Assignment DG501: Analysing and modeling New Product Development: Consumer electronics
PostPost-mortem analysis Nokia NN-Gage
D.R.L.M. Blauwhoff H.I. Boerman V.J.A. van der Burgt L.S. van de Leur M. van der Wiel
s081336 s080233 S081013 s081415 s080677
Tutor: J.J.M. Kierkels Group: 15 Date: 18 – 03 – 2009 Technical University of Eindhoven Department of Industrial Design
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Introduction
In the late 1990s the company of Nokia spotted an opportunity to develop a new device, combining a mobile phone with a handheld game consoles: The Nokia N-Gage. The Nokia N-Gage, ‘Mobile Game Deck’, is a multifunctional device. It is primarily a portable games machine (large screen (176x208 pixels) supporting 3D-graphics), but also functions as a mobile telephone (tri-band GSM 900/1800/1900), digital music player, stereo FM radio and messaging system. It has a multiplayer gaming function accomplished with Bluetooth and access to an online player community service called the N-Gage Arena. The product was released on October 7 2003, in over 60 countries, with a launch price of US $299. The device was not as commercially popular as Nokia estimated, which has lead to the product being taken off the market. th
This report will include a post-mortem analysis, answering what went wrong in the development of the Nokia N-Gage which has lead to the failure of this product.
Nokia N-Gage, Mobile Game Deck
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Table of Contents page Company
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Introduction Problem description Ishikawa IDEF MIR analysis Basic cost analysis Product success factors Design for X
3 7 7 10 14 15 17 19
Micro business environment
- Porter analysis
21
Macro business environment
- Trends
27
Conclusions & Recommendations
- Conclusion - Recommendations Sources
31 34 35
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Company Problem description
The problem description: The Nokia N-Gage, Mobile Game Deck, was brought on the market in 2003 and failed to be successful, causing the product to be taken off the market. Argument: The goal of the Nokia Company is to gain profit out of products. This product failed to be successful on the market (sellings were much lower than expected), and thus to make a good profit for the company. Product and process of interest: Nokia wanted to compete with the companies Sony and Nintendo. “The Nokia N-Gage was developed to be a multimedia cellular phone. It combines the functionality of a phone, MP3 player, FM radio and handheld wireless gaming console.� (Martini, 2007, pg12-13) With this product, brought on the market in 2003, Nokia would have a broader area of distribution. They would be able to sell the product not only in mobile phone stores, but also in game stores. Even though it was sold in a broader consuming market the product sold below expectations, which caused Nokia to take this product off the market in 2005.
Ishikawa
The diagram below gives an overview of the problems that that could have occurred during the design and marketing phase, causing the failure of the product. A short description explaining each branch is also given.
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Figure 1: Ishikawa diagram 8|Page
Product Problems
Different usability factors of the Nokia N-Gage are badly designed. The most complaints are about changing a game and ‘side-talking’. There is a necessity of removing the back of the phone and batteries (thus powering down the device) to change a game. Next to that the speaker and microphone are on the side of the phone; you should talk to the side of the phone when making a call. (Martini, 2007, pg14) There has not been a wide range of original games by the launch of the N-Gage; only a small selection was available. (Bauwens, 2007, pg9) A second problem with the battery is that it has a relatively short battery life (Emerald, 2005). The result from a test showed that it has a battery life of 4h42. (Chehimi, 2007, pg24) Competition
At the launch of the Nokia N-Gage, the device was sold for $299 USD. The, at that time sold, Nintendo Gameboy Advanced SP and DS were sold for only $99 USD, which is only a third of the N-Gage price. (Martini, 2007, pg20) More competition came from for example the PSP (PlayStationPortable, Sony). Small Target Group
The product, meant to compete with Nintendo and Sony, is not sold in the community of hardcore gamers. People who are looking for a multi-functional mobile phone, the Nokia Ngage is too much game-focused. (Martini, 2007, pg.9) Wrong Place
The device was not sold at traditional cellular telephone dealers, but exclusively at boutique game stores. (Martini, 2007, pg15)
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IDEF
Figure 2: IDEF A0
Block A1: In the beginning the company of Nokia set a challenge: They wanted to compete with Sony and Nintendo, by entering the gaming industry with a new device. With the idea of combining a gaming device and mobile phone, they hoped to help the target group of hardcore gamers by creating this new opportunity, making it unnecessary to carry two devices. They put out a request to Forum Nokia developers (Forum Nokia, 2003) to submit concepts (games) for the Nokia N-Gage device, giving them guidelines but also the opportunity to think creatively. The concept also consists of an N-Gage platform, connecting single devices to create the opportunity of multiple gaming. To create this, technology is needed. Research about e.g. possibilities with Bluetooth has been done. Same goes for the Arena on internet. The 10 | P a g e
