Theory

Since starting this blog, I've receives several requests for career advice. I am most heartened and humbled by these requests, especially when they come from young people just starting out. I've responded as best I can and tried to offer specific advice, but it's very hard to be specific when the task is so grand.

But here are some pieces of advice that I can offer, which although not specific, may be interpreted into something useful.

On becoming an expert

The path to becoming an expert is never clear. The way to think about it is this: Ask your parents what it was that they did to make you a great son or daughter. Most parents don't have a clear map on how to build a family. Building great families, careers or businesses are similar empirical endeavors in that it takes constant trial and error and infinite patience.

Similarly, ask an athlete what is the formula for athleticism. It's has something to do with talent but more than likely it's constant practice and attention to detail. Most overnight successes took a lifetime of preparation.

On getting the motivation to practice

In all cases, the path to greatness lies in passion. Without passion there is never the energy to continue doing something when there is no clear benefit in sight. Passion is a relation of faith so many who have faith find it easier to have passion and vice versa. If you have neither for the task at hand, you need to look for something else to do.

On communication

Understanding and communication are inter-twined in many ways. Usually, if you cannot communicate something effectively, it's likely you haven't understood it completely. Likewise, if your understanding is weak it's because you have not communicated enough. Practice one and the other will get better.

On learning

Formal learning if not sufficient but it is something you should seek as much as possible. Think of a degree program like a language class. As someone said once, gain a new language and gain a new soul.

If you passionately practice, learn and communicate, expertise just follows.

 

When I began the series of posts on Google vs. Android I put forward some questions about the business logic of Google becoming an operating system supplier, especially as that role can be seen as being counter-productive to Google's strategy.

I noted three strategy costs associated with a zero priced systems software bundle.

1. A opportunity cost with other platform vendors, namely Apple who might retaliate against Google's core business.
2. Versions of the software being usurped and modified to provide distribution to Google's competitors.
3. Damage to Google's brand and positioning and negotiating power in relation with other members of their value chain.

More fundamentally, Google-as-systems-software is asymmetric to Google-as-cloud-software and contradicts the value proposition that Google enables value in the web not in accessing the web. Android appears to be a nod in the direction that systems software still matters.

In my numerous posts on the need for integrated development in the era of mobile computing, I also criticized any device vendor that chose to rely on a software stack from an external supplier as foolish. I claimed that they would end up creating uncompetitive products. I thus labeled Google's pursuit of them as ultimately futile.

More than a year has passed since I began this critique of Android. It seemed quixotic as Android volumes exploded and a mad rush to the platform spun it into becoming the biggest mobile platform by units.

However those costs did not go away. As the platform grew, they compounded. At first I wondered whether Google management was seriously considering the cost or whether it was giddy with the semblance of success.

Well, finally, it seems that Google management has begun to acknowledge that these costs exist. In a recent Bloomberg story there are many claims that Google is reversing many of the operating principles of Android. Namely:

• Restrictions on who gets what version of software when
• Restrictions on what changes can be made to the software
• Requirements for approval for source code changes

These changes, if feasible, will affect the ecosystem dramatically. It will also reduce the second type of cost associated with the platform (the cost of enabling competitors.)

Good news for Google then.

There are still the other problems (disconnect from business model, loss of goodwill, damage to negotiating power). But there is actually a more sinister new problem brought about with the new crackdown: Android will no longer be disruptive.

I also wrote a few posts (e.g. What has Android done for Apple?) where I claimed that Android has the power to accelerate smartphone adoption, especially in the "Wild East." The power of Android was with the little vendors--the ZTE and Huaweis of the world. They could finally make smartphones cheaply--almost as cheaply as voice phones--and not have to negotiate licenses and pay for software IP.

It would be these smaller "unbranded" vendors that would really disrupt and, with them, Android would become ubiquitous for the billions of mobile broadband non-consumers.

However, with the new policies, it's much harder for this to happen. Smaller vendors will look at the new hoops they have to jump through and probably say "no thanks." In a beauty contest, they don't look so good next to the big brands.

They may turn to homebrewed versions of Linux or new forked Androids. This redefinition of openness will essentially remove Google from the disruptive trajectory of mobile computing.

