by Adam Hartung | Aug 30, 2010 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech
Summary:
- We like to think we can compete effectively by waiting on others to show us the market direction
- You cannot make high rates of return with a “fast follower” strategy
- Companies that constantly take innovations to market grow longer, and make higher rates of return
- White Space allows you to learn, grow and be smart about when to get out while costs are low
“I want to be a fast follower. Let somebody else carry the cost of learning what the market wants and what solutions work. I plan to come in fast behind the leader and make more money by avoiding the investment.” Have you ever heard someone talk this way? It sounds so appealing. Only problem is – it very rarely works! Fast followers might gain share sometimes, but universally they have terrible margins. Their sales come at an enormous investment cost.
Those who enter new markets early actually gain a lot, for little cost. Take for example Amazon.com’s early entry into electronic publishing with Kindle. Entering early gave Amazon a huge advantage. Amazon may have appeared to be floundering, potentially “wasting” resources, but it was learning how the technology of e-Ink worked, how costs could be driven down and what users demanded in a solution. Every quarter Amazon was learning how to find new uses for the Kindle, making it more viable, finding new customers, encouraging repeat purchases and growing. Now Mediapost.com headlines “Review: New Kindle Kicks (Even Apple’s) B*tt.”
Now there are a raft of “fast followers” trying to catch the Kindle in the eReader market. But the Kindle is far lighter, easier to use, with greater functionality and available at one of the market’s lowest prices. While the cost of entry was low, Amazon learned immensely. That knowledge is not repeatable by companies trying to now play “catch up” without spending multiples of what Amazon spent. Amazon is so far in front of other eReaders that it’s competition is the vastly more sophisticated (and expensive) mobile devices from Apple (iPhone and iPad). By entering early, Amazon has lower cost, and considerably more/better market knowledge, than later entrants.
We see this very clearly in Microsoft’s smart phone approach. Microsoft got far behind in smart phones, losing over 2/3 its market share, as it focused on Windows 7 and Office 2010 the last 3 years while Resarch in Motion (RIM) Apple and Google pioneered the market. Now the 3 leaders have millions of units in the market, low price point establishment, and between them somewhere between 400,000 and 500,000 mobile apps available.
As reported in Mediapost.com “Microsoft Gets Serious with Windows 7 Phone” entering now is VERY expensive for Microsoft. Microsoft spent almost $1billion on Kin, which it dropped after only a few months because the product was seriously unable to compete. So now Microsoft is expecting to spend $500million on launch costs for a Windows 7 mobile operating system. But it faces a daunting challenge, what with 350,000 or so iPhone apps in existence, and Google giving Android away for free (as well as sporting some 100,000 apps itself).
The cost of entry, ignoring Microsoft’s technology development cost, to get the mindshare of developers for app development (so Windows 7 mobile doesn’t slip into the Palm or Blackberry problem of too few apps to be interesting) as well as minds of potential buyers will more likely cost well over $1B – just for communications!! Microsoft now has to take share away from the market leaders – a very expensive proposition! Like XBox marketing, these exorbitant marketing costs could well go on for several years. XBox has had only 1 quarter near break-even, all others showing massive losses. The same is almost guaranteed for the Windows 7 phone. And it’s entering so late that it may never, even with all that money being spent, catch the two leaders! Who are the new users that will come along, and what is Microsoft uniquely offering? It’s expensive to buy mind and market share.
Clearly Apple and Android entered the smart phone market at vastly lower cost, and have developed what are already profitable businesses. Microsoft will lose money, possibly for years, and may still fail – largely because it focused on its core products and chose to undertake a “fast follower” strategy in the high growth smart phone business.
We like to believe things that reinforce our behaviors. We like to think that tortoises can outrun hares. But that only happens when hares make foolish decisions. Rarely in business are the early entrants foolish. Most learn – a lot – at low cost. They figure out where the early customers are with unmet needs, and how to fulfill those needs. They learn how to identify ways to grow the business, manage costs and earn a profit. And they learn at a much lower cost than late followers. They capture mind and market share, and work hard to grow the business with new customers keeping them profitable and maintaining share.
We want to think that innovators bear a high risk. But it’s simply not true. Innovators take advantage of market learning to create revenues and profits at lower cost. Companies that keep White Space projects flourishing, entering new markets generating growth, earn higher rates of return longer than any other strategy. Just look at Cisco, Nike, Virgin, J&J and GE (until very recently). The smart money gets into the game early, developing a winning approach — or getting out before the costs get too high!
