Poke’Mon Go is a new sensation. Just launched on July 6, the app is already the #1 app in the world – and it isn’t even available in most countries. In less than 2 weeks, from a standing start, Nintendo’s new app is more popular than both Facebook and Snapchat. Based on this success, Nintendo’s equity valuation has jumped 90% in this same short time period.
Some think this is just a fad, after all it is just 2 weeks old. Candy Crush came along and it seemed really popular. But after initial growth its user base stalled and the valuation fell by about 50% as growth in users, time on app and income all fell short of expectations. And, isn’t the world of gaming dominated by the likes of Sony and Microsoft?
A bit of history
Nintendo launched the Wii in 2006 and it was a sensation. Gamers could do things not previously possible. Unit sales exceeded 20m units/year for 2006 through 2009. But Sony (PS4) and Microsoft (Xbox) both powered up their game consoles and started taking share from Nintendo. By 2011 Nintendo sale were down to 11.6m units, and in 2012 sales were off another 50%. The Wii console was losing relevance as competitors thrived.
Sony and Microsoft both invested heavily in their competition. Even though both were unprofitable at the business, neither was ready to concede the market. In fall, 2014 Microsoft raised the competitive ante, spending $2.5B to buy the maker of popular game Minecraft. Nintendo was becoming a market afterthought.
Meanwhile, back in 2009 Nintendo had 70% of the handheld gaming market with its 3DS product. But people started carrying the more versatile smartphones that could talk, text, email, execute endless apps and even had a lot of games – like Tetrus. The market for handheld games pretty much disappeared, dealing Nintendo another blow.
Competitor strategic errors
Fortunately, the bitter “fight to the death” war between Sony and Microsoft kept both focused on their historical game console business. Both kept investing in making the consoles more powerful, with more features, supporting more intense, lifelike games. Microsoft went so far as to implement in Windows 10 the capability for games to be played on Xbox and PCs, even though the PC gaming market had not grown in years. These massive investments were intended to defend their installed base of users, and extend the platform to attract new growth to the traditional, nearly 4 decade old market of game consoles that extends all the way back to Atari.
Both companies did little to address the growing market for mobile gaming. The limited power of mobile devices, and the small screens and poor sound systems made mobile seem like a poor platform for “serious gaming.” While game apps did come out, these were seen as extremely limited and poor quality, not at all competitive to the Sony or Microsoft products. Yes, theoretically Windows 10 would make gaming possible on a Microsoft phone. But the company was not putting investment there. Mobile gaming was simply not serious, and not of interest to the two Goliaths slugging it out for market share.
Building on trends makes all the difference
Back in 2014 I recognized that the console gladiator war was not good for either big company, and recommended Microsoft exit the market. Possibly seeing if Nintendo would take the business in order to remove the cash drain and distraction from Microsoft. Fortunately for Nintendo, that did not happen.
Nintendo observed the ongoing growth in mobile gaming. While Candy Crush may have been a game ignored by serious gamers, it nonetheless developed a big market of users who loved the product. Clearly this demonstrated there was an under-served market for mobile gaming. The mobile trend was real, and it’s gaming needs were unmet.
Simultaneously Nintendo recognized the trend to social. People wanted to play games with other people. And, if possible, the game could bring people together. Even people who don’t know each other. Rather than playing with unseen people located anywhere on the globe, in a pre-organized competition, as console games provided, why not combine the social media elements of connecting with those around you to play a game? Make it both mobile, and social. And the basics of Poke’Mon Go were born.
Then, build out the financial model. Don’t charge to play the game. But once people are in the game charge for in-game elements to help them be more successful. Just as Facebook did in its wildly successful social media game Farmville. The more people enjoyed meeting other people through the game, and the more they played, the more they would buy in-app, or in-game, elements. The social media aspect would keep them wanting to stay connected, and the game is the tool for remaining connected. So you use mobile to connect with vastly more people and draw them together, then social to keep them playing – and spending money.
The underserved market is vastly larger than the over-served market
Nintendo recognized that the under-served mobile gaming market is vastly larger than the overserved console market. Those console gamers have ever more powerful machines, but they are in some ways over-served by all that power. Games do so much that many people simply don’t want to take the time to learn the games, or invest in playing them sitting in a home or office. For many people who never became serious gaming hobbyists, the learning and intensity of serious gaming simply left them with little interest.
