Vodafone provides direct to consumer channel for Nokia's Ovi

One dilemma both giants have in common is how far to seek to make their mark through new channels - disruptive operators or direct to consumer - and how far to harness the established weight of the existing operators, which may be less ready to adopt new internet-friendly approaches, but are being forced down that road, and have brand, market share, back office and network operations, and ecosystems already in place.

Google and Nokia are coming to similar pragmatic conclusions - both are aggressively talking up new models that could potentially sideline the cellcos, and know that such approaches will be important in the next decade as the market gradually shifts; but in reality, both are stopping short of antagonizing key operators too much, and in the short term know they need to work closely with them. So we saw several major and very traditional operators supporting Android (see Wireless Watch November 5 2007), and now we see Nokia launching MusicStore - the flagship service in Ovi, its portal and the foundation of its mobile web challenge - in partnership with Vodafone.

Vodafone and Nokia were launching their respective music services, taking on iTunes, in the UK on the same day, was presumed to be a statement of hostility, but in reality the two giants did what they have done so often in the past as they tussle to take the upper hand in their commercial relationship - danced around each other, throwing down various gauntlets, but in the end recognized that they need to work together, however uneasy this may be. Vodafone can no more risk cutting itself off from the almost-40% handset market share holder, however much it would like to rely on smaller and more malleable phone partners, than Nokia can really go, today, direct to the consumer and cut itself off from the world's second largest user base. Both these companies require huge market volume and fighting one another would just play into the hands of their rivals.

Vodafone is to offer Nokia's Ovi series of services, which includes MusicStore, the N-Gage gaming platform, Mosh social networking, mapping and location services, and Nokia Search. This enables Nokia to offer these services directly to the whole Vodafone user base on certain premium handsets, outside of Vodafone's own web services portal, Live! Customers will get access to communications, content, internet services and browsing from either party with one-button push, the two companies said, though Vodafone MusicStation is expected to take priority in the menu where both services are available (initially, only on the Nokia N Series).

Despite this, most observers expect Nokia to do better out of the deal because it has put more effort into making its services rich and user friendly. Richard Windsor of Nomura commented in an interview: "By offering its services through Ovi, Vodafone is likely to see better take up than going it alone, but we remain convinced that the lion's share of the value will accrue to Nokia. This is because mobile operators have really struggled to create services that are compelling to users whereas Nokia seems to have a much [better] idea of what to do and how to do it."

Nokia made a similar deal with Telefonica last month, even though the Spanish operator's O2 unit is the exclusive launch partner for the iPhone in the UK - a good example of how European operators are rapidly adopting to the need to have a wide range of flexible and sometimes apparently contradictory partnerships, rather than having the luxury of the relatively black and white nature of the US market. This flexibility will be key to maximizing real revenues from mobile web services, and makes Orange, which has refused to support Ovi, look rather old fashioned.

Winning round Vodafone must have taken some effort on Nokia's part, since the giant cellco is not working with its largest phone supplier as a conventional content partner within the Vodafone semi-walled garden, but actually giving the Finn a valuable channel to offer Ovi direct to consumers and so boost a strategy that jeopardizes the long-held Vodafone belief that the  cellco could control the relationship with the customer in the mobile web. Like 3 before it, it seems Vodafone is now willing not only to open up its garden, but also to look to highly branded content providers to offer it differentiation, as an alternative to its own brand - users will be able to choose whether to select Vodafone's own new Music Station service, from within Live!, or to opt for MusicStore. This, of course, is how the mobile internet has to evolve, with users making free choices and service providers gaining success from offering the best, most friendly environment, not from lock-ins.

The new approach will also encourage Vodafone subscribers to choose high value handsets and data plans, since Ovi is only available with the N Series 'multimedia computers', for now at least, in effect presenting this as a premium service and Live! as something more mass market, available on most Vodafone phones (some Nokia handsets will have an exclusivity period with Vodafone when running Ovi). This two-tiered approach has a certain logic for cellcos and is reflected in the AT&T/Apple deal - keeping the bulk of the user base brand loyal, but for those that actively want a more high end service, making them pay for that through top end devices and plans. In time, Nokia will want to gain the mass market for itself, and is likely to move Ovi to non-Nokia devices, but for now, the two sparring partners seem to have found a workable and logical accommodation and a strong response to the European iPhone/iTunes proposition.

