Tablets + Apps + Cloud to destroy the PC industry

The announcement of HP contemplating the departure of its PC business represents another event exhibiting the end of the PC industry as we know it. But the PC industry had already reached maturity a while ago; low margins, competition based on cost, and similar signs indicative of a mature industry. It should not be a surprise to refer to it as a dying industry. So why are we talking about it now?

There is a “creative destruction” event occurring right now; a Schumpeterian event. Apple’s iPad® is driving Schumpeterian forces leading to the destruction of the PC industry. While this is an invention of Schumpeterian magnitude, it did not occur in isolation. To destroy an old industry, significant industrial inventions are part of a conglomeration of multiple inventions or multiple events that give way to the new. Today’s conglomeration is composed of:

1. The Tablet
2. Application Markets
3. Cloud Computing

The tablet is providing a delightful user experience: Once you start playing with an iPad® you can’t stop. Yet, the tablet alone would provide very little benefit to users without an apps market (e.g. Apple’s App Store™, Android Market, etc.), as well as cloud computing (e.g. Apple’s iCloud®, Amazon Cloud Drive, etc.) to keep the tablet nice and light. With cloud computing, computer functionality becomes a utility.

The apps markets allow users to download numerous applications to do incredible things. And cloud computing allows the tablet to work without needing a large hard-drive attached to it, allowing the tablet perform many computing functions.

Furthermore, there are other significant trends driving the industry:

• New broadband networks available everywhere (4G wireless, cable modems, fiber to the home, hotels, airports, shops, restaurants, public places, etc.);
• Rapid software development;
• And massive eCommerce—pay for everything online using credit cards or PayPal.

The destruction of an industry happens when users no longer want to go back to their old habits and the old industry dries up. Schumpeterian events occur when multiple inventions and industry trends harmonize to give birth to a new industry.

References:

Andreessen, Marc. “Why Software Is Eating The World.“ The Wall Street Journal: Essay. 20 Aug 2011. Web. 2 Sep 2011.

<http://online.wsj.com/article/SB10001424053111903480904576512250915629460.html?KEYWORDS=why+software+is+eating+the+world>

Helft, Miguel. “Apple Unveils ‘Cloud’ Music and Storage Service.” The New York Times: Business Day; Technology. 6 Jun 2011. Web. 2 Sep 2011.

<http://www.nytimes.com/2011/06/07/technology/07apple.html>

Kopytoff, Verne, and Ian Austen. “As PCs Wane, Companies Look to Tablets.” The New York Times: Business Day; Technology. 19 Aug 2011. Web. 2 Sep 2011.

<http://www.nytimes.com/2011/08/20/technology/as-pcs-wane-companies-look-to-tablets.html>

Loftus, Tom. “Tech Today: H-P Reaction: The Day After.” WSJ Blogs: Digits; Technology News and Insights. 19 Aug 2011. Web. 2 Sep 2011.

<http://blogs.wsj.com/digits/2011/08/19/tech-today-h-p-reaction-the-day-after>

Product Introduction in Super Bowl Commercial (1984): Apple Macintosh

How many of you watch the Super Bowl mainly for the commercials?

They are a big deal! The commercials are viewed by a big audience and people pay attention. Companies take this opportunity to introduce new products, innovation, and trends. For example: In 2006 Doritos utilized user-generated content; in 2000 the dot-com ads featured electronic commerce; automakers have introduced new models; and similarly high-tech companies like Intel and Motorola have used the Super Bowl ads to introduce new products, processors, phones, etc.

In 1984, Apple was battling an immense competitive threat from IBM (IBM-PC introduced in 1981). Apple had been offering its popular Apple II since 1977 and they needed to respond to IBM. Apple introduced Macintosh in 1984, a personal computer that people loved due to its friendly Graphical User Interface (GUI).

Macintosh (the Mac) was a gigantic innovative product; a Schumpeterian event. No other commercial personal computer had a GUI at the time. It took over 10 years after Macintosh for Microsoft to respond with a GUI based OS, Windows 95.

The Macintosh story is best told by Robert X. Cringley in the PBS documentary "Triumph of the Nerds." The Graphical User interface was invented by XEROX in their Palo Alto Research Center (PARC). But it was Apple, Steve Jobs, that made this invention into an innovative product breakthrough.

Here is the commercial:




References:

• PBS: Triumph of the Nerds
  
• Mac-History: "1984" - The Famous Super Bowl Ad
  
• NPR: A Look Back at Apple's Super Ad
  
• PCmag.com: The Most Memorable Tech Super Bowl Ads
  

The Invention of the PC

This story has all those “Creative Destruction” elements that were once outlined by Joseph Schumpeter: Innovation, entrepreneurship, business strategy, capital investment leading to the destruction of old products to give room to the new.

