When Good Isn't Good Enough: What Email And iPods Teach Us About Microsoft's Lumia Bust

In the math of new products, the value equation must add up. And incrementalism doesn't win.

This week’s Nokia acquisition announcement by Microsoft raises an interesting question that I believe all business leaders would do well to learn from.

The question is: Why did the Lumia line fail, and what does Microsoft have to do to be successful in the smartphone market?

It's tempting to say that Microsoft's products are bad, or that they have no apps, that the marketing was terrible, that nobody likes Microsoft, or that they were late to market. But none of those things are the real reason for failure in this case. By all accounts, the Lumia is a great phone. It’s been well reviewed and comes with a pretty compelling 41-megapixel camera. It’s true that Windows offers users far fewer applications than iOS and Android, but how many of those missing applications really matter to the typical user?

One can even argue that Apple’s App Store contains too many mediocre, nearly identical applications. Microsoft's been known to produce some terrible marketing, but the Lumia ads are pretty fun—certainly in the same league as the Samsung ads bashing Apple. And while people may not like Microsoft that much, it doesn’t seem to stop consumers from lining up to buy the Xbox in droves, so the brand can't be that much of a liability. Finally, there are countless examples of products that are late to market but still do well, starting with the original iPhone, which by no means was the first smartphone.

The real reason the Lumia is not the breakout success Microsoft needed it to be is that while it’s a great phone, it’s not a great enough phone to make people want to switch. In the technology space, the products that win are not necessarily the sexiest or the first to market. The products that win are those that solve the user's problem with an ease and simplicity that outweighs the pain of switching in addition to the pain already encountered with the existing solution. If the benefit offered by a new product is x, the pain in switching is y, and the pain encountered in the existing solution is z, this value equation can be understood as x > (y + z).

To illustrate this, imagine it’s 1994, and Bob the businessman is deciding whether or not to embrace this thing called "email." He has a problem, which is how to communicate with colleagues effectively. For those of you who don’t remember, pre-email this problem was solved by sending letters, interoffice mail, and faxes, and by making telephone calls. All of these solutions are tedious and slow while email is instantaneous and easy. But there are significant switching costs to overcome: getting email addresses of colleagues and, in some cases, lobbying them to get email as well. But the benefit of switching to email for communications far exceeds the cost, so Bob makes the switch. No surprise: Everyone else subconsciously makes the same calculation and email takes off.

In a second scenario, it’s 2001 and my friend tells me about a cool new thing called an MP3, which allows me to download and play music on my computer. I decide not to get an MP3 player because they seem hard to use and it’s hard to get music onto the device. The benefit of playing music remotely on the MP3 device is less than than the pain of my old solution (my portable CD player) and the switching cost (ripping all those CDs into MP3s). Now there's a thing called an iPod. All of a sudden the value equation shifts, because it’s easy to play music and get music onto the device. That benefit now exceeds the pain of the old solution and switching costs, so I buy an iPod and so does everyone else.

Let’s apply the same math to Lumia: Say I’m an existing iPhone or Android user. The benefit of switching to a Lumia phone when it’s time for a new phone simply does not exceed the switching cost or the pain of my old communications solution. Because, quite frankly, I'm pretty happy with my existing iPhone or Android device; there's no benefit for me to leave the platform I'm already happy with. Sure, maybe the Lumia’s camera is better, but is it that much better than the pain associated with switching? Is the camera that much better than the experience I have taking photos with my iPhone or Samsung device today? Absolutely not.

Now let's say I'm one of the 10 people left in America who do not yet have a smartphone. What is my value equation? The benefit relative to cost for switching to a smartphone over my dumb phone is certainly there. But that cost/benefit ratio applies to iPhone, Android, and Lumia equally. When debating between the three, the typical user would migrate to iPhone or Android for one reason, which is that the perceived cost/benefit ratio of those devices exceeds the perceived cost/benefit ratio of the Lumia simply because iPhone or Android feels like the safer choice because everyone else seems to be using them. End of story.

