Innovation – Page 3 – Naofumi Kagami

Thoughts on Disruption Theory

Just a quick list of my thoughts on Disruption Theory;

What does Disruption Theory predict?

This is very important. This is the “reason for existing” of any theory.

Disruption theory is basically the prediction of how incumbents will react towards an entrant.
Disruption theory predicts how incumbents will react. The prediction is based on an understanding of how attractive it will be for the incumbent to flee upmarket. That is, to abandon the low-end market and focus on the high-end. Incumbents will typically only flee up market if their business as a whole is not threatened in the short-term.
If incumbents choose to react, and if the incumbents have huge resources relative to the entrant (which if generally the case), then incumbents are most likely to win.
Conversely, if incumbents do not choose to react, the entrants will gain a foothold at the low-end of the market.
If technological improvements and the profitability situation is favourable to the entrants, then they will progressively improve their product to the point that they will endanger, or even push out the incumbent.

So really, Disruption Theory does not directly predict success. It predicts how incumbents will respond, and it provides a general trajectory of how businesses will fare given their responses.

What is the predictive power of Disruption Theory?

The predictive power of Disruption Theory is similar to how the Newton’ Three Laws of Motion predict motion. If you are observing a curve ball thrown by a baseball pitcher, you need to consider Newton’s Three Laws, the Law of Gravity and aerodynamics. In particular, aerodynamics can be hard to predict and that is why we have air-tunnel experiment facilities (and no gravity testing experimental facilities). Disruption Theory is just one of these. Without good understanding of the other theories, the predictions of Disruption Theory will be inaccurate.

Furthermore, if the person applying the laws of physics to a curve ball does not know the speed of the ball, the angle to which it was thrown, the wind conditions, the rotation speed and more, then they will not be able to accurately determine its trajectory. This is despite the laws of physics being completely well known and defined.

Now the question is, is business more complicated or less complicated than a curve ball? If it is even comparatively as complicated as a curve ball, then it is reasonable to assume that even if Disruption Theory was 100% correct, we still wouldn’t be able to accurately predict the trajectory of a curve ball unless other laws were defined, and we knew detailed business conditions.

If you ask me, I’m convinced that business is more complicated than a curve ball.

Given the complication situation, the best we can hope from Disruption Theory is a probability percentage. This is like how we are given weather forecasts. Meteorologists don’t tell us exactly how the weather is going to be. They sometimes get it totally wrong. However, more often then not, they get it right and we are OK with that. Even despite the fact that the we fully understand the basic laws behind the weather, and have tons of data. It would be a monumental achievement if Disruption Theory ever reached the predictive power of a typical weather forecast. We can not reasonably expect more.

Faulting Disruption Theory because Christensen failed to accurately predict Apple’s fate, is like totally dismissing the basic laws behind the weather because a meteorologist made the wrong forecast once or twice. In short, it’s ridiculous.

Applying it to Uber

People in Silicon Valley seem to be very upset that Clayton Christensen said that their favourite company, Uber, was not “Disruptive” in his definition of the term.

Let me give my two-cents on the matter.

