No, No, Nokia

Nokia Booklet 3GNokia’s introduction of a netbook computer shows all the signs of a misguided move into an adjacent market. Nokia is operating from a position of weakness, not strength–because of slowing growth in Nokia’s cellphone markets. Nokia also seems to be overestimating what it can bring to the netbook market while underestimating the difficulties that it will find there.

The problem seems to be that companies focus too much on how their core markets resemble the supposedly adjacent one while not focusing enough on the differences. In Nokia’s case, it sees cellphones and netbooks as both being small computers with communications capabilities. True enough. But look at the differences. Packaging components in teeny packages is crucial in phones but far less important in netbooks; there’s simply far more real estate to use. Designing the interface for a cellphone, in particular the keyboard for a smart phone, is a key differentiator, but the interface is far more standard in a netbook. Cellphones are largely about voice, while netbooks are about data. Cellphones can command a premium if they become must-haves, while netbooks will look much more like commodities.

Perhaps the biggest difference is the distribution channel. Nokia currently distributes its phones through cellphone carriers, but to sell netbooks it will have to deal with the retail electronics channel. Nokia has enough of a name that it will be able to get some retail space, but dealing with Best Buy or Walmart is surely far different from selling through Verizon.

The strong demand for netbooks seems likely to create the kind of craze that regularly afflicts the technology world. If you go back far enough, to the early days of the personal computer, demand was so strong that 10 companies decided to stake a claim to 20% of the U.S. PC market; they killed profit margins while all failing to achieve that share. More recently, demand for flat-panel TVs convinced Dell that it could move from computers into more conventional consumer electronics, only to find that the differences in the markets outweighed the similarities.

The only good part of Nokia’s netbook announcement is that it says it’s going into the market with its eyes wide open. Maybe Nokia is limiting its investment in netbooks and is prepared to pull out of the market quickly if things go poorly. Let’s hope, for Nokia’s sake, because the odds are very low that Nokia’s move will succeed.

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