dw2

24 August 2008

Market share is no comfort

Filed under: disruption, innovation, iPhone, Nokia — David Wood @ 9:55 am

In the discussion of whether Symbian and Nokia are fundamentally threatened (or even “irrelevant”) in the face of the huge market buzz around the Apple iPhone, I take no comfort in the fact that Symbian’s share of the global smartphone market is an order of magnitude larger than that of the iPhone. Therefore I disagree with those replies to my previous blog post that highlighted Symbian’s very considerable market share lead, worldwide (but admittedly not in the USA), over the iPhone.

At first sight, strong market leadership should count for a lot. It should trigger a virtuous cycle effect. More phones should attract more developers (who are interested in their apps running on large numbers of phones) which should result in more software tailored to that platform, which should in turn increase the attractiveness of these phones to end users. And that should result in even more phones being sold, and so on – virtuous cycle.

And in reality, a powerful virtuous cycle effect does exist. An experienced and sophisticated ecosystem (“ES”) has grown up around the Symbian operating system (“OS”) and is continuously adding more value to this platform. The OS-ES virtuous cycle does work. However, it’s not invulnerable.

The history of the technology industry is full of examples of companies who were in similar leadership positions to that currently held by Symbian, but whose markets were transformed by disruptive new entrants. Harvard Business School professor Clayton Christensen is deservedly applauded for his description and analysis of how market disruption takes place:

  • Celebrated examples include how the leading providers of mini-computers, such as DEC, Data General, Wang, Nixdorf, and Prime, failed to appreciate the significance of the initially small market that grew up around fledgling personal computers. These manufacturers saw little profit in that market. But when PC technology improved and the surrounding ecosystem matured, it was too late for these erstwhile computing giants to take leading roles in the new industry (despite lots of effort which they eventually but unsuccessfully expended on that new cause).
  • An earlier example, also told by Christensen (in “Seeing what’s next: using theories of innovation to predict industry change“), concerns the disruption caused by the invention of the telephone to the communications industry of that era (1870s): market leader Western Union evaluated the new technology created by Alexander Graham Bell, but concluded it lacked the power to handle the long-range business communications from which the company made most of its profits. Again, technology improved and new business relationships formed, faster than Western Union could respond – with Western Union being plunged into decline as a result.

And there’s more. MIT professor James Utterback elegantly recounts many intriguing and salutary examples in his book “Mastering the dynamics of innovation: How Companies Can Seize Opportunities in the Face of Technological Change”. The book shows how familiar technologies such as refrigeration, electrical lighting, and plate glass, were all clear underdogs at the time of their initial market introduction, and faced serious competition from entrenched industrial alliances whose technologies (such as large-scale ice transportation, or gas lighting) themselves appeared to be regularly improving.

Could the iPhone fit into a similar pattern? It might. There are possible futures in which, say, more than half of all phones sold in the world have iPhone technology inside them. I don’t see that as the most likely future – far from it! – but it does have a certain logic to it:

  1. The iPhone is in many ways a simpler product proposition than existing smartphones (just as PCs were simpler than mini-computers). There are considerably fewer applications built into the iPhone than you can find in a standard S60 phone. That relative simplicity means that some feature-focused users will decide not to use the device. But the device taps into a new market that is arguably underserved by previous offerings. This is the very considerable market of users who don’t need every bell and whistle in feature-packed smartphones, but who are ready for a better experience than can be had from ordinary phones.
  2. The iPhone uses physical components that “break the rules” regarding cost: they’re considerably more expensive to manufacture than most other smartphones, and this makes the device more expensive to purchase. However, again, it may be that now is the right time to break this rule: a greater number of users may be willing to bear this additional cost (in view of the additional benefits that buys them).
  3. The iPhone isn’t growing its ecosystem from scratch; it can benefit from a crossover effect from various components that were already in place in Apple’s pre-iPhone product offerings. Principally, the highly-evolved iTunes distribution mechanism plays a big part in ensuring a good end-user experience with the iPhone.
  4. The iPhone has put special emphasis upon a number of usability aspects, including the graphics “wow”, the UI itself, the mobile web browsing experience, and the discovery and installation of new applications. Users have been drawn to these aspects of the device, even though the device lacks other aspects that are present (and well-evolved) in other smartphones.
  5. Despite what some critics have said, these innovations aren’t (all) easy for other companies to copy. The “look” can be mimicked, but the “feel” is the result of countless small design and implementation details, that are anchored in a sophisticated underlying software system.

