The perception of disruption

Network effects hasten the rate of innovation. Therefore, the rate of technological change is faster now than it has ever been (at least if my memory of Solow-style exogenous growth models is correct.

This tends to be iterative. Small, continual improvements that improve the efficiency of processes and provide new opportunities for people to achieve their desires.

But, over time, this can be problematic.

Particularly with user perceptions.

The core proposition (and branding) of a product or service will try to remain fairly constant. But feature creep will bloat and complicate.

It is even possible that some innovations will supersede the original benefit in terms of usefulness and relevance, but it gets lost in the perceptions of users since it is only additive to the core proposition.

In order to focus upon the most useful innovations, a disruption is necessary. A break with the past.

Mobile is a good example of this.

Mobiles have evolved at a rapid rate. They got smaller as technological processes improved but then bigger as new features emerged. Cameras, music players and internet connectivity all augmented the core proposition – a device to make calls on, wherever you are.

But the internet has superseded the phone network. Email and social networks (and Skype) sit alongside voice and text, along with the numerous other benefits the mobile internet offers.

And a disruption was needed to make these innovations apparent. Because ownership doesn’t equate to usage.

This disruption was led by the iPhone.

Nokia has tended to lead technological innovations, but Apple repackaged the device. It brought back usability and simplicity, with the mobile internet at the core of the offering.

Nokia, Sony Ericsson and Samsung (NSS) may offer “smartphones” or internet enabled phones. But they are perceived fundamentally differently to the disruptors – Apple, BlackBerry and HTC/Google (ABH).

NSS represents an easy choice – a safe upgrade on something familiar with. The bells and whistles may be a bit shinier, but the phone is basically the same. And behaviour remains similar.

ABH are disruptive. They represent a new type of phone. People will think more carefully about switching. The benefits are framed in what is different or better to their current phone. Once they have invested, this behaviour needs to be justified and so they utilise the functionality. Behaviour changes.

The data from Essential Research’s Brandheld study illustrates this.

Looking purely at those claiming to own a smartphone (we gave them a consumer friendly definition outlining benefits; many wouldn’t know whether their phone allowed third party apps to be developed), there was no real difference in claimed internet use via a computer. ABH owners spend 25 hours a week online; NSS owners spend 24 hours.

But when the data for mobile internet usage is explored, a different story emerges.

• 65% of ABH smartphone owners access the mobile internet every day; 29% of NSS smartphone owners do so
• 78% of ABH smartphone owners access the mobile internet at all; 63% of NSS smartphone owners do so

The ABH figures are actually skewed by BlackBerry. 87% of iPhone owners say they use the internet on their phone on a daily basis. They are also far likelier to use services such as games, maps and commerce based services.

Is there hope for the incumbent? I’m not so sure. Clay Shirky noted, with regard to media companies, that there is no incentive to disrupt the core business model. Executives are used to things working successfully in one way, that they will seek to protect this for as long as possible rather than embrace the risk of the new.

Can this be combated? Maybe, but maybe not. It seems to be cyclical. Eventually the disruptor becomes the incumbent, and the process repeats itself.

On a sidenote, as previously mentioned I don’t think the iPad will disrupt the computing space. It is disrupting a market that is nascent; the mobile market was well established before it was disrupted. If anything, I think the iPad will just precipitate touchscreen laptops.

The data I used above was from Brandheld. More information about the project can be found here, and I’ve included a Slideshare presentation below that indicates some of the key findings (Although I worked heavily on the project and analysis, I didn’t write this document. As you can tell. I don’t possess Keynote and I would never include the word “insight” in a presentation)

sk

Image credit: http://www.flickr.com/photos/jesse_sneed/2383953694/

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Fighting potential irrelevance

Disclaimer: My employer, Essential Research, has worked with several of the UK network providers in the past, and hopes to do so again in future. All opinions expressed in this blog post – and this blog in general – are my own.

The first to market isn’t always the ultimate category “winner”. There were cars before Ford and social networks before Facebook, to give just two examples. Incumbents may hold the greatest influence, but through innovations and developments of products and services their position is rarely fully secure. Eventually a change of business strategy will be required.

I’m wondering if this is what the mobile phone networks are about to undergo.

For the past decade or two, the networks have had the power in the mobile market. They controlled the distribution – through both spectrum and their walled garden approach to content and services. Hence the huge bidding war when the UK government auctioned off spectrum for 3G a decade ago.

But this looks to be changing, as penetration of internet-enabled handsets that access the world wide web – both on a 3G network and on Wifi – shift the focus. While the debate over open access (symbolised by Google) and closed access (symbolised by Apple) continues, it appears that the shift in focus is to the detriment of the networks but the benefits of the operating system, and thus the handset.

This article – on the news that O2 and Orange are joining an open platform for applications – says that ‘The mobile phone networks fear that at the moment they are in danger of becoming little more than “dumb pipes in the air”‘

I’m sure they have methods to standardise the services across different screen sizes, resolutions, handsets and operating systems but it will be interesting to see whether it can compete with the OS based offerings of Apple, BlackBerry, Google and Nokia.

Do this mean mobile networks will go the way of ISPs? Viable businesses, but not wielding the level of power that AOL et al were hoping to achieve.

