Nokia 2012 Annual Report Download - page 59

like Nokia with a strong IPR position, cumulative know-how and IPR expertise can have a competitive
advantage in the converging industry and in the increasingly competitive marketplace.
Competition
The mobile products market continues to undergo significant changes, most notably due to the broad
convergence of the mobile telecommunications, computing, consumer electronics and Internet
industries. With the traditional feature phone market continuing to mature, the major part of volume and
value growth in the industry has been in smartphones offering access to the Internet. Additionally,
other large handheld Internet-centric computing devices, such as tablets, smartphone and tablet
hybrids, and e-readers, have emerged, trading off pocketability and some portability for larger screen
sizes, but in many cases offering both cellular and non-cellular connectivity in the same way
conventional mobile devices do. Larger-screened Internet-enabled devices have captured a significant
share of consumer spending across the broader market for mobile products and digital content and in
different ways. For example, some competitors seek to offer hardware at a low price to the consumer
with the aim of capturing value primarily through the sale of content.
The increasing demand for wireless access to the Internet has had a significant impact on the competitive
landscape of the market for mobile products and digital content. Companies with roots in the mobile
devices, computing, Internet and other industries are increasingly competing directly with one another,
making for an intensely competitive market across all mobile products and services. At the same time,
and particularly in the smartphone and tablets segments, success for hardware manufacturers is
increasingly shaped by their ability to build, catalyze or be part of a competitive ecosystem, where
different industry participants, such as hardware manufacturers, software providers, developers,
publishers, entertainment providers, advertisers and e-commerce specialists are forming increasingly
large communities of mutually beneficial partnerships in order to bring their offerings to the market. A
vibrant ecosystem creates value for consumers, giving them access to a rich and broad range of user
experiences. As a result, the competitive landscape is increasingly characterized in terms of a “war of
ecosystems” rather than a battle between individual hardware manufacturers or products.
At the heart of the major ecosystems is the operating system and the development platform upon
which devices are based and services built. In smartphones, our competitors are pursuing a wide
range of strategies. Many device manufacturers are utilizing freely available operating systems, the
development of which is not paid for from device sales revenue or by software license fees. The
availability of Google’s Android platform has made entry into and expansion in the smartphone market
easier for a number of hardware manufacturers which have chosen to join the Android ecosystem,
especially at the mid-to-low price points of the smartphone market. For example, some competitors’
offerings based on Android are available for purchase by consumers for below EUR 100, excluding
taxes and subsidies, and thus address a portion of the market which has been traditionally dominated
by feature phone offerings, including those offered by Nokia. Accordingly, lower-priced smartphones
are increasingly reducing the addressable market and lowering the price points for feature phones.
In general, we believe product differentiation with Android is more challenging, leading to increased
commoditization of these devices and the resulting downward pressure on pricing. In addition, there is
uncertainty in relation to the intellectual property rights in the Android ecosystem, which we believe
increases the risk of direct and indirect litigation for participants in that ecosystem. Google, HTC, LG,
Motorola, Samsung and Sony are among competitors which have deployed the Android operating
system on their smartphones. Samsung is among our strongest competitors, competing with us across
a broad range of price points.
Other companies favor proprietary operating systems, including Apple, whose popular high-end iPhone
models use the iOS operating system, and BlackBerry (formerly Research in Motion), which deploys
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