by Adam Hartung | Aug 24, 2010 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Lock-in, Web/Tech
Summary:
- It seems like the best way to find old success is to do more of what used to make you successful
- But lack of success is from market shifts, meaning you need to do more things
- Investing in what you know gets more expensive every year, with little (if any) improvement in returns
- To regain success it’s actually better to get out into new markets where you can compete with lower investment rates, generating more profitable sales
- Apple increased its sales of Macs not by focusing on Macs – but instead by becoming a winner in entirely different markets creating a feedback loop to the old, original “core”
MediaPost.com, in its article “Enterprise Sector Takes a Shine to Apple” has some remarkable statistics about Apple sales. At a time when most PC manufacturers, such as Dell and HP, are struggling to maintain even decent growth (even after the launch of upgraded Windows 7 and Office 2010) Apple is dramatically increasing its volume of Macs – and gaining market share. In last year’s second quarter:
- Mac sales jumped almost 50% in the business sector
- Mac sales jumped a whopping 200% in the government sector
- Mac sales rose over 31% in the home sector
- In Europe, Mac unit sales doubled their market share – and more than tripled their share in dollars
Yes, Macs are a small part of the market. Around 3.5% in the U.S. But, if you’re an Apple employee, supplier or investor that doesn’t matter, does it? In fact, it comes off sounding like a PC fan pooh-poohing a really astounding sales improvement. Nobody is saying the Mac will soon replace PCs (that’s more likely to happen via mobile devices where Apple has iPhone and iPad). But when you can dramatically increase your sales, especially as a $50B company, it’s a big deal.
The lesson for managers here is more unconventional. For years we’ve been told the way to grow your sales and profits is to “stick to your knitting.” To “protect your core.” The idea has been promoted that you should jettison anything that is a diversion to what you want to do best, and completely focus on what you select, and then try to out-compete all others with that product. If things don’t improve, then you need to get even more focused on your core, and invest more deeply. And hope the Mojo returns.
But that’s exactly the opposite of what Apple did. When almost bankrupt in 2001 Apple jettisoned multiple Mac products. It invested in music and entertainment products (iPod. iTouch and iTunes) to grab large sales with lower investment rates. It then rolled that success into developing the mobile computing/phone business with the iPhone and all those apps (some 250 thousand now and growing!). And it built on that success with a mobile tablet called the iPad. The Mac is now growing as a result of Apple’s success in all these other products creating a favorable feedback loop to the original “core”.
Apple spends less than 1/8th the money on R&D as Microsoft. And an even lesser amount on marketing, PR and sales. Yet, by entering new markets it gets far more “bang for its buck.” By entering new markets Apple is able to develop and launch new products, that sell in greater volumes and at higher profits, than had it stuck to being a “Mac company.” In fact, back when it only had 45 days of cash on hand, if it had stayed a “Mac company” Apple would have failed.
What we now see is that constantly re-investing in what you know drives down marginal rates of return. It keeps getting harder and harder, at ever greater cost, to drive new development and new sales with upgrades to old products. Look at the sales and profit problems at Sun Microsystems (world leader in Unix servers) and Silicon Graphics (world leader in graphics computers) and now Dell. What we’d like to think works at driving revenue and profits really raises new product costs and creates an easy target for new competitors who attack you as you sit there, all Locked-in to doing more of the same.
Contrarily, when you develop new products for new markets you grow revenues at lower cost, and thus higher profits. And you create a feedback loop that helps you get more sales without massive investments in your historical “core.” Think about Nike. It hasn’t been a “shoe company” for a very long time – but its shoes are greatly benefited by all the success Nike has in golf clubs and all those other products with a swoosh on them.
When confronted with a decision between “investing in the core” – or “protecting the mother ship” – or investing in new markets and solutions —- be very careful. Your “gut” may lead you to “in a blink” decide the obvious answer is to invest in what you know. But we are learning every quarter that this is a road to problems. You get more and more focused, and less and less prepared for the market shift that sent you into that “core focus” in the first place. Pretty soon you’re so far removed from the market you can’t survive – like Sun and SGI. It’s really a whole lot smarter to get out into new markets with White Space teams that can generate revenues with a lot less cost by being a smart, early competitor.
by Adam Hartung | Aug 23, 2010 | Current Affairs, In the Swamp, Leadership, Web/Tech
Summary:
- Market shifts can lead to new solutions that are free
- Free products often cause historical competitors to fail
- Microsoft is at great risk as the market for business applications is shifting to free solutions from Google
More than a decade ago Microsoft made the decision to bundle, at no extra charge, an encyclopedia with its software. Almost nobody had heard of Encarta, and it had never been a serious competitor to Encyclopedia Britannica. But when it came on a CD for free it stopped a lot of people from buying a new set of books for the family. It only took months for Encarta to become the #1 encyclopedia, and Encyclopedia Britannica found itself in bankruptcy. While quality is always an issue, it's very tough to compete with "free." Now Wikipedia, another free product, dominates the encyclopedia market.
For decades people paid for access to news – via newspapers and magazines. Advertisers and subscriptions paid for news. But when newswriters started offering news on the internet for free, and when readers could access news articles on the web without subscriptions, publishers found out how hard it is to compete with "free." Several magazines and newspapers have failed, and several publishers have entered bankruptcy – such as Tribune Corporation.
Now Crain's New York Business headlines "Google's Free Appls Click with Entrepreneurs." Companies are learning they can accomplish the tasks of word processing, spreadsheets, website creation and enterprise email for free via Google apps. And this is not good news for Microsoft.
