gave up thinking it would ever come. I think all along it just wasn?t the right time for them to do that. Now it seems it is the right time – maybe this year, maybe next year. They may actually have five or six products planned and ready to go but they only launch one and they keep the others in reserve. So maybe there has always been the cheap iPhone but they did not believe there was the right time to introduce it.

The smaller iPhone will presumably be cheaper. If it is cheaper then Apple?s margin will go down.

Apple enjoys tremendously high margins, but the fact is they don?t have the same margins on all of their products. The iPod, the Mac and the iPad are in about 30 to 40% range. My estimate is 30 ? 33% for the iPad, whereas the iPhone is in the 50 or even 60% range, which is extraordinary. If they broaden the iPhone portfolio, it may go down to 40% but I still think that overall, sales volume will double or even triple. They have been doubling it anyway.

Let?s talk a bit about tablets. You have been writing about the post-PC era. I?ve been writing myself about this and I have been taking hits from all around me. Nobody seems to understand what it actually means – the end of some era.

Let?s be careful about using these absolute words. People think of death, end and disasters ? it?s not quite that. We still have with us today pretty much every old technology that was invented centuries ago. What I would describe as the end of something is the end of growth. When an industry enters a stage where growth slows almost to zero or even negative, it means that everything flows out ? intelligent people leave and capital used to fund new innovations leaves. Growth in the end is what creates wealth and wealth creation is what capitalism is designed for. The PC market has been suffering from the low growth situation already for some time ? I would even say that for a decade now. It varies from year to year – sometimes it is above 20% after recovering from a period when there is negative growth. Certainly we?ve had this situation with the recessionary period when there was significant growth period afterwards. But, that is nothing compared to what we?ve seen from mobile devices. They are growing at 100% a year ? first, the smartphones, now we will see the tablets, although we still don?t have enough data on them. We need two years to compare year to year growth. We don?t know seasonality, whether this is only a consumer-type of phenomenon when everybody buys it on Christmas or whether it?s going to be also education and businesses that will buy tablets. My expectation is, and I think it is a modest one, that we will see a 100% year growth in the tablet market at least for three years.

The question is ? where do we go from here? As the battle of devices continues, will it limit the use of regular PCs?

I like Steve Jobs? description of trucks and cars, although he wasn?t right to say that the first vehicles were trucks; actually, cars were first. But the market for trucks was where the greatest value was. Trucks were used by industry, whereas cars were more of a luxury item. Only after a war did the car become a consumer item.

And now ? imagine a computer to be a very smart person that can do all kinds of things: creative gardening, building machinery and at the same time great cooking. Specialisation forces that person over time to abandon gardening to let someone else do it. PCs are hired to do certain jobs, but over time someone comes along who doesn?t look so smart at first glance but they?re also gardeners who are good enough to do the gardening job. The funny thing is that they learn, they get smarter and finally they say: sir, I can help you with your bookkeeping; I can also help you with your shopping. Eventually, if you let them, they may take over your life. So the framework I like to use is ? what is the job that the product is hired to do.

A PC is hired to do certain jobs and a tablet is hired to do certain jobs. Over time the tablet will steal jobs away from the PC, one by one. The first job to take from the computer was e-mail and it has been happening for five years now. The job you hired a computer to do was communicate by e-mail. Now you hire a phone to do that. Then came similar things to e-mail, like messaging and chatting. I think on the computer side, you will see entertainment jobs ? watching videos, YouTube, playing music ? stolen away by mobile devices. And this is just the beginning.

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