Shift Happens – Fast – telephony


Summary:

  • Trends happen much faster than we expect
  • Old solutions disappear much faster than we anticipate
  • Early adopters are big winners, suppliers who expect markets to last longer are killed in end-stage price wars
  • We can anticipate the failure of land line phones in just a few years (as declining demand makes infrastructure maintenance too costly)
  • There are a lot of other changes coming very quickly, more quickly than many of us anticipate – putting those who are late to change at risk of survival

How long do you think you’ll keep a land-line based telephone?  From the looks of things, it may be only another year or two.  They may be as popular as an old-fashioned printing press in just 5 years.

Land line wireless substitution 6.10
Source:  Silicon Alley Insider from BusinessInsider.com

As the chart shows, already about a third of Americans have discontinued their land lines.  And, we can see the trend is accelerating.  This doesn’t count people that have one, but have quit using it.  From about half of a percent dropping their line each quarter early in 2007, by 2009 the trend had increased to 1.2 to 1.5 percent dropping their land lines quarterly.  And that’s normal – trends accelerate – much faster than incumbent technology suppliers predict.

Mobile phones started out with limited use.  They were big, and had short battery life.  It was sketchy if transmission quality would be good enough to hear or talk.  They were expensive to use, and had limited service areas.  In the early days, only people who had a big need used them.  It took a few years before adoption grew to where most people had one.  But then, in the last 5 years, it has become clear that almost everyone has one.  Even the old and elderly.  And many people have two – one for personal and one for business. 

When trends begin they are easy to discount.  Early versions are less good than the current solution.  Costs are high.  But early adopters have a reason to pick up the new solution.  There is some kind of unmet need that the solution fits.  From that small base, the products improve.  Most incumbent suppliers plot out a linear curve adoption curve, and expect dropping of the old solution to be some time way out in the future.

But improvements to the “fringe” solution come faster than incumbents – and even big users of incumbent technologies – expect.  Adoption starts growing faster.  Yet, the incumbent supplier will listen to big customers and expect people to keep their solutions for a long time as they gradually adopt the new:

  • People will have an automobile, but they’ll hang onto the horse and buggy because roads are so poor
  • He may buy a new copier, but he’ll keep the mimeo machine “just in case”
  • Folks will get a phone, and email, but they’ll keep writing letters and thus need a postman daily
  • People may buy refrigerators, but they’ll keep the icebox and want weekly ice delivery
  • Readers will skim the web for news, but they’ll want to keep reading a daily newspaper
  • PCs will be popular, but folks will hang onto that old typewriter “maybe to type envelopes or something”
  • Installing spreadsheets on company PC’s will not eliminate the need for adding machines “for when we need the tape”
  • Digital cameras will be convenient, but users will want the film camera for picture prints
  • Installing a DVR will not eliminate the videocassette player because people “still may want to watch old tapes some day”
  • People will keep their cassette players, and DVD players, even as they buy a new MP3 player because they will want to listen to the purchased collections

Actually, once someone adopts the new solution, they rapidly find no need for the old solution.  It goes to the closet, and then the trash, quickly.  And from a market perspective, once a third to a half the customers quit using a product it will disappear from use almost overnight.  From that perspective, those who depend upon traditional land line phones have plenty to worry about.  Because we’re near a third.  And smart phones keep adding more capability every month – the iPhone now has almost 300,000 apps, and Android phones have over 100,000!  It’s easy to see where the functionality, ease of use and ubiquitousness of mobile phones could make the old land line a waste of money within just 24 months!

So, what will happen to bill collectors and political phone ads (robocalls), when we quit using land lines?  Along with the loss of land lines is the loss of the traditional phone book to find people.  When will the cost of maintaining the poles and lines become so high, relative to the number of users, that we simply take them down to recycle the material?  Lots of things change when growth begins to decline for land-lines, causing the decline to happen more quickly.  And changing how we all get things done – as consumers and as businesses.  Are you prepared?

The tendency is to think change will happen slowly.  It doesn’t.  When markets shift it happens quickly.  Much more quickly than the entrenched competitor expects.  The “experts” always say the demand for the old will last much longer than happens.  He hopes to have a long life, clipping coupons, across a “maturing” market.  Instead, demand falls rapidly and remaining competitors go into price wars trying to stay alive – hoping the market will some day return to the old way of doing things.  Those who didn’t anticipate the shift rapidly run out of cash, and fail. 