Microsoft has 2 product lines that make up almost all its sales and profits. Operating systems for PCs (Windows 7) and office automation software for businesses (Office 2010). That there is now a viable offering which is free has to be very, very troubling. How long can Microsoft compete when the competitive product is, quite literally, free? If you adopt cloud computing applications, you no longer need a PC with an operating system. You can use a much simpler device. And you can use Google apps for business applications at no charge.
Microsoft is a huge company, with an incredible history. But how is it going to compete with free? And as computing becomes more and more networked, and Microsoft loses share in mobile devices from smartphones to tablets, what will be the sustaining revenue at Microsoft?
Investors in Microsoft have a lot to fear. As do its employees and suppliers. As do supply chain partners like Dell. When markets shift – especially when led by a shift to free solutions – the impact on traditional competitors can be extreme. Even the very best – such as Encyclopedia Britannica – can be destroyed. Sun Microsystems led the server business in 2000, with a +$200B market cap. Sun is now gone. Market shifts can happen fast, and when products are free shifts often happen even faster.
by Adam Hartung | Aug 19, 2010 | Current Affairs, Innovation, Leadership, Web/Tech
Summary:
- By 2015 or 2020 cash, checks, debit and credit cards could disappear
- Smartphones are positioned to eliminate old financial transaction tools, as well as land line phone service and PCs
- All businesses will have to make changes to deal with new forms of payment processing, and early adopters will likely gain an advantage with customes
- There will likely be some big winners and big losers from this transition
Can you imagine a world with no cash? It could happen soon, and how will it affect your business?
Bloomberg.com headlined “AT&T, Verizon to Target Visa, Mastercard with Smartphones.” The business idea is to replace your Visa and Mastercard with a smartphone app that acts as your debit and/or credit card. Doing this makes it faster and easier for smartphone users to place transactions – online or in person – without even bothering with a card or any other physical artifact.
This is a big deal, because according to Mediapost.com “Smartphones Nearly 20% of All Phones Sold.” So smartphones are starting to be everywhere, and at current rates will replace old mobile phones in just a couple of years. They are increasingly replacing traditional land-line service as headlined in DailyMarkets.com, “Cell Phone Only Use Hits New High of 24.5% in U.S.” People are abandoning the historical land-line telephone.
The traditional “phone company” and its services are rapidly disappearing. After all the effort Southwestern Bell put in to recreating the old “ma bell” of AT&T, it now looks like that entire business is in decline and likely to become about as common as CB or portable AM radios. What is the future of AT&T and Verizon if they front-end Discover as the payment processor? Will these companies transition to become something very different than their past, and if so what will that be? Or will they be an early proponent for change but let the business value go to others – as they did in mobile phones, ISDN and other internet connectivity as well as cable entertainment?
Mediapost.com also reports “PayPal Making Micropayments a Reality.” Which gives us the last piece of the puzzle to just about guarantee old payment methods are likely to be gone by 2020 (possibly earlier – 2015?). People are giving up old land-line telecom for mobile, and mobile is rapidly becoming all smartphones. Smartphones are getting apps allowing them to conduct financial transactions without the need of a credit card, debit card or (going ultra low-tech) check (no printer needed – lol – which has to be a concern for companies like Zebra that make the printers). In fact, you can even make all kinds of payments, even really small ones under $1 – not just big ones – using your cell phone by opening a Paypal account. What you can easily see is a future where you don’t need a wallet at all. Everything you’ll need for financial transactions will be on your smartphone. (How much you want to bet somebody will figure out how to put your driver’s license on the smartphone too?)
Ultra convenient, don’t you think? You won’t need a credit card, or any other card. You won’t need a PC to do your on-line banking. You won’t need cash for small purchases – you can even do garage sale transactions or buy gum using your smartphone. And there’s sure to be an app that will consolidate all your payments and set up to automatically do transactions (like your mortgage or car lease) without you even having to do anything. And all from your smartphone. No more wallet, no more PC, no more coins or bills in your pocket.
So, what happens to cash registers, and the folks that make them? No registers in restaurants or hotels? What happens to desk clerks in hotels – will they be necessary? What about cashiers in retail stores – any need? Will banks have any need for a local branch? Why would ATMs exist? Quite literally a raft of companies would be affected that deal in the handling of transactions – from Visa and Mastercard to IBM and Diebold. Even those little printers in cabs could disappear as your phone now pays the cabbie directly what the meter requires. You could even pay modern parking meters with your smartphone!! What happens to companies that make mens and women’s wallets? Will purses and clutches disappear from style? How much easier will it be for the IRS to track the income of people that have historically been in cash jobs?
Do your scenarios of 2015 include this kind of change in payments? Should it? What will be the impact on your bank? On your credit card supplier? Will your customers want to change how they pay? How will you need to change your order-to-cash process? Are you ready to be an early adopter, thus aiding revenue generation? Or will you let others steal sales by moving quickly to these modern payment systems?
There’s precious little that’s more important in business than collecting the money. A new set of technologies are sure to be changing how that happens. Will you leverage this to your advantage, or will your competitors?
by Adam Hartung | Aug 16, 2010 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Leadership, Web/Tech
Summary:
- Dell has remained focused on its core market, and as a result growth has stalled for 5 years.