So can Microsoft still win the smartphone battle? The truth is that it can’t unless it gets far more ambitious and follows in the footsteps of email and the iPod. Microsoft needs a product that does such a good job as a communications and computing device that it makes iPhone and Android devices feel positively antiquated and painful to use in comparison. And that's a tall order; arguably an impossible challenge because a paradigm shift is necessary in order to be successful.

But there is something on the horizon that could trump the existing smartphone duopoly, and that's wearable devices. If wearables—Google Glass, iWatch, Samsung's Galaxy Gear, or whatever device comes out—do the job of making information and communications even more immediate than pulling a phone out of your pocket, the computing world can shift again and new leaders can be created. But the Lumia was never going to be that product; it's not a paradigm shift; it's still competing in the incremental world of the smartphone. Incrementalism will not win. When I can attach my Lumia phone as a little bud nestled behind my ear, then maybe Microsoft will be onto something.

[Image: Flickr user Keith McDuffee]

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16 Comments

  • Guest

    Microsoft need to focus on gaming, as a USP. It's youth-focussed, which is a great way to get new customers hooked, and they have a fantastic heritage from Xbox gaming, and the mobile gaming industry is likely to grow now more than ever.

  • GadgetRevue

    instead of "x > (y + z)", I would suggest "x > -(y + z)" as the benefit of X has to be higher than the inverse detriment of the (y+z)

  • Renato Murakami

    I'll have to agree with most of the article, but not so shure about the idea behind it.

    Here's the thing: At least to me, it doesn't seem like Nokia with Lumia or Microsoft with Windows Mobile seems to be aiming to disrupt the market and come out on top. It's more like it's trying to be a competitor... climbing small steps to slowly get a bigger public among the smartphone user's crowd.
    The reason why I see it this way is because the stuff both companies are offering are not disruptive, but rather incremental. And strategies for those aims are completely different.
     
    In that sense, the comparisons and analogies doesn't make sense. Nokia wasn't trying to offer a new product like e-mail or iPod... it's just trying to bring it's already consolidated market on smartphone technology along with consolidated market from Microsoft on PC OS to the new devices and lines.
     
    I think people are still underestimating the tech behind the Lumia line, but that's for a reason: not many people have the knowledge to understand how far ahead Lumia cameras are from other smartphones, which is a bad thing. It'll be mostly photographers that actually compares photos taken by an iPhone 5, the latest Samsung camera, or the latest Sony camera with top of the line Lumia 1020 that will be able to tell the difference - and it's not a small one if I dare say.
    This isn't the first article I'm reading that implies that the different isn't much, it probably won't be the last one, and I'd bet that whoever wrote it never made the comparison in hand personally.
     
    But, it's also an incremental difference as it's not disrupting anything. It's not readily apparent to most users, and it's only one function in a miriad of functions on a smartphone.
    There's nothing particularly wrong with Microsoft's Windows Mobile OS other than it's still lacking a big push in software development, but the recent purchase kinda undermines it for Nokia simply because I think there'd be a whole lot more people considering a Lumia device if only it had Android in it.
    Nokia and Microsoft are trying to leverage this with price cuts and other strategies, but it's a difficult race... but it's one race that if anyone could keep despite lots of failures, this anyone is Microsoft.
     
    This purchase is also a sign that not only Microsoft is not willing to quit the market, but it's also willing to put even more money to make it happen. If you think about it, the movement isn't that much different from Microsoft's entrance to the gaming market. No one believed XBox would go anywhere when they announced the first console. It had nothing particularly different to offer, Microsoft had a bad fame which was further increased with hardware failures, and it had it's own main platform (PCs) to compete against. 
     
    I personally think that things are just starting to get interesting. While I do acknowledge that Lumia is not disruptive to the majority of the market, for me as a photographer-in-training, the Lumia line of smartphone camera tech was disruptive enough to skip both Android and iOS and jump backwards into the crappy Symbian and buy a Lumia 808. And I'll have to say - I regret nothing (but perhaps because I already owned an iPad 2). It can't be compared to dSLRs, mirrorless cameras, or even top of the line point 'n shoots, but the quality is good enough to put the best of other brands to shame in very common situations. In that sense, the age old saying in photography that "the best camera is the one you have with you" comes true. I have more photos taken with my Lumia phone than I have with my semi-pro dSLR, and the quality is great, which says a lot to me.
     