But almost everyone has a mobile phone. And almost everyone does some form of social media. And almost everyone enjoys a good game. Give them the right game, built on trends, to catch their attention and the number of potential customers is – literally – in the billions. And all they have to do is download the app. No expensive up-front cost, not much learning, and lots of fun. And thus in two weeks you have millions of new users. Some are traditional gamers. But many are people who would never be a serious gamer – they don’t want a new console or new complicated game. People of all ages and backgrounds could become immediate customers.
David can beat Goliath if you use trends
In the Biblical story, smallish David beat the giant Goliath by using a sling. His new technology allowed him to compete from far enough away that Goliath couldn’t reach David. And David’s tool allowed for delivering a fatal blow without ever touching the giant. The trend toward using tools for hunting and fighting allowed the younger, smaller competitor to beat the incumbent giant.
In business trends are just as important. Any competitor can study trends, see what people want, and then expand their thinking to discover a new way to compete. Nintendo lost the console war, and there was little value in spending vast sums to compete with Sony and Microsoft toe-to-toe. Nintendo saw the mobile game market disintegrate as smartphones emerged. It could have become a footnote in history.
But, instead Nintendo’s leaders built on trends to deliver a product that filled an unmet need – a game that was mobile and social. By meeting that need Nintendo has avoided direct competition, and found a way to dramatically grow its revenues. This is a story about how any competitor can succeed, if they learn how to leverage trends to bring out new products for under-served customers, and avoid costly gladiator competition trying to defend and extend past products.
I was born the 1950s. In my youth of the ’60s there was no doubt that the #1 sport in America was baseball. Almost every boy owned a bat, ball and glove and played baseball. When we went out for recess there was always a softball game somewhere on the playground.
Fathers told stories about how on the battlefields of WWII they would shout questions about baseball players and World Series statistics to each other to determine if the “other guy out there” was an American, or a German trying to sucker the Americans into the open. Baseball was so relevant every American was expected to know the details of players, games and series.
In that era, lots of baseball was played in the daytime, since the game and its parks preceded the era of great field lighting. Men regularly took off work to attend ball games, and it was considered fairly normal. People listened to baseball games on the radio at work.
And when the World Series came along, which was played around Labor Day, it was so beloved that people took TVs to work, hooked up makeshift antenna and watched the games. Even schools would set up a TV on the gymnasium stage and let the students watch the game — and some enterprising teachers would set up televisions in their classrooms and eschew teaching in favor of watching the series. It was even bigger than today’s Super Bowl, as pretty nearly everyone watched or listened to the World Series.
No longer. World Series viewership has been on a decline for at least 40 years. According to Wikipedia, World Series viewership was about 35million in the 1986-1991 timeframe. By 1998-2005 viewership was down to averaging 20million – a 40% decline. By 2008-2014 viewership had declined to 12million -another 40% decline – or a loss of 2/3 the viewership in 25 years.
By comparison, regular season games in the NFL 2014 season averaged about 18million viewers, and 114million people watched the February, 2015 Superbowl – almost 10 times World Series viewership. Even the women’s FIFA World Cup soccer match last July drew 25million American viewers – twice the World Series.
Are you aware the World Series is happening now? I will forgive you if you didn’t know. Marketwatch.com headlined “This Is the Most Exciting World Series No One is Watching.” From what was the #1 sporting event in America, and possibly the world, 50 years ago the World Series has become nearly irrelevant for most people.
Why? Trends have made the World Series, and really baseball, obsolete.
Big Trend #1 – We’re out of time. The pace of life is far, far different today than it was in 1965. Laconic weekday afternoons lounging in a ballpark to watch a game are a thing of the past. The fact that baseball has no time limit is probably its most negative feature. Games are a minimum of 9 innings, but in case of a tie they can last many, many more. Further, if it rains the game is delayed, which can extend the time an hour or more. Thirdly, you have no idea how long an inning may take. 15 minutes, or an hour, all depending on a raft of variables that are impossible to predict.
Game 1 of this current series is a great example of the problem this creates. The game lasted 14 innings. There was a rain delay in the middle of the game. Overall, it was a 5 hour 9 minute event. While this set a new record for a World Series game length, it clearly demonstrates the problem of a sporting event which has no clock.
The most popular games are highly clock bound. Football and basketball not only have limits on the game length, there is a clock limiting the time between plays (or shots.) Soccer is timebound, and there are no time outs. In these games that have greatly grown popularity people know how long a game will take, and that is important.
