The cellphone SKU wars: Why Apple isn’t like Nokia
Mon, Apr 20, 09
There’s a strange blindness that obscures U.S. blog and news coverage of iPhone. If the measure was mindshare, iPhone would be the world’s most important handset. But based on market share, iPhone is a tiny fish in a pond of larger, wiser fish. Nokia is biggest of them all. Marketshare matters — and it will matter more as Nokia launches its Ovi Store rival to Apple’s App Store…Nokia shipped more than five times as many handsets in a single quarter than Apple expected to ship for all of 2009. Perhaps iPhone is more water bug than tiny fish in that big pond.
Nokia is the poster child of those whose incurable fetishism is market share. It recently announced shipments of 92.3 million handsets in a single quarter, for a 38% global share. Apple, on the other hand, has sold only a total of 17 million iPhones (and 13 million iPod touches) in nearly two years for less than 2% global market share.
What if Apple operated like Nokia?
There are many differences between Nokia and Apple, of course, but none more telling than these two pictures:
Those are just a tiny fraction of more than 220 different models of Nokia phones in circulation. Apple, on the other hand, sells a single cellphone model:
That’s it. One model (with more or less memory, black or white) for all demographics and markets, here and abroad.
What never shipped
Steve Jobs has famously said that he is proud not only of the products Apple has shipped, but also the products Apple has decided not to ship. Indeed, had Apple listened to its competitors, analysts and pundits, it would have shipped a plethora of devices two years ago, including:
It’s the SKU, stupid!
With so many products, Apple would have had to research, design, manufacture, quality check, ship, stock, market, track, analyze and upgrade at a level of expenditure an order of magnitude higher than what it currently has for a single product.
SKU promiscuity is a sucker’s bet, as is the opportunity cost of behaving like Nokia. By spreading itself far too thin over 220 SKUs, Nokia inevitably fell short of a vision and ability to innovate, getting blindsided by the birth of the truly usable handheld computer, also known as the iPhone.
Indeed, Nokia’s greatest asset — its market share — has all of a sudden become an albatross around its innovation neck. The vast majority of its devices in the market are dumb phones running an aging OS, incapable of competing with web-surfing, multi-touch, multi-media and multi-purpose devices of the burgeoning ‘smartphone’ genre. Reliant on volume and distribution for over a decade, Nokia has finally become the Microsoft of cellphone industry: ubiquitous, lethargic and beholden to its user base and SKU outlays.
In contrast, Apple uniquely leverages what’s essentially a single OS across desktop, server, mobile and set-top devices. Each innovation and improvement can not only quickly propagate across platforms through shared frameworks, but can also closely integrate them further to create the ‘halo effect’ that sells more Apple products. If Nokia’s strategy is ‘segment and conquer’ Apple’s is ‘integrate and cross-sell.’
And one more thing…
Nokia reported a 91% drop in Q1 earnings per share.
Will the DiggBar instigator be fired?
Tue, Apr 14, 09
By now the furor over DiggBar — Digg’s naked attempt at stealing link juice via URL misdirection — and frame-busting counter-measures are well-spread.
The irony, of course, is that startups like Digg are supposed to experiment and fail often by the inevitable nature of statistics of success. In old industries like banking or automative, however, when we notice failure, albeit on a grander scale, we want the CEOs and the managers who made bad decisions to be fired, not rewarded with bonuses. Those names become public and focus of scorn in editorials and their houses are ‘visited‘ by angry tax payers.
But what happens to startup people who make serious mistakes and misjudge potentially debilitating risks to their companies and brands? What, for example, happened to the clever people who concocted Beacon for Facebook, the privacy debacle disguised as an advertising platform that comes once in a century? What happened to the folks who decided to build an architecture for Twitter that couldn’t possibly handle a real-time messaging system at global scale that nearly sank the company? Who at Yahoo thought it was a good idea to pay $5.7 billion to Broadcast.com in 1999?
