Lot of people have said a lot of things about Jobs. In many articles and web forums, there is a section of people that consider Jobs to be in the same league as Edison, Henry Ford, Walt Disney, etc.
However, I feel Jobs is absolutely streets ahead of anyone else - even the visionaries named above.
The thing is, Edison, Henry Ford, and Walt Disney operated in an era where the state of advancement of technology and business was insignificant. There were no entrenched competitors to fight against, no barriers to success, etc. It was pretty much a given that there would be a dozen companies that would be pathbreaking successes. For the simple reason that pretty much anything anyone did was pathbreaking.
Jobs and Apple on the other hand have succeeded in a totally different era. Where the pace of innovation is mindboggling. Where change is measured in years, not decades. Where even something as revolutionary as the iPhone was challenged by competing devices within 18 months. And in this competitive environment, Jobs has created and/or reengineered several industries. PC (multiple times!), animation (Pixar), music (again multiple times), retail (pushing the envelope in design, performance metrics, etc), telecom (single handedly changed the industry into a different orbit), movies (from how they are made, to how they are sold), publishing (offering the first credible e-device that gave same experience as physical magazines), manufacturing (unibody) and even basic materials (transparent aluminium!), and even shipping (engraved in China, and shipped to your home, in 3 days, for free!).
He has started from scratch multiple times, and created huge successes. Whether it is the original Apple in 1976, or Next in 1986, or Pixar in 1990, or the second innings at Apple in 1997. For that matter, he has started from scratch in several industries and shaken them up completely. Within 3 years, Apple went from 0% to over 50% of the profits of the entire mobile phone industry!
In each one of these areas, Apple has succeeded in the face of exceptionally strong competition. Almost every single time Apple came up with a radical product, the existing players have ridiculed it as a toy or a gimmick.
I dont think there is any parallel anywhere in the world, in any industry, of a company that has consistently challenged the status quo and succeeded.
Thursday, August 25, 2011
Monday, August 15, 2011
Google's desperate bid
My previous post dealt with the impending downfall of Android. Even if you ignore all the legal issues of Android, there is one thing you cannot ignore. Most Android licensees are either barely breaking even, or even losing money on their Android strategy. Despite whatever happens on the legal front, Android is always going to be about the latest greatest handset that will be released next. With models getting outdated so soon, it is tough to make money. Especially if your primary sales strategy is to give away a phone for every phone sold!
There is speculation in the blogosphere about this being a ploy by Google to acquire patents to defend themselves. And that with these 25000 odd patents, Google can defend Android better.
Why that explanation doesn't make any sense
- Whatever ammo Motorola had, they have already fired at Apple. These two have been suing each other for over a year now. Very unlikely that Motorola either forgot some patents or held them back for a later day.
- Most of Motorola's patents have either passed the 20 year protection limit or have been already incorporated into standards that Apple can license on FRAND terms. So these 25000 patents really boil down to a few thousand at most.
- Over last 6 years Motorola has been battling for survival. Their hey day was in the 90's. It is very likely that most of Motorola's patents cover 2G and 3G. And not so much on 4G. We are rapidly moving to 4G. Makes these patents less worthy.
The real reason for the bid
As Android was getting dicey, Motorola realized they were in trouble. They were making losses, so could not really spend massive money to build an alternative OS. And even if they did build an alternate OS, it would not be easy competing against Apple with a fledgling OS, zero marketshare and no ecosystem. So they had to do something drastic and quick.
Over last few months, Motorola has been seeking licensing from other Android partners. They were also threatening to take these vendors to court. This is the sort of civil war that could have hurt Android even more than the legal issues. Google had absolutely no choice but to stop Motorola from suing.
It is clear from the breakup fee on this deal that this is Motorola's deal all the way. If Google walks away, they owe Motorola $2.5B, whereas Motorola pays only $375M if they walk away.
Why this deal is not of much use
It is difficult to say whether or not this deal will have any impact on Apple's suits against Android makers. However one thing is absolutely clear. This deal has zero impact on Oracle. None of Motorola's patents have any connection to Oracle. The biggest threat to Android today comes from Oracle, especially with all the smoking gun emails that the discovery process has unearthed. It has become obvious that if Oracle wins, they can easily get triple damages. This will hurt Google big for all devices already sold plus all devices sold going forward.
Even if the patents are worth something to Google, they have paid almost 5 times what Apple paid ($2.6 B) for the Nortel patents. In fact it is very likely that this $12.5B might have covered any potential licensing costs of all Android licensees for the next 2-3 years which would have given Google enough time to work around the Java issues, etc.
