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The Prodigal Tablet Convert

lg-android-tabletWhen the Wifi-only version of the first Android Honeycomb tablet, the Motorola Xoom, became available for sale, I bought the device, partly because of my “Fandroid” love for Android devices but mostly because, as a Tech enthusiast, I felt like I needed to own a tablet just to understand what everyone was talking about.

While I liked the device (especially after the Honeycomb 3.1 update), I felt a little weird because I didn’t really have a good idea of why I would ever need it. Tablets, while functional and cool, were not as large in screen size or as powerful as a laptop (some of which are also pretty portable: take my girlfriend’s recently purchased Lenovo X220 or the new MacBook Airs for instance), they weren’t as cheap/didn’t have as long of a battery life/didn’t have the amazing displays of dedicated eReaders like Amazon’s Kindle, and they weren’t as portable as a smartphone. I was frankly baffled: just when would you use an iPad/an Android tablet instead of a laptop, eReader, or a smartphone?

It didn’t help that many of my friends seemed to give waffling answers (and no, it didn’t really vary whether or not they had an iPad or an Android tablet – sorry Apple fanboi’s, you’re not that special :-)) or that one of the partners at my fund had misplaced his iPad and didn’t realize it for a month! To hopefully discover the “killer application” for these mysterious devices, I pushed myself to use the tablet more to see if I could find a “natural fit” and, except for gaming and for reading/browsing casually in bed, the whole experience felt very “well, I needed a bigger screen than my phone and was too lazy to turn on my laptop.” So for quite some time, I simply chalked up the latest demand as people wanting the latest gadget rather than anything particularly useful.

ASUS_EeePad_Transformer_-550x412This changed recently when, on a whim, I decided to buy carrying case and Bluetooth keyboard for my Xoom. And, upon receiving it, I was kind of blown away. Although it looked (and still does) a little funny to me — why use a Tablet plus Bluetooth Keyboard when you could just use a laptop –  that was enough to change my perspective on the utility of the device. It was no longer just a “bigger smartphone” – it became the full potential of what the netbook category itself had aimed to be: an easy-to-use, cheap consumer-grade laptop replacement that was not sucked into the “Wintel” dominion of Intel and Microsoft. It was that realization/newfound purpose for the device (as well as a nifty $100 off coupon) which also sucked my girlfriend, a long skeptic of why I had bought a tablet, in to buying an ASUS Eee Pad Transformer and dock (see image to the left).

I know its not the most profound of epiphanies – after all, even in my first comment on the iPad speculations I had suggested the potential risk to Apple of letting the iPad be so good that it starts replacing lower-end Macbook Air/Macbook devices – but suddenly the ability to write longer emails/compose documents made my tablet the go-to device for everything but the most processor-intensive or intricate of tasks, and that, combined with the abundance of tablets I’ve seen in Silicon Valley business settings, has convinced me that the “killer app” for the iPad and the Xoom and the whole host of coming Android tablets will be as computer replacements.

So, (hardware and software) developers out there and folks who want to pursue something potentially very disruptive or who want the venture capital side of me to pay attention to you: find me killer new apps/services designed to help tablets more replace computers (especially in the enterprise – I have become somewhat enchanted by that opportunity) and you’ll get it.

(Image credit – Tablet) (Image credit – ASUS Eee Pad Transformer)

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Disruptive ARMada

I’ve mentioned before that one of the greatest things about being in the technology space is how quickly the lines of competition rapidly change.

image Take ARM, the upstart British chip company which licenses the chip technology which powers virtually all mobile phones today. Although they’ve traditionally been relegated to “dumb” chips because of their low cost and low power consumption, they’ve been riding a wave of disruptive innovation to move beyond just low cost “dumb” featurephones into more expensive smartphones and, potentially, into new low-power/always-connected netbooks.

More interestingly, though, is the recent revelation that ARM chips have been used in more than just low-power consumer-oriented devices, but also in production grade servers which can power websites, something which has traditionally been in the domain of more expensive chips by companies like AMD, Intel, and IBM.