    For all the people who got Lumia 808 early like me, 1020 is a needed and expected incremental addition with Windows Mobile. If we're going to get technical on this, the key thing about those Lumia devices is that Nokia pushed a sensor size no one was expecting smartphones to have... and indeed, even with the latest phones from Samsung and Apple, they still didn't catch up though I'm expecting them to have something 'till late next year.
     
    But again, I don't expect the Lumia line or Windows Mobile to get anywhere close to Samsung/Android and iPhone/iOS soon. Microsoft and Nokia would really have to produce disruptive stuff to even reach a competition status against them. But the thing is: the structure for that is already built. One could say that in 2013, Microsoft managed to built the basic structure for future competition on the smartphone market - they have a solid hardware line, a functioning OS awaiting for software counterparts, the layout for integrating several other devices (let's not forget that with the XBox One, Microsoft smartphones have another level of integration to play with), among some other things.
     
    Forget the fanboy wars. If anything, this will only help the market advance. Both Samsung and Apple have something to consider on upgrading their cameras now. A year from now, with Microsoft pushing the integration of OS versions, it'll also make Apple and Samsung consider this line. All in all, I think it's fair to say we'll all be thankful for the new breath Nokia and Microsoft will bring to this market that seems to be stalling recently. iOS and Android users will know this. Year after year after iPhones got out and Android made a huge push with it's competition, it just seems that the smartphone market is becoming stalle with incremental upgrades that makes only the most geek/fanboy crowd tempted on upgrading their devices. There's nothing really new to be added to the experience.

  • Guieduardo

    I think Shapiro talked a lot, but didn't yield a solid argument. I really expected more from him. This article was more about explaining concepts than solidly convincing his view is right. The pain of using WP remains vested in the apps, because they are either missing, or don't offer that great of an experience. Android is shameful, simple as that. But the main apps look like their respective iOS counterparties. Plus, it came around first and manufacturers churn Android phones like there's no tomorrow. It's a no brainer: you arrive first and you make it harder for others to enter. The iPhone did it well because it understood that mobile OS shouldn't be the same as desktop OS, which Windows didn't get. If you own Android, switch to Lumia. You won't regret the switch.

  • Deke Rivers

    Why does everyone assume that Microsoft needs to WIN the smartphone race? By all accounts they have slow incremental growth. I would suggest any good business lesson would be to have a solid base for your product development, continue to show value, build and deliver on your promises,and show incremental growth which will deliver larger growth in the future. 

    Microsoft has an advantage in the business market, people just need to hear more of the positives. I was a 3rd generation iphone user, now a Nokia 920 user. My personal use has suffered with the Windows phones (instagram, hoot suite, etc), but my business use enjoys the flexibility and integration the iphone could never deliver. 

    Future XBox integration and app growth will start to help on the consumer side, further cloud migration by enterprise clients will help on the business side.

    I do agree with some of the posts, the quality is still a factor, Apple products have a perceived quality advantage although I've returned over 6 defective iphones and have a love hate relationship with a Mac Book Pro that has been handed around the house like a hot potato. The Nokia seems solid but feels no different than any other phone from a build quality perspective. 

    The bigger business lesson for Microsoft is how to overcome perceptions. Apple has a perceived value, quality, etc. Is Microsoft's game plan strong enough to sway perceptions. That's the metric that needs to be measured. I would suggest that most people who switch are happy, I know I am. The question is how much can we, the converted, influence others?  

  • Sarahjane

    Almost everybody has used Nokia and then they got something very beautiful that nokia could not imagine -iPhone.  Nokia's culture of milking customers by launching two models at the same time and around same price but one with older OS put-off customers.  Give me the best but Nokia said they are the leader and they decide what to include in what models.

