by Adam Hartung | Jun 3, 2011 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, In the Whirlpool, Leadership, Lock-in, Web/Tech
Were you ever told “pretty is as pretty does?” This homily means “don’t just look at the surface, it’s the underlying qualities that matter.” When I read analyst reviews of companies I’m often struck by how fascinated they are with the surface, and how weakly they seem to understand the underlying markets. Financials are a RESULT of management’s ability to provide competitive solutions, and no study of financials will give investors a true picture of management or the company’s future prospects.
The good:
Everyone should own Apple. The list of its market successes are clear, and well detailed at SeekingAlpha.com “Apple: The Most Undervalued Equity in Techdom.” The reason you should own Apple isn’t its past performance, but rather that the company has built a management team completely focused on the future. Apple is using scenario planning to create solutions that fit the way people want to work and live – not how they did things in the past.
And Apple managers are obsessive about staying ahead of competitors with better solutions that introduce new technologies, and higher levels of user productivity. By constantly being willing to disrupt the old ways of doing things, Apple keeps bringing better solutions to market via its ongoing investment in teams dedicated to developing new solutions and figuring out how they will adapt to fit unmet needs. And this isn’t just a “Steve Jobs thing” as the company’s entire success formula is built on the ability to plan for the future, and outperform competitors. We are seeing this now with the impending launch of iCloud (Marketwatch.com “Could Apple Still Surprise at Its Conference?“)
For nearly inexplicable reasons, many investors (and analysts) have not been optimistic about Apple’s future price. The company’s earnings have grown so fast that a mere fear of a slow-down has caused investors to retrench, expecting some sort of inexplicable collapse. Analysts look for creative negatives, like a recent financial analyst told me “Apple is second in value only to ExxonMobile, and I’m just not sure how to get my mind around that. Is it possible growth could be worth that much? I thought value was tied to assets.”
Uh, yes, growth is worth that much! Apple’s been growing at 100%. Perhaps it won’t continue to grow at that breakneck pace (or perhaps it will, there’s no competitor right now blocking its path), but even if it slows by 75% we’re still talking 25% growth – and that creates enormous value (compounded, 25% growth doubles your investment in 3 years.) When you find profitable growth from a company designed to repeat itself with new market introductions, you have a beautiful thing! And that’s a good investment.
Similarly, investors should really like Netflix. Netflix did what almost nobody does. It overcame fears of cannibalizing its base business (renting DVDs via mail-order) and introduced a streaming download service. Analysts decried this move, fearing that “digital sales would be far lower than physical sales.” But Netflix, with its focus firmly on the future and not the past, recognized that emerging competitors (like Hulu) were quickly changing the game. Their objective had to be to go where the market was heading, rather than trying to preserve an historical market destined to shrink. That sort of management thinking is a beautiful thing, and it has paid off enormously for Netflix.
Of course, those who look only at the surface worry about the pricing model at Netflix. They mostly worry that competitors will gore the Netflix digital ox. But what we can see is that the big competitors these analysts trot out for fear mongering – Wal-Mart, Amazon.com and Comcast – are locked-in to historical approaches, and not aggressively taking on Netflix. When you look at who has the #1 market position, the eyes and ears of customers, the subscriber/customer base and the delivery solution customers love you have to be excited about Netflix. After all, they are the leaders in a market that we know is going to shift their way – downloads. Sort of reminds you of Apple when they brought out the iPod and iTunes, doesn’t it?
