disruption – Tech.pinions

Apple Sits Atop The Stack

On November 26th, I wrote an INSIDER article entitled: “Is Apple Pay The New iTunes?” (Subscription required.)

A foundational premise of that article was that iTunes did not, and now Apple Pay does not, directly challenge the existing incumbents in their respective categories but, instead, seemingly worked with the existing industry participants. In business theory terms, Apple sat atop the existing “stack”. However, in doing so, iTunes, and perhaps Apple Pay too, ended up disintermediating several incumbents and marginalizing others. Benedict Evans seems to think that this is not just a one-time thing but is, rather, Apple’s modus operandi:

Apple tends to disrupt non-tech markets by adding a new layer to the value chain – a new end point. Not by competing with existing layers. Hence, no Apple MVNO, record label, payment network… TV service? ~ Benedict Evans (@BenedictEvans) 9/24/14

Let’s explore that idea.

With the iPod/iTunes combo, Apple did not compete directly with the existing participants in the music stack. They built stores, but they did not build music stores. They did not create physical media. They did not create albums but they did break albums into their constituent parts (songs). The did create MP3 players which competed with the then existing CD players. Yet, for the most part, they did not create speaker based music playing devices.

In the end, however, the result of the iPod/iTunes revolution was to cause music stores and physical media to disappear and the album and music players to all but disappear. Apple was able to compete against their competitors but their competitors were unable to compete back. To use a military analogy, Apple took the high ground where they were able to shell their enemies without their enemies being able to return fire.

The most interesting disruption comes from attacking an industry from what looks like an irrelevant angle. ~ Benedict Evans (@BenedictEvans) 9/13/14

Benedict Evans provides us with other examples of where Apple DID NOT compete directly against the entrenched incumbents:

(Apple) didn’t buy or build a record label and it didn’t hire A&R guys. It didn’t buy a mobile operator or create an MVNO. It never bought movie or TV rights, and it hasn’t created a new payment platform. It is partnering with Chase and Visa, not competing with them. ~ Benedict Evans

There are at least two reasons why Apple doesn’t compete directly against incumbents. First, the incumbents compete back. In military terms, competing against the incumbents is like attacking a well-defended enemy fortification. You’re attacking them where they are strongest.

A second reason why it is generally unwise to compete against incumbents is because while they are good at what they do, you, as the newcomer, are not very good at what they do. It is better to compete where you are strong and the incumbent is weak — or even better, nonexistent.

Apple is not in the business of disrupting everything. They’re in the business of disrupting what their DNA allows them to and their DNA is not about being bank, it’s not about being a mobile operator. ~ Horace Dediu

Instead of competing directly against the “stack”, Apple sits atop the stack and inserts a layer between the incumbents and the customer. This is no mean feat because the incumbents are already trying — and failing — to close any gap between what they provide and what the customer actually wants and uses.

For example, Apple Pay is built upon NFC which is not new technology at all. The only thing new about Apple Pay — from the customer’s point of view — is that it takes a four step process and reduces it single step. Yet this makes all the difference. It is often the last, seemingly small, incremental step, that adds massive value to the already existing product or service.

Moving from three or four steps to one wave of the phone is only the last 10% of the problem, but of course it’s the 10% that takes 90% of the effort and makes all the difference in consumer adoption…. ~ Benedict Evans

I think one of the reasons why Apple is misunderstood and under appreciated by some its critics is because those critics do not recognize the value added by this last, little step. To them, a one-step process is only minimally better than a four-step process. To the consumer, however, it’s the difference between jumping a gorge and comfortably and securely walking across a bridge over that gorge. And to the average consumer, that’s all the difference in the world.

What Apple seems adept at doing in creating a highly integrated product that takes that one last step that massively multiplies the usefulness of the existing product to the masses.

Podcast: Discussing Disruption Theory

A few weeks back Horace Dediu of Asymco and I were having dinner and we got to discussing some of this updated thoughts on disruption theory. One bit in particular was how the luxury tech market was causing him to evolve some thinking on the theory as it relates to consumer markets. I thought it would be great to have him on and we could chat more about disruption and the role it plays in the technology industry in the 21st century.

Runtime: 1:07m

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If you happen to use a podcast aggregator or want to add it to iTunes manually the feed to our podcast is: techpinions.com/feed/podcast

Why Apple Is Not Like A Movie Studio

On April 22, 2014, Walt Mossberg wrote an article entitled: “Why Apple Is Like A Movie Studio.”

Is This The Beginning Of The End?

“Some have argued that Apple’s era of greatness is over, that with CEO Tim Cook sitting in Mr. Jobs’s chair, the magic is gone, and Apple is now, at best, just an ordinary company. Others have countered that, financially, Apple is still doing quite well, and that there’s no evidence that it’s out of ideas.” ~ Walt Mossberg

Let’s make one thing crystal clear from the start. This is not a new debate. The debate over whether Apple’s “magic” is gone didn’t start with Steve Jobs’ death, it started with Apple’s birth. The only difference between the Apple doomsayers of today and the Apple doomsayers of yesteryear is pundits used to say Apple was doomed BECAUSE of Steve Jobs. Today pundits say Apple is doomed because of the ABSENCE of Steve Jobs. The doomsayers have altered their lyrics, but they haven’t changed their tune.

