Len Sherman
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Nobody Cares What You Think!

8/22/2013

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There is a bitingly funny line in the 2007 movie The Bucket List in which Jack Nicholson’s character (a self-made billionaire) responds to a heartfelt compliment from  his loyal business manager with the ultimate putdown:  “Nobody cares what you think!“.  Later in the movie, Nicholson smacks down his assistant yet again with the zinger: “I’d really like to say you’re irreplaceable, but I’d be lying.”
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​We laugh at such gratuitous boorishness, knowing of course that if we were the object of such scorn, it would be devastatingly hurtful.  Cringe-worthy behavior has been a Nicholson comedic staple for decades.

There’s an interesting backstory here with serious business implications.  Critics were quick to bury The Bucket List with every pejorative in their Thesaurus when it first came out: “preposterous” (NY Times), “cheap and flimsy” (Miami Herald) and “a cloying … lazy low-grade product” (Seattle Times).  But despite the critics’ scorn, The Bucket List went on to become an audience favorite, topping box office charts for weeks and grossing >$175 million for Warner Brothers.  Moviegoers were in essence thumbing their nose at critics and telling them: “nobody cares what you think!”

The declining relevance of movie critics underscores a broader shift transforming many industries: technology-enabled self empowerment.

Think about it.  The underlying value proposition for most companies is to sell a product or service that is too too complex, inconvenient or expensive for consumers to provide on their own.  In this regard, consumers have historically been willing to pay movie critics (indirectly through their newspaper and television subscriptions or advertising eyeballs) for the valuable service of previewing and critiquing new film releases.

But the internet has now created a platform for everyone to be a movie critic, and many moviegoers consider the “wisdom of the crowds” on sites like Rotten Tomatoes to be a more reliable guide, particularly if one can filter reviews to reflect individual preferences, as with  Netflix’ and Amazon’s recommendation engines.  Social network “Likes” have added yet another preferred alternative to the need for putative expert critics.

Technology-enabled self empowerment has or is ravaging a number of other industries, including:
  • Travel agencies
  • Record labels
  • Metro daily newspapers
  • Accounting
  • Book publishing/book retailing
In each of these cases, jobs-to-be-done that were initially considered too complex for individuals to perform on their own are now easily handled by average consumers — in ways often perceived to be better, at a fraction of the cost.  For example, who needs a high commission travel agent when Expedia, Kayak or Priceline empowers consumers to plan trips on their own (each replete with “wisdom of the crowd” reviews)?  Ditto for the impacts of SoundCloud and iTunes on record labels, Google News and  Flipboard on metro dailies, TurboTax and Quickbooks on accounting and Amazon/Goodreads on book publishers and retailers.

All the news that’s fit to print
For historical industry leaders whose value proposition has been undermined by these disruptive technologies, the financial and emotional impact is no laughing matter.  When customers begin in essence telling legacy market leaders that they no longer care what the company thinks (or sells), it’s terrifying.

Take the New York Times for example. In 1896, the Times started carrying an iconic text box atop its front page embodying the hubris of a company laying claim to “All The News That’s Fit To Print.”  During the ensuing 100 years, the Times had good reason to assume that consumers could not possibly serve as their own editors in ferreting out important news stories from around the globe.  But in the post-internet era, a bevy of customizable search-driven applications now self-empower consumers to access news from a wide range of news sources and political viewpoints, including easy access to topics of personal interest that the Times maynot view as fit to print.  Add to that the emergence of Twitter, which has often become the first to break current events, and it’s clear that the Times is now competing for customer attention in a very different world.
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What’s a company to do when their basis of competitive advantage that has served them so well for decades is severely undermined?   Unfortunately, the most common initial reaction is paralyzing denial, fear and anger.  What follows next ultimately determines whether a disrupted company can adapt and survive (possibly in smaller but sustainable form) or fail.

IBM provides a good example of a company that not only survived but prospered after new technologies decimated their once-dominant mainframe computer business.  After teetering on the edge of bankruptcy in the early 1990s, IBM shifted its business mix through acquisitions towards IT services, outsourcing and software to emerge as a stronger, considerably larger and more diversified company.  Disruption has been far  less kind to hundreds of brick and mortar travel agencies who were flattened by the rapid rise of online travel services.

