Purchases signal a strategic shift in bid to offer richer mobile experiences
STOCKHOLM – Beware, the giants are hungry. In recent months, the world’s two mobile handset behemoths, Nokia and Motorola, each have gone on acquisition sprees, gobbling up an impressive number of smaller companies.
But they have not gone for their usual fare of hardware, handsets and networks. Instead, they have been hunting outside their core business areas, in the fields of content, software and services. Analysts say that these acquisitions signal a deep strategic shift for the handset makers as they seek to offer a richer mobile experience – something the industry calls “convergence.”
“They very much don’t want to be providers of pure hardware,” Geoff Blaber of the research firm IDC, said. “They have had to move to the next level, to focus on the services enabled on the devices, their integration with the fixed Internet world and the overall user experience.”
One could say that the buying spree really began with Nokia’s $430 million acquisition of the e-mail software maker Intellisync in February. After that followed the deal to buy Gate 5, a German maker of navigation software, for an undisclosed sum, which was completed in October. Only a few days later, Nokia announced that it had closed a $60 million deal to buy the digital music distributor Loudeye.
As if not to be outdone, Motorola announced some high-profile deals of its own. On Nov. 10, the company announced that it was buying another maker of wireless e-mail software, Good Technology, for an undisclosed sum. Soon after, it bought the modem maker Netopia for $208 million.
Analysts say that these acquisitions will not immediately add to the companies’ profits. But the deals do signal an important strategic shift.
“It is all about convergence,” said Mike Roberts, a telecommunications analyst with the research company Informa. “This is a very high-level strategic process we’re seeing, where these companies are having to decide what kind of companies they are, and where they want to go.”
The acquisitions indicate that where they want to go right now is into two booming areas in the mobile field: consumer-oriented multimedia services and advanced business solutions. Nokia has been focusing on multimedia for some time now, putting out a number of phones optimized for music playback, TV watching, game playing or Internet surfing. But the deal to buy Loudeye is seen as an unusually bold step, taking the company in a new direction.
“With the Loudeye acquisition, Nokia is going down the road to becoming a content aggregator, very much in the same way as Apple and Napster and numerous other aggregators of online music,” Blaber of IDC said. “It remains to be seen how well they can position themselves in what is a highly competitive space.”
With its purchase of Netopia, which makes wired and wireless DSL modems and routers, Motorola is similarly getting into a new area for wireless technology: the connected home. “Motorola and Netopia share a vision of the connected home as the hub for seamless mobility,” a Motorola spokesman said after the deal was announced.
For business clients, the rage in the mobile phone industry is being able to offer “end-to-end solutions” – linking the mobile device with back-end computer systems. The undisputed leader in this field is the Canadian company Research In Motion with its BlackBerry handheld devices, servers and software.
By acquiring companies that are seen as BlackBerry rivals, Nokia and Motorola are hoping to tap into this market as it grows.
The main reason that this is happening now, analysts say, is the technological development of mobile phones and networks. Improved processing power, memory and networking abilities mean that phones can now be used to do things that before were limited to handheld computers, or even laptops.
“Take Nokia’s high-end N-series, which can run a number of applications and services very close to what the consumer has experienced from a computer in a fixed Internet environment – Flickr and uploads to Youtube, for example,” Blaber said. “The services we’ve seen on the Internet are increasingly being extended to the mobile.”
This was underlined last week, when Nokia extended a partnership with Yahoo, offering Yahoo Internet services, including e-mail and instant messaging, on Nokia phones. In addition, early next year, Nokia will start shipping the N95 handset, bringing together many of the capabilities that recent technological advances have promised. The device has a 5-megapixel camera, supports powerful 3-D graphics, and can run on both high-speed cellular and wi- fi networks.
When the N95 was announced, Anssi Vanjoki, Nokia’s executive vice president for multimedia, called it “the ultimate multimedia computer.”
The handset also has an integrated GPS chip, with an application that includes maps for more than 100 countries. Nokia, having bolstered its ability to provide location-based services with the acquisition of Gate 5, recently said that it expects sales of navigation devices to grow thirtyfold within five years, from 15 million units this year. The basic mapping and navigation services on the N95 will be free of charge.
“Why do we give it away for free? Because it’s free on the Internet,” Michael Halbherr, head of location- based activities for Nokia, said during a Nokia conference in Amsterdam last week. “We disrupt the market by giving away mapping applications and it gives rise to a business model. I will have the ability to sell content, city guides, taxi information.”
For the likes of Nokia and Motorola, the move into services like music or navigation is not without problems or challenges. For one thing, the most important customers of the handset makers are the mobile operators – and they are very much interested in making money from the same types of service businesses.
Analysts are closely watching this development, in which companies that used to be business partners suddenly find themselves as direct competitors.
“A lot of eyebrows were probably raised when Nokia bought Loudeye,” Roberts of Informa said. “It is an ongoing balancing act, and it will be very fascinating to see how it will play out.”
In addition, and perhaps more important, Nokia and Motorola are moving into business areas where they have little experience, dealing with competitors with which they have scant experience.
“This is the big question: How much can a telecoms equipment maker know about, say, the media business?” Roberts asked. “And how fast can they learn?”
Fuente: International Herald Tribune