- Cisco has aggressively developed entirely new markets, and it has grown 60% the last 5 years.
- To keep growing, and maintain your business value, you must CONSTANTLY keep developing new markets
Dell helped create the PC revolution. It’s simplification of the PC business into a limited set of technologies, no R&D, then putting its energy into lowering costs by focusing on supply chain made PCs very, very cheap. it was an idea never before attempted, and this Success Formula allowed Dell to become a household name around the world.
Unfortunately, the demand for PCs has flattened. And competitors have learned how to match (maybe beat?) Dell’s “core capabilities.” When markets shift, a company has to develop new markets, or risk hitting a growth stall.
Source: Silicon Alley Insider
And that’s happened to Dell. Revenues have not continued to grow, Dell has remained focused on its “core markets” and “core capabilities” but without growth in those “core” areas the company has been severely hampered. Revenues are still 72% in “core” but there’s little reason to own the stock because company revenues are at best flat (despite volatility) the last 5 years. Dell is going nowhere – except following the problems at Microsoft. Since it’s now so late to mobile phones, any sort of tablet, or other markets with growth its unlikely Dell will be able to profitably develop any new businesses to replace the deteriorating PC market. Dell is stuck in the Swamp, so busy fighting alligators and mosquitoes that it’s no longer growing. It’s stuck in a low-no growth “core” market.
To remain a healthy business you have to constantly enter new markets.
Source: Silicon Alley Insider
You may want to think of Cisco as a router, or router and switch company. That was certainly the company’s early Success Formula. But unlike Dell, Cisco has invested heavily in other businesses. Now Cisco revenue is 60% bigger than it was five years ago, while its percent of revenue in routers and switches has actually declined! By aggressively moving into new markets for “advanced technology” and services Cisco has improved its overall revenue, and kept the company very healthy. It has growth precisely because it moved away from its “core” to develop new markets, new products, new solutions and new revenues. Cisco keeps maneuvering itself back into the Rapids of growth before the current slows, and thus it avoids the growth stall eating up Dell’s value.
It is so easy to be lured into focusing on your “core”. Especially if you listen to your existing big customers. But markets shift, and you inevitably must move into new markets. And market shifts don’t care what your market share or your industry view. It’s up to all leaders to stay ahead of shifts by constantly developing scenarios for new markets, studying competitors for new insights, disrupting the old Success Formula Lock-ins and setting up White Space teams to develop new revenues and keep the business growing!
by Adam Hartung | Aug 11, 2010 | Defend & Extend, Food and Drink, In the Whirlpool, Leadership, Lock-in, Television, Web/Tech
“Playboy’s Circulation drops 34%” is the Chicago Tribune headline. Is anyone surprised? If ever there was a brand, and business, that was out of step with current markets it has to be Playboy. That the business still exists is a wonder. But let’s spend a few minutes to see why Playboy has fallen on hard times, and what the alternative might have been – and could still be.
The Playboy Success Formula is really clear. Since founded by Hugh Hefner, the company has focused on titillating the male libido with a magazine that focused on pictures of naked women, videos of same (physical videos, on-line videos and television), radio talk shows about sex, and alternative lifestyle issues such as recreational drug use. At one time this was unique, and in a male dominated 1960s it was even tolerated. Although never mainstream, the business was very profitable early in its lifecycle. Thus the founder kept doing more of the same, building a small empire and eventually taking the company public.
But the market shifted. Larry Flint and others ushered in a new era of pornography altering the market for prurient, sexually oriented material. Women in the workforce – and I’d like to think a heavy dose of decency – made public toleration of such material unacceptable. You couldn’t read a Playboy at work, or on the airplane, and you wouldn’t have a business lunch at their clubs. Other magazines sprung up to deal with men’s interests in automobiles, clothing, music, sports, etc. in a more acceptable – and for most people more significant and intelligent – manner. Other lifestyle publications were developed that discussed illicit drug use and non-traditional ways of life more directly, explicitly and with greater advocacy. The advent of cable TV and then the internet increasingly made access to the key features of Playboy’s product readily available, very inexpensive (often free) and targeted at niche audiences.
Yet, despite these many market changes, Playboy’s founder and his daughter, the company CEOs for 40+ years, steadfastly stuck to their old Success Formula. They kept thinking that people wanted those “bunny eared” products. They talked a lot about the heritage of Playboy, how it broke ground in so many markets, and opened the door for lots of new competitors. But they kept doing what the company always did – including foisting upon us the ever aging founder as a “role model” for male menopause and the anti-family aged entrepreneur. Playboy today is what it always was – and there simply aren’t a whole lot of people with much interest in those products any more. Nobody mismanaged the brand, the market just walked away from it. Sort of like the demand for Geritol.
Playboy focused on its core. And now its on the edge of bankruptcy. The company keeps outsourcing more and more of the work, as the staff has dropped to nearly nothing, cutting costs everywhere possible. Sales continue to decline, and the brand looks like it will soon join Polaroid and Woolworths on the heap of once famous but floundered companies. Playboy’s fatal mistake wasn’t that it was started as a prurient men’s magazine – but rather that for 40 years its leadership kept Defending & Extending that original Success Formula despite rather dramatic market shifts. Now, today, Playboy is a sour lemon that not many a marketer would want to be stuck promoting.