I agree that Uber is not “Disruptive” in Christensen’s definition. It is clear that Uber is directly challenging the taxi industry, and that the taxi industry is motivated to respond. In particular, the taxi-industry is in no way fleeing upmarket.
The consequence of not being “Disruptive” is simply that it will not follow the trajectory of what Christensen described. Incumbents will not flee upmarket and Uber will not drive them out through future improvements to its service.
Whether Uber will ultimately succeed is a totally different matter. They are free to pursue their own trajectory. However, what Christensen described is a way for a weak entrant to overcome a powerful incumbent. Uber will not be able to leverage the power that the “Disruptive Trajectory” provides. It will not be able to succeed as a weak entrant. It has to become powerful, more powerful than the incumbents to succeed.
Therefore, Uber will have to really on a brute-force approach. Fortunately, Venture Capitalists are happy to provide Uber with ample cash to spend on expansions and promotions. Uber as a result is able to use money-losing promotional tactics, something that the much smaller incumbents cannot. And clearly Uber seems too be compelled to use these tactics as they raise more and more money.
An important point to note is that taxi companies are small all over the world. They operate very regionally, most often with a territory that covers only a few cities. Often, taxis are even self-employed. Taxis are also not a very profitable business, and hence taxi companies have not accumulated enough capital to spend on high-tech, let alone self-driving cars.
Hence my understanding is that Uber is a Goliath entrant vs. the small incumbent Davids. Uber’s trajectory should be like how supermarkets obliterated mom & pop grocery stores. That is to say, you don’t need to know any kind of business theory, let alone “Disruption Theory” to see how it is going to end.
Hence the real question for Uber is not whether it can push out taxis. Without any regulation, the answer is clear even without “Disruption Theory”. The question is will Uber be a sustainable business? Will it raise prices after venture capital runs out and there is no competition left? If they are forced to employ their drivers as employees and if they have to also pay for their driver’s cars, which is quite possible long term, can they still maintain current prices? If Uber becomes a monopoly, will they be any better than the regulated monopolies before them for both the drivers and the customers? I have serious doubts on this, and unless Uber discloses the sustainability of its business, commits to future low prices and the welfare of its drivers, I think that strictly regulating Uber makes a lot of sense. The last thing that you want is for Uber to kill your local taxi industry, and replace it with one which is just as expensive (potentially more) and where all the profits are funnelled to a Silicon Valley company far away. This is why we have anti-trust laws, for example, and this is why we regulate industries (like the public transport, mail, health and food industries) that directly affect the welfare of our citizens.
Of course, there is discussion that Uber is more than just a taxi business. That it is a more general transportation/delivery service. This suggests that Uber does not compete only with taxis, but with busses, trains, subways, delivery trucks, Fedexes, Amazon drones, and more. Note the totally different economies regarding scale and costs, completely unattainable by people driving their private cars for Uber. Can Ubers compete with busses? Can Ubers compete with trains? Can Ubers compete with the Fedex delivery network? Can Ubers compete with Amazon drones? Can they ever be cheaper than these highly optimised systems, which use specialised vehicles but still aren’t too profitable to begin with? It’s easy to compare Ubers to taxis, but to the other businesses, not so much. It will be a much steeper challenge for Uber to disrupt these businesses, and even a phenomenally good mobile App is not likely to help much. Maybe it will work in regions with underdeveloped public transport infrastructure like California and some developing nations, but I don’t see it working like that in developed countries where auto lobbyists were not able to sabotage the development of public transport.

So in conclusion, Uber is definitely a threat to the taxi industry, but not because it is “Disruptive”. It is such a threat, probably just because it has the deepest pockets in the industry. It is a national supermarket network vs. a mom & pop store kind of battle.

Google Now And The Priorities At Google

Mark Bergen (@mhbergen) wrote an interesting story on Google on how most of the original Google Now team has left the company, mainly due to a lack of prioritisation.

Although we need further reports to confirm this and to get a picture of what the consequences may be, I found this very interesting because it aligns with some predictions I had made previously.

Predicting Android’s Change Of Direction: Thoughts from Andy Rubin’s Demotion (Apr. 2013, in Japanese)
Who Is To Blame For Samsung’s Bad Fortune? (Nov. 2014)
Android No Longer Competes With iOS (May. 2015)

Mark Bergen’s article in essence says;
1. Google Now was born within Android.
2. Larry Page heavily prioritised it, but then became too busy with moonshots.
3. Sundar Pichai de-prioritised Google Now as an independent intelligent assistant, and moved it from Android to Search.

My argument was that whereas Andy Rubin wanted Android to be the best mobile operating system in and of itself, Larry Page (and consequently Sundar Pichai) thought of it as a gateway to their Search cash cow. Hence priorities are determined based on potential contribution to the Search business, and not on the merits of Android itself. It seems to match Mark Bergen’s discussion, with the exception of heavy support from Larry Page, which I didn’t expect because of how he removed Andy Rubin.

At this point, it is difficult to say whether Google Now should be a priority for Google or not. I suspect that Android is more focused on emerging countries than developed ones, and if so, then de-prioritising Now makes sense. It’s also unclear whether Google Now will really provide good advertising opportunities. Despite theoretically being attractive for ads, I do not know of any mechanism provided by Google for purchasing ad space, and it is possible that it isn’t really very good. Sundar Pichai may be fully aware of the consequences of what he is doing, and that he is convinced that it is better for Google long-term. Google’s multiple projects were always in conflict in one way or another, and it’s possible that Sundar is simply clearing the mess up.

What I do worry about is the fate of Android OEMs. Android, if it is to compete with iOS at all, needs to have features that are unique to it. Tight integration of Google Now seemed to be a great opportunity. Without it, Android will struggle even more in the high-end. As a result, profits for Android OEMs will get even worse.

