When Good Isn't Good Enough.

In the math of new products, the value equation must add up.

Aaron Shapiro
September 6, 2013

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 would be tempting - but lazy - 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. 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).

"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.

*This article was originally published by FastCompany.

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