Are you ready for impending market shifts?  How prepared are you for a world where

  • We don’t print anything, because everyone has some kind of on-line digital document reader.  Not just books and magazines, but user instructions, warranty info, etc.
  • We don’t need cash because we can Paypal transact anything using our smartphone
  • Doctors can monitor all your vital statistics real time, remotely, 24x7x365.  Manufacturers can monitor use of their products 24x7x365
  • So much retail is on-line that the amount of retail floor space declines 40%
  • You can regrow a finger, or organ, if it is damaged
  • Television and radio aren’t serially broadcast, you organize what you want when you want it.  There are no “commercials” in content delivery
  • The primary way of communicating with friends and colleagues is Facebook and Twitter – forget text except for only very private communications

New Solutions Emerge – Apple, Amazon, Netflix, YouTube, Hulu

Most people misunderstand evolution.  They think that changes happen slowly.  Imagine an animal with a 12 inch tail.  Every generation or so it's imagined that the tail gets a little shorter, then a little shorter, then a little shorter until after some very long time it simply disappears.  But that's not at all how evolution works.

Instead, most of the animals have a long tail.  Some small number of animals are born each year with very short or no tails.  For the most part, this matters little.  If the tail is valuable – say for warding off parasites – those without tails may suffer and die off quickly.  And that's the way things are, largely unchanged, for decades.  But then, something happens in the environment.  Perhaps the emergence of a predator able to catch these animals by the tail and hold them in place to let the pack kill it.  Within one generation almost all of the tailed animals are killed by the predator, and only the no-tail animals survive.  Some of these have developed an immunity to the parasite.  So then this "evolved" animal becomes dominant.  No-tail animals replace the tailed animals.  That's how evolution really works.  It happens fast, with drastic change (and this time of change is referred to as a punctuated equilibrium.)

Once we know how evolution really works, we can start to better understand business competition.  A Success Formula works for a really long time, until something changes in the marketplace.  Suddenly, the old Success Formula has far poorer results.  And a replacement takes over.

Consider newspapers.  They played a very important role in society for at least 100 years (maybe 200 or 300 hundred years.)  But with the advent of the internet, their role is no longer viable.  Printing and delivering a daily paper is too expensive for the value it can provide.  So think of newspapers as the long-tail animal.  And digital news delivery is a short-tail animal.  The internet is the attack pack that kills the newspapers.  And within short order, the world is a different place – in a new equilibrium.  And everything about the surrounding environment is shifted.  Regardless of how much you enjoyed newspapers, they simply cannot compete and new competitors are a better fit in the new marketplace.

Now consider Netflix.  Netflix played a major influence in obsoleting traditional movie rental shops – like Blockbuster.  Netflix was a winner.  But markets – new attack packs – keep emerging.  And the latest shift are products like the Kindle and Apple Tablet (as well as other tablet PCs.)  These products make Hulu and YouTube a lot more viableSuddenly, Netflix is the long-tail animal, and the short-tail animals are doing relatively better. 

According to The Wall Street Journal, in "Apple Sees New Money in Old Media" Apple is close to a deal with several newspapers to deliver their content to readers via their internet device.  They also are negotiating rights to deliver movies and television (small format) entertainment.  Simultaneously, Amazon keeps marching forward as MediaPost.com reports in "Take That Apple: Kindle Introduces Apps."  We see that there are a LOT of potential different versions of the short-tail animal.  Tablets, phones, netbooks, etc.  Which will be the biggest winners?  Not clear.  But what is clear is that the old long-tail competitors (newspapers, print magazines, network television, traditional PCs) are not going to flourish as they once did.  The market has permanently shifted.  Those competitors are in the back end of their lifecycle.

Simultaneously, this market shift causes ripple effects through the environment.  The market shift affects ALL players – not just the one most visibly being attacked.  So, as SiliconBeat.com reports in "Looks Like Netflix is Dead, Again" this change suddenly imperils Netflix which has mostly counted on postal delivery rather than digital.  And it provides a boost to short-tail players like Hulu and YouTube which could see much larger revenue given their digital-based delivery models.

And this affects you.  What do you print, or say, that could be better handled on a mobile device?  Could you deliver user instructions via an iPhone or Kindle app?  If so, why aren't you doing it?  Are you still working on traditional web pages, with embedded text in graphics that can't be seen by a mobile phone, when most people are likely to find you first on their mobile device?  Are you busy working on your web site, while ignoring having a Linked-in or Facebook account?  Are you advertising on television, or in newspapers, and ignoring Facebook ads – or YouTube links?  Do you have a YouTube channel with short clips to instruct users on your product, or how to install an upgrade, or even why to buy?  Are you still competing with a long tail, while the pack is rapidly killing off the long-tail species?