knowledge in technology of Nokia gives them an advantage in this conception phase and would be the driving force as it is in their advantage. The conception phase: creating ideas and with input from research, working them out into concepts. Block A2: The start of the design phase has the concept and design criteria as input. Taking into account the possibilities with technology, the concept is fine-tuned and a final design is made. After approval of a concept designed by a Forum Nokia developer, Nokia discusses with the company and goes back to the concept phase, to understand the actual business proposition and try to understand the game concept more fully (Forum Nokia, 2003). After the product was launched and sold poorly due to design flaws, the product was send back to the design phase. A new version with an improved design was released; the N-gage QD. Block A3: When the concept settles the design criteria, thus there is a final design, this last should be realized. You know how you want the product to be, but in this phase the feasibility of every detail is technically specified e.g. if the thickness of the display is possible, if the electronics fit in the housing and the measurements of the curve in the material. This resembles the building plan for a structure. After that a product planning is needed, which is the business plan behind your design. Who, what, where, when, etc. for the realization of your product. Block A4: For the manufacturing of the product the manufacturing equipment must be thought of. All over the world there are factories where components are produced for the device. They have to check which component will be developed in which factory. In the end all the components must be assembled at one place. (Reuters, 2003) Block A5: The user is the target group hardcore gamers. It is the same market where Sony and Nintendo are dealing with. They want to compete so the challenge is to convince the hardcore gamers to buy the N-gage (Martini, 2007).
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Figure 3: IDEF A1
Block A1.1: The start of the design process with input in the form of an idea. Nokia had set a challenge to compete with Sony and Nintendo with a new device. With the help of research Nokia is able to find opportunities for designing a new product. Block A1.2: With the vision of competing with Sony and Nintendo, Nokia has to find out in which market this takes place. By investigating various possibilities Nokia needs to choose a specific target group that they want to create a product for. In this phase Nokia had chosen the target group hardcore gamers as this group covers a target group of the competitors. Block A1.3: With a vision and the target group, hardcore gamers, in mind Nokia needs to invent a product that would realize the ideas. These requirements resulted in the idea of combining a game device with a mobile phone; the N-gage. Defining this product description Nokia talked to game company’s about the available technology. After the assurance of the technology they also put out a request to Forum Nokia developers to submit concepts for the Nokia N-Gage device. 12 | P a g e
Store type
product Distribution
Target group
A5.1 Discarded product Hardcore gamers Retail�sale A5.2 Discarded product Costumer use A5.3
Problems
Node: A5
TITLE: IDEF model A5
NO.: 3
Figure 4: IDEF A5
Block A5.1: With input of the actual product; the Nokia N-gage, by the manufacturer the product needs to reach the customer. In the conception phase Nokia mentioned that the Ngage will help Nokia to get its products on the shelves in outlets that sell games not just phones (Emerald, 2005). So they decided to distribute the device at gaming stores. Block A5.2: The products are delivered from the manufacturer and the game store is now able to sell the product to the customers. The product is competing with Sony and Nintendo on the shelves and has to reach the target group of hardcore gamers. The sales of the N-gage were poor, which let Nokia think this over. The product was at first only distributed to outlets that sell games, but this was revised which resulted in a broader distribution market of electronics and mobile phone stores (Martini, 2007). Block A5.3: To reach the target group of hardcore gamers it was a good decision to sell the device in game stores. The user compares the N-gage with other similar products and chooses their favorite. This again led to a low amount of sales, which was reviewed by the retailers. The retailers reduced the price of the product, with the hope to sell more devices (Reuters, 2003). 13 | P a g e
MIR analysis
As seen in the IDEF model, there have been some information flows between different phases of the product development. But not all of them have had a quality that this information flow should have had, causing product failure. First of all, the information flow ‘problems’ between conception and design phase has been insufficient of quality and the design criteria have not been good enough. The product has been launched with different design flaws (the side-talking effect, removing the batteries to change a game). There has not been worked with enough user-information. If Nokia had planned a large user testing phase, they would have been provided with the information about this side-talking and batteries. These design flaws could have been prevented and changed before the launch of the product. User-testing is important to make up good design criteria and having these is crucial (e.g. easiness of use – changing games easily). Either Nokia did not have good/enough design criteria, or they have not worked out the criteria well. What might have been the biggest cause of the failure of the N-Gage is the target group. Nokia had the target group of ‘hardcore gamers’ in mind for the use of the N-Gage. As this target group has not been interested in the soft games of the N-Gage, this was not the right product for the target group. Concluding from this is that the input from research into the process has not been reliable. There has not been the right input into the process. Again this is userinformation that is of too low quality, insufficient and unreliable. With the target group in mind, the phone was placed in game stores, which is a logic conclusion. But as the ‘hardcore gamers’ were not the most interested people, it did not sell well in these stores. The user-friendly design has been a part of the aftercare. After the far-below selling Nokia NGage the company of Nokia made some changes to the device (smaller, easy game-changing, no side-talking, less functions) and launched this new product as the N-Gage QD. This second launch has again not sold as was predicted. (Langendorf, 2007) Nokia had again not fully reliable research-data, as the predictions have been wrong. 14 | P a g e
Nokia has reached a MIR level 2 in the development process of the N-Gage. As they did not find the root-causes of the failure of the product, which would be avoided in future products. They did find the product problems in the process of aftercare and used this as feedback/input for further development of the product. Right conclusions about the product have been made, but, as already said, not all of the root-causes were found, leading to a second failed product (Nokia N-Gage QD). This is why this company has not reached a MIR level 3 in the process.
