Data on Q4 performance is starting to trickle in. Last week Motorola, as part of a profit warning, revealed their Q4 smartphone shipments were 5.3 million. RIM had reported 14.1 million units (quarter ending November). HTC has also warned that their shipments of smartphones (and tablets) totaled 10 million. Samsung provided guidance on overall sales but since they don't report data on smartphone (or phone) sales, the estimates are ranging between 32 and 35 million.
Many have forecast Apple's performance but there are many other companies which are not easily estimated (Sony Ericsson, LG, Nokia, ZTE, Others.) But rather than dwelling on the specific quarter, we can make some long-range estimates of performance based on the historic data.
One method I use is to look at patterns of growth. Growth is the first derivative of market performance and it sometimes shows patterns which the performance itself does not. Consider the following chart showing the growth pattern for RIM.
The blue line shows the absolute year-on-year quarterly growth based on reported numbers of smartphones shipped. I've also shown the growth "relative to market" which is unit growth with market growth subtracted. This orange line represents how much faster (or slower) the company is growing relative to the market. If the orange line is above zero, the company gained share. If it's below zero, it lost share.
I also overlaid the performance of the share price (right scale).
Now compare that with another long-term incumbent in the smartphone market, Nokia.
Bearing in mind that the scales are identical, Nokia's relative performance has been negative since early 2008. Persistent negative smartphone performance relative to market growth causes persistent loss in share price.
What about other, more recent competitors?
HTC is not a recent entrant in smartphones, and has gone through a phase of growth with Windows Mobile in the 2000's. This is its pattern of growth (and its share price).
Keeping the scale for growth consistent with the other companies leads to a bit of clipping but the pattern of rise and fall also seems correlated to share price performance.
Finally, the following is the same analysis applied Apple.
Again, keeping the growth scale consistent leads to some clipping, but the pattern remains observable.
What seems to be rewarded to various degrees is consistency in growth of smartphones for companies which are primarily engaged in the market. However, failure to grow is punished with severe share price declines.
Being able to forecast smartphone growth seems to be useful, at least in the time frame of one or two years.
The following map shows the countries where iTunes Apps are available.
It represents 123 countries. It also shows where the iPhone is currently available.
The following map shows the countries where iTunes music can be purchased.
The countries in white are countries where apps are available but music isn't. There are 51 countries where you can buy music and 72 where you can buy apps but not music.
The following map shows the countries where iTunes TV shows can be purchased.
As in the previous chart, the countries in white are those where apps are available but TV shows aren't. There are six countries where you can buy TV shows and 117 countries where you can buy apps but not music.
The data is here (along with a widget which lets you generate the maps--if there are errors, please correct them and let me know).
Digital music (as iTunes defines it) started expanding outside the United States in 2004 and managed to reach these 50 other countries in seven years. TV shows took a much slower route. Not only has there been a limited selection of countries in six years of expansion but even in the US, the programs available are a tiny subset of what is being produced.
Is the TV business going to expand digital distribution at the glacial rate of music or not at all? In either case, the distribution of Apps as a digital medium is positively viral.
Here are the highlights from RIM's latest quarter:
14.1 million BlackBerry smartphones shipped, 13 million sold through
150k PlayBook shipped with sell-through slightly higher. 800k PlayBooks shipped so far.
BlackBerry subscriber base up to 75 million
High growth cited for U.K., France, South Africa, Mexico and Argentina, Indonesia, Saudi Arabia and South Africa. RIM is the #1 smartphone vendor in the Latin America and Caribbean region. Sales outside the US, UK and Canada were 61% of revenues. US is now 20% of sales, UK 11%.
Hardware growth outside the US was 56%
There are 630 carriers
50k apps in App World with 5 million downloads per day
Forecasting 11 to 12 million smartphones next quarter
Given the channel fill with a new product, the device business was marginal at best. The company obtained -1% growth y/y in units but 31% sequential growth from a transitional quarter. The average selling price (inclusive of service revenues) is $354 and about $280 excluding service revenues. I estimate that operating margins have dropped to about 11%. Not a good story, but one we have been warned to expect.
