Why the smartphone is more like a car than an MP3 player

Clayton Christensen is one of the most celebrated business thinkers and writers. His seminal writings on the subject of “Disruptive Innovation” helped to explain the forces of commoditisation. In this, he argued that most companies focus on the top of their market, where the profit comes from. This makes them vulnerable to cheaper, but “good enough”, upstarts innovating at the bottom of the market. This is a good thesis to explain the consumer electronics market, where it has been proven true again and again. But I don’t think it helps explain the nature of the smartphone market.

Superficially, Christensen’s explanation seems to neatly define why a company like Apple is vulnerable. After all, Apple is the very definition of a successful company focussing on the top of the market. They are therefore doomed, as the narrative goes. But I don’t think this is the case - and the easiest way to explain why, is to look not at consumer electronics but at cars.

For if Christensen were universally right, a company like BMW shouldn’t exist. Toyota, Skoda and Nissan long ago proved there are cheaper, reliable, and functional alternatives at half the cost of a BMW. So why is BMW not just still here, but thriving?

I believe that BMW exists because its product exhibits a number of attributes that make it immune to the forces of commoditisation:

1. Innovation means the product is continuously being reinvented, not just refined. Electric drivetrains, safety changes, self-driving and entertainment innovations all mean the car of tomorrow is nothing like the car of today. As a result, consumer expectations of “good enough” are constantly advancing.
2. Consumers highly value the fashion, brand and aspirational social status of the products. These things ensure “good enough” isn’t good enough for anyone who can afford to pay a little more.
3. The product is essential to consumer’s lives and is used on a constant basis - meaning it’s easier for consumers to justify an upgrade or investment, because of the critical nature of the product.

Once an MP3 player has enough storage capacity, it’s hard to imagine how it can be “better”. But a car isn’t an MP3 player. So we always want the next innovation because it improves our lives. Or sometimes we don’t need it, but we’ll still buy it because that new metalwork looks “oh, so stylish”. In these ways BMW ensures its continued place as an innovator at the top of the market.

Despite its position in the consumer electronics industry, the smartphone is more like a car than an MP3 player. The definition of a modern smartphone is continuously changing, manufacturers have successfully worked out how to exploit fashion and brand and the product is at the centre of how we live our lives.

Continuous product redefinition

Some have fallen into the trap of thinking a smartphone is a phone - and is already “good enough”. Like an MP3 player, it’s hard to imagine how different or better a telephone needs to be. But the last thing a smartphone is, is a telephone.

My teenage daughter has removed the phone app from the home-screen of her iPhone. Where I see a phone icon in the bottom-left corner, she has a messaging app. When I questioned her, she very logically protested that “nobody my age uses a phone”. Her iPhone is a computer, not a telephone. Notice how the original iPhone press release talks about the iPhone being a “Breakthrough Internet Communications Device”.

Whilst the power of the original iPhone seemed adequate for the time, the processor of today’s is 50x the performance of that device. It is hard to imagine using that original iPhone today - it would be far too limiting and slow for anything remotely serious. But more significantly, that processor innovation has enabled entirely new uses for the smartphone - some of the things we now use it for weren’t even conceived in 2007.

When we judge the level of innovation in the smartphone market, we shouldn’t look at individual product releases. That’s like saying “is the 2015 BMW 520i sufficiently different from the 2014 520i to make people upgrade?” (which of course it isn’t). Rather like the car market, we can only see the true level of innovation across product cycles. So “is the iPhone 6s sufficiently better then the iPhone 4 to tempt upgraders?” is perhaps a better question to judge the level of innovation.

One data point for how the definition of a good smartphone is changing is that people now talk seriously of the smartphone replacing the camera. Indeed, the compact camera market is already succumbing to this threat. The camera on the original iPhone was just a toy, but the latest models can be considered serious cameras in their own right.

We can now edit videos, play high-end games, compose music, write documents, edit images and many other tasks on our smartphones. Product innovation is changing what a smartphone is, not just refining its capabilities.

And there is much yet to come - who wouldn’t pay for a smartphone with a week-long battery life, a screen that’s as easy to read as a book in sun-light, or that provides dynamic haptic feedback that makes the on-screen keyboard feel “real”? The smartphone of tomorrow will be radically different to that of today - and we’ll almost certainly find we need those innovations.