Cost analysis
According to the annual report of Nokia from 2001, 23 mobile phones were launched in 2001. This means that the total costs of Nokia’s mobile phones have to be divided by 23. The N-gage is a new concept therefore more research is needed. Not only research on the N-gage itself, but also on the development of the games. That is why the “Research and development costs” are two times as high as the costs of the other mobile phones. So in this calculation the costs are divided by 12 instead of 23 in the other calculations for the N-gage. The Net sales Nokia makes on mobile phones is 74% of the total Net sales. According to this, 74% of the total costs of all products are costs spend on Mobile phones. (Nokia Corporation, 2002) Total annual cost for all Nokia products in 2001 (Nokia Corporation, 2002) Production costs
Research and
2,985 mEuro
Costs for Nokia Ngage
Calculations
44 mEuro
Production costs per device x total sold devices (Martini, 2007, pg 22)
183 mEuro
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development costs
Selling, general and administrative Expenses
3,443 mEuro
111 mEuro
Impairment of minority investments
80 mEuro
3 mEuro
Personnel expenses as per profit and loss account
3,105 mEuro
64 mEuro
Total costs
percentage of mobile phones) / total number of launched mobile phones (3,443m x percentage of mobile phones) / total number of launched mobile phones (80m x percentage of mobile phones) / total number of launched mobile phones ((3,105m / Total employees) x Mobile phone employees)/ total number of launched mobile phones
405 mEuro Figure 5: Basic cost analysis
The Nokia N-gage was developed in 2001. In 2001 the costs for the N-gage were already calculated and included in the annual report of Nokia from 2001. In the table above the costs Nokia included in the report of 2001 are mentioned and calculated for only the N-gage. The “production costs� are calculated with the production costs of one N-gage device multiplied by the total number of sold units: 33.85 x 1.3 million = 44 million 16 | P a g e
And the “Personnel expenses as per profit and loss account� is calculated by taking the percentage of employees working on mobile phones of the total costs and dividing this over 23 phones: (3,105 million x (27,320 / 57,716)) / 23 = 64 million So the total costs spend on the N-gage is 405 million euro’s. Dividing this number by 1.3 million is 311.54 euro. This is the total cost of one N-gage. The product is sold for 339.31 euro (Martini, 2007) (Oanda, 2009). The profit margin is 27.77 euro. This profit per Nokia N-gage device seems small, but reasonable. From this amount the shops still need to get their profit. And since to product did not sell as much as they thought, the profit was lower than Nokia had expected (Martini, 2007). If the N-gage is sold for less than 339.31 euro, Nokia will have to deal with the financial problem, instead of the shops. Nokia is the one responsible for this problem, not the shops.
