VS. 
An announcement from Research in Motion last week put two distinct mobile device strategies in stark relief: while RIM is opening up its beloved software to other device makers, Apple continues to play the proprietary game. Which of these two strategies makes the most sense, given current market conditions?
The value chain evolution theory, described in chapter 5 of The Innovators Solution, postulates that integrated solutions are best for developing markets in which new technologies are just getting started. Since there is so much uncertainty afoot, it makes sense for one company to oversee multiple parts of an offering in order to ensure consistent quality and a simple, easy to use interface. Think of how in the early days of computing a company like IBM built the entire mainframe from componentry to software. Since the industry was in its infancy and relatively little was understood about it, the world-class scientists at IBM needed to collaborate on all aspects of product design in order to deliver a top-notch, fully reliable product. IBM leveraged its expertise to achieve 70% share in the mainframe market throughout the 60s and 70s.
However, as markets mature the game changes. Once in the market, technologies become less novel and less mysterious, leading to the emergence of industry standards. As a result, expertise begins to commoditize and value chains modularize. Astute entrants, then, can begin to pick off attractive niches with focused business models that offer improved performance along certain, prized dimensions such as cost, reliability, or convenience. They carve out valuable spaces for themselves while advancing the industry as a whole. As computing matured and the mainframe gave way to the minicomputer to the PC, the industry fragmented: hardware companies like Compaq emerged to assemble the machines, chip companies like Intel provided the processors, and software companies like Microsoft programmed the operating system and various other software applications. Before too long, as Innosight founder Clayton Christensen likes to point out, there was Michael Dell assembling a computer in his dorm room. A task that had previously required a massive company employing the worlds top computer scientists could now be accomplished by an enterprising college kid. Whats more, combine Intels engineers and Dells savvy business processes and you get a more powerful and more affordable computer than any integrated provider could offer.
So whats the lesson for Apple and RIM? Apple, which essentially invented the PC and many vital software applications, fell from grace through the 80s because it tried to hold onto its proprietary, integrated architecture and refused to license its operating system. Controlling its value chain from hardware to components to software had enabled Apple to put together a consistently delightful product, but as the WinTel and Dell value network developed and matured the company got left in the dust.
Fortunately for MacHeads, long-term Apple stock holders, and portable music appreciators, Steve Jobs and his merry band had enough in the tank to regroup and reinvent another, adjacent industry with their iPod. And how did they do it? By integrating. They brought together the device the iPod and the software iTunes in a novel, simple to use, convenient, and highly effective way. An integrated provider, remember, can master the kinks of a new and emerging market to provide the reliability and performance that customers need. Similarly, RIM was famously integrated. Its handy devices did not rely on the buggy Symbian or Microsoft OS, but operated on proprietary, delightful software, and the Blackberry came to dominate the wireless handheld device market.
So that brings us up to the present. As has been widely predicted, handheld devices iPods, PDAs, cell phones are rapidly converging. Your Blackberry now checks email, makes calls, takes pictures and plays MP3s and your iPod will soon become your iPhone. Technological advances and emerging industry standards are driving the convergence. More and more people are leaving their iPods at home, since their homely standard-issue Verizon phone plays songs, and who has room in their pocket for two devices?
And yet, Apple continues to insist on proprietary, integrated architecture: iTunes only works with iPods. For how much longer will people stick to iTunes, as their iPod becomes less essential and competing services Napster, Yahoo Music, Real Music, eMusic get better and better? All the consumer insight and design savvy in the world may not be enough to ward off the multiplying hordes of competitors at different, now modular, parts of the value chain (Christensen has been warning about this for some time now, on this blog and in Business Week).
RIM, on the other hand, has boldly stepped out of the integration trap. By making their email service available to users of other devices, they are seeking to become the "Intel Inside of device software, rather than the Apple Computer of PCs. As markets modularize, this seems to be the wiser strategy.
RIM vs. Apple, Integration vs. Modularity
Josh SuskewiczPosted by Josh Suskewicz in Comments (4)
Discussion
Posted: Friday, May 4th, 2007 - 10:24 am EDT
It is no great surprise that Apple will probably repeat the mistakes of their past. Their history has been to squelch there own potential by trying to keep an iron grip on their markets.
Posted: Wednesday, May 23rd, 2007 - 10:12 am EDT
I understand your position and completely agree with you on several points. The iPods/iTunes value network is being disrupted from below by cell phones that are good enough when it comes to playing music. Also, in RIM's current value network of reading email and making phone calls they have overshot current customer's needs and have been struggling to add value. This has lead RIM to a modular approach of running their software on other vendor's hardware, which may or may not ultimately result in success for them.
