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Can Ovi improve on the walled garden?

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It all starts with a funny name: Ovi. It conjures up the image of an egg, but in Finnish it means “door.” Nokia is fond of saying it's both a gateway and a destination, and at least from a strategic point of view, it's right. Ovi is the culmination of a series of application and mobile Web services initiatives that started with the Club Nokia ringtones and wallpaper store in the days of 2G. Over the last decade, Nokia has played with mobile gaming on its N-Gage device and entered the realm of content distribution with Preminet. Series 60 spawned Nokia's own developer community, and acquisitions of companies Navteq and WiderThan led to Nokia Maps and the Nokia music store.

Many of those efforts weren't exactly successful. Preminet never gained traction with the operators it was aimed at. The N-Gage failed as a standalone device. And Club Nokia faded into the ether. Nokia seems to have learned lessons from those experiments, however. Part of the reason was technology — delivering connected services over 2G networks was bound to be difficult. “We were a bit premature then,” said Bill Plummer, vice president of sales and go-to-market for Nokia Americas. “People talked about the marriage of the Internet and the mobile phone. Back in 2001 that marriage was never consummated.”

In 2008 though, Nokia seems to have shifted its thinking. The N-Gage was the perfect example of its old view about applications and services: The more games designed and licensed, the more handsets it could sell — a means to an end. But now Nokia has come around to the idea that services are an end unto themselves.

The world's largest handset maker is trying to recreate itself as an Internet services and applications provider, and it sees its Ovi portal as the way to do it. Nokia is hoping to create a bridge portal between the wired Web, which is already familiar to many of its users, and the mobile Internet, which is still foreign to most. Ovi helps users move content between the two: Social networks, Webmail and photo services can all be linked to Ovi on the wired Web and then accessed through the Ovi mobile Web screen, and vice versa. A photo taken with the phone can be uploaded to Ovi and then automatically redistributed to social network and photo storage sites; the same can be done with a video and YouTube.

Intertwined with the Web and phone interfaces is Nokia's own set of services: maps, music and games. It will make its money through those transaction-based services: the download of song, a subscription to a game or the purchase of a Nokia Maps city guide. Later, as Nokia Interactive gets off the ground, Ovi will supplement its income through targeted ads, all based on information gleaned by Ovi customers' buying and surfing habits.

But is Nokia just replacing the operator's walled garden with its own? Plummer said it's easy to jump to that conclusion because there are some similarities between Ovi and the dreaded walled garden. However, he made the surprising argument that the walled garden wasn't all that bad if you consider the early days of the Internet, when the AOLs and CompuServes first made sense of the World Wide Web's strange terrain. “They delivered something that was manageable and consumable to the general populace,” Plummer said. “The thing about the early walled gardens was they were necessary.”

The portals of the operators served that same purpose. Now the mobile data-using public is ready to move on, but cautiously, Plummer said. He compared Ovi to personalized content aggregation sites such as iGoogle or MyYahoo — “I've stepped out of the walled garden, but I still need to make sense of the clutter.” In doing so, Nokia's out to make money, Plummer said, but it's not necessarily out to usurp the role of the service provider. After all, it's through those operators' portals and data services that customers will get to Ovi in the first place.

Whether operators will see Ovi as an opportunity for partnership, as a competitive threat or just as a neutral Web service on their networks remains to be seen. (Ovi's U.S. portal hasn't even launched yet.) There's also the possibility that Ovi could flop like hundreds of other lackluster mobile storefronts and content sites. But Nokia does bring some very hard assets to the table that few others can match.

“Nokia sees themselves as having a direct relationship with 900 million of the 3 billion or so people with cell phones,” said John Jackson, senior analyst for the Yankee Group. “Why wouldn't it want to leverage that relationship?”

The vendor's penetration in the U.S. is comparably low, but globally more people look at their Nokia phones each day than see a computer screen. The only problem with Nokia's math is that it wants to make money on both services and hardware — that won't gel too well with many operators, even though many are probably amenable to the services Nokia wants to offer, Jackson said.

What Nokia needs to do, Jackson said, is “pull an Apple.” It needs to discount the device and split the service revenue with operator. The customer gets the best of both worlds: innovative new apps and a cheap phone to run them on; Nokia and the operator get a cut of the lucrative services revenue. Hardware, however, is Nokia's primary business, Jackson said; taking a loss on the device isn't in its makeup. But Nokia realizes that hardware will continue to hemorrhage margins regardless of how much it fights it. So willingly taking a cut in its handset profits to gain a bigger payday in application revenue, Jackson said, “now that's certainly in Nokia's DNA.”

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© 2014 Penton Media Inc.

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