I am not going to retell the story of the PC here. This story is already told by Robert X. Cringely in the PBS documentary “Triumph of the Nerds.” It is a story about:

• Entrepreneurship and the inevitable pursuit of success by those like Steve Jobs, Steve Wozniak, Bill Gates, Paul Allen, Ed Roberts, and others from the Homebrew Computer Club in Silicon Valley.
  
• The important role of the banks and venture capitalists: How Steve Jobs, “the scruffy 19 year-old seduced the conservative world of venture capitalists” (R. Cringely).
  
• The element of luck as exhibited in the time when IBM was looking for a third party to develop the Operating System for its new PC, lucky for Microsoft.
  
• The importance of a sound Strategy because it takes more than luck: How Microsoft would stay on “the bear’s back [IBM] and the bear would twist and turn and try to buck you and throw you” (S. Ballmer).
  

Today, IBM is not anything like that computer giant it once was. It is still a very important company but not the same. Apple is a synonym of innovation. Microsoft is a synonym of industrial success. And Intel taught us Moore’s Law: How microprocessor technology advances by doubling performance every 18 months, creating a fascinating Economics problem.

User-Generated Content: Doritos Super Bowl XLI Commercial

In 2006, Doritos issued a contest to create a commercial for Super Bowl XLI.

The Super Bowl! Not just a sports event, but one of the most important advertising events of the year. Super Bowl commercials include: The introduction of Apple Macintosh computer (1984 Big Brother and screen explodes); Coke commercial with "Mean Joe" Green and kid ("Hey kid...Catch!"); Michael Jordan and Larry Bird shooting contest for McDonald's ("Through the window, off the wall, nothing but net"); and many beer, automobile, and other commercials putting millions of dollars at stake. And now Doritos decided to put their next commercial in the hands of regular people. Why?

This is why: Somebody saw the future. It was a magnificent Schumpeterian event.

Jonathan Hoffman (Twitter @jonphoff) back then told me that people were not just receiving content but were creating it. And that is exactly what the people from Doritos saw. This trend was exhibited in applications such as YouTube, Blogs, Facebook, MySpace, Twitter (born in 2006), Amazon (book reviews), IMBd (movie reviews), etc. Companies like Google saw this trend and acquired YouTube for $1.6b in 2006, coincidentally at about the same time when people were creating the Doritos ads.

The Doritos Super Bowl ads represent a tipping point for the arrival of user-generated content to the masses. It is a commercial splash. Today, more than three years later, user-generated content is no longer news. I find better entertainment and creativity watching YouTube videos from regular people than watching commercial TV. Blogs, tweets are part of the mainstream. And the new Google TV will allow anyone to develop content (starting in 2011 according to Google). It is just the beginning of a new era, an era dominated by user-generated content, creativity, collaboration.

Jose de Francisco Lopez (Twitter @consultaglobal) put it best: "I think that our society has shifted from Descartes' 'I think, therefore I am' to 'We create & share, therefore we are' which is more in sync with today's reality."

To prove further:

• Doritos Crash The Super Bowl Site
  
• CNN Article Sep. 2006 about Doritos Contest
  
• Super Bowl XLI
  
• Google TV: Developers Page
  

One-to-One Services in Apple Stores

When you walk into an Apple store you think that you have entered a mega showroom, a place to see and to test the newest Apple products. It is an exciting hands-on experience. But Apple Retail Stores are more than that. Apple stores are a place where Apple professionals meet customers face-to-face, one-to-one to provide revenue generating consulting services.

The front-end of most Apple stores normally contains tables that showcase new products: Notebooks, computers iPods, iPhones, and their latest software. But the back-end of most Apple stores, or the second floor when the store has multiple levels, contains tables for the use of Apple professionals and their customers. Customers can buy consulting blocks of training time. Customers have the choice to come in for fifteen minutes one day, ten minutes another day, fifteen minutes another day, etc. until they complete their block of training time.

Apple continues to re-invent itself as a company. Through its history, Apple has been known for creativity and innovation: Computers (e.g. Apple Macintosh, iPhone) and software (e.g. iTunes, QuickTime). Apple is re-inventing itself today by creating a new business model based on consulting services delivered inside Apple stores.

This is not the first time that a large company looks to services as a new revenue opportunity. IBM may take the credit of being the first large company to look to professional services as a revenue strategy, though business to business. And companies in other retail industries have implemented training services within their stores: For example, William Sonoma sells kitchen items and offers cooking lessons within their stores. But Apple is doing it in a different way. Apple stores are trendy cool places where people want to be seen and at the same time customers find solutions to their individual needs; one-to-one.

