Nokia is completely redeveloping its mobile applications store after the world’s largest phone maker admitted it had failed to challenge adequately Apple’s dominance of the segment.

A “refreshed” Ovi Store will be released next spring, just a year after Nokia first launched its rival to Apple’s App Store last May.

Nokia, which is struggling to compete with Apple in the fast-growing smartphone market, announced on Thursday it would close its flagship retail stores in New York, Chicago and London as it refocuses on selling through mobile operators.

Selling mobile applications on handsets – and attracting developers to make them – has become a key battleground for operators and handset manufacturers, who are all racing to catch up with the iPhone’s software marketplace.

George Linardos, head of products at Nokia’s media group, said on Thursday Ovi Store had been outpaced by Apple after complaints on stability and reliability.

Nokia plans to take a “tortoise and hare” approach to competing with Apple, he said. “The world changed radically around us” after Apple entered the market, he added.

While the first version of Ovi Store consolidated an existing “jambalaya” of services, Mr Linardos said, Nokia has been quietly working on a “next-generation” platform.

For months, Nokia has been listening to criticism of Ovi on community sites such as Twitter.

“We have screens up in our offices running the Twitter feeds all day long,” he said. “It’s like sitting there and getting punched in the face. But when we make improvements we see the impact instantly.”

New features will include in-application payments, a redesigned user interface that makes apps easier to discover, and faster operation. Longer-term, Ovi Store will include recommendations based on friends’ app purchases and more localised content.

Currently, 1m applications are downloaded from Ovi Store every day, growing at 100 per cent month-over-month – but still lagging Apple, which had accumulated 2bn downloads by September, just over a year after it launched. The Ovi suite – which also includes music and mapping services – now has 80m active users, up from 54m in August.

Nokia recently shifted strategy to focus more on software and applications, launching fewer phones in order to boost margins and stay ahead of competitors.

“This is part of a broader, widescale reorganisation that is going on from top to bottom in Nokia’s business,” said Ben Wood, analyst at CCS Insight. “On Ovi, they need to get all their ducks lined up, including hardware, software and services. At the moment, none of those are working properly.”

Nokia Executive Vice-President Tero Ojanperä says that currently the U.S. isn’t vital to the success of the mobile phone company’s Ovi service Technology

For nearly two years, I have been critical of Nokia for a diverse set of reasons including its denial of competition from Apple’s iPhone, its hardware, and a botched launch of its Ovi app store.So last week when Tero Ojanperä, Nokia’s executive vice-president of services, decided to stop by to give me an update on the company’s Ovi service (and the app store), he knew it wasn’t going to be an easy meeting. It wasn’t, but it was a candid conversation during which Ojanperä made a compelling case for Nokia. “We have had our hiccups, and we have learned a lot,” he said and proceeded to share some numbers about five-month-old Ovi.

• Ovi Mail has more than 3 million subscribers, and carriers like the push e-mail because it boosts data usage. Nokia has signed more than 20 partners for a carrier version of Ovi Mail.

• Downloads of apps on the Ovi Store are growing 70% per month, and every registered Ovi user has downloaded eight apps on average.

• In terms of downloads, Ovi is the No. 2 app store, Ojanperä claimed.

• The number of users downloading apps is going up 50% every month.

The company wants to localize the Ovi Store for 20 countries by the end of the first quarter of 2010. “Since we operate in so many countries, we have to create a local offering, and that is something we need to execute on,” Ojanperä said. Localization can mean instant success. In India, for example, Nokia’s music download service is becoming popular mostly because many people don’t have PCs and are using their phones to download music, he said. Similar trends are being observed in Brazil and Mexico, he added.

Nokia is going to be making a big push in mapping, Ojanperä said. “We want maps to be part of everyday life, and as a result, we are working on building a richer experience on top of the map,” he said. “I think it is going to become obvious that companies with mapping assets are at an advantage.” Nokia bought gate5 and Navteq as part of its efforts to get a toehold in mapping and location-based services.

QT, the new development environment, is not only going to help bolster Nokia’s mapping efforts, but it would make development for the company’s platforms easier, Ojanperä said.

Reaching Out to Game Developers
Nokia believes the success of its Ovi Store and services is going to come from its traditional strongholds: Europe, Latin America, and Asia. “We are competing for the mindshare, and in the U.S. it is critical and we need to be here and strengthen our presence,” Ojanperä said, while he candidly admitted that currently “Ovi’s big opportunity is overseas—outside of the U.S.”

“We have 10 million touch devices in the market right now,” said Ojanperä, explaining why it makes sense for app developers to build for the Ovi Store. “You can make money.” These 10 million touch-based devices could also be the bedrock for making game applications for Nokia’s platform, he said.

Nokia has just enabled a brand-new games API plug-in that is pretty simple to use and allows game developers to integrate deeply with a device and its operating systems. For instance, it allows 3D games to tap into device hardware so that the games can run faster. “We want development of games faster and easier on the Nokia platform,” Ojanperä said. This includes Symbian S60 and Maemo OS, which currently powers the recently released N900 device.(Related: “With N900, Nokia Still Not Close to the iPhone”)

Despite all the rumors, Nokia isn’t going to move away from Symbian OS, Ojanperäsaid. The company will drive Symbian into all its feature phones, and for high-end devices, it will focus its energies on Maemo, the Linux-based OS. “Ultimately every phone is going to be the smartphone,” he said.