    How could you change this perception-only by offering them free lumias.  Secondly, Nokia made phones in steel, beautiful, but then came out with this plastic on lumia.

    A case where the company just forgets what made them successful, and what irritated about them.

    I do not have the urge to try a Nokia even when it at par with the best.  If it is much better than the rest, and everyone starts talking, then I may get curious.  Microsoft!   All of us are scared to get locked with them.  So, that will work against them until they change the industry by selling great stuff at VERY attractive price.

  • rob

    I think the same thing could be said (and probably was) when microsoft first came out with the xbox.  There were tons of people who felt MS couldn't compete with the dominance Nintendo and Sony had.  Now look at them - as you mentioned, people are buying their console in droves.  To add to the point  Dan mentioned above, about cars, when a market starts to plateau - yes, we still will flock to innovation- but until then it's more about their particular offerings.  The pain with a product and switching become much smaller factors. btw, this is coming from one of the ten people without a smartphone.

  • Dan

    Your analogies are comparable to cars. If I drive a Chevy, why switch to a Honda? Pain points to consider, familiarity, etc. But if I get more MPG, then it is worth it. I would gladly purchase a Nokia if the battery was amazing. (And yes, I want to buy a MAXX - with its 48hr battery life - but I won't pay the high monthly costs that Verizon demands.) Perhaps if they went that route - and tried giving away their phones for a while - then their market share would increase (at least enough to justify their decisions).

  • Dan Vesset

    Thanks Aaron. A clear framework for assessing market gaps an opportunities for new product introductions. To apply it to Microsoft, they'd need to do something radically new in the living room, kitchen, or the car by applying the newly acquired Nokia tech along with Kinect, XBox, Bing, etc. - an Internet of things play.

  • Niko Lowry

    After Microsoft had established market dominance in the 90s, they then focused their efforts on enterprise and goverment contracts in the 2000s.

    I think the only real way for them to have success in the phone business is to follow suit in establishing their new mobile product line as the dominant enterprise/government provider.

    With the decline of Blackberry, this market is open for the taking. And securing those contracts would take pressure off increasing their market share

  • Paul Hebert

    I made the leap to a Lumia windows phone from Android and the switching costs (pain) was zero and the pleasure is +100 - the windows phone works better, faster, smoother and has less freezes (one in the last three months and I think that was user error.)  I'm wondering if the author ever used a Windows phone for longer than 10 minutes in a Starbucks.

    The only negative I've had is my daughter can't get a decent instagram app ... for me it is Hootsuite.  Other than that I have yet to find an app I needed or wanted missing from the store.  Sure there are less apps - but do I need 134 apps that make fart noises? 

    The phone works well - is smooth and easy to use and I even like the interface. 

    FYI - google from day one - DroidX, Razor Maxx - neither were better phones than the Lumia 920 I have now.

  • LumiaUser

    Yes, 6tag is a very good Instagram app.  The latest version now has video upload as well.  It's a great app - highly recommended.

  • Earl

    "Let’s apply the same math to Lumia: Say I’m an existing iPhone or Android user. The benefit of switching to a Lumia phone when it’s time for a new phone simply does not exceed the switching cost or the pain of my old communications solution."

    "Is the camera that much better than the experience I have taking photos with my iPhone or Samsung device today? Absolutely not."

    These lines implies that a person either haven't used a Lumia or any Windows Phone device at all or haven't used a Lumia extensively. I like Andrew Kim's explanation over at Minimally Minimal  when switching to the Lumia 920 and other long-time iOS users like who probably have been on any iPhone version since the original iPhone:

    "Many people aren’t going to understand what I’m getting at. To be honest, I’m having a hard time grasping it myself. The 920 achieves something truly great at an emotional level. It is an honest, pure and passionate design that shows care. There’s something magical about its presence. It feels special. It gives me a similar feeling to the first time I held an iPod mini. And sadly, iPhone has forgotten how to do that." — Andrew Kim