Product success factors
For a company and a new product to succeed, certain factors are necessary to reach that. The company has to recognize technical opportunities and should be aware of the market needs. Furthermore the Research & Development management should be proficient, decisions concerning the company should be well made and the resources for development should be descent. These aspects should be fulfilled during the entire process of developing a product. This product developments process starts with an idea and will end in producing the product and brining it on the market. This process consists of a large amount of steps that need to be taken, in which the company can succeed or fail. Technical opportunity
For the very first step, the idea, the company was well aware of upcoming new technologies, because they introduced a new one along with the Nokia N-gage. The ability to be mobile and playing games online against others was an innovating way to use the existing networks. Andy Reinhardt mentioned that this step of Nokia will change the gaming industry forever (Emerald, 17 | P a g e
2005). This product would make the wireless online gaming much more popular and it creates the opportunity to further develop the multimedia devices. Development resources
Only the idea does not yet give a product. This brings us to the next step of analysing the idea that would result in the actual designed product. Before producing a product there has to be done research about the market and the technical aspects. Within this analysis you have a first more superficial assessment and later on you continue with a detailed study in both subjects. Though the product would fit in the market; there was no actual need for the product. The designed product did not fit with the aspired target group. Although they did know how to reach the user by selling the product in game stores, it did not sell as expected. The new technology was elaborately researched as there were no large complications. The low battery life was detrimental, but for the rest the technology worked very well. The N-gage platform and Arena were correctly organised as they are still used now (Nokia, 2009). Market need recognition
With respect to the market they had made a logical step. There already existed console gaming, pc gaming and portable gaming. Portable gaming is the mobile version of console gaming and now mobile gaming is somewhat the mobile version of the pc gaming. Both have the ability to go online and play against others. Project plan
When you have expectations as a company, you should also have a reason for that and there belongs a business plan with it. Nokia was very optimistic about the N-gage as they expected to sell many more products than they actually did. Out of the low selling rates compared to the amount of produced products you could conclude that they had not thought that it “could� go wrong as well. This indicates they probably only had a concrete plan for developing the product when it would be a good sale. As this failure was quite a surprise Nokia had to act quickly to prevent too much loss of introducing the product. Though they made a redesign for the N-gage; the N-gage QD, it still 18 | P a g e
did not sell as desired. Through operating quickly and probably with insufficient research they did not tackle the root-cause of the product failure. Venture decisions
Considering the management of the Nokia N-gage department, they dared to take a risk to enter the gaming industry although the company was only experienced in the handset market. Therefore the firm cooperated with multiple game developers (Nokia,2007) to be able to compete in this market segment. Another challenge that Nokia had taken was introducing the N-gage game deck and the N-gage arena and platform coming with it. The main question of how to provide the games for the users carried a risk with it as online games would be downloadable via the computer and cellular. Though the games should be downloaded over cellular connections, which makes Nokia compete with operators (martini, 2007, pg.52). Furthermore Nokia has also made some long-term goals as they now want to reach a larger target group and broadening from hardcore gamers to casual users. Conclusion
Overall the company has found good opportunities, has taken a challenge and worked with other industries, but there was a lack in sufficient research, an incomplete plan and decisions that were probably made too quickly. So the quality of the product process and the product strategy was not high at all times, which caused the product to fail.
Design for X
Nokia tried to bring a product on the market which can compete with his revivals. So Nokia needed a product which was new, innovative and unique on the game market: The Nokia N-Gage. The Nokia N-Gage is a combination of a mobile phone and a game device which has to challenge Nintendo and Sony. The slogan of the Nokia N-Gage: ‘Connect, compete and conquer’ (N-Gage, 2009). The conclusion of this slogan is that the Nokia N-Gage is designed to compete. For the company Nokia focuses on a whole
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new target group: The hardcore gamers. (Martini, 2007, pg33) Nokia never designed for this target group but because of the reduced revenues and the competition (Emerald, 2005), Nokia needs the N-Gage to succeed on this new market. Because this new target group of hardcore gamers has a big interest in games instead of phones, which Nokia usually makes, the focus is on the game function: Designing for fun. As a result of this the Nokia N-Gage is a first game device that happens to be a mobile phone (Stone, 2003). The device is a multiplayer but the main focus is to deliver a device with high quality games (Forum Nokia, 2003). The role of the game in the device is very important and that’s why the developers not only looked for firms who have experience in small form factor screens for example (Forum Nokia, 2003). Nokia did also focus on firms who could contribute to the game experience. With the Nokia N-Gage Nokia wants to create a device which makes it possible to experience rich games and high performance: Designing for performance and quality. To succeed this, the designers implemented the Bluetooth function to give the user access to a game community called the N-Gage Arena. This game platform enables people to connect with each other, which is the purpose of Nokia in general. They even have the slogan: ‘Nokia, connecting people’ (Nokia², 2009). This slogan shows that Nokia’s design focus is on communication: Designing for communication. The N-Gage Arena is also unique in the game world. The purpose of this unique game platform is to compete (designing to compete) with other companies. Nokia wants people to understand that the Nokia N-Gage is a real game platform with quality games (Forum Nokia, 2003).
