Tuesday, August 22, 2006

Nokia Buys Loudeye what next?

Nokia buys Loudeye a Seattle based company for 60 million dollars recently. For size of Nokia this deal is nothing financially but a significant strategic move .It also indicates company’s intention to move fwd in new direction. I will try to justify my statements .As noted in my previous posting regarding zune about changing value chain and relevance of horizontal business in new converged space, this move from Nokia fits into that space.

By buying Loudeye Nokia would be launching some kind of music download service the scope and functionality we need to wait, but it looks like it will be competing with itunes and other service available today. Some analysts were questioning the logic of this move because it puts at risk Nokia's relationship with operators who are planning or have launched similar services themselves. In my opinion even though operators are big and important player for Nokia today but at the same time considering long-term future it should position itself in right direction in that context this Nokia move is strategically important it clearly shows Nokia willingness to look beyond present and also take some amount of risk so that they have right things in place for converged space.

So what do I mean by this is simple that in converged space in which digital music is one segment the value in the chain is not determined yet i.e. who make most money is not clear weather it is converged space device vendors( like Nokia,Apple,Samsung) or Horizontal components’ vendors (Like Microsoft with horizontal SW,TI with hardware chipset) or pure network service providers (Vodofone,Orange,Cingular) or application service providers (Google,Yahoo,iTune,Youtube etc).Of course all these segments and players are required but most important thing is which among these segments were most money will be made is big question and would be answered only by time . In this uncertain stage all the above listed players are trying to position themselves either by entering into each other segments so that they would be able to capture most value.

So Nokia a dominant mobile phone vendor is trying to position and transform itself to face new converged market place. First of all it is positing itself as major player in converged device space by launching different products with multiple capabilities most prominent among them is N series devices which have multimedia capabilities like camera, Music and video playing capabilities. They are trying to enter horizontal segment by licensing there dominant SW platform S60,the basic motivation to enter this segment is to make sure that other horizontal segment players like Microsoft doesn’t take away major portion of value in converged space. Now that leaves then service space it is here Nokia has no presence and acquisition of this new company helps it establish one service in music space. But of course for it to be truly big player in this pace it not only has to expand its service portfolio but also link it seamlessly with their device offering in similar way as apple did it for music. So it is clearly trying to be application service provider and may acquire many companies in this segment in future. Service providers like You Tube may be attractive target .I will hold my thoughts about potential targets for Nokia for my next posting.

So basically at this stage of converged space it seems that services are going to be critical component of the value chain and also important is to tie and bundle devices with services.

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