Indeed, what will happen to those who thought people wouldn’t notice or didn’t care that Digg would now be appropriating link destination from original sites via DiggBar to boost up its own traffic so that it can justify the recent infusion of VC money into Digg? Digg VP John Quinn boasts that DiggBar has resulted in a 20% boost in unique visitors. Is this a time for celebration and bonuses?
The objective here isn’t individual punishment, of course. It’s a matter of ethics and transparency — all the things we’re asking of the old-line industries and our politicians — as though high-tech has a firmer grasp of our brighter future.
Are we naive or just jaded?
When is it “too early” for a new product?
Mon, Apr 6, 09
In Only Ten Years Too Early, Fred Wilson recounts his VC investment in a “cheap internet appliance”:
The idea was that we could build a large user base and make money through advertising, marketing, and e-commerce. It was 1999 of course.
We invested something like $10mm in the business and built a team of talented engineers and business people and launched a device which we partnered with Virgin Entertainment to take to market. This is what the device looked like:
Needless to say, this was not a successful investment. The device worked but it had a number of fatal flaws outlined in this PC World review from 2000.
While this looks like a case of massive wishful thinking taking over sensible viability assessment, we can’t really be sure why the venture failed without inter-related facts and the benefit of hindsight. Fred’s conclusion? “Beware of ‘way too early’.” This does sound like good advice, except perhaps when coming from a VC, especially when contrasted to Peter Drucker’s dictum, “The best way to predict the future is to create it.”
When is it “too early”?
As is the nature of investing, a VC’s job is to bet on the future. VCs and their portfolio companies can either chase the coattails of a trend (usually beyond their control) or, a la Drucker, try to actively shape the future by creating the necessary ingredients if/when necessary:
• Google – We explored how Google created GOOG-411, a free automated directory service, to harvest phoneme data to improve their speech recognition algorithms so that YouTube videos can be indexed (and thus searched and monetized) through speech-to-text conversion. (This will be likely used in the upcoming Google Voice as well.)
• Apple – When Apple wanted to redefine what a cellphone is, it didn’t phone in yet another clunky “smartphone” with an Apple logo on it. For over a decade, the incumbents in that industry were satisfied with existing form factors, UIs, features, carrier relationships, revenue models and infinite small-minded product differentiations. Unlike Nokia or Microsoft, Apple didn’t say, “There are too many industry restrictions and technical hurdles for us to redefine this category. It’s way too early.”
Apple didn’t leave anything to time or fate. In hardware, software and services, it actively created a space for the iPhone to succeed. Where it was needed, it poured in R&D dollars, invented new things and collected hundreds of patents; gained new expertise in radio technology; bought a company specialized in multi-touch; converted a desktop OS into mobile one; created new global distribution channels; negotiated a ground-breaking arrangement with the largest carrier; and so on. In other words, instead of creating, hoping and predicting that the iPhone would somehow become a killer product, it made sure that all the supporting elements were in place to make sure that it would.
• Sun – When Java was first introduced, perhaps the biggest gripe against it was its relative slowness compared to established languages like C++. A lot of people were ready to write off JVM. Sun, it turns out correctly, bet that Moore’s law and software optimization would catch up to bring Java performance up to par, and productivity gains from a better language would outweigh the initial performance concerns. CPUs got much faster and Sun managed to further speed up Java performance. For many years now, Java performance on the server has ceased to be an issue.
• Cloud computing – Perhaps the most “hyped” growth domain today is all the ways in which we can connect our desktops and mobile devices to servers and services in the cloud. Now, any conventional IT executive or a VC in need of an 18-month exit strategy can find excuses to not fund cloud computing projects and products: security, data portability, management, reliability, performance, etc.
For example, it would be easy to claim “too early” by noticing that average consumer upload speeds last year in America via common cable/DSL conduits was only 435 Kbps, much too slow for various entertainment and medical applications, among others. This gets even worse for enterprise computing where terabyte-size datasets need to be routinely uploaded to the cloud for tracking and analysis.
