Leadership Matters More Than Market Share

A leader is one who sees more than others see, who sees farther than others see, and who sees before others see.
– Leroy Eimes

In studying the technology industry, the markets that encapsulate it, and the consumers who drive it, I am less interested in how much money a company is making, or how many devices they sell, or what a platforms market share is. Those are all interesting data points. What matters, in my opinion, is whether or not companies playing in this arena are advancing computing.

Apple’s Demise

It seems as though the popular “Apple is doomed” narrative will never go away. While this is a deeply naive statement filled with flawed pre-conceived notions, it is often thrown around publicly by those with an agenda other than genuine truth.

For some illogical reason, many are just waiting for Apple’s dominant reign to end. This line of thinking forgets that the only market Apple has dominated for a length of time was the MP3 player market. Apple may never secure a decade plus of device or category dominance like they did with iPod again but that does not mean that they do not have a healthy and profitable business that will last decades. Yet all too often ebbs and flows of markets, cyclical innovation patterns, and global adoption cycles, seem to fool people into missing the big picture.

I hear a subtle tone frequently whispered among analyst peers that Apple has had their day and it is time for someone else. That time may certainly come, but it is not today. I hold this view confidently because I am yet to see the emergence of a new leader. I see platforms gaining market share leadership. We may see devices become sales leaders, but without question Apple is still the envy of the industry. ((Being the first with a spec or some technological gimmicks does not qualify as leadership))

The Secret to Growth

“The real act of discovery consists not in finding new lands but in seeing with new eyes.” – Marcel Proust

We can debate until we are blue in the face whether the biggest growth opportunities like smartphones and tablets are saturated. But whether this point is true or not both markets will inevitably become saturated at some point. Growth will someday peak and only disruption can restart the cycle.

The key for a companies growth lies in new opportunities. Sometimes you have to create those opportunities and other times you can capitalize on opportunities others have created. But in either case vision and leadership are key.

Perhaps the next growth area is wearable computing, or the digital home and car. Perhaps it is something we have not thought about yet. This is what makes this industry exciting. The point remains, who leads these new opportunities is the key thing to watch.

Leading also means you often take some arrows in the back. It is hard and not all can handle the scrutiny. As I stated earlier, I am not naive in thinking that Apple will always be in a leadership position. But I’m yet to see another holistic leader in computing emerge.

Google, Motorola, and the Future of Android

To hear both Sundar Pinchai, head of Android and Chrome at Google, and Dennis Woodside, CEO of Motorola Mobility, tell it, Motorola is just another Android OEM despite being a wholly owned Google subsidiary. This may be technically true at the moment, but it cannot be true for the long run. And just what Google does with Motorola has huge implications for the future of Android.

Business realities alone say the current arrangement cannot last. Motorola is a hole of at least $10 billion (purchase price plus cumulative losses, less the gain from the sale of the set top box business) in Google’s balance sheet. Although there was speculation at the time of the acquisition that Google was really after Moto’s patents, the standards-essential patents ase subject to fair, reasonable, and non-discriminatory licensing worth much less than many believed. Sooner or later, Moto has to start paying its way.

Woodside himself suggested, perhaps without intending to, that the relationship has to change during an appearance at the D11 conference a couple of weeks ago. Competitors, he noted, are earning 50% margins on smartphones. ((Of course, the only profitable competitors are Apple and Samsung.)) “We don’t necessarily have the same constraints,” he said. “One of the areas that is open for Motorola is building high-quality low-cost devices. The price of a feature phone now is about $30 0n a worldwide basis. The price of a smartphone is about $650. That’s not going to persist.”

The difficulty is that Apple and Samsung, by virtue of their enormous volumes and tightly controlled supply chains, are already the low-cost producers. Motorola is not going to beat them on the cost side. So to underprice them, as Woodside is threatening to do, will require sacrificing gross margins, perhaps selling phones at a unit loss. For a business unit already losing money by the bucket, that would seem to be a suicidal course.

Unless, of course, someone is prepared to subsidize this raid on the business models of Apple and Samsung. And that someone would have to be Google, which certainly has the deep pockets needed for this fight. Taking on Apple, while difficult, doesn’t pose huge problems for Google. Over the past few years, the relationship of the companies has deteriorated from best buddies to frenemies to all-out competitors.

Samsung is a very different matter. The Korean giant is second only to Google itself in importance in the Android ecosystem. It is by far the largest seller of Android handsets, from the iPhone-challenging Galaxy S 4 to low-cost units for emerging markets. And it has to be watching the Google-Motorola relationship with an extremely wary eye.

For now, Google and Samsung are co-dependent. That fact is what lies behind Google’s much trumpeted arms-length relationship with Motorola. But the relationship will be severely tested if Motorola goes at the heart of Samsung’s Android business model. (Microsoft’s OEM partners were very unhappy when it went into hardware competition with the surface and surface Pro, but at least it did not try to undercut their pricing. And, for better or worse, poor Surface sales have largely spared it fallout from entering the competition.)

Samsung has options if it comes to view Google as a competitor in a way that makes the current Android arrangements untenable. It could fork Android, going forward with its own flavor of the operating system and its own services, home-grown or developed in partnership with other players,  in place of Google’s. It could accelerate the development of Tizen, the Linux-based mobile operating system it has sponsored along with Intel. Or, far less likely, it could  move to Windows Phone (unlikely, I believe, because while this might be the easiest course to execute, the fact that it is trading one gorilla dance partner for another will make it unattractive.)

The defection of Samsung from Android would put tremendous strain on Samsung, Google, and the Android world. Software has never been Samsung’s long suit. It can afford to buy a lot of talent, but changing a hardware company’s culture to support the software effort required is very difficult. Android would become largely a Google/Motorola business. The viability of all the profitless Android phone makers is dubious, let along their ability to provide leadership.

If all these hypothetical strategies succeed, we could see a very different phone market: Apple would continue to be Apple, mostly riding above the fray. Samsung  would be slugging it out with Googlerola. And Microsoft and BlackBerry would be trying to squeeze out some gains from the confusion.