And this potentially opens Google to direct legal liability from Android. If Android devices are found to infringe patents of Microsoft or Apple, Google could have exposed itself to law suits.
And the final nail in Android's coffin...
Microsoft already has Nokia tied up to use Windows Phone 7. They are finding it difficult to get other partners for WP7. Here is a golden opportunity for Microsoft - they can spend (say) $15B to get one of the most prominent licensees of Android and convert them to WP7. And in the process, they can get a massive arsenal of patents that Motorola was anyway planning to use against other Android licensees! This would nudge more Android licensees away from Android and towards WP7! And they can at least force Google to up the bid significantly higher, and make it even more painful than it already is.
Google has already gone on the record that defending Android is worth spending $12.5B on - if Microsoft ends up buying Motorola, the impact on Google would be even worse than the present situation. The best part is that Microsoft does not even need to succeed in this bid - Google will have no choice but to raise their bid for Motorola - they cannot wait for the DoJ to shoot down Microsoft's bid.
The benefit to Microsoft is actually significantly more than the benefit to Google - Google already is a winner, and is looking to defend its position - Microsoft on the other hand has lost massively in mobile, and buying Motorola would be the best way for them to improve their position.
There is speculation in the blogosphere about this being a ploy by Google to acquire patents to defend themselves. And that with these 25000 odd patents, Google can defend Android better.
Why that explanation doesn't make any sense
- Whatever ammo Motorola had, they have already fired at Apple. These two have been suing each other for over a year now. Very unlikely that Motorola either forgot some patents or held them back for a later day.
- Most of Motorola's patents have either passed the 20 year protection limit or have been already incorporated into standards that Apple can license on FRAND terms. So these 25000 patents really boil down to a few thousand at most.
- Over last 6 years Motorola has been battling for survival. Their hey day was in the 90's. It is very likely that most of Motorola's patents cover 2G and 3G. And not so much on 4G. We are rapidly moving to 4G. Makes these patents less worthy.
The real reason for the bid
As Android was getting dicey, Motorola realized they were in trouble. They were making losses, so could not really spend massive money to build an alternative OS. And even if they did build an alternate OS, it would not be easy competing against Apple with a fledgling OS, zero marketshare and no ecosystem. So they had to do something drastic and quick.
Over last few months, Motorola has been seeking licensing from other Android partners. They were also threatening to take these vendors to court. This is the sort of civil war that could have hurt Android even more than the legal issues. Google had absolutely no choice but to stop Motorola from suing.
It is clear from the breakup fee on this deal that this is Motorola's deal all the way. If Google walks away, they owe Motorola $2.5B, whereas Motorola pays only $375M if they walk away.
Why this deal is not of much use
It is difficult to say whether or not this deal will have any impact on Apple's suits against Android makers. However one thing is absolutely clear. This deal has zero impact on Oracle. None of Motorola's patents have any connection to Oracle. The biggest threat to Android today comes from Oracle, especially with all the smoking gun emails that the discovery process has unearthed. It has become obvious that if Oracle wins, they can easily get triple damages. This will hurt Google big for all devices already sold plus all devices sold going forward.
Even if the patents are worth something to Google, they have paid almost 5 times what Apple paid ($2.6 B) for the Nortel patents. In fact it is very likely that this $12.5B might have covered any potential licensing costs of all Android licensees for the next 2-3 years which would have given Google enough time to work around the Java issues, etc.
And this potentially opens Google to direct legal liability from Android. If Android devices are found to infringe patents of Microsoft or Apple, Google could have exposed itself to law suits.
And the final nail in Android's coffin...
Microsoft already has Nokia tied up to use Windows Phone 7. They are finding it difficult to get other partners for WP7. Here is a golden opportunity for Microsoft - they can spend (say) $15B to get one of the most prominent licensees of Android and convert them to WP7. And in the process, they can get a massive arsenal of patents that Motorola was anyway planning to use against other Android licensees! This would nudge more Android licensees away from Android and towards WP7! And they can at least force Google to up the bid significantly higher, and make it even more painful than it already is.
Google has already gone on the record that defending Android is worth spending $12.5B on - if Microsoft ends up buying Motorola, the impact on Google would be even worse than the present situation. The best part is that Microsoft does not even need to succeed in this bid - Google will have no choice but to raise their bid for Motorola - they cannot wait for the DoJ to shoot down Microsoft's bid.
The benefit to Microsoft is actually significantly more than the benefit to Google - Google already is a winner, and is looking to defend its position - Microsoft on the other hand has lost massively in mobile, and buying Motorola would be the best way for them to improve their position.
