Archive for February, 2007|Monthly archive page
Olga Kharif at Business Week believes the Apple iPhone will disrupt the cellphone upgrade model. That model says that users generally replace their phones every 18 months. They do this for a number of reasons: Phone is broken or has battle scars, new features, new styling. The biggest reason, of course, is that the industry enables it by giving free or cheap phones when you agree to a new contract.
In a recent article, Olga’s makes this argument:
“The new iPhone from Apple….brag[s] touch screens instead of buttons. That means that if cell phone makers or carriers decide to add new functionalities to these phone when they are already in use, they could, potentially, do that over the air. Want to enable consumers to shoot, edit and post videos to a mobile site in a new way? Just send them an application with virtual buttons that will appear on their touch screens and allow for this application’s use.
If consumers are able to get new applications this way, I think some of them will stick with their phones longer. After all, today’s phones all feature cameras and Web access. Unless handset makers come out with additional hardware making replacing handsets every 18 months a must, I don’t see why consumers will keep on changing their phones as often, especially since the phones’ prices seem to be on the rise. After all, with a simple software upgrade, users will be able to drastically change their phones’ looks and functionalities anyway. So, why splurge on a new phone?”
She goes on to ask her readers if they agree. The article is short, but the list of comments is long and each side makes good points.
Here’s my take. The upgrade cycle today is controlled by the carriers. Apple wants to change that. The iPhone may be the hottest CE product of 2007 and millions of people will pay the premium to get it. Once that happens, and assuming that the experience lives up to the Apple brand (and the hype), people will not be so eager to upgrade just because their contract is up. Assuming that the 5 year exclusive deal with Cingular doesn’t change, they won’t really be able to switch anyway. Being touchscreen based does not make the iPhone an infinitely extendable platform (sorry Olga). There will be ongoing evolution of the technology, just as there has been a steady stream of product improvements to the iPod. This is what will drive the upgrade cycle for iPhone users. The cycle may remain at around 18 months, but it will be the product itself that shifts the control of the cycle to Apple.
What do you think????
I just bought a Wii. They are still hard to find, but I happened upon a pallet of them in my local Costco last week (right place, right time). Although I have been blogging about the Wii Experience for months, I had never experienced it personally. After the first swing of the virtual tennis racquet, I felt it. I was really “playing” tennis. I was not “pressing A to swing”. With just that brief experience, I completely understand why the Wii has taken off like it has. ‘It’s the experience, stupid!’, and it’s quite a success story.
Nintendo has long been the underdog in the video game market. Sony and Microsoft flew past them in terms of titles and realistic graphics during the last cycle. Nintendo titles have historically been more “family oriented” (no cop killing or hidden sex scenes), and their stock performance has historically been lackluster. When the third generation (3G) console war started heating up last year, the PS3 was supposed to be the big cheese (with the big price tag). XBox 360 had gotten a head start on the 3G market a year ago and had over 150 titles so they were expected to hold on to the number 2 position.
Retailers, while covering all the bases, believed that PS3 would be the big winner. As a result, they all fought for the same scarce pre-christmas inventory. Fast forward three months and we are now seeing headlines like: “Nintendo’s Wii Leaves Sony’s PS3 In the Dust and Nintendo Wii Sales Quadruple PlayStation 3 and Analyst: PS3 Readily Available, Wii Still Sold Out?
I visited no less than 6 stores on Monday night – EB Games, GameStop (NYSE: GME – News), Best Buy (NYSE: BBY – News) and Target (NYSE: TGT – News). None of them had the Wii in stock. I spoke to one of the employees at GameStop and he told me that they get Wii shipments from time to time, but the units sell within minutes. Talk about demand. He did volunteer that they had plenty of PS3’s stacked up in the back.
Were there early indicators that the PS3 would fail so miserably against the Wii? If you recognized those indicators, could you have profited by changing your retail strategy and focusing more on the Wii? Did any retailer see opportunity? Perhaps Gamestop did as they secured an exclusive agreement to have Wii demonstration kiosks in their stores. Did they “Sense & Respond” or was it accidental? Here are some early indicators that could have pointed the way:
1. PS3 is too expensive for the average household
Lots of discussion about this from analysts following the E3 debut. An analyst with ABI Research was quoted as saying “Asking consumers to pay $500 to $600 for a game console, when most have yet to purchase an HDTV, will give many current PlayStation 2 owners reason to consider the competition.”
2. E3 Performance: Poor PS3 showing; Big Nintendo buzz
“We went into E3 2006 unconvinced of the Wii name or the machine’s potential and walked away from the Convention Center knowing for certain that Nintendo has another hit on its hands…. The Big N’s new platform may lack the graphic horsepower of competitor PlayStation 3, but its innovative controller stole the show right out from underneath Sony’s collective feet.”
