ikeGPS – How To Invest in Trends To Escape Your Core and Grow Explosively

ikeGPS – How To Invest in Trends To Escape Your Core and Grow Explosively

Would you like to triple your revenue next year?  And have plans to keep tripling it – or more – every year into the future?

Of course you would.  But is your business positioned for such explosive growth?  Are you in growth markets, creating new products with new technologies that meet unmet needs and have the potential to completely change your business?  Or are you stuck doing the same thing you’ve always done, a litle better, faster and cheaper in hopes you can just maintain your position?

If you’re constantly looking at your “core” markets and solutions, and you know those aren’t going to grow fast, what keeps you from changing to make your company a high growth winner?

First, most people don’t try.  Leaders say it all the time, “I’m so busy running a business I don’t have time to chase rainbows.  Sure technology is changing, but I don’t understand it, nor know how to use it.  I’m better off investing in what I know than trying to chase trends.”  That’s often followed by dragging out the old saw, usually attributed to Warren Buffet, of “don’t invest in what you don’t know – and I don’t know anything about trends.”  The comfort, and ease, of repeating what you’ve always done allows lethargy to set in – so you keep doing more and more of what you’ve always done, over and again, hoping for a different result.  It’s been attributed to Albert Einstein that such behavior is the very definition of insanity.

Everyone is busy.  We live in a “culture of busy.” Years of layoffs and cost reductions have left most leaders simply struggling to keep up with making and selling last year’s solution.  Constant busy-ness becomes a convenient excuse to not take the time to look at trends, evaluate new opportunities or consider doing things entirely differently.  Busy, busy, busy – until someone knocks your business off its blocks and then you have all kinds of time on your hands.

For those who overcome these 2 built-in biases, the opportunities today are extra-ordinary.  It is possible to slingshot into leadership positions with new solutions, literally from out of nowhere.  If you take the time and try.  Listen, and just do it – to steal from a popular ad campaign.

ikeGPS was started in 2003 as a government/military funded products research company.  Focusing on the technology of lasers and cameras, they won contracts to develop and prototype new solutions with technology mostly buried in universities and labs.  It was a good business, made money for the founders, and was intellectually stimulating.  If not growing very fast or showing much potential of growing.

Eventually ikeGPS started making products with lasers and cameras for finding physical assets.  This turned out to be quite beneficial for electric utilities, which have to maintain some 200,000 power poles in the U.S alone.  EPC (Engineering, Procurement and Construction) companies like Black & Veatch, Bechtel. Burns & McDonel , FMC and Foster Wheeler had a need to find big physical things, then measure their size and location between each other and major points.  For utility company suppliers like GE laser cameras for asset location were a handy, if slow growing business.  Good, solid, reliable revenues, but not something that was going to create a $100M company.

So the Managing Director, Glenn Milnes, and Chief Marketing Officer, Jeff Ross, set about to see what they could do to become a $100M business.  Not because anything in their history said they could do so.  Rather because they wanted to make their company a bigger, faster growing and lot more valuable entity.

The first thing they identified was the trend to mobile devices.  They noticed darn near everyone has one, and they were using them for all kinds of interesting things.  There were thousands and thousands of apps, but none that really took advantage of the cameras to do much measuring, or integrated lasers.  While they didn’t know anything about mobile operating systems, or much about the kinds of cameras in mobile phones or the software used for popular mobile camera uses – they could see a trend.

What if they could take their knowledge about lasers and cameras and figure out how to make mobile phones a lot more powerful?  Could they apply what they knew into markets where they had no experience, using technologies with which they had no experience?  Would it work, or waste their time?  If it worked, what would they make?  If they made something, who would buy it?

Despite these great questions, they wanted ikeGPS to grow, and they decided to take the cash flow from their solid, but low growth historical business and plow it into development of a new product.  So they took to internal company brainstorming to see what they might do.  And they came up with the very clever idea of making an add-on device that construction workers, like concrete installers, pavers, carpenters, masons and such, could use with their mobile phones to replace tape measures.  Something that would be simple, easy to use, work with the phones in their pockets and be a lot more accurate than decades-old technology.

Spike Mobile Laser Camera ToolSo they went to the lab and built it.  They started design in October, 2013, and a year later they had a product ready to launch. – Spike! They took it to social media, Google adwords, all the low-cost ad tools available to small business today.  They also went to industry trade shows, bought some ads in industry trade magazines and ads on industry specific sites.  Things were OK, but it was a slow slog.

As they were preparing to launch Spike they thought, “why don’t we reach for outsiders to gain some input on this product.  Let’s hear what others might have to say.”  So they launched a Kickstarter campaign, offering investors the product to try.  Via this route they gained the eyes and ears of early adopters.

This was when the surprise happened.  The earliest adopters, and biggest fans of laser measuring via mobile devices weren’t in the construction business.  They were signage companies.  ikeGPS listened to their feedback, and realized they could tweek Spike to be very relevant for folks in signage.  The made themselves accessible to these early adopters, and turned a few into fanatical loyalists.

With this early success, they began to downplay construction and seek signage companies.  Across 2 months they placed about $20k (not millions, thousands) in ads in the 4 largest publishers to the signage industry.  This led to on-line product sales, and smashing reviews.

So then they made overtures to the large franchisors of signage related shops – with retail names like Fast Sign, Sign-o-Rama, Alphagraphics, Speedy Sign, Sign World, etc — in companies like Franchise Services and Alliance Franchise.  Within 6 months of launch they had stopped chasing construction customers and were full-tilt developing signage companies, to great success.  Even sign supply companies llke Reece Sign saw the benefit of promoting (and even reselling) these new laser camera add-ons for mobile devices to stimulate sales and move sign design and creation into the 21st century.

After making this switch, they initial launch sold 1,200 units at $500/unit retail .  But better yet, contracts for promotion and reselling has the company convinced they will blow far beyond their projection of 4,000 units in the first year.But they did not simply forget about construction.  The idea was still sound, but clearly the market had not developed.  So they asked themselves, “if we listened to sign guys and they told us what to do, could we listen to construction guys for advice?”

They pursued finding out more about construction, and learned the market was dominated by brand names.  Few products were bought without a strong brand name – and most products are purchased through the very large home improvement chains such as Home Depot, Lowe’s, Menard’s and others.  But that would be a nearly impossible task, at extremely high cost, for little ikeGPS. So they pursued finding a partner which knew the industry.

In early 2015 ideGPS announced that Stanley Black&Decker would brand and sell Spike via traditional retail.  The product should be on shelves before the end of year, and substantial additional sales volumes are expected.