Big Trend #2 – Action. When was the last time you played a board game, like Monopoly or Life? Do you even own one any longer? Today games are action intensive. In the 1960s a pinball machine was the closest thing anyone had to an “action game.” Look at any game today, via console, computer or mobile device, and there is action. Even Tetris had action to it, and that is nothing compared to the modern video game. People now like action.
Then there is baseball. A “perfect game” – the ultimate for this sport – happens when 21 people bat, and every one walks back to the dugout without reaching base. Quite literally, nothing happens. A pitcher and catcher play catch, while the batters watch. The next most vaunted game is a “no-hitter,” in which people reach base via a walk or an error – but it again reflects a lack of action in that no batter achieved a hit. The third most celebrated game is a “shutout,” meaning one team literally ended the game with a score of Zero. Goose egg.
Baseball is a game of very little action. A really good game often ends with each team having less than 10 hits. It is rare for there to be more than 2 home runs in a game, and often there are games with no home runs at all. Heck, even in golf at least the athletes are hitting the ball 60+ times apiece!
We live in a world today where people run for fun. Or ride bicycles. Where people join gyms to work out on treadmills, rowers, stationary bikes and weight machines. Nobody did this kind of thing in the 1960s. People today are active, and being active is a sign of health, vitality and well-being. Sedentary behaviors are frowned upon. There is no sport with less action than baseball (except maybe darts.)
Big Trend #3 – Globalization. Despite Mr. Donald Trump’s xenophobic appeal, globalization is an unstoppable trend. Our businesses and our lives are increasingly global, as it is doubtful any American goes a day without touching a product or service delivered from an offshore source. And unlikely most Americans live any given day without talking to someone born in a foreign country, or entertaining them with news, information, sports or programming from outside the USA.
There is no sport which makes this clearer than soccer. Due to its global appeal, 715million people watched the final game of the 2006 World Cup (55 times the World Series.) 909million people watched the final 2010 World Cup game (71.5 times the current World Series.) [note: FIFA has not published numbers for the 2014 final game in Brazil, but it is surely going to exceed 1B viewers.]
American impact? There were almost as many Americans (11million) that watched the first round match between the USA and Ghana in the 2014 World Cup as are now watching a World Series Game. And the 2014 World Cup final game had 17.3M U.S. viewers – 34% more than are watching the World Series this year.
Basketball has some international appeal, as there are leagues across Europe and some in South America. And my son was shocked at how much people watched and played basketball on his trip to China. And we see globalization reflected in the players names now in the NBA.
We also see globalization reflected in the NHL, which has many players from outside the USA. And viewership is growing for NHL Stanley Cup games, although it is still only about half the World Series. But given the trajectories of viewership, and the fact that hockey is both a timed sport as well as action-filled, Stanley Cup watchers could exceed World Series watchers in just a few years.
Simply put, baseball has never extended strongly beyond the USA and Japan. Lacking competitive teams and viewers outside the USA, as well as limited non-USA player recruitment, this “most American of sports” is off one of the country’s (and planet’s) major trends.
In short, the world moved and baseball did not change with the times. People don’t live today like they did in the 1930s-1960s. Trends are vastly different. New sports that were better linked to major trends, and which adapted to trends (by adding things like shot clocks and play clocks, for example) have gained viewers, while baseball has declined.
Baseball didn’t do anything wrong. It just didn’t adapt. And competitors have moved in. Just like happens in business — which, of course, is the reason we have professional sports – you either adapt or you become obsolete.
The World Series was once the most relevant sporting event on the globe. No longer. And lacking some major changes in the game, its ability to ever grow again is seriously questionable.
Yesterday Microsoft conducted a pre-launch of Windows 10, demonstrating its features in an effort to excite developers and create some buzz before consumer launch later in 2015.
By and large, nobody cared. Were you aware of the event? Did you try to watch the live stream, offered via the Microsoft web site? Were you eager to read what people thought of the product? Did you look for reviews in the Wall Street Journal, USA Today and other general news outlets?
Microsoft really blew it with Windows 8 – which is the second most maligned Windows product ever, exceeded only by
Vista. But that wasn’t hard to predict, in June, 2012. Even then it was clear that Windows 8, and Surface tablets, were designed to defend and extend the installed Windows base, and as such the design precluded the opportunity to change the market and pull mobile users to Microsoft.
And, unfortunately, that is how Windows 10 has been developed. At the event’s start Microsoft played a tape driving home how it interviewed dozens and dozens of loyal Windows customers, asking them what they didn’t like about 8, and what they wanted in a Windows upgrade. That set the tone for the new product.
