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Why iPad is a winner and why eeePad and windPad are going to lose?

In Product Strategy, technology on 03/06/2010 at 3:47 pm

Asus and MSI has yesterday announced their foray into the emerging tablet market by announcing two tablets each called eeePad and windPad respectively. Each will have one tablet for each Android and Windows 7 where Android based tablet will be 20% cheaper than the Windows 7 based tablet. According to the product manager of MSI, they are convinced that consumers want a product in a sub $500 segment with more computing options.

This announcement from Asus and MSI gives me an impression that they are trying to take advantage of the hype created by iPad. They are trying to extend their EeePc and Wind brands into tablets and hoping to benefit from the initial success of iPad and the potential market which iPad has created for tablets. But their focus on below $500 and choice of features sounds a bad decicion to me.
In this blog I will explain further why so.
By offering a tablet each with Android and Windows 7 both of these companies are indicating that they are not sure which OS is the best choice or they have not done their market research properly. By claiming that consumers want the features of a PC in a tablet shell, and pitching their products against iPad, they are clearly unaware of the positioing of iPad. iPad has never claimed to offer the features of a PC. Neither it has the features of a phone. The choice of two operating systems will increase the cost of after sale service and support for Asus and MSI. This will have a direct impact on the bottom line which will already be thin due to higher production costs during the introduct phase of product life cycle (also remember that these tablets will have more features compared to iPad).
By moving first into this tablet market (so far more than 2 million iPads have been sold) Apple will be able to grab a bigger market share of this market. They have a very strong brand and are associated with innovations. They have offered a core iPad product which they can easily augment with some more features such as camera or usb port if there is serious competition. The price of iPad is higher which will give healthy margins to Apple. As the scale of production will grow the fixed costs will become a lower fraction of the costs of iPad and Apple will be able to drop the price and further boost the production. Any competitor such as Asus or MSI who enters at this stage into this market will face annihilation. Apple will have the choice of reducing the price of current iPad and offer a new augmented version of iPad at a higher price point.
Given that both Asus and MSI are targeting the sub $500 segment with more features means that their profit margins will be lower and ultimately they will be commoditizing their products themselves. Because they will not have the economies of scale due to late entry, they will face the dilemma of high production cost and lower prices and will be unable to compete against Apple. Their only bet will be against other non-Apple customers to get some market share. But none of these players will have any competitive advantage.
This is classic case of first mover advantage which Apple has got and now the competitors will play the game Apple wants them to play.
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What size matters for start-up businesses? For new and incumbents.

In Organization on 25/02/2010 at 10:45 am

I was discussing with some friends at MBS about a better model for start-up businesses when this question came up. What is the right size for a start-up? The general agreement after the discussion was that most of the start-ups start small with only handful of people who at the start are called entrepreneurs and later become founders :) This smallness in size is very natural. These start-up businesses are generally based on some idea which the founders conceive and then try to shape up in the form of a business by securing finance (or self finance), setting up relevant operations, building up the right technology to create capacity to get to the customers etc. As the firm’s operations and capabilities grow, the company staff numbers grow accordingly and then the founders realise that they need a dedicated human resource personnel to manage the workforce effectively. In case of most successful businesses whether they are technology oriented or not, the market success of the operation has dictated the firm to grow. It all depends upon whether market needs the value the new company is offering or market is not interested. If market embraces the new offering and customer numbers grow then this is like more oxygen for the firm and firm grows quickly and then comes all the decisions about growing business, maintaining growth, hiring suitable workforce, building the right hierarchy for the various functions of the firm etc.

We all agreed on this when a friend asked another question. Is the same strategy workable for an incumbent firm too, especially if it is trying to open up a new channel to diversify its reach to customers or trying to grow into a new product line? This generated a mix reaction among the group. Some people were in favour of this strategy while other argue that an incumbent company should use its resources to invest some free cash flow to invest in the new ventures.