Vodafone's and Telefonica's decisions reflect how times have changed in the past few years, and how the handset majors, who four years ago were looking to be losing the balance of power to the cellcos in the wake of operator-branded phones and new competitors, are now back in the driving seat. Only two years ago, Nokia was forced to shut down its earlier direct to consumer mobile content play, Club Nokia, in the face of carrier objections to being left out of the revenue chain. Now, with better devices and interfaces, cellcos can see some benefits to working with Nokia, as they force themselves to adjust to the open internet model, and the phonemakers are far harder to ignore.

The Vodafone deal was also notable for the level of positive coverage it gained for Nokia on Wall Street and in the US business media, usually very ignorant of the Finnish giant's real power in this market because of its relatively low profile in north America.  "This is a positive surprise for Nokia," American Technology Research said in a research note. "The Street was initially skeptical of Nokia's Ovi strategy as it felt it threatened large carriers and would thus be relegated to smaller players only. ... Vodafone is clearly a large carrier, which confirms Nokia's strategy."

Other challenges remain for Nokia to be successful in direct to consumer services. One is to ensure these services are attractive and remain ahead of the competition, which will require heavy development and acquisition spend. Another is to raise brand awareness in mobile services, as opposed to handsets, and this will mean an ambitious marketing and channel strategy. At the heart of this will be something that will not be welcome to large operators - the roll-out of high profile Nokia Stores, which will be far grander than its current outlets and look more like the famous Apple Stores. Indeed, Nokia is due to open its London store in mid-December on the city's major shopping area, Regent Street, right opposite the Apple Store.

Inset - Haptics:

Another important area where Nokia hopes to outdo its rivals, in this case Apple and LG, is the touchscreen interface. One of the main criticisms of the iPhone has been the lack of touch feedback or haptics, which makes emailing far easier, and is already featured in the LG Prada. Nokia's research labs have shown off its upcoming feedback technology and those who have tried it in advance claim it is the first such platform to click under the finger jut like a keyboard key. The investigative Red Ferret Journal raved: "Nokia has "perfected the clicky tactile touchscreen. Don't be fooled by simple vibrational imitations folks, this is the real McCoy." Nokia will ship its technology, called Haptikos, with its upcoming Series 60 touchscreen 'iPhone killer'.

Inset - Nokia Search:

While most of the week's discussion has centered on Google and the damage its new handheld alliance might inflict, mostly on Nokia, it has raised the issue of just how Nokia strikes back in Google's real heartland, the search engine. 
 
For those of us that sit at desks all day, 'Googling' has become a way of life, while others who are not desk bound are still familiar with Google as the first and foremost search tool. But while Nokia is being perceived as having the ground in mobile web taken from under its feet by Google, the Finn is planning to strike back and take the search ground from under Google's feet. 
 
The acquisition of Navteq, the mapping company, combined with long standing search and directory partnerships all over the world, are building Nokia Search quietly towards being a genuine rival. 
 
On a handset you not only need to search, but if you are looking for a restaurant in the city you are in, you need to merge the application with mapping software, and Nokia last week added a considerable number of new partners to extend these capabilities, many in South America. 
 
Over the past two years, Nokia Search has been increasing users by 22% a month, and increasing searches by 24% a month, and now Nokia has added new local search providers, from 15 countries across Latin America. That brings the total number of countries with local search up to 38. 
 
The three new local search providers are Publicar in Bolivia, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Puerto Rico, Venezuela, Listaonline in Brazil and Seccion Amarilla in Mexico. 
 
Nokia Search is a simple web download to a PC, uploaded to a Nokia handset, and like a lot of search applications it searches either Yahoo or Windows Live for web search (in Russia or China it searches Yandex or Baidu), or any of its 25 local search partners, or it searches data on the user's own device. When it searches local partners it offers click-to-dial, map, directions or save-to-directory options for each search result, where it is integrated on Nokia Maps, which are currently not on every Nokia device, but which soon will be.