Market shifts are happening fast today.  If you don't react, you just may find yourself deep into the pack with declining results.  Or you can shift with the market to keep your business competitive.

Market Shifts and Lifecycles – Playboy, Oprah and Skype

One of the hardest things for leaders to do is recognize market shifts.  The tendency to remain focused on Defending & Extending what was always does is so great that market shifts which demand change are overlooked in the urge to improve what was always done – even as results fade.

An obvious example is Playboy enterprises.  "Playboy denies report of $300M price tag" was a Chicago Crain's headline, as rumors that the company (now publicly valued at only $90M) was being shopped for a new owner.  Playboy was founded as a "lifestyle" media company intended to meet the emerging needs of "sophisticated" adult males in the 1960s.  To the surprise of many publishers and government leaders, Playboy became a huge success.  Its magazines outsold expectations.  The company grew by opening clubs in major cities where businessmen entertained.  Even resorts were founded as vacation destinations.  As the company expanded it moved its headquarters from Chicago, where government officials disliked the hometown anomaly, to LA.  And the company acquired a 727 as the corporate jet.  As revenues and profits expanded, the company went public.  As recently as 2000 the company was worth nearly $1.2billion (chart here).

But, the market changed.  Women entered the workforce as one primary contributor to the clubs becoming passe, leading to their close.  Likewise, the resorts closed as competitors – clubs catering to young men and couples, such as Club Med – did a better job of meeting their needs.  The magazine became less and less viable as market shifts led to a split between pornography magazines for those who wanted photos and serious mens journals ranging from Stereophile and Autoweek to GQ.  Market shifts ranging from America's attitudes about how to treat women, to what was needed in a serious current events or hobbyist journal, left the company's products less and less interesting.   As the founder aged, the company lost track of its primary target and failed to identify a new target market.  And the new CEO, the founder's daughter, was unable to develop future scenarios identifying a viable direction – or products – to keep the company growing

At this point, Playboy has no clear market, has suffered from decades of declining revenue and profits, and investors have no reason to expect an improved return on investment.  Why anyone should want to buy the company, especially as we observe that all print journalism is shrinking dramatically, is unclear.  Playboy is at the vanguard again – but this time of demonstrating the end of print media and the losses capable from ignoring market shifts.  Had Playboy long ago dropped the salatious pictures and moved itself toward a growing readership – providing insights to men's lifestyle issues in sports, fashion, electronics, autos or any number of topics – it had a chance of maintaining its success.  But now the brand represents a complete out-of-synch with market needs and is more likely a negative than a positive; of no value.  Playboy leadership should take the money and run, distributing what it can to investors, from whatever fool is willing to throw away its money on an acquisition.

Meanwhile, a recent Wall Street Journal Blog was titled "Skype Gets the Oprah Treatment".  The WSJ blooger seemed perplexed that Oprah Winfrey's show would choose to run an entire episode by interviewing people on Skype.  His implication was strongly that the episode was some sort of technology endorsement in disguise.

But, to the contrary, we can see where Ms. Winfrey and her producers are much smarter than her media CEO counterpart at Playboy.  This episode gave viewers a firsthand experience with new technology which is available and usable by her target audience.  People were able to recognize how the technology works, and why you would use it to communicate with others – possibly in remote locations. 

Although Ms. Winfrey is "50ish" her company is keeping her product very current.  Her audience is learning how to use new technology that will help them be better connected to family or business associates.   And save money doing so, compared to traditional telephonic tools.  Ms. Winfrey and her leadership team could continue to do what they always did, but this kind of new show helps them keep Harpo Enterprises and one of its products – The Oprah Show – in the forefront of competitivesness.  That's why Harpo can lay claim to reaching even more people in Asia and Europe than in the USA!  Thus Harpo keeps viewer numbers high, and advertisers willing to foot the bill

Harpo Productions and Ms. Winfrey are demonstrating their willingness to shift with the marketplace.  They are trying new things, and are willing to branch out with changes to stay connected to markets as they shift.  Doing so is a requirement in lifestyle products, like media.  She benefits her customers by willingly shifting with the market, and those lucky enough to work for Harpo or supply the company, will benefit by its willingness to remain connected to changing markets – by staying on the forefront. 

Many CEOs and their leadership teams would do well to understand the failure of remaining Locked-in, like Playboy did.  And to recognize the value of remaining abreast of market shifts and keeping products current with changing market requirements, like Harpo Productions and is famous CEO.  Sometimes being criticized for being too avant garde is a good thing, because it shows you aren't afraid to change in the pursuit of keeping current with market shifts.