by Adam Hartung | Apr 15, 2010 | Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
Hi, two readings recently have really surprised me.
Firstly, Dawn Beaupariant from the public relations firm Waggener Edstrom contacted me regarding my Forbes column. I learned this firm is the PR agency for Microsoft. They took exception to my Forbes column ("Microsoft's Dismal Future"). But not because any facts were inaccurate.
Rather, it was their point of view that because OS 7 is now the largest selling OS of all time that demonstrated it was a successful product. Of course, when the television standard was changed in the USA to digital and everyone had to transition set-top boxes those also became big sellers. But it wasn't because everybody wanted the new product. More, it was the impact of a monopolist. We all know Microsoft has had a near monopoly in PC operating systems (even though every year it is losing share to Linux), so the fact that they can force people to use a new one on new machines, or upgrade, is less than an enthusiastic market endorsement of the product. For every "reviewer" who likes OS 7, there are 100 users saying "this gives me bells and whistles I don't need or want, and complicates my life. Can I simply keep my old product, or do my work on my smartphone?"
The Forbes column didn't debate whether Microsoft was likely to remain dominant in PC operating systems – that is a foregone conclusion. The issue is that markets are shifting away from PCs to mobile devices. And Microsoft has lost 2/3 its market share in mobile operating systems. And it is not developing a strong product. If people keep shifting from PCs to Blackberry's, iPhones and Androids – and PC sales start declining – in 10 years Microsoft could dominate PC OS sales (and Office applications) but it may not matter. Too bad the PR firm didn't get that.
Secondly, the PR firm claimed that Microsoft could put forward new products readily, leading to capturing dominant share in new markets. Their one claim that Microsoft had accomplished this was xBox. The PR person conveniently ignored the smartphone market, the Zune-style handheld market, the market for mobile applications (where Apple sold 2billion apps in its first 18 months), the search market (where Microsoft lags Google and would be nowhere without picking up Yahoo!'s declining business) and a host of other markets where Microsoft simply let the horse out of the barn.
To make matters worse, as Microsoft has invested to Defend the PC operating system and office products business, xBox is losing market share (exactly the point I made in the article – using the smartphone example instead)! According to IndustryGamers.com "PS3 'Steadily Increasing' Market Share Across the Globe" (Feb, 2010). Bad pick Dawn!
- The PS3 is dominant in Japan and Korea, and as of June 2008, has begun
to outsell the Xbox 360 in Europe. It is also steadily increasing its
market share in all other regions across the globe, including in the
North American market
- PS3 sales have been surging (44%
over the holidays) and SCEA senior vice president of Marketing and
PlayStation Network, Peter Dille, recently insisted that PS3
will eventually overtake Xbox 360
Most commenters have reflected my viewpoint, saying that they see Microsoft so horribly Locked-in to its old business that it is almost GM-like in its approach to new products and markets. Not a good sign. Those who defend Microsoft simply take the point of view that Microsoft is huge, has high share in PCs, and is very profitable in OS and Office Product sales. Wow, just like people defended GM was in the 1970s comparing to offshore competitors! These defenders completely miss the point that the marketplace is now rapidly shifting to new solutions, and the companies driving that shift with the most product are Apple, Google and Research in Motion (RIM)! Microsoft may look like Goliath, but it would be foolish to ignore the slings of new technology being brought to the battle by these David's with their smartphones, Chrome O/S, mail products, etc.
I was struck this week at the backward thinking offered on the Harvard Business Review blog posting "Is This Innovation Too Disruptive for My Firm." The author justifies companies sticking to their defensive positions, just as Microsoft is doing, simply because most companies fail at moving away from their "core." He seems very content to offer that since most companies can't really move into new markets well, so they might as well not try. Exactly what they are supposed to do as revenues dwindle in their "core" markets he never resolves! I guess he'd rather management simply not try to grow, and go down valiantly with the sinking ship.
Quite concerning is that he takes up the mantle of "core capability." He points out that most of the failures happen when companies move away from their "core" and therefore he recommends that all innovation remain close to the "core." His big argument is that this is lower risk. Well, Xerox remained close to core with laser printers – and how'd that work out for long-term value growth? Apple remained close to its Macintosh core and was almost bankrupt in 2000 before jumping into music and smartphones. Polaraoid stayed close to its core of instant film photography, and Kodak stayed close to its similar core. Now one is erased from the marketplace and the other is a no-growth inconsequential competitor.