Where Is This Parade Of Which You Speak?

“Steve Jobs has been dead for about two and a half years now, and it’s hard not to notice that the regular parade of game-changing Apple products for which he was famous seems to have disappeared with him.” ~ Walt Mossberg

Seriously?

The founding premise, upon which Mr. Mossberg’s entire article is built, simply doesn’t exist. There never was and there never will be a “regular parade of game-changing (tech) products” under Steve Jobs or anyone else. True game-changers are few and far between. And they appear sporadically and at anything but regular intervals.

Expecting Steve Jobs’ successor or Steve Jobs himself or anyone for that matter, to produce disruptive, game-changing, category busting products every couple of years simply ignores reality. Tech game-changers are to tech iteration as diamonds are to coal: rare, extremely hard to discover and precious.

Is Apple Like A Movie Studio?

“…I think the most useful way of thinking about Apple is to see it as a movie studio. Studios release blockbuster franchise movies every few years, and then try to live off a series of sequels until the next big, successful franchise.” ~ Walt Mossberg

With all due respect, you simply cannot compare the creation of a movie franchise to the creation of a disruptive, game-changing, category creating product. They’re at different orders of magnitude.

A movie franchise emerges once every few years.
A game-changing product emerges once every few decades.
A movie franchise alters the course a company.
A game-changing technology product alters the course of an industry.

Take, as a single example, the notebook computer.

The notebook computer was basically re-invented when the PowerBook was introduced in 1991.

(T)he first PowerBook would set the standard for basic laptop design for the next twenty years, a fact that still surprises everyone. “We hit a homerun with the PowerBook,” Brunner said. “It surprised me to death. There were so many flaws with that machine and that design. I thought it was going to be a huge failure. But looking back today, basically all laptops are that design—a recessed keyboard, palm rests, a central pointing device.” ~ Excerpt From: Leander Kahney. “Jony Ive.”

The basic design for the notebook wasn’t changed again until the introduction of the tablet in 2010 — some nineteen years later.

Demanding Apple “re-invent” computing again — only 4 years after the release of the iPad — is akin to demanding the movie industry evolve from live stage performances, to silent films, to talkies, to digital special effects, every few years. It’s simply unreasonable.

Is It Now Or Never For The Sequel To The iPad?

(S)equel time is almost up. It’s time for a new franchise. And it had better be desirable, logical and elegant. ~ Walt Mossberg

Are you kidding me?

You say: “time is almost up.” Why is that?

Wasn’t there time enough for the iPod to disrupt the MP3 market? Wasn’t there time enough for the iPhone to disrupt the smartphone market? Wasn’t there time enough for the iPad to disrupt the tablet market?

History’s Answer: “Yes, yes, and oh hell yes.”

You say Apple’s offering “had better be desirable, logical and elegant.” Why is that?

It’s not as if Apple’s tech competitor’s have gotten any traction in the marketplace with the “next great thing” in tech. In fact, when it comes to products like wearables, tech companies clearly don’t have a clue what they should be offering. They keep throwing every conceivable sort of device at the consumer in the hope something sticks and the consumer, in their turn, keeps chucking everything right back at them.

Why The Double Standard?

Why does Apple and Apple alone have to release a new “franchise” every couple of years? Why are there no calls for semi-annual new “franchises” from other tech companies?

Some of the “rules of thumb” regarding success are nothing succeeds like success; success breeds success; past success is a predictor of future success. However, when it comes to Apple — and only Apple — pundits instead apply a “rule of dumb”: Apple succeeded through sheer dumb luck and the odds are bound to catch up with them sooner rather than later; Apple is a one-hit wonder with, admittedly, a string of hits, which only makes it all the more certain their next offering will be a flop; while everyone else is taking target practice, Apple is playing Russian Roulette — each and every time Apple successfully pulls the trigger on another category, it also adds another bullet to the chamber, another nail in the coffin that has been patiently waiting for them these many years.

Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally. ~ John Maynard Keynes

Does Apple Want To Be Pixar?

Apple is not like a movie studio. Pixar is like a movie studio. Pixar had only one innovation but it was a beaut– a process for creating hit animated films. Since then, Pixar has only iterated and iterated and iterated. And not only is that good enough, it’s great. It’s turned Pixar into a movie making hit machine.

Why would Apple want to become Pixar? Think about it. Apple has done everything that Pixar has done, and more. It is Pixar, that might aspire to become Apple. And to do so, they would have to create a new process — a process that would not only revolutionize the way Pixar made movies, but a process that revolutionized the way everyone made movies.

Then they would have to do it again.

And again and again.