In regards to the low-end disruption of the iPod, one solution for Apple might be to move to a more modular, open architecture similar to what RIM is doing. However, as we all should know, the approach that is much more desirable is a new market or hybrid disruption. So let's explore that possibility, starting with two observations:
First, as was mentioned in the article, the "computer" industry has seen several phases of market dominance. First there was the mainframe, which was disrupted by the minicomputer, which in turn was disrupted by the PC. In each disruptive phase a new company arose with an integrated product to capture the majority market share (eg. IBM, DEC, and Apple respectively).
Secondly, today's "personal" computers (PC) as we know them today are still too expensive, too complex, to buggy, and too virus ridden to be used by a great many people out there (yes this might be hard to believe for most of us who use computers on a daily basis, but it is never the less true). In other words, the "personal computing" industry as we've come to know it is not truly "personal". What we call PCs today are really business machines that are filling a void until something better comes along. The fact that there were only about 200 Million PCs sold in 2006 (as compared to almost 1 Billion mobile phones) would seem to say that there is a large population of people who still are not buying PCs (nonconsumers). Also there are a great number of existing PC users who would buy a simpler, easier to use product given that it did enough of what they are currently using a PC for (over shot - my mother for example). So it would seem that the PC industry as it stands today *might* be able to be disrupted by a new market/low end hybrid product. Another way to look at it, there is a potential for a very large new market of truly "personal devices".
Which begs the question, what product might be positioned best to stand as this hybrid disruptor?
Of course, the "smart phone" would seem to be the most likely choice. It should be noted that there is an appreciable difference between a "smart phone" and a regular cell phone. A regular cell phone (non-embedded OS) most likely would not be able to be a true PC disruptor due to it's very limited functionality. Also keep in mind, from the point of view of a PC disruptor, an integrated product would stand the best chance of success in this job. So let's look at the choices, starting with Apple's iPhone.
Is Apple really trying to build a better cell phone thus putting them on the sustaining trajectory of current mobile phone companies?
I would posit that they are not. Even though Apple has added a very nice voicemail integration feature (Visual Voicemail) that regular phones have been lacking for years, for the most part Apple is not trying to make a better cell phone (or mouse trap ;). I know we would all like fewer dropped calls, better signal quality or longer battery life, but for the most part these functions in today's phones are "good enough". In other words, existing cell phone customers are overshot by advances in traditional cell phone technology, which is why most features that are added to cell phones today are in the areas of PDA or mobile Internet device features. However as implemented today, 1) those features are done so very poorly because they are crammed in without much thought of usability and 2) this turns the tables and puts them on the sustaining path of companies like Apple, Palm and RIM instead. From an outside looking in point of view, it might look as if Apple has seen the coming disruption of the smart phone and is trying to (in the parlance of "Seeing What's Next") co-opt the mobile phone innovation. However, I think Apple is doing even better than that.
If Apple were doing nothing more than coming down market with a cheaper computer to compete with the smart phones we would all come to the conclusion, quite reasonably, that they would fail against the up market progression of the mobile phone. However that does not seem to be what they are doing. They are actually moving up market on their own sustaining trajectory of the iPod and simply leveraging their knowledge in the personal computer space to do so. Do you think it was coincidence that the iPod was made into its own business unit about the same time that we now know in hindsight was when they started development on the iPhone? I do not believe so. This move would seem to signal that their plan is nothing less than disruption of; their own personal computer business, everyone else's personal computing business and the mobile phone value network. Whether this is viewed in the Innovator's lens as co-option, up market movement or some hybrid approach, I am not totally sure, but the result, if executed properly, should be the same large scale disruption.
If there are currently over served customers in the mobile phone value network who find more value in Apple's own new market disruption of the iPod/iTunes/iPhone value network, then those mobile phone customers will be sucked out of their existing value network and into Apple's value network. On the flip side of course there will also be people who find more value in the mobile phone value network than in Apple's value network. So which customers and how many will move into which value networks? Have you noticed the extremely appealing well integrated "Entertainment" value network that Apple has been building (not to mention their mobile computing device called a laptop, which is everywhere)? This "Entertainment" value networks is something that other mobile phone companies have been trying to copy with features such as video and music on mobile phones. However, with Apple's integrated approach and historic focus on ease of use it would stand to reason that Apple has a much better chance at capturing the most valuable customers from the mobile phone value network than vice versa.