Microsoft didn’t seek out what would convert all those mobile users already on iOS or Android to throw away their devices and buy a Microsoft product. Microsoft didn’t ask its defected customers what it would take to bring them back, nor did it ask the over 50% of the market using Windows 7 or older products what it would take to get them to go to Windows mobile rather than an iPad or Galaxy tablet. Nope. Microsoft went to its installed base and asked them what they would like.
Imagine it’s 1975 and for 2 decades you have successfully made and sold small offset printing presses. Every single company of any size has one in their basement. But customers have started buying really simple, easy to use Xerox machines. Fewer admins are sending even fewer jobs to the print shop in the basement, as they choose to simply run off a bunch of copies on the Xerox machine. Of course these copies are more expensive than the print shop, and the quality isn’t as good, but the users find the new Xerox machines good enough, and they are simple and convenient.
What are you to do if you make printing presses? You probably need to find out how you can get into a new product that actually appeals to the users who no longer use the print shop. But, instead, those companies went to the print shop operators and asked them what they wanted in a new, small print machine. And then the companies upgraded their presses and other traditional printing products based upon what that installed base recommended. And it wasn’t long before their share of printing eroded to a niche of high-volume, and often color, jobs. And the commercial print market went to Xerox.
That’s what Microsoft did with Windows 10. It asked its installed base what it wanted in an operating system. When the problem isn’t the installed base, its the substitute product that is killing the company. Microsoft didn’t need input from its installed base of loyal users, it needed input from people who have quit using HP laptops in favor of iPads.
There are a lot of great new features in Windows 10. But it really doesn’t matter.
The well spoken presenters from Microsoft laid out how Windows 10 would be great for anyone who wants to go to an entirely committed Windows environment. To achieve Microsoft’s vision of the future every one of us will throw away our iOS and Android products and go to Windows on every single device. Really. There wasn’t one demonstration of how Windows would integrate with anything other than Windows. And there appeared on intention of making the future an interoperable environment. Microsoft’s view was we would use Windows on EVERYTHING.
Microsoft’s insular view is that all of us have been craving a way to put Windows on all our devices. We’ve been sitting around using our laptops (or desktops) and saying “I can’t wait for Microsoft to come out with a solution so I can throw away my iPhone and iPad. I can’t wait to tell everyone in my organization that now, finally, we have an operating system that IT likes so much that we want everyone in the company to get rid of all other technologies and use Windows on their tablets and phones – because then they can integrate with the laptops (that most of us don’t use hardly at all any longer.)”
Microsoft even went out of its way to demonstrate how well Win10 works on 2-in-1 devices, which are supposed to be both a tablet and a laptop. But, these “hybrid” devices really don’t make any sense. Why would you want something that is both a laptop and a tablet? Who wants a hybrid car when you can have a Tesla? Who wants a vehicle that is both a pick-up and a car (once called the El Camino?) Microsoft thinks these are good devices, because Microsoft can’t accept that most of us already quit using our laptop and are happy enough with a tablet (or smartphone) alone!
Microsoft presenters repeatedly reminded us that Windows is evolving. Which completely ignores the fact that the market has been disrupted. It has moved from laptops to mobile devices. Yes, Windows has a huge installed base on machines that we use less and less. But Windows 10 pretends that there does not exist today an equally huge, and far more relevant, installed base of mobile devices that already has millions of apps people use every single day over and over. Microsoft pretended as if there is no world other than Windows, and that a more robuts Windows is something people can’t wait to use! We all can’t wait to go back to a exclusive Microsoft world, using Windows, Office, the new Spartan browser – and creating documents, spreadsheets and even presentations using Office, with those hundreds of complex features (anyone know how to make a pivot table?) on our phones!
Just like those printing press manufacturers were sure people really wanted documents printed on presses, and couldn’t wait to unplug those Xerox machines and return to the old way of doing things. They just needed presses to have more features, more capabilities, more speed!
The best thing in Windows 10 is Cortana, which is a really cool, intelligent digital assistant. But, rather than making Cortana a tool developers can buy to integrate into their iOS or Android app the only way a developer can use Cortana is if they go into this exclusive Windows-only world. That’s a significant request.