So we're back to the old question: Google vs. Android, who wins? If Android still has hidden costs to Google and, with its sheep's clothing cast aside, no longer offers significant distribution to the low end then how will Google benefit? The answer that there will be additional ad revenue does not cut it. That revenue would have come from placement deals with other incumbent platforms (just like Google manages to compete on PCs without having to provide its own OS).

As Google figures this out, its licensees are at the mercy of the ensuing decision. Good luck with that.

 

Two years ago:

With new netbooks, laptops, desktops, and, yes, a smartphone, Acer CEO Gianfranco Lanci explains why he expects to soon overtake No. 2 PC maker Dell

via Acer Boss Lanci Takes Aim at Dell and HP - BusinessWeek.

Today Acer CEO and President Gianfranco Lanci resigned with immediate effect. Acer is in trouble. You can read more on Acer's current problems in the wake of the downward revision of its sales targets for two quarters here: Acer Should Overhaul Its Operation: Stan Shih | CENS.com - The Taiwan Economic News

In a nutshell, whereas Acer under Lanci took aim at Dell and HP, it seems that Apple took aim at Acer. And whereas Lanci missed, Apple's aim was true.

What is interesting here is that Acer had a very disruptive approach. They used the low end "netbook" concept to take share from incumbents motivated to move up-market.

But what went wrong? Part of the answer is that "low end" does not just mean "cheap". Low end disruption is about also offering simplicity and performance along a new dimension or trajectory of improvement.

Mobile computing could not be implemented as a low-end strategy because the modules available to portable computing could not be used to make it expand into new contexts of consumption. Windows and keyboards and all the input methods associated with portables could not be adapted to mobility. You could not use a netbook in places or at times when you did not use any other laptop.

In addition the business model was not a good match. Low margins could not support development or new integration that could improve that which was not good enough. Acer did not have the means to tackle the problems of not-good-enough mobile computing. They did not build software and low margins meant that they could not even try to build software.

Competitors also were motivated to respond. HP and Dell built their own netbooks which, arguably, were just as good (or, perhaps more accurately, just as bad) as Acer's. But more problematic was the fact that regular notebook prices dropped to netbook levels and the category came to mean "cheap" not "convenient".

Finally, Acer's strategy did not have the time horizon necessary for true disruption. It takes many years to polish a product and nurture it up the trajectory. Acer was too impatient for growth and not patient at all for profit.

Contrast this with Apple's tablet strategy:

• It dealt with complexity of computing by removing it. This was not easy as simplification required a new platform altogether--something that portable computers could not benefit from.
• It priced low but held on to margins because removal of complexity also reduced cost
• The margins allow it to rapidly iterate on integrated development and improve the product
• Competitors initially were not motivated to respond. They did not have the tools at hand to respond: no integrated operating system for PC vendors, no distribution for phone vendors.
• Apple is also patient enough to wait for several product cycles. Even though demand is astronomical, the iPad still has a long way to go to become a new computing standard. Time is on Apple's side.

Apple is effectively disrupting the PC with asymmetry. It contrasts with Acer's reliance on a sustaining, symmetric approach. The market was showing clear signs of over-service, declining margins, in-absorbable features and performance and complexity.

Calling the winner in 2009 may have been tough given no iPad was visible, but knowing Apple's resources, processes and motivations should have guided observers to the right answer.

Michael DeGusta created beautiful and informative charts on how The Newspaper Business Implodes.

With charts, he also told the story of how the recorded music industry followed a similar path:

Image (media.tumblr.com)

He writes:

As in the music business, digital revenue is failing to make up for the loss of traditional revenue. Ominously, online revenue is largely flat, basically unchanged from 5 years ago and still below its 2007 peak.

What I find fascinating is how both industries reacted to the crisis of old media. They embraced the new "digital" distribution model, earnestly tried to transplant their business models and found no succor.

Many observers may say that both print and music businesses were "foolish" and that they ignored the new medium of web. That somehow management dithered and missed the new wave blaming failure on incompetence. Putting aside the fact that all industry participants seem to have conspired to be foolish at the same time, this is not supported by the data. As the charts show, both industries built digital businesses. Newspapers have some of the most desirable web properties and digital music is a growing business with clever new distribution deals. They became quite smart in their respective adaptations of web distribution.

