Shoaib Shaukat Online

Apple Inc: Poor Recall Strategy & Negative Brand Equity

shoaibshaukat — Fri, 16 Jul 2010 09:07:07 +0000

Apple Inc. in an unprecedented move has called a press conference for tomorrow Friday 16th July 2010. There are wide speculations about the agenda of this press conference and in particular about whether Apple will recall its iPhone 4 mobile phone which was launched in US in May 2010.

Since its launch iPhone 4 has attracted a lot of attention, positive reviews as well as complaints about its reception. But the impact of complaints and bad publicity is bigger than the record breaking sales which iPhone 4 has generated. At the least it has distracted the management and has the potential to become a bigger scandal and therefore damaging the Apple’s brand equity in the longer term. In this context, therefore it was important for Apple to respond to customer complaints quickly and reach to a conclusion. However like most of the companies Apple failed to respond to this issue appropriately and wasted time by issuing software fixes or making other excuses. This delay has caused this issue to become a crisis situation where many independent consumer bodies have issues warnings alerting the consumers to not buy iPhone 4.

Recognizing the severity of the crisis only now Apple has conceded that there was a design flaw in the development of iPhone 4. However the damage to Apple’s reputation has already happened and I believe iPhone 4 owners will give a second thought before purchasing any new Apple product in future.

Apple should have responded to this issue in a more strategic way. There had to be a strategic framework around each of the product launches and life cycle which could guide the management how to respond to these type of product issues.

It would be wise for Apple at this stage to offer a complete refund or replacement to all those customers which have affected by this recall.

This reminds us that how important the role perceptions play in the minds of consumers and important it is for the large innovative companies like Apple to protect their brand equity. In this case however Apple can only blame itself rather than to any of its sub contractors.

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

shoaibshaukat — Thu, 03 Jun 2010 05:47:55 +0000

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.

What size matters for start-up businesses? For new and incumbents.

shoaibshaukat — Thu, 25 Feb 2010 00:45:47 +0000

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.

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

shoaibshaukat — Thu, 21 Jan 2010 05:25:58 +0000

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.

Google’s new approach to China

shoaibshaukat — Thu, 14 Jan 2010 13:13:37 +0000

In an announcement on official Google blog site, David Drummond, SVP, Corporate Development and Chief Legal Officer of Google announced a new approach taken by Google towards conducting business in China. So far Google was playing by the rules set by Chinese government despite a lot of criticism from human rights groups as well as people in the industry who want to see the Internet free from any restrictions. But according to Google the attacks on its servers from Chinese attackers had forced it to withdraw voluntary censorship from google.cn search engine.

Google is a great brand which is built on the principles of free flow of information. This principal was severely compromised when in recent times Google acquesed to Chinese Government’s demands on putting certain restrictions on Internet search. A lot of people who followed the rise of Google felt that was a bad move on part of the world’s highly respected technology company. While now Google is trying to return to its principled stance, they need to be careful not to become a party in the ongoing and upcoming tussle between the world’s two biggest economies namely United States and China. Both of these countries do need each other more than they hate the strategic influence of each other. By unwillingly becoming a part of power politics Google might damage its great brand in this part of the world where public is not very much afraid of the rise of the China. Therefore it’s in the Google’s interests to play the role of a techprenuer which is focused on simplify the world and thus making money.

Chrome OS and New Digital Landscape: A Perspective

shoaibshaukat — Wed, 25 Nov 2009 13:02:00 +0000

Last week there were some interesting developments within the Digital platform landscape. Google made its Chrome OS available for the open source community on 19th of November with an official release planned in the second half of 2010.

What is Chrome OS?

Chrome OS is Google’s foray into the emerging paradigm of cloud computing. Cloud computing is a general term for any service which is delivered over the internet as a hosted service. These services can be divided into three categories: Infrastructure as a Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS).

Chrome OS which lies within SaaS category is an open source operating system based upon Linux OS to work exclusively for internet based applications with the only objective to make browsing and day to day tasks simpler for users. Because of the simplicity of usage the Google engineers will be able to focus on usability rather than on compatibility. Google has announced that Chrome OS will be available on selected Net-books or Tablets which means less compatibility issues and fewer headaches for engineers. By restricting hardware choices Google will be able to focus on adding functionality to the applications rather than focussing on the ever growing support issues.

With Chrome OS Google is challenging the way people use computers and internet today. With a Net-book or Tablet users will be able to stay online all the time just like a mobile phone. This will be made possible with the wider acceptance of inbuilt SIM cards for mobile network browsing (some vendors are already offering laptops with this feature) as well as general availability of WI-FI networks.

These devices will use Google’s cloud services to store all the data on the Google’s data centres rather than on a hard disk. Apart from the security and privacy issues, this approach eliminates the costs and complexity of evaluating, buying, configuring and managing all the hardware and software needed for various day to day uses.

Although quality of Internet access may be a problem but the past limitations on internet or network speeds are no longer there or soon will disappear. Globally Internet speeds have increased rapidly over the last decade and a growing number of users in developed world use a very fast internet connection. In Australia Telstra is already rolling out 100 mbps broadband speeds to its exchanges and whether or not Telstra is part of NBN the network speeds will increase significantly in next few years. Recognising this global phenomenon, Google wants to change the rules of the game which currently see majority of users around the world use a PC or Mac based computer or laptop for daily use.

More and more people are using Internet for personal, social and business purposes and a large number of interactions are within email, web browsing and social networking usage categories. These users do not need a powerful client to do all this as evident by the growing market demand for Netbooks which were unknown a couple of years ago. Realising this trend Google is trying to create a new market segment within the operating system market which is currently dominated by Microsoft. If successful it can be very lucrative for Google as it does not have a stake in the current market of operating systems. However by changing the rules of the game Google will have a first mover’s advantage and will be able to take a big share of this market segment based upon its brand equity and the ease of use of its offering. Other companies will follow suit but will be playing a catch-up against the innovation and resources of Google.