In 2013 100% of ikeGPS revenues were in their traditional government/military and utility markets with their bespoke device.  In just one year they developed a mobile device, and launched it.  In 2015 1/3 or more of their $10.5 estimated revenue will be from Spike, and they expect to at a minimum triple revenues in 2016.  And they think that rate of growth is sustainable into future years.

ikeGPS shows that it IS possible to move beyond historical markets and create new products for break-out growth.  You aren’t stuck in old businesses with no hope of growth.  if you want to grow, and reap the rewards of growth, you can.  You have to

  1. Want to do it
  2. Take time to do it
  3. Pay attention to trends, and support obvious trend growth
  4. Learn about new technologies and how you can apply them.  Start with the trend technologies first, then see how to apply something new.  Don’t start by trying to push what you know onto another platform.  Be ethnocentric in product development, not egocentric.
  5. Brainstorm how to meet unmet needs
  6. Listen to early sales results, and go where the need is  highest/selling is easiest
  7. Don’t forget to learn from what did not work, and see if you can overcome early weaknesses.





How HR “best practices” Kill Innovation

How HR “best practices” Kill Innovation

Did you ever notice that Human Resource (HR) practices are designed to lock-in the past rather than grow?  A quick tour of what HR does and you quickly see they like to lock-in processes and procedures, insuring consistency but offering no hope of doing something new.  And when it comes to hiring, HR is all about finding people that are like existing employees – same school, same degrees, same industry, same background.  And HR tries its very hardest to insure conformity amongst employees to historical standard – especially regarding culture.

Several years ago I was leading an innovation workshop for leaders in a company that made nail guns, screw guns, nails and screws.  Once a market leader, sales were struggling and profits were nearly nonexistent due to the emergence of competitors from Asia.  Some of their biggest distributors were threatening to drop this company’s line altogether unless there were more concessions – which would insure losses.

They liked to call themselves a “fastener company,” which has long been the trend with companies that like to make it sound as if they do more than they actually do.

I asked the simple question “where is the growth in fasteners?”  The leaders jumped right in with sales numbers on all their major lines.  They were sure that growth was in auto-loading screwguns, and they were hard at work extending this product line.  To a person, these folks were sure they new where growth existed.

But I had prepared prior to the meeting.  There actually was much higher growth in adhesives.  Chemical attachment was more than twice the growth rate of anything in the old nail and screw business.  Even loop-and-hook fasteners [popularly referred to by the tradename Velcro(c)] was seeing much greater growth than the old-line mechanical products.

They looked at me blank-faced.  “What does that have to do with us?” the head of sales finally asked.  The CEO and everyone else nodded in agreement.

I pointed out to them they said they were in the fastener business.  Not the nail and screw business.  The nail and screw business had become a bloody fight, and it was not going to get any better.  Why not move into faster growing, less competitive products?

Competitors were making lots of battery powered and air powered tools beyond nail guns and screw guns, and their much deeper product lines gave them much higher favorability with retail merchandisers and professional tool distributors.  Plus, competitor R&D into batteries was already showing they could produce more powerful and longer-lasting tools than my client.  In a few major retailers competitors already had earned the position of “category leader” recommending the shelf space and layout for ALL competitors, giving them a distinct advantage.

This company had become myopic, and did not even realize it.  The people were so much alike that they could finish each others sentences.  They liked working together, and had built a tightly knit culture.  The HR head was very proud of his ability to keep the company so harmonious.

Only, it was about to go bankrupt.  Lacking diversity in background, they were unable to see beyond their locked-in business model.  And there sure wasn’t anyone who would “rock the boat” by admitting competitors were outflanking them, or bringing up “wild ideas”  for new markets or products.

According to the New York Times 80% of hiring is done based on “cultural fit.”  Which means we hire people we want to hang out with. Which almost always means people that are a lot like ourselves.  Regardless of what we really need in our company.  Thus companies end up looking, thinking and acting very homogenously.

It is common amongst management authors and keynote speakers to talk about creating “high-performance teams.” The vaunted Jim Collins in “Good to Great” uses the metaphor of a company as a bus.  Every company should have a “core” and every employee should be single-mindedly driving that “core.” He says that it is the role of good leaders to get everyone on the bus to “core.”  Anyone who isn’t 100% aligned – well, throw them off the bus (literally, fire them.)

We see this phenomenon in nepotism.  Where a founder, CEO or Chairperson who succeeds uses their leadership position to promote relatives into high positions.

Wal-Mart’s Board of Directors, for example, recently elected the former Chairman’s son-in-law to the position of Chairman.  He appears accomplished, but today Wal-Mart’s problem is Amazon and other on-line retail. Wal-Mart desperately needs outside thinking so it can move beyond its traditional brick-and-mortar business model, not someone who’s indoctrinated in the past.

The Reputation Institute just completed its survey of the most reputable retailers in the USA.  Top of the list was Amazon, for the third straight year.  Wal-Mart wasn’t even in the top 10, despite being the largest U.S. retailer by a considerable margin.  Wal-Mart needs someone at the top much more like Jeff Bezos than someone who comes from the family.

malcolm-forbes-publisher-diversity-the-art-of-thinking-independentlyDespite what HR often says, it is incredibly important to have high levels of diversity.  It’s the only way to avoid becoming myopic, and finding yourself with “best practices” that don’t matter as competitors overwhelm your market.

Ever wonder why so many CEOs turn to layoffs when competitors cause sales and/or profits to stall?  They are trying to preserve the business model, and everyone reporting to them is doing the same thing.  Instead of looking for creative ways to grow the business – often requiring a very different business model – everyone is stuck in roles, processes and culture tied to the old model.  As everyone talks to each other there is no “outsider” able to point out obvious problems and the need for change.

In 2011, while he was still CEO, I wrote a column titled “Why Steve Jobs Couldn’t Find a Job Today.” The premise was pretty simple. Steve Jobs was not obsessed with “cultural fit,” nor was he a person who shied away from conflict.  He obsessed about results.  But no HR person would consider a young Steve Jobs as a manager in their company.  He would be considered too much trouble.

Yet, Steve Jobs was able to take a nearly dead Macintosh company and turn it into a leader in mobile products.  Clearly, a person very talented in market sensing and identifying new solutions that fit trends.  And a person willing to move toward the trend, rather than obsess about defending and extending the past.

Quotation-W-Somerset-Maugham-trouble-men-charm-ideas-Meetville-Quotes-97641Does your organization’s HR insure you would seek out, recruit and hire Steve Jobs, or Jeff Bezos?  Or are you looking for good “cultural fit” and someone who knows “how to operate within that role.”  Do you look for those who spot and respond to trends, or those with a history related to how your industry or business has always operated?  Do you seek people who ask uncomfortable questions, and propose uncomfortable solutions – or seek people who won’t make waves?

Too many organizations suffer failure simply because they lack diversity.  They lack diversity in geographic sales, markets, products and services – and when competition shifts sales stall and they fall into a slow death spiral.

