When many phone companies shifted to making smart devices, one firm in particular — Nokia — stuck by its flip phone design. This summer, the device saw a burst in popularity among Gen Z. According to the company, daily searches for “Nokia flip phones” were up by 243 percent in May alone. The young generation grabbed up the phones on eBay, and a re-release of the 2007 Nokia 2660 sold out.
This drop and then rebirth in interest for older technology is similar to the phenomenon studied by Xu Li, a professor at the London School of Economics and Political Science. His new study, published in Strategic Management Journal, found that as competitors adopt new technology in some markets, firms that stick with the old technology may experience an initial decline before actually rebounding and even reaching new heights. While the rise of a new technology does pose a substitute threat to the old tech, the research showed it also further exposes niche segments where companies can gain a foothold with customers who favor the old technology.
Li used archival data from the traditional Chinese medicine industry in China during the 1990s for his research. In his interviews with managers in the field, he found that some chose not to innovate along with their competitors. In many cases, Li found these companies were performing well, if not sometimes better, by not making changes.
Once he dug deeper, Li discovered a U-curve effect for traditional Chinese medicine firms that chose not to adopt new technology: The decline in performance began as a few competitors started launching a new technology, but later recovered and reached new heights as most competitors had adopted the new technology and exited the old technology market. But a niche group of consumers who prefer older technology remained — which essentially gave the firms who chose not to adopt new tech a monopoly within a smaller market.
“Even though the new technology is often superior in terms of functionality, it doesn’t mean that every single customer or customer segment will be willing to move to the new technology,” Li says.
Li says practitioners need to understand what customers like about your product: “We tend to assume that if a firm introduces something new, then customers must appreciate the new thing or the newness of the offering,” he says. “But that’s not always true. The emergence of new technology can actually reveal people’s preference for something older.”
The research also refutes the idea that when the market is small, a company won’t perform better — but that depends on how many firms are still serving this niche. If only a few firms are left to serve this market, a company has far more power to charge higher prices among loyal customers with few other options.
For a company like Nokia, they’ve long offered a product that people seeking a more basic phone option can appreciate. First, this was older customers and those with disabilities, but now a younger generation is finding itself drawn to a less-is-more approach to their phones. And demand in this niche market is up, with Nokia one of the few firms remaining to offer such “old fashioned” products.
Li also says that sticking with older technology doesn’t mean never innovating. He points to the tennis racket industry, where lighter graphite rackets seemed poised to knock out the wooden racquet brands. Instead, some of those companies have continued to make updates to their wooden products and maintain a niche following. Nokia, too, innovates on the classic: The latest version of its flip phone supports a QR code reader, has Google Maps, and a basic YouTube experience.