January 11, 2011
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Is owning 95% of a market enough?
 Taking in a number of market share estimates, Apple iPads have about 5% of the potential U.S. market for pads/slates/tablets (or as the wags at The Register prefer to call them, Fondle Slabs). This is based on current P.C. market penetrations (north of 76% of households) and the estimated U.S. deployment of iPads. Thus, the green field of the slab market is currently wide open.
Which explains why several million Android slabs were introduced at CES last week.
Market mechanics are based on many things, with technical innovation being a misleading indicator. Apple has always been an innovator, but innovation in and of itself is insufficient. Apple invented the PDA market with the Newton, which sold four or five units. Pure innovation, but not only was it ahead of the market, it was also poorly marketed. Alternately the iPad was very innovative and well marketed (on the heels of the popular iPhone), and it immediately found its way into the hands of early adopters.
They make up about 5% of any market.
The glory of the iPad is not its engineering or innovation, but the identification of a need in the consumer electronics market space and the dexterity required to change the face of the market. Tablet computers have existed for years, their origami like screens providing both laptop and slab capabilities. But it took Steve Jobs rethinking human interfaces and providing always-on data to make the market respond. Apple’s early adopters showed that millions of units could be sold and this attracted the attention of every gizmo maker who wanted a share of the other 95% of the market.
Most of them chose Android as their OS, for painfully obvious reasons (cheap, Linux-based, Google supported, etc.)
The evolution of the slab market is beginning to mimic the history of the personal computer market. Old people (like me) remember that Apple offered the first truly consumer oriented personal computer. They had competition (Radio Shack’s TRS-80, IMSI, Altair, etc.) and each had its own durn way of doing things. Along came IBM, who could redefine any market, and introduced the world to a scrubby little operating system called MS-DOS from an unknown company called Microsoft. With the freedom to put MS-DOS on any computer, and with the market willing to clone IBM systems, the entire personal computer market sped toward ubiquity (aside from Apple’s perpetual 5% market share). Each vendor provided different price points, niche features and varying levels of support.
But they all ran MS-DOS.
Today we see sudden explosions in smartphone and slab markets. As Apple did with their desktops, they innovated and proved the viability of a market for slick pocket computers and slates. Other vendors, wanting some of that market chose what they believed to be the most viable alternative to the Apple operating system (MS-DOS then and Android now). With personal computers, once the decision for a standard was made, the market erupted, competition thrived, prices fell and Apple remained a nice player.
It looks like the same thing is happening again with mobile devices. Apple innovates and then is surrounded by something more portable, open and accessible.
(Before anyone utters the content access issue, know that Google and other vendors are able to inject music, book and video content into Androids, which erases any iTunes advantage).
This puts Apple into an uncomfortable long-term position (unless being an early adopter innovator pleases their shareholders). Apple must either continue to innovate at a hyperactive pace or be satisfied with 5% of the market (or they could compete on price, but that is always disastrous). Odds are they will continue their innovation streak, settle for minority market share, and sue everybody over patent violations.
But they won’t dominate the market because 95% will be owned by several dozen competitors backed by Google.
Markets are defined by forces much stronger than innovation. Sure, it is essential to innovate, but whatever clever invention you whelp will be cloned, or worse yet improved upon. Consistent innovation will build a great brand but not Microsoft-level market domination. This is the innovators quandary, a Sisyphus styled purgatory from which some people chose not to escape.
January 4, 2011
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Steve Jobs needs to call Andy Grove ASAP.
Groves, one of Intel’s founders, was very clear on the concept of paranoia in the tech biz. Perhaps being Hungarian and thus too well acquainted with Soviet oppression, Andy learned paranoia at a young age. But he refined his paranoiac inclinations being in the technology business, a war zone where corporate death comes quickly and painfully. Like a battlefield where every soldier is out for himself, nobody and no company are safe from competition.
Not even Apple.