In looking at the smart phone landscape; only Apple, RIM and Palm have an integrated hardware software product (all the rest are using either Symbian or Windows mobile). Further more, both RIM and Palm seem to be abandoning that integrated approach for a more modular approach. If the smart phone market were in fact maturing this might be the smart move. However, if the smart phone is to move up market and disrupt the PC space, is a modular approach the best? Doubtful.
Finally, have you compared the price of the iPhone with a low end PC or laptop? Do you think its a coincidence that they are very comparable? If the iPhone were really trying to compete in the existing mobile phone value network this might seem expensive. But as a very easy to use mobile Internet communications and entertainment device, isn't $499 fairly cheap? Wouldn't people who do not use PCs because they are too buggy and virus ridden think $499 was cheap? Would people who are over served by current PC's functionality and who only buy the cheapest PCs because the have to, find value in a simple to use mobile computing device? I would think they would. Have you actually watched the demo of the iPhone? It's quite impressive what this so called "phone" does for a mere $499? I would highly recommend watching the iPhone introduction and demonstration, it might be quite revealing. Also in the I-do-not-believe-it's-a-coincidence category, at the end of Steve Job's keynote presentation he puts up a quote by Wayne Gretzky "I skate to where the puck is going to be, not where it has been". Interesting.
http://www.apple.com/quicktime/qtv/mwsf07/
While I know this has been very verbose, there is still so much more that can be said on this subject. There are numerous questions still to be answered, for example; isn't it likely that the TRUE "smart phone" really represents a new plane of competition in which the established mobile phone companies are not incumbents and thus Apple stands a good chance at starting a new market disruption? Doesn't this bear striking resemblance to the iPod disruption of 2001? Also, the discussion above has definitely not been a very thorough discussion of the "jobs-to-be-done". There are still a few pieces that would need to fall into place for the iPhone to more fully disrupt PCs/laptops/mobile phones. All of these things I have ideas on, but I will leave that for another time. In some ways this only scratches the surface of the potential of the iPhone. As usual, I believe Apple is thinking big, really big.
Since this is my first public attempt at discussing the Innovator's theories I'm sure I haven't gotten some of the terminology down pat yet, so far that please be kind, if anyone even reads this. But in summary, it would seem to me that Apple is not trying to enter and compete in the already crowed mobile phone value network dominated by such incumbents as Motorola, Nokia, Palm, RIM, etc. Instead Apple is disrupting the personal computing and mobile phone value networks with their own currently existing laptop/iPod/iTunes/iPhone value network. And the mobile phone companies by virtue of adding features that are less like cell phones and more like computing/communications/entertainment devices are actually forcing themselves to have to compete in Apple's value network.
Posted: Sunday, May 27th, 2007 - 8:44 am EDT
Voy a permitirme recomendar un libro que no he ledo, el nuevo de Clayton M. Christensen titulado: "Seeing What's Next". A finales de los aos 90 se volvi muy popular el libro "The Innovator's Dilemma".. Con el ostentoso subttulo...
Posted: Tuesday, June 19th, 2007 - 10:08 am EDT
iPhone (O un PWC?) dentro de 10 das
El lanzamiento ms esperado de... La telefona inalmbrica?, La computacin porttil con conexin inalmbrica permanente?
El nombre del producto podra ser parte del truco... Qu tal que Steve, el de los trabajos bien hechos, Jobs, no est pensando esta vez slo en telfonos y en Nokia sino ms bien en redefinir el terminal inalmbrico personal?
"A true web applications platform for the mobile
"We have been trying to come up with a solution to expand the capabilities of the iPhone so developers can write great apps for it, but keep the iPhone secure, he said. " And weve come up with a very innovative new way to create applications for mobile devices its all based on the fact that we have the full Safari engine in the iPhone. And so you can write amazing Web 2.0 and AJAX apps that look and behave exactly like apps on the iPhone, and these apps can integrate perfectly with iPhone services. (Steve Jobs keynote at WWDC via Engadget.)"
Si este llega a ser el caso, que tiemble todo el ecosistema (excepto el captulo de los desarrolladores de aplicaciones) de los PCs porttiles, incluyendo a Intel con su PC WiMax enabled (O Intel est en el equipo del iPhone?). Podra ser la explicacin a la tan repetida pregunta de si un telfono celular de USD 500 tendra sentido: no era un telfono, era un PWC (Personal Wireless Computer)
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