Nokia’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.
August 26, 2009
Chunka,
Yes, this is a clear adjacency move. Whether or not it’s misguided is yet to be seen.
Kai Oistamo, the head of Nokia’s devices business, said “We are in the business of connecting people and the Nokia Booklet 3G is a natural evolution for us.”
I agree with this, and I can see why a project like this would be hard to kill at the head office. But the point you made was critical; what is their product offering that others aren’t? Right now, it seems like very little.
If they expect the mere fact that they are offering a netbook to be the thing that makes it successful, then I agree that it will flop.
Instead, their “open eyes” need to be open minds. They need to be flexible with the way this product is marketed. And frankly, I believe marketing is the make-or-break factor for this product. If they can leverage Nokia’s brand equities and promotional tools in the right way, this move might stand a chance.
It also wouldn’t hurt if they had some product synergies that made owning both a Nokia phone and a Nokia netbook beneficial.
August 28, 2009
Test comment
September 1, 2009
Chunka – I agree with your assessment. Based on the information I’ve seen, prospects for Nokia to gain much traction in the U.S. with the Booklet are pretty slim.
On the one hand, I don’t think Nokia or any other OEM can ignore the rapidly growing segment of “mobile internet devices,” which we define broadly to include netbooks as well as other devices that fall between smart phones and laptops. In Q2 ‘09, almost one in four “portable computers” sold worldwide were netbooks (actually, 22.8%, up from 17.8% in Q1). Despite the attractive growth, netbooks are hotly contested, with Acer, HP, Dell, Lenovo and Toshiba all offering competitive models at a variety of price points.
The real question is whether Nokia is offering anything distinctive enough to motivate consumers to “take a chance” on its new model(s) – based on initial specs, this doesn’t appear to be the case. There are other categories adjacent to smart phones where Nokia may have more credibility and potentially more success – tablet style MIDs, for example (with which it has some experience). However, compared to Apple and other OEMs, Nokia has fallen badly behind on device UI (user interface) and – more generally – UE (user experience). Apple has also done an extraordinary job unlocking innovation and making it easy for consumers to try out compelling new apps. I think you described this phenomenon in Unleashing Killer Apps.
The Booklet suggests that Nokia fails to recognize the requirements to compete – much less stand out – in the MIDs category. Unless it closes the gap with Apple on UI design and execution, Nokia will continue to lose share in phones (both smart and feature). I suspect its efforts to enter other categories where usability and UE are so critical – such as MIDs – will also fail miserably.
Unfortunately, I’m afraid the Booklet will be a costly lesson for Nokia!
A report we prepared last fall may be of interest – The M in MIDs Stands for Mobile (available at http://www.immr.org/1/immr_mids_summary.pdf).
All the best.
Phil Hendrix, PhD
http://www.immr.org
September 2, 2010
Apple now has Rhapsody as an app, which is a great start, but it is currently hampered by the inability to store locally on your iPod, and has a dismal 64kbps bit rate. If this changes, then it will somewhat negate this advantage for the Zune, but the 10 songs per month will still be a big plus in Zune Pass’ favor.
September 2, 2010
Thanks for writing this info.