They may have started slowly but there are many cases where incumbents reacted slowly to technological change, and won.

But it's not working.

The reason is that what we have here is a disruption. Unlike a sustaining technological shift, the new medium of the web did not permit the same business models to continue. Money was being made, just not in the same way and thus could not support the cost structures of the incumbents. Consumption of news and music is increasing but the way that it is valued is changing.

Furthermore, it's become modularized. All the objects contained in a newspaper could, with the web, be offered independently of one-another (opinion, news, classifieds, lifestyle can each be built by specialists.)

This is because the technology of the printing press benefits the integration of content while the technology of the web benefits the disintegration of content (similar phenomenon to the music industry's bundling into albums, vs. unbundling of digital downloads.)

Now I'm going to take a leap and suggest that a re-birth of the container of the newspaper in the tablet medium will require a re-integration once again. As I've pointed out before in The integrated iPad news daily: Read all about it! the answer is not in integration or disintegration per se. It's in approaching the question of value chain evolution with an eye toward what is good enough and what isn't. Integrate when the product is emerging and unsatisfying, modularize when the product is mature and over-serving.

We're observing the same phenomenon with television. Netflix, a distributor, is vertically integrating by entering production with an exclusive top talent series.

Developers are not the only innovators that see disruption happening. Just like in "The Daily", in music and television, talent follows where business models lead.

John Siracusa dusted off an interesting quote from a former Microsoft employee.

Spolsky: But synergy…there are also negative synergies. In the case of Microsoft they call it "strategy tax." Where, like, the Internet Explorer team is not allowed to fix the DHTML editor because it might compete with Word. So they’re forced to make that continue to be bad.

Via: The Apple strategy tax

The notion is an interesting one and is a reframing of the metaphorical expression that those who live by the sword die by the sword: Building a business a certain way will, in the end cause it to perish by that way.

In the case of Microsoft, the focus on their platform lock-in strategy binds them into avoiding compelling opportunities and, even more tellingly, keeps them from improving existing products.

It's tempting to suggest that this "strategy tax" also applies to a company like Apple when it seems to act irrationally or sub-optimally to some arbitrary definition of optimality.

However, what if Apple's motives are not "strategic"? What if Apple actually does act in a way to optimize what they perceive to be important: the end user experience or as I like to call it "the product".

What if "the product" is dogma and nothing is allowed to compromise it?

This question is not designed to glorify or defend any one approach, but rather to ask what is to be compromised. In Microsoft's case dogmatic "strategy" means the installed base and channel cannot be compromised. In Apple's dogmatic product approach, is the relationship with partners subject to compromise? Is the platform itself compromised?

I would argue that yes, the product-focused company has to "pay a tax" for its product priority. It uses an approach with a huge built-in opportunity cost. But I would also argue that every company has some tax to pay for its priorities.

Ultimately, every company needs to decide what is important and to pay the tax for not doing what is unimportant. Business management, like engineering, is about compromise and the choice of trade-offs. Outside observers, unaware of what the company's priorities really are, will always find it puzzling why companies do what they do. But to insiders, the puzzle is why anybody would do anything else.

The most important skill for an analyst, and that which separates her from the casual observer, is to determine what the company's priorities really are. Interestingly, many companies don't clearly state their priorities and may not even be aware themselves of what they implicitly are.

I believe that there are deterministic ways of uncovering priorities and categorizing companies according to them. I believe that knowledge of priorities leads to a more precise understanding of strategy and competition. I hope that within this forum, I can share and provoke debate over these methods so that these skills can become more commonplace.

In a recent answer on quora, I wrote that I did not believe developers are tempted primarily by economic incentives when choosing which platforms to work on. I suggested that they hire platforms because of their star-making potential and that star-making value is not a something that money can buy. Using Hollywood as an example I suggested that subsidies decrease the perceived value of a talent-oriented platform.

The notion that a platform signals meaning to developers led me to think about how mobile platforms signal meaning to consumers. I have a hypothesis that platforms can and should be treated as brands. This point of view allows platform orchestrators to develop a comprehensive market-driven strategy for platforms that transcends technical debate.

