Nokia's Newest Is No Cell Phone

By Olga Kharif Nokia, the world's largest cell-phone maker, has a new wireless device. It isn't a mobile phone. And it doesn't use a cellular network. It's a gadget for the home that takes the Finnish company into a new -- and risky -- area of the consumer-electronics business.

Called the Nokia 770 Internet Tablet, it's about the size of a paperback book and designed specifically for browsing the Web and checking e-mail via a home or hot-spot Wi-Fi network. And where Wi-Fi isn't available, it can still access the Web by using a cell phone equipped with Bluetooth wireless technology.

NEW TERRITORY. The new product is the first Nokia (NOK

) personal communications device that doesn't contain a cellular radio. It's part of a major strategy shift that began in 2004 when Nokia rejiggered its product organizations into four groups to attack new markets - an effort that's just starting to bear fruit.

The Internet Tablet, which weighs about 8 ounces, includes a 4.13-inch-wide touch screen and can recognize handwriting. A virtual keyboard appears on the screen, and users navigate with a stylus. Nokia says it will be available during the third quarter.

With revenue growth from its bread-and-butter cell phones slowing down, the $40 billion company is eager to find new areas to exploit. So it's zeroing in on Wi-Fi, whose users are expected to jump from 20 million last year to 75 million users in 2009, according to consultancy Pyramid Research. Nokia is banking on the use of Wi-Fi-enabled portable devices - mainly limited so far to laptops and some personal digital assistants (PDAs) -- rising along the same growth curve.

MORE PORTABLE ALTERNATIVE. That's a market opportunity many companies are eyeing also. As Nokia ventures outside of its cell-phone realm, it'll be pitched against consumer-electronics manufacturers like Samsung and LG, which have introduced Internet-enabled kitchen appliances in the past year. Other rivals include PC manufacturers like Dell (DELL

) and Hewlett-Packard (HPQ

), which offer Windows PocketPC handheld devices that use Wi-Fi.

Nokia hopes the device will emerge as an alternative to a second or third PC for the home, says Ari Jaaksi, a director in Nokia's Convergence Products group. The idea is that consumers will use the Internet Tablet to surf the Web or check e-mail while sunning on the deck -- without having to fire up a bulky laptop or squint at a tiny PDA screen.

At first glance, the device appears to be a cross between an Internet appliance (a Web-access-only gadget) and a Tablet PC -- two products that are notorious for having bombed. But the main difference between the Internet Tablet and predecessors is higher-speed communications and its price: $350.

BREAK FROM SYMBIAN. Nokia will sell the device online, through consumer-electronics retailers, and broadband service providers, such as Wi-Fi hot-spot operators and cable companies. Those companies will likely subsidize its $350 retail price, says Boyd Peterson, an analyst with research consultancy Yankee Group. He predicts consumers will pay below $100 or even get the device for free from some providers. Nokia's Jaaksi won't identify service providers supporting the Internet Tablet but says they're lining up to offer it to their customers.

Unlike Tablet PCs based on an operating system from Microsoft (MSFT

), the Internet Tablet runs on Linux. The open-source operating system is familiar to a huge community of developers. Nokia hopes these programmers will help develop nifty applications for the device such as phone calling over Wi-Fi.

Adopting Linux is a break from the software Nokia has used in its cell phones. For several years, it has been the driving force behind the Symbian operating system for handsets with lots of computing power. However, Symbian is optimized for mobile phones. Linux also allows Nokia to offer its device at a much lower price -- an advantage it'll need as more competitors jump into this market.

SEEDING THE MARKET? Nokia says that compared to existing mobile devices, such as cell phones and PDAs that can browse the Web, the Internet Tablet will offer a superior experience because it's designed specifically for broadband networks.

The main reason why wireless Web usage hasn't taken off on cell phones (only 3% of U.S. wireless users browse the Net on a daily basis, according to consultancy Parks Associates) is that the cellular connections have been too slow, and their devices' screens are too small for comfort, says Neil Strother, an analyst with tech consultancy In-Stat. Nokia says the Internet Tablet addresses both failings.

Will it succeed? Long-time Nokia customers, mobile operators, could grumble about the vendor trying to serve rivals offering competing technologies. But so far, the cellular service companies have had only minimal success in getting users to browse the Web. If the Internet Tablet is a success, it might help seed the market for wireless data, helping all players. With Andy Reinhardt in Paris

Kharif is a reporter for BusinessWeek Online in Portland, Ore.