3. Continuous stream of bad news and missed expectations from Sony
Originally slated to debut in May, 2006; pushed to August, and then to November, Sony just could not deliver. Industry observers were warning as early as February, 2006 that the PS3 could be a flop due to the high cost of the technology-bloated console. Sony’s strategy was to use the PS3 as a Trojan horse to get Blu-Ray into your family room, but limited availability of key components which were reported as far back as July ’06 caused Sony to scale back the number of units available in North America delayed European availability until 2007.
4. Nintendo’s disruptive shift that focuses on the experience of the gamer
I think this was the biggest indicator that Nintendo would be the clear winner. Nintendo’s decision to approach the business from the players perspective and make a product that truly engages the player (at half the cost of a PS3) was disruptive.
Ideo’s Tim Brown made some insightful comments at the Adaptive Path’s MXSF conference last week. He talked about a human-centered approach to innovation called ”Design Thinking”.
“There are three buckets of innovation: technology, business, and people. All innovation is a combination of those things. Lots of people are doing the technology and business. Technology is the main engine of innovation. Most businesses come from a business perspective. But most designers come at it through people.”
He went on to describe the three phases of Innovation: Inspiration, Ideation, and Implementation. Just most businesses tend to miss importance of being human-centered, I think many of them also spend too little time on the Inspiration phase. They are good at coming up with what I call solutions in search of a problem. Instead of asking their customers what problems they would like addressed, they come up with new business ideas that they believe customers want. Not surprisingly, most of those ideas don’t resonate with customers when they test them.
Really great innovation happens when businesses partner with their customers; when they take the time to understand the customer’s needs, problems and experiences. This was a key point in Brown’s message:
“Inspiration. Where do ideas come from? Insights are the fuel of inspiration. You don’t get ideas from sitting at your desk. Use the world as a source of inspiration (not as a source of validation). It starts with empathy and seeing things from other people’s viewpoints, not yours. Aim to understand people on multiple levels: physically, cognitively, emotionally, socially, and culturally.”
~IDEO’s Tim Brown from MXSF 2007
Tip of the Hat to David Armano who posted the quote yesterday
The gang over at The Perfect Customer Experience have been on a roll this week with some really great posts. Yesterday, Dale Wolf made the case for diverting some of your push marketing dollars into Customer Experience Management. It’s such an obvious thing to me, yet so many organizations fail to see the opportunity. Perhaps its an orthodoxy that keeps the money pouring into processes that have a low ROI. In his post, Wolf provides a simple mathematical demonstration and a prescription:
“Let’s say the ad campaign had a cost of $10,000. It got 2% of the people into the store. That means 98% of the ad audience did not come to the store and 80% of the people that came to the store walked out of the store without buying. He spent $10,000 but only $1960 actually drove customers to a purchase. What a collosal waste!” (note: I’ve asked Wolf to explain how he got to $1960. I calculated the figure to be $40, but what do I know).
“Now instead if he had spent more of his budget in learning what his customers actually wanted, he could build an experience that delivered on their needs, wants and aspirations. Then spend another part of his budget on building a customer database and use relatively inexpensive personalized email to tell them individually (or at least in small clusters) about the experience they will have in his store. He will begin pulling metrics that are in the +50% response rate. Better yet, if he has invested in a truly differentiated, valued and consistently delivered experience that gets people talking, his investment will spread far and wide at virtually no cost.”
I think the biggest opportunity for organizations, and retailers in particular, to differentiate, is to focus significant resources on the delivering exceptional customer experiences. That starts with asking customers what they want. It also requires you to address those elements in the experience that are sources of dissatisfaction. In fact, you will have limited success until you do this. Word of mouth is a powerful thing and customers will tell others about great experiences. They will also tell others about bad experiences and what’s worse, those friends will tell others. For retailers who routinely misses customer expectations, spending money on push marketing is like trying fill a bucket that has a big whole in the bottom. The best you can hope to do is keep some water in the bucket.
Diverting that money to improving the experience of those who do come to your store will result in a higher close rate and higher loyalty and that’s where the real ROI is.
It’s been a while since I last discussed the recent videogame console war. It was long my belief that Nintendo’s Wii, with its focus on the player’s experience, would be the real winner. Although there is plenty of time for these two to battle it out, the early results are a clear indication that Nintendo’s approach has disrupted Sony. Michael Urlocker’s OnDisruption blog has a great post that lays out the case and offers six concepts about Disruption that are applicable to any business:
- Nintendo’s market disruption is not about better technology;
- Disruption is not about incremental improvements;
- Disruption is about understanding where the customer experience is not good enough;
- Disruption is about making a product more accessible;
- Disruption is about changing the basis of competition;
- Disruption is about a new business model.