Wildly popular and cult-like, the iPhone and iPad made indelible marks in the consumer electronics space. Though pads and smartphones existed before Jobs took on the job, Apple refined the product category and advanced the expectations of the market. Combined brilliance in product design and marketing led to worldwide buzz, techno lust and a stock price that makes members of the House of Saud blink ($330 but leveling off, though still almost half of their neighbor Google’s share price). Yes, iEverything seemed like a juggernaut ready to run rough over the entire gizmo landscape.
Which is why Steve needs to call Andy.
 Several news reports show that competition is catching up to Apple. Nielsen notes that Android smartphones are now outselling iPhones (though the pending Verizon deal will likely add some gas to Job’s jalopy). At CES, an estimated 100 new pad devices will be unveiled – nearly all of them are running Android, with HP’s webOS being treated worse than a redheaded stepchild with bad breath. The two brightest points of light in Apple’s device line-up are under assault by a ‘free’ mobile operating system, appearing on literally hundreds of new phones and slates. Worse yet, Google is allegedly ready to give application and content developers a larger share of sales price and critical buyer demographic information, putting Apple’s (and even Amazon.com’s) content distribution network under exacerbating pressure.
Steve, you don’t really need to be paranoid … they are out to get you.
Strategy is a key aspect of marketing. One strategic element that remains pure throughout is that market share ultimately means more than style or margins. Microsoft made only small change on each copy of MS-DOS and later Windows, but they assured it was the de facto desktop operating system and reaped many rewards, from OS revenues to being the top office application provider. Apple is not using this strategy and Google is. This explains why Android, in a very short time, overtook Apple in mobile phones and by the time next year will have done the same in slates/pads.
It pays to be paranoid, and to be born that way.
October 13, 2010
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A start-up client of mine maintains an interesting page on their intranet that showed when employees typically come and go. The CEO routinely arrives at the office around 8:00AM, the software architect by 10:00AM, and their hotshot Java geek leaves the building at o-dark-thirty.
Technology is shifting time. In the bad old days (say 1998) lives were regimented. Between work and television, most Americans kept static and well matched schedules. Most everyone was at work at nine, home by six, integrated with their couch by eight and using Jay Leno as a nightlight for foreplay around midnight. Lives between people were synchronized out of practice and the necessity of both communing at work and the nature of broadcasting.
Technology has made work life at the start-up asynchronous and may well spell the death of broadcasting as we know it (expect the water cooler phrase “Did you catch blah-blah-blah on TV last night?” to be replaced with “You ought to Hulu blah-blah-blah when you get back to your desk.”) Sorry Jay.
Television is the more rapidly changing market now. Recently, a report surfaced showing that younger folks are much more prone to time shift their television viewing, mainly using DVRs. But they are also abandoning television all together (I dumped Comcast and gave away all my TVs earlier this year). Though real-time TV barely retains majority of viewership (52%) online entertainment occupies eyes more so than even on-demand viewing via cable and satellite companies. Youngsters (who for curmudgeon’s sake we’ll define as anyone not alive when Jimmy Carter was elected) consume only 41% of real-time TV, blowing apart the old image of television addicted children (they are Internet addicted today).
The trend will continue if Apple and Google have anything to do with it. Apple intends to offer reruns of television shows for the standard iTunes 99 cents. Google’s set top boxes (STBs) will allow for apps to be installed that facilitate online streaming (and content giant Sony is interested). Hulu is already popular with people who have abandoned TV but still need an occasional night to mentally vegetate. In short, as technology allowed the aforementioned start-up to radically shift employee office hours, so too is it disconnecting people from broadcast television, which may well suffer the same fate as newspapers – declining viewers, declining advertising revenue, scattered bankruptcies, forced mergers and a public that could not care less.
It is ironic that at the moment in human history when we literally have 999 television channels to chose from that the changing economics of broadcast will wipe most of them off your sets.
The other irony is that of newspaper and magazine fates. These were the original asynchronous media, ones that suffered greatly when television brought synchronized content to the country, then suffered more when the Internet brought better unsynchronized content to the world. Print publications got tackled high and low, and most will not make it. The shuttered Barnes & Nobel store down the street shows the future, as does the corner newsstand that survives only by the good luck of being near the town’s most popular breakfast counter. Newspapers are going online (which includes being in your pocket on your smartphone), magazines are being replaced by web sites, e-readers are eliminating printed books and brick building book stores, and television is devolving into a series of YouTube clones.
