Stages Of Innovation And When To Wage Wars

Benedict Evans wrote, as always, an excellent and thought provoking piece on the state of smartphone innovation. In this piece he mentions the following;

slowing innovation in the iPhone and in Android doesn’t mean weakness (“Apple doomed!” “Android falling behind!”) but strength: it reflects the fact that we are in a phase in which they’re unassailable. The fact that almost all of the white space has been filled in – the big problems solved – also means that we have left the part of the S Curve in which a new idea or execution could overturn the incumbent. They’re too feature-rich and, of course, have too much scale in units and ecosystem.

The main point here is that slowing innovation does not signal a weakness. Benedict attributes this to being at a phase where the incumbents are too entrenched that nothing could overturn them. I agree that this is certainly one aspect, but I wish to add one more thing. That is a portfolio management perspective. The growth-share matrix tells us that new companies will tend to enter businesses from the “Question mark” quadrant, high-growth markets with the potential to become lucrative. Conversely, companies will not invest in slow-growth markets but instead try to milk them. Therefore, from both a business incentive perspective (the growth-share matrix) and from a capability perspective (Benedict’s point), innovation will slow down in maturing markets and the threat of new entrants will also decrease.

Of course, that is only true until the next S curve comes along and resets the score, just as the iPhone did to both Microsoft and Nokia.

I also agree to this point, and would like to provide a different perspective. Assume you are a company like Microsoft or Samsung, a company that valiantly tried to create a mobile operating system that would challenge iOS and Android. Now what should your strategy be? Being held hostage to Google’s Android is obviously no fun, and your hope is that you will somehow control the ecosystem. We have seen how developing a smartphone OS did not work, most likely due to the reasons above. Instead, your strategy should be doing your best to capture the next S curve.

The work Samsung has been doing for its Tizen OS-based wearables is therefore a very sensible strategy. They have positioned themselves well in preparation for growth in this market. This is a war that Samsung has been wise to fight.

One final point that I would like to note is that although we are seeing slower innovation in smartphone features, this is not necessarily the case for the business models around low-cost hardware. We are seeing many low-end entrants in the handset market, and this is proof that there are many companies seeing growth opportunities. There will continue to be significant business model and manufacturing innovations in the low-end, and smartphones will continue to be exciting, especially in developing markets.