First a word about what a brand is.

Brands are vaguely defined. They are identities, names, symbols or attitudes or all of the above. Marketers struggle to define brand value because they are trying to encapsulate what they sell into a single symbolism. The problem is that there are vast varieties of things being sold. Every product or service has different meaning to buyers and it cannot be captured the same way. Because I cannot rely on a single definition I have to create a specific definition of brand to the context of mobile platforms.

I choose to define brand in this context of platforms as the "promise of the platform". A platform is a promise that the products will function in ways beyond what's "written on the box"; that the product is extensible and has value provided by an ecosystem bigger than the original vendor.

For example, although the iPhone is based on iOS platform, iOS is not the brand. "iPhone" encompasses the platform brand and it's a promise to users that they can expect apps and content and an extended flow of innovation to continue well beyond the initial purchase of the device. This brand value is attached to iPod touch and iPad even though it's not communicated as a unified platform. In other words, consumers don't look for "iOS inside" but the implicit value of "there's an app for that" covers all the products.

When looking at platforms as promises or brands, we can observe how some are more powerful than others.

Symbian or Series 60 was never marketed as a brand and Nokia users are generally unaware of what OS or platform their phone runs. Does Symbian make a promise of an "extended flow of innovation to the device" after the time of purchase? It's hard to make that promise when you can't communicate clearly anything but device specs.[1]

Conversely, Android has become a strong brand. The Android label (and mascot) is frequently used by device vendors to signal platform brand value.

How did Google achieve in a year this value with Android while Nokia continued to squander any brand goodwill around Symbian for a decade? The answer lies in marketing decisions. Nokia wanted to focus on the hardware as value (and the Nokia brand as the way that value is encapsulated). Google and Android OEMs wanted to lift their own device brands into becoming smartphone brands and attached the value of Android branding to them.

Which brings me to the question of how to design platforms as powerful brands. Creating awareness of extensible value is the way to signal to developers and all members of an ecosystem that a platform is valuable. Apple did this very well with their iPhone ads which focused on the app value of the product. They showed the product in use and did not rely on metaphors. Developers saw other specific apps being advertised by Apple and it engendered huge star value in the platform. Every developer wanted a shot at being featured in an iPhone ad. The iPhone could and did make stars.

But you can't make the great promise of the platform without the ensuring consistency, reliability and longevity. Fragmentation, malware, copyright infringement and arbitrary termination amount to the confiscation of platform value by the orchestrator. Poor custodianship results in the destruction of both ecosystem and end user value.

--

Notes:

1. The lack of platform promise for Symbian may also explain why Nokia believes they can sell 150 million Symbian devices which have a deprecated platform. Those devices could be sold as feature phones, not platform products. The challenge for them will be to get a smartphone price for a feature phone product.

The relationship between Google and Apple is an interesting one. It's enticing to declare them "at war" with one another, but that type of relationship does not account for the collaboration and partnerships they enjoy. To wit:

• Google pays Apple for default Search placement on Safari. This means that Google treats Apple as a distributor.
• We can presume that there is a deal between the two over Gmail and Maps on the iPhone as well.
• AdMob is available on iOS without hindrance.

The business relationships between the two companies are self-evident. However, I would suggest that there are more important strategic reasons why Google and Apple are in fact implicitly collaborating against a common goal.

The concept of "co-belligerence" may describe the relationship: The state of fighting against a common adversary without a formal alliance and without a guarantee of non-agression against each other.

The common adversary is the telecom industry. It's an industry being undermined by the technological change of mobile computing and its profits are up for grabs. Apple and Google have different approaches in implementing this change but in the end they dismantle and absorb profits from the same target.

They are also benefiting each other. Apple benefits Google by creating user experience innovations which Google can rapidly copy. Google benefits Apple by increasing smartphone consumption--educating markets to the value of mobile computing and crippling the profitability (and thus the ability to innovate) of Apple's direct competitors.

If I may belabor the point, it's like the concept of fast food. One company invents the fast food franchise process, another popularizes it and creates demand. Finally, the innovator comes in with a premium brand to split the market.

Apple innovates in product innovation with Google as a fast follower. Google then innovates on distribution and penetration enabling Apple to follow with a skimming strategy.