Chromebooks and iPads in U.S. Schools

A recent blog on the New York Times described how Chromebooks are gaining in the U.S. education market (K-12). I have wrote quite a lot about Chromebooks on this block, and this article tells us that progress has been made on the part of Google. Of course, the market that is described in this article is quite small with only 13.2 million units annually, in comparison to over 300 million PC units (excluding tablets) sold worldwide, and as far as I know, Chromebook’s success in K-12 education has not expanded to other markets (including international). Nonetheless, this is good news for Google.

The comments section is also very good, with some specific examples of why certain schools decided to purchase Chromebooks instead of iPads or Windows PCs.

My broad-view understanding is that Chromebooks are serving pre-existing needs that are mainly administrative by nature, and are best understood as sustaining or efficiency innovations. The blog post and the associated comments strengthen my view.

The real problem as I see, it is that there is a huge amount of potential in bringing technology to the classroom, but there is still too little investment in terms of hardware, software, curriculum and teaching skills. Sustaining and efficiency innovations won’t take us there. They don’t provide administration with good reasons to invest more; they only give us reasons to spend less. We need empowering innovations (such as which the iPad promises to bring) for that.

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Understanding Where Tablets Can Go From Here

Before iPad sales started to slow down in 2013, the vast majority of analysts were bullish on tablets, predicting the imminent replacement of mainstream computing (PCs) by tablets. I’ll just pick a few articles to illustrate my point;

John Kirk on Techpinions, Jan. 2014: How The Tablet Made An Ass Of The PC
Ben Bajarin on Techpinions, Jun. 2013: How the Tablet is Killing the PC
Horace Dediu on Asymco, Dec. 2013: When will the migration from PCs be complete?
Ben Thompson on Stratechery, Jan. 2014: WINDOWS 8 AND THE COST OF COMPLEXITY

Although the degree to which each analyst strongly suggested a glowing future for tablets varies, there was a very consistent theme that tablets were in the process of replacing PCs.

In 2014, declining iPad sales (and declining Android tablet sales shortly thereafter) proved that these analysts were completely wrong, or at the very least, overlooking a very important piece of the puzzle.

For the record, I was questioning the conventional wisdom that tablets were replacing PCs back in January and February of 2014, before most pundits noticed that iPad sales were flattening (1, 2, 3), so I think I had a pretty accurate sense that iPad growth wouldn’t be so easy. I even said in Jan 2014;

So what I sense is the possibility that tablets (as computing devices) may have hit a roadblock in adoption, and this is due to the potential market being actually much smaller than envisioned. Much smaller than the PC market.

Now that Ben Bajarin has become openly bearish(subscription required) on tablets, I think we should take a step back and look at the market from a birds-eye perspective. We should question whether we really understand what is happening.

Understanding the complexity of the tablet PC market.

The tablet market is extremely complex. PCs were first hired mainly to do increase office productivity, and later to connect to the Internet. Smartphones, despite being very complex in what they can accomplish, are essentially uniform in the value that they provide to their users. However tablets are very different. They can be very different things to different people. Let me elaborate.

Jobs where the iPad is already a good fit

A corporate executive’s/sales rep’s communication device: By this, I mean a device that is hired to handle simple emails and messaging, leaning on the reading aspect more than writing. You could also add a bit of presentations and accessing corporate web-based dashboards.
A home entertainment device: Current tablets allow users to view a variety of video content and also provide a wide range of video.
A home Internet device: Current tablets, especially the iPad is used for a variety of common consumer Internet tasks like viewing websites, posting on Facebook, replying to messages, etc.

These are the jobs which already existed, and in which the iPad could already be considered mature. Because the value proposition was clear and obvious, these are the jobs which drove the initial tremendous ramp up of iPad sales. In particular, we know that the majority of iPad usage happened in the home and not at work. Hence it is likely that items 2. and 3. were the main drivers.

The problem is, these jobs were equally well served by smartphones as a) better software became available for smartphones (e.g. Facebook moving from HTML5 to native) and b) smartphones got bigger.

Jobs where the current iPad is not yet a good fit

There are also a number of tasks where the iPad is not yet a good fit, more often than not due to the fact that the market itself has not yet been established.