So how has the New York Times fared?  To their credit, after experiencing early fear, uncertainty and doubt, the New York Times worked hard to remain relevant in the post-online news era.  The company has pioneered a number of innovative online news features and successfully implemented the largest general newspaper paywall in the industry to supplement its profitable but steadily declining print newspaper business. While the internet has not been kind to its bottom line, online access has broadened the Times’ print audience reach by more than 25X.  In Jack Nicholson’s parlance, more people than ever care what the New York Times thinks, albeit neither readers nor advertisers are willing to pay very much for the privilege.  Revenues at the NY Times have declined 40% over the past six years, but the company has downsized sufficiently to secure a profitable future.
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Turmoil in the book industry
The situation is a bit murkier for book publishers and booksellers, who are losing relevance (and financial viability) in a market increasingly driven by online purchases of paper and digital books.  Technology self-empowerment is at play throughout the book publishing value chain, allowing authors to get to market without traditional publishers and readers to purchase books without bookstores.  Reflecting the shift in bargaining power, one “Big 6” publishing executive recently told me: “it used to be that aspiring authors would damn near kill to be picked up by a major publishing house; now authors with self-publishing experience under their belt come to me with the question ‘what can you do for me?!'”

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In response, a number of traditional booksellers and publishing executives have reacted by decrying Amazon’s growing disruptive influence as evil, unfair and bad for society.  In support of this view, publishing executives often note that their editorial prowess has helped bring great literature to market that might otherwise have never taken form.  And booksellers are quick to point out their pivotal role in curating, displaying and recommending great reads to help struggling authors reach customers who would otherwise be unaware of promising new works. The problem with such arguments is that those dislodged by innovation in the book industry are conflating their own welfare with the marketplace as a whole. The fact is, more books are being written and read than ever before through channels which bypass the traditional book publishing industry value chain.

It is certainly true that talented editors working on behalf of traditional publishers have helped identify, refine and promote great literary works that have had considerable cultural impact.  As cases in point, kudos to J. B. Lippincott who worked intensively with first time author Harper Lee in crafting the wildly successful To Kill a Mockingbird.  Knopf’s role in bringing Julia Child’s masterpiece, Mastering The Art of French Cooking to market is another legendary publishing success story .  And of course, Bloomsbury hit the financial jackpot  when it took a flyer in 1997 on an unknown rookie children’s book writer named JK Rowling.

But it’s important to note that each of these rock star authors was initially rejected by ten or more publishers before finally finding a gatekeeper — aka publisher — who allowed their work to get to market.  For every Lee, Child or Rowling that was discovered in the pre-digital book era, there are scores of other great writers who lacked the luck, connections and/or perseverance to get their books published.  These stories were never told.

The gatekeeper role of publishers has changed of course in the post-digital book world where now any author can choose to self-publish an e-book or print-on-demand version with very little investment, and consumers can find promising new works by searching for topics of individual interest or by checking personalized wisdom-of-the-crowds recommendations on sites like Amazon or Goodreads.

What does this mean for book publishers and booksellers?

Book publishers will need to master new digital content skills to remain relevant in the post-digital market, offering authors a range of services that arguably can increase sales of books in multiple formats.  For example, Atria Books, an imprint of Simon & Schuster recently publishedA Swing for Life by Nick Faldo, incorporating QR codes in the hardcover version, enabling consumers to view instructional golf videos on mobile devices.  This tome is also available as an e-book, where multi-media clips are embedded directly in the text. Expect to see more multi-media, multiple format initiatives from traditional publishers and new entrants in the years ahead.

There is also a continuing role for traditional booksellers provided that they restructure to the realities of a smaller base of loyal customers willing to pay higher prices for valued attributes.  For example, Powell’s City of Books in Portland, Ore., has maintained an evangelistic core of customers enamored of the ambiance and expertise of their local bookseller, despite higher prices than charged by Amazon.
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Coda
Companies that don’t want consumers to stop caring what they think or sell (and who doesn’t!) had better be prepared to continuously respond to shifts in how consumers prefer to get jobs done.  While we can chuckle at Jack Nicholson at the movies, this is no laughing matter for incumbents in industries undergoing technology-enabled self empowerment.  Many other industries are facing similar challenges, including higher education, routine medical services and licensed taxi operators.  Is your company next?

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Apple’s Product Strategy: No News Is Good News

7/26/2013

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Question: how long should it take for a company to come up with an industry-changing, category-redefining, market-dominating new technology with sales of $10 billion or more.
Answer: For the vast majority of companies, the answer of course is never.  For Apple, the answer appears to be, not soon enough.