The end result is a more rapid and thorough profit evaporation from incumbents with corresponding condensation around the entrants.

To visualize it further, consider what the market would look like if one or the other of the co-belligerents was not participating. Could Google have developed their software without the iPhone as a reference design? At the same time, as Android eliminates the opportunity for alternative software investments by competitors[1] could Apple have remained the only integrated vendor with a uniquely high profit margin?

Of course, this is not a guarantee of success. New platforms may still take root and integration by HP may actually pan out. But the point I'm trying to make is that, for the time being, Google and Apple are not so much adversaries as comfortably busy winning against a rather weak common target.

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Notes:

1. Consider how hard it is for OEMs to justify investing in their own OS post-Android. Consider the desperate status of Nokia who abandoned a broad ecosystem and the paucity of alternatives.

In the recent series of exposés on Nokia's new strategy I sought to paint a background for what caused such a dramatic decision:

• A history of previous Microsoft "strategic alliances" in mobile brought Microsoft to a level of desperation
• The question of how many horses are in the race coupled with operator feedback on what matters to them in terms of balance of supplier power
• The installed base of Symbian although great is fragile
• A confused tablet strategy from both partners.
• The impact of pricing on addressable market and share
• The "Osborne effect" on Symbian and how the transition could be impossible to navigate

This gives a backdrop to the decision, but it does not explain the most crucial part of the decision: why did Stephen Elop decide to maintain an exclusive platform for Nokia rather than a multi-platform approach as chosen by successful competitors such as HTC, Samsung and Sony Ericsson.

Going from backing one "burning" platform exclusively to backing another "ice cold" alternative without bothering with a hedging alternative is very risky. This may be the biggest puzzle and mystery for outside observers.

Here I put forward a few reasons why exclusivity attracted Nokia:

1. The lessons of product focus (see why focusing on a few products is hard).
2. The costs associated with Symbian and Meego were unreasonably high. (see Nokia employs as many people to develop its smartphone software as Apple does to develop all its products).
3. The psychology of change management.

This last one may be the most crucial of all.

What has to be appreciated is how bloated Nokia has become. It has 140 thousand employees. It's been organized and re-organized countless times and is completely intractable even to insiders. Cutting headcount can only accomplish so much. It deals with costs, but not with motivation. What management needs to do is also incentivize the survivors.

This is where exclusivity comes in as a motivational tool.

To explain we need to dip into a new metaphor. Conquistador Hernan Cortés landed in Mexico with the intention to conquer it. Legend has it that as soon as he landed, he burned his ships to prevent his men from retreating and motivating them that conquest their only option.[1]

Leaders motivating their followers by removing the means to surrender or retreat is not uncommon. It's harsh and brutal. It's not a natural thing do do: destroying perfectly useful options is value destructive and generates outrage, even mutiny.

In Nokia's case, institutional inertia with a vestigial Symbian effort would compel the organization to maintain the current platform while treating the new alternative as a pathogen.

Counter-distruption theory states that the response to a disruption requires a focused approach through an autonomous challenger protected from corporate antibodies by the CEO herself. In this case, the autonomous organization is outside the company (Microsoft). Protecting the new effort was not possible with a Chinese wall. The only alternative was to simply get rid of the old and start with a clean slate.

While there are times it makes sense to burn ships to eliminate any ideas of retreat, there are other times when doing so is reckless. You can do the calculation on the basis of cost of being wrong and levels of uncertainty [2], but even when armed with all the data linked above, this decision can hardly become something that can be quantified.

It's a gut-level decision.

I would say that Nokia's new CEO did not just jump off a "burning platform" but that once he jumped he made sure it kept burning so that nobody thought of going back on board.

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Notes:

1. There is a Microsoft precedent to this story. See Amazon.com: Burning the Ships: Transforming Your Company's Culture Through Intellectual Property Strategy (9780470432150): Marshall Phelps, David Kline: Books Burning the Ships recounts the decision that forced Microsoft to face its own 'succeed or die' moment. It's a lesson in strategy and survival that speaks about the courage required to embrace radical business transformation.
2. See also: Burning Ships

When Stephen Elop said that Nokia and Microsoft sought to create a "three horse race" he implied that there were only two viable mobile ecosystems today. With that statement he sought to deprecate or declare "end of life" two platforms: Symbian and MeeGo, implying that Nokia's efforts at being the third way failed.

