http://www.businessweek.com/stories/2008-12-02/nokias-n97-smartphone-a-laptop-in-your-pocketbusinessweek-business-news-stock-market-and-financial-advice

Global Economics

Nokia's N97 Smartphone, a Laptop in Your Pocket


Set to launch in mid-2009, this touchscreen phone with a miniature keyboard lets its Finnish maker take on Apple's iPhone

The buzz on the Internet was that Nokia would announce it is building a laptop computer. That was off the mark, but it's easy to see how the rumor got started. The N97 smartphone that the Finnish company unveiled in Barcelona on Dec. 2 looks very much like a laptop, albeit one that fits in your pocket.

Nokia's (NOK) new top-of-the-line model, to sell for $695 before operator subsidies when it launches worldwide in mid-2009, has a 3.5-inch touchscreen but also a miniature keyboard that folds out from underneath. In the open position, the N97 resembles a miniature laptop. Users can type on the screen but also choose the compact keyboard.

The N97 represents another flanking attack by Nokia on the market for touchscreen devices pioneered by Apple's (AAPL) iPhone. In October, Nokia unveiled the 5800 touch handset, aimed at music lovers (BusinessWeek.com, 10/2/08). The 5800 comes with a year's worth of music downloads in many markets and costs less than an iPhone—an attempt to peel away customers who might buy an iPhone for its iTunes capability. The N97, with a silvery finish, targets another category of user: the crowd that spends every waking hour on the Internet. Features include an icon, or widget, that allows users to stay continually connected to Facebook, for example.

Thanks for the Memory

Nokia's smartphone line needs some sexy new products. The company was the leader in creating a market for handsets that have computer-like processing power. With a huge 32GB of built-in storage, which can be expanded to 48GB, the N97 represents another escalation in this trend.

But the iPhone as well as new products from BlackBerry maker Research In Motion (RIMM) have challenged Nokia's dominance. Nokia's share of the smartphone market slipped to 47.5% in the second quarter of 2008, down from 50.8% a year earlier, according to market-watcher Gartner (IT). And share probably fell further in the third quarter. While Nokia executives hate comparisons with the iPhone, the Apple product is clearly taking its toll. "Nokia has suffered tremendously from not having a touchscreen device, there's no way around that," says Gartner analyst Carolina Milanesi.

To some extent, it's inevitable that Nokia's hegemony will slip as smartphones become mass-market devices, and more companies launch handsets with features such as satellite navigation or Internet access. "Nokia has been dominant—the only player in reality," Nokia CEO Olli-Pekka Kallasvuo said in an interview. Now, he concedes, "it's clear our share of the smartphone market has come closer to our share of the total market."

But that doesn't mean Kallasvuo is ready to accept a less dominant role. Nokia will aggressively promote the N97 in the U.S., he said, acknowledging that the American market tends to set worldwide technology trends.

Courting Controversy

Is the N97 the kind of product needed to reverse market share slippage? "It's a good step forward," says analyst Milanesi. But, she adds, "from the touch perspective it's still not quite there."

The hybrid design is likely to be controversial. Critics will say the N97 looks like a shotgun marriage between an iPhone and Nokia's Communicator, the brick-like, computer/phone that the company has continually updated since its launch in the late 1990s. In fact, the N97 is about as compact as the iPhone, though a bit thicker.

Nokia managers say their research clearly showed that the target market for the N97 doesn't want to type on a touchscreen, especially as mobile e-mail becomes commonplace. "They want a keyboard because they are texting so much," says Jonas Geust, the Nokia executive vice-president in charge of high-end devices.

It Vibrates When Touched

To enhance the N97's appeal, Nokia will package it with services such as music downloads and turn-by-turn navigation. Its camera produces DVD-quality video, Nokia says, and the battery is the company's most powerful yet, allowing a day and a half of continuous music listening. Unlike the iPhone, the N97 screen will vibrate slightly when touched, offering confirmation that input has been received. The N97 won't have the iPhone's ability to take commands from more than one finger at a time, the feature that allows users to swipe and zoom images and is a big reason for the Apple handset's appeal.

It is unusual for Nokia to announce a product so far in advance of launch. Geust says the company wanted to give developers enough time to write the programs that will be crucial to the N97's appeal.

Analyst Milanesi worries, however, that the N97 may not look as cutting-edge in six months or so when Nokia launches it on the market. "Compared with what we see on the market today, it's very competitive," she says. "But what will we see on the market by then?"

Business Exchange related topics:

Smartphone

Product Design

Designing Portable Computers

Ewing is BusinessWeek's European regional editor.

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