But – it didn’t have to be that way. Just imagine if you’d been given control of Playboy 30 years ago. What could you have done?
As soon as Hustler hit the newsstands, and the first women’s right protests developed – including the early push for the Equal Rights Amendment – it was clear that the future of the magazine was in jeopardy. Instead of doing “more of the same” could you have considered something else?
The growth of women in the workforce meant a lot of new opportunities. Why not jump onto that bandwagon? If you’re really at the forefront of “lifestyle” issues, as the leadership claimed, then you would have identified that women in the workforce meant something new was brewing – a group of consumers that would have more cash, and more influence. And not only would that be an appealing market, but so would the men who would be adjusting to new lifestyle issues as homes became dominated by 2-worker leadership.
Playboy was well positioned to be Victoria’s Secret. At a time before anybody else was really thinking about a significant market for attractive and comfortable lingerie Playboy certainly had the leading edge. Or, even more likely, the water carrying publication for Dr. Ruth-style discussions about sexuality. There was an emerging market for information targeted at increasingly affluent women about automobiles, stereos, apartments, resume writing, job hunting and even at-work etiquette — all topics that had been the dominant discussion areas for Playboy’s historically male readership. Had the leadership at Playboy opened its eyes, and scanned the horizon for growth markets being developed as a result of the trends which were negatively impacting it, these leaders would have been able to create a bevy of scenarios that were filled with opportunities for growth.
It’s hard to imagine today Playboy being anything else. But all that stopped stopped Playboy’s evolution was a commitment to its “core” – to its old Success Formula. That the CEO for over 20 years was a well educated woman is testament to the power of “core” philosophy versus a willingness to look at market opportunities. By keeping Playboy’s Success Formula tightly aligned with her father’s founding ideas she quite literally led the company into smaller and smaller sales with less and less profit. The big loser was, of course, investors. Playboy is worth very little today as Mr. Hefner hints at making a bid to take the company private once again.
Singer was once a sewing machine company. But when Japanese products surpassed Singer’s product capabilities and achieved a cost advantage in the 1970s, Singer leadership converted Singer into a defense contractor. And Singer went on to multiply its value before being acquired by General Dynamics.
IBM was an office machine company famous for mechanical typewriters and adding machines. The founder said he would never enter computers. Fortunately for employees and shareholders the founder’s son took the company into computers and the company flourished as competitive typewriter companies such as Smith Corona – stuck on the core business – disappeared.
There’s a time for lemons – in your tea or on a salad. But when markets shift, lemons just turn sour. If you want to succeed long-term you have to shift with markets. And that might well mean making significant change. Adding water and sugar to the lemons is a good start – as lemonade is less about lemons than what you’ve added to it. After you open that lemonade stand, see where the market leads you.
No matter where you start, every day offers the opportunity to head toward new, emerging markets. No matter what your historical “core” you can literally become any business you want to become. Coke was founded by a pharmacist who wanted to boost counter sales in his store – and it was worth a lot more than the pills he was constructing. Those who develop scenarios about the future prepare for market shifts, understand the competitive changes and use them to identify the opportunities for a new future. Then they use White Space teams to move the business into a new Success Formula. Anybody can do it. You could even have remade Playboy. So what’s the plan for the future of your business? More of the same …. or …..
by Adam Hartung | Aug 5, 2010 | Current Affairs, In the Whirlpool, Lifecycle, Lock-in, Web/Tech
“Blame Piles Up in Tribune Cos. 2007 Buyout” is the Chicago Tribune headline. After months of research the bankruptcy judge has released a court ordered report on the transaction that left Tribune Corporation insolvent. Apparently, lots of people were aware that ad demand was falling like a stone. And that there was little hope it would recover. But selling executives shopped for a valuation company until they found one willing to say that management’s projections were plausible. Of course, they weren’t. The transition from print to digital was well along, and the projections were never going to happen.
What’s more startling is the hubris of Sam Zell to close the deal. Apparently he too had doubts about the forecasts, but he went ahead and borrowed all that money to close. That he would ignore all the market signals, and plenty of opportunities to obtain outsider input on the likely continued demise of newspaper ads, shows he wanted to close. He wanted to control Tribune Corporation. Even if it would cost him $300m.
Success Formulas are very powerful. And successful entrepreneurs often have them so locked-in that there’s no other consideration. Success, and personal fortunes, causes them to ignore external data, and external opinions, when they fly in the face of their historical Success Formula. They want to apply it to a new business, and they are ready to go! So damn the torpedos! Full speed ahead!
It’s too bad that our hero worship of successful entrepreneurs too often leaves them insufficiently challenged. Unfortunately, a lot of people got hurt in the calamity that is now the Tribune Corporation bankruptcy. Employees have lost pay, benefits and jobs. Chicagoans have seen the paper get even smaller, and the amount of local news coverage decline. And the city’s reputation has certainly not benefited.
