Opinion: Even Wi-Fi Can't Save Nook

By Mike Elgan

October 28, 2009

Mike Elgan argues that despite the technical superiority of some new devices on the market, such as the Wi-Fi-enabled Kindle-competitor Nook from Barnes & Noble, those first to the party will continue to dominate the smartphone and e-book markets.

The Apple iPhone rules the smart phone landscape and the Amazon Kindle dominates eBooks. But the future of their leadership was called into question this week. Today's leaders will become tomorrow's losers, according to forecasters. Here's why they're wrong.

Why the iPhone will rule

Gartner predicted recently that by 2012, smartphones running Apple's iPhone OS will occupy the #4 position worldwide, behind Symbian, Android, and BlackBerry. Here's what the market will look like in three years, according to Gartner:

1. Symbian: 37.4% (196.5 million units)

2. Android: 18% (94.5 million units)

3. BlackBerry: 13.9% (73 million units)

4. iPhone: 13.6% (71.5 million units)

5. Windows Mobile: 9% (47.7 million units)

6. Maemo: 4.5% (23.5 million units)

7. Linux: 2.1% (11 million units)

8. WebOS: 1.4% (7.6 million units)

There's much to agree with in Gartner's prediction--namely, the demise and failure of Microsoft's Windows Mobile and Palm's WebOS, and also the rapid rise of Google's Android platform.

However, I believe iPhone will find itself well ahead of both Android and BlackBerry by 2012, and that Gartner reached its conclusion by making three errors.

First, Gartner probably isn't giving adequate weight to the types of users on the various platforms. Because iPhone was first with a major multi-touch, full-screen UI, and first with a compelling app store (still the only platform with a compelling apps store), the platform attracted and "locked in" "key influencers."

These influential people include journalists, podcasters, bloggers, celebrities, and others, who will remain loyal and continue to evangelize the platform on Apple's behalf.

Second, Gartner may be underestimating the impact of network effects, which is the concept that the value of a network grows with additional users. The classic example is the telephone. If you're the only person with a telephone, it's perfectly useless. But the device's value and appeal grows with each person who uses one.

On the iPhone, there is an enormous number of new apps coming online that have two qualities deadly for the competition: 1) they exist only on iPhone; and 2) they involve connecting with other users who are required to use iPhones in order to connect.

In other words, because iPhone has several orders of magnitude more apps and more users than other platforms, the likelihood that network apps exist only on the iPhone is much higher than on other platforms. That means if users want to participate in the coming avalanche of social networking apps, business card apps, GPS apps, multi-player games, and so on, they'll find iPhone to be by far the most "valuable" from a network effects perspective.

In the network effects game, the rich get richer, which means the platform with the most users on networkable apps should get additional users at a much higher rate.

And third, I believe Gartner is underestimating consumer "choice paralysis" that will result from confusion in the Android marketplace.

Yes, Android is appealing, powerful and will gain a great many users. But the mass market will be relatively confused by the incredible number of form factors and options in the Android marketplace. Confusion breeds paralysis, and this will harm acceptance of Android phones.

This idea does violence to the conventional wisdom, which is that people always choose the most "powerful" product, or the product with the most features. But the conventional wisdom is wrong on this point. People gravitate toward the product that doesn't create confusion.

Why the Kindle will rule

King of the eBook readers, Amazon's Kindle, came under attack recently in the form of something called the "Nook."

It's generally understood in geek circles that nearly all Kindle's competitors are "better" than the Kindle from a hardware device point of view.

The Nook is no exception. It's better. But what makes Nook such a threat is that it comes from Barnes & Noble, which (like Amazon.com) is in position to sell a lot of cheap electronic books.

Game over, right? Well, not so fast.

Even better, the Nook enables book sharing. You can "loan" books to friends and family, and that borrowed version expires after 14 days. Nice!

The problem is that Barnes & Noble made the same mistake with Nook that Google did with Android. It hit the market too late.

Amazon has been gathering users for two years. But what kind of users? Nearly all hardcore book buyers use Amazon.com. Those big buyers most electronically inclined have long since purchased Kindles.

The "best" customers for eBooks--defined as those most enthusiastic about paying for electronic books--are already "locked in" to Amazon. They have invested money for two years on books that work only on Kindle. Nook's color touch-pad and Wi-Fi feature isn't enough to drag them away from their investments.

So even if Nook or any other Kindle alternative exceeds Amazon's device in terms of unit shipments, I believe that Amazon will continue to win where it really counts: book sales. That means Amazon will be in a position to bully publishers, dictate standards and generally control the market--the part of the market where people actually pay for electronic books.

Once again, the prognosticators are making faulty predictions based on an over-estimation of a link between product "quality" or feature sets and unit sales, and an underestimation of the power of human nature on the decision-making process.

People don't make coldly rational buying decisions based on feature sets. They're influenced by influential people, opportunities for networking, and a wide range of under-appreciated psychological factors.

The iPhone and Kindle will continue to rule well into the foreseeable future.

Article courtesy of Datamation.

Originally published on .

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