The bad:
Google has been a great company. The internet wouldn’t be the internet if we didn’t have Google, the search engine that made the web easy and fast to use, plus gave us the ads making all of that search (and lots of content) free. But, the company has failed to deliver on its own innovations. Android is a huge market success, but unfortunately lock-in to its old mindset led Google to give the product away – just a tad underpriced. Other products, like Wave were great, but there hasn’t been enough White Space available for the products to develop into commercial successes. And we’ve all recently read how it happened that Google missed the emergence of social media, now positioning Facebook as a threaten to their long-term viability (AllThingsD.com “Schmidt Says Google’s Social Networking Problem is His Fault.“)
Chrome, Chromebooks and Google Wallet could be big winners. And there’s a new CEO in place who promises to move Google beyond its past glory. But these are highly competitive markets, Google isn’t first, it’s technology advantages aren’t as clear cut as in the old search days (PCWorld.com “Google Wallet Isn’t the Only Mobile POS Tool.”) Whether Google will regain its past glory depends on whether the company can overcome its dedication to its old success formula and actually disrupt its internal processes enough to take the lead with disruptive marketplace products.
Cisco is in a similar situation. A great innovator who’s products put us all on the web, and made us wi-fi addicted. But markets are shifting as people change their needs for costly internal networks, moving to the cloud, and other competitors (like NetApp) are the game changers in the new market. Cisco’s efforts to enter new markets have been fragmented, poorly managed, and largely ineffective as it spent too much energy focused on historical markets. Emblematic was the abandoned effort to enter consumer markets with the Flip camera, where its inability to connect with fast shifting market needs led to the product line shutdown and a loss of the entire investment (BusinessInsider.com “Cisco Kills the Flip Camera.”)
Cisco’s value is tied not to its historical market, but its ability to develop new ones. Even when they likely cannibalize old products. HIstorically Cisco did this well. But as customers move to the cloud it’s still not clear what Cisco will do to remain an industry leader. Whether Google and Cisco will ever be good investments again doesn’t look too good, today. Maybe. But only if they realign their investments and put in place teams dedicated to new, growth markets.
The ugly:
Another homily goes “beauty may be on the surface, but ugly goes clear to the bone.” Meaning? For something to be ugly, it has to be deeply flawed inside. And that’s the situation at Research in Motion and Microsoft. Optimistic investors describe both of these companies as potential “value stocks” that will find a way to “protect the installed base as an economic recovery develops” and “sell their products cheaply in developing countries that can’t afford new solutions” eventually leading to high dividend payouts as they milk old businesses. Right. That won’t happen, because these companies are on a self-destructive course to preserve lost markets which will eat up resources and leave them shells of their former selves.
Both companies were wildly successful. Both once had near-monopolies in their markets. But in both cases, the organizations became obsessed with defending and extending sales to their “core” or “base” customers using “core” technologies and products. This internal focus, and desire to follow best practices, led them to overspending on what worked in the past, while the market shifted away from them.
At RIMM the market has moved from enterprise servers and secure enterprise applications to local apps that access data via the cloud. People have moved from PCs to smartphones (and tablets) that allow them to do even more than they could do on old devices, and RIM’s devotion to its historical business base caused the company to miss the shift. Blackberry and Playbook have 1/10th the apps of leaders Apple and Android (at best) and are rapidly being competitively outrun.
Likewise, Microsoft has offered the market nothing new when it comes to emerging markets and unmet user needs as it has invested billions of dollars trying to preserve its traditional PC marketplace. Vista, Windows 7 and Office 2010 all missed the fact that users were going off the PC, and toward new solutions for personal productivity. Now the company is trying to play catch-up with its Skype acquisition, Nokia partnership (where sales are in a record, multi-year slide; SeekingAlpha.com “Nokia Deluged with Downgrades“) and a planned launch of Windows 8. Only they are against ferocious competition that has developed an enormous market lead, using lower cost technologies, and keep offering innovations that are driving additional market shift.
Companies that plan for the future, keep their eyes firmly focused on unmet needs and alternative competitors, and that accept and implement disruptions via internal teams with permission to be game-changers are the winners. They are good investments.
Big winners that keep seeking new opportunities, but fall into over-reliance (and focus) on historical markets and customers can move from being good investments to bad ones. They have to change their planning and competitive analysis, and start attacking old notions about their business to free up resources for doing new things. They can return to greatness, but only if they recognize market shifts and move aggressively to develop solutions for emerging needs in new markets.