My answer to this question was that there is not a single right answer to this problem and it depends upon a firm’s intention, target market and its current position and product mix. No two businesses are similar in the sense that if they are similar then they are perhaps dealing in commodities and they are only competing based upon prices. If we exclude such businesses and consider only the businesses which are adding value by creating new technologies or introducing some new business model then these businesses by nature are different from each other. Whether it was B&N in USA entering into online bookselling in order to thwart the threat posed from 150 or some online bookstores (including Amazon) or Sensis in Australia going online for its directories business anticipating a surge in the number of customers, both businesses had different set of challenges and they must had to adapt their strategy accordingly. In case of B&N they threw bucket load of money into creating a good online presence but could not match the technical capability and sophisticated product development capabilities of Amazon which invested much less than B&N. But it also depended upon the business model of the two firms. While Amazon was a tech start-up and therefore did not have any investment in brick and mortar, B&N was a brick and mortar business having more than 700 stores in USA at that time. Similarly business situation was different for Sensis when it went online recognising that the online channel offers value to customers and they will embrace the online search in the coming years. If they did not move quickly or if they moved only when their print business started declining then they would have given too much time for any other start-up to get into their territory and eating their market share.

But the question is still unanswered. Usually the incumbent firm has a brand to protect from any fallout of the new venture while successful ventures are gradually brought back into the parent brand fold. I think in today’s globalised and competitive market it should be part of corporate strategy that how the new investments will be made into new ideas (line extensions, product extensions etc). The key factor determining the success for the new product teams is whether they can stay small while taking advantage of the common resources that the company offers and at the same time don’t bogged down by the traditional beaurocracy.

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Can Google’s Nexus One break the Apple’s iPhone dominance?

In technology on 21/01/2010 at 3:25 pm

There was a lot of excitement in technology world about the launch of Nexus One, the Google’s much heralded smart phone device which was launched on 5th of January 2010 just before the start of CES 2010. A great phone on paper, this phone boasts specifications that can easily beat iPhone such as replaceable battery, better camera, faster CPU etc. This phone was developed by Google where the HTC was responsible for engineering and manufacturing the device. It runs Google’s popular Android OS which also has a growing list of applications to neutralize the Apple’s iTunes store. So with all of these developments, is 2010 is the year when Google can give Apple a good competition in the smart phone market and takes away some of the market share from iPhone? No I don’t think so, and there are my reasoning behind this answer.

First it is just a start for Google to enter into the mobile phone market. Just like every market and business the mobile phone market has its own dynamics where support and compatibility among other cool features are important aspects of the consumer requirements. Google either needed to offer this phone through the established telcos or needs to partner with another vendor to make support available to end users closure to the targeted markets. So far the Nexus One is launched in US with offerings in other countries expected later this year. Google has opted for both options as the phone is available through T-Mobile at this time in US on contract as well as available to buy standalone from Google’s website. Looking at the Google forums it seems that many users are frustrated about a lack of support information available to troubleshoot phone issues. A quick search on Google gave me a link to HTC website dedicated for Nexus One users. This site seems to have step by step information about using the phone and its operating system (i.e. Android). A good effort but by no means it can be compared against the maturity of the support and information offered by Apple’s iPhone.

Second reason for my belief is the brand identity. Google has great reputation in software making but most of it’s applications have a minimalist design and remain in beta for much of their product life span. It took several years for Google to get to this position where it is known for making innovating software products. Similarly it will have to consistently and regularly offer better, reliable and innovative phone products if it wants to take on Apple who has built its brand by consistently inventing innovative products and creating new product markets (read iPod, iPhone, iTunes etc). I don’t currently see Google’s brand standing for making good phones and neither I rate HTC as much I rate Apple.

Third and very important reason is the eco-system which Apple has created over years through iPod and iTunes store. These were highly successful products even before the introduction of iPhone. iPhone naturally extended the reach of iTunes to wireless and provided real benefits to end users. iPhone is seamlessly integrated within this eco-system which many companies in recent times have tried to copy but have failed to achieve the same level of success as Apple. Also by keeping a tight control over iPhone applications, Apple makes sure that all applications meet the UI and other criteria set by Apple which translates into a streamlined, expected and smooth experience for iPhone users. Google has developed its own version of app store which is called Android Market. Android market offers more flexibility to software developers as compared to Itunes app store which is tightly controlled by Apple. However loose control also has its own pitfalls such as potential for malware and unidentified security flaws coming into Android applications.

This is why I believe that Nexus One is a good attempt but to compete against iPhone Google needs to tick many more boxes.

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