As much as people despise consultants, it would seem that Mr. Zell would have been a lot smarter to ask some bright strategists what the future was for the newspaper before abetting the close of such an onerous, and destructive, transaction. Outsiders, including consultants, are valuable at pointing out the range of potential outcomes – not just the one that fits your Success Formula. That’s why successful organizations use outsiders to help develop scenarios and study competitors, as well as design Disruptions and establish White Space projects. Outsiders can help overcome Lock-in to historical assumptions, biases, prejudice and viewpoints in order to reduce failures and improve success.
And this is some advice hopefully Leonard Riggio will heed. “Barnes & Noble Considering Sale of Company; Possible Buyers Include Founder Leonard Riggio” is the Chicago Tribune headline. Barnes & Noble as an acquisition looks a lot like Tribune did 3 years ago. Product sales (printed books) are in a free-fall as people choose alternative products – especially digital books and journals. Books themselves are struggling to avoid obsolescence as digital publishing makes shorter format more valuable in many instances. Brick and mortar shops focused on printed material – from bookstores to magazine/news stands – have been failing for 10 years – and in fact overall brick and mortar retail across the board has declined the last 4 years as internet retailing has grown. The leading competitor (Amazon) has led the transition to digital, and is competing with an enormously successful tech company (Apple) for the future of digital publishing. Barnes & Noble may have a fledgling product, but it’s about as competitive as a junior leaguer compared to someone on the Yankees!
The Success Formula of Barnes & Noble, as created by the original founder, is obsolete. And B&N is not in the game for where the marketplace is headed. Just because he knew the business once, years ago, gives the founder no leg-up on resurrecting the company. Contrarily, his background is a decided negative as he’s likely to attempt a “throwback” strategy. Since the world goes forward, never backward, those simply don’t work. We could expect lots of store closings, layoffs and inventory reductions – but the future of publishing has radically changed and will continue doing so, and B&N has little input on that outcome. Amazon, Apple and Google (the largest purveyor of digital words through its search engine) are the giants in this game and B&N will get crushed.
And the city of Milwaukee should consider hiring some consultants, as should Harley Davidson. “In Quest for Lower Cost Harley-Davidson Considers Leaving Milwaukee after 107 years” reports Chicago Tribune. Harley would like subsidies, from its workers (unions) as well as the city and state, to keep from moving its factories. But Harley’s problems are far worse than hourly wages for plant workers, and everyone needs to be careful not to get sucked into a Tribune Corp. deal of trying to save a floundering ship.
Harley Davidson’s product has been largely unchanged for a very long time. Despite all the hoopla about tattooed customers, for 30 years competitors Honda, Suzuki, Kawasaki and Yamaha have been innovating and running circles around Harley. Their businesses have grown. Not only by dramatically expanding their motorcycle products, but adding ATVs, snowmobiles, boat engines, automobiles, electric generators, yard equipment and a raft of other products (Honda even makes a commercial airplane!) They have brought in millions of new customers, while Harley’s customer base is eroding – largely dying off as the average age of buyers has risen to well over 50!!
While competitors have pushed forward with new technology and products, and developed new markets and customers, Harley has tried standing still. So, its now an historical anachronism. Interesting to look at, and with some intriguing niches, but not really important to the industry. Should Harley disappear nobody in the motorcycle business will really notice, because almost every competitor now has a Harley-inspired v-twin motorcycle they can sell. Few people realize that most dealers make more money selling jackets and other Harley-Licensed gear/apparel than motorcycles! Harley’s days have been numbered since they let the v-Rod, a motorcycle with a Porsche engine, languish in dealer showrooms – allowing their “customers” to keep them locked-in to aging technology at ever rising prices (they typical Harley prices for over 2x the price of a comparable Japanese produced motorcycle.) Harley should have paid more attention to competitors a long time ago (instead of deriding them as “rice burners”) and a lot less attention to those very loyal – but diminishing in numbers – dealers and end-use customers.
All 3 of these companies, Tribune, Barnes & Noble and Harley-Davidson have great pasts. But the risk is thinking that means anything about the future. Tribune was fatally harmed by adding debt to a company that needed to refocus on new internet markets, then continuing to try to keep the old Success Formula operating. Barnes & Noble is the last prominent brick and mortar book retailer, but there is little reason to think there will be a need for them in just 5 years. And Harley-Davidson every year appeals to a smaller group of buyers in a niche market with aged technology and a tiring brand. In all cases, caveat emptor! (Let the buyer beware!) Before accepting any management forecasts, it would be a good idea to get some external opinions!
by Adam Hartung | Aug 4, 2010 | Current Affairs, In the Rapids, Innovation, Leadership, Lock-in, Web/Tech
Things are changing pretty fast in the “tech” world. PCs are losing market share to fast growing platforms like smartphones and tablets. New competitors are becoming a lot stronger as data and applications move from corporate servers and laptops/desktops to cloud computing. Erudite journal The Economist has declared “The End of Wintel.” It’s now considered a foregone conclusion by experts globally that how we interact with digital information is moving into a new era that will not be dominated by the old Microsoft Windows + Intel platform that practically monopolized the last 15 years.
