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 | May 17, 2010 | Defend & Extend, Disruptions, In the Rapids, Innovation, Leadership, Openness, Web/Tech
I get the most heat when I talk about spending less time listening customers. But I'm not joking. To grow revenues and profits you have to go far beyond asking your customers – who are more likely to hold you back from growth than accelerate it.
BusinessInsider.com makes this point loudly in an Henry Blodgett article "Ignore the Scream's — Facebook's Aggressive Approach is Why It Will Soon Become the Most Popular Site in the World." Given how many people use Facebook, it's hard to remember that the site is only 6 years old. What we've also mostly forgotten is that Facebook wasn't even first. It followed the popular, and well financed after acquisition by News Corp, MySpace.com. Lots of companies got into social networking. But now the marketplace is dominated by Facebook – which will soon be the web's most popular site (as it closes in on Google.)
Facebook did not win by asking users/customers what they wanted. To the contrary, Facebook's leaders took the approach of offering what they perceived would be steps forward – and then letting the market react. Frequently a VERY loud contingent would be VERY upset. Screaming loudly they hated the change. But with each advancement, Facebook grew users and the site's success. Facebook didn't ask users what they wanted, nor did they ask users for permission to do new things. Facebook went into the market, and using its scenarios about the future Facebook's leaders drove toward what they expected to be a more popular site. They did it, and learned from their experience.
Too many businesses spend way too much time trying to make small advances, and miss the big shifts. Microsoft is a great example. As it launches Office 2010, Microsoft isn't trying to bring in new users to grow its base – like Facebook is doing. Instead it is trying to preserve its installed base. Nonetheless, some "loss" is a given. You can't preserve forever. If you don't bring in new customers, you can't grow because you have to replace lost ones and find incremental new ones. But what do we see in Microsoft's offerings (such as Office 2010 and System 7) that is designed to bring in new users?
Meanwhile, Google is offering more powerful and cheaper Cloud-based solutions, as Apple and Google grow the demand for mobile devices (like iPhone and iPad) that don't use Microsoft products. The big shifts are all away from Microsoft, while Microsoft's efforts at preservation are leaving these alternatives with limited competition.
Today Bnet Australia posted a podcast interview I did with Phil Dobbie, sponsored by CBS, last week. In "Disrupt To Win" we discuss the big difference between Apple and Google as compared to Microsoft. The growing companies use scenarios to develop new solutions which will appeal to new users. They keep expanding the marketplace. As new users adopt new solutions, eventually it becomes mainstream – further accelerating growth. Growth doesn't come from trying to Defend the old platform or user base, but from launching new solutions which grow the market leading to conversion and even greater growth.
Facebook is now a phenomenon, growing in 6 years from obscurity to the second largest global user base. Because, like Apple and Google, the leadership did not ask customers what they wanted (which was what MySpace.com did). Rather, they studied competitors and emerging markets to create new solutions – without worrying about cannibalization or moving faster than customers would recommend. And the leadership has been willing to overlook vocal user minorities in order to appeal to new users, thus driving more growth. You can't expect customers to deliver great growth, that has to come from aggressive scenario planning, deep competitive analysis and a willingness to Disrupt your organization and the marketplace.
by Adam Hartung | Apr 22, 2010 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Lock-in, Web/Tech
Apple's most recent earnings surprised almost everyone, to the topside. At SeekingAlpha.com "Apple Soars: Is this a Great Country or What" the author points out that all analysts are now calling for Apple's equity value to continue increasing. Most expect prices to achieve $330 – $350/share. Right now Apple is worth about $235B. At $330/share it is worth $300B. Microsoft is worth $273B. That means within the next few months the expectation among investors is that Apple's value will eclipse Microsoft's.
Why? Because Apple has much faster growing revenue sources than Microsoft. Despite a plethora of products, Microsoft still depends for sales and profits on PC operating system and office automation products. And that market simply isn't growing. Even Microsoft optimists are depending upon a "PC replacement cycle" to drive more sales rather than any real growth in demand.
While Microsoft has spent the last decade Defending & Extending (D&E Management) its PC business, its value has been flat. Meanwhile, Apple has developed other revenue sources:
Source: Silicon Alley Insider
In 2000 Apple relied on Mac sales. But now, it has 2 businesses that are as large as the computer business. While defending the Mac business has maintained its sales, using White Space to launch other businesses has more than tripled Apple's revenue. Today the iPod/iTunes business is as large as the Mac business, and the iPhone business is as large as well. Both are growing. And with estimates that already a million iPads have been sold – with some estimates of reaching 6 million units in 2010 – who knows how big the publishing business could become for Apple.
As SeekingAlpha.com points out in "Everybody Loves Apple but Who's Left to Buy It" there are ample reasons to forecast substantial revenue and profit growth for Apple – causing it to lure many more investors to own the stock. Not only hardware sales are going up, but in both the music and smartphone business Apple has the envious draw of pulling follow-on download sales – songs, videos, and apps. Thus, each device pulls a series of ongoing revenue bites.
Readers should also note how fast this has happened. What has happened to your business in the last decade? In the last 3 years? As we can see, Apple created a $20B/year business since 2007 just in the iPhone. Another $16B/year business in iPod/iTunes during the last decade. That's over $36B/year of revenue from new sources, all organic (no acquisitions) in under 10 years. And that's the power of White Space. Instead of planning how to defend an understood and predictable market (like Microsoft) Apple studied new market needs, then launched a product and gave the team Permission to do what it took to succeed – unencumbered by the history of the Mac, or Apple or any of the Lock-ins that were part of the old Success Formula. This White Space teams then spawned revenue streams that are envied by everyone.
My recent Forbes column (Microsoft's Dismal Future) portended this week's earnings announcement and the changing fortunes of these two companies. Lacking White Space, Microsoft is an uninteresting company with limited growth forecasts and negligible value growth. By using White Space Apple is growing much faster, and will soon have a higher value than "the world's largest software company."
Effective use of scenario planning, competitor analysis, disruptions and White Space can launch growth in any company. You don't need a "hot economy" to generate growth. And Apple has been demonstrating this quarter after quarter for nearly a decade – with several more good quarters coming.