And this all starts with insufficient diversity amongst the people.  Too much “cultural fit” and not enough focus on what’s really needed to keep the organization aligned with customers in a fast-changing world. If you don’t have the right people around you, in the discussion, then you’re highly unlikely to develop the right solution for any problem.  In fact, you’re highly unlikely to even ask the right question.

Why You Want to Own Facebook Rather Than Google

Why You Want to Own Facebook Rather Than Google

Last week saw another slew of quarterly earnings releases.  For long term investors, who hold stocks for years rather than months, these provide the opportunity to look at trends, then compare and contrast companies to determine what should be in their portfolio.  It is worthwhile to compare the trends supporting the valuations of market leaders Google and Facebook.

Facebook v GoogleGoogle once again reported higher sales and profits.  And that is a good thing. But, once again, the price of Google’s primary product declined. Revenues increased because volume gains exceeded the price decline, which indicates that the market for internet ads keeps growing. But this makes 15 straight quarters of price declines for Google.  Due to this long series of small declines, the average price of Google’s ads (cost per click) has declined 70%* since Q3 2011!

While this is a miraculous example of what economists call demand elasticity, one has to wonder how long growth will continue to outpace price degradation.  At some point the marginal growth in demand may not equal the marginal decline in pricing. Should that happen, revenues will start going down rather than up.

Part of what drives this price/growth effect has been the creation of programmatic ad buying, which allows Google to place more ads in more specific locations for advertisers via such automated products as AdMob, AdExchange and DoubleClick Bid Manager.  But such computerized ad buying relies on ever more content going onto the web, as well as ever more consumption by internet users.

Further, Google’s revenues are almost entirely search-based advertising, and Google dominates this category.  But this is largely a PC-related sale.  Today 67.5% of Google ad revenue is from PC searches, while only 32.5% is from mobile searches.  Due to this revenue skew, and the fact that people do more mobile interaction via apps, messaging apps and social media than browser, search ad growth has fallen considerably.  What was a 24% year over year growth rate in Q1 2012 has dropped to more like 15% for the last 8 quarters.

So while the market today is growing, and Google is making more money, it is possible to see that the growth is slowing.  And Google’s efforts to create mobile ad sales outside of search has largely failed, as witnessed by the  recent death of Google+ as competition for Twitter or Facebook. It is the market shift, to mobile, which creates the greatest threat to Google’s ability to grow; certainly at historical rates.

Simultaneously, Facebook’s announcements showed just how strongly it is continuing to dominate both social media and mobile, and thus generate higher revenues and profits with outstanding growth.  The #1 site for social media and messenger apps is Facebook, by quite a large margin.  But, Facebook’s 2014 acquisition of What’sApp is now #2.  WhatsApp has doubled its monthly active users (MAUs) just since the acquisition, and now reaches 800million. Growth is clearly accelerating, as this is from a standing start in 2011.

Facebook Messenger at #3, just behind WhatsApp.  And #5 is Instagram, another Facebook acquisition.  Altogether 4 of the top 5 sites, and the ones with greatest growth on mobile, are Facebook.  And they total over 3billion MAUs, growing at over 300million new MAUs/month.  Thus Facebook has already emerged as the dominant force, with the most users, in the fast-growing, accelerating, mobile and app sectors.  (Just as Google did in internet search a decade ago, beating out companies like Yahoo, Ask Jeeves, etc.)

Google is moving rapidly to monetize this user base.  From nothing in early 2012, Facebook’s mobile revenue is now $2.5B/quarter and represents 67% of global revenue (the inverse of Google’s revenues.)  Further, Facebook is now taking its own programmatic ad buying tool, Atlas, to advertisers in direct competition with Google.  Only Atlas places ads on both social media and internet browser pages – a one-two marketing punch Google has not yet cracked.

Google’s $17.3B Q1 2015 revenue is 30 times the revenue of Facebook.  There is no doubt Google is growing, and generating enormous profits.  But, for long-term investors, growth is slowing and there is reason to be concerned about the long term growth prospects of Google as the market shifts toward more social and more mobile.  Google has failed to build any substantial revenues outside of search, and has had some notable failures recently outside its core markets (Google + and Google Glass.)  Just how long Google will continue growing, and just how fast the market will shift is unclear.  Technology markets have shown the ability to shift a lot faster than many people expected, leaving some painful losers in their wake (Dell, HP, Sun Microsystems, Yahoo, etc.)

Meanwhile, Facebook is squarely positioned as the leader, without much competition, in the next wave of market growth.  Facebook is monetizing all things social and mobile at a rapid clip, and wisely using acquisitions to increase its strength.  As these markets continue on their well established trends it is hard to be anything other than significantly optimistic for Facebook long-term.

* 1x .93 x .88 x .84 x .85 x .94 x .96 x .94 x .93 x .89 x .91 x .94 x .98 x .97 x .95 x .93 = .295


Innovating to Solve Tanqueray’s Growth Quandary

Innovating to Solve Tanqueray’s Growth Quandary

If you don’t drink gin you may not know the brand Tanqueray, a product owned by Diageo. But Tanqueray has been around for almost 190 years, going back to the days when London Dry Gin was first created. Today Tanqueray is one of the most dominant gin brands in the world, and the leading brand in the USA.

Tanqueray London Dry GinBut gin is not a growth category. And Tanqueray, despite its great product heritage and strong brand position, has almost no growth prospects.

Any product that doesn’t grow sales cannot generate profits to spend on brand maintenance. Firstly, if due to nothing more than inflation, costs always go up over time. It takes rising sales to offset higher costs.  Additionally, small competitors can niche the market with new products, cutting into leader sales. And competitors will undercut the leader’s price to steal volume/share in a stagnant market, causing margin erosion.

Category growth stalls are usually linked to substitute products stealing share in a larger definition of the marketplace. For example sales of laptop/desktop PCs stalled because people are now substituting tablets and smartphones. The personal technology market is growing, but it is in the newer product category stealing sales from the older product category.

This is true for gin sales, because older drinkers – who dominate today’s gin market – are drinking less spirits, and literally dying from old age. In the overall spirits market, younger liquor drinkers have preferred vodkas and flavored vodkas which are “smoother,” sweeter, and perceived as “lighter.”

Smirnoff Vodka Group

So, what is a brand manager to do? Simply let trends obsolete their product line? Milk their category and give up money for investing somewhere else?

That may sound fine at a corporate level, where category portfolios can be managed by corporate vice presidents. But if you’re a brand manager and you want to become a future V.P., managing declining product sales will not get you into that promotion. And defending market share with price cuts, rebates and deals will cut into margin, ruin the brand position and likely kill your marketing career.