Is it “too early” then to positively consider Nirvanix, Bycast, Mozy, Cleversafe, ParaScale, Dropbox and numerous other mostly consumer oriented companies for cloud storage? How about Amazon, Microsoft and Google offerings that go from simple storage into cloud-based applications and transactions? Should the column-based data warehouse company Vertica not offer an analytic DB for the cloud, because it’s “too early” to transmit gigabytes of data over a typical corporate T-1 connection?
Further, should Nvidia stop its GPU platform because major OS vendors don’t (yet) support it? Should Apple delay its GrandCentral or OpenCL initiatives because the hardware side of the equation isn’t sufficiently complete, pervasive or economic? Examples abound.
Chase or lead?
A decade ago PointCast became a canonical example of a product that was “too early” because we didn’t have pervasive broadband for a push service (though the company would have been a success if it didn’t refuse the $450M buyout offer from News Corp). Since then Apple and Google, among others, have taught us how to create the necessary conditions for their products to succeed by compressing time through strategic invention.
If VCs want to become indispensable to the companies they advise, perhaps they ought to remember that it’s “too early” only if you fail.
Microsoft finally admits what’s wrong with WinMo
Wed, Apr 1, 09
A short but remarkably revealing report in DetroitNews, Microsoft to chase iPhone:
Microsoft Corp. plans to bring some of the features of rival Apple Inc.’s iPhone to a broader market through its Windows Mobile software, said mobile-phone chief Andy Lees.
Microsoft will use its ties with handset makers to encourage iPhone-like functions in a range of less costly devices, Lees, a senior vice president, said in an interview ahead of the CTIA Wireless show.
In one example, the iPhone advanced the technology around so-called graphics acceleration, which allows the software design to be more fluid and movie-like, he said.
When, for well over a decade, every single smartphone manufacturer failed to even try, how did a newcomer like Apple do that?
“Apple took a bet on expensive hardware and designed the software around the hardware,” Lees said. “That allowed Apple to design a phone with superior graphics capabilities.”
In other words, Apple’s unique ability to integrate hardware and software, and being in charge of its own systems-design destiny was the secret. Why not Microsoft?
Microsoft, [Lees] said, wasn’t set up to help match that in its software.
But wasn’t the separation of hardware and software what made Microsoft the most powerful technology company in the world? Haven’t Microsoft executives (and tech pundits) been telling us this separation (choice and reliance on “partners”) was what made Microsoft’s platform superior to Apple’s foolish insistence of going it alone?
What will Microsoft do now?
Microsoft is working with its hardware manufacturers to make those kinds of innovations more rapidly available as an industry, Lees said.
Welcome to the absurdity of design coordination across several continents among “partners” with different cultures, innovation capabilities, corporate agendas and competitive pressures. Unfortunately for Microsoft to repudiate this is tantamount to repudiating its PC history, which still provides the vast majority of its revenues. Welcome to the Zune generation, Microsoft. Rock. Hard place.
Noted: Braille on mobile touch screens
Wed, Apr 1, 09
From NewScientist, Vibrating touch screens spell out Braille:
In Braille, letters are encoded using a two-by-three matrix in which each character is represented by a different configuration of raised and absent dots at the six locations. To display these dots on a touch-screen device, Jussi Rantala of the University of Tampere in Finland and colleagues used a Nokia 770 Internet Tablet, which has a piezoelectric material built into the touch screen that vibrates when an electric signal is applied to it. The team installed software that represents a raised dot as a single pulse of intense vibration, and an absent dot as a longer vibration made up of several weaker pulses.
The team developed two methods: (1) the user moves a finger horizontally across the screen to detect the bumps, and (2) the finger stays still but the screen vibrates the sequence of six dots, each 360 milliseconds apart. In the latter method, once users got used to it, they could read a character in as little as 1.25 seconds.
The team’s next step, says NewScientist
will be to present entire words and sentences. Screen-reading software is already available that “grabs” information displayed as text and turns it into speech. The same information could be turned into Braille characters on phones with vibrating touch screens.