Every once in a while a revolutionary product comes along that changes everything. It’s very fortunate if you can work on just one of these in your career. Apple’s been very fortunate in that it’s introduced a few of these. ~ Steve Jobs

Will Apple Ever Be Disruptive Again?

Apple is a hit machine, like Pixar, but they’re also serial disruptors — like no one else I’ve ever seen. The hits come out year after year after year. The disruptions (Apple II, Macintosh, iPod, iPhone and iPad) arrive not so regularly and not so much.

Don’t cry because it’s over. Smile because it happened. ~ Dr. Seuss

I honestly don’t know if Apple will ever create another disruptive product. Truth be told, we should be amazed Apple has created as many game-changers as they have. When you look at the careers of geniuses, almost all of them had their breakthroughs before they were thirty. Steve Jobs had breakthroughs before the age of thirty but as the days of his life dwindled, the speed and size of his disruptive innovations grew. And despite his premature death, his biggest disruption may be still to come.

I discovered that the best innovation is sometimes the company, the way you organize a company. The whole notion of how you build a company is fascinating. ~ Steve Jobs

Pixar has created a process that routinely churns out mega-successful movie hits. Did Steve Jobs create a process that would allow Apple to remain a serial disruptor? Only time will tell…

…but time knows how to keep a secret and it probably won’t be telling us any time too soon.

Inverse Innovation Inanity

At Forbes, Chunka Mui ((Coauthor of “The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups”, “Unleashing the Killer App: Digital Strategies for Market Dominance”; and “Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years”)) writes:

[pullquote]If you desire a wise answer, you must ask a reasonable question. ~ Johann Wolfgang Von Goethe[/pullquote]

Will Tim Cook Be the Next Steve Ballmer?

His initial premise seems reasonable:

Like Ballmer, (Tim) Cook’s legacy will be defined by whether he successfully launches new post-Jobs killer apps. … (T)o be truly successful, Cook will have to innovate beyond iPhones and iPads.

What Is Innovation?

Wikipedia defines Innovation as:

“the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. Innovation differs from invention in that innovation refers to the use of a better and, as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself. Innovation differs from improvement in that innovation refers to the notion of doing something different rather than doing the same thing better.”

[pullquote]Some people see innovation as change, but we have never really seen it like that. It’s making things better. ~ Tim Cook[/pullquote]

I would add this caveat. Too often “innovation” is judged from the perspective of the engineer, rather than from the point of view of the consumer. We are seduced by the wonderfulness of the technology, but it is the market, not the maker, that is the ultimate arbitrator of what is and what is not innovative. It is the value of the product — as judged by the consumer — that matters.

If something is truly innovative the consumer’s first thought isn’t, “I was asking for this.” Their first thought is, “Of course,” because — although it’s something they didn’t even know they wanted — now that they see it, it’s seemingly self-evident.

Myth #1: First To Market Matters Most

(The) field is crowded. The biggest technology companies and numerous start-ups are already in the race. Google has invested heavily in Google [x] projects like Glass and its Self-Driving Car, and it just bought Nest for $3.2B. Samsung has already launched two generations of its Galaxy Gear smart watch. Both GE and IBM are pursuing massive Internet of Things initiatives. ~ Chunka Mui

[pullquote]In a forest, there are many plants. but only a few are destined to be trees. And of all the forest trees, only one is destined to be a California Redwood.[/pullquote]

Really? The field is crowded? Crowded with what? A lot of throw-it-at-the-wall-and-let’s-see-what-sticks experiments?

Take a look at five of Apple’s greatest innovations:

Apple II
Macintosh
iPod
iPhone
iPad

Now ask yourself: Were any of the above products first to market?

No. No they were not.

[pullquote]I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things. ~ Steve Jobs[/pullquote]

In every case, those products came out many YEARS after others had tried to establish their respective markets.

Malcolm Gladwell put it this way:

“You don’t want to be first, right? You want to be second or third. Facebook is not the first in social media. They’re the third, right? Similarly, you know, if you look at Steve Jobs’ history, he’s never been first.”

LESSON UNLEARNED: It’s not first to market that matters, it’s FIRST TO GET IT RIGHT.

Myth #2: The Path Of Innovation Has Been Identified

History tells us that the new technological landscape that will likely define both Apple’s next horizon and Cook’s legacy is somewhere at the intersection of wearable computing and the Internet of Things. ~ Chunka Mui

Say what? History tells us nothing of the sort.

Pundits keep predicting that Apple will go into wearables or television. Why?

— Did anyone predict that Apple would veer into MP3 players?

— Most everyone predicted that Apple would make a phone, but by phone they really meant a flip phone that would also work as an MP3 player. Did anyone predict the pocket computer — complete with its own operating systems and, eventually, an app ecosystem — that Apple produced?

— Most everyone predicted that Apple would make a tablet, but no one predicted the tablet that Apple introduced and few understood it at the time or even understood it long after it was placed on sale. Heck, a lot of people STILL refuse to understand it, despite all its subsequent success.