For another analogy, the iPhone is similar to the initial Palm Pilot devices, which fared much better in the market than earlier attempts at pen-input handheld devices. The Palm Pilot delivered less than these other devices (such as the Apple Newton, the Casio Zoomer, and the General Magic “Magic Cap”) but provided a much more usable experience.

So, let’s evaluate this scenario. Do disruptive new market entrants always succeed in reaching market leadership position? Of course not. Although it is difficult for market leaders to respond to this kind of change of rules in their industry, it’s not impossible.

Here’s one counter-example: Microsoft and the Internet. Initally, it did look as though Netscape was succeeding in building an impregnable position by bringing a compelling new product to market in an area that Microsoft had previously ignored – an Internet browser. But Microsoft managed to turn around the situation, by dint of two measures:

  1. Clear internal recognition, from the highest leadership, of the fundamentally changing market landscape
  2. Swift and effective execution, continued over many years.

I’m loathe to compare Nokia/Symbian to Microsoft, but in this case the comparison has merits.

What’s more, I expect that it will become clear, over the next year or so, just how much the Symbian Foundation is itself changing the rules of the mobile industry – and (crucially) enabling companies who use this software to change the rules even further. If you think the iPhone is innovative, you’re right, but you ain’t seen nothing yet.

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8 Comments »

  1. Reading this blog post instills feelings of hope that only the final minutes of Rocky can produce.

    I hope you don’t take that to mean something sarcastic, I am a film buff, but I do have to say this: you’ll have to deliver something tangible on top of this brilliantly composed persuasive essay to change the minds of the masses.

    I look forward to the day when that happens. I joined Nokia because I believe in their ability to change the world with the over 1 million mobile phones that leave their factories every single day.

    Comment by Stefan — 24 August 2008 @ 12:35 pm

  2. An excellent evaluation of the current mobile landscape.

    I too believe there’s fire left in Nokia’s belly, let’s see what they come up with Q1 of next year with the Ovi launch

    Comment by sachendra — 25 August 2008 @ 6:34 am

  3. I believe one more item could be added to the list of potentially “disruptive” features of the iPhone that Symbian/Nokia need to pay attention to:

    6. The entire ecosystem for application sales is essentially controlled by a single company (to the extent the previously only iMode and BREW were) – SDK, quality assurance, payment processing, application store are all in the hands of Apple. Compare this to the number of fingers in the pie for the scenario with Symbian Signed, independent testing houses, OpenBit, Nokia Download! (to point out just one possible route to market).

    Of course, the latter is a model that gives much more influence to the “forces of a free market”, but at the same time it often creates subtly different incentives for the various parties.

    As a very specific example, the immediate financial impact on Symbian from ensuring a better Symbian Signed experience to developers is probably rather low. So it is probably rather difficult to argue spending serious money on fundamental improvements to the workflow, since the ROI would be rather uncertain. In my opinion, the development, or lack thereof, of the symbiansigned.com website since 2006 beyond cosmetic repairs shows the problems with this. The only point where this pattern was broken was when the “unsigned freeware” crisis had a direct impact on the availability of the service as a whole, and led to “Open Signed”.

    [Disclaimer: I don’t know how well Apple’s submission process for the App Store works, but at least it seems to be only one process, rather than multiple independent ones for signing, payment, distribution.]

    Comment by mgroeber — 25 August 2008 @ 8:23 am

  4. @ Stefan,

    >I joined Nokia because I believe in their ability to change the world with the over 1 million mobile phones that leave their factories every single day.

    I’m sure the two of us agree that Nokia has already changed the world, profoundly, through its excellence in the mass production of first-rate mobile phones. I think we’ll also agree that the challenge – as Clayton Christensen would point out – is for Nokia to split its management focus, so that whilst it continues mass-producing so many excellent phones, it can also successfully make the disruptive transition to new technologies and new markets. Success in the former, alone, is no guarantee in success the latter. However, my observation is that Nokia has a wide and extensive range of deep-thinking open-minded pragmatically-focused strategists and managers, who are already well on top of this dual task.

    @ Sachendra,

    >I too believe there's fire left in Nokia's belly, let's see what they come up with Q1 of next year with the Ovi launch

    Agreed, Ovi is surely a large part of managing this disruptive transition. It should mean that the iTunes and App Store distribution mechanisms lose their competitive advantage.