A field worker’s device: This is something that Ben Bajarin has noted in several articles. In the field, many workers still carry around paper documents and fill in paper forms. There is non-consumption of IT in these workflows. Tablets will inevitably be the instruments that bring IT to these areas, but it will have to be accompanied by customised software solutions designed for the task.
Organised education: Although there is a lot of educational software for tablets which parents use to help develop their children’s skills, iPads are still just starting to be used in schools. I’m sure that the US is the leader in this area, but I’m sure there are still a large number of children who are not able to use personal iPads or other computer devices at school. The situation is even worse in other countries like Japan. The hurdle here is not in the tablets themselves, but in finding the best way to utilise tablets in teaching and training teachers to use them, and obtaining budget. There is also a lack of good teaching material for the teachers to use. This is an emerging market for which tablets are very well suited, but it requires much more than just tech. We have to wait for a lot of other infrastructure to catch up.
Hardware as a service: Tablets can serve as the gateway for a service. For example, a cable TV company can include a tablet in your contract which you can use to view TV anywhere in your house, or save locally to view during your boring train commute. This has also been discussed many times, but the point is, this requires cable TV companies and/or other content distributors to get on board. This kind of negotiation will always take a long time to happen.
A full replacement for PCs: In the long-term, it seems totally obvious to me that we will not be using PCs. Back in the 1990s, we were using computers that could not multitask efficiently and would crash many times during the day. In the 2010s, we are still using computers that can suddenly be infested with malware and have to protect by installing 3rd party software, and which degrade in performance over time requiring a fresh install. Although current operating systems have come a long way in addressing these issues, it is clear to me that a new approach to PC security and consistency is long overdue, and that the sandboxing approach taken by mobile OSes will eventually turn out to be the better path. Just like how we transitioned from cooperative multitasking systems without adequate memory management (Windows 95 and classic MacOS) towards full multitasking and memory protection (Windows XP and MacOS X), it seems inevitable that we will move towards fully sandboxed OSes for the vast majority of users. However, the capabilities of iOS are not yet sufficient to fully replace PCs. This will take time, but we have already seen Apple slowly address issues, first with iOS 8 extensions and now with many features in iOS 9. Given the current rate of improvement, by iOS 15 or so, it is totally reasonable to expect iOS to be able to fully replace PCs.
New jobs: When you look at the impact that smartphones have had on our lives, one can clearly observe that it has hugely increased our consumption of computing. We browse the Internet in situations where it was previously unpractical. We all put our schedules into electronic devices. We share huge amounts of photos. Tech is not about device A replacing device B. Instead, it is about technology being used in new ways. It is about the situations where we couldn’t use tech, being converted to those where tech makes a significant contribution. In the same way, we should not try to find areas where tablets may replace current devices; we should try to find the remaining areas where people are not using technology. These are the areas where tablets can shine. There is no shortage of these areas, but we have to keep in mind that there is often a good reason why they have not been penetrated by tech. We have to keep in mind that in many cases, non-tech issues will have to be solved before tech can come in. A prime example of such out-of-the-box thinking is the recent collaboration between Japan Post, Apple and IBM to bring iPads to Japanese senior citizens.

What this complexity means

Because the tablet market is so complex and has many independent jobs-to-be-done, the sales data that we are seeing is simply an aggregate value that tells you very little about what is actually happening. The decline in tablet sales does not necessarily mean that the long-term prospects are dim because these data do not expose nascent growth segments. It is very likely that we initially saw rapid adoption due to jobs in the first category (jobs where the iPad was already a good fit), but this market levelled out as smartphones evolved. On the other hand, I expect the jobs in the second category (jobs where the iPad is not yet a good fit) are just getting started. However, jobs in the second category were not previously associated with IT and hence there is often little infrastructure in place and no budget allocated. This means that it will take time for the second category to gain significant traction. At the same time, it is hard to gauge the market size of the second category.

What we can expect is that in the mid- to long-term, jobs in the second category will definitely start to gain traction. Furthermore, as long as Apple keeps the faith, tablets will improve to the point where they can fully replace laptops in not only the common tasks, but in virtually all tasks. What we do not know yet is what the size of the tablet market will be at this point in the future.

Content Creation on Smartphone, Tablets and Watches

It surprises me that some people still say that smartphones and tablets are only good for content consumption, and not content creation.

That is only true if you totally ignore all the status updates on Twitter, Facebook, Instagram, etc. and declare that content on these social networks is too trivial and unimportant to be considered content.

One has to understand that the meaning of “content” has changed a lot with the development of technology. The content that was inscribed on the walls of the pyramids, for example, is very different from the random BuzzFeed article about Justin Beiber. Similarly, the content in the mobile age will be very different from the long-form blog-ish content of the Web 2.0 era. It will be more short form, more photos, and more multimedia. And for this type of content, smartphones generally trump PCs as content creation devices.

This will also be true of smartwatches. Whether or not smartwatches will become content creation devices depends not so much on whether they are good for writing long emails or blogs, but more on how communication forms evolve. And we can make a sure bet that the communication forms will evolve towards the most popular devices, hence if smartwatches become popular, then content will evolve to be better suited for these, which means shorter and more textual or emoji. With the huge strides being made in speech recognition, it is very likely that smartwatches will easily gain the capability to create these kinds of content.