It gets ugly when companies lose their ability to see external market shifts because they are inwardly focused (inside their organizations, and inside their historical customer base or supply chain.) Their market sensing disappears, and their investments become committed on trying to defend old businesses in the face of changes far beyond their control. Their internal biases cause reduction of shareholder value as they spend money on acquisitions and new products that have negative rates of return in their overly-optimistic effort to regain past glory. Those situations almost never return to former beauty, as ugly internal processes lock them into repeating past behaviors even when its clear they need an entirely new approach to succeed.
by Adam Hartung | Apr 17, 2011 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Web/Tech
Research in Motion pioneered the smartphone business. While Motorola, Samsung and others thought the answer to market growth was making ever cheaper mobile phones, RIM figured out that corporations wanted to put phones in employee hands, control usage cost, while also securely offering email distribution and texting. Blackberry handsets and servers met user needs while providing IT departments with everything they needed.
This success formula was a winner, driving tremendous growth for RIM. People joke about their “crackberry” connecting them to their company 24×7, but it was a tremendous productivity enhancer. RIM produced a consistent string of growing revenues and earnings, meeting or exceeding projections. RIM still dominates the “enterprise” smartphone business. The overwhelming majority of mobile phones issued by companies are still Blackberries.
“RIM’s CEO is Annoyed that People Don’t Appreciate Our Profits” headlined Silicon Alley Insider. He can’t understand why the stock languishes, despite meeting financial projections. When challenged about whether or not RIM is as secure as it claims, “RIM CEO Abruptly Ends an Interview After Getting Annoyed About Security Questons” (SAI).
That the CEO is annoyed is the first of two reasons you need to sell RIMM now. If you are waiting for a recovery to old highs, forget about it. Won’t happen. Can’t happen.
The mobile phone/smartphone market has taken an enormous shift. Apple’s iPhone introduced the “app” phenomenon – allowing smartphone users to do a plethora of things on their devices that aren’t possible on a Blackberry. If we just count apps, as a baseline, iPhone users can do some 350,000 things that Blackberry users cannot. Additionally, iPhones – and increasingly Android phones – are simply a lot easier to use, with bigger touch screens, more built-in functionality and easier user navigation.
As charted in my last column, RIM has only about 5% the apps of iPhone. And less than 10% the apps of Android. Even Microsoft will soon provide more apps than Blackberry. But the CEO of RIM is stuck – defending his company and its success formula – rather than aggressively migrating the company into new products. He’s hoping all those company employees, including execs, now carrying 2 phones – their corporate Blackberry and personal iPhone – will keep doing that.
He’s letting the re-invention gap between RIMM and Apple/Google widen with every passing quarter. While no other provider offers the “enterprise solution” of RIM, increasingly the gap between the usability of new solutions and RIM is widening. It won’t be long before users won’t put up with having 2 phones – and the loser will clearly be RIM
And it won’t be long before people completely stop carrying laptops as well. Rather quickly we are seeing a market shift to tablets. Into this market RIMM launched its Playbook product last week. And that’s the second reason you need to sell RIMM.
We all know the iPad has been a remarkable success. To date, nobody has developed a tablet that users, or reviewers, find comparable. Unfortunately, RIM launched its Playbook tablet to entirely consistent reviews, such as “The Playbook: Blackberry’s ‘Unfinished’ Product” headlined at TheWeek.com. The Playbook simply isn’t comparable to an iPad – and doesn’t look like it ever will be.
Most concerning, to use a Playbook you must also have a Blackberry. Playbook relies on the Blackberry to provide connectivity – via Bluetooth. In other words, RIM is trying to keep customers locked-in to Blackberries, using Playbook to defend and extend the original company product. Playbook doesn’t even look like it’s ever intended to be a stand-alone winner. And that’s a really bad strategy.
