Sell Cell Phones Like PCs? Wrong Number

U.S. wireless companies need to build technological wonders that make a fashion statement when flourished in public

By Stephen Baker

It's mid-morning in Helsinki, and the Nokia people have put out the usual cookies, cakes, and coffees in the middle of the table -- the normal prelude to an interview with a Nokia exec. I start out the talk with Chief Financial Officer Olli-Pekka Kallasvuo with what seems to be an innocuous question: "When you're mapping out your strategy at Nokia, are there other industries that you study to help you understand the mobile-phone business?"

Yes, of course, he says.

And which are they?

He won't say.

This is not a simple case of Finnish reticence, that silence that some Finns seem to carry inside them which is said to dissolve only under the steamy spell of a sauna. No, Kallasvuo is usually talkative, witty, open. For three years in the mid-90s, he ran Nokia's North American operations outside of Dallas, and he banters like a Texan. He tells me lots of things, but he won't describe the industrial models for the cell-phone business. At Nokia, that's too close to a state secret. Fact is, Nokia has studied plenty of other businesses to get an idea of how to design and market its products. Hint: PCs are not the model.


  In fact, this is one of the most important questions in techdom. Since growth in America's PC-based tech world is slowing down, Intel, Microsoft, and the other powers in the computer world are hunting for the next big thing, and it hasn't taken them long to focus on the cell phone. Sure, the wireless business itself is under siege, suffering from delays and disappointments and the skyrocketing costs of the mobile Internet. And handset sales could be slowing in near saturated markets like Japan and Europe.

Still, even pessimists are predicting 25% growth this year, with cell-phone sales climbing past half a billion units. That makes it the biggest electronics industry in the world. It dwarfs computers, which, desktop, laptop, and handheld configurations combined, will struggle to reach one-third that number.

So is the mobile phone the next computer industry? It would seem so. The machines boast microprocessors, browsers, and operating systems. With time, mobile Net surfing should spread outside of Japan. Some say this is like the computer industry in the early '80s, when boxmakers like Apple and IBM dominated the industry, the way Nokia and, to a declining degree, Motorola and Ericsson do today.


  Now, as an industry long fractured into different standards goes global, won't mammoths like Microsoft and Intel rise to provide unified systems -- and make off with the earnings? I present that common argument to Kallasvuo, and he breaks his silence to tell me it's all wrong. What's more, he hints, as long as Americans cling to the idea that mobile phones follow the path of computers, they'll remain also-rans in wireless.

What's the difference? Computers are boxy and ugly, at least most of them are. They sit on desks or travel in briefcases and are considered tools. With the exception of Apple, which offers some pizzazz, they're judged largely on cost and performance.

Cell phones are different. In Paris, I've seen teenage girls gawk at a window display of Nokias around the corner from fashionable Avenue Montaigne, a block from Versace. This is pure consumer lust, driven by design and brand. I don't ask them, but I'll bet that the sexiest PC jargon -- gigahertz, RAM, Ethernet cards -- leaves these girls cold.


  Sure, they're actually looking at small computers, but that's not what they're seeing. They're ogling a personal item that will make a statement when they flourish it in public. In Japan, people buy a new cell phone every eight months. Naturally, they care about performance, button commands that make sense, batteries that can last a long weekend. And some of these consumers are the types -- young men, mostly -- who do focus on technical details. But what lots of people are looking for is a gadget that makes them feel good about themselves.

Does this sound ridiculous? I know it does to many, especially in the U.S. Most Americans I know, starting with my family, view cell phones as obtrusive machines that don't work well. But visit a college campus, or even a high school, and talk to the Napster generation about cell phones, and I think you'll see that the fashion image of phones, so evident in Asia and Europe, is making its way into America.

So if the phone is a fashion item, what industries offer a comparison? Kallasvuo isn't much help, but I ask others in Helsinki, and here's a sampling of the companies that come up:

Swatch: Its watches are fashion items, like phones. And people don't wait for an old watch to break before buying a new one.

Nike: At its height of popularity, in the early '90s, people literally killed for these shoes. And it wasn't just to jump higher.

Palm handhelds: A tech item, like a phone, that makes a fashion and power statement when people whip them out. Among U.S. computer makers hurrying into the wireless market that Nokia dominates, Palm has the strongest brand.

Sony: Still a minor player in cell phones, but a marquee brand, and one focused on two crucial segments of wireless computing: games and music.

And what about Microsoft and Intel? They have power brands too, of course, especially for business customers. But the Wintel duo, and much of the American tech industry that surrounds them, remains far from fashion. This could hinder them in their run at the biggest growth market in computing. And if American players miss wireless, the U.S. dominance of global technology, which rose with the PC and the Internet, will diminish.


  As they woo wireless consumers, the American giants should listen to Kallasvuo. They should put aside their PC thinking and concentrate on those girls gazing through the window in Paris. What to do? Link up with brand-name companies that appeal to consumers. This could mean Nike, Disney, Donna Karan, maybe even the New York Yankees. And they should keep exploring, further and further from computers.

How about mobile phones that download MP3 files? Yeah, yeah, they already exist. But what brands are they? That's what matters. Here's betting that the serious wireless players, whether they're in Helsinki, Tokyo, or Silicon Valley, are right now figuring out a way to wrap a next-generation wireless phone with the devilish purple logo of Napster. Strange as it may sound, in the wireless market that's taking shape, Napster outside could carry more clout than Intel inside.

Baker covers technology issues from Paris for BusinessWeek

Edited by Douglas Harbrecht

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