Pulling off quite a coup, Wal-Mart has entered the movie download business with a bang. In the announcement today, the company announced agreements with all six major movie studios — Walt Disney, Warner Brothers, Paramount, Sony, 20th Century Fox and Universal — to sell digital movies and television shows on its Web site (www.walmart.com/videodownloads), becoming the first traditional retailer to do so. Wal-Mart, who lost the battle against Netflix on DVD rentals two years ago, sees that the bigger opportunity is in downloads.
The move plunges Wal-Mart into direct competition with established players like Amazon.com, CinemaNow and the 800-pound gorilla, Apple’s iTunes. Wal-Mart will face a number of challenges. Apple dominates the digital download space, leaving only a very small share of the market for others to scrap over. And where Wal-Mart is the king of retailers, they have no real competence in digital distribution.
What they do have is clout and they have leveraged that clout to do what Apple has been unable (or unwilling) to do: to pull together all the right Hollywood players. Wal-Mart has also partnered with Hewlett-Packard to create an easy-to-use Web site and develop a broad library of videos.
Movies will run from $12.88 to $19.88 on the day the DVD drops, while older flicks start at $7.50. All movies will have roughly the same price as the actual DVD at Wal-Mart stores, though. Not sure why download customers would want to fork over almost what you’d pay for the actual DVD, but then again, I’ll do just about anything to avoid going to a Wal-Mart. The pricing is designed to protect the DVD business which will keep the studios (who have considerable clout themselves) happy.
The service will have TV shows from Comedy Central, CW, FX, Logo, MTV and Nickelodeon. Major networks are not in the mix as of now. TV shows run a bit cheaper than iTunes, at $1.96 a pop. Altogether, it will offer “access to 3,000 productions,” with the mix split roughly 50/50 between movies and TV shows.
Just as MP3 downloads have disrupted the CD business (just ask Tower records), digital movie downloads will be disruptive to the DVD business and possibly other CE products such as DVRs. You can already watch recent episodes of ABC shows for free. If, in the near future, I can get high-def downloads of shows that I missed, why pay for a hi-def Tivo and the monthly subscription that goes with it? This disruption could also impact CE retailers who do not move into the digital distribution space. The war is just starting, but it will be interesting to see how it develops.
<via NY Times>
It was bad enough that ,when given the first opportunity to be the exclusive carrier for Apple’s new iPhone, Verizon turned it down. Now, Verizon’s President and COO Denny Strigl has gone on record as saying,
“The iPhone product is something we are happy we aren’t the first to market with.”
Yeah, that makes a lot of sense. Wouldn’t want to be first to market with what will be the hottest product of 2007, now would we? The back story, according to The Register, is as follows:
The problem seems to have been Apple’s insistence in sharing the call revenue as well as controlling distribution channels and customer service.
Verizon vice president Jim Gerace (one of many veeps at the company) said: “We said no. We have nothing bad to say about the Apple iPhone. We just couldn’t reach a deal that was mutually beneficial.”
We can only assume that Cingular did agree to such a deal, and guess to what heights that will drive the cost of the two year contract it is demanding from iPhone purchasers.
Cingular said it inked the deal with Apple more than two years ago, when the iPhone was no more than a couple of sketches and concepts; such was its belief in the Apple brand and abilities.
It never ceases to amaze me how shortsighted companies can be and Verizon appears to be shining example. They are a victim of their Orthodoxies. Cingular, on the other hand apparently saw opportunities in doing business Apple’s way. Apple has mastered the art of delivering a great Customer Experience; from the user interface on the device, to the human interaction in their stores. Cingular knows that customers are going to want this thing and sees opportunity in increasing their subscriber base even if Apple gets most of the ROI on the phone. Cingular has been good at Sensing what the next hot device will be and Responding by getting exclusive access to it early in the product cycle when the highest margins can be demanded. They did it with the Motorola RAZR (Verizon was the last major US carrier to get it) and the iPhone looks to be an encore performance.
Most people don’t know what SecondLife is, but many of them got a glimpse of it if they were watching the the pre-game show yesterday. The crew over at Electric Sheep produced the machinima spot for the CBS series Two and a Half Men.
The YouTube link is below if you want to check it out.
If you’re thinking about getting the AppleTV next month then you should checkout this walk through of the interface. It looks very slick. Again, Apple has scored in making a piece of hardware (AppleTV) and software (iTunes) that integrates seamlessly and makes it quite easy to use. Beyond being seamless and easy, there is something else about the interface design that really clicks with me. Perhaps it’s just the “cool factor” that seems to come naturally to Apple engineers or the fact that the interface itself is both beautiful and entertaining. Whatever the reason, the design is totally engaging and very well may be disruptive to the CE industry which has been unable to find a way to make products that are easy to integrate & use, and also exciting for the consumer.