Keith Scott is the Senior Brand Manager for Tanqueray, and his team has chosen to regain product growth by using sustaining innovations in a smart way to attract new customers into the gin category. They are looking beyond the currently dwindling historical customer base of London Dry Gin drinkers, and working to attract new customers which will generate category growth and incremental Tanqueray sales.  He’s looking to build the brand, and the category, rather than get into a price war.

Building on demographic trends, Tanqueray’s brand management is targeting spirit drinkers from 28-38. Three new Tanqueray brand extensions are being positioned for greatest appeal to increasingly adult tastes, while offering sophistication and linkage to one of the longest and strongest spirits brands.

Tanqueray Rangpur#1 – Tanqueray Rangpur is a highly citrus-flavored gin taking a direct assault on flavored vodkas. Although still very much a gin, with its specific herb-based taste, Rangpur adds a hefty, and uniquely flavored, dose of lime. This makes for a fast, easy to prepare gin and tonic or lime-based gimlet – 2 classic cocktails that have their roots in England but have been popular in the US since before prohibition. And, in defense of the brand, Rangpur is priced about 10-20% higher than London Dry.

Tanqueray Malacca#2 – Tanqueray Old Tom and Tanqueray Milacca appeal to the demographic that loves specialty, crafted products. The “craft” product movement has grown dramatically, and nowhere more powerfully than amongst 28-42 year old beer drinkers. Old Tom and Milacca leverage this trend.  Both are “retro” products, harkening to gins over 100 years ago. They are made in small batches and have limited availability. They are targeted at the consumer that wants something new, unique, unusual and yet tied to old world notions of hand-made production and high quality. These craft products are priced 25-35% higher than traditional London Dry.Tanqueray Old Tom

#3 – Tanqueray No. 10 is a “super-premium” product pointed at the customer who wants to project maximum sophistication and wealth. No 10 uses a special manufacturing process creating a uniquely smooth and slightly citrus flavor. But this process loses 40% of the product to “tailings” compared to the industry standard 10% loss. No. 10 is the high-end defense of the Tanqueray brand (a “top shelf” product as its known in the industry) priced 75-90% higher than London Dry.

Tanqueray no 10

No. 10 is being promoted with “invitation only” events being held in major U.S. cities such as New York, Chicago and Atlanta. No. 10 “trunk events” bring in some of the hottest, newest designers to showcase the latest in apparel trends, accompanied by hot, new musical talent. No. 10 is associated with the sophistication of super-premium brands – individualized and rare products – in a members-only environment. Targeted at the primary demographic of 28-38, No. 10 events are designed to lure these consumers to this product they otherwise might overlook .

Rather than addressing their gin category growth stall with price cuts and other sales incentives, which would lead to brand erosion, price erosion, and margin erosion, the Tanqueray brand team is leveraging trends to bring new consumers to their category and generate profitable growth.  These innovative brand extensions actually build brand value while leveraging identifiable market trends.  Notice that all these sustaining innovations are actually priced higher than the highest volume London Dry core product, thus augmenting price – and hopefully margin.

Too often leaders see their market stagnate and use that as an excuse lower expectations and accept sales decline. They don’t look beyond their core market for new customers and sources of growth. They react to competition with the blunt axe of pricing actions, seeking to maintain volume as margins erode and competition intensifies. This accelerates product genericization, and kills brand value.

The Tanqueray brand team demonstrates how critical sustaining innovation can be for maintaining growth at all levels of an organization. Even the level of a single product or brand.  They are using sustaining innovations to lure in new customers and grow the brand umbrella, while growing the category and achieving desired price realization.  This is a lesson many brands, and companies, should emulate.

Why Google Created a Self-Driving Car and DuPont Didn’t

Why Google Created a Self-Driving Car and DuPont Didn’t

This week a self-driving car built by Delphi of England completed a 9 day trip from San Francisco to New York City.  The car traveled 3,400 miles, and was fully automated for 99% of the trip.

Attention has again focused on self-driving cars.  There are a handful of players entering the market today, including Apple.  But the most famous company by far is Google, which has put over 700,000 autonomous miles on its vehicles since pioneering the concept after winning a DARPA challenge to build a functioning prototype in 2005.  In fact, we’re so used to hearing about the Google self-driving car that many of have stopped asking “Why Google?  They aren’t in the auto business.”

Google Car

Of course the idea of a self-driving auto is as old as the Jetson’s (and if you don’t know who the Jetson’s are you are, that was a long time ago.)  And nobody should be surprised to hear that prototypes have been on the drawing board for 5 decades.  But I bet you didn’t know that DuPont was once seriously engaged in such development.

In 1986 DuPont was America’s largest and most noteworthy chemical company.  The company was a pioneer in petrochemicals, and was considered the company that brought the world plastic – at a time when plastic was considered a great, new invention.  A leader in films of all sorts, DuPont leadership saw the opportunity for electronics to replace film in applications such as printing (where films were used in high volume for platemaking and proofing) and healthcare (where xRays and MRIs were a large film users.)  They conceived of a future time when computers and monitors – digitial products – could replace analog film, and they chose to create a new business unit called Electronic Imaging to pioneer developing these applications.

As the team started they expanded the definition of Electronic Imaging to include all sorts of applications for digital imaging – and using all kinds of technologies.  The breadth of analysis, and product development, included non-destructive parts testing, infrared uses such as heads-up displays and inventory identification, and radar applications.  Which led the team to using a radar for automating an automobile.

In 1987 DuPont invested in a small company out of San Diego that accomplished something never done before.  Using a phased-array radar hooked up to the brakes of a van, they were able to have the car recognize objects in front of the van, calculate in real time the distance between the van and these forward objects, calculate the relative speed of both objects (whether one or both were stationary or moving) and then apply braking in order to maintain a safe distance.  If the forward object stopped, then the van would come to a complete stop.

This was all done with discreet componentry, and the team realized future success required developing more specific electronics, including specialized integrated chips that could operate faster and be more error-free.  So they drove the prototype from San Diego to Wilmington, DE with a person behind the wheel, but relying as much as possible on the automated system to do all braking.  The team collected data on location, speed, weather, traffic conditions, and many other items during the journey and prepared to take the project forward, planning to eventually build a module which could be installed in vehicles as small as cars or as large as 18-wheelers, with enough intelligence to adjust for different vehicle designs and applications (in order to calibrate for different braking distances.)

Net/net they had a working prototype.  The product was expected to reduce the number of accidents by assisting drivers with braking.  Multi-car pile-ups would become a thing of the past.  And this device could potentially allow for better traffic flow because automated braking would reduce – maybe eliminate! – rear-end collisions.  This wasn’t a self-driving car, but it was self-braking car, which would be a first step toward the sort of Jetson’s-esque vision the young team imagined.

What happened?

