Nokia's Netbook gamble

PC companies have already stepped on Nokia's smartphone turf, and now Nokia is taking them on in the Netbook market with the Booklet 3G.

NEW YORK--Nokia, the world's largest maker of cell phones, is getting into the computer business with its new Booklet 3G, setting the stage for a new era of competition in the mobile device market.

Nokia Booklet 3G Nokia

At a press event here Tuesday, Nokia took the wraps off the anticipated Booklet 3G, a Windows 7 Netbook that will run exclusively on AT&T's 3G wireless network. At a subsidized price tag of $299, Nokia has managed to hit the sweet spot in the Netbook market with a high-end device at a bargain price point.

Not only will the new Netbook come with Microsoft's latest operating system, Windows 7, but it also has a battery that lasts up to 12 hours.

"The $300 price point is insane for a premium product like this," said Avi Greengart, research director at Current Analysis. "If you look at other Netbooks in this category that sell for about the same price you get four or four and a half hours of battery life. This will easily give you over eight hours of battery life with all radios turned on."

Of course, the $299 price comes with strings, as all such great deals do. For this price consumers must agree to a two-year data service contract with AT&T. The service will cost $60 a month for up to 5GB of data per month. Best Buy will be the only place to get the new Netbook through the holidays. And it will also offer an unsubsidized Booklet 3G for $599, which will not require the $60-a-month AT&T service plan.

First impressions of the new Booklet 3G have been positive. The extended battery life, sharp screen resolution, and slick, lightweight design are all impressive, according to many reviewers. But the PC market has notoriously seen tight profit margins. And the new Netbook category is already flooded with competition.

So what is Nokia, a company that sells more than 400 million mobile phones a year, doing in the PC business?

Nokia executives say that the Netbook device category is perfectly suited for Nokia. The company says that it fits solidly in line with the Nokia's overall strategy.

"Our company is about connecting people," John Hwang, general manager of connected computers at Nokia, said in an interview at the press event. "We connected the world's first billion people through the cell phone. And the next billion will be connected via computing devices like a PC."

John Hwang, general manager of connected computers at Nokia Marguerite Reardon

Hwang went on to say that the line between a phone and a computer is quickly blurring. Smartphone devices, such as the Apple iPhone or Nokia's own N-series devices, now provide full HTML browsers for Internet browsing. They provide e-mail and Internet search. And because they are connected to high-speed 3G wireless networks, these devices offer even more new Internet-enabled applications.

But smartphones are still too small to really get much work done on them.

Meanwhile, laptop PCs have shrunk in size. Cloud computing has reduced the need for huge amounts of data storage. As a result, the new Netbook or mini-PC category has emerged to provide corporate road warriors and other people wishing to access the Net on the go a lightweight alternative to lugging around heftier laptops. Service providers are further driving the trend by making these new laptops more affordable and usable by bundling 3G wireless service with them.

Service providers see Netbooks as the first of many non-cell-phone devices that they hope will generate more service fees for their wireless networks .

"The Booklet 3G lines up well with AT&T's strategy," said David Petts, the Nokia vice president heading up the AT&T account. "People increasingly want to get content on multiple screens. And this is one more screen and device. So it's part of that macro trend. And it lines up nicely with Nokia's strategy of connecting people."

Glenn Lurie, president of emerging devices for AT&T, who was also at the Nokia press event, said that the Netbook market is hot. He referenced reports that indicate that more than 20 million Netbooks could be sold worldwide in 2009. While this pales in comparison to the overall mobile phone market, it's significant enough to become a decent business for Nokia, and it's the beginning of a much broader business for carriers, such as AT&T.

Analyst says move makes sense
But the real reason that Nokia is getting into the PC business is likely because it has to.

"It makes perfect sense for Nokia to get in this market," Current Analysis' Greengart said. "The PC guys are all getting into their business."

Indeed, PC competitors have already begun entering its mobile phone market with smartphones. The most challenging competitor to Nokia so far is Apple with its three generations of iPhone. In a little over three years, the iPhone has revolutionized the mobile market. It has set a new standard for "smartphones," pushing companies, such as Nokia, to develop more advanced touch-screen phones as well as easier to use user interfaces and more customer-friendly application downloading stores.

This past year, Nokia has lost market share to Apple in the smartphone category . And competition is expected to get more intense in the coming year, as Apple develops more products in this market.

Apple has not yet announced a Netbook of its own. The company's MacBook laptops are priced much higher than most PC laptop competitors, which makes them completely out of range for customers looking for less powerful and less expensive Netbooks.

But some analysts, such as Greengart, think that Apple will take the same strategy as Nokia when it finally introduces a mini-laptop.

"I predict that Apple will enter this market, like Nokia has, with a premium product that is priced in the $300 range," he said. "Today, the least expensive MacBook is $800 to $900. There is a steep jump to that when you are looking at a subsidized $300 product."

Apple already allows its iPhones to be subsidized by AT&T in exchange for requiring customers to sign a two-year service contract. So it's not much of a stretch to think they would follow the same strategy with a Netbook.

Apple may be the most threatening nontraditional competitor Nokia faces, but it's not the only PC maker trying to steal some of Nokia's smartphone business. Other PC makers, such as Dell, Hewlett-Packard, Lenovo, and Acer have or will soon introduce new smartphones.

The one thing that could derail growth of this new product segment is the cost of the wireless service that these devices are bundled with. Without subsidies from wireless carriers, the devices are not much cheaper than full-fledged PCs. But with the subsidy comes a two-year service contract. AT&T's wireless data customers, who pay $60 a month for up to 5GB of service per month, spend a total of $1,440 in service fees over their two-year contracts.

For customers, who most likely already have a cell phone data plan, the extra $60 a month is a hefty charge. And it could discourage some consumers from signing up.

"There could be some service contract fatigue," Greengart said. "But there are some segments of the market that this will work well for."

AT&T's Lurie said that there will likely be more pricing options available for Netbook subscribers in the future.

"We will be announcing some other service plans in the mini-computing market," he said. "What we've said all along is that for this market to take off, consumers will need more choice around rate structures."

But for now, the $60 plan is the only plan available for the new Nokia device. That said, AT&T executives have said previously that they expect to introduce other business models, which could one day allow consumers to pay for one subscription and use multiple devices or a plan that allows the cost of the plan to be bundled into the price of the device. This is a business model that is being used with electronic book readers.

Nokia's executives said they see no problem with the $60 a month service charge. And they believe a market exists for the Booklet 3G at this price point.

"We don't have concerns about the service pricing, Nokia's Petts said. "We think the device offers a lot of value to customers. The long batter life and the fact that you can jump between Wi-Fi and 3G wireless are important differentiators. I personally am ditching my old laptop as quickly as I can to use the Booklet."

 

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