Co-written with: Susan Etlinger, Rebecca Lieb, Andrew Jones, Linda Saindon, Brian Solis, and Ed Terpening The not-so-long awaited Twitter S-1 is out and now the intense scrutiny begins. At the heart of the analysis is what drives Twitter’s growth and value — both today and in the future. As the last of the “Big Three” social networks [read more]
It’s a year and a half now since I offered the view that RIM, the name we used to give to BlackBerry, was a busted flush in part because its new strategy was too narrow. Over the months that followed, the new CEO Thorsten Heins, made a really impressive attempt to make the company work. It didn’t, so let’s revisit the arguments.
The story around BlackBerry right now is that it was disrupted. I think we need to be clear it was not disrupted. It was out-competed and it failed to adapt to new strategic realities.
“Disruption” has a very clear meaning, yet we are applying it to every situation where an incumbent loses. Once you say disruption then you begin pigeonholing the experience – Kodak? Nokia? Steven Sinofsky wrote about it yesterday on LinkedIn:
Disruption happens when a new product comes along and changes the underlying assumptions of the incumbent, as we all know. Incumbent products and businesses respond by often downplaying the impact of a particular feature or offering.
Actually that definition needs tightening up. Disruption happens when a new technology comes along and challenges the underlying assumptions of an incumbent’s technological advantage.
But Sinofsky also points out that disruptions in smartphones are manifold and broad ranging. After suggesting that many assumptions about what a phone should do were all challenged at the same time, Sinofsky says:
Even in the case of Blackberry there was a time window of perhaps 2 years to respond–is that really enough time to re-engineer everything about your product, company, and business?
Clearly not. But that brief sentence does not talk about disruption – it really alludes to a new business paradigm. BlackBerry was not disrupted. It failed to make the phase change to a new type of company.
That’s why I’ve been writing about strategic options planning as an essential innovation strategy. BlackBerry never really tried to get a broader portfolio going and it is still stuck in the position of playing the hand it has been dealt rather than one it has created. It never began to contemplate the types of adjacencies that today’s incumbents are taking on – Intel into TV? McLaren, the Formula 1 champions, into child health monitoring? Companies are moving beyond the core to create new revenue streams and new synergies.
What BlackBerry did was try to improve its performance, improve its product and build a stronger ecosystem. These were all ways of developing the core business on – or trying to rescue it. Its options portfolio though needed to reach into new markets, with new products, not least because it had already been outcompeted not just by Apple but also by Samsung.
Part of the RIM response prior to launching the Z10 was a road show where Heins persuaded thousands of developers to invest in creating the apps that would make BlackBerry a contender in the smartphone sector it once dominated. Analysts also got to hear the story and by the time RIM/BlackBerry launched the new OS platform and new devices, it was poor form to suggest, once again, it would not work.
My feeling at the time of the Z10 launch was that the company was primed for a sale, and saying so here on Forbes I attracted some hostile remarks. The fact is though it was hard to see BlackBerry making it because it continued to have a very narrow range of options.
Strategic options management is the new core competency. You need a wide and growing range of competencies, in effect a fluid core, that allows you to seek new ways of acquiring or satisfying customers. This idea of the fluid core is growing in importance. This week I talked with people in Helsinki about plugging the gap left by Nokia. Their minds are full of fluid core strategies, spotting new opportunities, acquiring the competency to fulfill and then chasing down the markets.
It’s because companies have been possessed by the idea of one unmoving core that they are beginning to fail big time – and sadly Nokia is one such example.
There is another clue about the catastrophic performances of Nokia and BlackBerry. Both entered a phase where they were unable to make decisions. Seems unbelievable but something as simple as decision paralysis plays a major part in companies’ decline. They simply neglect to create new decision models.
My conversations in Helsinki convince me that this critical failure played a part in Nokia’s demise. In the end they handed over the decision making to a CEO who had a very narrow view of the future – cut and ally with Microsoft. And Elop’s saving grace? At least he made decisions.
Here is what I said 6 months ago. It still holds true as an interpretation of what went wrong, comparing RIM to its competitors:
Look around at the competition and you can see complex strategic options planning at work. They do not just have a smartphone, nor are they restricted to a smartphone and a tablet. They are in phones, computers, tablets, ads, infrastructure, services, content, and more.
This portfolio planning is the essence of innovation today. If you don’t have a couple of hundred options in the market, you are easy to pick off.