There is a real-time marketing lesson in this asynchronous Marketing Memo. People adapt their lives to necessity and preference. Technology changes the former and facilitates the latter. Knowing what people want and how to achieve that with technology is always the game. Fire was once the hot technology (groan) because people had a preference to be warm and not eat raw meat. We also tend to like flexibility in our lives, and being able to shift our activities to when it suits us is a constant goal. If you are in the content business, a primary objective is to facilitate content consumption on whatever technology people prefer and whenever they prefer to watch. Smart phones, slates and pads, and even those dinosaurs called PCs are the new video content targets.
September 14, 2010
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America used to beg for immigrants, because the joint was big and there was plenty of room and opportunity to go around.
Kinda like the Android market.
IDC caused Steve Jobs to dance a jig (not a pretty sight) when they predicted that the smart phone market would grow by 55.4% this year, a full 10% more than they had last prognosticated. Steve could hear cash registers ringing at every Apple store with thoughts of iPhones flying out the doors. IDC then caused Jobs to change underpants midday when they also predicted that Android and Windows phones would lead this surge in sales through 2014.
Cachet casts a short shadow.
IDC thinks Android smart phones will comprise nearly 25% of units within two election cycles (and can we just call them ‘phones’ since they will be the market by 2014). Windows phones are estimated to take a relatively paltry 9.8% share, which is vastly superior to their current and enduring abysmal numbers. This future estimate of Windows mobiles also indicates that medicinal marijuana sales are soaring in Framingham.
In the wake of two key competitors rising, IDC also expect Apple to fall, from their relatively lofty 14.7% to a near single-digit stance at 10.9%, just above Microsoft. In short, the market is growing strong and Apple will have a smaller piece of the larger pie. Apple’s unit sales will be up, but their dominance and leadership brand will sink faster than the Sri Lankan navy.
(rounding out the roster, RIM stays steady and Sybian declines though they maintain overall leadership)
One need not ponder long why Android is winning. Like MS-DOS and Windows, Google is making sure that everybody who wants to make a smart phone has a good (enough) operating system and that developers can get started on the cheap. Microsoft made their billions by being ubiquitous and the common technical currency. With no profit motive in the OS itself, Google assures that Android becomes the Windows of smart phones, though without the need to reboot your handset every hour.
Verizon is helping.
Selling handsets is a mixed game, with incestuous finances between manufacturers and carriers. Verizon champions Android not only because being shut out of the iPhone phenomenon left them in a snit, but also because they see opportunities not open to others. Verizon’s app store is an example. Getting iPhone apps involves going through Apple, which for various reasons restricts what is available. It also keeps carriers from making money on apps, which is a lucrative and rapidly growing business. Since Google’s goal is to be ubiquitous, expanding the total app count and perpetual app availability is essential. Thus they don’t care, and possibly even encourage, that other app stores exist (they only created and sold Nexus One handsets to seed the market). Google may some day shutter their Android app store for lack of interest.
There are three interrelated marketing lessons herein.
1) Today’s new and expensive toys becomes the commodity of tomorrow. iPhone features will be in nearly every pocket by 2014, though not iPhones. Attempting to live on mere cachet is, in the long run, impossible and unprofitable.
2) Forcing such commoditization is a way to make big money … tangently. Google doesn’t earn meaningful lucre from Android licensing (it is, after all, a Linux derivative). But they do earn ubiquity and such massive scale of adoption leads toward making money in other ways.
3) Open markets drive commoditization, and thus encouraging people to make the small bucks (app fees) creates a market place that is bigger and more varied than your walled-garden competitors. As Microsoft proved, that strategy makes real money in the long run.
Now, if the analyst at IDC will put down their bongs and put their hands against the wall …
September 7, 2010
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 Google is proving an old joke right, and in the right way.
