Around the Mobile World Congress (MWC) there has been much noise about
Nokia's (NOK) phone business. New models were discussed from the
lowest $15 phone up to the smartphone flagship Lumia 920 and possible
pure-view predecessors or a possible Nokia tablet.
Many people forget within this noise that Nokia has other important
business units as well. According to trefis Nokia Siemens Networks and
Nokia's mapping business Navteq contribute to about half of Nokia's
stock price. While NSN is a big story for itself, I want to focus in
this article on Nokia's mapping business HERE.I am especially
concerned about the following question:
Why does Nokia make its valuable mapping service available for other
Windows Phone 8 devices?
Don't they lose a big advantage towards their competitors? The danger
is that Nokia becomes exchangeable. It loses one of its main features
which makes the Lumia phones different and superior to other phones.
Nokia easily beats Apple (AAPL) concerning location services and has
some advantages compared with Google's (GOOG) well known maps.
You can see in the recent Toyota deal that how good Nokia's mapping
business is. Last year, Nokia beat Google for Ford's (F) mapping
contract and this is becoming more of a trend now. Four out of five
cars with pre-mounted navigation are driving with HERE-technologies.
Thus the HERE technology must be damned good. The car industry needs
reliable partners in its competitive business. Nokia's successful maps
will help Microsoft (MSFT) to push its Windows Phone platform.
So Microsoft has the advantage and Nokia the costs?
In this context you should consider that the HERE maps could be
integrated very deeply into the ecosystem. This was published last
summer in the official Nokia blog:
"Nokia Drive might not be exclusive to Nokia smartphones anymore but
that doesn't mean that we can't diff
not be exclusive to Nokia smartphones anymore but
that doesn't mean that we can't differentiate with apps anymore. How
can we still do it? First of all, navigation on Windows Phone 8 will
be always exclusively provided by Nokia. Then by having the very
closest, deepest integration possible. So watch this space for more
apps and upgrades that become a seamless aspect of the overall Nokia
Lumia experience. The Nokia Location Platform provides a set of APIs
that let organizations develop map-related apps and services."
Since the HERE platform will be available on all WP8 devices, Nokia's
goal is that app-developers will use it as a base to build new
applications. And these hopes have a solid base with Microsoft's
Windows Phone platform. A recent survey shows that while programming
apps for BlackBerry (BBRY) and Apple devices seems to be the most
difficult (64% say it's difficult for BlackBerry, 59% for IOS) Windows
Phone 8 is loved by programmers- only a minority of 21% find it
difficult to program apps there.
This is good news for Microsoft and Nokia since programmers will
further push not only the WP8 platform but at the same time also
Nokia's HERE business.
Keep in mind that the smartphone market will continue to grow rapidly.
IDC's newest research report claims that by 2016 Microsoft's market
share in the smartphone market will be up to 11.4 percent. That may
still look small, but it's huge compared to the company's current 2.6
percent share in that business.
Nokia's new license business
I could not find out how much Nokia will charge for heavy usage of its
maps. But a Nokia spokesperson, Mr. Sihlman, confirmed that "the
company will push to license its map data out to other developers and
partner companies to raise money, stating that "revenue can be
generated in variety of areas: licensing content, licensing platform,
revenue per apps or through advertising."
"We are basically the world's largest maps company," Sihlman said. "We
have built our reputation
reputation during the last years also by acquiring
companies like NAVTEQ and others. And we have a name to celebrate our
position in the industry…HERE relies on more than 80,000 data
The advantage of licensing fees is that while the costs stay constant
Nokia earns money with each sold WP8 device. Like this the company
becomes more independent from the hardware business in which margins
suffer, mainly because of increasing competition from Samsung
(SSNLF.PK) and other Asian manufacturers.
So on the one side Nokia cannibalizes a bit of its hardware, but on
the other hand it builds a new business with software licensing.
In my opinion this could be one important reason why Nokia decided
against Google's Android- although Google offered money to Nokia to
use its Android ecosystem. Google already has quite a good map
business and takes big efforts to increase it further. Additionally
Microsoft's business to gain money with licenses fits better into
Nokia's business model than Google's model to gain money with
Now Microsoft relies on Nokia and Nokia should get part of the cake
like Samsung tries to take part of Google's cake.
Huge research efforts
Within the last years Nokia has invested a lot in research and
development. In 2012 Nokia spent around $5.7 billion, while the much
bigger Apple only paid $3.3 billion. That is nearly double. Keep in
mind that Apple market cap is 30 times bigger than Nokia's! BlackBerry
(BBRY) also increased the percent of R&D out of its net sales, but the
percentage is much lower than that of Nokia.
One focus within Nokia's R&D efforts stays with the HERE platform.
Keep in mind that only in Berlin Nokia pays 600 workers to develop
location based services.
If Nokia will keep spending a big chunk of its revenue on R&D it might
eventually lead to another great product that could also increase the
company's sales in the near future.
One of these services is called City Lens, an Augmented Reality App.
City Lens uses