It is an open secret that Apple is working on an iWatch wearable device. ~ Chunka Mui

So what? did any of Apple’s previous major innovations look or act or feel anything like the products that preceded them?

— Did the Apple II look anything like its non-monitor competitors?
— Did the Macintosh look anything like the line interface operating systems that preceded it?
— Did the iPod click wheel work anything like its MP3 competitors?
— Did the iPhone have any resemblance to its keyboard heavy smartphone predecessors?
— Did the iPad touch interface have any relationship to the stylus-driven, Windows tablets previously offered by Microsoft?

[pullquote]Predicting a wrist device from Apple as “a Fuelband, but better” is equivalent to predicting an iPhone with an iPod click wheel. ~ Zac Cichy (@zcichy)[/pullquote]

No. No they did not. In every case, these products were a significant variant from what then existed in the market.

Entrepreneurship is essentially identifying the path that everyone takes; and choosing a different, better way. ~ Sheldon Adelson

LESSON UNLEARNED: The innovative product that solves a significant problem WILL NOT LOOK OR ACT OR FEEL like anything on currently on the market.

Myth #3: History Says Apple Will Be Disrupted

(The) incremental, extend-the-ecosystem approach makes all the sense in the world—to Apple. (It) fits very nicely with how customers interact with the Apple world today—and how Apple hopes that they will interact with it in the future.

It could be entirely rational for Tim Cook to take this view. Every one of his key lieutenants, who are responsible for the day-to-day defense and extension of Apple’s iOS ecosystem, must be even more whetted to this point of view. If there is any fight for resources, mindshare, talent, etc., you can bet that they’ll want to invest as much as possible to iOS. History also tells us that industry analysts will focus on today’s sales, margins and growth forecast at those important quarterly conference calls.

Momentum will drive Tim Cook and Apple down this path—as similar forces drove Steve Ballmer and Microsoft down the path of defending and extending the Windows/Office ecosystem at the expense of smartphone/tablet/cloud dominance.

Who doesn’t think that would the natural strategy for it to follow? ~ Chunka Mui

Oh, oh! Me, me, me, me! And anyone who’s been paying even the slightest attention to Apple and Apple’s history.

[pullquote]Never underestimate a pundit’s ability to underestimate Apple’s ability.[/pullquote]

Apple’s EVERY ACTION since Steve Jobs returned in 1996 argues against their being disrupted by falling into the trap described, above, by Mui.

“Design (not profits) is where Apple products start,” writes Lashinsky. “Competitors marvel at the point of prominence Apple’s industrial designers have. ‘Most companies make all their plans, all their marketing, all their positioning, and then they kind of hand it down to a designer,’ said Yves Behar, CEO of the design consultancy Fuseproject. The process is reversed at Apple, where everyone else in the organization needs to conform to the designer’s vision. ‘If the designers say the material has to have integrity, the whole organization says okay,’ said Behar. In other words, a designer typically would be told what to do and say by the folks in manufacturing. At Apple it works the other way around.”

[pullquote]If anybody’s going to make our products obsolete, I want it to be us. ~ Steve Jobs[/pullquote]

Ben Thompson puts it this way:

“Apple’s focus on user experience as a differentiator has significant strategic implications as well, particularly in the context of the Innovator’s Dilemma: namely, it is impossible for a user experience to be too good. Competitors can only hope to match or surpass the original product when it comes to the user experience; the original product will never overshoot (has anyone turned to an “inferior” product because the better one was too enjoyable?). There is no better example than the original Macintosh, which maintained relevance only because of a superior user experience. It was only when Windows 95 was “good enough” that the Macintosh’s plummet began in earnest. This in some respects completely exempts Apple from the product trajectory trap, at least when it comes to their prime differentiation.

Indeed, it seems that Apple simply isn’t very interested in moats. They do what they think is right by the user, strategy nerds like me be damned. This kills them on Wall Street, but perhaps is the only possible route to avoiding stasis, and ultimately, disruption.

This is why Apple is so fascinating.”

Conclusion

Caesar defied historical prohibitions and marched his army across the Rubicon River. In doing so, he toppled the prior regime and enabled the flowering of a new Roman Empire. Will Tim Cook dare to cross the Rubicon? ~ Chunka Mui

[pullquote]In a company that was born to innovate, the risk is in not innovating. The real risk is to think it is safe to play it safe. – Jony Ive[/pullquote]

Are you kidding me? Will Tim Cook dare to cross the Rubicon? He and Apple have already constructed a four-lane highway over and across that Rubicon and left it far behind. Apple may have many a problem to deal with in the future, but playing it safe — not cannibalizing themselves — will not be one of them.

Steve Jobs himself may have said it best when he was recruiting a job applicant:

We are inventing the future. Think about surfing on the front edge of a wave. It’s really exhilarating. Now think about dog-paddling at the tail end of that wave. It wouldn’t be anywhere near as much fun. Come down here and make a dent in the universe.

