How the Automobile Industry Can Be Disrupted

I recently wrote why Tesla is not a disruptive innovation. Here, I would like to refer to an example that is disruptive.

“A window into China’s low-speed electric vehicle revolution”

This article by Charlie Paglee describes low-speed electric vehicles, which do not have the safety or comfort features of regular automobiles and sell from 2,000 USD. More than 200,000 have been sold in 2013. Tesla, on the other had, sold only about 20,000 in the same period.

Important points which suggest that these low-speed electric vehicles are much more disruptive than Tesla;

  1. Cheap (sell from 2,000 USD).
  2. Simple manufacturing procedures requiring little capital investment.
  3. Limited features. Slow max speed (38 mph), short range (60-100 miles).
  4. Sustainable business even without government subsidies (or massive injections of venture capital).
  5. Devoid of safety features required of regular automobiles.

One important thing to note is that the automobile ecosystem depends on a lot of infrastructure. For example, filling stations and roads. An equally important component of the ecosystem is the distance between destinations. For example in Japan, an EV would be good if it could travel to the nearest railway station (maybe equivalent of a 30 minute walk), whereas in the U.S., a car needs to travel the distance of the whole commute. Therefore, the disruptive potential will vary depending on the local ecosystem.

Amazon’s Hardware Strategy Mystery

Ben Bajarin recently tweeted a chart showing how tablet market shares have changed since 2011.

BenBajarin 2014 7月 25

In Ben’s tweet, he noted how Amazon’s market share has now become very small, and that is certainly true. Although Amazon’s share tends to rise sharply in the holiday season and we can still expect another bump in Q4 of this year, 14Q2 is seeing very very small sales for Amazon.

At this point in time, I think that it is worthwhile to review how Amazon started selling the Kindle Fire, and how its strategy has unfolded.

  1. The Kindle Fire launched in 11Q4 at a very low price of $199 (compared to $499 for the iPad) which was only possible because Amazon subsidized the price.
  2. The Kindle Fire was the catalyst that showed how Android tablets could take market share away from Apple. Up till then, companies like Dell and HP had tried to compete with Apple without any noticeable consequences. The extremely low cost of the Kindle Fire finally allowed Android tablets to start expanding market share, and it became obvious that Android tablets had to be priced in this domain if they were to ever sell well.
  3. The Kindle Fire was a low-end device and omitted many features that were present in the competition.
  4. The success of the Kindle Fire demonstrated for the fast time that Android tablets could compete against the iPad under the condition that the price was kept under 200 USDb (many Android tablets had previously tried to enter the market, but all had failed).
  5. In particular, Google’s Nexus 7, which was released in July 2012, was obviously designed to match the successful formula that the Kindle Fire had pioneered; a 7-inch screen and a price below 200 USD. The Nexus 7 shows up in Asus sales in Ben’s chart, which was significantly elevated since 12Q3.
  6. Amazon released the second generation of the Kindle Fire in 12Q4 with a price reduction to $159. They also released two higher-spec versions, the Kindle Fire HD priced at $199 and $299. With these updates, Amazon saw market share similar to what they saw with the first version.
  7. Amazon released the third generation in 4Q13 for 139 USD, again together with two higher-spec models ($229 and $379). Amazon again saw good sales in the holiday season, but sales dramatically dropped in the next year according to Ben’s chart.
  8. Importantly, the Nexus line of tablets (produced by Asus) also lost steam after the initial introduction.
  9. The only branded tablet that saw an increase in market share during this period was Samsung. Although I cannot find pubic data that explains Samsung’s rise, it is likely that Samsung’s sales were the result of bundling with smartphones and possibly TVs; they weren’t selling by themselves and people got them even when they didn’t really want them.

We can clearly see that despite initial expectations, the Kindle Fire tablets have not really grown to be a strong contender in the tablet market. This is also true of the Nexus 7 lineup. The question is, could Amazon have done better?

We know that a large part of the “others” in Ben’s chart are non-branded tablets, which are generally very cheap, low quality and come out of the Chinese technology ecosystem. These have been selling mostly for watching video. Samsung’s sales also come from bundling which means that the cost to the consumer is very low or maybe even free. What this means is that although the Kindle Fire was just about the cheapest usable tablet when it debuted, that is no longer the case. Kindle Fire languished because it was no longer the cheapest tablet that was barely usable.

This suggests that Amazon could have done better with the Kindle Fire if they had continued to pursue their low-end strategy. Instead of moving up-market with the Kindle Fire HD and HDX, they could have instead gone lower into possibly sub-100 USD price points. They could have even provided the Kindle Fire for free with an Amazon Prime membership subscription. In fact, this is exactly the strategy I had expected Amazon would pursue. I actually wrote a blog post back in October 2011 (in Japanese).