Microsoft made this mistake before. Kinect was a great tool. But the only way to use it, initially, was on an xBox – and still is limited to Windows. Despite its many superb features, Kinect didn’t develop anywhere near its potential. Cortana now suffers from the same problem. Rather than offering the tool so it can find its best use and markets, Microsoft requires developers and consumers buy into the Windows-exclusive world if you want to use Cortana.
Microsoft hasn’t yet figured out that it lost relevance years ago when it missed the move to mobile, and then launched Windows 8 and Surface to markets that didn’t really want those products. Now the market has gone mobile, and the leader isn’t Microsoft. Microsoft has to find a way to be relevant to the millions of people using alternative products, and the Windows 10 vision, which excludes all those competing devices, simply isn’t it.
There was lots of neat geeky stuff shown. Surface tablets using Windows 10 with an xBox app can now do real gaming, which looks pretty cool and helps move Microsoft forward in mobile gaming. That may be a product that sets Sony’s Playstation and Nintendo’s Wii on their heels. But that’s gaming, and historically not where Microsoft makes any money (nor for that matter does Sony or Nintendo.)
There is a new interactive whiteboard that integrates Skype and Windows tablets for digital enhancement of brainstorming meetings. But it is unclear how a company uses it when most employees already have iPhones or Samsung S5s or Notes. And for the totally geeky there was a demo of a holographic headset. But when it comes to disruptive products like this success requires finding really interesting applications that otherwise cannot be completed, and then the initial customers who have a really desperate need for that application who will become devoted users.
Launching such disruptive products has long been the bane of Microsoft’s existence. Microsoft thinks in mass market terms, and selling to its base. Not developing breakthrough applications and finding niche markets to launch new uses. Nor has Microsoft created a developer community aligned with that kind of work. They have long been taught to simply continue to do things that defend and extend the traditional base of product uses and customers.
The really big miss for this meeting was understanding developer needs. Today developers have an enormous base of iOS and Android users to whom they can sell their products. Windows has less than 3% share in mobile devices. What developer would commit their resources to developing products for Windows 10, which has an installed base only in laptops and desktops? In other words, yesterday’s technology base? Especially when to obtain the biggest benefits of Windows 10 that developer has to find end use customers (companies or consumers) willing to commit 100% to Windows everywhere – even including their televisions, thermostats and other devices in our ever smarter buildings?
Windows 10 has a lot of cool features. But Microsoft made a big miss by listening to the wrong people. By assuming its installed base couldn’t wait for a Microsoft-exclusive solution, and by behaving as if the installed base of mobile devices either didn’t exist or didn’t matter, the company showed its hubris (once again.) If all it took to succeed were great products, the market would never have shifted from Macintosh computers to Windows machines in the 1990s. Microsoft simply doesn’t realize that it lacks the relevance to pull of its grand vision, and as such Windows 10 has almost no chance of stopping the Apple/Google/Samsung juggernaut.
Microsoft has a new CEO. And a new Chairman. The new CEO says the company needs to focus on core markets. And analysts are making the same cry.
Amidst this organizational change, xBox continues its long history of losing money – as much as $2B/year. And early 2014 results show that xBox One is selling at only half the rate of Sony’s Playstation 4, with cumulative xBox One sales at under 70% of PS4, leading Motley Fool to call xBox One a “total failure.”
While calling xBox One a failure may be premature, Microsoft investors have plenty to worry about.
Firstly, the console game business has not been a profitable market for anyone for quite a while.
The old leader, Nintendo, watched sales crash in 2013, first quarter 2014 estimates reduced by 67% and the CEO now projecting the company will be unproftable for the year. Nintendo stock declined by 2/3 between 2010 and 2012, then after some recovery in 2013 lost 17% on the January day of its disappointing sales expectation. Not a great market indicator.
The new sales leader is Sony, but that should give no one reason to cheer. Sony lost money for 4 straight years (2008-2012), and was barely able to squeek out a 2013 profit only because it took a massive $4.6B 2012 loss which cleared the way to show something slightly better than break-even. Now S&P has downgraded Sony’s debt to near junk status. While PS4 sales are better than xBox One, in the fast shifting world of gaming this is no lock on future sales as game developers constantly jockey dollars between platforms.
Whether Sony will make money on PS4 in 2014 is far from proven. Especially since it sells for $100/unit (20%) less than xBox One – which compresses margins. What investors (and customers) can expect is an ongoing price war between Nintendo, Sony and Microsoft to attract sales. A competition which historically has left all competitors with losses – even when they win the market share war.