RIM sees Playbook is seen as an extension of the Blackberry product line; the first in a transition to a new operating system for all products. Not a product designed to compete heads-up against other tablets. It lacks apps, it lacks its own connectivity, it has a smaller screen, and it doesn’t have the intuitive interface. Basically, it’s an effort to try and keep Blackberry users on Blackberries – an effort to defend and extend the original success formula.
When markets shift it is absolutely critical competitors shift with them. Xerox invented desktop publishing at its PARC facility, but tried to defend xerography and lost the new market to Apple. Kodak invented digital cameras, but tried to defend the film business and lost the new market to Japanese competitors. When the CEO tries to defend and extend the old success formula after a market shifts only bad things happen. When new products are extensions of old products, while competitors are bringing out game changers, the world only becomes uglier and uglier for the stuck, old-line competitor.
The analysts are right. RIM has no future growth. Companies are already switching into iPhones, iPads and Androids. Simultaneously, Microsoft will pour billions into helping Nokia push Windows 7 phones and future tablets the next 2 years, and that will be targeted right at “enterprise users” which are RIM’s “core.” Microsoft will spend far more resources than RIM could ever match trying to defend its “installed base.” RIMM is stuck fighting to keep current users, while the market growth is elsewhere, and those emerging competitors are quickly going to hollow out RIM’s market.
There’s simply no way RIM can increase its value. Time to sell.
Update 4/20/2011 Goldman Sachs Survey Results – CIO intention to adopt Tablets by Operating System provider:
Published in SiliconAlleyInsider.com
by Adam Hartung | Apr 7, 2011 | Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Web/Tech
Most folks know that Apple is now worth more than Microsoft. Although few realize the huge difference. After years of dominating as the premier “PC” company, Microsoft is now worth only about 2/3 the value of Apple – $224B versus $310B this week (or, said differently, Apple is worth about 50% more than Microsoft.) Apple’s run by Microsoft the last year has been like a rock out of a slingshot. But that’s largely because Apple grew revenues almost 50% in fiscal 2009 and 2010, while Microsoft saw revenue decline 3% in 2009, and only grow 7% in 2010, putting revenues up a net 3% over the 2 years.
What few realize is how much Microsoft spent trying to grow, but failed. A look at 2009 R&D expenditures showed Microsoft outspent all tech competitors in its class – spending 8 times what Apple spent! 
Source: Silicone Alley Insider Chart of the Day from BusinessInsider.com
What did customers and investors receive for this whopping Microsoft spend? An updated operating system and set of office automation tools to run on existing products. Nothing that created new demand, or incremental sales. On the other hand, for its much lower spending Apple gave investors upgrades to iPods, the iPhone and the operating system for the later released iPad.
Simply put, Microsoft opened the check book and spent like crazy in its effort to defend its historical PC products business. And the cost was more than just dollars. That “focus” cost Microsoft its position in other growth markets; like smartphones. Few recall that as recently as 2008 Microsoft was the leading smartphone platform: 
In order to defend its “core” business, Microsoft under-invested in smartphones and over-invested in its historical personal computing products. Now, PC growth has stalled as people are switching to new products based on cloud computing – like smartphones and tablets.
Apple is cleaning up with its investments, while Microsoft is hoping it can catch up by enticing its former executive, now the CEO at Nokia, to revamp their line using the Windows Phone 7 operating system. Good luck, because the market is already way, way out front with Apple and Android products
That was the past. What we’d like to know is whether Apple will keep growing like crazy, and whether Microsoft will do what’s necessary to grow as well. And that’s where some recent announcements point out that Apple, quite simply, is better managed. So it will grow, and Microsoft won’t.
ZDNet reported on the “changing of the guard” at Apple in March. Due to its different investment approach, iOS is now bigger than the MacOS at Apple. The “legacy” product – that made Apple into a famous company in the 1980s – has been eclipsed by the new product. And the old technology leader is graciously moving on to do research in a scientific community, while Apple pours its resources into developing products for the future.
