Let’s say you’re an electronics manufacturer hoping to build the next great gadget. What do you have to do to go about it?
Basically, you need demand for your product. However, getting that demand isn’t as simple as building the better product in a vacuum. You need to build a product that gives your target customers the maximum value - and thanks to the developer interest issue that comes with the new world of apps, newcomers often find that it’s a physical impossibility to deliver better value when they cannot offer a range of applications out of the gate. There are two realistic plans.
Plan A: Right On Time with the Best Product
If you’re fortunate, the market will be untapped when you have your idea. In this case, you have to consider who exactly your customer is. This is not the obvious answer. An example can be taken from the phone market: the customer is the combination of customers and carriers. While in general consumer demand drives carrier demand, they’ll still try to arrange a situation that’s better for them first, consumers second.
I believe this is where Android derives much of its success: the carrier has a lot of control over the device’s makeup, the manufacturers are many small companies which have less individual bargaining power, and they have flexibility to differentiate against other carriers. The iPhone provides the exact opposite, because they degrade the consumer experience.
The result is that carriers promote Android where they can. Consumer demand helps correct this because not having the iPhone results in negative differentiation: customers prefer other carriers instead. When every carrier has the same phone, however, the iPhone is doing nothing to convince customers on other carriers to switch back, whereas an all-Android market gives good operators the power to be better or worse than the others. It keeps them from becoming nothing but a wireless ISP, with all the appeal of a utility company.
The way this played out was that the iPhone was first to the market with a next-generation smartphone. Eventually Android came along with a more carrier-friendly system, and this enabled it to take the marketshare lead. For Google, it seems to have worked out great, because marketshare is most important to them: the more users, the more ad money they make.
Apple had a smarter plan, though, in terms of profit: because they are one huge manufacturer with heavy consumer demand, they have huge bargaining power, which drives up their profits. On top of that, the focus on user experience over carrier convenience drove users who prefer to pay for quality applications over to their platform, amplifying the App Store profits. This wouldn’t allow Google’s ad-driven model to work as well, so they have the carrier-friendly approach instead.
So why didn’t this work for Microsoft? They tried to compete in the same market, but they can’t compete on carrier friendliness because of their focus on user experience, and they can’t compete on user experience because they’re not doing a good enough job to overcome the lack of functionality caused by being late to market and not having apps as a result.
I wouldn’t count Microsoft out, because they’re the most business-friendly of the three, and in 23 years when corporations finally buy new phones Microsoft could gain a lucrative niche there - unlike WebOS, which provided only minor theoretical advantages. However, this path is not for those looking for a quick buck and who are late to the market they want to enter. For that, it’s time to go to Plan B.
Plan B: Late, but Using a Parallel Market to Gain Traction
This is the Amazon route: build a product with a different primary goal, with enough attributes shared with the market in question that you can migrate it into that market later with something close to a mature platform and user base. The Kindle e-reader is a better platform for reading than Android/iOS1, and it was something that Amazon built on when it built the Fire.
The Fire is interesting, because it’s widely considered to be a mediocre product. Once (well, if) we have a measure of its success, we can answer an important question: whether a mature platform is all that matters for success, or if a mature platform won’t save you if your product stinks.
Companies that can take this route are companies that have the hardware and software ability to make a device in the really big market, but have a primary focus on something else that they dominate. Two other possible examples are Nintendo and Facebook. Nintendo would be well advised to make a device in the iPod Touch’s class that is built for gaming first, apps second. It should provide better value to kids and teens who are more interested in games than Twitter clients - if they see that Nintendo’s device does games really well and apps OK, many will prefer it to the iPod Touch which does apps really well and games OK. Unless their gaming platform is compromised so much by this that a dedicated gaming platform is a better value proposition for those kids, it would give Nintendo a platform that they can build on, moving up to the TV/console level, and beyond.
Facebook could also do something similar, though it’s significantly harder for them since social network integration on existing devices is hard to beat. Theoretically, though, a phone that does social networking first and apps second could find a devoted niche to provide its platform a home.
Platforms of the Future
It’ll be really interesting to see how Google/Apple TV will come to life in the next couple years. Though I still think that a Siri-powered Apple TV, with improvements, would be a real innovation, Google also has the ability to make something similar, and Google’s advantage is that TV is more similar to the phone market than the tablet market. While there’s nobody standing in the way of what TV you buy, the integration with the media you watch on the TV is dominated by cable and media companies. Google is not afraid to buddy up with them, while Apple prefers to force them into submitting to their will.
I’ve grown pessimistic thinking about it. While Apple has relationships with media companies that Google does not, who is to say those are friendly relationships? Google is perfectly positioned to give them what they want and still get what it wants. Apple will have to work a little harder to achieve that - and Google has learned from Android. They must know that they can’t let Apple be first to the market, and they need to be competent with their user interface, and they have to have better content - especially on a media-only device like a TV.
The best case scenario for Apple is that their product puts whatever Google is working on to shame - giving the industry its dreadnought moment and forcing everyone else to start from scratch. The worst case scenario is Apple releases a TV several months after Google TV is out on store shelves, and Apple can’t extract comparable media deals with the content publishers because Google made them better offers.
What I’m worried might happen is that Apple will make the better product, but it will sputter out in the market because external forces conspire to make an inferior product the better value proposition. It has happened before, and it will happen again.