In my old blog post, I expected Amazon to focus on creating a tablet that was so limited in features that the only thing you could do with it was to consume content. I expected that Amazon would continue to omit the camera, mike, gyroscope, and cellular connectivity, because these were not essential for reading books or watching videos. They could even have continued to use Android 2.3 as the base for their OS.

This is not the strategy they pursued. Instead of staying at the bottom, they moved up to the mid-market segment. Even though Amazon’s prices decreased, competitor prices dropped even faster. The Kindle Fire is no longer a product that stands out in price, and as such, it has lost its unique appeal. No wonder that sales are not expanding.

It’s a mystery to me why Amazon is pursuing the mid-market in hardware. If you look at the recently announced Fire phone, they are even trying to sell a high-end phone with a significant profit. My opinion is that aiming for the mid- to high-end does not make any strategic sense for Amazon. I am totally bewildered and I’m suspecting that Jeff Bezos is starting to get confused.

China Telecom Exclusive Partnership to Sell XBox One in China

As I have written before, I am suspecting that the commoditization of smartphone hardware is shifting power to carriers.

Recently we have learned that China Telecom has formed an exclusive partnership with Microsoft to sell the Xbox One in China from September 2014.

I do not have enough knowledge of the market to make any conclusions, but I sense that this is a part of a general trend towards carriers exercising more power over hardware vendors. It will be interesting to see how this story unfolds.

Mobile Payments in Africa

Steven Sinofsky wrote a great post on Re/code describing mobile payments in Africa. There is so much important information in here and I’ll probably have to read it several times to fully appreciate it.

Here, I just want to mention one thing.

That is, “Necessity is the mother of invention”.

Importantly, necessity is very different depending on where you live. If science & technology were essential for invention, then the U.S. would dominate globally. That is not the reality.

Innovation happens everywhere, in places where you least expect it, regardless of technical prowess.

Innovation does not necessarily “trickle-down” from the U.S. In fact, it could trickle-up if we gave it a chance.

Commoditization Of AWS

I have previously brought up the subject of the commoditization of the Cloud. Despite the common preconception that commoditization is unidirectional from hardware to software and eventually to the cloud, the reality is that commoditization can happen at any stage in the value chain and that the order is not defined.

Recently, we are witnessing signs that the cloud is starting to be commoditized. I have brought up the commoditization of DropBox-like services in this blog (1, 2), but other services are also likely to follow.

The recent earnings call for Amazon shows evidence that commoditization has also come to AWS. During the years, AWS has drawn competition from Microsoft Azure, Google Cloud Platform and also from internal servers. This is forcing AWS into a price war which is negatively impacting Amazon’s financials.

In fact, if a price war was the end game, that would be a fortunate result. The more worrying scenario is the game that Apple is playing with CloudKit. Apple is trying to make the cloud effectively free, and they can easily do this because they make obscene profits from hardware sales.

It is likely that infrastructure-like cloud services will soon be commoditized and that attractive profits will shift to adjacent layers. Companies like Amazon which do not have a business in these layers will lose profits. Companies like Microsoft and Apple which have a strong business in an adjacent layer are likely to make a net profit.

Tesla is a Prime Example of Non-Disruptive Innovation: BMWs Response As An Incumbent

Peter Yared posted a article describing BMWs response to Tesla. The article titled “BMW Vs. Tesla: A Real Live Innovator’s Dilemma” itself is very misleading because it implies that either BMW or Tesla is facing the Innovator’s Dilemma as described by Clayton Christensen. In fact, it is a prime example of innovations that do not result in disruption. In his publications, Christensen has clearly outlined innovations that provoke a direct response from the incumbent and which almost always fail to disrupt. The incumbent will usually have vastly more resources at their disposal and will counter the entrant quite effectively.

Anybody who has seriously read any of Christensen’s books on the subject will immediately recognize that Tesla is not a disruptive innovation but a sustaining innovation. Peter Yared seems to be rather misguided because he apparently thinks that Tesla is disruptive. Instead, what Yared’s article is describing is not the process of disruption, but rather a typical example of how an incumbent will respond to an entrant with a new technology. In this context, Yared’s article is actually quite worthwhile.

The takeaway is;

  1. BMW has the following resources to counter attack an entrant if they are willing. The resources that are at their disposal include brand, technology, production scale, and sales & distribution.
  2. Tesla is entering the market in a way that provokes incumbents to directly respond.
  3. In this situation, it is very unlikely that Tesla will win.

As interesting as it is to see a disruption taking place, it is also very instructive to witness an incumbent fending off an entrant.


Recently we saw two reports about bugs in the Chrome browser on Windows.

One bug was about font rendering. It turns out that fonts on Chrome looked bad because Google neglected to update Chrome so that it would take advantage of the new font rendering technology provided by Windows.
Importantly, both Internet Explorer and Firefox had been using this technology for ages, and Chrome was the only major browser that was still using the old, outdated font rendering API.