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Micro business environment Porter analysis
Potential Entrants
Oligopoly; large investment needed
Rivalry Suppliers
Networks & game developers
On level of innovation
Buyers
Hardcore & casual gamers; big power
Substitutes
Sony PSP Nintendo DS Gameboy Advance SP
Figure 6: Porter five force model 21 | P a g e
Suppliers
If you have invented a product but you’re not entirely able to produce it and need external supplies, you will be somewhat dependent on the firm(s) that supplies the good. This increases when the supplier has a monopolist position; it is then the only firm delivering the certain good. The N-gage game deck from Nokia exists of different parts; the exterior, the electronics, the games and the network communication. The exterior and electronics consist of materials and knowledge which Nokia itself would be able to produce as it resembles mobile phones. The games are an unfamiliar area for the company so it needs to cooperate with experienced game developers. Luckily for company the game creating industry consist of multiple manufacturers which gives Nokia more power as they could also switch from supplier. The same counts for the networks providers, which don’t have a monopolist position to dominate Nokia. Despite the less dominating position of the game developers and the network providers, Nokia is still reliable on them. Without the games and the networks the N-gage wouldn’t exist. Substitutes
Selling products gets more difficult in a market where a lot of similar products are available. With the N-Gage, Nokia wanted to compete with the companies of Sony and Nintendo (Emerald, 2005), both companies with more experience in gaming devices. As Nokia tried to produce a multi functional device, but gaming device as core, focusing on the target group ‘hardcore gamers’ (giving them the possibility to no longer need to carry two devices with them (game device and mobile phone)), the most competition has come from other game devices. The device was planned to replace of course both the devices of one person, but to do that it is most important for the product to be a good game device and eventually, in addition, be able to make a phone call and send an SMS. One of the competing products for the Nokia has been the Game Boy Advance SP (by Nintendo). This is a game device looking like a small laptop, with a folding screen. It has been launched in early 2003 for US $99.99. (Wikipedia, Game Boy Advance) In November of 2004 Nintendo launched a new device again: the Nintendo DS. This device has two screens, compatible with 3D-graphics, one of them being a touch screen. This product has been launched with a price of US $149,99. (Harris, 2004) 22 | P a g e
A competing product from Sony, launched at the end of 2004 in Japan, is the Sony PSP (PlayStation Portable). It is a device with a large screen, multi-media capabilities and easy connectivity with other PSP’s, the PlayStation 3 and internet. The launch price in Japan has been approximately US $181 (base model) and US $226 (value system), outselling the Nintendo DS. The launch in US has been in March 2005, for a price of US $249.99. (Lugmayr, 2005) With these launches on the market, it has been very difficult for Nokia to compete, as the launch price of the N-gage was US $299, a higher price than these three products. It has not only been price-competition; the availability of games is a competition factor as well. The Nintendo devices have different products launched before them, with games as well. These latter are able to be played on the new devices as well. Nokia is new in the field of game production not having a large number of games available and a number of popular titles. (Martini, 2004, pg23) Nintendo and Sony are serious rivals, having more, already successful titles available. Targeting the N-Gage to ‘casual gamers’ the competition from Nintendo and Sony might be less. These people might think it easy to have one console as a phone, MP3-player, FM-radio and game device; functions that Nintendo and Sony not offer. Of course the overall availability of much cheaper (but still good and nice) mobile phones must be taken into account as well. It has not been the main competitor on the market, but it is not to forget about (if the N-Gage was the first mobile on the market, it would probably have sold much better). In the year of releasing the N-Gage there were already lots of mobile phones on the market with camera on it, JAVA-applets, video-mail and more, which people bought. (IPSe, 2004) It seems that the price of $250 for the released Sony Ericsson K750i (2005) is pretty high, and not too much competition, but another thing must be taken into account: As most new mobile phones are offered free when signing a contract for a certain amount of money per month for 1 or 2 years, people think the new phones do not ‘cost’ them money. The N-Gage has not been offered with such a service, which makes it less attractive to buy if a new phone is needed. New Entrants
Nokia itself is actually a new entrant in the gaming industry, which gives them the position to take risks and invest in and discover new opportunities. By taking this step Nokia could have been an example for other mobile phone manufacturers to enter this market (Martini, 2007, pg.29-30). If the N-gage game deck would have been a great success there could have been the 23 | P a g e