Disruption: What Microsoft Got Wrong

Ben Thompson of Stratechery has deservedly been the talk of the tech world this week for his analysis of disruption theory, What Clayton Christensen Got Wrong. Thompson argues (and if you haven;t read his piece you should) that Christensen actually has two theories of disruption: new market disruption, in which incumbent fail to respond to basic technological change and low-end disruption, in which companies’ business models are undermined by commoditization and their inability to compete with cheaper, “good enough” offerings.

There has been a tendency to look at the struggles of Microsoft as a case of low-cost disruption. Sales of Windows PCs are suffering because customers are settling for cheaper tablets and smartphones that are good enough for their needs. Certainly, Microsoft itself seems to look at the market that way: Its ads for the Surface focus on features the iPad lacks (“I’m sorry, I don’t have a USB port,” the tablet says in a wistful Siri voice) and Surface’s lower price.

Unfortunately for Microsoft, this misses the point. Windows has been hit by new market disruption, not its low-cost cousin. Many people–certainly myself–use an iPad not because we are willing to settle for it but because we find it meets our needs better than a laptop. I have a laptop, several of them to be precise, both Mac and Windows, but whenever I am not at my desk (where I use desktops) I will almost always go for my iPad or, if the spirit moves me, a Samsung Android tablet.

The problem from Microsoft’s point of view is that I use the tablet not because it is good enough but, for most of the jobs at hand, better. It’s always there, always on, and easily kept on my lap. Dedicated apps generally perform their chores with less fuss than their desktop equivalents.

Most studies show that tablet owners also tend to own conventional PCs. They just use them less. And because they use them less. they replacement less often, which is very bad for sales. I’m ready to replace my iMac, which I use for media production, with a newer and much faster version. Waiting 20 minutes to render six minutes of video was the last straw. But my nearly four-year-old Windows desktop is likely to go on chugging along for another year or two (on Windows 7, most likely.)

Microsoft’s response to this has been to offer a tablet that is as PC-like as possible. It is telling that the Surface (or Surface Pro) is rarely shown in ads without a keyboard. It runs a PC operating system. This Twitter dialog between Ben Bajarin and Ian Betteridge gets to the point:

Surface’s greatest point of differentiation is that in can run Microsoft Office, applications that are all but useless without a keyboard and mouse. But from Microsoft’s viewpoint, it’s better, it’s cheaper–what’s not to like?

Except that customers didn’t like the Surface, to the tune of a $900 million inventory writedown on the original version. And I don’t think they’ll be much fonder of its replacement, which offers better performance but an updated version of Windows RT, rather confusingly called Windows RT 8.1, that is only a modest improvement (at least it does limit the frequency with which the mouse-dependent Windows Desktop pops up.) It is still too PC-like and too bereft of apps to appeal.

Some companies caught by new market disruption really don’t have a chance. Kodak, for example; even if it had dominated the market for digital cameras, there just wasn’t enough money in that business to to make good the losses from film, paper, chemicals, and photofinishing services. Microsoft has the money and the opportunity to get out ahead of new markets. But like so many other incumbents, it could not loosen its grip on its lucrative legacy to seize the future. And for this it will pay dearly.

David The Disruptor v. Microsoft The Goliath

This is part two of a two-part series. Part One looked at the fall of Steve Ballmer and the decline of Microsoft in mobile. Part Two tries to discover why it all happened.

Introduction

Steve Ballmer was just fired after 13 uninspiring years at Microsoft. A hotly debated question is whether Ballmer failed because he was a bad manager or whether he was simply a victim of disruptive innovation.

Analogy: David v. Goliath / Disruption v. Microsoft

PATIENT: Doctor doctor,- I keep comparing things with something else.
DOCTOR: Don’t worry, it’s only an-alogy

Disruption is often described as a David v. Goliath story. Let’s take that analogy and run with it.

Saul and the Israelites are facing the Philistines near the Valley of Elah. Twice a day for 40 days, Goliath, the champion of the Philistines, comes out between the lines and challenges the Israelites to send out a champion of their own to decide the outcome in single combat, but Saul and all the Israelites are afraid. David, (a mere shepherd,) accepts the challenge. Saul reluctantly agrees and offers his armor, which David declines, taking only his sling and five stones from a brook.

David and Goliath confront each other, Goliath with his armor and shield, David with his staff and sling. David hurls a stone from his sling with all his might and hits Goliath in the center of his forehead, Goliath falls on his face to the ground, and David cuts off his head. ~ Excerpted from Wikipedia

Obviously, in our story, David represents disruption and Goliath represents the fallen giant, Microsoft.

The Rules Of Disruption

Disruption occurs:

When a new product or service competes with a successful incumbent product or service.

David challenged Goliath.

The Apple iPhone challenged Microsoft’s Windows Mobile. The iPad challenged low-end notebook and desktop computers running Microsoft Windows. Google Docs challenged Microsoft’s Office Suite.