The other bug is related to battery consumption. Apparently Chrome fails to throttle down its power consumption even when the browser is just running in the background. This bug can be traced back to 2010, which means that Google has knowingly neglected this bug for 4 years.

This eloquently tells us what Chrome’s priorities are not. Chrome does not prioritize beautiful font rendering and it doesn’t prioritize low power consumption.

Interestingly, this is in direct contrast with Apple. Apple prioritized typography and has very good font rendering. The quality of the fonts are also very high. In power consumption, Apple has emphasized this on their mobile devices, their laptops, their operating system, and even specifically on Safari for quite a while.

Chromebooks in Schools

It seems that Chromebooks are quite popular with schools.

I’ve covered this topic before and the story hasn’t changed from then.

What continues to be interesting is that Chromebooks appeal is not necessarily to the end-users, but to the “orifices”. The TechCrunch article explains;

A lot of schools were sold on iPads right after those became available and students probably still prefer them over Chromebooks, but they are relatively expensive compared to Chromebooks and harder to manage. Google also offers admins easy ways to manage large Chromebook deployments from a single console while Apple is still catching up when it comes to this.

Basically, Chromebooks are sometimes preferred over iPads because the hardware costs and the school IT administration costs are cheaper. And the reason they are easy to administer is because there is less that you can do with them.

I see Chromebooks as the equivalent of cash-registers.

Not a very sexy topic.

Thoughts on How to Prevent Disruption

Although I don’t have Clayton Christensen’s publications handy (I lent them to my brother), I’ll try to outline situations where low-end disruption won’t happen. We will then be able to see how the iPhone fits.

Raising the bar

Low-end disruption only occurs when the current product starts to overshoot customer expectations in terms of jobs-to-be-done. Hence one way of preventing low-end disruption is to constantly raise the bar; that is to raise customer expectations.

Apple has done this many times throughout the life of the iPhone.

Initially, they realized that the fluidity of the user interface was more important for touch interfaces compared to mouse interfaces. By raising expectations for a fluid interface, they forced Android to invest in catching up for years (Android has just recently gotten fluid interfaces right).

Touch ID and raising user awareness of privacy and security is another example. Although the effects are still to be felt, they are trying to make this a must-have feature. They want to make it so that anyone going back to Android will feel insecure.

Appealing to non-tech aspects

Low-end disruption happens because technical improvements push the capabilities of the device to the point where it exceeds the jobs-to-be-done. Technical improvements in tech are especially fast thanks to Moore’s law. Conversely, this means that other aspects of a product are less likely to improve so fast and will be less susceptible to low-end disruption.

The areas that Apple focuses on are design, user interface consistency, simplicity, etc. These areas do not usually improve rapidly, and in fact, consistency and simplicity are often compromised as technology improves (too many features are crammed in).

By making a major appeal of their products independent of Moore’s law, Apple makes it less likely that technical improvements will rapidly make their product “good enough”.

This is not to say that design, user interface consistency, simplicity cannot overshoot user expectations. They can. Look at the interface for cars or toothbrushes. The thing is that in tech, these issues are very difficult to solve and furthermore, very few companies other than Apple are seriously attacking these.

The jobs-to-be-done of luxury items

Low-end disruptions often enter the market at significantly cheaper price points (although they have to be still making profits to be truly disruptive). Although this is not the only way to enter the market (they can use simplicity for example to expand the addressable customer base), this is the simplest to understand. However, this low cost strategy is unlikely to be effective against the iPhone because price itself is a positioning statement of the iPhone value proposition. In other words, the iPhone is in a sense a luxury.

The iPhone is, for many people, the only luxury item that they own. Apple has succeeded in making the iPhone one of the most affordable luxuries. The iPhone is the only luxury product that both celebrities and huge numbers of teenagers own. You can get iPhones for free with subsidized contracts, but that product is the exact same device that billionaires lust for.

The iPhone is a mass-market luxury item. In fact, I even hesitate to use the word “luxury”. This is quite unique and you don’t see this kind of thing anywhere else, in any industry.

Luxury items have very different jobs-to-be-done from regular ones. In addition to being comfortable and high-quality, they have a “status” component; they have to show off your well-being and your good taste. On seeing you own one of these items, other people must judge you favorably by it.

Hence to satisfy the jobs-to-be-done of a luxury item, you have to satisfy the following;

  1. It must be well designed in a way that conveys its luxuriousness.
  2. The build quality must be exceptional.
  3. The whole brand and all the customer touch-points must be luxurious.
  4. It must be expensive relative to other products.
  5. It must be associated with some aspiration figures.

Technical progress in the Moore’s law sense will not make these conditions any easier or less costly to satisfy. In particular, luxury products cannot be cheap which means that the most often used low-end disruption strategy, namely making a cheaper product, cannot be applied. In order for any company to satisfy these jobs-to-be-done, they have to invest in a completely different set of activities.