Friday, August 5, 2011
The Apple Advantage
Either by luck or by design, Apple has created the perfect company for consumer electronics. Because of these advantages, it is difficult for their competition to compete with Apple today, and in the near future as well. Most of these advantages are unique to Apple, and very difficult for the competition to replicate.
- They have a strangle hold on supply of components, giving them very low costs. The really expensive stuff like Flash Memory is shared across most of Apple's product line, giving them extremely good volumes - unmatchable by their competition.
- They are sitting on a massive pile of cash where they earn very low rates of interest. This gives them the power to make strategic moves because the hurdle rate on return on investment is very low. For instance, on the Nortel patents, Apple invested $2.6B. They earn only about $50M as interest on this money - so even if they can make $50M in licensing fees on these patents each year, it is a good deal for Apple - and they can easily make several times this amount each year! They recently prepaid for $4B worth of equipment - if they even get a 2% discount on pricing, it is a par return for Apple - and in reality they can get several times that discount!
- They have invested tons of time and money on things like battery chemistry, materials like Liquid Metal, processes like Unibody construction, Transparent Aluminium (laser thinning used for the battery indicator of the Mac Book line), etc. While their software patents might be violated, these process and product patents are a lot easier to defend. Things like dynamic processor clock speed in the A5, and tight integration between Software and Hardware gives Apple a huge edge in battery life compared to the competition.
- They have an excellent split between design and manufacturing, where they get the best benefits of integration as well as cost savings of outsourcing. They have optimized this so well that they can make custom machines in China and air ship direct to their customers in the US, for free!
- They have a complete ecosystem to add value to their products, so their products are a lot more usable out of the box. Every app purchased from the App Store, and every song or video purchased from the iTunes store has a lock in effect to keep the customer tied to Apple for the future as well.
- They own the distribution chain, right down to the Apple Store and Apple Website, so they keep all the margins inhouse
- They gets millions worth of free advertising, as pretty much every one in the media publishes every small rumor and story about Apple's forthcoming products.
- They have excellent customer satisfaction, because of which people are ready to buy their products sight unseen.
- They usually have just one problem - they cannot make enough of their products to meet demand - which is a good problem to have!
- They have successfully straddled both the luxury market and the mass market, without diluting itself in any way in either market. This allows Apple to have huge volumes and high margins, without depending on a monopoly - which is unique not just in the computer or consumer equipment space, but in any industry.
- They have a strangle hold on supply of components, giving them very low costs. The really expensive stuff like Flash Memory is shared across most of Apple's product line, giving them extremely good volumes - unmatchable by their competition.
- They are sitting on a massive pile of cash where they earn very low rates of interest. This gives them the power to make strategic moves because the hurdle rate on return on investment is very low. For instance, on the Nortel patents, Apple invested $2.6B. They earn only about $50M as interest on this money - so even if they can make $50M in licensing fees on these patents each year, it is a good deal for Apple - and they can easily make several times this amount each year! They recently prepaid for $4B worth of equipment - if they even get a 2% discount on pricing, it is a par return for Apple - and in reality they can get several times that discount!
- They have invested tons of time and money on things like battery chemistry, materials like Liquid Metal, processes like Unibody construction, Transparent Aluminium (laser thinning used for the battery indicator of the Mac Book line), etc. While their software patents might be violated, these process and product patents are a lot easier to defend. Things like dynamic processor clock speed in the A5, and tight integration between Software and Hardware gives Apple a huge edge in battery life compared to the competition.
- They have an excellent split between design and manufacturing, where they get the best benefits of integration as well as cost savings of outsourcing. They have optimized this so well that they can make custom machines in China and air ship direct to their customers in the US, for free!
- They have a complete ecosystem to add value to their products, so their products are a lot more usable out of the box. Every app purchased from the App Store, and every song or video purchased from the iTunes store has a lock in effect to keep the customer tied to Apple for the future as well.
- They own the distribution chain, right down to the Apple Store and Apple Website, so they keep all the margins inhouse
- They gets millions worth of free advertising, as pretty much every one in the media publishes every small rumor and story about Apple's forthcoming products.
- They have excellent customer satisfaction, because of which people are ready to buy their products sight unseen.
- They usually have just one problem - they cannot make enough of their products to meet demand - which is a good problem to have!
- They have successfully straddled both the luxury market and the mass market, without diluting itself in any way in either market. This allows Apple to have huge volumes and high margins, without depending on a monopoly - which is unique not just in the computer or consumer equipment space, but in any industry.
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