Analogies are risky, but here goes. For the HBR author, his arguement isn't a lot different than "Over the last 200 years we've noticed that ships which sail out past the horizon often never return. Therefore, we recommend you never sail beyond the horizon. Clearly, this is risky and returns are uncertain – so don't do it. Ever. Very likely, there is nothing out there you will ever capture of value." Sort of sounds like those who wouldn't back Columbus – good thing he finally convinced Queen Isabella to give him 3 ships.
In 2008 and 2009 we've seen many great companies driven to bad returns. Layoffs abound. Growth has disappeared. Listen to HBR, and behave like Microsoft, and you'll never grow again. In 2010 we need a different approach – a different solution. Companies must realize that focusing on "core" capabilities, customers and markets has rapidly diminishing returns these days. You cannot succeed by focusing on Defending your business – even if it is a near-monopoly like PC operating systems! Why not? Because markets rapidly shift to new solutions that obsolete your products and even when you have high share, and high margins, sales can disappear really fast (like Xerox machine sales or amateur film sales – and probably laptop sales). If you aren't putting a big chunk of resources into GROWING in new marketplaces, by using White Space teams to drive that learning and growth, you will eventually become an historical artifact.
by Adam Hartung | Jan 30, 2010 | Current Affairs, Defend & Extend, General, Innovation, Leadership, Lock-in, Web/Tech
One of the biggest business news items this week was the launch of Apple's iPad for $499. Although perhaps overlooked by many big companies, and several IT departments. To some businesspeople, the iPad seems another consumer toy, thus not terribly noteworthy. Some see it as a small-market share sort of oversized iPhone for mobile telephony/data use. One executive commented to me this week "I don't understand why anyone cares, I don't own an iPhone and cannot imagine why I would ever want to download an app," He has a huge investment in Microsoft technology, has never used an iPhone or Palm Treo or even a Blackberry. Hes' never seen an iPhone app, and was amazed when I told him 1 billion had been downloaded. He's comfortable in his traditional IT solution, and doesn't see the importance of iPad.
But the iPad is another step demonstrating a big market shift is happening. With Apple's announcement, Amazon announced that it's sales of Kindle are about twice what most analysts had expected – see "During Apple Week Google and Amazon try to Remind You They Exist" at Fast Company. Further, it appears now that for every 10 books Amazon sells, it sells 6 Kindle books — a substantial number and indications of serious market change. The iPad is half the price most people expected, and now rumors are Kindle's will drop to $100 as competition heats up. It rapidly appears that while there is an emerging battle between Amazon and Apple, the biggest insight is that the market for BOTH is growing a whole lot faster than anyone expected. As are iPhone sales. These devices, and the technology solution embedded within them, are grabbing a lot of buyers, and quickly. The sales, in units and dollars, are growing much faster than anticipated. And new users are flocking toward this technology platform.
Thus, the iPad is likely to be a big winner for Amazon and Kindle – as well as Google. It is expanding the application base, and use patterns, for mobile devices. It is expanding the product breadth and price points. Quite simply, it is helping people do new things they couldn't do before – especially when mobile – that they could not do before. As a result, apps will grow and sales of both hardware and software will grow. And early adopters will gain an advantage as they use this new technology to create advantages for their customers. Apple and Amazon are both "winners" who are driving revenue and profit growth.
And Microsoft loses. Microsoft has never changed its Success Formula. Its Identity, Strategy and Tactics remain as they've been for three decades – to provide a one-stop near monopolistic, integrated (mainframe style – and certainly monolithic) solution. As the market has been shifting, however, this has been less and less successful.
Source: Silicon Alley Insider
As the chart shows, Microsoft's product strategies, product introductions, acquisitions and management changes have done nothing for growth – or valuation. Microsoft keeps trying to do what made it great in the late 80s and early 90s. But since then, the market has shifted dramatically and the sustaining innovations Microsoft has offered, while meeting customer requests for improvement, haven't really helped growth.
The cost of this Lock-in has been horrific.