It didn’t take long for the older, “wiser” leadership to shut down the project.  Even though several executives participated in a controlled demonstration of the prototype in an enclosed DuPont parking lot, the conclusion was that this project demonstrated just how off-track the new Electronic Imaging Department had become, and that it was clear folks needed to be reigned in and budgets cut:

  1. This clearly had nothing to do with film or replacing film.  DuPont was a chemical company, and to the extent it had any interest in electronics it was where they were applied to potentially cannibalize film sales.  Products which were not closely aligned with historical products were simply not to be pursued.
  2. DuPont had no history in radar, analogue electronics or development of integrated circuits.  Yes, DuPont had an Electronics Department, but they sold film for solder masking and other applications of semiconductor and electronics manufacturing.  DuPont was a chemical company, not a computer company or electronics company and this division was not going to change this situation.
  3. This product was seen as carrying too much liability risk.  What if it failed?  What if the car ran over a child?  The auto industry was seen as litigious, and DuPont had no interest in a product that could have the kind of liability this one would generate.  Yes, there was an Auto Department, but it sold films for safety glass, plastic sheets used for molding inside panels, and surface coatings which could be painted on the inside and/or outside of the vehicle.  But those did not have the kind of failure possibility of this active radar device.  [“By the way” the vice-Chairman asked “could that radar fry someone’s innards at a crosswalk?”]
  4. The market is too limited.  Who would really want an automatic braking system?  Given what it might cost, only the most expensive cars could install it, and only the wealthiest customers could afford it.  This product was destined for niche use, at best, and would never have widespread installation.

Poof, away went the automatic automobile braking project.  Once this dagger had been thrown, within just a few months everything that wasn’t printing or medical – in fact anything that wasn’t tied to printing films, xRays and MRI – was gone.  Within 2 years leadership decided that for some variant of the 4 issues above the entire Electronic Imaging division was a bad idea.  DuPont would be better served if it stuck to its core business, and if it spent money defending and extending film sales rather than trying to cannibalize them.

DuPont liked competing in the oceans where it had long competed.  Venturing beyond those oceans was simply too risky. Today, 25 years later, DuPont is about 1/3 the size it was when its leaders launched the ill-fated Electronic Imaging division.

Google obviously has a different way of looking at the opportunity for automating automobile operation.  Since winning the DARPA competition Google has spent a goodly sum building and testing ways to automate driving.  And it has even gone so far as lobbying to make self-driving cars legal, which they now are in 4 states.  Pessimists remain, but every quarter more people are thinking that self-driving cars will be here sooner than we might have imagined.  This week’s cross-country achievement fuels speculation that the reality could be just around the corner.

Google seems happy to compete in new oceans.  It dominates search, where its share is attacked every day by the likes of Yahoo and Microsoft.  But simultaneously Google has invested far outside its core market, including software for PCs (Chrome) and mobile devices (Android), hardware (Nexus phones), media (Blogger, YouTube), payments (Wallet) and even self-driving cars.  To what extent these, and dozens of other non-core products/services, will pay off for investors is yet to be determined.  But at least Google’s leadership is able to overcome the desire to restrict the company’s options and look for future markets.

Which kind of organization is yours?  Do you find reasons to kill new projects, or are you willing to experiment at creating new markets which might create dramatic growth?

Surface 3 and Apple Watch – Red Oceans v Blue Oceans

Surface 3 and Apple Watch – Red Oceans v Blue Oceans

Microsoft launched its new Surface 3 this week, and it has been gathering rave reviews.  Many analysts think its combination of a full Windows OS (not the slimmed down RT version on previous Surface tablets,) thinness and ability to operate as both a tablet and a PC make it a great product for business.  And at $499 it is cheaper than any tablet from market pioneer Apple.

Surface 3

Meanwhile Apple keeps promoting the new Apple Watch, which was debuted last month and is scheduled to release April 24.  It is a new product in a market segment (wearables) which has had very little development, and very few competitive products.  While there is a lot of hoopla, there are also a lot of skeptics who wonder why anyone would buy an Apple Watch.  And these skeptics worry Apple’s Watch risks diverting the company’s focus away from profitable tablet sales as competitors hone their offerings.

Apple Watch

Looking at these launches gives a lot of insight into how these two companies think, and the way they compete.  One clearly lives in red oceans, the other focuses on blue oceans.

Blue Ocean Strategy (Chan Kim and Renee Mauborgne) was released in 2005 by Harvard Business School Press.  It became a huge best-seller, and remains popular today.  The thesis is that most companies focus on competing against rivals for share in existing markets.  Competition intensifies, features blossom, prices decline and the marketplace loses margin as competitors rush to sell cheaper products in order to maintain share.  In this competitively intense ocean segments are niched and products are commoditized turning the water red (either the red ink of losses, or the blood of flailing competitors, choose your preferred metaphor.)

On the other hand, companies can choose to avoid this margin-eroding competitive intensity by choosing to put less energy into red oceans, and instead pioneer blue oceans – markets largely untapped by competition.  By focusing beyond existing market demands companies can identify unmet needs (needs beyond lower price or incremental product improvements) and then innovate new solutions which create far more profitable uncontested markets – blue oceans.

Obviously, the authors are not big fans of operational excellence and a focus on execution, but instead see more value for shareholders and employees from innovation and new market development.

If we look at the new Surface 3 we see what looks to be a very good product.  Certainly a product which is competitive.  The Surface 3 has great specifications, a lot of adaptability and meets many user needs – and it is available at what appears to be a favorable price when compared with iPads.

But …. it is being launched into a very, very red ocean.

The market for inexpensive personal computing devices is filled with a lot of products. Don’t forget that before we had tablets we had netbooks.  Low cost, scaled back yet very useful Microsoft-based PCs which can be purchased at prices that are less than half the cost of a Surface 3. And although Surface 3 can be used as a tablet, the number of apps is a fraction of competitive iOS and Android products – and the developer community has not yet embraced creating new apps for Windows tablets. So Surface 3 is more than a netbook, but also a lot more expensive.

Additionally, the market has Chromebooks which are low-cost devices using Google Chrome which give most of the capability users need, plus extensive internet/cloud application access at prices less than a third that of Surface 3.  In fact, amidst the Microsoft and Apple announcements Google announced it was releasing a new ChromeBit stick which could be plugged into any monitor, then work with any Bluetooth enabled keyboard and mouse, to turn your TV into a computer.  And this is expected to sell for as little as $100 – or maybe less!


This is classic red ocean behavior.  The market is being fragmented into things that work as PCs, things that work as tablets (meaning run apps instead of applications,) things that deliver the functionality of one or the other but without traditional hardware, and things that are a hybrid of both.  And prices are plummeting.  Intense competition, multiple suppliers and eroding margins.

