If you are TechCrunch follower you may have read Sarah Lacy’s piece earlier in the month on Yawn: How Did Big Tech Companies Turn into Big Boring Banks? It was an Op:ed piece on how the Big Tech Brands in Silicon Valley had now matured into utility stocks and it was the new crop of start-ups (e.g. LinkedIn and Facebook) that are now carry the innovation torch.
This of course is not a recent problem for the Tech Stocks in the Valley. When I first mapped the winners and loser of this current wave of the MobCon back in 2007 I discovered very few of them had managed to ride the wave to prosperity. Indeed most had either failed or at best flatlined on their commitment to delivering their promise to deliver growth to their investors since the dot-com crash.
In this they were not alone because the “losers” group also contained the world’s telcos and media companies. Be it Sony, News Corp, New York Times, Vodafone or AT&T the market had decide that their “growth by internet” strategies had failed to deliver on its promise. Even if they hadn’t realised it the market had called each of these industry sectors for what they are… market enablers rather than the market disruptors of the future.
The successes? Well we had the start-up survivors of the dot-com era. Google, Amazon, eBay, Salesforce and one or two of the enablers (e.g. Abobe). Then there was Apple and Nokia.
That’s right Nokia was right up there with Apple and Google as one of the post dot-com success stories. The interesting thing being of course that both Apple and Nokia effectively gave the internet a miss while all those Big Names of the Valley that banked so heavily on a connected future were effectively being overlooked by the investors seeking growth.
Today the story is very different. Take a look at this interactive chart on Yahoo! Finance and you’ll see that Nokia’s share price has slipped back to join Microsoft and the rest of the post dot-com losers in the Media, Telecoms and IT industries.
Viewed over the long-term the demise of Nokia as a growth stock appears to be inevitable. It is just another one of those media, telco, tech giant sthat has failed to play its hand well at the popular game of internet. The problem is because it was one of the few winners in the 00′s its demise today looks catastrophic. Indeed the outlook for Nokia is so dismal that Wall St 24/7 has declared Nokia one of the ten brands that will disappear in 2012.
As I have said elsewhere I have found the Nokia story interesting in the context of asking the question how did both the market and innovation leader manage to play its winning hand so badly? Here was a company that not only spent significantly more than anyone else in the sector on R&D but also delivered all the breakthrough technologies and experiences that were set to define our mobile lives well before the arrival of the iPhone. Back in 2007 when the iPhone was launched the game was Nokia’s to lose and yet somehow it has managed to do just that.
I suspect the reality is Nokia’s decision to not play the internet game, although it appeared to be a master stroke in 2007, has backfired.
If it had played the game along with all the other losers during the dot.com frenzy it would have lost little in the larger scheme of things but it would have learnt a few valuable lessons that would have placed it in a better position to play the game this time round (i.e. The Mobile Web).
The rules of the game are very simple. To be a winner you need a disruptive growth story. If you don’t have a disruptive growth story you’ll get hammered.
Simple fact is it came to the ”disruptive web” poker game far too late and when the established players with all their dot.com experienced called its bluff it blinked and folded before a card was played.
The take away from all this? If you don’t have a disruptive growth story then don’t waste your time trying to play the “disruptive web” game. It’s easier to just do what the market leaders in Silicon Valley do. Acquire start-ups at a frenetic pace. This at least provides the markets with the illusion that you are still in the business of creating tomorrow.
I was reading Steven Johnson excellent book Where good ideas come from [The natural history of innovation] earlier this month and one of the ideas that appealed to me was the 10/10 rule he described for adoption of media technologies in the 20th Century. The basic premise being it took 10 years to build the platform and a further 10 years to acquire a mass audience.
He also goes onto suggest that thanks to the internet this timeframe has shrunk to 1/1 (i.e. 1 Year to build and 1 year to acquire a mass market). This I think is something of a misnomer simply because the example he uses (i.e. YouTube) plugs into the existing infrastructure and audience. The interest has evolved to the point where any new business model is more mashup than new build. The audience already exists. You just have to discover new ways of harvesting it.
This is the mistake investor have made throughout the history of the internet. They confuse the startup and its technology as the platform when in reality it is little more than the programming. The web is far easier to understand in the context of Facebook being the next generation of TV or Radio network and Farmville being one of the TV or Radio shows than as it is currently be represented as a revolutionary new wave of media and/or communications technology.
As I have said before it is relatively easy to present a case that suggests the web isn’t evolving. Yes the quality of the experience is improving in much the same way that Radio evolved into Radio with Picture (B&W TV) and then onto color TV and now HD-TV and interactive TV (Think Console Games). But the programming has changed little since the very early days. Messaging, Chat, Games, Search, Blogs, Video, Commerce, Location and Web pages. All these things existed in some shape or form as far back as the early 1990′s. The business models are iterating along with the improvements in the overall quality of the user experience with each new generation of hardware.
The only problem these new networks and programs have is where originally the barrier to exit was getting out of the chair to turn the knob on the radio or TV to change the station now it is as easy as a click of the mouse or a swipe of the finger.
In this context it is easy to see that the Mobile Phone and now the SmartPhone is just the next step in the evolution of the hardware.
What is not so easy to see is the underlying strategic thinking which drives the Telcos and the handset manufacturers in their decision-making process on what the next generation of technology will look and feel like.
Around the time of the launch of the iPhone the strategic landscape in Telco land look something like this. Depending upon where you were standing in the MobCon landscape (Media, Telecoms, IT or Commerce) your were either thinking the future of mobile was publishing to people on the move, interacting with people on the move, connecting with people and/or aggregating their social life on the move or if you were really clever you may have been watching what was happening in Japan very closely and thinking about how you can help people to create and augment their mobile lives.
Take another look at Nokia MobCon radar from around this time and you’ll see that it had most of these strategic bases covered. So why did it fail?
In many ways the rapid rise of the iPhone was a result of the post dot-com innovation vacuum in the US mobile telecoms industry. The launch of the iPhone essentially released a lot of pent-up energy across the US which has created massive growth in the sector over the past 4 years.
Nokia was outplayed simply because its strategic thinking in 2007 was “Been there done that… what’s next” rather than these “Guys are late to market but so is the market they are operating in… this may well create the illusion of growth simply because its filling a massive vacuum”. By the time it realised they had underestimated the level of excitement that was being generated by start-ups and established players trying to fill in the US Mobile technology gap it was too late. Apple and then Android had all the momentum and Nokia looked like yesterday’s story.
The problem was compounded by the appointment of Stephen Elop and the subsequent Windows partnership announcement. It looked like an admission that Nokia had fundamentally misjudged the seismic shift in market sentiment and that even though they were still the market leader they were now playing by somebody else’s rules. They were no longer the game maker. Just another player.
In retrospect could they have played their hand better? Of course. Can they reclaim their position as the undisputed market maker? Hard to say but if I was in their shoes I’d be searching desperately for another “vacuum in the market” to fill.
Posted on June 23, 2011
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