Smart phones, tablets, and their digital ecosystems have had a stunning impact on a range of industries in just a few short years. Those platforms changed how we work, how we shop, and how we interact with each other. And their disruption of traditional product companies has only just begun.
The first casualties were the entrenched smart phone vendors themselves, as IOS and Android devices and their platforms rose to prominence. It is remarkable that BlackBerry, which owned half of the US smart phone industry at the start of 2009, saw its share collapse to barely 10% by the end of 2010 and to less than 1% in 2014, even as it responded with comparable devices. It’s proving nearly impossible for BlackBerry to re-establish its foothold in a market where your ‘platform’, including your OS software and its features, the number of apps in your store, the additional cloud services, and the momentum in your user or social community are as important as the device.
A bit further afield is the movie rental business. Unable to compete with electronic delivery to a range of consumer devices, Blockbuster filed for bankruptcy protection in September 2010 just 6 years after its market peak. Over in another content business, Borders, the slowest of the big bookstore chains, filed for bankruptcy shortly after, while the other big bookstore chain, Barnes & Noble, has hung on with its Nook tablet and better store execution — a “partial” platform play. But the likes of Apple, Google, and Amazon have already won this race, with their vibrant communities, rich content channels , value-added transactions (Geniuses and automated recommendations), and constantly evolving software and devices. Liberty Mutual recently voted on the likely outcome of this industry with its disinvestment from Barnes & Noble.
What’s common to these early casualties? They failed to anticipate and respond to fundamental business model shifts brought on by advances in mobile, cloud computing, application portfolios and social communities. Combined, these technologies have evolved to lethal platforms that can completely overwhelm established markets and industries. They failed to recognize that their new competitors were operating on a far more comprehensive level than their traditional product competitors. Competing on product versus platform is like a catapult going up against a precision-guided missile.
Sony provides another excellent example of a superior product company (remember the Walkman?) getting mauled by platform companies. Or consider the camera industry: IDC predicts that shipments of what it calls “interchangeable-lens cameras” or high end digital cameras peaked in 2012 and will decline 9.1% this year compared with last year as the likes of Apple, HTC, Microsoft, and Samsung build high-quality cameras into their mobile devices. By some estimates, the high-end camera market in 2017 will be half what it was in 2012 as those product companies try to compete against the platform juggernauts.
The casualties will spread throughout other industries, from environmental controls to security systems to appliances. Market leadership will go to those players using Android or iOS as the primary control platform.
Over in the gaming world, while the producers of content (Call of Duty, Assassin’s Creed, Madden NFLC, etc.) are doing well, the console makers are having a tougher time. The market has already forever split into games on mobile devices and those for specialized consoles, making the market much more turbulent for the console makers. Wii console maker Nintendo, for example, is expected to report a loss this fiscal year. If not for some dedicated content (e.g., Mario), the game might already be over for the company. In contrast, however, Sony’s PS4 and Microsoft’s Xbox One had successful launches in late 2013, with improved sales and community growth bolstering both “partial” platforms for the long term.
In fact, the retail marketplace for all manner of goods and services is changing to where almost all transactions start with the mobile device, leaving little room for traditional stores that can’t compete on price. Those stores must either add physical value (touch and feel, in-person expertise), experience (malls with ice skating rinks, climbing walls, aquariums), or exclusivity/service (Nordstrom’s) to thrive.
It is difficult for successful product companies to move in the platform direction, even as they start to see the platforms eating their lunch. Even for technology companies, this recognition is difficult. Only earlier this year did Microsoft drop the license fee for its ‘small screen’ operating systems. After several years, Microsoft finally realized that it can’t win against a mobile platform behemoths that give away their OS while it charges steep licensing fees for its mobile platform.
It will be interesting to see if Microsoft’s hugely successful Office product suite can compete over the long term with a slew of competing ecosystem plays. By extending Office to the iPad, Microsoft may be able to graft onto that platform and maintain its strong performance. While it’s still early to predict who will ultimately win that battle, I can only reference the battle of consumer iPhone and Android versus corporate BlackBerry — and we all know who won that one.
Over the next few years, expect more battles and casualties in a range of industries, as players leveraging Android, iOS, and other cloud/community platforms take on entrenched companies. Even icons such as Sony and Microsoft are at risk, should they cling to traditional product strategies.
Meantime, the likes of Google, Apple, Amazon, and Facebook are investing in future platforms — for homes, smart cars, robotics and drones, etc. As the ongoing impacts from the smart phone platforms continue, new platforms will add further impacts, so expect more casualties among traditional product companies, even seemingly in unrelated industries.
This post first appeared in InformationWeek in February. It has been updated. Let me know your thoughts about platform futures. Best, Jim Ditmore.