Ouch.  The “winners” in this market will undoubtedly generate sales.  But, will they make decent profits?  At low initial prices, and software that is either deeply discounted or free (Google’s cloud-based MSOffice competitive products are free, and buyers of Surface 3 receive 1 year free of MS365 Office in the cloud, as well as free upgrade to Windows 10,) it is far from obvious how profitable these products will be.

Amidst this intense competition for sales of tablets and other low-end devices, Apple seems to be completely focused on selling a product that not many people seem to want.  At least not yet.  In one of the quirkier product launch messages that’s been used, Apple is saying it developed the Apple Watch because its other innovative product line – the iPhone – “is ruining your life.

Apple is saying that its leaders have looked into the future, and they think today’s technology is going to move onto our bodies.  Become far more personal.  More interactive, more knowledgeable about its owner, and more capable of being helpful without being an interruption.  They see a future where we don’t need a keyboard, mouse or other artificial interface to connect to technology that improves our productivity.

Right.  That is easy to discount.  Apple’s leaders are betting on a vision.  Not a market.  They could be right.  Or they could be wrong.  They want us to trust them.  Meanwhile, if tablet sales falter…..  if Surface 3 and ChromeBit do steal the “low end” – or some other segment – of the tablet market…..if smartphone sales slip….. if other “forward looking” products like ApplePay and iBeacon don’t catch on……

This week we see two companies fundamentally different methods of competing.  Microsoft thinks in relation to its historical core markets, and engaging in bloody battles to win share.  Microsoft looks at existing markets – in this case tablets – and thinks about what it has to do to win sales/share at all cost.  Microsoft is a red ocean competitor.

Apple, on the other hand, pioneers new markets.  Nobody needed an iPod… folks were  happy enough with Sony Walkman and Discman.  Everybody loved their Razr phones and Blackberries… until Apple gave them an iPhone and an armload of apps.  Netbook sales were skyrocketing until iPads came along providing greater mobility and a different way of getting the job done.

Apple’s success has not been built upon defending historical markets.  Rather, it has pioneered new markets that made existing markets obsolete.  Its success has never looked obvious. Contrarily, many of its products looked quite underwhelming when launched.  Questionable.  And it has cannibalized its own products as it brought out new ones (remember when iPods were so new there was the iPod mini, iPod nano and iPod Touch? After 5 years of declining iPod sale Apple has stopped reporting them.)  Apple avoids red oceans, and prefers to develop blue ones.

Which company will be more successful in 2020?  Time will tell.  But, since 2000 Apple has gone from nearly bankrupt to the most valuable publicly traded company in the USA.  Since 1/1/2001 Microsoft has gone up 32% in valueApple has risen 8,000%.  While most of us prefer the competition in red oceans, so far Apple has demonstrated what Blue Ocean Strategy authors claimed, that it is more profitable to find blue oceans.  And they’ve shown us they can do it.

Alligators Gal


Why Google Glass, Amazon Fire Phone and the Segway Failed

Why Google Glass, Amazon Fire Phone and the Segway Failed

Despite huge fanfare at launch, after a few brief months Google Glass is no longer on the market.  The Amazon Fire Phone was also launched to great hype, yet sales flopped and the company recently took a $170M write off on inventory.

Fortune mercilessly blamed Fire Phone’s failure on CEO Jeff Bezos.  The magazine blamed him for micromanaging the design while overspending on development, manufacturing and marketing.  To Fortune the product was fatally flawed, and had no chance of success according to the article.

Similarly, the New York Times blasted Google co-founder and company leader Sergie Brin for the failure of Glass. He was held responsible for over-exposing the product at launch while not listening to his own design team.


Both these articles make the common mistake of blaming failed new products on (1) the product itself, and (2) some high level leader that was a complete dunce.  In these stories, like many others of failed products, a leader that had demonstrated keen insight, and was credited with brilliant work and decision-making, simply “went stupid” and blew it.  Really?

Unfortunately there are a lot of new products that fail.  Such simplistic explanations do not help business leaders avoid a future product flop.   But there are common lessons to these stories from which innovators, and marketers, can learn in order to do better in the future.  Especially when the new products are marketplace disrupters; or as they are often called, “game changers.”


Do you remember Segway?  The two wheeled transportation device came on the market with incredible fanfare in 2002. It was heralded as a game changer in how we all would mobilize.  Founders predicted sales would explode to 10,000 units per week, and the company would reach $1B in sales faster than ever in history.  But that didn’t happen.  Instead the company sold less than 10,000 units in its first 2 years,  and less than 24,000 units in its first 4 years.  What was initially a “really, really cool product” ended up a dud.

There were a lot of companies that experimented with Segways.  The U.S. Postal Service tested Segways for letter carriers. Police tested using them in Chicago, Philadelphia and D.C., gas companies tested them for Pennsylvania meter readers, and Chicago’s fire department tested them for paramedics in congested city center.  But none of these led to major sales. Segway became relegated to niche (like urban sightseeing) and absurd (like Segway polo) uses.

Segway tried to be a general purpose product. But no disruptive product ever succeeds with that sort of marketing.  As famed innovation guru Clayton Christensen tells everyone, when you launch a new product you have to find a set of unmet needs, and position the new product to fulfill that unmet need better than anything else.  You must have a very clear focus on the product’s initial use, and work extremely hard to make sure the product does the necessary job brilliantly to fulfill the unmet need.

Nobody inherently needed a Segway.  Everyone was getting around by foot, bicycle, motorcycle and car just fine.  Segway failed because it did not focus on any one application, and develop that market as it enhanced and improved the product.  Selling 100 Segways to 20 different uses was an inherently bad decision. What Segway needed to do was sell 100 units to a single, or at most 2, applications.

Segway leadership should have studied the needs deeply, and focused all aspects of the product, distribution, promotion, training, communications and pricing for that single (or 2) markets.  By winning over users in the initial market Segway could have made those initial users very loyal, outspoken customers who would recommend the product again and again – even at a $4,000 price.

Segway should have pioneered an initial application market that could grow.  Only after that could Segway turn to a second market.  The first market could have been using Segway as a golfer’s cart, or as a walking assist for the elderly/infirm, or as a transport device for meter readers.  If Segway had really focused on one initial market, developed for those needs, and won that market it would have started a step-wise program toward more applications and success. By thinking the general market would figure out how to use its product, and someone else would develop applications for specific market needs, Segway’s leaders missed the opportunity to truly disrupt one market and start the path toward wider success.

amazon-fire-phoneThe Fire Phone had a great opportunity to grow which it missed.  The Fire Phone had several features making it great for on-line shopping.  But the launch team did not focus, focus, focus on this application.  They did not keep developing apps, databases and ways of using the product for retailing so that avid shoppers found the Fire Phone superior for their needs.  Instead the Fire Phone was launched as a mass-market device. Its retail attributes were largely lost in comparisons with other general purpose smartphones.