So, what are you doing to prepare? Some people will choose to react when they are forced to. Unfortunately, that will allow faster moving competitors to gain an advantage. Those that adopt these new technologies will reach customers faster, and more accurately for their needs, than businesses that delay. It’ll be hard to compete blasting out ads on billboards, or even computer browsers, when your competition reaches out and tells a customer, on their cellphone using technology from a company like Foursquare that if they stop in – just around the corner – the customer can get a free product.
According to The Wall Street Journal this is already happening in “Getting Customers to ‘Check In’ with Foursquare.” All a customer has to do is offer a review on the mobile site, possibly bringing in one of their friends that is a block away. While you’re waiting for customers to read your ad (traditional media or internet), the competition might well have reached 100 new users!
The next option is to begin using the technology. And that would be a great start! Develop some future scenarios, figure out how to beat your competition, Disrupt your old spending and behavior patterns and set up a White Space team charged with figuring out how to update your Success Formula.
But the really big winners go even further. Take for example Amazon.com. This less than 20 year old company started as an on-line book retailer. They’ve gone a lot further, building a $44B revenue stream selling more than books. In fact, selling stuff for other people as well as themselves. But beyond that, Amazon is revolutionizing publishing by developing and selling the Kindle as a digital toolkit. As people go further along the trail of moving to mobile devices and the cloud, Kindle has begun offering a range of web services to host data and applications.
Source: Business Insider
Amazon will achieve $500M revenue this year in web services – after just 4 years of business. And could achieve $1B in a year or two! By participating aggressively in the marketplace, Amazon is creating significant revenue that other retailers – such as WalMart, Target, Home Depot or Sears – isn’t even touching. While this has nothing to do with what others might call Amazon’s “core business,” this will continue to build insight to the marketplace, allowing Amazon to further grow all aspects of its revenue! What could be more important than being knowledgeable about web services?
You may not think of yourself as an electronics firm, so you shy away from implementing computer-like hardware. But you shouldn’t think that way. Today mobile chips from ARM, and soon from Intel, will be so cheap you can include them in any item over $100. Soon any item over $20. How much better could you connect with your customers if the product you sold had the equivalent of a cheap smartphone installed? You could learn how your product is used very quickly, and develop new solutions before customers even think to ask for them!
Too often, as I wrote in my Forbes column (Stop Focusing on Your Core Business), we think about our “core business” in such a way that it keeps us from doing new things. As a result, less constrained competitors figure out how to provide more powerful solutions that are more profitable. Focusing on your “core” can keep you from doing the things that are most important for future growth!
The change in technology is not an “if” proposition. Just like we moved away from mainframes, and then minicomputers, eventually to PCs we are going toward a fully connected world of cheap hardware hooking into the cloud where everyone can access data and applications. How will you participate? You won’t be able to compete if you “opt out.” If you are a spectator you can expect the Amazon-like competitors to build a big leg-up. The winners will be those who really become players. And that means pushing your scenarios to really discuss what the year 2015 could bring, study how you can leapfrog competitors, and see how you can disrupt your approach – then implement with White Space teams – to be a big winner.
by Adam Hartung | Aug 2, 2010 | Current Affairs, In the Swamp, Innovation, Leadership, Web/Tech, Weblogs
Things are tough for the printed word these days. Not for writing, or demand for information. That is doing great – with more volume than ever! But the issue is “printed” material. Clearly, the format is changing. But are business leaders changing with it?
The Los Angeles Times reported “Amazon.com Says It’s Selling 80% More Downloaded Books Than Hardcovers.” This is a big switch. Clearly Kindles are making a big difference as people are buying a lot less paper, and reading a lot more bits. Do you remember when your colleagues all said “I want a book, I don’t want to read looking at a screen?” Do you remember when businesspeople actually printed their emails? Clearly a sentiment gone by the wayside.
Accuracy in Media reported “U.S. Newspaper Circulation Dropped 30% Since ’07.” And it’s a global phenomenon, with the U.K. down 25%, Greece 20%, Italy 18% and Canada 17%. Fully 2/3 of major countries are seeing newspaper demand decline. No wonder Tribune Corporation, publisher of The Chicago Tribune, Los Angeles Times and Baltimore Sun, as well as others, is having such a hard time emerging from bankruptcy. Every month this looks more like the buggy whip business. Can you really expect the company to survive?
Amidst this backdrop, magazines have a dire future. I can remember when browsing magazines was the norm, and trade magazines arrived in my inbox daily. Often 60 or 100 page affairs. No longer. Magazines have disappeared like rain in the Sahara. Their savior is supposedly to go digital, but according to TwistedImage.com magazine leaders are at a loss how to proceed. In “The Media Disruption Within” Mitch Joel describes how a panel of magazine publishers are approaching the industry change mostly with despair that the internet is here – and no concerted effort to define a new model. Lock-in was prevalent as they kept hoping for a return to the good old days for print publishers, which we know is never going to happen.