That is the innovation Apple is introducing. That is the Schumpeterian event. To compete with Apple, companies will be pressured to find new ways to reach their customers face-to-face, one-to-one. The innovation here goes beyond the product. It is more than hardware, more than software, and it goes beyond customer training. It is a strategy that provides new revenue streams that also improves customer experience and satisfaction. It brings the customer back to Apple stores over and over again.

http://www.apple.com/retail/onetoone/

Instant Replay

Instant replay is an invention that allows us to see what just happened. In combination with slow-motion it allows us to capture things that our own eyes may not be capable to perceive, like a very fast tennis serve or a hockey goal.

It is innovation, a Schumpeterian Event that has revolutionized broadcasting and can revolutionize how professional sports are conducted where big stakes come into play by allowing referees to verify and to correct any erroneous calls. One would expect that once the technology is adopted by a professional sport, all other sports would follow suit to keep up with technology and innovation.

According to Wikipedia, video-tape replay was invented in the 1960’s. It took twenty years for the NFL to use it in a limited way (1986). And finally the NFL introduced the current system in 1999. The NBA introduced it in 2002. MLB took almost forty years to introduce it and in a very limited fashion (2006) and it is still not used in some crucial plays. Even the Winter Olympics have introduced some instant replay--better late than never.

But FIFA, the organizational body that manages the most popular sport in the world, does not use instant replay in spite of refereeing errors that have impacted results in World Cup games that could have been corrected; goals that are scored using hands, or that cross the line and are not counted, or that are disallowed for erroneous off-side or foul calls. World Cup goals have been at a premium due to typical low-scoring games.

So why isn’t FIFA adopting instant-replay? FIFA has listed numerous reasons. But I believe the main reason can be identified if we look at the principles outlined by Joseph Schumpeter when he introduced the concept of “Creative Destruction” (innovation displacing old products).

The key is there must be competition for “Creative Destruction” to work. Creative innovation and non-monopolistic success accounts for the prosperity of most organizations. But FIFA is a type of monopoly. There is only one FIFA controlling the most popular sport in the world. So they can make decisions on technology as they please, without the pressures of a competitive body getting ahead of them.

On the other hand, when we see the elements competition between sport organizations, for example in the United States, we see the introduction of new technology, albeit slowly. Professional sports in America compete against each other for: TV and radio airtime, merchandise, tickets, etc. And such competition forces them to keep up with technology to a degree. Baseball may be enjoying some monopolistic characteristic though especially during summer months and this is why they still drag their feet introducing innovation.

But FIFA is still all on its own from a worldwide perspective without serious competition. As long as they are governed without competitive pressures they will continue doing what they choose to do. I expect FIFA will eventually introduce some form of instant replay, but not due to competitive pressures. And therefore it will be limited in scope, not taking total advantage of the potential benefits that this invention offers to the sport.

Some examples from YouTube.

• USA/Slovenia (disallowed goal)
• France/Ireland (handball)
• Argentina/England (Maradona hand of God)
• England/Germany (disallowed goal)
• Argentina/Mexico (offside goal)
• Netherlands/Uruguay (offside goal)

Re-Inventing Agriculture: Examples of Creative Destruction

Well into the new millennium, we find ourselves wrapped around a debate about the impact of global warming on nature. Whether we believe in global warming or not, we agree the debate has engaged a new generation of students to become more aware about the environment, spending more time doing research that results in inventions in areas such as energy, transportation, and specially in agriculture.

We will witness a significant number of what I call "Schumpeterian Events" within the agricultural industry. I would like to list just two examples: Water conservation by changing farming methods; and better use of farming land utilizing information from satellites.

While these events may seem independent of one another, they are linked by people's desire to improve our environment. The companies that foresee the future will succeed, while those that don't, will be left behind. And Joseph Schumpeter's prophecy of creative destruction will once again prove itself true.

My first example, water conservation by changing farming methods, is based on how the rise of CO2 in the atmosphere is causing plants to absorb more water than usual. Through the study of how plants absorb water, researches will provide ideas to develop better farming methods. An article from The New York Times written by Syndia Bhanoo [Dec. 28, 2009] described how eventually there could be better farming methods to conserve water. Upon the arrival of new farming methods, farmers will need apply them to remain competitive.

My second example, agriculture and satellites, came from The Economist [Nov. 7th, 2009]. Satellites are easily providing precise prescriptions to farmers: How much to plant, how much seed to use, where and how much fertilizer or pesticide to use, how much to water, etc. Companies need to be ready to offer these types of services to farmers. For example, the Farmers Almanac could take the lead to provide satellite information to farmers. That would be an example of creative destruction. Successful companies will re-invent the way things are done and such industry will never be the same again.

There are many other programs trying to re-invent the agricultural industry. The minds of our new generations are busy at work, making sure that we all have a bright future in this earth. Creative companies will succeed with new products and services.