People already had Apple iPhones, Samsung Galaxy phones and Google Nexus phones.  Simultaneously, Microsoft was pushing for new customers to use Nokia and HTC Windows phones.  There were plenty of smartphones on the market. Another smartphone wasn’t needed – unless it fulfilled the unmet needs of some select market so well that those specific users would say “if you do …. and you need…. then you MUST have a FirePhone.”  By not focusing like a laser on some specific application – some specific set of unmet needs – the “cool” features of the Fire Phone simply weren’t very valuable and the product was easy for people to pass by.  Which almost everyone did, waiting for the iPhone 6 launch.

This was the same problem launching Google Glass.  Glass really caught the imagination of many tech reviewers.  Everyone I knew who put on Glass said it was really cool.  But there wasn’t any one thing Glass did so well that large numbers of folks said “I have to have Glass.”  There wasn’t any need that Glass fulfilled so well that a segment bought Glass, used it and became religious about wearing Glass all the time.  And Google didn’t improve the product in specific ways for a single market application so that users from that market would be attracted to buy Glass.  In the end, by trying to be a “cool tool” for everyone Glass ended up being something nobody really needed.  Exactly like Segway.

win10_holoLensMicrosoft recently launched its Hololens.  Again, a pretty cool gadget.  But, exactly what is the target market for Hololens?  If Microsoft proceeds down the road of “a cool tool that will redefine computing,” Hololens will likely end up with the same fate as Glass, Segway and Fire Phone.  Hololens marketing and development teams have to find the ONE application (maybe 2) that will drive initial sales, cater to that application with enhancements and improvements to meet those specific needs, and create an initial loyal user base.  Only after that can Hololens build future applications and markets to grow sales (perhaps explosively) and push Microsoft into a market leading position.

All companies have opportunities to innovate and disrupt their markets.  Most fail at this.  Most innovations are thrown at customers hoping they will buy, and then simply dropped when sales don’t meet expectations.  Most leaders forget that customers already have a way of getting their jobs done, so they aren’t running around asking for a new innovation.  For an innovation to succeed launchers must identify the unmet needs of an application, and then dedicate their innovation to meeting those unmet needs.  By building a base of customers (one at a time) upon which to grow the innovation’s sales you can position both the new product and the company as market leaders.


Apple – Leading Another Market Shift, So Buy It and Forget About It

Apple – Leading Another Market Shift, So Buy It and Forget About It

Apple was a high flyer. As the stock hit $700, analysts predicted it would reach $1,000.  Then Steve Jobs died.  He so personified the company that many felt his death left Apple leaderless.  So the stock lost 42% of its value dropping to $400.

Apple has now recaptured that lost value, and trades a bit above its former historic high.  Apple is the most valuable publicly traded company in America, worth about $700B.  For some perspective on just how large this valuation is, it roughly equals the combined values of Dow Jones Industrial Average stalwart, industry leading mega-companies Walmart ($281B #1 retailer,) GE ($242B #1 conglomerate,) McDonalds ($91B #1 restaurant,) and Dupont ($70B #1 chemical.)

Since Apple was on the edge of bankruptcy just 15 years ago, and its value has risen so far, so fast, many people question if it can go much higher.  Yes, it’s had a great recent quarter.  But can anyone expect this company to continue growing at this pace?  Won’t smartphones be commoditized causing Apple to lose share, sales and profits to alternatives?  And aren’t its new products like the  iWatch sort of “faddish?”

Apple is actually leading another new marketplace development that may well be bigger than any previous market development (digital music, smartphones, tablets) which could well send its value much, much higher.  This new market success revolves around developers, beacons, consumers, retailers and payments.  Just like we didn’t know we wanted an iPod until we saw one, or an iPhone, new products that exploit the Internet of Things (IoT) is where Apple is again leading the creation of new products and markets.

Start with Apple’s developer ecosystem.  No device has any value unless it has applications. Apple created the first smartphone developer network around iOS.  Because Android implementations vary based on device manufacturer, Apple’s iOS remains by far the largest installed common device base in the USA, and globally. Thus, developers are attracted in the largest numbers to develop applications for iPhones and iPads running iOS before any other device.  To have a sense of the size of this developer base, and the speed with which they develop for Apple products, when Apple launched its own software language for developers called Swift it was downloaded over 11million times in the first month.  These developer companies, in total, captured over $25B in revenue just in the 4th quarter from AppStore sales.

Crowded Apple Store Hong Kong 1-1-15

Understandably, these developers are constantly creating new products which leverage the installed Apple mobile base.  A base which continues to double every few months as globally people buy more iPhones (75million iPhone 6 and 6+ devices sold in the 4th quarter.)  And a base growing internationally, as Apple just beat out Louis Vuitton and Hermes to become the #1 luxury brand in China.  It is now a virtuous circle, where the more apps developers create the more people want iPhones, and the more iPhones people buy the more developers want to create new apps.

And this is not just consumer apps.  Increasingly business systems are being built to use Apple products. Many of these are small to medium size developers and resellers.  Additionally, in 2014 Apple and IBM joined forces to create IBM MobileFirst which is building enterprise applications for multiple industries which will allow people to do all their work on iPhones and iPads sold by IBM.  Even though IBM has struggled of late, its enterprise application skills have long been a corporate strength, and the first wave of products rolled out in December.

Now focus on iBeacon.  Beacons are small electronic devices which transmit a signal that can talk to a smartphone.  These can cost anywhere from a few dollars to a nickel, depending upon what they do and signal range.  Years ago Apple started developing beacons, and then optimized iOS 8 to selectively and efficiently pick up beacon signals and establish 2-way communications without dissipating the battery.  Without a lot of fanfare to the general public, they began rolling out iBeacons several months ago.

Today there are millions of beacons in place.  Miami airport uses them to help travelers find gates, food, etc.  The New York Metropolitan Museum of Art and Guggenheim Museum use them for wayfinding, virtual guided tours and buying products. The Los Angeles Union Station and zoo, as well as the Orlando Seaworld, uses beacons to aid the customer experience, as this technology has become ready for prime time. Starbucks uses them to help loyal customers place orders.  Retail applications are many, including finding products, couponing, product information, pricing and even purchase.  Chain Store Age says that 2% of retailers had beacons installed in 2014, but that number will grow to 24% by end of 2015.  A 12-fold increase in the installed base, at least.

Additionally, Facebook is now integrating beacons into the Facebook mobile app.  This means iPhone users won’t need to download a museum or store app to communicate with beacons for their personal needs.  Instead they can communicate via Facebook to find items, know what their friends think of the item, compare prices, etc.  When the world’s largest social media platform incorporates beacons Mobile Marketer says this bridges digital and physical marketing, increases personalization in use of beacons, and beacons now accelerate the move to seamless mobile marketing and sales.

