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

[Depicus]

Don't shoot the messenger but....

"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 calledStockholm 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"

Source - The Register - http://www.theregister.co.uk/2012/07/16/nokia_lumia_sales_guesstimates/

[xeleraph]

This is either yet another part of Elop's strategy to drive Nokia into the ground, or another part of a master plan that is so subtle and intelligent that it seems completely stupid.

I wonder which is it.

[jakem1]

Compare that to the subsidy on iPhones and it's not such a big deal. I'm sure they'll recoup their costs eventually.

[BajiRav]

Don't see this being any different than other phones?

[George P Global Moderator]

So most of the money spent is from AT&T it seems, marketing and pushing it, well, how much do they make off of you for that 2 year contract? This is basically a non-issue, in the long run. They have to spend big at the start on ads and marketing until it picks up and then they can cut back a little.

I mean, what's the average monthly smartphone plan from AT&T anyways? $80? If so that,s $1,920 for that 2 year contract x that 330,000 number and you get $633.6 million. That makes the $150million you spent on marketing seem like nothing.

[Growled Member]

All this and they still only sold 330,000?

[Mr. Gibs]

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.

Guess this guy doesn't realize that AT&T doesn't make money from selling the phone, they make tons of money from the 2 year contract that comes with it.

They don't drop the price of phones to get more people to buy the phone, they do it to get more people to renew their (or start a new) contract.

[Julius Caro]

I thought the 330k figure was computed in a very non reliable way

[George P Global Moderator]

Guess this guy doesn't realize that AT&T doesn't make money from selling the phone, they make tons of money from the 2 year contract that comes with it.

They don't drop the price of phones to get more people to buy the phone, they do it to get more people to renew their (or start a new) contract.

Exactly, they're only thinking of the upfront money the customer pays to get the phone which isn't the whole picture. This is just another silly attempt to knock WP. Honestly AT&T is going to make way more when those 2 year contracts are up, these data plans aren't cheap depending on how much GB you want.

[Boz]

Don't see this being any different than other phones?

Well it is different a way that other phones actually SELL. When you have $450 per phone alone in marketing costs and that phone is not selling then you have a problem.

[x-byte]

It's called investment. It either pays off or it doesn't.

[BajiRav]

Well it is different a way that other phones actually SELL. When you have $450 per phone alone in marketing costs and that phone is not selling then you have a problem.

What makes you think Lumia isn't selling? Please don't cite that stupid "analysis" from a few days ago. Nokia is supposed to announce sales this week (AFAIK), let's wait till then to declare WP dead and "celebrate". I understand disappointment of Android users for them not choosing your favorite OS but fail to understand constant desire for Nokia to fail.

It's called investment. It either pays off or it doesn't.

QFT

[simplezz]

or another part of a master plan that is so subtle and intelligent that it seems completely stupid.

I can't see how spending $450 to get someone to buy a $49 phone is anything but bad business. At this rate Nokia will be bankrupt within a year.

[Mr. Gibs]

I can't see how spending $450 to get someone to buy a $49 phone is anything but bad business. At this rate Nokia will be bankrupt within a year.

Did you miss the part where it said AT&T marketing cash? Has nothing to do with Nokia.

Also like I've already said, AT&T doesn't make money from selling you a phone. They make money from the 2 year contract you're locked into. Hell go look at t-mobile, every 2 weeks all their best selling phones (including a lot of Android ones) drop down to 1c. They do that so more people will get a new or renew their contract. More people doing that = more people paying them money.

[George P Global Moderator]

Did you miss the part where it said AT&T marketing cash? Has nothing to do with Nokia.

Also like I've already said, AT&T doesn't make money from selling you a phone. They make money from the 2 year contract you're locked into. Hell go look at t-mobile, every 2 weeks all their best selling phones (including a lot of Android ones) drop down to 1c. They do that so more people will get a new or renew their contract. More people doing that = more people paying them money.

Don't bring reason and common sense into this, that will get us nowhere.

:p