This was 18 months ago, when I narrowed the competition down to Apple, who had:
introduced a software-style upgrade cycle into hardware and are playing it like no device strategy I’ve seen to date – that’s especially the case with the iPad and the iPhone. But it would be no surprise if there was a sudden announcement on a new TV initiative or a revamped iAds service or if Siri started appearing in all kinds of devices. They could lower their prices at will or they could choose a new premium price point for an upgrade. The point is these are multiple, credible options that the board can play around with, and make a move on depending on the circumstances.
To compete at this level companies need to make dozens of strategic decisions a month, hundreds, if not thousands, in a year. To create strategic options’ portfolios you need new decision processes that push decision making closer to the edge where staffers interact with the corporate ecosystems. Many major companies hate doing that. But without new decision models you cannot create options.
I am currently studying the transformation of decision-making techniques in major corporations globally. If you have a view or want to be interviewed, and get access to the results, get in touch. I’ll present some findings in November, in San Francisco and in Oxford, and possibly in Amsterdam.
My final thought on BlackBerry is that it was a failure of this options-based, devolved decision making that is every company’s future. Even Apple’s – the Tim Cook regime is a broad-based one where decision making is devolved. It is working.
What the companies said to the world reflects two very different strategies. But both excel at what they do. Apple is the most successful service company on the planet. Samsung is a manufacturing and innovation powerhouse. What have we learned from them in recent weeks about where strategy and leadership should focus?
The short answer is we are learning about how the future of business is being bedded-in by two extraordinary practitioners. The longer answer is we can also earn a lot from the conflict between them:
1. Business is about the platform. Apple is no longer a product business, despite the apparent dependency on the iPhone. It is a platform business and its leadership lies in continuously developing the potential of its platform. If you want an insight into Apple, look at the iPhone 5S. Its major innovation is the A7 chip and what that does is open up a new word of service – contextual computing for example, and interaction with data rich services in monitoring, personal data, health data, location services etc. Apple continues to win on profits because it has mastered, indeed is inventing, platform and ecosystem business strategy.
Look at the form-factor of the iPhone and you see it is more or less unchanged. The 5C has different colors but there is no underlying innovation to go with them – no innovation in material to justify the superficial design change. In fact the 5C is an anti-Ive product. A designer of Ive’s stature should not slap color on a phone without some underlying justification like making use of a ceramic or other innovative material. But that’s ok, because Apple is innovating the platform and it has not been swayed by criticism of the product. Thaat’s how it keeps Samsung at bay.
Leadership lesson? Leaders need total focus on business transformation – from product to multiple services and revenue streams built around platform and ecosystems where possible. It’s a really durable competitive position to build.
2. Making the big calls still matters. Samsung responded to Apple’s iPhone 5S A7 chip by saying it too was ready with a 64 bit processor. It pre-empted Apple with a wearable device – the Galaxy Gear smartphone. And launched the new Note, having already launched 4 flagship S4 phones, its ATIQ range of tablets and laptops, and various low cost phones during the year.
Samsung has created an entirely new pace of innovation in hardware, turning technical novelty into a commodity that only it has mastered. To do that though requires big calls on future technologies. Samsung took 10 years to develop efficient production of OLED, its display technology. The investments the company makes are mind-boggling, dwarfing Apple and every other company I can think of. It’s technology investment for 2012 were $41 billion according to Reuters. OLED factories cost billions to set up and run. Few companies will pony up – think Intel in its heyday. But investment muscle is sometimes the only way to compete with an agile leader like Apple.
Leadership lesson? There is still scope for hardware innovation but the commitments are huge, beyond the willingness of many western business leaders. Bigger investment risks need to come back on the agenda.
3. Design is a commodity. Design has become a necessary but not a sufficient ingredient of success. The Samsung Galaxy Gear is a design failure. The S4 is a success. But, as its compatriot Hyundai has shown, it is possible to buy success simply because good design skills are now freely available on the market. There is no longer any excuse for design failure.
But Apple is showing us, ironically, that design is not so central as it was when they launched the iPhone. The new 5s have the same form factor with a few tweaks. More critical is the design of the overall package – the service experience including what connectivity the service allows.
Leadership lesson? Companies can’t afford to overlook great design but nor can they rely on it. Good leaders will be looking for the next design advantage – integrating service, software, hardware and connection.
4. Charisma is no longer necessary. A development that is difficult for some Apple observers to accept is that the company is going from strength to strength without the charismatic leadership of Tim Cook has done a great job at Apple, involving teams to help him turn the tanker slowly around. Samsung is able to respond because of its broad-based innovation capabilities. It can innovate across chips, materials, displays, production processes, design, all with a view to compensating for its lack of service skills. Those latter however have to be put in place soon or Samsung will miss the value it is creating in its customer base. Both companies are showing that large and growing enterprises are still relevant..