Don’t forget, the Lisa was a product that Steve Jobs personally took to market – yet didn’t succeed. He personally remained involved, converting Lisa into the wildly successful 1980s Mac (see AOL Small Business story on history of Lisa and Mac.) You gotta love it when that CEO, and his leadership team and all the managers, can transition their loyalty and put resources into the future product line in order to keep growing! MacOS is not dead, nor is it going to be devoid of resources. But the future of Apple lies in growing the new platform, and that is where the best talent and dollars are being spent.
Comparatively, Microsoft announced this week it was changing its Chief Marketing Officer (SeattlePI.com.) And, not surprisingly, they did NOT select someone with smartphone, tablet or even gaming expertise for the role. Instead of identifying a leader who is deep into understanding the growth markets, Microsoft appointed as the next CMO the fellow who had been responsible for selling – wait – guess – Office, Sharepoint, Exchange and the other historical, legacy Microsoft products. Those products which have had no growth – only maintenance sales. Instead of reaching into the future for its leadership, CEO Ballmer once again reached into the past.
If you ever wonder why Apple is worth so much more to investors than Microsoft, just think about this moment in the marketplace. Apple is investing its best talent and resources into new products in new markets that are demonstrating growth. Microsoft, struggling with its growth, keeps placing “old guard” leaders into top positions, attempting to defend the historical business – hoping to recapture the old glory.
Too bad the market has already shifted and doesn’t care what Microsoft thinks.
When it comes to networking, cloud computing and the future of how we all are going to be productive Microsoft just isn’t in the game. And its attempt to have a fast falling Nokia save it by distributing second rate mobile products that are late to market while iPhones and Androids keep extending their lead won’t make Microsoft great again. Especially when the leadership keeps wanting, in its heart, to sell more PCs.
Apple is just better managed, because it keeps looking to the future, while Microsoft simply can’t seem to get over its past. Good thing Steve Ballmer is already rich. Too bad all the Microsoft employees aren’t.
by Adam Hartung | Feb 15, 2011 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Web/Tech
Summary:
- Nokia agreed to develop smartphones with Microsoft software
- But Microsoft’s product is without users, developers or apps
- Apple and Google Android dominate developers, app base and users
- Apple and Google Android have extensive distribution, and customer acceptance
- Microsoft brings Nokia very little
- Nokia hopes it can succeed simply by ramming Microsoft product through distribution. This will be no more successful than its efforts with Symbian
- Apple is the winner, because Nokia didn’t select Google Android
“For First Time Ever, Smartphones Outsell PCs in Q4 of 2010” headlined BGR.com. This is a big deal, as it creates something of an inflection point – possibly what some would call a “tipping point” – in the digital technology market. For over 2 years some of us, using IDC data such as reported in ReadWriteWeb, have been predicting that PCs are on the way to extinction – much like mainframes and mini-computers went. Smartphone sales last quarter jumped 87.2% year-over-year to about 101M units. Meanwhile PC sales, a market manufacturers hoped would recover as “enterprises” resumed buying post-recession, grew only 5.5% in the like period, to 92.1M units. No doubt the installed base of the latter product is multiples of the former, but we can see that increasingly people are ready to use the newer, alternative technology.
This week Mediapost.com reported “Tablet Sales to Hit 242M by 2015.” Both NPD Group and iSuppli are projecting a 10-fold increase wtihin 5 years in the volume of these new devices, which is sure to devastate PC sales. Between smartphones and tablets, as well as the rapid development of cloud-based apps and data storage solutions, it’s becoming quite clear that the life-span of PC technology has its limits. Soon we’ll be able to do more, cheaper, better and faster with these new products than we ever could on a PC.