It is possible, but not inevitable. The main issue for networks is that when they work, they are invisible. We only notice when they fail, and most people will only contact network customer care when they want to complain (sales calls/contract renewals excepted). No matter how good (or otherwise) this service is, it is still ultimately dealing with negative issues.

A handset and operating system should also “just work”, but its visibility means we can also be delighted – whether through eye-catching menus or a satisfying tactility to the buttons or touch screen.

This visibility also means the handset is more closely associated with the service. Networks are still defined by the coverage and quality of voice communication above all else.

The networks risk becoming a utility, where price and quality are the only defining features.

The need to diversify is apparent, but I don’t think this should be in applications.

Aside from the handset/OS competition, there is a huge question-mark over the long-term viability of the applications market. Should HTML5 launch and grow, the balance of power may once again shift – this time from the operating system to the software or service provider. To the consumer, the delivery mechanism is largely irrelevant – they just want the best possible service in the most convenient format.

I’m also sceptical about exclusive content deals. Orange have successfully done this in France, but it raised anti-competitive issues and, ultimately, I think audience scale will mean openness will win out (I also think this is true with handsets trying to get content exclusivity).

Instead, I think partnerships – across a range of industries – are the answer. Mobile networks already have a significant presence in certain areas – such as O2 with live music and Orange with film – and these can be extended. There are also plenty of opportunities to provide complementary services – O2 moving into finance seems like a logical step, for instance.

Like gambling, one of the hardest things in business (so I’ve been told) is knowing when to call it quits. The era of networks dominating the monetisation of content and internet-based services looks like it is drawing to close. Yet there are many potential new revenue streams to develop. Whether picking the right strategy requires the luck of the gambler or not, time will tell.

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Image credit: Me

The general public doesn’t need an iPad

Steve Jobs’ powers of presentation and salesmanship have been well remarked upon. However, one statement in his recent keynote address launching the iPad jarred for me.

All of us use laptops and smartphones now

Who is this “us”? The people in the audience? The people in Apple’s target market? Because it certainly isn’t everyone.

Data from Brandheld indicates 24% of UK mobile phone owners aged 16 or over think they have a smartphone (given our consumer-friendly definition of one), while 59% say that they have a laptop with wireless broadband. 17% say that they have access to both.

To an extent, this is just me being pedantic. Of course everyone doesn’t have a smartphone or laptop. Not everyone has a phone of any kind, let alone food, clothing or shelter.

A device doesn’t necessarily need 95% penetration to be ubiquitous; it merely needs to be the most desirable. Look at the iPhone. While sales are still increasing, probably no more than 1 in 20 people in the UK currently own one. Yet it has defined the category.

But I think the turn of phrase is interesting because it indicates the scope of the iPad. It is not a mainstream device. Not yet, anyway.

More so than the iPod and iPhone, the iPad is a disruptive technology. The market for tablet computers isn’t yet fully defined. There is no well established pre-cursor like the Walkman or Nokia series to create consumer expectation, for Apple to then surpass. The Kindle, the e-reader et al are nothing more than niche.

Unlike the iPod and iPhone, there is no obvious unique selling point to differentiate the device. Certainly, nothing to rival “1,000 songs in your pocket” or touch screen mobile web browsing. It will be a tough sell.

The five (original) steps in Everett Rogers diffusion of innovations model are

• Awareness
• Interest
• Trial
• Evaluation
• Adoption

With disruptive technologies, the challenge is getting beyond the second stage. Aside from going to the Apple store on Regent Street in London, the only opportunity people in the UK will have to trial the technology is by testing an iPad that a friend or associate purchased. The path to adoption will be very slow.

Additionally, interest piques if, in general terms, a device is able to demonstrably save someone time, money or effort. The iPad appears to be a jack of all trades, but is it a master of any?

• Web browsing: Web browsers themselves are optimised for mouse and keyboard navigation. Nevertheless, touch-screen specific web applications can modify and improve the experience
• Video: Video is passive, so a touch screen isn’t really relevant. For lengthy programmes, the iPad will also become uncomfortable unless some sort of docking station is purchased in addition
• Reading: This is where the potential lies. Somewhat unfairly, the iPad is essentially a glorified Kindle. But as with the Kindle, the high outlay and the ongoing costs render it worthwhile to only the most avid readers
• Music: There seems to be little discernable additional benefit
• Gaming: There is some real opportunity for multi-touch gaming but there is also a danger the iPad gets caught between the more portable iPhone and the more immersive Project Natal/Motion sensitive in-home gaming
• Photos: There are certainly advantages to storing and displaying photos, but the lack of camera on the iPad is a startling omission
• Brushes – an application that could be genuinely useful, but it is not a deal-breaker. Unless you want to pay $500 for a glorified etch-a-sketch.

Admittedly, the first generation iPod (bulky, mac only) and iPhone (2G, no GPS or cut, copy & paste) were relatively poor. A killer feature could emerge on the 2nd or 3rd generation iPad. But at this stage, it appears to be little more than a status symbol for a small niche of technology enthusiasts to store next to their minidisc, neo geo and em@iler.

sk