It costs $450 in marketing to make someone buy a $49 Nokia Lumia

Smell of death emanating from mobe maybe puts people off


Every Windows phone Nokia sold in the US has been backed by a $450 slice of AT&T marketing cash, it's estimated.

The mobile network threw its weight behind the handset maker's comeback device, the Lumia 900, with its biggest-ever advertising blitz for a phone: $150m, according to Ad Age. Nokia also spent $25m on Lumias for AT&T employees.

Back-of-the-envelope numbers by blogger Horace Dediu suggest the mobe has made a negligible impact so far on the market, however. Dediu uses the latest monthly figures from ComScore, which give all Windows devices (phone and mobile) a market share of 4 per cent, to extrapolate a figure of 330,000 Lumias sold in the United States. You can see his calculations here.

Bernstein Research analyst Pierre Ferragu isn’t far away with his predictions. Ferragu thinks that only 3 million Nokia WP devices will ship this year, based on sales of 1.1 to 1.4 million so far worldwide. The analyst wrote:

Windows Phone 7 has insignificant traction and Windows Phone 8 is likely a 2013 story only, with a risk that consumers waiting for the new system weigh on Lumia shipments towards the end of the year.

The Lumia 900 sold for $99 up front, allowing AT&T to claw back up to $32m of its marketing costs, although for some of this period the cost was slashed to zero. And naturally, the carrier will amortise the marketing cost over a longer period than just three months. However AT&T slashed the $99 to $49 at the weekend.

When operators invest heavily in promotion they expect some return. Samsung shifted some 25 million units of its first Galaxy phone worldwide and last year’s successor is likely to exceed that. Continuing heavy promotion on a niche ecosystems represents a significant opportunity cost.

Ominously, the enormous promotional expenditure for Nokia’s Windows Phone was accompanied by generally warm reviews. Critics emphasised the unusual design of Windows Phone’s Metro UI, rather than the functionality that is missing. But the market hasn’t moved, and for Ferragu, this confirms his bearish view that smartphones are a race with room for only two winning platforms:

We maintain our view that there is no room left for the third ecosystem and any material success of Windows 8 will attract increased competition from HTC and Samsung, limiting upside for Nokia.

Nokia is entitled to point to excellent customer satisfaction ratings from Lumia owners. 93 per cent of Lumia 900 owners say they would recommend them to their friends and 85 per cent would make a repeat purchase, according to Nielsen. But there may be other explanations for this: the fanatical tribal brand loyalty exhibited when choosing an "outsider" brand, for example. Less charitably called Stockholm syndrome.

Long after Microsoft won the desktop war, small numbers of OS/2 users continued to hold out - no doubt giving high satisfaction scores and recommending the product to friends. If Ferragu is right, Windows Phone is going to become the smartphone world's OS/2.

It’s too early to tell whether the widespread publicity given to Microsoft’s official roadmap for Windows Phone deterred sales. Windows 8 is based on an NT kernel, and today’s phones - including the Lumia line – won’t be able to run the new system. This was widely known in the technical community – and reported here – but it only hit the headlines in late June. Lumia sales were already sagging.

The handset giant will release its earnings on Thursday. ®

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