© Mak Joshi October 5, 2011
There was a time when the First Mover Advantage (FMA) was touted as a significant competitive advantage. The first entrant in the market took most of the market (~40% market share) and the “laggard” entrants were left with very little upside. You enter first, bring good quality products and take a big chunk of the market. That was the traditional thinking.
Things have changed and how! What drives business today is not who enters the market first or how deep your pockets are. What matters more is the speed of innovation and how well you can engage your customers with your innovations. Quality is now work in progress. Consumers expect you to stumble along the way and eventually get it right. They also understand that innovation, by its very virtue, is not a smooth sailing road, but by bringing to market what customers perceive as the future, companies can expect consumers to go for the ride and enjoy the scenery, while paying for it.
Let’s take the case of two tech companies, viz. Apple, Microsoft,
Both these companies are giants in their own right, but have very different pasts and destinies.
Apple virtually created the PC market in the 80s, before they let it all slip away. By mid 90s, Apple was a non-entity, and left alone by most to die a natural, slow and painful death, except for the true Apple believer. Books were written about Apple’s imminent death and how unbundling the hardware and OS to create an “open yet proprietary network” in the early stages of the PC market had led to opening up of the PC market to the likes of HPs and Dells and Intels and Microsoft’s of the world and led to Apple’s demise. All that talk made sense.
Microsoft was the darling of the software industry with their MS Office suite and Windows OS, yet a company everyone slowly learned to hate. MS continued to churn out one blockbuster product after another. After they were caught napping with the Netscape browser launch, MS quickly reverse engineered the browser, made MS IE part of the OS, and practically killed Netscape as a company. Soon after, MS arrived with the .NET platform and looked like a steady ship in turbulent waters. Though never feted for their innovation, they were excellent copy cats, and provided good quality me-too products that surpassed the innovators in market performance.
Google came along and rocked MS’s boat with their search engine and solid innovations in the internet space with their awesome search engine and browser and generated steady revenue streams in the search and online advertising space. A new shining star was born.
Come Year 2001, Steve Jobs had other ideas. A visionary man who cut his teeth in the PC market and then left to run other companies such as animation factory Pixar, he had learnt his lessons over the years. Seemingly out of nowhere, Jobs got busy with his innovations. Starting with iPod, Jobs launched the iPhone and the iPad, products that created whole new product categories.
In 2001, just when Jobs launched the iPod, how many of us thought that a revolutionary product had launched? Not many and certainly not me! Today, ten years later, in 2011, the iPod is “the” consumer digital music device of choice. See Steve walk us through the need for the iPod and the economics of music in 2001. Fascinating stuff:
In the wireless handsets market, Nokia ruled the handset mobile phone market across the pre-iPhone world. Nokia was the Microsoft of the mobile phone market and Symbian seemed like a powerful platform with no end in sight to Nokia’s supremacy. In the US, Motorola did a few things right with their Razor platform by changing the profile of the handset. At one point, in 2004 and 2005, Motorola could not make Razor phones fast enough to keep up with the demand. All that was about to change with some significant innovations in the smartphone market, again thanks to one man – Steve Jobs. The interesting thing is that everyone knew where the phone market was headed in terms of capabilities. Yet, only a few capitalized on it and even fewer were successful at it.
Today, in 2011, the iPhone is “the” smartphone consumers want and the iPad is “the” computing tablet that customers are willing to wait in long lines for. Apple has more cash than the US government, and for a brief period, had the largest market capitalization than any other company ever.
How did Jobs do it? What was it about these products that caused absolute frenzy amongst Apple’s customers and developed such an awesome brand loyalty? What can others learn from Jobs and how can we attempt to replicate his successes in our own markets?
There are several known reasons for Jobs’ success:
1. Consumer experience: More than “fundamental research” and “truly breakthrough new-to-the-world” products, Apple products focus on a far better consumer experience than any other hardware or software maker out there. In addition to the superior usability experience, Apple’s User Interface and graphics set its products apart. As Jobs once famously said:
"We made the buttons on the screen look so good you'll want to lick them."
-- Jobs, on Mac OS X's Aqua user interface (Fortune, Jan. 24, 2000)
2. Segmented market: Jobs knows Apple products are not for everyone. He has focused his product development on consumers who are “willing to pay” for Apple’s high class user experience.
“Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.”
3. Power of the network: Through the App Store and iTunes, Apple has been able to create a network of users and apps that has snowballed into a significant competitive advantage. Even with a “closed network”, Apple has been able to create more apps than the competing platforms on the market. In fact, the variety of apps available for the iOS is one of the major reasons why consumers choose Apple products over competing products.
Yet, there is one distinct advantage that Apple has over any of its competitors. That advantage is “Speed of Innovation”. As Jobs himself acknowledged, Apple was once very slow to innovate:
"It wasn't that Microsoft was so brilliant or clever in copying the Mac, it's that the Mac was a sitting duck for 10 years. That's Apple's problem: Their differentiation evaporated."
Through Apple’s semi-annual events, the company expects the markets to anticipate new and breakthrough products. Apple has made a habit and a routine developing and launching new products at these events. This is a different, more forceful and dynamic approach to unleashing innovation and has sped up Apple’s innovation cycles. Only a few companies do this successfully, year in and year out.
Jobs also understood the relationship between R&D and speed of innovation better than most companies, including IBM, Xerox and Intel, who have had great tradition of innovation and have been prolific at producing patents, yet have seen varying degrees of success with commercializing them.
“Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it“. -Steve Jobs, Fortune, Nov. 9, 1998
A common folly by marketers is to develop products by asking the consumer what they want through focus groups and advisory boards - what I call “lazy marketing”. Jobs did not let his consumers tell him what they want. He showed and told them what they must have!
“It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them.” -Steve Jobs, BusinessWeek, May 25 1998
“You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new”
Finally, what is the most important factor that leads to “Speed of innovation”? It is Executive Sponsorship. Companies where executives are highly involved in innovation have better growth trajectories, more satisfied customers and happier and wealthier stakeholders. Steve Jobs was "the" master executive sponsor.
RIP, Steve Jobs. The world is a lesser place without you tonight.