This is really bad news for Microsoft. Apple and Google dominate both these mobile markets. As Microsoft has fought to defend its PC business by re-investing in Vista, then Windows 7 and Office 2010, the market has been shifting away from the PC platform entirely. It’s common now to hear about corporations considering iPads and other tablets for field workers. And it’s impossible to walk through an airport, or sit in a meeting these days without seeing people use their smartphones and tablets, purchased individually at retail, while leaving their PCs at the office. Most corporate Blackberry users now have either an Apple or Android smartphone or tablet as they eschew their RIM product for anything other than required corporate uses.
Nokia has largely missed the smartphone market, choosing, like Microsoft, to continue investing in defending its traditional business. Long the largest cell phone supplier, Nokia did not develop the application base or developer network for Symbian (it’s proprietary smartphone technology) as it kept pumping out older devices. Nokia is reminiscent of the Ed Zander led Motorola disaster, where the company kept pumping out Razr phones until demand collapsed, nearly killing the company.
So the Board replaced the Nokia CEO. As discussed in Forbes on 5 October, 2010 in “HP and Nokia’s Bad CEO Selections” Nokia put in place a Microsoft executive. Given that Microsoft had missed the smartphone market entirely, as well as the tablet market, moving the Microsoft Defend & Extend way of thinking into Nokia didn’t look like it would bring much help for the equally locked-in Nokia. Exchanging one defensive management approach for another doesn’t create an offense – or new products.
It wasn’t much of a surprise last week when the 5-month tenured CEO, Stephen Elop, announced he thought Nokia’s business was in horrible shape via an internal email as reported in the Wall Street Journal, “Nokia, Microsoft Talk Cellphones.” Rather quickly, a deal was struck in which Nokia would not only pick up the Microsoft mobile operating system, but would use their products to promote other extremely poorly performing Microsoft products. “Nokia to Adopt Microsoft Bing, Adcenter” was another headline at MediaPost.com. Bing and adCenter were very late to market, and even with adoption by early market leader Yahoo! have been unable to make much inroad into the search and on-line ad placement markets dominated by Google.
Mr Elop went with what he knew, selecting Microsoft. I guess he’s the new “chief decider” at Nokia. His decision caused a break out of optimism amongst long-suffering Microsoft investors and customers who’ve gotten very little from the giant PC near-monopolist the last decade. Mediapost told us “Study: Surge of Support for Windows Phone 7” as developers who long ignored the product entirely were starting to consider writing apps for the device. After all this time, new hope beats within the breast of those still stuck on Microsoft.
But if ever there was a case of too little, and way, way too late, this has to be it. Two companies long known for weak product innovation, and success driven by market domination and distribution control strategies, are partnering to take on the two most innovative companies in digital technology as they create entirely new markets with new technologies.
RIM, the smartphone market originator, has seen its fortunes disintegrate as Blackberry sales fell below iPhones – even with over 10,000 apps. Today Microsoft has virtually NO apps, and NO developer base as it just now enters this market, “Google Searches for Mobile App Experts” (Wall Street Journal) as its effort continues to expand its 100,000+ apps base as it chases the 350,000+ apps already existing for the iPhone. Where Microsoft and Nokia hope to build an app base, and a user base, Apple and Google already have both, which theyt are aggressively growing.
Exactly what going to happen to slow Apple and Google’s growth in order to allow Microsoft + Nokia to catch up? In what fairy tale will the early hare take a nap so the awakened tortoise will be allowed to somehow, miraculously get back into the race?
Being late to market is never good. Look at how Sony, and everyone else, were late to digitally downloaded music. iPad and iTunes not only took off but continue to hold well over 50% of the market almost a decade later. Over the same decade Apple has held onto 2/3 of the download video market, while Microsoft’s Zune has struggled to capture less than 1/4 of Apple’s share (about 18% according to WinRumors.com).