What is important is that one has to recognise that both sides of the coin will evolve in concert. Saying that smartphones and tablets are not good for content creation basically shows how outdated your view of content is.

Sustaining Innovation and Disruptive Innovation in Cameras

A recent tweet from @charlesarthur on the camera market very nicely captured the difference between sustaining innovation and disruptive innovation. Let me explain.

Charles ArthurさんはTwitterを使っています How a segment dies http t co BkAkU49CHl

Digital cameras started penetrating the consumer market around the year 2000. They were initially had very bad resolution and colours were inaccurate. Battery life was also a huge issue. Despite this, they took off in sales because you could view your photo immediately after you took it, and you didn’t have to go to your local photo processor.
Initial deficiency is a hallmark of disruptive innovations. Disruptive innovations often start off as a “toy” that however provides significant convenience to low-end users. In this sense, digital cameras completely fitted the bill.
However, if you look at the players in the market before and after the digital revolution, you notice that they are almost identical. The exception is that Casio gained significant market share (due to first mover advantage). Otherwise the main players, Nikon, Canon, Olympus all maintained their positions and enjoyed increased sales during 2000-2010. Clearly, digital cameras did not end up being disruptive to the film-camera market. Instead it was sustaining.
The reason for this is that the incumbent film-camera makers were motivated to make the shift to digital. Digital cameras were significantly more expensive than film cameras and drove a replacement cycle that would not have been existent without the new technology. This was financially very appealing to the incumbents. There were technical hurdles like manufacturing the CCD cameras. However, there were modular CCD manufacturers who were willing to supply these to the previously film-only camera makers. Hence film-cameras makers were both willing and capable of making the shift to digital. This is why only Casio, with its first mover advantage, was able to gain significant footing among the film-camera incumbents.
Since 2010 however, the incumbent camera makers have collectively seen a large drop in sales. This is due to cameras on smartphones. Instead of the traditional camera makers, the winners in this new market are Apple, Samsung, LG, HTC, etc. They are the smartphone makers. What happened here is unmistakably disruption.
Smartphone cameras were also initially very poor compared to the regular digital cameras. Like digital cameras ten years before, they also started out as “toys”, which however provided significant convenience to the user because you could immediately upload the photos to the Internet. Technology-wise, smartphone cameras were no better than digital cameras were in the year 2000, relative to the incumbent products.
The very different outcomes are a result of the difficulty of transitioning to the new market. I don’t mean difficulty in technology. I mean difficulty in flipping the whole organisation from top to bottom. For film-camera makers, it was relatively easy to transition to the digital-camera market. They were still selling cameras through the same channels to the same users. Film camera makers did not have to change their business models or their sales and marketing organisations at all. The only issue was technology and even this was easily overcome through modularity. However, for camera makers to transition to the smartphone market, they have to change their technology focus, their distribution channels, their sales and marketing organisations and everything else in between. This was too much for them to do. Instead, they focused on the higher-end of the market (digital SLRs and mirrorless cameras) where they could still thrive while maintaining their organisations and business models which worked, but only until smartphone cameras became good enough for all except the most demanding photographic tasks.

So there you have it. The takeaway here is that the most important element of a disruptive innovation is whether the incumbent is motivated and capable of embracing it or not. If the incumbent embraces the innovation, then disruption will not occur. However, if the incumbents don’t do so, then they will be disrupted.

It is usually not the technology that decides whether disruption will succeed or not, but rather whether or not the company organisation is capable of embracing it.

Examples of Smartphone Specialization and Implications for Google’s Control

A while back, Bob O’Donnell wrote a piece on Techpinions titled “Tablet and Smartphone Futures: Specialization”.

Ultimately, technology products are likely to follow the path of other mass-produced goods, such as cars, appliances and even clothing. In all those markets (and many more), the ability to specifically target different types of consumers and then create products that match the unique needs/interests of those different consumers is what allows companies to thrive. Now, it’s time for technology companies to step up to those challenges and give us the breadth of product options that the market is hungry to see.

I very much agree with Bob’s point. The wider a product penetrates a market, the more diverse needs it will have to address. This is what has happened in almost all markets, and although personal computing devices are different in that customers can install software to customize to their preferences, there is little guarantee that this is sufficient to satisfy the very divergent needs.