Leadership lesson? Innovation is a broadly based skill set, far removed from the old days when a good product could meet a big marketing budget and win markets. It’s no longer about charisma either but finding more social ways to bring innovations through to market.
It’s fascinating to see companies climbing up the value chain and getting nearer to end customers. Dolby, the original “inside” is doing it with video and sound. Intel announced Friday it has made a significant investment in Recon, makers of what must be the most advanced wearable computing devices to date.
Recon, until recently, were a classic “inside” play, providing the wearable computing in the Smith + Recon Ski Goggle. The goggle provides a slew of information including speed, jump analytics, altitude, distance, location, temperature and much more. Recon jet is Recon’s own cycling and runner glass.
Intel capital has invested “significantly” according to Recon Instruments, in particular to fund global sales expansion.
The relative decline of the PC is painful for Intel, a major beneficiary of the PC era. Its move into these new areas of business, though, is not just because it needs to be in wearables and therefore to become an essential part of the future computing infrastructure. It could do that without moving from its core business.
What makes it so interesting is how the emerging device economy is forcing America’s tech brands like Intel into new adjacency moves that take them up the value chain and into new consumer facing business cultures.
Playing the adjacency game has become core to many US behemoths.
Intel recently acquired Mashery, the API management experts. That move was interpreted as a way into data center revenues but in fact API management is a key strategic management and transformational service. As much as anything it will make Intel a trusted adviser on business transformation (transparency statement – I am doing some paid work for Mashery’s competitor Apigee and will be speaking at the upcoming iIoveapps conference on decision-making in digital transformation).
The move into wearables though will also accelerate Intel’s opportunities in its struggle with mobile device ch9p designer ARM. Eweek reports on Intel’s underlying chip ambitions in wearables:
During the Intel Developer Forum earlier this month, Krzanich unveiled Quark, an upcoming family of low-power systems-on-a-chip (SoCs) that will be smaller than the company’s Atom offerings and be aimed at such Internet of Things systems as industrial machines and wearable devices. The Quark chips will be a fifth the size of the Atom SoCs and consume a tenth of the power, according to Intel executives.
Today’s superstar businesses are device companies, integrating hardware, software, services and connection. We don’t get much chance to stop and think what that new product model means to how you do R&D, product development and innovation. But Apple is showing us. While we were fixated on hardware, on the iPhone, the Cupertino company is disrupting radio with its new, to the smartphone, iTunes radio service.
Like it did with MP3s , Apple is not offering anything essentially innovative in product terms with iTunes Radio but the mix of all four elements above – hardware, software, service and connection – is making a difference to the sector’s business model, already. Remember Apple got 11 million unique listeners on the launch weekend, despite problems with iOS7 downloads.
And therein lies another lesson for those of us trying to figure out what a modern services business looks like. Sometimes it’s not the product or even the service that you need to influence – it’s the structure of a sector that needs to change. While most commentary focused on the impact of iTunes Radio on Pandora, there is a bigger picture and a disruption already underway.
For anyone interested in the wider transition to service-based businesses, Steve Denning was talking about the fundamentals of business strategy yesterday – I chipped in with a few comments. Radio, I think, is a good case-study for how structural change takes place.
I got talking yesterday to Patrick Reynolds, Chief Strategy Officer at Triton Digital, a company that provides services to digital radio, about this very topic. Apple and changes to the radio business.
Triton’s clients include the biggest players in radio – Clear Channel and Cumulus, for example. And the company’s role is to help them migrate to digital, with all that implies about new advertising models, audience building, technology and new revenue streams.
“iTunes Radio changes things substantially,” Patrick told me, “11 million people in just three days, that’s a good number and good pick up especially with iOS7 problems. I don’t think it’s a coincidence that a couple of days before the launch Clear Channel announced a new deal with Warner music that adjusted its digital royalty down and means it will pay a royalty for over the air.”
Here’s Billboard on that announcement:
The alliance will allow WMG to promote its artists across Clear Channel’s 850 radio stations, online streams, and iHeartRadio programming. In exchange, WMG will share its revenue gained from all platforms.
It’s not immediately clear what the significance of that is, at least to those of us who are not steeped in radio. But “all platform” is the key phrase. Patrick explains that currently, in the US at least, radio stations do not pay a royalty on over-the-air plays. That means they get, largely, free content. The money goes into towers and promotion.