It has been 2.3 years since Apple’s last game-changer — the iPad, which helped drive year-on-year profitable sales growth of 30+% (and mostly >50%) for ten consecutive quarters.  During this astonishing run, Apple’s annual revenues climbed over $100 billion and its stock peaked at >$700 per share. But predictably — in fact inevitably — Apple’s growth rate has since slowed, and nervous investors have driven its share price down by 45% from peak.  To add insult to injury, numerous pundits have declared that Apple’s uncanny knack for innovation died with Steve Jobs’ passing and its best days are clearly behind it.
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To be honest, it does feel like a long time since Apple launched a home run product, and it’s easy to believe that if Steve Jobs were still around, we wouldn’t still be waiting for some new form of technical wizardry.  But a closer look at Jobs’ legacy for serial innovation suggests that such expectations are unreasonable. 
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As noted in the exhibit below, during his two CEO stints at Apple, Steve Jobs never launched consecutive blockbusters in less than 2.3 years.  In fact, it took six years for Apple to pivot from the iPod to the iPhone.  From Apple II to the MacIntosh took 5.3 years.  And even though Apple was working hard on tablets long before the launch of its smartphone, the iPad was launched 2.6 years after the iPhone.
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So why is Tim Cook being held to an unprecedentedly higher standard for product innovation?  Perhaps because investors have been spooked by the sharp declines in Apple’s growth rates of late.  But as shown below, Apple has always ridden a revenue growth roller coaster between game changing product launches.
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​At least for now, what we’re seeing or not seeing from Apple is nothing new.  The company’s future — as it always has been — will be determined by whether it can pull off yet another new product game-changer.   Pundits and investors can have legitimately differing opinions on this question, but it is clearly too early to declare that Apple’s inability to launch blockbuster products over the past 2+ years somehow proves that innovation is dead at the company.
So what’s behind the title of this piece — that for Apple, no news is actually good news?

There actually were two shreds of reassurance coming out of Apple’s otherwise mostly inconsequential quarterly earnings report this week.  First, Apple announced surprisingly strong iPhone sales, exceeding analyst estimates for the quarter by 20%.  That iPhone sales remained strong despite Samsung’s recent Galaxy S4 launch, supported by a breathtakingly lavish advertising budget, reaffirms just how strong the now venerable iPhone design really was.

How large is “breathtaking”? Samsung’s global marketing expenditures for mobile devices is estimated to currently be on an annual run rate of $12 billion, more than the advertising spend by Apple, HP, Dell, Microsoft, and Coca Cola combined on all their products!.  In that context, Apple’s market resilience is notable.

Second, and more importantly, Tim Cook’s commentary during this week’s analyst meeting reaffirmed that the company has not abandoned Steve Jobs’ “outside-in” strategic perspective, which focuses the company’s energies on creating great products and customer experiences. 

In response to an analyst question on whether internal growth targets drive Apple’s product development and launch timing, Tim Cook responded:
“The way I think about is, we’re here to make great products and we think that if we focus on that and do that really, really well that the financial metrics will also come… If you don’t start at that level you can wind up creating things that people don’t want.”
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While obviously, it would have been beneficial for Apple to have launched yet another blockbuster product by now in what would have been an unprecedentedly short amount of  time, Apple’s greatest threat would be rushing to market with unimaginative products that  tarnish its stellar reputation for product excellence.
No one, starting with Tim Cook himself, claims he’s another Steve Jobs.  But give the current CEO credit: he gets it.  He is committed to sustaining Apple’s legacy for product excellence. Cook deserves at least as much time as his predecessor to tell if he can deliver.
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Timing Is Everything

5/19/2013

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A former chief technology officer of Hewlett-Packard recently shared the profound observation with me that “the difference between a good idea and a great one is timing.”