Therefore, luxury items are hard to disrupt. Tech companies in particular don’t usually have the skill set or investments in place to compete.

Different between luxury and fleeing to the high end

In Disruption Theory, incumbents will often flee to the high end in response to a low-end assault. That is, instead of catering to the mass-market, they will focus on serving the high-end niche which requires the very features that overshoot the mass-market expectations.

On the surface, if you look at the prices of the products, this seems to be equivalent to a luxury strategy. This is incorrect. Luxury products are focused on satisfying a completely different jobs-to-be-done. Selling luxury products do not require more features or higher specifications at all. They are more focused on making the customer feel better about themselves through the experience itself and social recognition. Hence the ability to design and produce feature-laden, high-spec products does not give you the capability to enter this market.

What Apple has made the iPhone a luxury experience at a price that is affordable to the mass-market. This has come through a collection of efforts that companies like Samsung or Google have very little experience in. Celebrities like Steve Jobs and Jonny Ive, great design, precision manufacturing techniques, boutique retail stores, investment in and use of quality materials (sapphire glass) are all part of this.

Without this investment, it is very questionable if Samsung will be able to pursue a similar “luxury for the mass-market” approach. Instead, they would have to flee to the high-end and target consumers who prefer top-spec machines. As Christensen describes, if the low-end entrants eventually improve their offering or if the phone specs get defined solely by components (as was the case with PCs), then fleeing to the high-end will be in vain in the long term.


In understanding how Apple seems to escape disruption, it is very important to truly understand the jobs-to-be-done. Instead of focusing on product features and specifications, you must consider the social and emotional aspects of the jobs-to-be-done. By doing this, you can easily map Apple into Disruption Theory and reach to conclusion that Apple is quite difficult to disrupt from the low-end.

You also have to realize that different aspects of a product have different sensitivities to low-end disruption. Tech-oriented features are very sensitive to disruption whereas others are not. Tech companies are easily disrupted simply because they focus too much on the tech. By focusing on non-tech stuff, you can become less vulnerable to low-end disruption.

Importantly, this is not necessarily the same as fleeing to the high-end of the market. Most luxury brands are difficult to disrupt, but at the same time cater only to the very high-end. This is one way of doing it, but it is also possible to be luxury but also mass-market. Disneyland is a good example where you get great hospitality but at reasonable prices. This is where the iPhone is going.

The problem for many tech-companies is that they tend to have a history of tech and tech only. They do not have the non-tech aspects within the organization and even if they did, their brand would not convey that. This is why many companies create new brands for their luxury offerings (Toyota Lexus for example). Since a luxury brand is in many ways a contract for exceptional product & service, and also a signal of financial well-being, the historical tech-brand often won’t do. It would be interesting to see if Samsung eventually creates a new smartphone brand and an accompanying distribution for their high-end devices.

Apple is escaping disruption using a combination of ideas which can be mapped to Christensen’s Disruption Theory. I sense that they understand that the underlying force driving disruption is Moore’s Law, and that is why they invest so much in the non-tech aspects that Moore’s Law doesn’t directly touch. (even in tech investments, they invest in sapphire glass for example; also unrelated to Moore’s Law thus less quickly imitated)

What Are Smartphones Used For?

Given that the majority of time spent on smartphones is in apps, it is appropriate to look at what apps are being downloaded in order to understand what people are actually doing.

Below is a list of top downloads in various countries, taken from App Annie’s statistics (iPhone and Google Play: The list is too long to put on this blog post, so please go App Annie to see all the entries).

You can immediately see that the lists for iOS App Store and Google Play are very different;

  1. Google Play is dominated by messaging and communication applications. Specifically, Facebook, Facebook messenger, WhatsApp, Skype and Instagram.
  2. On the other hand, iPhone users seem to be downloading a lot of other stuff. The top ranking apps are not dominated messaging and communication apps. There are a lot of games and some music apps.

AppAnnie Top Downloads

Now what does this mean? I suspect that this is telling us that Android users as a whole are using their smartphones for the essential tasks and the essential tasks only. By essential tasks, I mean communication. That is after all, what phones are for and what feature phones also did quite well with SMS.

Messaging and communication apps dominate Google Play but it is also certain that iPhone users download these apps too. Hence the dominance of this category on Google Play simply suggests that Android users don’t download much else on average. On the other hand, iPhone users download a lot more so the essential communications apps are lower in the rankings.

For example, App Annie has recently reported that Google Play worldwide quarterly downloads exceeded iOS App Store downloads by around 60 percent. However, Google Play downloads are most likely dominated by the essential messaging and communication apps, with little space left for others. If you are an independent app developer, the Google Play opportunity is probably much much lower than the total downloads number suggests.