But a crucial new twist to the story is that RIM announced that they don't expect new BlackBerry 10 devices until late next year. That came as a surprise and the stock sold off significantly, valuing the company at well below book value.
Stepping back, the biggest surprise is that the company seems to have had no plan for sustaining itself.
Let me explain.
If you go back to 2005 or so the world of smartphones was a mix of modular OSs and integrated platforms, much as it is today. Not unlike Android today, Windows Mobile was successful in licensing to dozens of vendors who in turn released hundreds of products. Symbian also was licensed but most volumes came from Nokia and they held the lion's share. Then there was the BlackBerry integrated solution which worked smoothly and had devoted fans who upgraded every chance they had and operators who were joyous at the new ARPU. There was also PalmOS as offered by PalmSource trying to be a "third horse" and unseat stodgy old Microsoft.
It was into that fray that both Apple and Google jumped. Google acquired Android in 2005 and Apple was busy polishing a version of OS X that would became iOS. In three and two years respectively these platforms would be in the market.
Regardless of the actions of rivals, all competitors must have faced the same questions in 2005: As technology was changing rapidly and as they all had access to component roadmaps, what is the best technology approach to this market? Should they embrace certain innovations to sustain their business trajectory? RIM had a tightly integrated software, hardware and service offering. What could make it better? Nokia was also basing its products on a more loosely integrated offering (nominally it was modular, but only just). It saw the writing on the wall and began developing a Linux variant (Maemo) as a potential candidate to replace Symbian. Microsoft was basing its solution of a modular approach. Windows CE was ok as a kernel but they had layers on top which were optimized around stylus-based user experiences (analogous to mouse actions). Could it take on a rich computing experience?
There were many experience candidates. Stylus, keypad, keyboard all had adherents. There was a lot of hesitation. After the iPhone launched with capacitive (finger) touch, resetting user expectations, it still took a year for many of the vendors to re-consider their technology plans. The weakest changed first.
Microsoft felt the pain quickest. They also had the least to lose since revenues from Windows Mobile were paltry. By 2008 internally they turned 90 degrees. They embarked on re-building their user experience and orphaning the Windows Mobile ecosystem and many of the vendor relationships they had built. Palm dropped PalmOS and built WebOS internally quite quickly. They licensed Windows Mobile as a stop-gap. Around the same time Nokia doubled down on Maemo and joined with Intel to form MeeGo. They did not orphan Symbian though and kept trying to adapt it to the new experiences and input methods.
But RIM did nothing. Almost nothing. They were the healthiest competitor. They felt no pain from iPhone's entry. The platform they had built was still growing and they were tweaking it constantly. There were always improvements to point to but fundamentally the code was limited. It was very difficult to adapt it to touch input and the first attempts at a touch UI were embarrassing. But there were no signs of a new platform that reflected the Unix-like competition.
As I pointed out in an earlier post, Unix-like operating systems were having their revenge. To a computer scientist the future of mobile computing would mirror that of personal computing in terms of architecture. The foundations of the early smartphones were built on constraints that were disappearing while being unable to accommodate new input methods. In other words, the early efforts were optimized around those constraints and sub-optimal for rich user experiences. They had to be. There were limited processors, memories and screens and battery life.
It turned out that all the early mobile operating systems were unsuitable for the advances in technology that came after 2007. Companies which were able to adapt or embrace Unix-like operating systems in a mobile context gained the ability to grow with the new input methods. The sooner they "pulled the trigger" on the shift, the better off they were. This is in fact what enabled entrants to gain footholds. Entrants entered with Unix-like OSs straight away while incumbents had to justify changing and the more successful they were the harder it was to justify changing.