And now, with:

  1. A large semiconductor company like Marvell officially announcing that they will be releasing a high-end ARM chip called the Armada 310 targeted at servers
  2. A new startup called Smooth Stone (its a David-vs-Goliath allusion) raising $48M (some of it from ARM itself!) to build ARM chips aimed at data center servers
  3. ARM announced their Cortex A15 processor, a multicore beast with support for hardware virtualization and physical address extensions — features you generally would only see in a server product
  4. Dell (which is the leading supplier of servers for this new generation of webscale data centers/customers) has revealed they have built test servers  running on ARM chips as proof-of-concept and look forward to the next generation of ARM chips

It makes you wonder if we’re on the verge of another disruption in the high-end computer market. Is ARM about to repeat what Intel/AMD chips did to the bulkier chips from IBM, HP, and Sun/Oracle?

(Image credit)

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Does an iTablet exist?

If you follow the technology industry gossip, you’ll have heard the rumors that Apple will release a next-generation tablet PC at the end of January (kind of like Moses bringing tablets with the word of God?)

Industry gossip, especially gossip about Apple, is notoriously bad as the many analysts out there oftentimes fail to understand Apple’s business and misread the things that they hear.

However, given the very precise supply chain reports out there (as well as the #2 exec at European telecom firm Orange’s announcement that they would be a partner with Apple), I am leaning towards believing this device exists.

Granted this is all speculation (and there’s a significant chance the industry is getting excited over nothing), and my good (and very intelligent) buddy Eric disagrees with me completely (for good reasons), but my thinking on the subject stems from three things:

  • A rapidly growing device category exists – When I first heard of the netbook category, I scoffed. After all, what is the difference between a netbook and a very cheap, underpowered notebook or an extremely powerful smartphone? However, as time went by, I was forced to eat my own words. There seemed to be an enormous appetite for such a device (as judged by the rapid growth rate of the netbook category) which didn’t seem to cut too deeply into notebook sales at all. Intel has even come on record as saying that netbooks are rarely bought, if ever, to replace notebooks! Whereas mobile phones are likely to replace portable media players (like iPods), it seemed that people were drawn to the idea of something in between a workhorse laptop and a smartphone to be used primarily to access the internet. This is also borne out by the booming growth in eReaders like Amazon’s Kindle which provide special interfaces, like special touchscreens and displays, which are tailored for casual internet browsing and reading. If there is a place for Apple to continue its rapid growth trajectory, a device category with specific technical needs and with potential for rapid growth like this in-between-smartphone-and-notebook eReader/tablet/netbook device would be it.
  • Clear room for user interface innovation – The current generations of netbooks and eReaders could use some significant improvement. Most netbooks don’t (yet) support a touchscreen interface and rarely sport a user interface that really wows. eReaders today predominantly depend on current generations of black-and-white-only e-Ink displays which suffer from a very slow page-change rate. The potential for someone with the hardware and UI design chops that Apple has to implement a new generation of display technology and provide a much needed refresh in the control scheme for these devices is enormous, and it fits with Apple’s history of changing how the industry and the consumer thought of products like the smartphone and portable media player (iPhone and iPod).
  • A vertical model fits – Apple’s standard strategy is to build strong end-to-end solutions that encompass hardware, software, and services in a neatly packaged product. This helps Apple maintain the quality of product experience, as well as extract extra profit by creating  a powerful “walled garden” which prevents other companies from seizing control of Apple’s key features and sources of revenue. Take the iPhone for instance – Apple has built the phone, designed the operating system, created an application and music store, and negotiated the proper service contract with a wireless carrier. It doesn’t get more “all in one/vertical” than that! Similarly, if a tablet emerges primarily as a means to get on the internet and read books/publications/blogs, there are a number of clear ways for Apple to “go vertical” – including adding an eBook store to iTunes, charging publishers a fee to distribute their products to “iTablet” owners, building a subscription model for content access, etc. This wouldn’t be an easy battle, but given Apple’s success with mobile phone applications and digital music, there’s plenty of precedent for seeing Apple expand its “content empire” to other forms of digital content.

Of course, there are a number of good reasons why this prediction might not wind up being true:

  • Apple doesn’t believe that the market opportunity is large enough. Is the growth in netbooks sustainable? Or just a product of the global recession pushing people to buy very cheap electronics? If Apple suspects its the latter, that would be a great reason to not distract management from more important tasks like maintaining or increasing its desktop/notebook market share or defending the iPhone’s market share against a growing Android threat (and potentially a resurgent Blackberry and Windows Mobile 7 threats).
  • Apple fears cannibalization. While Intel might view netbooks as a chance to sell more chips without interfering with its higher-end chips, Apple may fear that Apple notebook users, many of whom don’t need all the processing power that’s in their machines as they merely use them to surf the internet or watch movies/listen to music, will simply “trade down” and be tempted completely away from buying Apple’s higher end notebook models and hence jeopardizing Apple’s long-term growth and profitability.
  • Technological solutions to current problems aren’t mature enough. While the iPhone pushed the mobile phone industry, overnight, to adopt touchscreens, what is oftentimes not understood is that the touchscreen technology used by Apple has been around for quite some time (and were probably approved for use by Apple because they were mature). Many of the new display technologies to replace and/or improve on e-Ink are much less mature. If Apple has studied the problems facing current generations of tablet/netbook/ereaders and concluded that compelling solutions to them are still a year or two away, then, I believe that Apple would wait until they did come out to really storm the market.
  • Apple doesn’t think it can compete with a successful vertical model. If Apple felt it couldn’t use its standard playbook of providing services/content along with software and hardware, then that would be a big reason for Apple to not consider this mode. This could be because of the presence of large book-sellers like Barnes & Noble and Amazon in the eBook space (who do not allow non-Amazon/non-Barnes & Noble approved devices to access their digital libraries) or because of a powerful third party like Google which is already pushing one universal access platform for all eBooks. In my mind, this would be one of the biggest, if not the biggest, reason for Apple to think twice about entering the tablet/eReader space.

I’m glad my personal financial well-being doesn’t depend on me making the right call on this one :-), but push comes to shove, given the pretty-specific-supply-chain checks and the fact that I believe the threat of cannibalization and small market opportunity to be unlikely, I believe Apple will make this plunge, and I eagerly await to see how it will shape this new emerging device category.

(Image credit) (Image credit)

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Innovator’s Delight

imageKnowing my interest in tech strategy, a coworker recommended I pick up HBS professor Clayton Christensen’s “classic” book on disruptive innovation: The Innovator’s Dilemma. And, I have to say I was very impressed.

The book tries to answer a very interesting question: why do otherwise successful companies sometimes fail to keep up on innovation? Christensen’s answer is counter-intuitive but deep: the very factors that make a company successful, like listening to customer needs, make it difficult for successful companies to adopt disruptive innovations which create new markets and new capabilities.

This sounds completely irrational, and I was skeptical when I first heard it, but Christensen makes a very compelling case for it. He begins the book by considering the hard disk drive (HDD) industry. The reason for this is, as Christensen puts it (and this is merely page one of chapter one!):

“Those who study genetics avoid studying humans, because new generations come along only every thirty years or so, and so it takes a long time to understand the cause and effect of any changes. Instead, they study fruit flies, because fruit flies are conceived, born, mature, and die all within a single day. If you want to understand why something happens in business, study the disk drive industry. Those companies are the closest things to fruit flies that the business world will ever see.”

image From that oddly compelling start, Christensen applies multiple techniques to establish the grounds for his theory. He begins by admitting that his initial hypothesis for why some HDD companies successfully innovated had nothing to do with his current explanation and was something he called “the technology mudslide”: that because technology is constantly evolving and shifting (like a mudslide), companies which could not keep moving to stay afloat (i.e. by innovating) would slip and fall.

But, when he investigated the different types of technological innovations which hit the HDD industry, he found that the large companies were actually constantly innovating, developing new techniques and technologies to improve their products. Contrary to the opinion of many in the startup community, big companies did not lack innovative agility – in fact, they were the leaders in developing and acquiring the successful technologies which allowed them to make better and better products.
But, every now and then, when the basis of competition changed, like the shift to a smaller hard disk size to accommodate a new product category like minicomputers versus mainframes or laptops versus desktops, the big companies faltered.

From that profound yet seemingly innocuous observation grew a series of studies across a number of industries (the book covers industries ranging from hardcore technology like hard disk drives and computers to industries that you normally wouldn’t associate with rapid technological innovation like mechanical excavators, off-road motorbikes, and even discount retailing) which helped Christensen come to a basic logical story involving six distinct steps:

  1. Three things dictate a company’s strategy: resources, processes, and values. Any strategy that a company wishes to embark on will fail if the company doesn’t have the necessary resources (e.g. factories, talent, etc.), processes (e.g. organizational structure, manufacturing process, etc.), and values (e.g. how a company decides between different choices). It doesn’t matter if you have two of the three.
  2. Large, successful companies value listening to their customers. Successful companies became successful because they were able to create and market products that customers were willing to pay for. Companies that didn’t do this wouldn’t survive, and resources and processes which didn’t “get with the program” were either downsized or re-oriented.
  3. Successful companies help create ecosystems which are responsive to customer needs. Successful companies need to have ways of supporting their customers. This means they need to have or build channels (e.g. through a store, or online), services (e.g. repair, installation), standards (e.g. how products are qualified and work with one another), and partners (e.g. suppliers, ecosystem partners) which are all dedicated towards the same goal. If this weren’t true, the companies would all either fail or be replaced by companies which could “get with the program.”
  4. Large, successful companies value big opportunities. If you’re a $10 million company, you only need to generate an extra $1 million in sales to grow 10%. If you’re a $10 billion company, you need to find an extra $1 billion in sales to grow an equivalent amount. Is it any wonder, then, that large companies will look to large opportunities? After all, if companies started throwing significant resources or management effort on small opportunities, the company would quickly be passed up by its competitors.
  5. Successful companies don’t have the values or processes to push innovations aimed at unproven markets, which serve new customers and needs. Because successful companies value big opportunities which meet the needs of their customers and are embedded in ecosystems which help them do that, they will mobilize their resources and processes in the best way possible to fulfill and market those needs. And, in fact, that is what Christensen saw – in almost every market he studied, when the customers of successful companies needed a new feature or level of quality, successful companies were almost always successful at either leading or acquiring the innovation necessary to do that. But, when it came to experimental products offering slimmer profit margins and targeting new customers with new needs and new ecosystems in unproven markets, successful companies often failed, even if management made those new markets a priority, because those companies lacked the values and/or processes needed. After all, if you were working in IBM’s Mainframe division, why would you chase the lower-performance, lower-profit minicomputer industry and its unfamiliar set of customers and needs and distribution channels?
  6. Disruptive innovations tend to start as inferior products, but, over time improve and eventually displace older technologies. Using the previous example, while IBM’s mainframe division found it undesirable to enter the minicomputer market, the minicomputer players were very eager to “go North” and capture the higher performance and profitability that the mainframe players enjoyed. The result? Because of the values of the mainframe players as compared with the values of the minicomputer players, minicomputer companies focused on improving their technology to both service their customer’s needs and capture the mainframe business, resulting in one disruptive innovation replacing an older one.

image The most interesting thing that Christensen pointed out was that, in many cases, established companies actually beat new players to a disruptive innovation (as happened several times in the HDD and mechanical excavator industries)! But, because these companies lacked the necessary values, processes, and ecosystem, they were unable to successfully market them. Their success actually doomed them to failure!

But Christensen doesn’t stop with this multi-faceted and thorough look at why successful companies fail at disruptive innovation. He spends a sizable portion of the book explaining how companies can fight the “trappings” of success (i.e. by creating semi-independent organizations that can chase new markets and be excited about smaller opportunities), and even closes the book with an interesting “ahead-of-his-time” look (remember, this book was written over a decade ago!) at how to bring about electric cars.

I highly recommend this book to anyone interested in the technology industry or even, more broadly speaking, on understanding how to think about corporate strategy. While most business books on this subject use high-flying generalizations and poorly evaluated case studies, Christensen approaches each problem with a level of rigor and thoroughness that you rarely see in corporate boardrooms. His structured approach to explaining how disruptive innovations work, who tends to succeed at them, why, and how to conquer/adapt to them makes for a fascinating read, and, in my humble opinion, is a great example of how corporate strategy should be done – by combining well-researched data and structured thinking. To top it all, I can think of no higher praise than to say that this book, despite being written over a decade ago, has many parallels to strategic issues that companies face today (i.e. what will determine if cloud computing on netbooks can replace the traditional PC model? Will cleantech successfully replace coal and oil?), and has a number of deep insights into how venture capital firms and startups can succeed, as well as some insights into how to create organizations which can be innovative on more than just one level.

Book: The Innovator’s Dilemma by Clayton Christensen

(Image credit: hard disk drive) (Image credit: David and Goliath)

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More Made in Taiwan

image It’s been a while since I visited the topic of Taiwan’s pivotal role in the global technology supply chain. So, it’s long overdue for some not-so-shameless plugging of news involving my favorite island country’s technology industry and the impact they’ve had on the technology space:

Hopefully a small taste of the reason why so many tech analysts watch the Taiwanese industry so carefully.

(Image Credit)

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