First Winning Wars, Only To Lose Them Later
by Jean-Louis Gassée
My favorite Palo Alto stroll is a healthy seven mile walking tour past the surprising diversity of trees, from redwoods, to cedars, California oaks, gingkos, plane trees, a few water-sucking eucalyptus, and many more that I need to ask the city arborist about. Communing with suburban trees isn’t quite the same as on the trails in neighboring hills, but it lets my mind wander.
During a recent thought ramble, I involuntarily began to compile a roster of companies that won their early wars — crushing the competition in some cases — only to lose their lead or die altogether in later years.
Perhaps because of my own history, my alma mater Hewlett-Packard is first on the list. In the early 1970’s, HP owned the desktop market. There was brilliant insight and execution in the design of its 16-bit processors for the killer 9800 series of technical desktop computers. But there was a mystifying lack of strategic thinking in making the three models of the range radically different and incompatible, thus preventing a unified response when the 8-bit hobbyist “microcomputer” wave emerged. Only human factors, perhaps distraction caused by its problematic HP 3000 minicomputers can explain why HP failed to keep improving the processor of its 16-bit desktop machines.
HP also created the first portable, affordable personal computer: the pocket calculator. The HP-35 built for techies, the HP-80 for finance applications, and especially the programmable HP-65, complete with a tiny magnetic stripe reader, were without peer. Over the following two-and-a-half decades, HP released dozens of models, timid iterations that were eventually made obsolete when the Personal Digital Assistant (PDA) appeared. Here again, HP just gave up rather than use its technical and financial might to fight and, one day, integrate cellular connectivity.
One naturally thinks of Palm, a company whose reign was a relative flash in the pan. The company’s dominance in the PDA field led to a $54B IPO in 2000. By 2010, the company was defunct, leaving just a few shreds of software inside smart TVs.
BlackBerry (a.k.a. RIM) also comes to mind. Cleverly evolving from its simple pager beginnings, RIM ended up with a pocketable machine that synchronized your email, calendar, and address book “over the air”. Rightfully nicknamed CrackBerry, RIM’s creation was immensely popular, the de rigueur tool of road warriors, finance types, and middle managers, as well as “civilians”, such as my spouse, who delighted in the tiny but serviceable keyboard and the “no hands, no cable” synchronization.
As the smartphone market grew, BlackBerry was initially successful…but we know how that story ends. The company now licenses its software to upscale car makers, and to cheap phone manufacturers in developing countries.
Before smartphones we had simple cell phones, a market that Motorola invented and came to dominate after it introduced its DynaTAC series of phones in 1983. But the company, founded in 1928 as a manufacturer of professional (or “tactical”) radios for the military, fire departments, and businesses, failed to make a timely transition to digital networks and lost the cellphone crown to Nokia.
Nokia, which started as a pulp mill in 1865 (think Nordic forests), sold 100M phones in the 2009 Xmas shopping quarter, but was unable to compete with the iPhone and the handsets powered by Android. Fearing death on a lonely ice floe, the company first embraced Microsoft’s mobile operating system, and then sold itself to the Redmond company in 2014. The acquisition didn’t work; two years later, Microsoft threw the towel — and $8B — down the drain. Microsoft had a chance to fight Android by making its mobile operating system free and rely on mobile versions of Office (as it does today) to make money. But it was emotionally attached to the Windows PC licensing model. A huge missed opportunity.
As I walked over to El Palo Alto, the towering redwood that gives my town its name, I began to weigh the causes in these lost wars. Are they “mechanical” — pre-ordained, almost — or human?
On the mechanical side, disruptive innovation is often invoked to explain the fall of former giants. The fall of Digital Equipment (DEC) makes a good case for the theory (which was defined by the “World’s Top Management Thinker”, Clay Christensen).In a seemingly by-the-book instance of Disruption!, DEC, a company that once owned the minicomputer market, sought refuge in its high-end 64-bit Alpha processor architecture as powerful 32-bit Intel processors eroded the value of its minicomputer.
Perhaps…but I can’t help think back to a dinner conversation with Ken Olson, DEC’s Grand Old Man founder. He graciously conceded that, yes, he knew people used personal computers these days, but he couldn’t quite see why. At home, he had an Ethernet connection to the factory and was perfectly happy using DEC’s All-In-1 software and its two-character command set on a “glass teletype”.
Not seeing the threat from the PC clone organ bank, and not applying the company’s technical and financial resources in order to fight the enemy on its own ground is a human mistake, not an application of the laws of physics. When the PC clone organ bank won, DEC was sold to Compaq which was then absorbed by HP in a disastrous “merger of equals”.
The human element in Nokia’s fall is even more apparent. While it wasn’t blind to the rise of smartphones, Nokia failed to take Google’s and Apple’s software strengths seriously, even though it lacked a coherent software strategy of its own. First there was the Symbian derivative, and then the parallel development of Maemo and Moblin, two Linux derivatives that were later merged (good luck with that) as Meego. Another mind-boggling PR gaffe compounded the technical missteps: Nokia’s new CEO, a Microsoft alum, prematurely announced the jump to Microsoft’s software platform, an action that killed sales of existing Nokia products long before the Microsoft-powered handsets came out. At Nokia, the human factor was lethal.
Of course, the mother lode of disruptive innovation is the fall of the IBM PC. The big, expensive IBM creation couldn’t win against more affordable — if less polished — clones. In 2004, IBM sold its PC business to Lenovo for a paltry: $1.75B. Case closed, Disruption works as preordained.
But let’s consider another company that had to battle the same attack from the low end. It was far from easy for Apple, but its much-criticized proprietary Mac managed to get a 10% unit market share — and probably more than 50% of the profits.
How did Apple succeed where IBM failed? Big Blue had more than enough money and market clout to initiate a viable counter attack with its proprietary PS/2 product line, a proprietary bus called Micro Channel Architecture, and its own OS/2 operating system — just like, you know, that company in Cupertino. But it lacked the management fortitude and technical skills to follow through. The human factors that allowed Apple to obstinately push the Mac forward weren’t available to Big Blue.
This is why I have doubts about mechanical theories such as disruptive innovation. Too often, they’re presented as a type of physical law: You drop a glass of wine, it always falls to the ground with an acceleration of 32.17405 ft/s2. This truth is indisputable…but it ignores the drunken clumsiness of the oaf who knocked the glass over, and discounts the quick reflexes and imaginative solutions you only get when there’s a human nearby.
(Long-standing Monday Note readers might recall my vigorous treatment of Christensen’s theory and dubious story-telling in Clayton Christensen Becomes His Own Devil’s Advocate.)
At the end of my melancholic walking rêverie, I came to a happier realization. There were two companies founded in the mid-seventies that have been able to find the human energy that’s needed to overcome adversity and their own mistakes, thus securing their way to a trillion dollars.
First Winning Wars, Only To Lose Them Later
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