possibility that companies as Siemens or Samsung would also start producing such products, which would increase the competition. Within the market of wireless gaming devices there are only a few successful companies, with large cash reserves (Sony, Nintendo, Microsoft), an oligopoly. To enter this market, large money is needed; to produce this new gaming device as well as a large number of games, which is really needed if willing to compete. New entrants are in fact forced to jump in on a large scale. Producing a popular title should cost between $3 million up to $20 million (Martini, 2004, pg28); the large money and scale makes it difficult or impossible for a small or starting company to enter this market. Another new entrant problem is brand awareness. With the oligopoly in mind, people are wellknown with the two large companies Sony and Nintendo to be the producers of good wireless gaming devices. Again large investment is needed to have your product sold, displacing the known and existing devices. For a company as Siemens or Samsung (already large companies, but with different focus) this might be possible, as they might have capital already. Still it will be very difficult; Nokia has developed a wireless gaming device, with a gaming Platform and Arena and learned from that, they are a big step ahead of companies that want to enter this market as Nokia did some years ago. Concluding from the difficulty and scale to enter this market, the threat from new entrants is low. Buyers
If a company is the only one bringing a certain product to the market, monopoly, people are not given possibility to choose the brand, thus have not much power in this market. As the Nokia N-Gage might be the only product of its kind (game device with phone function) it is not irreplaceable. Two devices (game device and mobile phone) give the same function, only bought separately. These different opportunities give the means for buyers to have a lot of power in the business of the product. The buyers have eventually, already in several days of time after the launch of the N-Gage, had the power to force the price down fiercely. Within 17 days of the release of the device different retailers (GameStop, Electronics Boutique) began offering rebates of $100 on the launch price. (Wikipedia, N-Gage) In 2004 the new N-Gage QD was released with increased usability and a 24 | P a g e
lower price of $200. In 2005 Nokia even announced to drop the price to $100 (the price for games reducing to$15-$25) and considering a second redesign of the device. (Luukkainen, 2005) As the N-Gage is a durable product, which is mostly bought with the idea of using it for a longer period (probably more than 1 or 2 years) it is said that quality of the product is important, making the buyer less price sensitive. People are more critical to service, durability and (in this case) the number of offered (qualitative) games, in this case good reviews and reliable brand can be a decisive factor. As Nokia is new in the gaming market, it has considerable competition from already well-known, innovative and reliable brands Sony and Nintendo. Next to that the first reviews on the N-Gage have not been good, naming the design-flaws. Together this gives does not give a much profitable position in the market. As buyers might have a more promising product for less money, this might have been the cause for the bad sails of the N-Gage, giving the buyers power to make the new product of Nokia a failure. On the other hand, for some people (e.g. children aged younger than 18 years) the costs of the N-Gage are pretty expensive relative to their income, which makes this target group more sensitive to the price, giving especially Nintendo a better market position, as their game devices (named under substitutes) are cheaper. So again, Nokia is in a worse market position compared to their main rivals Sony and Nintendo. From different angles the competition of competitive products is high, giving high threat from the buyers, giving them the power to force down prices, leading to a decline of the expected profit. Rivalry
The rivalry from large competitors is pretty high. As said in the part about new entrants, the market of wireless gaming devices is an oligopoly of only a few large companies, with main rivals Sony and Nintendo. These are companies with big capital, but especially much experience within this business. The rivalry within this market is mainly based on innovation. As the company of Nokia wanted to compete with Sony and Nintendo, it has to choose a strategy how to be able to compete. With the Nokia N-Gage they had meant to meet the needs of hardcore gamers, being the first company producing a mobile phone, but putting the gaming function ahead of the communication function. (Stone, 2003) 25 | P a g e
It cannot be denied that Nokia has been innovative with this new product. Putting new functions into the devices it was used to produce; doing the same thing as Sony and Nintendo. An example for Sony is the PlayStation; producing a PlayStation 2 (entertainment centre, films, games, music player) and eventually PlayStation 3 (interactive gaming device: blu-ray disc, hugh definition games, PlayStation Network availability) with new features. (Sony, 2009) For Nintendo this is the same: Game Boy Advance, Game Boy Advance SP (foldable, build-in accu), Nintendo DS (with touch-screen, two cameras, build-in internet browser). (Nintendo, 2009) The companies are competing on a level of innovation; trying to be the first with new features in their developed products or developing a total new concept (Nokia with N-Gage, Sony with the PSP), which makes the competition fierce.
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Macro business environment environment Complexity
Nowadays mobile phones get more and more complex because of the needs of the customer. Nokia wanted to react on this need for more functions and introduced a multi-functional device, the Nokia N-Gage. A lot of functions are integrated in this phone and they all have different purpose. As a result of this the user might get confused by all the different options to store or get information. Moreover the different networks (Wi-Fi, Bluetooth, radio) have to cooperate with each other, another complex system. In a lot of cases these complexities lead to problems. Another problem the N-gage has to deal with is the fact that the device shows strange behavior when more than one phone call comes in (Pedersen, 2006). All these examples are of such a complexity that it is difficult for producers to solve them. The Nokia N-gage has also coped with this problem; the product still contained mistakes that have caused bugs. The multiple features and especially the gaming one (with connectivity to NGage Platform and Arena) makes the design and engineering phase more difficult; probably impossible to go through perfectly.
