Why Nokia Could Kill The Netbook

The Finnish phone maker's new N97 device could compete with low-cost laptops.

Apple Chief Executive Steve Jobs has been dancing on the tables at Nokia's party for just a little too long, and it looks like the Finns have finally pulled out the collapsible baton. If you're a fan of consumer electronics, then this is a bone-busting brawl that you're going to enjoy.

The Nokia (nyse: NOK - news - people ) N97, introduced at the Nokia World 2008 conference in Barcelona Tuesday, is a GPS-equipped, 3G phone that comes with a touchscreen, a keyboard and a mission: stopping Apple's (nasdaq: AAPL - news - people ) iPhone.

But the real damage from the N97 could be to the emerging market for small, thin, cheap and connected laptop computers known as netbooks. After all, the Nokia N97 and even Apple's iPod Touch promise to do everything a netbook does with one key difference: You can actually slip these suckers into your pocket.

Netbooks are hot right now, to be sure. Netbooks hawked by Asus, ACER and Samsung dominated sales on Amazon.com's (nasdaq: AMZN - news - people ) computer and PC hardware category Monday.

The dinky laptops, many sporting Intel's (nasdaq: INTC - news - people ) power-sipping Atom processor have seven- and 10-inch screens, scaled-down keyboards, built-in wi-fi connections and price tags starting at less than $400. Nokia's N97, by contrast, will likely start at just under $700 when it goes on sale in Europe next year.

All those new netbook buyers will soon discover, however, that it's tough to scale down expectations to match a new price point. Not that Intel, the netbook's biggest backer, isn't trying. "If you've ever used a netbook, it's fine for an hour," Stu Pann, vice president of sales and marketing at Intel, told investors at a Raymond James IT supply chain conference. "It's not something you're going to use day in and day out."

If you own a smart phone, however, you will use it every day. Not that the N97 meant to compete, directly, with the Asus Eee PC, Dell's Inspiron Mini 9 or HP's Mini 1000. That, however, is what makes it so dangerous: The N97 isn't a laptop scaled down to be more portable and more connected. Smart phones started out that way, and, thanks to Intel, they're only going to be getting smarter.