Google’s desire to capture the Internet market, continuously innovating and introducing new markets is not new. A difficult proposition for competitors but bodes well for the users. Google is forcing everyone to innovate; and innovate at a rapid pace. This fierce competition will give birth to many new products and overall everyone will be better off in the form of the availability of better tools to drive productivity or lower prices or free services.

Microsoft which currently dominates the market for operating systems, office applications and Internet browser is not oblivious of this invasion by Google into its territory. It recognises the potential of this new market (i.e. cloud computing and SaaS) and simplified computing with a simple OS. Just a day before the chrome OS announcement, Microsoft revealed the IE9 beta for developers. This version promises better conformance to standards, responsiveness and more importantly in my point of view ability for developers to directly access the graphics processor capabilities from within the Internet Explorer. Not only this last feature enables the developers to write faster and more sophisticated programs within the IE eco-system, it also provides a possible platform for Microsoft to counter the threat of Chrome OS. By introducing its own Internet Explorer based operating system Microsoft can compete against Google in this market. The cost of not doing that or taking the threat posed by ChromeOS lightly is not an option for Microsoft. In the past it has seen the erosion of its market share in the Internet Browser and Mobile OS markets due to its sleepy approach.

Market based economy or not? Paksitan’s suger cartel and Pakistan’s Judiciary

shoaibshaukat — Fri, 23 Oct 2009 05:42:56 +0000

In a recent court hearing http://www.thenews.com.pk/top_story_detail.asp?Id=25148 Pakistan’s supreme court has asked the government of Pakistan to ensure the availability of suger at Rs 38 – 40 per kilo at every corner of Pakistan. As I have discussed in an earlier post, this intervention on behalf of judiciary will not allow the market forces to work properly and the suger market in Pakistan will suffer badly. The suger mills where the ex-factory price is very close to Rs $36 will find it difficult to obtain the suger cane supplies because the growers will not grow suger cane because they can’t get a good price for their produce. Unfortunately our beloved judges of Supreme Court does not know about the market fundamentals. Rather than pressing the government to announce a ceiling on the price of suger, they should have allowed the government of Pakistan to come up with some better solution. This is the responsibility area of administration that what policies they adapt to allow the market to move towards a long term equilibrium price rather than price ceiling or rationing which will be the death of this market in Pakistan. There is a lot Pakistan can learn from Mugabe’s Zimbabwe.

Cooliris

shoaibshaukat — Tue, 08 Sep 2009 20:36:19 +0000

Just recently came across this funky application called Cooliris which acts as a cool, modern single UI for most of today’s content requirements including Youtube, flickr, twitter, news, RSS, and many other channels. The UI is elegant and contemporary if not unique (I have seen the similar design elements in XBOX 360). User’s can view their own videos and photos and as a whole provides a more satisfying experience than just viewing the media using traditional viewers.
The distribution strategy of Cooliris is quite agressive as much as their technology. This app is available on firefox (where I use it), iPhone (where I intend to use), IE 7 & 8 and Safari.

IT’s role is to innovate and add value

shoaibshaukat — Wed, 17 Oct 2007 13:32:00 +0000

My thought process is very much similar to the one presented in The problem with “Chindia” by Stephanie Overby in CIO magazine.. The problems about the alignment of IT functions with other business units are well understood. IT’s role as value creator and more recently as innovator means a broader role for the IT bosses and technical staff. This means they have to work closely with their colleagues from various business units in order to come up with the niche applications which can aid the business to improve its effectiveness. This needs different kind of skill-mix within the team compared to what is traditionally available. The technical minds need to have soft skills and their IT bosses need an understanding about the bigger business game in order to organize their house to match the business strategy. Coming back to the topic of discussion here, I want to submit that outsourcing to a low income economy does not automatically produces better or desirable results for the business whether it is China or India or Mexico or Brazil. I used to work for a large manufacturing company. They have significant presence on 4 continents and are a market leader globally with around 60% global market share. They had isolated IT departments scattered across the globe with little or no knowledge about each other. Few years ago the company management decided to adopt a global unified approach to market their brand more forcefully and to make use of their global synergies to propel the business. As part of this the IT adopted an ambitious transformation objective to have a single IT department where cost cutting through stream lining different projects was an important cornerstone of the policy. They agreed to use the same software, processes, networking models etc globally to reduce cost and make use of global IT human resources. At that time outsourcing was a hotly debated topic. Considering the cash flow situation of company and just like everywhere many of the top managers (non-IT) believed that outsourcing to a low cost economy (say India) would be a silver bullet solution. However the fact was that company had no business in India. They just acquired some businesses in China which they were struggling to manage. The bulk of their revenue was from North America, Europe and Asia Pacific (minus China). The R&D and innovation was conducted and initiated within mostly developed economies where the engineering talent was based. Fortunately the IT executive team realized that in order to support their businesses through IT, their analysts or consultants need to work closely with the business stake holders. This is a full time and very rigorous job requiring a lot of troubleshooting (most of the users don’t understand what they want) because of evolutionary behavior of requirements engineering. This is just one aspect of innovation being introduced through the development of the necessary software. Perhaps its easy to outsource some of the network and administration work. Some of the call centre work can be outsourced too. However in each case they had to consider that global presence of company means 24×7 operations. Where to base the data centers and contact centers decision required and understanding of all the strategic needs of the company rather than motivated from the Ch-India mantra we hear from the many industry analysts. Again it does not mean that China and India factor is not important. At the end of the day what matters are the basic economic concepts. In other words, the transaction cost of doing business need to be compared with the economic cost of doing business too.