However, he also implicitly declared irrelevant a larger set of market participants. In fact, the market is awash with platforms. Far more than the three or five that Stephen considered.

To illustrate I built the following chart showing the history of all major mobile platforms. The are ranked by launch date (earliest at the bottom). A vertical line marks the present. End dates are approximate and based on declarations of end of life rather than end of usage.

There have been 16 total mobile platforms[1], 10 of which are still (or soon will be) on the market. Of the six that were terminated, three had replacements built by the same orchestrating company (Windows Mobile begat Windows Phone; Maemo begat MeeGo, and PalmOS eventually led to WebOS.) Only three reached end of life with no known descendant (iMode, MeeGo[2] and Symbian).

Operating systems that were launched in the 1990s or early 2000s have mostly been withdrawn/replaced with the exception of Java and BREW.  "Modern" operating systems all emerged after 2007 (following iOS). A total of eight such new OSs were introduced in four years[3].

What I find noteworthy is that there is an implied peculiar fatalism about the market when only two platforms are considered viable, neither of which are more than 3 years old. While visiting the Mobile World Congress, I sensed this jumping to conclusions about platforms was eerily similar to that of a few years ago when new entrants like Apple and Google were declared dead on arrival.

I can only conclude that there is a great deal of groupthink going on in the industry. A perfect setting for a disruptive entrant to change everything, all over again.

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Notes:

1. I excluded some platforms like Motorola's Linux, SavaJe and perhaps some others (Openmoko, Qtopia) which did not gain significant traction. I also excluded any embedded OSs which did not have native APIs.
2. The end of MeeGo is speculative. Intel is still defending it and may continue developing it.
3. Android variants like Tapas could be considered new platforms, but I maintain them as part of one OS for the time being.

• According to rumors, Huawei shipped 30 million phones last year. The target for this year is 60 million of which 15 will be smartphones.
• According to IDC ZTE is now the fourth largest mobile phone vendor with 51.8 million units in 2010. Assuming 70% for 2011, ZTE could ship 88 million units in 2011, 25 million of which would be smartphones.
• These data imply that ZTE and Huawei will ship nearly 150 million phones in 2011 of which 40 million would be smartphones.
• That would imply approximately 7% share of the global smartphone market for these two companies together.

What is remarkable about this is that the market share of these vendors was zero in the previous year.  It's hard to get comfortable with this market entry. The challenge for forecasters and analysts is that there is little history to draw upon. How will the entrants affect the rivalry between firms? Will the distribution be overlapping with incumbents or will the entrants be competing with non-consumption?

The only thing we can be certain of is that the adoption of smartphones is increasing at a faster rate than is foreseeable.

Vic Gundotra of Google tipped off the world two days in advance that on Feb 11 Android would play no part in Nokia's strategy. To be sure, Elop said that Nokia didn't choose Android because of "differentiation challenges and commoditization risk" (begging the question of how these challenges and risks are mitigated by licensing another openly available OS).

But I won't weigh the merits of one module vs. another. Rather, the more pertinent discussion should be on why license instead of build. Clearly, Nokia threw in the towel. Not because they could not build, but because their building processes could not create greatness.

But can greatness ever come from modularity? I've argued that it can't. I'll maintain that argument as long as what is being built is not good enough. In other words, as long as innovation remains relevant, improvements will be absorbed and rewarded. Once innovation exceeds what can be absorbed, the basis of competition will shift to convenience and price which are best served with a modular business architecture.

Android is a fast follower. The first Android prototypes looked like Blackberries because that was the input paradigm of 2006. When capacitive touch was shown to be a better input method, Android reacted swiftly. When app stores created a new medium Android reacted swiftly. When the iPad demonstrated that computing can be done in new settings, Android reacted. At such time when there will be nothing to follow Android will be the king of the last commoditized innovation, but as long as there is something worth inventing Android will be there to reproduce it.

This is not a judgement, but an observation: Nokia and Microsoft may not make an Apple but neither will Android ever create the future.