On the other hand digital stations and streaming do pay a royalty. So the advance of digital is somewhat halted by the intrusion of this different cost base.
The new Warner deal reduces Clear Channel’s digital royalty fee but introduces an over-the-air fee. In other words it levels the playing field between digital and traditional radio. And it’s only a matter of time before this one deal sets a standard for the industry. It’s immediate effect is to allow Clear Chanel to invest more aggressively in its digital service IHeartRadio. And its most likely impact is to accelerate the advance of digital.
The reason Patrick attributes change to Apple’s new radio service is easy to determine. Apple is the most significant distributor of music. According to Gizmodo:
Almost in step with Clear Channel, Cumulus, the second largest radio network in the US, announced an investment in Rdio, giving it access to digital and the mobile platform and Pandora announced a fund raising of $231 million. By the way, I was talking last week to Vince Voron, creative VP at Dolby and guess where their next generation products are headed? Smartphones, to improve the quality of listening for digital audio services.
Compared to Apple’s 11 million in one weekend, Clear Channel gets 230 million monthly listeners. Reynolds reckons it will take 30-50 million a week for Apple to be a player in this space. But that number looks well within its reach. Apple has over 500 million customers signed up to iTunes and can monetize via ads, music sales, and cross-selling in the iTunes store (which brings revenues of about $10 billion a year). It’s one more piece in the puzzle of Apple’s diversified revenue streams and an object lesson to any company migrating to services.
More importantly though, the business model in radio, long due a change, is now restructuring around digital in response. Apple is disrupting again.
Today’s announcement that retailer Tesco has launched a new tablet, the Hudl, is further evidence that we are entering a device economy where the dynamics of product sales and pricing are radically changed.
Tesco is the world’s number 2 retailer by profit, after WalMart, and wants a part of the mobile market, even at next to no margin.
It is only three years since Apple launched the iPad, six since the iPhone. But for a number of reasons it is the space between the two, the 6″ and 7″ devices that might well end up being the more durable innovation in the long term. That is the shrunk down computer rather than the blown-up phone.
Tesco’s move illustrates the main element of the device war ahead. If you are a major supplier of anything consumer-related you suddenly find that your main and growing channel is someone else’s device. If you are Tesco do you really want to depend on your customers finding your e-commerce app buried in the App Store or Play? You don’t, and that’s also why Amazon forked Android and became a fully fledged device company.
Tesco’s Hudl runs the latest version of Android, has a 1.5 GHz processor, an HD screen and expandable storage. Pricing is even more aggressive than Amazon’s. According to the BBC:
From the Google Nexus 7 to the Amazon Kindle Fire, there is now plenty of choice in the £100-£200 range. The Hudl at £119.99 should compete well here.
That’s 30% cheaper than the Kindle Fire. The reality if though that companies who depend on the end consumer have to become players in the device economy. The big surprise so far is that other retailers and banks have been slow to take up that opportunity, spending instead on mobile apps and the huge cloud integration projects it takes to support them.
We are entering a new phase of the service economy too – where service depends on being able to lay out a first rate experience for customers. Most companies have little idea of what that actually means but Tesco is a little like Apple in that respect. It is very customer focused and very adjacency driven.
Compare Tesco’s offer with that of Xiaomi, the aggressive Chinese smartphone company that sells at cost in order to engage customers, and draw them into services.
Take a little time too to reflect on the expanding range of services that smartphones and phablets are going to offer – they are service ready now that they have moved into 64 bit processing. They will offer an increasing array of health-related services (Google recently took the unusual step of creating its own health start up, Calico). And they will expand their professional services. They will be the pivot through which consumers enrich their experience of the world.
I talked recently with Daniel Marovitz, CEO of Buzzumi, a video personal and professional communications tool. Daniel’s products have helped support projects like The Big White Wall, a therapeutic consultation program for veterans. I wrote about it here on Forbes. Marovitz is busy with new applications of visual communications and his view is that the larger form factor of the device, differentiating it from the phone, is essential.
“The iPhone is great for emails, reading and social networks,” he says. “But not for face-to-face. Because there are structural elements to that, the visual aspect adds essential information.” He argues that the use of a smaller form factor trivializes the communication. The Big White Wall refuses to use them and he expects something similar of many healthcare applications.
He also points out that with sales and other professionals preferring to travel less, video communications is becoming increasingly pivotal to how we do our jobs.
So add the expansion of services on the smartphone to the growing need for professionals for video communications and the tablet/phablet looks like a durable candidate for serious communications. Equally, service experience will become increasingly the differentiator for any consumer facing company as hardware commoditization picks up pace.