RIM had trouble justifying this change. It waited until 2010 to finally acquire the QNX asset that would offer them a stronger software foundation. It still had to adapt this acquisition and it looks like it won't be done until at least 2012, seven years after they should have started. And this should be seen as a sustaining technological change. A new OS is not a disruptive technology to what is already a mobile computer.
However, delays like these can be fatal. We see the impact on Microsoft who was earliest to push the reset button in 2008. It still took two years to rebuild Windows Mobile into Windows Phone and is now still struggling to regain lost share (less than 2% today). We see the impact on Nokia which was unable to affect a transition to MeeGo due to a litany of issues and had to throw in the towel on self-determination. We see the impact on Palm which lost its independence as WebOS was a bit too little too late.
These companies had the right technical strategies but suffered from execution and business architecture issues. RIM is years late in embracing what appears to be a sustaining improvement.
But whenever you see what appears to be a coordinated effort by companies to fail simultaneously you have to ask if the change they struggle with is really sustaining or disruptive. The pattern makes me suspicious that what RIM, Microsoft, Palm and Nokia faced was more than a failure to embrace a sustaining improvement. I suspect that the failure is evidence of tectonic shifting of business models.
Tomi Ahonen has compiled a fascinating data set on 42 major countries' smartphone penetration rates. The compilation is based on Netsize Guide, Informa, Google and Ipsos data. It is a complex sample with multiple possible sources of error (read the post for the caveats.) However, this is a breakthrough. It's the first time I've seen this level of detail at a country level in the public domain.
I maintain visualizations of ITU data which shows overall mobile consumption and broadband consumption and penetration. In order to maintain a consistent basis of comparison, I prefer to use ITU's measure of consumption which is "subscriptions" rather than "population". The ITU derives this measure because mobile operators think of points of connection (subs) rather than people as the measure of consumption. This makes some sense because connections are what are monetized--not people.
So the first piece of analysis is to show this measure of penetration (smartphones as a percent of subscriptions) for the 42 sampled countries.
This view shows which countries "lead" adoption in terms of penetration. It shows that the US is quite high in the ranking and the most penetrated "large" country.
This is highlighted by the following chart which shows penetration of smartphones vs. total subscriptions with bubble size representing population size.
The US stands out from the inverse relationship between size of mobile population and smartphone penetration.
Part of this is due to the US having relatively low mobile penetration in general. It's below the median because multiple mobile phone use is uncommon.
But these bits of data are not the most interesting. In my opinion the following is:
This last chart shows the total size of non-smart subscriptions vs. the total size of smartphones in use for the 42 countries listed in the legend.
There are 3.7 billion non-smart connections and 0.6 billion smartphones in use. Although not all of these 3.7 billion connections need to be enabled with a smartphone, the fact remains that there are six times as many non-consuming network connections that can still be addressed.
How and when this ocean of non-consumption will be converted to computing devices are the most obvious questions the data raises. Of the selected countries only 13.5% of the connections are "smart".
ITU data shows that at the end of 2010 there were 5.4 billion global subs. This survey was conducted more recently so the total is likely much higher (perhaps around 6 billion). The survey thus covers about 72% of the world. That implies that at least 90% of the market remains unserved.
It has no price and hence there are no ways markets can signal demand or value creation. Furthermore, Android is not being offered to users like the iPhone. Android's "customers" are phone vendors who package the software with additional value-added hardware and sell the combination to operators or distributors who then package it further with services and offer the total to end users.
So obviously, comparisons between Android and iPhone center on instances of Android used in real products and the "market performance" of Android therefore relies on these proxies for Android — the aggregate sum of products that have some form of Android in use.
I wrote this in response to a very short brief: "We're looking for an editorial piece that comes down on either side of the debate of iPhone vs. Android". The challenge I saw was on the approach to the question of "iPhone vs. Android". I chose to measure value creation by the means available to shareholders.
On October 27th, Nintendo published half year results for the fiscal year ending in March 2012. Management stated that the company lost over $900 million with a negative outlook. Nintendo cited weaker than expected sales of Nintendo DS hardware and 3DS software and Yen appreciation as the main reasons for the miss. Is this the end of Nintendo?