So, beacons and your idevice (including your iWatch or other wearable,) with the help of all those developers who are writing apps to bring you information, now make it possible for you to find your way around and learn more about things.  And with ApplePay you can actually achieve the “last mile” of concluding the relationship between the business and consumer.

While mobile payment systems have been slow to get started, ApplePay has a lot more going for it.  Firstly, it has the support of about all the major bank and card-issuing institutions because they see ApplePay as possibly lowering costs and increasing their revenue. Second, 78% of retailers think mobile pay is better and faster than their current point of sale systems. As a result, 43% of retailers plan to implement ApplePay by the end of 2015.

So, during 2015 we will be able to use beacons to find our way around, use beacons to identify services and products we want, and use beacons to tell us about the services and products either with apps from the location and retailer, or via Facebook mobile.  Then we can buy those products immediately with ApplePay.

Even though Apple is a very highly valued company, it is again doing what made it such a big winner.  Pioneering entirely new ways for consumers and businesses to get things done.  New solutions are happening in all kinds of industries, pioneered by developers big and small.  And when it comes to IoT, Apple products are at the center of the next big wave.  Ancillary products, like watches and headphones, further support the use of Apple mobile products and the trend to IoT.  Apple’s had a great run, but there is ample reason to believe that run has not stopped.  There looks to be an entirely new wave of growth as Apple creates new products and solutions we didn’t even know we needed until they were in our hands.


Why Microsoft Windows 10 Really Doesn’t Matter

Why Microsoft Windows 10 Really Doesn’t Matter

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.



Why Now is the Time To Buy Tesla Stock

Why Now is the Time To Buy Tesla Stock

Crude oil has dropped 50% in just 6 months.  At under $50/barrel, gasoline is now selling for under $2/gallon in many places.  This is a price rollback to 2008 prices – something almost no one expected in early 2014.

It is easy to jump to conclusions about what this will mean for sales of some products.  And many analysts have been saying this is a terrible scenario for Tesla, which sells all electric cars.  The theory is pretty simple, and goes something like this: People buy electric cars to save on petrol costs, so when petrol prices fall their interest in electric cars decline.  With gasoline cheap again, nobody will want an electric car, so Tesla will do poorly.

But this is just an example of where common wisdom is completely wrong.  And now that Tesla has lost about 1/3 of its value, due to this popular belief, it is offering investors a tremendous buying opportunity.


There are three big reasons we can expect Tesla to continue to do well, even if gasoline prices are low in the USA.

First, Teslas are great cars.  Not simply great electric cars.  So quickly we forget that Consumer Reports gave the Model S 99 out of a possible 100 points – the highest rating for an automobile ever.  In 2013 Motor Trend had its first ever unanimous selection of the Best Car of the Year when all the judges selected the Model S.  The Model S, and the Roadster before it, have won over customers not just because they use less petroleum – but rather because the speed, handling, acceleration, fit and detail, design and ride are considered extremely good – even when comparing with the likes of Mercedes and BMW – and when you don’t even consider it is an electric car.

It is a gross mis-assumption to say people buy Teslas because they are electric powered.  People are buying Teslas because they are great cars which are fun to drive, perform well, look stylish, have low maintenance costs and very low operating costs.  And they are more ecological in a world where people increasingly care about “going green.”  In 2015 consumers will be able to choose not only the Roadster, and the fairly pricey Model S, but soon enough the smaller, and less expensive, Model 3 which is targeted squarely at BMW Series 3 customers.  Teslas are designed to compete with all cars for consumer dollars, not just electric cars and not just on the basis of using less fuel.

Second, the market for autos is global and gasoline isn’t cheap everywhere.  Take for example Hong Kong, where gasoline still retails for $8.50/gallon (as of 31Dec. 2014.) Or in Paris or Munich where gasoline costs $5/gallon – even though the Euro’s value has shrunk to only $1.20.  Outside the USA most developed countries have a lot more demand for oil than they have production (if they have any at all.)

Almost all of these countries offer incentives for buying electric cars.  For example, in Hong Kong and Singapore the import tax on an auto can be 100-200% of the car’s price (literally double or triple the price due to import taxes.)  But in these same countries the tax is greatly reduced, or eliminated entirely, for buying an electric car for policy reasons to promote lower oil consumption and cleaner city air.  So a $100,000 Mercedes E class in Hong Kong will cost $200,000+, while a $100,000 Model S costs $100,000.

Further, outside the USA most countries heavily tax gasoline and diesel in order to discourage consumption and yield infrastructure funds.  So even as oil prices go down, gasoline prices do not decline in lock-step with oil price declines.  Consumers in these countries have a much greater demand than U.S. consumers for high mileage (and electric) cars almost regardless of crude oil prices.  So thinking that low USA gasoline prices reduces demand for electric cars is actually quite myopic.

Third, do you really think oil prices will stay low forever?  Oil is a commodity with incredible political impact.  Pricing is based on much more than “supply and demand.”  At any given time Aramco, or its lead partners such as Saudi Arabia and the UAE, can decide to simply pump more, or less fuel.  Today they are happy to pump a lot of oil because it hurts countries with which they have a bone to pick – such as Russia (now almost out of bank reserves due to low oil prices) and Iran.  And it helps USA consumers, reducing domestic interest in things like the Keystone Pipeline which could lessen long-term reliance on Aramco oil.  And investing in risky development projects like the arctic ocean.  Tomorrow these countries could decide to pump less, as they did in the mid-1970s, driving up prices and almost killing the U.S. economy.

Oil prices have a long history of instability.  Like most commodities.  That’s why a state economy like Texas, where they produce a lot of oil, could boom the last 4 years, while manufacturing states (like Wisconsin and Illinois) suffered.  With oil back under $50/barrel drilling rigs will go into mothballs, oil leases will go undeveloped, fracking projects will be stalled and the economy of oil producing states will suffer. Like happened in the mid-1980s when Saudi Arabia once again began flooding the market with oil and exploration and production companies across Texas went out of business.

Most people are smart enough to realize you look at all aspects of owning a new car.  There are a lot of reasons to buy Tesla automobiles.  Not only are they good cars, but they are changing the sales model by eliminating those undesirable auto dealers most consumers hate.  And they are offering charging stations in many locations to make refills painless.  And you don’t have to change the oil, or do quite a bit of other maintenance.  And you do less damage to the environment.  It’s not simply a matter of the price of fuel.

It is always risky to oversimplify consumer behavior.  Decisions are rarely based entirely on price. And, as Apple has shown with sales if iOS devices and Macs, people often buy more expensive products when they offer a better experience and brand.  Long term investors know that when a stock is beaten down by a short-term reaction to a short-term phenomenon (such as this fast decline in oil prices) it often creates an opportunity to buy into a company with a great future potential for growth.