And on top of all of this is the threat that console market growth may stagnate as gamers migrate toward games on mobile devices. How this will affect sales is unknown. But given what happened to PC sales it’s not hard to imagine the market for consoles to become smaller each year, dominated by dedicated game players, while the majority of casual game players move to their convenient always-on device.
Due to its limited product range, Nintendo is in a “fight to the death” to win in gaming. Sony is now selling its PC business, and lacks strong offerings in most consumer products markets (like TVs) while facing extremely tough competition from Samsung and LG. Sony, likewise, cannot afford to abandon the Playstation business, and will be forced to engage in this profit killing battle to attract developers and end-use customers.
When businesses fall into profit-killing price wars the big winner is the one who figures out how to exit first. Back in the 1970s when IBM created domination in mainframes the CEO of GE realized it was a profit bloodbath to fight for sales against IBM, Sperry Rand and RCA. Thinking fast he made a deal to sell the GE mainframe business to RCA so the latter could strengthen its campaign as an IBM alternative, and in one step he stopped investing in a money-loser while strenghtening the balance sheet in alternative markets like locomotives and jet engines – which went on to high profits.
With calls to focus, Microsoft is now abandoning XP. It is working to force customers to upgrade to either Windows 7 or Windows 8. As PC sales continue declining, Microsoft faces an epic battle to shore up its position in cloud services and maintain its enterprise customers against competitors like Amazon.
After a decade in gaming, where it has never made money, now is the time for Microsoft to recognize it does not know how to profit from its technology – regardless how good. Microsoft could cleve off Kinect for use in its cloud services, and give its installed xBox base (and developer community) to Nintendo where the company could focus on lower cost machines and maintain its fight with Sony.
Analysts that love focus would cheer. They would cheer the benefit to Nintendo, and the additional “focus” to Microsoft. Microsoft would stop investing in the unprofitable game console market, and use resources in markets more likely to generate high returns. And, with some sharp investment bankers, Microsoft could also probably keep a piece of the business (in Nintendo stock) that it could sell at a future date if the “suicide” console business ever turns into something profitable.
Sometimes smart leadership is knowing when to “cut and run.”
2012 recognition that Sony was flailing without a profitable strategy
January, 2013 forecast that microsoft would abandon gaming
If you're not a golfer, you may not understand the title. But it is important.
Sunday was the final, of four days, of the U.S. Open. Golf is clearly not as fan-favorited as soccer, football, basketball or hockey. But many people are aware of the "major" golf tournaments – just as non-horseracers know about the Kentucky Derby or Preakness. So there was more awareness than average about the sport on Sunday, and a tremendously greater amount of media coverage.
Interestingly, the big winner on the day was Octopus Pants. If you're confused – read on!
Monday morning if you opened a Yahoo! browser window and looked the top "trending now" box there, plain as day, was "Octopus pants." US Open was not there. Nor was the name of the winner – Justin Rose (who came from behind to win.) Nor the name of the leader for almost the entire tournament, and a huge crowd favorite in the sport, Phil Mickelson.
But, back in the pack, was a very good golfer named Billy Horschel. Although he's a great golfer, and a previous PGA tournament winner, was almost impossible to think he would win the U.S. Open on the final day, even though he shot a great second round (it takes 4 rounds to complete the tournament.) Barring a near-miracle, the focus would be on the leaders Sunday so there was a chance the relative newcomer would not receive much attention. [He did end up 6th – which is far better than the famous Tiger Woods, who came in 36th.]
In golf this is important because not only did it mean he would take home a smaller purse, but it also meant his value as an endorser for sponsors is lower. As a fairly new golfer to the Professional Golf Association (PGA) tournaments Mr. Horschel is known in golf circles because he plays Ping brand clubs. But few people know that for apparel Mr Horschel is sponsored by Ralph Lauren.
So, on Sunday he showed up wearing a pair of pants covered with images of Octopus. Pants that are part of the Ralph Lauren RXL line. Mr. Horschel (and the Lauren team) was smart enough to use social media (Twitter, etc.) to heighten interest in his appearance. This bit of assault on the sensibilities of golf, combined with fashion, sent interest in Mr. Horschel's apparel – if not his golf – viral. Not only were golfers looking for glimpses of Mr. Horschel's run for the leader board, but people not usually interested int the game were tuning in and keeping tabs via their mobile devices on his performance — and his pants!