Before we look more closely, here is a quick summary: The company is exclusively involved in selling game hardware and software. Their console platform is the Nintendo Wii, which will be followed by the Wii U late in 2012. The Nintendo DS and Nintendo 3DS are the company’s portable game consoles. The Wii and the DS are nearing the end of their product cycles. On the software side, the company is known for gaming titles such as Super Mario and Zelda. Nintendo also pioneered the licensing model to allow third-party developers to produce games for its hardware products.
A closer look
The good news for analysts is that Nintendo publishes their estimates for hardware and software unit sales. This allows us to measure management predictive accuracy. The red line (management forecast) should be as close as possible to the dark green pillars (realized unit sales in the fiscal year).
Until CQ1 2009 devices sales grew in excess of forecasts. A similar pattern can be found for consoles and game titles. After Q1 2009 forecasts have been always higher than results, and more worryingly, the deviation between forecast and sales is widening. Management missed and lowered forecasts for two consecutive years. Management's hope for an increase on the back of initial 3DS sales in the launch quarter (CQ1 2011) did not come to pass and they subsequently lowered forecasts again in the following two quarters.
Looking at all categories, management lowered forecasts almost continuously. The deviation remains the largest in the portable hardware business segment indicating that management was largely surprised about the development.
What caused this reversal of fortune?
Two years earlier the iPhone had launched and by CQ1 2009 iOS reached an installed base of about 38 million, half the number of Nintendo portables in the same period. Furthermore, in CQ1 2009 Android phones came to the market. Smartphones (light blue area of the chart below) sold before (and after) the debut of iOS, but the iPhone redefined the category and an avalanche of smarter phones running iOS and Android followed (blue and orange area). Portable gaming devices from Nintendo and Sony declined ever since: 17% in 2009, 31% in 2010 and already 16% in the last twelve months.
How do the game players stack up?
We already looked at the installed base in the chart above. iOS and Android have outsold Nintendo portable units by a factor of 2.1x and 1.6x. Furthermore, we can see (in the charts below) that the two main mobile platforms have 14 to 26 times more game (and entertainment) titles available. Nintendo and Sony also publish unit sales of directly sold software titles. For Android and iOS we know the cumulative app download statistics. By taking the share of Septembers’ paid and free app downloads as a proxy, we can conclude that also by this measure Android and iOS dwarf Nintendo and Sony [1]. The reach of iOS and Android is further underlined by the more than 500 million downloads of Angry Bird game titles - first released only two years ago - for any platform having sold more than twice the amount of Sony’s cumulative portable game titles and almost as many as Nintendo’s cumulative games titles since Q2/2007.
Who else has skin in the game?
Besides Nintendo, Sony, Apple and Google, who else is making a push into mobile gaming? Before investigating, let’s first have a closer look at Sony. Sony, just like Nintendo, is also active in stationary gaming segment with the PlayStation franchise. The Sony group also has access to entertainment most notable through Sony Pictures Entertainment and Sony Music Entertainment. Furthermore, Sony recently decided to buy Ericsson’s stake in the mobile phone joint-venture Sony Ericsson and is making a push with Android to bring its gaming titles as a differentiator for its own products to the platform. And the other major suspects? Microsoft, also active in the stationary gaming segment with its Xbox franchise, is pushing to bring the Xbox experience to mobile phones with Windows Phone. Amazon has retailed software and games for years and has started to distribute software and games via direct download on its own Kindle devices but also for the Mac. On the Kindle, Amazon is relying on a forked Android version on which it leverages its eBook and other entertainment assets. And then there is Facebook, a social network that wants to be on any platform or device. Out of 800 million users, 350 million access Facebook via a mobile device. Around 50% of Facebook members play games on the desktop. With Project Spartan, Facebook is aiming to bring the desktop experience to the mobile device including a stronger focus on gaming and video.