We know in the table market Google has been working on tight margins. But to get in there with them Amazon and Tesco have decided to take no profit from the device sale. It’s going to put pressure on Apple, eventually. The growing band of companies commoditizing the device will make it difficult for the Cupertino-based company to grow its user base and retain its margins as the overall market expands. Better to deepen services and grow revenue there.
How we will experience life through phones, tablets, phablets and services is changing. The device revolution is hotting up.
Jeremiah Owyang will be leaving Altimeter Group at the end of September to start a new company focused primarily on his passion for the Collaborative Economy. You can read his post about his new venture here. Jeremiah and I go back a long way, to a chance meeting at the very first TechCrunch party in […]
If business 2.0 was largely about dealing with the consequences of a more user-driven web, business 3.0 is about mobile and the need to exploit or respond to an Internet where many more “things” communicate. It is partly about an Internet “beyond people” and also the emergence of much more capable smartphones and how they may or may not dominate a device economy.
But crucially, in such a connected world, it is about business ecosystems. This week we learned more about ecosystem strategy from Apple’s titanic battle with Google and Samsung.
The smartphone industry is driven by business ecosystems. Business ecosystems are a phenomenon we don’t talk about much – well, we refer to them. The Apple ecosystem or the Android ecosystem. But we don’t do a whole lot to understand the dynamics of these revolutionary business processes. If we treated accounting or supply chain to as little analysis we’d be asking why.
The device age, the Internet of things, goes hand in glove with business ecosystems. Together they matter to every business because in order to enable transaction you need partners, a payments part (more than one), apps, an app platform, some dependence on APIs to one or more additional platform, services buried within services (my XBox is buried within Netflix, or is the other way round?), all, increasingly, connected to the phone.
Business strategists now need to wake up to the device age, when most business transactions will be accomplished through a device of some kind. They also need to start thinking of how their ecosystems stack up competitively against those of their competitors. What is our ecosystem strategy , should be a question for any CEO.
We’ve had competitive ecosystems for a while. In mobile that now means Android vs iOS vs Windows. In other sectors the idea of ecosystems is not as developed but the points of comparison are interesting, if only to flesh out the idea that this is a new “process”.
You might count Forbes’ contributor community as a content ecosystem that is competitive with that of the Huffington Post or the New York Times’ blogger community.
Forbes seems to have a better incentive system than its competitors and that is one reason why its visitor numbers have grown so quickly. Beyond that Forbes is continuously developing additional features for its site.
Content ecosystems are interesting. They are evolving. Incentives are a major factorBut I’d still contend that this week we saw ecosystem strategy notched up a level by Apple. Content ecosystems like Forbes and Huffington Post are much simpler entities. The smartphone sector is more complex and there is more to learn about competitive strategy from them.
So what happened this week that other executives can learn from? Apple‘s introduction of the 64 bit A7 processor has allowed Apple to take back the competitive initiative from Google.
Processing power might seem like a technological contest similar to Samsung’s use of larger screens – a move that has left Apple looking outdated. But that is Samsung doing battle with Apple. Samsung makes better displays than Apple. Company v company.
The processor upgrade is ecosystem vs ecosystem.
It matters to all the companies around iOS and Android. And that’s one takeaway for executives outside smartphones. Ecosystems can play off against each other. They are like systemic battles rather than just company v company.
The possibility of a 64 bit smartphone has been around for two years, yet Apple still seems to have blindsided Google. Android is not ready for 64 bit, iOS 7 is. To get to the next level Google needs to collaborate with Oracle owner of JAVA, as well as to do its own redevelopment work. The first is an uncomfortable prospect and it will take time; the second is just a matter of time but time is of the essence.
Meanwhile Apple arch-rival Samsung says it will incorporate 64 bit processors in its next top-end Galaxy smartphones. That has several implications. If Google is not able to organize its ecosystem quickly enough to enable Samsung, then one effect could be to delay the launch of the next generation of Galaxy phones, the Galaxy 5, and force Samsung onto a longer innovation cycle, taking away one of its main competitive advantages.
Not since the legislative debate over spam back in the early part of the millennium has a digital marketing term been so riddled by obfuscation and misunderstanding as native advertising. A quick search of the term on Google returns an impressive 219 million results, yet to date there’s been no real definition of what marketers, […]
As the founder of a small business, I know that the hiring and departure of each and every person makes a huge impact of the firm — and that this is an evitable part of the business. I’m proud to announce that two people are joining Altimeter, including our new COO. And we’re also bidding […]