When the features of the new product or service are inferior and the features of the incumbent product or service are superior.

David was young, small, weak, had no armor and no weapon to speak of. The incumbent, Goliath, seemingly had all the advantages and no disadvantages. What was there to fear?

The iPhone, iPad and Google Docs were the “David” to Microsoft’s “Goliath.” The iPhone was low capacity, with no stylus or keyboard and with few advanced features. The iPad was underpowered – nothing but a big iPod Touch. Google Docs were immature and terribly limited in functionality. Microsoft seemingly had all the advantages and no disadvantages. What was there to fear?

When, unbeknownst to the incumbent, the existing product or service is over-serving a large part of their current customer base. The incumbent’s supposed strengths are actually irrelevant to the vast majority of its customers. This means that the challenger need only provide “good enough” service to satisfy the over-served part of the market.

Goliath was the master at one-on-one, hand-to-hand combat. With his size, strength and power, he was simply unbeatable. However, David’s sling shifted the shape and size of the battlefield. David didn’t have to engage Goliath’s strengths. He could attack Goliath from a distance, thereby negating Goliath’s strengths and turning Goliath’s size into a weakness.

Microsoft was a major player in mobile phones ((42% market share in 2007)) and dominated PC operating systems and Professional Software Suites. With their size and ongoing monopolies, they were simply unbeatable. However, the iPhone shifted the battlefield from styluses and menus to touch, the iPad shifted the battlefield from power to simplicity and mobility and Google Docs shifted the battlefield from expensive, powerful and compatible on all PCs to free, simple and compatible on all browsers. The iPhone, iPad and Google Docs negated Microsoft’s many strengths and turned those strengths into weaknesses.

When the challenger, in addition, provides exceptional service where the incumbent is weakest and where the customer’s unmet needs are the greatest.

David was exceptionally strong where Goliath was exceptionally weak. His small size and lack of heavy armor made him quick and mobile. His sling made him agile and deadly from a distance.

The iPhone, iPad and Google Docs gave people the simplicity they craved at the price of complexity and power that they neither desired nor needed. From Microsoft’s vantage point, users were replacing powerful tools with weak “toys” (replacing powerful swords with limited use slings.) From the user’s vantage point, however, they were giving up nothing of practical use (heavy armor that they could not wear and weapons that they could not wield) for the sake of mobility and ease of use.

The incumbents cannot effectively respond without sacrificing the benefits they are receiving by maintaining the status quo.

The incumbents were no fools and they were no slouches, either. Both Goliath and Microsoft saw the shift in battle strategy and they would have liked to have responded in kind. However, their very nature prohibited them from doing so. Only by giving up his strength, armor and sword could Goliath have competed with David’s sling. And then his size would have slowed him down and hampered him anyway.

Only by giving up their monopoly profits in Windows and Office, could Microsoft have competed with the lower margin ((Yes, lower margin. The iPhone and the iPad had high margins for Apple because Apple made their profits from the hardware. However, Apple’s integrated model bundled the software and Android’s subsidized model gave away the software for free, thus making it impossible for Microsoft to maintain their software licensing margins.)) iPhone, iPad and Google Docs. And then, Microsoft’s size and structure would have made it impossible for them to keep up with the nimble Apple and Google, in any case.

The incumbent is caught in a bind. He can’t cater to the new service without abandoning the old. And he can’t abandon the old service without abandoning the advantages that go along with it. Furthermore, any such change would make his best customers, and his best incentivized employees, and his best shareholders (or, in the case of Goliath, his fellow soldiers, his commander and his King), mad as hell.

20/20 Hindsight And Revisionist History

It’s very easy to criticize both Goliath and Microsoft. The answer, in retrospect, appears perfectly clear. Goliath should have simply reshaped his body into that of a lean, mean, sprinting machine and become skilled with the sling. Microsoft should have abandoned its obsession with Windows and focused on new, innovative products that would cannibalize Windows.

Or not.

There is always an easy solution to every human problem—neat, plausible, and wrong. ~ H. L. Mencken

The above is all perfectly good advice…assuming one knows absolutely nothing about human beings. Not only does this course of action run counter to human nature, it runs counter to common sense, too.

PATIENT: Doctor doctor, I’ve broken my arm in two places.
DOCTOR: Hmm, I’d advise you not to go back to either of those places then.

Telling someone to do what no sane person in their their position would do is not really good advice, it’s madness.

Too bad that all the people who know how to run the (company) are busy driving taxicabs and cutting hair. ~ George Burns

It’s easy for those of us who have have absolutely nothing to lose, to blithely provide radical advice to those who have everything to lose. But it’s also easy for those who have “skin in the game” to reject such wrong-headed advice. If either Goliath or Microsoft had taken the above-prescribed advice, it would have been a case of curing the disease by killing the patient. ((Cure the disease and kill the patient. ~ Francis Bacon, Essays [1625]. Of Friendship))

Microsoft Is Like A Trust Fund Baby

Microsoft does have one major advantage that most disrupted companies do not. Microsoft has — and will continue to have for quite some time to come — a huge stream of income.