The competition between Apple and Google is already asymmetrical. Including the other contestants in the competitive landscape reveals Nintendo’s key weaknesses in the portable gaming market: attraction as a platform for developers in terms of ease and reach, pricing of hardware competing with operator-subsidized mobile phones and the jobs-to-be-done or value preposition. The new generation of mobile devices is standing against Nintendo’s dedicated approach. Although slowly adding features such as a browser and “app store” to its portables, Nintendo devices fall short in the variety of jobs-to-be-done compared to smartphones, let alone making a call.
Average selling prices and financial impact
With this market pressure one would imagine that average selling prices decreased for Nintendo portables. But for the last three fiscal years average selling prices for portables have increased, all things equal, mainly due to new product launches. Game title’s average selling prices have remained relatively flat. Note that these are wholesales prices for hardware and a mix of retail and wholesale prices for games. In 2011, for which we do not have data yet, the price of the newest portable, Nintendo 3DS, was lowered from its U.S. debut of 320 250$ in February to 170$ in July which will have a negative impact on ASP going forward.
The effects of Nintendo’s rigid strategy and the fast changing competitive landscape are manifested in the devastating financial performance over the recent quarters with LTM sales, gross margins and EBIT margins declining starting from CQ4 2008 and even accelerating to decline after CQ3 2010.
Furthermore, even though the company has recognized its own difficulties, Nintendo has no intention of adjusting its strategy:
CEO Iwata on the question of whether Nintendo plans to bring its game library to other platforms:
This is absolutely not under consideration. If we did this, Nintendo would cease to be Nintendo. Having a hardware development team in-house is a major strength. It’s the duty of management to make use of those strengths. It’s probably the correct decision in the sense that the moment we started to release games on smartphones we’d make profits. However, I believe my responsibility is not to short term profits, but to Nintendo’s mid and long term competitive strength.
Although realized and obvious, the disruption’s invisibility is often manifested in the paralysis of the incumbent.
Conclusion
According to Isaacson, Steve Jobs apparently always worried who could eat Apple's lunch. The lunch of the iPod, he concluded, was ripe for mobile phones. Subsequently, Apple entered the mobile phone space. Google followed. Since then more powerful mobile phones have eaten the lunch of the dedicated gaming device. The jobs-to-be-done and their priorities in people’s life have not changed, but the tools people use to get them done have. Permanently.
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Notes:
Estimated by multiplying total cumulative app downloads with September’s share of game downloads: For iOS ranging from 72-80% based on Top 150 free and paid app downloads, for Android ranging from 38-47% respectively. This is a very crude estimation, but the gist of it is that 4% for iOS and 11% for Android game downloads as percentage of cumulative app downloads would outsell Nintendo.
I recently posted a comparison between the profit capture of phone vendors in 2007 and the most recent quarter:
The idea was to show what a disruption looks like. A phenomenon where an entrant with none of the advantages of incumbency takes the profits away from companies privileged with ideal market access and knowledge.
The view of profit shift is the ideal view since it shows the "bottom line" impact and thus the denouement rather than more nuanced sub-plot. However, we don't always have access to profitability data. Sometimes we only have access to revenue estimates.
Fortunately revenues have a similar story and are often a good proxy. Consider how the evolution of revenue shares occurred in the same market:
Revenues for Apple and HTC combined doubled from 17% to 33% for the third quarter over three years.
Note the similarity between this evolution and that in the mobile games market (data courtesy of Flurry):
The increase of revenues fro iOS and Android games nearly tripled over a two year period. Although we cannot say the same for profitability as the profits are not comparable since they allocated differently between platform and developer depending on platform, we can say that iOS is certainly driving vastly more value than Nintendo.
Sony and Nintendo may take some comfort from their console businesses which have not felt the same impact from mobility, but one wonders how long those franchises will last. Using an iPad with screen mirroring to a large screen TV already shows promise.
comScore published the latest data regarding US smartphone installed base. To summarize:
Penetration reached 37.4%, an increase of 2.9 million or 1.24 points of percentage.