Now, a combination of thinking ahead as to what he might wear, combined with some help from a smart sponsor like Lauren, and really smart use of social media marketing has helped Mr. Horschel, Lauren and Octopus Pants to become a global sensation. More interesting to more people than the tournament winner, the tournament leader and even the biggest names (including Rory McElroy, Graham McDowell, Ian Poulter, Luke Donald) in the sport — and their sponsors.
Winning often means thinking, and doing things, outside the box. Preparing to do something unconventional is important. While I'm sure there was a plan for Mr. Horschel to be much more typically attired had he been the tournament leader, Lauren's team did a great job of figuring out multiple outcomes and how to be a winner under multiple scenarios. Planning for how to win under multiple contingencies is critical in business. And having outside-the-box solutions thought through and ready to implement is the sign of a winning strategy – from different product to using unconventional marketing techniques.
While we all should congratulate Justin Rose on a big win the U.S. Open, the big winner here was Ralph Lauren – and Octopus pants!
The Wall Street Journal headlined Monday, “Apple Chief to Take Leave.” Forbes.com Leadership editor Fred Allen quickly asked what most folks were asking “Where does Steve Jobs Leave Apple Now?” as he led multiple bloggers covering the speculation about how long Mr. Jobs would be absent from Apple, or if he would ever return, in “What They Are Saying About Steve Jobs.” The stock took a dip as people all over raised the question covered by Steve Caulfield in Forbes’ “Timing of Steve Jobs Return Worries Investors, Fans.”
If you want to make money investing, this is what’s called a “buying opportunity.” As Forbes’ Eric Savitz reported “Apple is More Than Just Steve Jobs.” Just look at the most recent results, as reported in Ad Age “Apple Posts ‘Record Quarter’ on Strong iPhone, Mac, iPad Sales:”
- Quarterly revenue is up 70% vs. last year to $26.7B (Apple is a $100B company!)
- Quarterly earnings rose 77% vs last year to $6B
- 15 million iPads were sold in 2010, with 7.3 million sold in the last quarter
- Apple has $50B cash on hand to do new product development, acquisitions or pay dividends
ZDNet demonstrated Apple’s market resiliency headlining “Apple’s iPad Represents 90% of All Tablets Shipped.” While it is true that Droid tablets are now out, and we know some buyers will move to non-Apple tablets, ZDNet predicts the market will grow more than 250% in 2011 to over 44 million units, giving Apple a lot of room to grow even with competitors bringing out new products.
Apple is a tremendously successful company because it has a very strong sense of where technology is headed and how to apply it to meet user needs. Apple is creating market shifts, while many other companies are reacting. By deeply understanding its competitors, being willing to disrupt historical markets and using White Space to expand applications Apple will keep growing for quite a while. With, or without Steve Jobs.
On the other hand, there’s the stuck-in-the-past management team at Microsoft. Tied to all those aging, outdated products and distribution plans built on PC technology that is nearing end of life. But in the midst of the management malaise out of Seattle Kinect suddenly showed up as a bright spot! SFGate reported that “Microsoft’s Xbox Kinect beond hackers, hobbyists.” Seems engineers around the globe had started using Kinect in creative ways that were way beyond anything envisioned by Microsoft! Put into a White Space team, it was possible to start imagining Kinect could be powerful enough to resurrect innovation, and success, at the aging monopolist!
But, unfortunately, Microsoft seems far too stuck in its old ways to take advantage of this disruptive opportunity. Joel West at SeekingAlpha.com tells us “Microsoft vs. Open Kinect: How to Miss a Significant Opportunity.” Microsoft is dedicated to its plan for Kinect to help the company make money in games – and has no idea how to create a White Space team to exploit the opportunity as a platform for myriad uses (like Apple did with its app development approach for the iPhone.)
In the end, ZDNet joined my chorus looking to oust Ballmer (possibly a case study in how to be the most misguided CEO in corporate America) by asking “Ballmer’s 11th Year as Microsoft’s CEO – Is it Time for Him to Go?” Given Ballmer’s massive shareholding, and thus control of the Board, it’s doubtful he will go anywhere, or change his management approach, or understand how to leverage a breakthrough innovation. So as the Cloud keeps decreasing demand for traditional PCs and servers, Brett Owens at SeekingAlpha concludes in “A Look at Valuations of Google, Apple, Microsoft and Intel” that Microsoft has nowhere to go but down! Given the amazingly uninspiring ad program Microsoft is now launching (as described in MediaPost “Microsoft Intros New Corporate Tagline, Strategy“) we can see management has no idea how to find, or sell, innovation.
