For companies like Nokia (NOK) and Motorola (MOT) handsets are becoming a commodity product. In the last quarter, the average selling price of a Motorola phone dropped 14% from the same quarter a year ago. Not only is competition driving down prices, but more sales in markets including India and China, where handset prices are lower, have pressured margins.
Nokia has come up with a novel new product that could change the way handsets are sold and improve the profitability of cellphone makers. Instead of simply marketing hardware, Nokia is now beginning to offer new services. In China, the world’s largest handset company is offering a service with English lessons in audio and text format. The new service is called Mobiledu and Nokia beleives that "is a Chinese service at the moment, but there is no limitation" on where the service will be offered in the future according to The Wall Street Journal.
There is every reason to believe that the pressure on per-unit handset prices will continue, so any way that the manufacturers can claw revenue from services that they can provide as part of a package may be critical to future profits.
Nokia’s market share has been rising, mostly at the cost of Motorola. If the US company does not begin to look to novel features to retain customers, it could well fall further behind.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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