Approximately 650k consumers switched from non-smart to smartphones every week during September
Based on trailing average of six months' growth, 50% penetration will be reached by end of September 2012, though the trend is for accelerated adoption (see chart below).
Of the platforms available, Android reached 39 million users, RIM 16.5 million, Apple 24 million and Microsoft about 5 million. Smartphone non-consumers dropped to 147 million. Among platforms, here are the shares and total users:
In terms of user gain/loss here is the tally:
Android and iOS have continued to increase consumption fairly consistently while RIM has moderated user losses. Microsoft has also shown the fourth consecutive month of usage increase having increased users by 440k since May. The new Windows Phones seem to have at least stopped erosion of user base though that base is still nearly a third of RIM's.
Overall, smartphone non-consumption continues to be the largest competitor though one which is steadily losing.
Even though China may overtake it in the new few months, the US is the largest smartphone market and it's a good leading indicator of the way the industry in evolving. It's also being measured by multiple observers[1] and we thus have a better chance at understanding the rate at which change is happening.
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Note:
Nielsen reports that 43% of the phones in use in the US now are smartphones in the US with Ages 25 to 34 having 62% penetration.
As shown in the yesterday's post, in the third quarter, overall mobile phone profitability declined. The eight vendors I use as a proxy showed a total net profit of $8.51 billion, down slightly from $8.57 billion and a drop of $9.01 billion in the first quarter.
Overall, the industry dropped by 1% sequentially but is still up 30% over last year and has a 20% compounded growth rate over a three year period.
Nokia returned to profitability, though at $180 million it's only about 2% of the top eight.
Motorola remained in the red with a small loss of $20 million, an improvement over the $90 million loss of the previous quarter. Motorola is being acquired by Google after an accumulated mobile operating loss of $4.69 billion since the beginning of 2007. It's unlikely we'll receive any updates on performance thereafter.
Samsung had a great quarter with a sequential increase of 19% and year-on-year growth of 130%. The total profit amounted to 25% of the peer group.
Sony Ericsson broke even with about $50 million in operating profit. Like Motorola its performance was barely break-even during the last four years and its also disappearing from our list of independent vendors as it becomes part of Sony.
LG had its sixth consecutive quarterly loss and is now appealing to investors for more capital to continue operating as a smartphone vendor. Raising dilutive capital seems a radical approach and not one that inspires confidence.
RIM had a sequential reduction in profit of 35% and y/y reduction of 30%. The company is exhibiting clear signs of decay and the stock market is valuing the company below book value.
Apple profit dropped by 19% but grew 43% y/y during a transitional quarter. The growth remains 43% compounded over three years.
HTC has a 1% sequential increase but a 78% y/y growth.
To illustrate the performance in terms of profit, pricing, volumes and margins, I developed the following chart.
The solid areas representing profit are operating profit/phone in the vertical axis and volumes shipped in the horizontal. The blank areas above are the cost of goods sold per phone and the combined solid and blank represent the average revenue per phone.
Some of the areas are over-represented due to the lack of resolution available.
Using before-and-after pie charts for positive profits, we can see how the entrants (RIM, Apple and HTC) went from 6% of profits to over 73% four and a half years later.
I feel that this is somehow the end of an era. I've written before about the brutality of this market, listing 13 companies which were either merged or acquired or disappeared in the last decade. Now both Motorola and Sony Ericsson will soon be added to the list. On average, it's as if one phone vendor has disappeared every year for fifteen years.
And it's still not over. RIM is also becoming a going concern issue, and LG has a big question mark above it.
Of course, ZTE and Huawei and Lenovo are joining the list of competitors but I note that they are not focused on mobile phones. They are opportunistic phone vendors, depending on other businesses to compensate for the risks inherent in phone sales. It's interesting to note that neither Apple nor Samsung are pure phone plays.