Globalization
The process of developing the Nokia N-gage has taken place in different parts of the world: The products is designed, build and assembled in different parts of the world. This globalization not only adds complexity to the management of the process but the distribution and marketing of the products all over the world has become a challenging task as well. Nokia has factories all around the world; from Mexico to Hungary and from the USA to China. Three handset factories are placed in Europe, three in Asia and three in the United States of America. (Reinhardt, 2006) Hundreds of components for mobile phones and the N-gage are produced over there. The 10 factory in India is growing, which will produce tens of millions of phones per year. The company of Nokia has up to 70 operators in 36 countries; that’s why they are ranked as the world’s largest supplier. (Suominen, 1998) Because all different components are produced in different parts of the world it is hard for Nokia to control the whole process. th
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Assemblies of the Nokia components are at the main factory in Salo, Finland. All the components are brought together over there, to be assembled there. With these numbers Nokia has much complex work to do within the managing of design, manufacturing and distributing process for the product. Nokia sold more than 2 million N-Gage phones worldwide, being far below expectations; this has lead to a stop in the production of these devices. Nokia said that the N-Gage would be sold in 60 countries, in more than 30,000 electronics retailers. The device has been sold in Europe, the USA and in China, for different prices. As the value of the euro was rising against the dollar, the price in Europe was higher compared with the price in the USA. That is why the device sold better in the USA. (In the first three weeks Nokia sold 5.000 decks in the USA and only 800 decks in the United Kingdom. But the best sales have been in China, where the N-Gage sales have been started. (Reuters, 2003) The differences in market and culture from all over the world should also be included in the development phase, leading to extra complexity and work for the company again.
Product understanding
Nokia’s target group for the Nokia N-Gage is the hardcore gamers. This target group wants to play games on the device. Of course these hardcore gamers want to switch games sometimes, but the user has to remove the batteries before the user can switch games. As a result of this the user might get annoyed and the product could be sent back. Next to that, the device has another obstacle for the customer. When making a phone call, the customer has to deal with side talking. The user can’t handle the phone in a normal way, but he has to bring the device in a strange position when making a phone call. This could be another reason for the user to return the Nokia N-Gage. Next to the returning if the product does not suit the person, people will return products that might trouble from technical failure and there might be people who are not able to use the product (being too complex), which want a refund of their product as well. With the upcoming of return policies that do not ask any explanation or reasoning, the number of returned products is increasing. People have a high expectation of service and refunding of their product. This reduces the profit margins for a company selling products, like Nokia. 28 | P a g e
TimeTime-toto-Market
Profit
Time = real profit (sell of 1,3 million Nokia N-Gage) = expected profit (sell of 6 - 9 million Nokia N-Gage) (Martini, 2007) Figure 7: Profit vs. time
Nokia was the first company which entered the market with a mobile phone with a game device. For this reason Nokia has put itself in a very advantageous position. Namely, in this position it is possible to make a lot of money because there are no competitors jet. But other competitors with a game device are already on the market (Luukkainen, 2005). The Nokia NGage has to compete with these other companies who also focused on the target group of hardcore gamers. Despite the fact Nokia was the first company with a game device including phone functions, competitors were already present. Still Nokia developed this new concept because of the new combination of a phone and a game device. There were also other comparable competitors coming up. Such as the X-Box Live: A device with a communication tool (sound) in games that makes it possible for gamers to communicate with each other (X-Box Live, 2009). To be sure they would remain the first company with the mobile game device in the phone the development time should be short; therefore a lot of money has been invested. This time has been too short to manage to process of development sufficient. The Nokia N-Gage didn’t survive the competition, and thus had to stop the production and take the product off the market. 29 | P a g e
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Conclusion & Recommendations Conclusion
The Nokia N-Gage, a mobile game deck, was brought to the market in 2003, but failed to be successful. As a result of the low sails, the product has been taken off the market in 2005. Nokia had meant to compete with the companies of Sony and Nintendo in the game industry, but were not able to meet this goal. This conclusion contains a summary of the post-mortem analysis, describing the main issues that went wrong in the development and marketing process of the product. Company
Within the phase of conception and design, decisions have been made, which have lead to design flaws and a wrong target group (IDEF and MIR analysis). The design flaws include the side-talking effect, the short battery-life and the clumsy way of changing a game in the device. As for the target group; it turned out to be that the target group of hardcore gamers has not been much interested in the product. The Nokia N-Gage does not have a large library of games (which other game devices do have) and the presence of popular game titles is missed. As a result of the wrong target group, the product has been placed in, solely, game stores, which eventually was the wrong place (Ishikawa). The cause of the design flaws and choosing a wrong target group for the product was insufficient research about the target group and insufficient user testing. There has been too little or unreliable input from the aspired user (MIR analysis). Furthermore as Nokia entered this new unfamiliar market, more research than usual had to be done, which resulted in relatively high Research & Development costs. With the low amount of products sold these costs were hard to cover, which makes the profit margin much smaller (Cost analysis). Overall Nokia has found a good opportunity introducing the N-gage and especially the N-gage Arena and Platform that are still used and give an extra dimension to the product. Nokia stands for “connecting people� which they certainly achieve in this situation (Design for X). The 31 | P a g e