This means that Microsoft can, unlike, for example, Palm, Nokia and Blackberry, make the changes necessary to survive. Their resources give them the time that most companies are denied.

But just because they can do something, doesn’t mean that it would be easy to do and just because they can do something doesn’t mean that they will choose to do it either.

Conclusion

When evaluating companies, and in particular their executives, I find it useful to start with the assumption they’re highly intelligent. ~ Ben Thompson

Was Ballmer a bad manager or was he a victim of innovative disruption? I have no doubt that Ballmer made some serious mistakes. But it was not what he did wrong, but what he did “by the book” that got Microsoft into the mess that it’s in today.

A man is known by the company he organizes. ~ Ambrose Bierce

In the long view, you can’t really criticize Ballmer and Microsoft ((“But why would anybody want that CEO job as long as Bill stays on the board? (Steve, too, most likely, given that he still owns 333 million Microsoft shares.) Both need to quit to give the newcomer a free rein and air to breath. Otherwise, failure isn’t just an option, but the most likely outcome.” ~ Joachim Kempin)) for striving to do what they do best. It’s innovative disruption, not Ballmer, that’s sinking the good ship Microsoft. ((“Microsoft’s next CEO will need to be Superman. Here’s the mess Steve Ballmer will leave for his successor:  –Windows 8 has failed to produce a turnaround in Microsoft’s gradual decline. –The Surface tablets have more or less died in the market. –The company’s just been through a massive top-level organizational change. Those things typically take a year to trickle down through the organization, as the lower levels of management get resorted and reassigned. That process will be disrupted while everyone waits to see if the new structure will stick with the new CEO (unlikely; new CEOs almost always want to change things). –And now Microsoft needs to mesh the Nokia and Microsoft businesses. There’s a cultural challenge: Nokia’s is a collectivist Finnish hardware company while Microsoft is a dog-eat-dog hypercompetitive software business. There are also operational challenges. As I learned when I worked at Palm, it’s incredibly difficult to manage an operating system to please both your in-house hardware team and your licensees. They always want conflicting things. Microsoft claims it can both license Windows Phone and run Nokia. I hope that’s just bluster, because I don’t think it will work in practice.” ~ Michael Mace))

I must be willing to give up what I am in order to become what I will be.” – Albert Einstein

Dumb or Disrupted? The Demise of RIM

Poor, dumb, old RIM

There sure has been an awful lot of talk of late about just how awful things have gotten for poor, dumb, old RIM. Some of the talk is sympathetic: “How could it have come to this?” A lot of the talk is apoplectic: “What is wrong with the players in the mobile industry?” Some of the talk is sad and regretful: “Oh, those poor people in Waterloo, Canada.”

But much of the talk has been downright giddy, spiteful, and soaked through and through with twenty-twenty hindsight.

“RIM,” the critics chortle, “was too arrogant to recognize the dangers posed by the iPhone and Android; too slow moving to react when they finally saw the danger; and too dumb to know what to do when they finally did react.”

“Keyboard loving co-CEO’s Jim Balsillie and Mike Lazaridis got exactly what was coming to them. Their sanctimonious, self-righteous, self-assured, sanguinity finally caught up to them and now they, and RIM, are paying the price for their arrogance and their ignorance.”

Hmm. Maybe. Maybe so. But then again, maybe not.

A Littler Perspective

In 2006, the crown princes of smart phones were RIM, Palm, Nokia and Microsoft. They were smart, successful companies run by smart, successful men.

Today, Palm is gone, Windows Mobile is gone and its replacement, Windows Phone 7, is running in place unable to gain any traction in the market. Meanwhile, Nokia has given up its independence and become a vassal to Microsoft and RIM has one foot in the grave.

Did all of these powerful companies and all of these smart CEO’s suddenly become incompetent and deadly dumb all at the same time? Or did something external happen that made them just look stupid to unsympathetic and unforgiving critics like you and me?

The iPhone Happend

In 2007, the iPhone happened. it’s not like the industry wasn’t watching. But what they saw didn’t scare them at all. It was pretty obvious, even at a cursory glance, than the iPhone was no phone competitor. They were oh so right. But that’s what made what was about to happen so very, very bad. Bad for them, at least.

Market disruption is caused when an innovation creates a new value network. Prior to 2007, smart phones were phones that did a little computing on the side. The iPhone was a computer that that did a little phone calling on the side. RIM, Palm and Nokia were phone companies. Apple, Google and Microsoft are computer companies. When the value shifted from the phone to the pocket computer, the advantage moved from the phone companies to the computer companies.

Palm, Nokia, RIM and Microsoft’s Windows Mobile thought they were safe from another phone competitor – especially one that wasn’t that great a phone and didn’t even come with a keyboard. They were right. But what Palm, Nokia, RIM and Microsoft didn’t realize was they weren’t competing with a phone. They were competing with a pocket computer.