In fact, of all the phone brands only RIM and HTC are exclusively phone-only companies. It may indicate something profound is happening. The notion that the development and marketing of phones as an activity independent of other business models may be coming to an end.
A few years ago, around the middle of the last decade, the mobile phone market was characterized by the rivalry between a few established vendors. These were Nokia, Samsung, LG, Motorola and Sony Ericsson. These incumbent companies had a broad portfolio of devices including smartphones and feature phones and basic phones. Many also sold networking equipment and were deeply engaged with their customers, network operators.
There was also a set of entrants who offered only smartphones. They were quirky. HTC was a a prominent "ODM" or original design manufacturer who built phones for companies who added their brands and sold and supported the product. HTC made phones and PDAs for operator brands and for some large PC companies. It also began to sell phones under its own brand. RIM was also offering products that had evolved from pagers into email appliances with added voice capabilities. But RIM's products were not very good as phones. Voice was so poorly integrated that many people carried both a BlackBerry and a voice phone. Then there was Palm with something called a Treo which promised many things but did not quite deliver.
In 2007 something happened which changed the industry. It took a few years to even realize it was happening but by the time it was obvious, it had changed to such a degree that huge companies found themselves in financial distress. This chart illustrates the effect.
In a few short years the rivalry between incumbent handset makers has evolved into a rivalry between mobile platforms where the incumbents were caught in an increasingly unprofitable role of hardware integrators. Motorola is now being absorbed by a search company. Sony Ericsson is being absorbed into a consumer electronics company. Nokia is going through a potentially existential crisis and even abandoned its platform. Acquisition talk surrounds LG's phone efforts. Samsung is prosperous but sill at the mercy of its software suppliers. Even the entrants are starting to feel beleaguered. RIM, the oldest pure play smartphone company is trading below book value and has regressed in value to 2004 levels. Palm evaporated. A view into the changes is the rankings of the companies in terms of volumes, sales and profit as shown below.
How did large, powerful, smart companies let this happen?
It happened despite having a clear, front row view of the transition of the industry from mobile voice to mobile computing. The shift in the basis of competition from "connecting people" to "connecting people to data" ended up being a classic disruptive trap. Many will argue that it was the failing of individual managers. Perhaps, but how did they conspire to fail simultaneously?
When you see disruption happening, it's natural to seek out a cause, a pivotal magical "force" or event that enabled the weak to humble the strong--the proverbial sling that enabled David to defeat Goliath.
My hypothesis is that The Primary Cause for the shift of profits from Incumbents to Entrants has been the disruptive impact of a new input method. I illustrated this with the help of the January 2007 slide presented by Steve Jobs at the launch of iPhone.
Each new input method led to not just a disruption but new platforms and new business models. Each new "sling" victimized a set of historic companies. Mainframe and minicomputers, consumer electronics giants and now telecoms.
Just like David's sling, these technologies are not powerful in and of themselves, but rather, the way they are used makes them unpredictably sinister. The context of using capacitive touch on a handheld device rather than on a table-top makes it disruptive. Coupling it with high-speed mobile networks and powerful but efficient microprocessors made it into a force.
That is now ancient history. The consequences and repercussions are still being felt and weighed, but the smart money should be focusing on the next shift. From the time frame in the diagram above, it's clear that the cycle time between "Revolutionary User Interfaces" is shrinking. It's been five years since multi-touch. Is the next "RUI" already here? Is Siri the next RUI?
There are many things going for it:
It's not good enough
There are many smart people who are disappointed by it
Competitors are dismissive
It does not need a traditional, expensive smartphone to run but it uses a combination of local and cloud computing to solve the user's problem.
It is, in a word, asymmetric.
My disruptive hypothesis for Siri is that it shifts the competition from platforms positioned on a device to a "coupled" super-platform dependent on broadband and infrastructural computing.
Just after collecting enough data and observing patterns in it that give us clarity, It looks like things are about to change all over again.