So today the New York Post reported “Mag Publishers, Apple in Subscription App Scrap.” Most of us can acquire newspapers for an iPad issue by issue – but subscriptions aren’t possible. The magazine fears it will be the big loser – and rightfully so. If Apple controls the subscription and delivery, why couldn’t it repackage? Where would Apple stop, and what value would the magazine actually deliver? Since iTunes changed music buying, how many people buy albums? It would require the editors and publishers be really sharp to know their market – something most gave up a long time ago when they turned to focusing on narrow content for their “core product” and trying to maintain their “core competency.” Neither of which are very “core” any more.
We all want news that’s exactly what we want, and we’ll simply go to Google to get it. Who published it isn’t nearly as important to readers any more. Nor is the packaging. Pretty soon Amazon via Kindle, Apple via iPad, and we can expect a Google tablet to do the same, can start packaging up the chapters of various books for readers giving them just what they want. And with that they can link off to source articles from newspapers and magazine archives – or to current events. The role of publisher will get a lot less clear, as writers and editors can go directly to the electronic distributor with content.
Into this fray is an interesting new approach reported by CNBC.com, “Rupert Murdoch’s New Digital Game Changer?” The claim is that News Corp. is preparing an all-new interactive product designed just for on-line and mobile users. It wouldn’t be a re-treaded newspaper. Text, photo and video designed just for the medium. Now that would be the right way to go about preparing for 2020. Unfortunately, the way News Corp. handled MySpace.com doesn’t give us a lot of comfort this will be a truly White Space project. But if it is, it might just be the start of toward the product which will be journalism in 2020.
If you’re in publishing you have no choice but to get White Space going. The intermediaries – from the tech companies to new-age publishers like HuffingtonPost.com – are moving forward. The business as it used to be is gone. But the demand for news – for content – is bigger than ever. It will require a new business model. A new Success Formula. And this is clearly a case of change or die. The world will never again be as it previously was.
Even if you don’t think of yourself as a publisher – you probably are. Do you put out customer literature – like user or repair manuals? Do you put out sales literature? Do you communicate with investors or industry analysts? If so, how do you “publish” your material? Paper? Packaged pdf? In today’s world, an advantage can be created by moving quickly to what’s new.
Today there are a plethora of luxury automobiles on the market. These beautifully high tech luxury machines have manuals that can run 500+ pages! It is impossible to figure out how anything works by trying the manual! Why don’t manufacturers of $60,000+ cars have a Kindle (or iPad) built into the console? Those cost less than a set of brake pads today, they can be updated automatically, and are interactive.
Are you thinking about how you could use a $100 device to make life easier for your customers and supply chain partners? Or are you printing? If you’re printing, what’s your budget? How much would you save if your salespeople, customers, etc. were given a Kindle? Or iPad? Can you afford not to be thinking differently about your future?
by Adam Hartung | Jul 30, 2010 | Current Affairs, Defend & Extend, In the Swamp, Quotes, Web/Tech
This week Microsoft’s CEO Steve Ballmer said the company would get out a tablet soon, and that it would be a big success. Do you believe him? You have good reason to be doubtful. When it comes to new products, Microsoft has been a big dud under his leadership. But I’m not the only one complaining. Mediapost.com ran an article quoting some very well respected sources who are very, very skeptical. Below is part of the article. You can read the whole thing here:
“Of course that’s often the case with Microsoft,” notes Digital Daily.
“The problem is, it doesn’t always manage to do things really right.
Certainly, it didn’t manage it with Windows Vista. Or Windows Mobile. Or
Zune. Or, more recently, Kin. Who’s to say this time will be any
different?”
“As it stands now, Microsoft’s lack of details on
the upcoming Windows tablets is not encouraging, despite Ballmer’s
promises,” concludes PCWorld.
Seemingly overwhelmed by the rapid innovation and successes of rivals like Apple, Google, and even Facebook, Fortune
calls Ballmer “a train wreck,” and “a salesman whose only answer to
technological change seems to be the operating system he inherited from
Bill Gates.”
Thinking of Microsoft as an “innovator,”
however, will leave you disappointed every time, Jefferies analyst
Katherine Egbert wrote in a note Friday morning. “If you stop thinking
of Microsoft as an innovator and start thinking of them as a fast, low
cost, mass market follower, you’ll stop being disappointed in their
inability to divine new markets and realize they are staring at some of
their largest growth opportunities ever.”
Microsoft is too focused on its core business to do new things correctly. Long ago Mr. Ballmer took a Defend & Extend approach to the business. The company doesn’t do much scenario planning to determine how markets can be disrupted – in fact they hope the opposite. They do very little competitor analysis, because they view themselves as market dominant so beyond having to study competitors. They ignore fringe competitors – including upstarts like Apple and Google. Internal disruptions are verboten, and politics abound. And there is no white space where teams can violate old lock-ins to develop a new success formula that will compete better with the likes of Apple, Google and Cisco.
Focusing on your core can get any business in trouble (read Forbes article “Stop Focusing on Your Core Business” here). Even one with a near monopoly. Over time, all markets shift. When they do, the least prepared are the ones who think they “dominate” their industry. Maybe Mr. Ballmer should have lunch with Mr. Wagoner of GM to learn what happens when you take your industry position for granted.