Source: Silican Alley Insider
Microsoft has poured billions of dollars into a failed approach intended to Defend & Extend its Success Formula – but to no avail. The market is going a different direction – toward cloud computing with its distributed data, extremely small apps at very low (disposable) prices, easy to use interfaces and greatly lower device cost.
Even as large and cash rich as Microsoft was in 2000, it cannot stop a market shift. And even though this shift has been predictable, with competitors from the fringe like Google, Amazon and Apple bringing to market new products, Microsoft has chosen to try Defending & Extending its Success Formula rather than Disrupt and use White Space to develop new solutions. What can we expect from Microsoft in the future? Unfortunately, more of the same and most likely a dramatically deteriorating value. When the market's shift to these thin devices with a different architecture becomes clear, the inability of System 7 and Bing to make any difference in Microsoft results will be clear. And investors are likely to run for the proverbial hills – letting the stock price drop along with new users. Microsoft will increasingly be dependent upon legacy applications and maintenance – markets with little/no growth. Microsoft could soon be the next Unisys (remember that company?)
So, what is your company doing? Are you moving forward with new apps which will grow your revenues and profits? Are you looking for ways to use these devices, and the underlying mobile computing architectures, to offer your customers better solutions? Are you bringing out new approaches that are potential game changers, bringing new customers to you and accelerating growth? Or are you trying to Defend & Extend your old processes, approaches and products? Are you planning a future that will be PC/laptop centric, and delivering traditional web pages? Are you following the laggard, Microsoft, or are you Disrupting your business, and market, with White Space projects that will change market behaviors using these new technologies and positioning you as the market leader? In 2015, will you look like Microsoft – frozen in place as the market shifts – or will you look more like Google, Amazon and Apple with new solutions that create excitement and new sales?
Have you tried a Kindle yet? iPad? iPhone? Do you have any White Space wher
e you are trying these new things? Have you Disrupted any of your organization and challenged them to apply this technology? Exactly what are you waiting on?
by Adam Hartung | Dec 15, 2009 | General, In the Swamp, Leadership, Web/Tech
In a tough year like 2009, many business leaders want to jump in a foxhole and focus on survival. The goal becomes maintain, and then try to grow again sometime in the future – when the economy gets better. They cut marketing and sales costs, stop new product development/introduction, and literally plan to do nothing new until "the business" improves. Unfortunately, that sets a business up for failure.
In today's fast moving competitive world, it's impossible to stand still. Your business either grows, or it falls behind. Think about Yahoo!. The company hoped to maintain it's search business at it entered a "turnaround." Unfortunately, the competition isn't willing to give Yahoo! any time at all. Microsoft grabs off 10% of the market with its Bing introduction, and Google just keeps taking share. Take a look at Yahoo's performance:
source: Silicon Alley Insider
Or consider AOL. AOL was the undoubted leader in bringing people to the internet. But over the last decade AOL has tried to maintain its customers without offering any new products. It has saved investment dollars, but lost its relevancy. Now Facebook has more unique visitors than AOL – a clear sign AOL (which recently went public) is well on the way to disappearing:
source: Silicon Alley Insider
Blockbuster was the clear market leader for video/movie rentals. The company even had a college football bowl game named after it! The CEO bought a baseball team, and made it into a World Series winner! Blockbuster was THE store for obtaining entertainment for many years. But the company saved its dimes, tried to defend its market position, and didn't develop new solutions. Now it is being overwhelmed by competitor Netflix:
source: Silicon Alley Insider
Too many business leaders believe in "The Myth of the Flats" (from Create Marketplace Disruption.) They think that you can build a business, and then ride a market position. When business is bad they depend upon living on past brand position. They think they can wait for a better market to come along before they use White Space to introduce new solutions that meet emerging needs. And the competitors, who don't slow down, use market downturns to introduce new solutions and overtake the former market leader.
Smart companies don't rest on their laurels. They don't wait for a better market. They keep using White Space to develop new solutions. And even in a bad overall economy, like 2009, they sell more and make more profits. Just look at Amazon, achieving record market valuation in 2009:
source: Silicon Alley Insider
If you want 2010 to be a great year, it starts with recognizing that you can't stand still. You can't wait for "a better market." You have to create that better market by pushing forward with White Space to introduce new solutions that meet emerging market needs.