Furthermore, diversification is not necessarily aligned with the interests of the platform owners. In the case of Apple, they try hard to control the experience on their devices. They minimize customization options in the name of simplicity. They try hard to find a single one-size-fits-all that works well. In the case of Google, the first started by allowing OEMs and carriers to customize the Android OS, but then scaled back when they felt they were losing control of the platform, and that fragmentation was becoming an issue for developers. It is clear that the platform owners are discouraging diversification.

What we are seeing is a natural tension between conflicting requirements. In this situation, small changes in the market could dramatically shift the balance of power. This is why I’m very interested in observing how specialized products will enter the market, and what level of success they will achieve.

One example that cropped up recently is the announcement of some very interesting Android smartphones from KDDI, the second largest carrier in Japan.

The first exhibit is a smartphone targeted towards primary school pupils (miraie KYL23). Apart from the hardware which is designed to withstand the constant abuse that one can expect from small children, it has good Web filtering features, and can even track what swearwords and insults your child may have typed-in. You cannot use Google Play or other Google Services; instead, you install apps from a specialize app store.

NewImage

Message pops up when you try to enter “ばか” (stupid). It tells you that you are using a bad word, and your parents will be notified.

When you think about it, it’s absolutely obvious that you don’t want to use a Google certified Android device on these smartphones, and you really have no choice but to go with AOSP.

As the smartphone market saturates and it becomes important to address the smaller niche markets, it is very likely that we will see even more customization. In this situation, the restrictions that Google applies for Google Play certification may be too limiting, and AOSP may see more adoption. Obviously, Apple will not play in this market.

Update

Importantly, the miraie KYL23 smartphone is manufactured by a Japanese smartphone vendor, Kyocera, which also sells Google certified smartphones. Therefore, although it has been rumoured that Google does not give out licenses to companies that also sell AOSP or forked-Android, this does not always seem to be the case.

Will High-End Android be a Samsung Exclusive?

I have been very wary of Google’s efforts to build in the tools that Android requires to compete with Apple in the high-end smartphone market. My feeling has been that Google is no longer interested in the high-end smartphone market and is satisfied to let Apple have it. Instead, Google is focusing on the low-end market and on bringing low-cost smartphones to the emerging markets.

Recent announcements reinforce my thinking.

On Nov 13, 2014, Samsung and BlackBerry announced a partnership to build and market a tightly integrated, end-to-end secure solution aimed for enterprises. It is well known that Apple dominates corporate market share in smartphones and tablets, and security is one of the reasons why Android is struggling. The interesting thing is that Google seems very uninterested in developing a solution of their own for this quite lucrative market.

At the keynote of Samsung Developer Conference 2014, Samsung introduced Samsung Flow, which is basically their version of Apple’s Continuity features. The important thing to note is that Continuity is a feature that is only valuable for customers who can afford multiple devices. Again, why did Samsung and not Google develop this? Is it because Google is relatively uninterested in the customers who are wealthy enough?

Samsung recently announced its answer to Apple’s iBeacon feature, Proximity. This is a technology to enhance customer experience at stores, mall, stadiums, museums, etc. and also push you special offers and stuff. As stores embrace iBeacons, there was the possibility that some of the offers would end up being exclusive for iPhone users. Now it will be exclusive to iPhone and Samsung users. Why wasn’t Google interested?

If this continues, Samsung might create a rather formidable barrier-to-entry for the high-end Android market, blocking HTC, LG, Lenovo and others from competing.

Although I do suspect that the overall market for high-end Android devices might shrink, I do not doubt that Samsung will continue to dominate for the foreseeable future.

How Apple Has Actually Introduced New Category Products Every Few Years

There are several people who seem to have had difficulty applying Clayton Christensen’s Disruption Theory to the tech world, and have proposed that this theory itself does not apply to either the tech market or consumer goods. However Horace Dediu, who is now working for the Clayton Christensen Institute specifically for the task of applying Disruption Theory-based analysis to the tech market, has argued in a podcast with Ben Bajarin, that there is no reason why it cannot be done. Horace argues that the challenge lies in defining what constitutes the “jobs-to-be-done”, and a failure to do this successfully is why Disruption Theory sometimes seems to fail.

This point is very important and is worth reiterating. The reason why Disruption Theory occasionally fails to explain a certain situation is not because the theory itself is limited in its scope; it is because identifying the jobs-to-be-done is extremely difficult. In fact in the typical example of the jobs-to-be-done, the milkshake example, the jobs-to-be-done is so unintuitive that its unlikely that even an industry expert would have accurately predicted it. It is no wonder that Clayton Christensen himself failed to predict how Disruption Theory would affect Apple.

