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Archive for June 11th, 2009

Palm: It’s Very Hard to Snatch Victory from the Jaws of Defeat

Posted by Bob Warfield on June 11, 2009

Sometimes winning seems easy, but it never is.

I read this morning in Larry Dignan’s blog that Ed Colligan at the helm of Palm is moving on, to be replaced by Jon Rubinstein, ex-Apple.  Is Palm creatively snatching defeat from the jaws of victory?  It’s way too early to say, but the article made me think of writing a blog post based on some thoughts about winning.  Palm will simply serve as a convenient example, and I don’t mean to reflect on Colligan, Rubinstein, or even Palm itself.

Let’s start out with a premise that I suspect many people share:  it isn’t that hard for Palm to win, they just need to copy the iPhone.  There, it’s out in the open.  While you may not agree (and I don’t), it’s something that needed to be said. 

After all, there’s all this artificial scarcity in the form of exclusives with companies like AT&T (whom I hate).  If someone had the same phone available to sell all the non-AT&T’s, they’d make a killing, right?

So why hasn’t someone just copied the iPhone?  Why is it taking so long?  The people at Google with Android or even Nokia are smart.  Surely they can do it.  Won’t they just copy the iPhone and maybe throw in some gratuitous goodies to make it their own?

It sounds simple enough, and likely to succeed.  How often have we been presented with such an apparent opportunity?  Why didn’t someone just copy eBay back in the day?  Why didn’t someone just copy Facebook?  Twitter?  Google?

None of them are all that hard to copy.  Wouldn’t that have made a winning strategy?

Perhaps.  Assuming all that was at stake was commoditization (meaning a cheaper clone would sell well) and assuming we understand fully what the thing was we had to copy.  You begin to see some doubt based on how I worded that, don’t you?

I see this going on with the array of online applications trying to steal Microsoft Office’s throne.  Google Apps.  Zoho. There is an array.  I’ve been there myself, back when I was a General in the Office Suite Wars in the 80’s and early 90’s.

Let me be more direct about what’s wrong.

First, people really don’t understand how to do copies well.  They leave things out.  They assume things may not be important to copy.  They think things they don’t like can be improved without damaging the proposition.  Often they assume that the company they’re with is a giant in its own right, and that this will excuse their sins.  Google doesn’t have to build an exact copy of Office to beat Office because Google is a greater company than Microsoft.

Copying is an exacting and selfless act.  You can’t compromise on compatibility at all.  Not even a little bit.  The first time a user encounters even a little incompatibility it introduces doubt which leads to an excuse to delay. 

The second problem is that there is an extremely limited window of vulnerability in which to copy.  Successful copiers generally fall under the business strategy heading of being “fast followers.”  A successful fast follower has to bring not only an effective copy, but reasons to switch.  And, it depends on the “first mover” having left the door open in some way.

Mick Liubinskas wrote a great guest post on ReadWrite about how the First Mover advantage is all about compound interest.  Therein lies the explanation for why Fast Followers have to be, well, fast.  The power of that compound interest moves the bar so fast that if you are too late, you just can’t fast follow no matter how good your product is.  Twitter has reached that escape velocity.  Building a Twitter clone is doable, but who would come?

eBay, in its day, had tons of fast follower hangers on.  There used to be lots of auction sites.  Every self-respecting web property had one or designs on one.  But in a very short time network effects and First Mover compound interest sent all the business to eBay.  The Fast Followers were left high and dry.

The third problem is switching cost.  It’s great to start a completely greenfield market, but it’s even better to be stealing share like crazy from markets others spent a fortune building.  When Fast Following, always consider switching costs for your market and its leader.  Compatibility in the form of a copy is one way to lower the switching costs, but is it enough? 

Now let’s consider the challenge facing Jon Rubinstein in copying the iPhone at Palm (assuming that is his strategy):

First question:  Can he build a good copy?  Of the iPhone itself, probably, though even that is not certain.  Apple is on their third generation.  There is a lot of learning there, not all of which will be obvious to the copier.  At least Rubinstein’s team comes from backgrounds where they have a head start.  They do have to contend with Apple’s pesky patents around various aspects of the user experience.  When it was introduced, Jobs said it involved over 200 patents.  Just understanding what they are well enough to avoid them is no simple feat.

But copying the phone itself is not enough.  Palm must copy the iPhone’s user experience.  That means the ecosystem of supporting applications.  Everything from iTunes to at least the top 10 most popular downloaded apps.  It’s starting to sound a lot harder just to copy, isn’t it?

Second question:  Is Palm too late to fast follow?  This is always a subjective question, but the iPhone is not exactly a spring chicken.  As I mention, it is on its 3rd incarnation.  It is worldwide.  You see them constantly.  It has become the paradigm.  Most importantly against that backdrop, the relative size, product maturity, and momentum of Palm have to be weighed against the equivalents for Apple.  If you’re like me, it isn’t hard to conclude Palm is much to late to succeed just by copying.  There is still that issue of artificial scarcity that may prop them up.  The major carriers that want to sell the iPhone may not be able to (AT&T already owns it in the US), or may not be amenable to Apple’s terms.  That’s the glimmer of hope on Palm being too late.

Last question:  Are switching costs to move from iPhone to Palm low enough?  Another highly subjective question, but this is the key corollary to the artificial scarcity.  Those other carriers hungry for their own iPhone will lose their appetite if they ship one and can’t get any iPhone customers to switch.  You see, they’re also fast followers of AT&T.  It isn’t just Palm caught up in this business of fast following.

So what are the switching costs?  They’re largely made up of cell phone contracts that have to run out, personal affinity with the Apple Brand (not to be underestimated, Ms Laptop Searcher), and investment in ancillaries dependant on the iPhone (iTunes, Apple mp3 players, apps, etc.).  There are probably some others (like having learned all the secrets, e.g. expertise, or having unlocked your iPhone and invested in that, or having figured out how to sync the iPhone with your mail and calendar, yada, yada), but these are not insignificant. 

Replacing an iPhone is not like just getting another cell phone.  It’s a smartphone.  In fact, it is a general purpose computing device of an extremely powerful sort.  It is nearly as hard as trying to switch from PC to Mac.  In fact, it’s harder.  It’s switching Mac people to PC’s.  Does that ever happen?

Basically, I am not optimistic for Palm.  I know folks shorting them as we speak.  Obvious there are others who’ve made huge bets on them.  It would actually be good for consumers if another smartphone makes it and puts some competitive pressure on Apple (and especially on AT&T).  Unfortunately, it’s one thing to copy a phone, another more difficult thing to copy an ecosystem, and a still harder thing to copy a vision/dream/ideal (some call it a crystal ball even), and a way of life.

Posted in strategy | 2 Comments »

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