Apple (and Google) aren’t going to slow down the pace of innovation to give Microsoft and Nokia a chance to catch up. Today (15 Feb., 2010) ITProPortal.com breaks news “Apple iPhone 5 to have 4 Inch Screen,” an upgrade designed to bring yet more users to its mobile device platform – away from PCs and competitive smarphones. The same article discusses how Google Android manufacturers are bringing out 4.3 inch screens in their effort to keep growing.
So, amidst the “big announcement” of Microsoft and Nokia agreeing to work together on a new platform, where’s the product announcement? Where’s the app base? And exactly what is the strategy to be competitive in 2012 and 2015? Does anyone really think throwing money at this will create the products (hardware and software) fast enough to let either catch up with existing leaders? Does anyone think Microsoft products dependent upon Nokia’s distribution can save either’s mobile business – while Apple has just expanded to Verizon for distribution? And Google is already on almost all networks? And where is Microsoft or Nokia in the tablet business, which is closely associated with smartphone market for obvious issues of mobility and use of cloud-based computing architectures?
The good news here is for Apple fans. Nokia clearly should have chosen Android. This would give the laggard a chance of leveraging the base of technology at Google – including advances being made to the Chrome operating system and its advantages for the cloud. No matter what the price, it’s the only chance Nokia has. With this decision the most likely outcome is big investments by both Microsoft and Nokia to play catch-up, but limited success. Results will not likely cover investment rates, leading Nokia to a Motorola-like outcome. And Microsoft will remain a bit player in the fastest growing digital markets. Both have billions of dollars to throw away in this desperate effort. But the outcome is almost certain. It’s doubtful between the two of them they can buy enough developers, network agreements and users to succeed against the 2 growth leaders and the desperately defensive RIM.
Like I said last month in this blog “Buy Apple, Sell Microsoft.” It’s still the easiest money-making trade of 2011. Now thankfully reinforced by the former Microsoft exec running Nokia.
by Adam Hartung | Nov 23, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
Summary:
- Most planning systems rely on extending past performance to predict the future
- But markets are shifting too fast, making such forecasts wildly unreliable
- To compete effectively, companies must anticipate future market shifts
- Planning needs to incorporate a lot more scenario development, and competitor information in order to overcome biases to existing customers and historical products
- Apple and Google have taken over the mobile phone business, while the original leaders have fallen far behind
- Historical mobile phone leaders Nokia, Samsung, Motorola, RIM and Microsoft had the technologies and products to remain leaders, but they lacked scenarios of the future enticing them to develop new markets. Thus they allowed new competitors to overtake them
- Lacking scenarios and deep competitor understanding, companies react to market events – which is slow, costly and ineffective.
“Apple, Android Help Smartphone Sales Double Over Last Year” is the Los Angeles Times headline. Google-supplied Android phones jumped from 3% of the market to 26% versus the same quarter last year. iPhones remained at 17% of the market. Blackberry is now just under 15%, compared to about 21% last year. What’s clear is people are no longer buying traditional mobile phones, as #1 Nokia share fell from 38% to 27%. Like many market changes, the shift has come fast – in only a matter of a few months. And it has been dramatic, as companies not even in the market 5 years ago are now the leaders. Former leaders are struggling to stay in the game as the market shifts.
The lesson Google and Apple are teaching us is that companies must have a good idea of the future, and then send their product development and marketing in that direction. Although traditional cell phone manufacturers, such as Motorola and Samsung, had smartphone technology many years prior to Apple, they were so focused on their traditional markets they failed to look into the future. Busy selling to existing customers an existing technology, they didn’t develop scenarios about 2010 and beyond that would describe how the market could expand – far beyond where traditional phone sales would take it. Both famously said “so what” to the new technology, and used existing customer focus groups of people who had no idea the potential benefit of a smart phone to justify their willingness to remain fixated on the existing business. Lacking a forward planning process based on scenario development, and lacking a good market sensing system that would pick up on the early market shift as novice competitor Apple started to really change the market, these companies are now falling rapidly to the wayside.