We often hear advice to buy shares of a company. Rarely recommendations to sell. But Apple is the best positioned company to maintain growth for several more years, while Microsoft has almost no hope of moving beyond its Lock-in to old products and markets which are declining. Simplest trade of 2011 is to sell Microsoft and buy Apple. Just read the headlines, and don’t get suckered into thinking Apple is nothing more than Steve Jobs. He’s great, but Apple can remain great in his absence.
I recently listened to a great presentation on innovation by Bill Burnett, partner at Launchpad Partners. I recommend you download the slides to his presentation, "The CEO's Role in Innovation," in order to understand just how important innovation is to profitability as well as the CEOs role in creating the right culture. I also hand it to Bill that he not only lays out the CEO's role, but discusses what it takes organizationally to implement innovation – including getting the right people involved to go beyond just coming up with good ideas.
Markets shift. Sometimes there are long periods in which the market is reasonably the same (like newspapers). And sometimes it seems like new changes are happening rapidly (like computers). How long between shifts is impossible to predict. But it is certain that all markets shift. Some new technology, or a new form of solution, or a new way of pricing, or a new competitor will enter the market and change things such that the profitability of previous solutions declines. And it is the role of CEOs to create an open culture in which the management team feels it must keep its eyes peeled for market shifts, bring them to the company for discussion, and propose innovations which can increase the longevity of company sales and profits by addressing the market shifts.
Take for example the current shift in the sports market. This is important, because a throng of businesses advertise in the sports market. Everything from TV or radio ads during games, to ads inside event brochures, to putting logos on equipment and uniforms, to paying athletes as endorsers. Being aligned with the right sports, the right teams and the right athletes is worth a lot of money. You can legitimately ask, would Nike be Nike if they hadn't been the first company to sign up Michael Jordan – and later Tiger Woods? So the money is very large (billions of dollars) making mistakes very expensive. But getting it right can be worth billions in returns.
So catching a recent MediaPost.com blog "The Allure of Action Sports" is important. While most of us think of basketball, baseball, American football and possibly NASCAR – for GEN Y (young folks) sports is taking on an entirely new meaning. These are sports with almost no rules – just technique. They pack the stands at events such as the Dew Tour and X Games. Active participants include almost 12 million skateboarders, 7 million snowboarders and 3 million BMX riders. Not only do people watch these sports, but the most popular performers have their own cable TV shows – like "Viva La Bam." Just like football and basketball overtook our fathers' love of baseball as America's pastime – young competitors are shifting to watch and practice action sports. For people in consumer goods and many retailers, it becomes critical that the CEO provide an environment where the company can Disrupt its old marketing practices and create White Space to explore how to link with these new markets. The winners will rake in millions of higher profits. The laggards will see the value of their sports market spending decline.
Have you recognized this shift in the sports market? Are you prepared to take advantage of this shift? Are you considering sponsoring a local skateboard competition – for example – to promote a restaurant, quick stop, or T-Shirt store? You can react faster than Wal-Mart, Coke or GM – are you considering the options to grab loyal customers when they are still "McDonald's targets"?
A great example of the right kind of CEO has been Jeff Bezos of Amazon. As I reported in this blog back in January, book sales declined about 10% in 2008. You would think this would spell a huge problem for the world's largest bookseller. But SeattlePI.com recently reported "Amazon Profits Jump Despite Recession." CEO Bezos recognized long ago that book readership was jeapardized by changing lifestyles. Fewer people have the willingness to buy printed books, carry them around and take time to read them. So he Disrupted his retail Success Formula and implemented White Space to develop something new. This led to Kindle, a product which is small, light, can hold hundreds of books, can be read "on the go", accepts downloads of journals (magazines and newspapers) and can even read the book to you (Kindle has an audio feature.) And that's just product rev 2 – who knows where this will be in 3 years. By focusing on the future he could see the market for reading shifting – and he created an environment in which new innovation could be developed to keep Amazon growing even when the traditional products (and business) started declining. Kindle is now outselling everyone's expectations.
Innovation is the lifeblood of businesses. Without innovation Defend & Extend management leads to declining returns as competitors create market shifts. So it is crucial leaders, from managers to the CEO, keep their eyes on the future to spot market challenges and obsess about competitor actions that are changing market requirements. Then be willing to Disrupt the old Success Formula by attacking Lock-ins, and use White Space to test and implement new innovations which can lead to a new Success Formula keeping the business evergreen.