More often then not, the people who attempt to expand, supplant or even discredit Disruption Theory have simply neglected to carefully analyze the jobs-to-be-done.

To further complicate things, if you look at the brief history of personal computing, which has only been with us for four decades at most, you can also observe that the jobs-to-be-done has shifted extremely rapidly. At most, a certain jobs-to-be-done will be mainstream for only five years.

For example, the PC started out in the Apple I era as a hardware hobbyist’s kit. With the Apple II, the PC was now a platform for a hobbyist software programmer. Then with the advent of packaged software like VisiCalc, the PC became a business tool for performing large numbers of calculations. With the arrival of the Macintosh and the Laser Writer, the PC now became a tool for creative professionals, and then with the Internet, it became a tool for communication and collaboration. After the year 2000, the PC became a tool to manage digital photos, music and video.

With each shift in the jobs-to-be-done, the required hardware specifications to sufficiently perform the task increased. At the same time, the customer base continuously expanded to less tech-savvy users which required the user interface to improve. This meant that the PC rarely reached the good-enough threshold because the bar was constantly being raised.

The exact same thing can be said for smartphones. The original iPhone started out as a phone, an iPod and an Internet communicator. In a short amount of time, it quickly became your main camera, your gaming console, your map, your photo album, your fitness tracker, your newsreader, the pacifier for your kids, your TV and so much more. And now with Touch ID and Apple Pay, Apple is making your iPhone your ID and credit card. From its initial humble jobs-to-be-done, the smartphone is now the center of a huge portion of your life. The jobs-to-be-done of smartphones has exploded.

And as with PCs, each shift in the jobs-to-be-done has required new and better hardware. Being your main camera has demanded better optical and image processing hardware and software. Being your gaming console has demanded better 3D graphics performance which technologies like Metal and better embedded GPUs can provide. Being you fitness tracker has resulted in technologies like the M7 motion co-processor which can constantly track your movements with minimal battery drain. And of course Touch ID and Apple Pay required new biometric hardware.

By now it should be plainly obvious why Apple has avoided being disrupted; Apple has consistently been at the forefront of the shifts in the jobs-to-be-done in personal computing (except for the years when Apple was run by John Sculley and R&D was run by Jean-Louis Gassée). That is why new Apple hardware has constantly been in high demand and can still command a high premium.

On the other hand, the reason why Samsung is being disrupted at the low-end is because Android is not expanding the frontiers of smartphone jobs-to-be-done. Other than UI tweaks that work equally well on less capable devices, Android has recently failed to introduce compelling features that require new or better hardware. In fact, this might have been intentional on Google’s part as an initiative to reduce fragmentation. As a result, Android phones have become as good-enough as they can be, even on the hardware that can be bought for $200-300. The Android OS is holding Samsung back.

This also means that Apple products will be disrupted if they start failing to create new jobs-to-be-done. It also means that the resurgence of the Mac could be attributed to a new jobs-to-be-done that the Mac can uniquely satisfy. Strong integration with iPhones could obviously be one of these jobs-to-be-done which is not available on Windows PCs.

Actually, if you look at computing from a jobs-to-be-done standpoint, the idea of a “new category” device starts to look rather ridiculous. It becomes clear that the emphasis should be on whether or not a new jobs-to-be-done has emerged. Sometimes this might require a new device, but oftentimes, it simply requires new hardware on top of a preexisting device. This in itself is sufficient to transform the previous hardware into a new category device. For example, Touch ID has transformed the iPhone into a digital ID and wallet with unprecedented security and convenience, something that was hitherto impossible with a smartphone. Focussing solely on new category devices is completely missing the point.

In fact you could even argue that every few years, Apple has introduced a new category product in the guise of the iPhone or a new iOS version; a product that enables new jobs-to-be-done to emerge.

Who Is To Blame For Samsung’s Bad Fortune?

As the profits plunged on Samsung’s smartphone business, the web has been awash with reasons.

Ben Bajarin has shown very nicely that the largest problem that Samsung faces is the decline of the high-end business, which is also mentioned by a Samsung executive in the Guardian article.

The high-end of the business has been dominated by Samsung and Apple and still is. This means that there are two possibilities.

Apple took away Samsung’s sales in the high-end. That is to say, users of high-end Android phones (who were mostly using Samsung devices) switched to the iPhone.
The high-end market for Android smartphones saw a sudden shrinking. That is to say, mid-range smartphones were perceived as good enough and hence there was no need for customers to purchase high-end Galaxy devices anymore.