Even smartphone pioneer Research in Motion (RIM) was so focused on meeting the needs of its existing “enterprise” customers that it failed to develop scenarios about how to expand the smartphone business into the hands of everyone. RIM missed the value of mobile apps, and the opportunity to build an enormous app database. Now RIM has been surpassed, and is showing no signs of providing effective competition for the market leaders. While the Apple and Android app base continues to explode, based upon 3rd and 4th generation product inducing more developers to sign up, and more customers to buy in, RIM has not effectively built a developer base or app set – causing it to fall further behind quarter by quarter.
Even software giant Microsoft missed the market. Fixated upon putting out an updated operating system for personal computers (Vista then later Windows 7) it let its 45% market share in smart phones circa 2007 disappear. Now approaching 2011 Microsoft has largely missed the market. Again, focused clearly upon its primary goal of defending its existing business in O/S and office automation software, Microsoft did not have a forward focused planning group that was able to warn the company that its new products might well arrive in a market that was stagnating, and on the precipice of a likely decline, because of new technology which could make the PC platform obsolete (a combination of smart mobile devices and cloud computing architecture.) Microsoft’s product development was being driven by its historical products, and market position, rather than an understanding of future markets and how it should develop for them.
We can see this lack of future scenario development and close competitor tracking has confused Microsoft. Desperately trying to recover from a market stall in 2009 when revenues and profits fell, Microsoft has no idea what to do in the rapidly expanding smartphone market today. Its first product, Kin, was dropped only two months after launch, which industry analysts saw as necessary given the product’s lack of advantages. But now Mediapost.com informs us in “Return of the Kin?” Microsoft is considering a re-launch in order to clear out old inventory.
This amidst a launch of the Windows Phone 7 that has gone nowhere. Firstly, there was insufficient advertising to gain any public awareness of the product launch earlier in November (Mediapost “Where’s the Windows Phone 7 Ad Barrage?“) Initial sales have gone nowhere “Windows Phone 7 Lands Without a Sound” [Mediapost], with many stores lacking inventory, very few promoting the product and Microsoft keeping surprisingly mum about initial sales. This has raised the question “Is Windows Phone 7 Dead On Arrival?” [Mediapost] as sales barely achieving 40,000 initial unit sales at launch, compared to daily sales of 200,000 Android phones and 270,000 iphones!
Companies, like Apple and Google, that have clear views of the future, based upon careful analysis of what can be done and tracking market trends, create scenarios that allow them to break out of the pack. Scenario development helps them to understand what the future can be like, and drive their product development toward creating new markets with more customers, more unit sales, higher revenues and improved cash flow. By studying early competitors, especially fringe ones, they create new products which are more highly desired, breaking them out of price competition (remember the Motorola Razr fiasco that nearly bankrupted the company?) and into higher price points and better earnings. Creating and updating future scenarios becomes central to planning – using scenarios to guide investments rather than merely projections based upon past performance.
Companies that base future planning on historical trends find themselves rapidly in trouble. Market shifts leave them struggling to compete, as customers quickly move to new solutions (old fashioned notions of “exit costs” are now dead). Instead of heading for the money, they are confused – lost in a sea of options but with no clear direction. Nokia, Samsung, RIM and Microsoft all have lots of resources, and great historical experience in the market. But lacking good scenario planning they are lost. Unable to chart a course forward, reacting to market leaders, and hoping customers will seek them out because they were once great.
Far too many companies do their planning off of past projections. One could say “planning by looking in the rear view mirror.” In a dynamic, global world this is not sufficient. When monster companies like these can be upset so fast, by someone they didn’t even think of as a traditional competitor (someone likely not even on the radar screen recently) how vulnerable is your company? Do you plan on 2015 looking like 2005? If not, how can future projections based on past actuals be valuable? it’s time more companies change their approach to planning to put an emphasis on scenario development with more competitive (rather than existing customer) input. That’s the only way to get rich, instead of getting lost.