The value chain had shifted. The incumbents were still – successfully – defending the old value chain. But their customers weren’t leaving them for better phones, they were leaving them for better computers. They fact that those computers sent texts, did email and even made phone calls was simply a bonus. The phone makers were blind-sided. The pocket computers were good enough to compete with them. But they had no answer to the superior benefits provided by the pocket computers.

Google

Google (Android) was the first to react. They dumped their RIM-like phone designs and (eventually) created a superb alternative to the iPhone. Their market success is a testament to their flexibility and their programming prowess.

I don’t want, in any way, to diminish the stellar job that Google did with Android, but, in addition to being good, they might also have gotten just a little bit lucky too. (Nothing wrong with that.) Their timing was ideal. Their OS was ready, they hadn’t yet committed to the market and when the newly minted iPhone arrived on the scene, the Android team pivoted on a dime and took advantage of a gap in the market and what turned out to be a golden opportunity.

The stuff of champions.

Palm

Palm was the next company to see the writing on the wall. They ditched their existing OS and went all in on webOS. Unfortunately for Palm (and perhaps for us all), they didn’t have the resources to sustain their efforts. They ran out of money, ran out of time and they ran out of chances.

(I’m not going to rehash their second chance with HP. Too painful.)

Microsoft

Microsoft was the next company to see the light. We can mock Ballmer all we want for initially laughing at the iPhone but once Microsoft decided to act they acted decisively. Microsoft unceremoniously dumped Windows Mobile and entered into a massive effort to create the wholly re-imagined Windows Phone 7.

Their reward? A tiny sliver of the market and no traction whatsoever. All of Microsoft’s business connections and all of their resources couldn’t buy them back into the market. Most didn’t know it at the time, but the window of opportunity to climb back into mobile phones that were really pocket computers had already closed or was closing fast.

Nokia

Nokia was the next to see the light or, in their case, they were next to see the “burning platform”. Ex-Microsoft executive Stephen Elop shoved Nokia off the platforms that were Symbian and MeeGo right into the icy waters that are Windows Phone 7. Their efforts, not unexpectedly, were met with a chilly reception. Nokia isn’t sunk yet but they may be going down for the third time. If circumstances don’t throw them a life preserver soon, we’ll be writing requiems for them next.

RIM

RIM was the last to have the scales fall from their eyes. And while it’s true that RIM’s co-CEO’s kept us all constantly entertained with their oh-so-dumb,-we-obviously-don’t-get-it quotes, it was probably over for them long, long ago.

If it was already too late when Palm tried to make the switch; it if may have already been too late when Microsoft tried to make the switch, what chance did RIM’s belated efforts really have?

Not an Excuse, but an Explanation

It may be true that RIM was arrogant, RIM was slow to change and RIM made some bad choices. But if you had been in their shoes, you too may well have followed the same path that they did.

In 2007, RIM was a bastion of strength and the iPhone was an impudent interloper. Go back and read the commentary from the time and you’ll see that even as the iPhone started to catch on and even as Android started its meteoric rise, RIM’s future was assured.

RIM had an impenetrable moat built around their business. BBM’s instant message service and RIM’s security gave RIM two unique and competitor-proof features. Customers adored (and still adore) using RIM’s BlackBerry phones for texting and emailing. And business and government entities were never going to give up their CrackBerry’s and the airtight security that came with them.

For RIM to have changed in 2007, 2008 or even 2009 would have seemed like madness. Why abandon one’s strengths to chase a chimera? Let consumers play with their Apple and Android toys. Real phone lovers loved to do real work on real phones like the RIM BlackBerry. And RIM’s loyalty and sales retention were second to none. They didn’t call those phones “Crackberries” for nothing.

Requiem for RIM

We can make fun of RIM and their codependent CEO’s all day long or – maybe, just maybe – they deserve our understanding instead of our derision. Maybe, instead of mocking RIM, we should be whispering a silent prayer of thanks that Apple didn’t come into our back yard and disrupt our business and make us all look as dumb as a box of rocks.

Was RIM really dumb or were they doomed from the get go? The iPhone and the Android phones were pocket computers. Apple and Google and later Microsoft were computer companies with tons of experience in creating computer software and computer operating systems.

RIM was a phone company that did computing on the side. Compared to Apple and Google, they had little experience in computers and computer operating systems. They would have had to abandon their roots, toss out everything they knew and chose to compete with computer companies on their terms, all while their current business model was still, not only viable but, very successful and profitable as well. When you think of it that way, it’s asking a awful lot.

Conclusion

Maybe RIM did wait too long. Or maybe their so-called window of opportunity never really existed in the first place. When the iPhone first appeared, RIM could have tossed everything that had worked for them in the past and chased a device that, by all rights, was sure to fail or, at best, become a niche product. They could have done that. But most likely, RIM never really had a chance at all. They were finished that moment, in January 2007, when Steve Jobs lifted the iconic device over his head and declared: “…and we call it..iPhone!”