I suspect that both of these happened but I want to analyze them in isolation because it makes the situation easier to understand. Although these two look similar, they are actually very different. The first means that Apple was able to steal market share away from Samsung. The second means that vendors of mid-range smartphones (including Samsung of course) captured the customers who previously bought high-end phones. We will look at each separately.

Apple is stealing away the high-end

This is obviously happening. All reports point to Apple selling huge numbers of iPhones and it has been suggested that a lot of these are switchers who have abandoned Android phones.

The important thing is why. Of course the triggering event is the increased screen size of the iPhone 6. However, what is more important is why couldn’t Samsung match the iPhone 6 before Apple threw down the gauntlet. Why was Samsung left clinging to screen size as the only feature that could keep it competitive in the high-end.

Although design and/or Apple’s brand could well be a factor, it is also as likely that iOS and its app ecosystem could have been perceived to be superior than Android. If this was the case, then the blame would have to be put onto Google. Google failed to create an operating system and ecosystem that was competitive against iOS. The only reason that the high-end Android market existed at all was because Samsung had large screens while Apple did not.

If it was design or branding, then it would be harder to place the blame on either Samsung and Google simply because Apple is so good at these. Either way though, the result is that the high-end Android market cannot exist anymore.

The high-end Android market is shrinking

This is a completely different dynamic. If this were the case, then we should be seeing customers who previously owned the flagship Galaxy devices either downgrade to mid-range Android devices or to extend their replacement cycle. I have not yet seen a statistic that suggests that this is happening, but it is plausible.

This can only happen if Android smartphone hardware is starting to be considered as good enough, even by previous high-end purchasers. This also has to happen while at the same time, on the Apple side of the fence, Apple customers are not considering iOS hardware to be good enough. There must be something very different happening to Android customers and iOS customers.

The good enough of hardware is determined by software. If the software can take advantage of new hardware and create a true benefit for the customer, then old hardware will not be good enough. On the other hand, if the software does not have any compelling features that require new hardware, then old hardware will be good enough. No matter how much the hardware improves, whether customers will demand it depends on software.

In the case of iOS, the OS made full use of the 64-bit hardware to enable much faster processing of photos and movies. The OS made use of the TouchID sensor, which is also now being used by the Apple Pay service. Apple has given each piece of new hardware a significant reason for existing, and that is why customers want new devices.

On the Android side, that has not been the case. Google has not moved quickly to 64-bit, it has not worked hard on corporate level security, and it has not introduced software support for biometric sensor technology. Instead, Google has introduced a lot of software technologies that enable low-powered devices to smoothly run the latest operating system. Instead of adding new features that would take advantage of new high-end hardware, they focused on making sure that the mid-range and low-end hardware would be able to run the latest operating system and to take advantage of all of its features. In summary, Google actively designed their new operating system so that Samsung would have a hard time differentiating itself.

Although I’m not sure whether Google did this intentionally, it has made it very difficult for high-end Android smartphones to compete with mid-range ones. This is not only a challenge for Samsung, but it will also be a challenge for any OEM that plans to move upmarket. It will mean that companies like Huawei, Lenovo and Xiaomi will not be able to move up-market unless they gain significant control of the OS.

So what should we blame?

I think that Google was targeting the low-end from the start, but Andy Rubin was not. I genuinely think that Andy Rubin was much more focused on the high-end and he didn’t seriously consider making Android work better on low-end devices. I think he wanted to make Android as good as or even better than iOS. The fact that his reign coincided with when Samsung was strongest is no coincidence.

When Andy Rubin was removed and Sundar Pichai took over, it became rather clear that instead of fighting with iOS, Android would focus on the low-end. In fact, most products that Google creates (many of which were under the supervision of Sundar) aim at the very low-end where prices are normally zero. Google Docs is a prime example of this, as is Chrome OS. Google’s strategy is to commoditize all markets except for search and advertising, by providing a good enough product for free.

Samsung could have tried harder to take control of Android so that they could create software that took advantage of high-end software. In fact, they tried. Considering that Samsung was mainly a hardware company, I don’t think that they ever misunderstood that they needed good software; it was just that they didn’t have the resources or the culture to create great software. It’s hard to blame their strategic thinking for this.

Google could have tried harder to preserve the high-end. However, it’s priorities were clearly in the low-end. It’s hard to focus on both.

I would say that the only strategy that we could actually blame was Samsung’s decision to team up with Android. Samsung should have seen that Google would ultimately aim to commoditize their own OS and all hardware vendors using their platform. Samsung should not have helped Android to gain market share, and instead waited for a contender whose priorities aligned better with Samsung’s goals. Of course, that is what Nokia did.