Nokia to enter the netbook market

Nokia announced today that it was expanding beyond its traditional phone marketplace and will release a small Windows-powered netbook built around an Intel Atom chip. With this act, Nokia has moved from its reliance on the "Internet on a phone" model into larger and more compute-intensive appliances. But has it really "changed its stripes" and decided to compete with the likes of HP, Dell, Acer, Lenovo, Asus and others in the broader PC space? No.

The Nokia Booklet 3G is on a direct evolutionary chain from Nokia's smartphones and Linux-powered tablets. Nokia is not trying to move into the extremely competitive market for PCs in general, even though it describes the Booklet 3G as a mini-laptop. What it is doing is moving to protect its key markets. Indeed, netbooks are increasingly being sold as mobile device alternatives (or supplements) to smartphones. Many have 3G radios included, can make voice calls (via VoIP), and are increasingly being sold and subsidized by traditional wireless carriers. Therefore, it is logical for Nokia to make this move. The company has close and long-term relationships with virtually all the important carriers worldwide. In this regard, it makes sense for Nokia to provide these carriers with devices beyond just phones. Indeed, Nokia has an advantage in this emerging market because most of the netbook providers have nowhere near the level of relationship with carriers that Nokia enjoys. Competitively, Nokia can offer a full product mix from the low end to smartphones and now Netbooks. This is something HP and Asus cannot compete with.

Few of Nokia's traditional smartphone competitors (e.g., Motorola, Palm, RIM, Sony Ericsson) have the wherewithal to compete in the netbook market and be successful. Even Apple would have a difficult time competing in this space since it does not enjoy the distribution breadth of Nokia and is not good at being a low-cost producer. However, Nokia's emerging competitors from the Far East (e.g., Asus, Huawei, HTC, ZTE) have also targeted this space for growth in both home markets and abroad. Nokia needed to move up to netbooks in order to remain competitive and limit the impact these up-and-coming suppliers have on Nokia's overall business, including its traditional smartphone business, which several of these companies are also targeting.

We think that this is a smart move by Nokia and is a direct offshoot of the Nokia-Intel relationship announced in June. It further underscores Nokia's need to expand its market and to offer new and compelling services. It is offering Ovi, its store for music, apps, etc., as an installed component on the Booklet 3G. Although to date Ovi has "underwhelmed," it does have the potential to generate significant revenues, especially in many emerging markets where Nokia is a very well recognized brand. And by choosing Microsoft's Windows platform instead of Linux, Nokia has a potentially huge basket of applications it can resell to its users.

Bottom Line: Certainly, whether Nokia is successful or not with the Booklet 3G will depend on the quality of the product. But Nokia has now ventured beyond its traditional focus on phones and into the emerging market for netbooks and other Internet-centric wireless devices. Its announced relationships with Intel and Microsoft will continue to allow it to expand its portfolio and take advantage of its compelling advantage in carrier relationships. And the expansion of Ovi should help Nokia overall. We expect Nokia to be a force in the wireless device market across all platforms, not just smartphones.

About the author: Jack Gold is the founder and principal analyst at J. Gold Associates, an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.

This was first published in August 2009

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