    @ mgroeber,

    >The entire ecosystem for [iPhone] application sales is essentially controlled by a single company (to the extent the previously only iMode and BREW were) – SDK, quality assurance, payment processing, application store are all in the hands of Apple. Compare this to the number of fingers in the pie for the scenario with Symbian Signed, independent testing houses, OpenBit, Nokia Download! (to point out just one possible route to market).

    Yes, good point; I ought to have included that in my list of key disruption factors. And on a wider point, it’s interesting that quite a few of these disruption factors involve, on the Nokia/Symbian side, less than fully optimal working relations between the separate development teams in Nokia S60 and in Symbian. With two separate companies, there are limits to how quickly a complex joint change program can execute. Happily, the pending takeover of Symbian’s development teams by Nokia (assuming regulatory approval is given) should provide the means for a swifter re-working of some of these factors.

    // dw2-0

    Comment by David Wood — 25 August 2008 @ 5:45 pm

  5. Hi, i'm Richie Hecker. I'm an entrepreneur in NYC and i'm currently producing the first Web 3.0 Conference & Expo for Jupiter Media. I would like to invite Mark Keeker to speak at the event. It will be held on October 16/17 in CA. We're working on defining the next evolution of the internet (with a focus on semantic web & open data standards) Details for the event are at http://www.web3event.com and I can be reached at 347 385 7865 anytime. My blog is at bootstrapper.com if you're curious about who I am. I produce a number of events of for the startup/technology industry.

    Comment by The BootStrapper — 27 August 2008 @ 2:30 am

  6. Hi Richie,

    >i'm currently producing the first Web 3.0 Conference & Expo for Jupiter Media. I would like to invite Mark Keeker to speak at the event. It will be held on October 16/17 in CA.

    Good luck with the conference. I’m personally very interested in semantic web and AI, but I’m not able to help with this conference, since I have prior commitments in the UK on these dates.

    // dw2-0

    Comment by David Wood — 27 August 2008 @ 9:04 am

  7. Hi David,

    I stumbled on your blog last night and I find it very interesting.

    I have a comment about what you said: here and in other posts you say that the possible answer to create market disruption from within Nokia could be a smaller team working on something new.

    But you seem to suggest this should still happen in the Symbian arena.

    Here is a question I always asked myself: couldn’t that team be the Internet Tablet team? The product is there, is open source. It gets very positive reviews. I obviously don’t have the real inside-view about it, but why Nokia doesn’t produce a phone-enabled version of it?

    My (totally guessed) answer is that Nokia is betting its money on Symbian and doesn’t want internal competition. But after reading your posts, I can clearly see it’s not that obvious.

    Care to share any thought on this?

    thank you,

    alfonso

    Comment by alfonso — 23 December 2008 @ 12:02 pm

  8. Hi Alfonso,

    >"here and in other posts you say that the possible answer to create market disruption from within Nokia could be a smaller team working on something new.

    >"But you seem to suggest this should still happen in the Symbian arena.

    >"Here is a question I always asked myself: couldn't that team be the Internet Tablet team? The product is there, is open source. It gets very positive reviews. I obviously don't have the real inside-view about it, but why Nokia doesn't produce a phone-enabled version of it?"

    A large company like Nokia is likely to make more than one bet regarding innovative new products, services, and technologies.

    I think it’s safe to imagine that teams in Nokia are working on various exciting new developments:

    a.) Starting with the existing Internet Tablet (Maemo) technology;

    b.) Starting with the existing S60 (Symbian) technology;

    c.) Starting with interesting combinations of the existing technologies.

    On the other hand, we shouldn’t be blind to the effort required to add on full cellular telephony functionality to any platform that originally lacks that functionality. Having innovative ideas is one thing, but achieving these ideas is something different.

    >"My (totally guessed) answer is that Nokia is betting its money on Symbian and doesn't want internal competition."

    Some element of internal competition is healthy. But too much can be counter-productive. Blind Darwinian “survival of the fittest” is a horribly wasteful approach.

    Similarly, some element of internal collaboration can bring important new insights. But again, too much enforced collaboration can limit the emergence of genuinely new ideas.

    It’s a difficult balance to get right!

    // dw2-0

    Comment by David Wood — 23 December 2008 @ 7:54 pm


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