company dared to take a risk competing in an unfamiliar area and was able to work with other industries; game developers. But the quality of the product process and the product strategy wasn’t high at all times due to a lack in sufficient research and an incomplete plan (a missing plan B), which caused the company to make quick decisions (creating the N-gage QD) that weren’t thoroughly verified (Product success factors). Micro Business Environment
The porter analysis shows the problems within the direct business surrounding. The threat of suppliers is moderate. Nokia is not completely independent when thinking of information and material needed, but it has different options in gaining these elements from different companies. Threat of substitutes is adversely high. There have been different products on the market, with a same purpose (gaming as well as mobile phone) as the Nokia N-gage; being cheaper, having a bigger game library or given away with calling subscription. This has given Nokia a tough market to introduce a new product. On the contrary again, the threat of new entrants is pretty low. The market is an oligopoly, lead by companies with a large capital. To enter this market, large investment is needed, which makes it difficult for new entrants to enter. The buyers have had a lot of power in the failure of the N-Gage; the threat of buyers has been high. The buyers have forced the price of the N-Gage down, pretty much in a very short time period. Nokia has been in a worse market position compared to Sony and Nintendo. Finally also the threat of rivalry has been high. The competition with Sony and Nintendo has been fierce as the companies all have a same focus: innovation. Even though the threat of new entrants and suppliers is not high, there has been fierce competition in the market for the N-Gage. The companies of Sony and Nintendo have played a big role in making the N-Gage a failure, being the companies providing customers similar/replacing products. Nokia has underestimated the threat from these companies.
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Macro Business Environment
There are several trends in the macro environment of the Nokia N-Gage. One of them is that customers are asking for more and more; they want more complex devices. The great complexity of the Nokia N-Gage, might have lead to failures in the product that cannot be prevented (Complexity). Another trend is the upcoming of “no questions asked� policy. Complexity plays part in here as well (technical failure). This causes more people to send their N-gage back to the stores and ask for refunds; leading to a smaller profit again for the company (Product understanding). A third trend is the globalization of the world. Because the manufacturing is spread all over the world, a lot of extra managing work has to be done. Next to that, for sales around the world, culture and market differences have to be taken into account, which again lead to a greater complexity of the design and production (Globalization). Finally there has to be thought about the time-to-market. Nokia had the advantage of being the first in developing a device that was a combination of gaming and communication device. But future development of competitive devices should be taken into account as well, which made Nokia decide to develop their product in a short time, spending a lot of money. This time has been too short to successful fulfill the whole design process (Time-to-market). Nokia has wanted to deal with the trend of asked complexity in products and had a complex managing process because of globalization. With the upcoming competitors Nokia has tried to fulfill their development process in a short time period. This together has lead to different design flaws in the product; adding up again to the trend of easily-returning; more work in after-care and a loss of profit for the company.
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Recommendations
Because of the fact that several information flows are not correct, the development process needs some improvements. Therefore a couple of recommendations are given. First of all some design criteria need improvements; therefore user testing would help. Usertesting is important to make up good design criteria and having these is crucial, this could prevent design flaws. Another improvement could be with the target group. The product did not suit the target group, so it had needed to be more adjusted to this specific group. To reach this goal more information of the user’s opinion is needed; looking for their needs and expectations. Nokia has underestimated the competition of Sony and Nintendo, they did not realize the importance of a large game library. If Nokia would have done more research to the success factors of the competitive products, they might have had a larger focus on their game library. It is good for a company to be the first one with a product on the market, but this should always be thoroughly balanced against the quality of the development process. This might have prevented different flaws within the N-Gage and will be useful to future development processes. Recommendations in short: - More user testing. - More input from aspired user. - More research to successful competitive products. - Thoroughly balancing time/quality of development process. As can be read in the MIR analysis, Nokia has reached a MIR level 2, during the development process of the N-Gage. To improve the quality of information flows and get a controlled reliability of products, Nokia could follow these recommendations. With these adjustments to the process a higher MIR level can be reached; finding root-causes and being able to prevent these in future products.
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