So true.
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While (too) much attention is often given to the dangers of being late to market — as HP assuredly was with its ill-fated and short-lived tablet computer — it can be just as deadly to prematurely enter a market before the technology, cost, or operational requirements are ready to deliver a viable consumer value proposition.
To put the issue of launch timing in context, recall that every new product launch must overcome three inherent risks to become a market success:
  1. Technology risk
    Successful new technologies have to work reliably and as intended.  Technology viability is by far the most common risk associated with new product development and applies to the countless ideas that appear promising in theory, but never make their way out of R&D.  Last I checked, eternal youth and teleportation remain examples of this type.  Tens of thousands of promising but ultimately ineffective drug compounds are more prosaic examples that chronically bedevil pharmaceutical companies.
  2. Operational risk
    Even if an underlying idea is technically sound, companies must be able to successfullyoperationalize the business around the new technology.  Webvan — one of the pioneers of online grocery services —  is an example of the failure to build a financially viable business around a proven technology: automated pick-and-pack grocery warehouses.  What brought Webvan down was overly ambitious expansion, which distracted the company from ironing out the basic operational requirements for on-time, cost-effective home delivery.  By the time Webvan crashed and burned, it had squandered about $1.4 billion of VC investment and IPO proceeds. On a smaller scale, NYC’s bike-sharing program is currently experiencing teething pains in establishing reliable operations.  Time will tell if New York can match the success of comparable bike-sharing programs throughout Europe.
  3. Market acceptance risk
    Even if the first two hurdles, can be overcome, the final risk factor to be managed for a successful new product launch is consumer acceptance.  There have been some legendary (and expensive) technology flops of this type that make for delicious schadenfreude.

    ​Consider for example the the Iridium satellite phone system that promised to deliver mobile communications capability anywhere on the planet, from the middle of the ocean to the depths of the Amazon jungle.  The audacity of this technology when first announced by Motorola in the early 1990’s was awe-inspiring.  But by the time Iridium launched in in 1998, consumers quickly recognized devastating flaws in Iridium’s value proposition:
  • Iridium did indeed work well on a ship’s deck in the middle of the ocean, but not at all in enclosed structures, — like buildings and automobiles
  • The handheld unit was a three pound brick that required an ungainly large external antenna and large battery pack for prolonged use
  • The handset cost around $3,000 and airtime charges ran as much as  ~$5 per minute.
After $5 billion of investment, Iridium declared bankruptcy within nine months of launch.
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Another example of a great idea in theory, that failed to deliver an attractive value proposition, is the Segway.  Hailed as a revolutionary product that would change the world when first introduced by inventor Dean Kaman in 2001, consumers never could figure out why a $3,000 motorized scooter (banned from operating on most big-city sidewalks) made any sense.  The world may have changed over the past decade, but largely without the ubiquitous presence of Segways.
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Overcoming risks
On a brighter note, it is possible to overcome initially negative market reactions to new product concepts, as some of the most successful current products (or those intriguingly on the horizon) demonstrate.  Consider the following:
  • Apple iPad
    Apple recently announced shipping it’s 100 millionth iPad, but the company was certainly not the first to market a tablet computer when it launched in 2010.  In fact, Microsoft and others had tried to develop this market ten years earlier, with no success.  And, one might even argue that the Newton — a cross between a PDA and tablet, introduced in by Apple in 1993 — represents an even earlier failure to gain market acceptance for tablet 
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The reasons underlying Apple's success with the iPad have been well documented, including thoughtful design and UI, technical refinement (e.g. battery life, screen resolution), the availability of hundreds of thousands of apps and a huge installed base of step-up iPhone users.  All of this boils down to great execution and timing. Steve Jobs had an uncanny sense of not only what, but when to introduce new technology.
  • E-books
    A similar story played out in the digital book market.  The first renderings of e-book readers were launched by Rocket, Sony and others as early as 1998.  But it wasn’t until Amazon delivered Kindle’s one-click access to hundreds of thousands of ebooks available on Amazon.com, appealing to its installed base of millions of book buyers, that e-book sales took off.  Amazon had been working on the Kindle for five years prior to its 2007 launch to iron out the technology, business model, operations and contracts ensuring widespread access to digital books.  Their patience was rewarded; the original Kindle sold out within hours launch and remained oversold for months to come.  Again, timing dictated when Amazon could successfully manage the risks associated with this new product technology, leaving first movers in the dust.