The joke was that UNIX is the original computer virus, spreading like an epidemic to every conceivable computing platform. Geeks used to laugh at this line … until Linux was first spotted running side-by-side on both a surplus x86 desktop and an IBM mainframe. It then leapt onto cell phones, into routers, and I think there is a Linux application for my toaster.
It may in your next television.
Samsung – whose cell phone division likes Android in the same way sumo wrestlers like cheeseburgers – let slip that they are considering baking Android into televisions. This is no meager moment because Samsung makes more idiot boxes than the public school system makes viewers. In fact, Samsung make more boob tubes than any other enterprise, and is single handedly responsible for most of the traffic on Best Buy’s web site (Samsung offers 82 different sets at BestBuy.com, with Sony running a distant second with a trifling 27).
Threatening to put Android on Samsung TV’s is a significant market trend event and a significant marketing move.
With few details, we can only speculate on what an Android TV might be (but it won’t be Google TV). Google and Samsung are wise enough to learn from other people’s mistakes, including Microsoft’s WebTV, Wink and Open TV, and thus avoid doing the same dumb things (like Google TV). Each of those forgotten offerings was either a disaster or a mere calamity, depending on how many worthless shares of incentive stock you held. Each product attempted to merge functions of interactive computing with the completely non-interactive purpose of television. Each company discovered – in exquisitely painful ways – that people watch television to avoid interaction – interaction with computer, spouses, children or anything else annoying. Thus interactive television was doomed from the conceptual start.
Which partially explains your set top box (STB in the industry lingo). Have a look at that gizmo. Internet ready. USB ports on the back. A keyboard we call a remote control. CPUs with more horsepower than your cell phone, which is a multitasking general computer. Your average STB has more computing power than my first four personal computers combined. This is because the cable and satellite industry understood the power of digital media, and needed to put computers on your TVs in order to deliver goods above and beyond basic cable.
Which is why Samsung wants to put the computer in your TV.
A major shift is occurring in video entertainment media. The old means of consumption are approaching an evolutionary epoch ahead of a rapid decline. Once digitized, content becomes portable. Your laptop can stream off of Hulu.com. Netflix and Amazon can stream movies to your gizmo enabled monitors. You can watch reruns on your iPhone, and no doubt some criminally insane zealot is developing a video watching app for a Microsoft cell phones (which shows even tiny markets attract developers). We are steadily shifting from a nation of people who shared televised moments (who didn’t watch Johnny Carson and joke about it around the water cooler the next day) to a species that consumes content then Twitters about it to share asynchronously.
Which means broadcast television as we know it is doomed.
This is one reason Samsung is considering baking an embedded computer into your electronic baby-sitter. Television is all about content, and content is now escaping the traditional distribution channels. By the time a television program reaches you today the production company, television network and cable company have all eaten a piece of the profit. Steve Jobs first figured out that digitized music needed a more direct path to consumers, and cut out the record store and wholesaler. As musicians taught themselves digital production, they started to cut out the record companies.
Samsung will help make possible cutting out Comcast (hmmm, why did my Internet connection disappear when I typed that?)
Like many things visual, Netflix showed the way. Once broadband penetration was wide spread enough, Netflix stared streaming movies to your TV set via a proprietary box. They could easily do the same with an Android app inside of a Samsung television. So could Paramount pictures, who might want to cut Netflix out of the profit chain. So could Demented Dave’s Demons, the local punk band who wants to distribute concert footage to people in Mongolia. Samsung is accelerating a trend to flatten content distribution. Any middle man will be on the losing end of the equation.
This includes Steve Jobs.
Shift happens, and the market for video content is shifting to a direct model. Ignore the economic efficiencies of delivering a movie directly from a web site to a million televisions and eliminating DVD manufacturers, packaging companies and the postal service. Do imagine the producers being able to cut the price of a movie rental in half and still double their profits. Do imagine the long tail behind any episode of any television program being rentable from now until really jazzy trumpets start blaring overhead. This trend is unmistakable and the largest maker of televisions in the inhabitable world and Canada knows it.
So does Google, who will be able to cross index your Internet searches, mobile locations, lunch break food preferences as well as your television viewing habits … and sell your detailed demographic profile to advertisers.
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