  •  Apple Watch
    One of the more intriguing products on the horizon today are “iWatches” — wristwatches that synch via Bluetooth to mobile devices (phones and tablets) to display timely information like text messages, weather — and yes, even the time — in a convenient format.  The Pebble watch earned notoriety to become the highest funded project on Kickstarter, garnering over $10 million from ~69,000 investors within 5 weeks of initiating crowdfunding.  In addition, many technophiles are currently agog at the prospect of an iWatch from Apple as their next new thing.  But neither Pebbles nor Apple are pioneers in this category, as iWatches first appeared from Tissot, Swatch and others in 2003, powered by Microsoft’s network, carried over FM radio broadcast signals in selected metropolitan areas.  The original iWatches cost as much as $800 and required a network subscription of $59 per year.  Within a few years, iWatches were discontinued, having never generated much market interest. The Pebble and rumored iWatch may find their impending launch timing more favorable, as ubiquitous wifi/4G network availability and the support of a large apps developer community will enhance functionality and coverage.
  • SodaStream
    The record for persistence in finding the right time to trigger broad-based market acceptance for an unconventional product may go to SodaStream — a 110 year old company that sells beverage-making systems for home carbonated soft drink consumption.  Founded in England in 1903, the company made little market headway under seven different corporate owners during its first listless century, and was on the verge of bankruptcy in 2006 when the company was purchased by an Israeli private equity company for $6 million.The strategic breakthrough came when the new CEO, Daniel Birnbaum recognized the potential for SodaStream to sell soda makers as a lifestyle product that tapped into several global market trends, i.e., consumers’ desire for products that deliver convenience, sustainability, health & wellness, personalization and value for money.  Birnbaum aggressively repositioned SodaStream’s product line with upscale designs and features, added new flavors and packaging conveniences and aggressively advertised the broader value proposition in global markets.

    The company IPO’d in 2010 and has been its growing top and bottom line by 40+% per year ever since. SodaStream’s transformation from a money-losing, nearly bankrupt company in 2006, to a highly profitable global category leader with sales of nearly $600 million and a market cap over $1.5 billion in 2013 is yet another example that timing can play a key role in turning good ideas into great ones.

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What is Apple's Product Strategy -- Strategic Rigidity or Enlightened Expansion?

2/5/2013

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Rumors are flying that Apple has a cheap iPhone in the works.  Coming on the heels of the iPad Mini, a growing chorus of groans is hitting the Twitterverse and blogosphere (to use two horrific terms) bemoaning that Apple is turning its back on Steve Jobs’ obsessive commitment to über product superiority; i.e. the best or nothing!
Perhaps.
But consider this:
  • The iPad mini is NOT a watered down iPad.  It’s a fundamentally different form factor that has different use patterns (e.g. a lot more e-reading) and different users than the full-size iPad. For purists who believe Steve Jobs would never have compromised the size of the original iPad (as if a 9.5” X 7.3” rounded-corner rectangle were handed down from the gods), keep in mind that the iPad Mini still sells at a considerable price premium to other similar sized Android tablets.  The Mini’s screen resolution may not be best in class (for now), but there’s no doubt that the smaller Mini benefits from Apple’s elegant design, pleasing user interface and extensive apps library.  It’s still an Apple product
  • Apple has created a powerful ecosystem of cloud-connected devices. It is in their interest to ensure that consumers can continue to affordably access multiple devices on iCloud.
  • Apple’s growth prospects are increasingly tied to Asian markets, where price sensitivity is greater than in the US.  For those with the appetite and wallet for Apple’s very best technology, the company is continuing to roll out new products at an accelerating pace.  For billions of other consumers who might think an iPhone “Lite” is still an astonishing product, it’s a good thing for the company and its consumers that they now have a choice.
  • This same angst dogged the product line expansion of German luxury carmakers as they began straying from their original über car roots.  In the 1970’s for example, Mercedes Benz ONLY made large, expensive sedans and a big-engine roadster. But as their global popularity grew, MB progressively expanded to midsize and (sacré bleu!) compact cars as well.  The purists were outraged that the company was abandoning its elitist roots.  But Mercedes wisely asked itself, “if a customer only has need for a more affordable small car but still wants a Mercedes, what would it look like”?  And so they produced smaller sedans and coupes with the same engineering refinements that makes a Mercedes, well a Mercedes.  Ditto with Porsche who started selling a four-door sedan (the Panamera -- sacré bleu squared!) in 2009. Still a Porsche, through and through.
  • So the challenge for Apple is to ask itself, if a consumer wants an iPhone (perhaps a first phone for a teenage daughter) but not necessarily with all the bells and whistles (and price) of a top-of-line model, “what would a lighter duty version look like – and still be an Apple”?
Strategic rigidity to an unwavering elitist ideal would not serve Apple well going forward, nor would reckless abandonment of its core
values.  I’ve seen little evidence that Apple is moving in either of these undesirable directions.  But like all great companies, the brand is only as good as its newest products.  Roll on.
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    Len Sherman

    After 40 years in management consulting and venture capital, I joined the faculty of Columbia Business School, teaching courses in business strategy and corporate entrepreneurship

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