Fashion, brand and social status

We value the design, style and quality of our cars, and we do the same with our smartphones. For an essential item we use all the time, many are willing to spend the money to get a better model. Or to trade-up when our current model starts to look a little tatty around the edges.

Many upgrade their cars every few years. We don’t have to - for although the seats may be a little dirty and the paintwork not as shiny as it once was, our old car is frequently still perfectly functional. But “perfectly functional” isn’t good enough when we can afford something better. The same is true with smartphones. We change our smartphone for often similar reasons that we change our car. The new model looks nicer, is faster, has more features. We might not need it, but we want it.

Whilst some who don’t see the appeal of a “premium” product, that attitude is a relatively niche one. Whatever the rights and wrongs, there’s undeniably a healthy market associated with aspiration and style.

But aspirational brands and products shouldn’t be mistaken as purely superficial. If that were the case, consumers would soon catch-on. A BMW is a genuinely good car and very well engineered. The fit-and-finish is excellent and it drives superlatively. That quality allows the brand to have a consistent appeal over many years.

An iPhone’s engineering is similarly great. Like a BMW’s engine, it’s processor design is industry leading and the physical engineering of it’s case is top class. Even if you value other attributes of competing products, it’s hard to ignore the quality and engineering inherent in the design. And so there’s a substance to its position as a “premium” product that allows it to hold that position consistently.

There may be cheaper products that are perfectly functional. But “perfectly functional” isn’t the aspiration for many. Like cars, smartphone brands and products have become aspirational.

Critical role

Our smartphones are how we communicate with both loved ones and colleagues, they are how we navigate, they entertain us with games, we listen to our music collection on them and they are how we consume the day’s news events. Without a smartphone, most of us would be lost in the modern world.

If you’re one of those modern city-dwellers who’s calculated that a combination of public transport and Uber are more cost efficient than car ownership, I bet I couldn’t prize your smartphone from you hand? And if I did, how would you know the times of the trains or how to book an Uber?

We have only to watch the human misery of mass migration on the news to notice one common and consistent theme. Those who have left their homes in hope of a better life carry one thing with them: their smartphone. The smartphone is their link to reality amongst a sea of misery. It helps people keep in contact with loved ones in the most trying of circumstances and helps them navigate treacherous routes to safety. If you’re going to leave a war-torn country and travel half-way around the globe, your smartphone (and it’s charger) is your most prized possession.

The smartphone isn’t just a critical communication device for the chattering classes, it’s become essential to people of all backgrounds.

But…

There’s one enormous difference between a new BMW and a new iPhone. The finance payments on a new BMW are hundreds of pounds every month, but a new iPhone can be purchased outright for just one of those monthly payments. As such, the iPhone becomes the “affordable luxury” for not just the elite, but the masses.

Much like the car, we have a product in the smartphone that is essential to people’s lives, is constantly being redefined through innovation and appeals to the sensibilities of fashion and style. I think it’s reasonable to consider the smartphone market much more like the car market than the consumer electronics one. That’s why premium smartphones continue to exist and why people continue to buy them. The smartphone is much more like a car than an MP3 player.

Taking the blue pill

I previously blogged about breaking rules and why it should be a skill we all learn and perfect.

In this post I’d like to present the counterpoint to my previous argument. Today I shall be arguing why rule breaking is a bad thing.

Breaking rules puts you on the outside. It excludes you from the ruler-maker’s club. This makes it tough for you to influence that club. For throwing small stones from the outside can be tough when the windows are reinforced. Pebbles are useless, you need boulders. And you probably don’t have boulders.

Instead of futile pebble throwing, work out how to get on the inside. Work out how to infiltrate the system, and then influence it from the inside - this can be much more effective.

Bide your time, hold your tongue. Hide your opinions when they are strong. Keep yourself to yourself until you’re on the inside. Don’t give your hand away. Have patience.

Breaking rules can have the effect of offending the rule makers. It puts their backs up. People who might otherwise have supported you might turn away - making it more difficult to influence them.

Showing anger or emotion can be a sign of weakness. It can be used against you - “he’s unstable, he’s letting his emotions get away with him”. Better not to display that anger, so you appear reasonable. The rule makers love reasonable people, people who don’t threaten their position.

Rule breaking is also the more difficult path personally. You’ll have a tough time, feel on the outside, feel not one of the club. That can be tough emotionally. Sometimes it's better to play the system to get on.

Gaining influence and position is the objective. For without influence and position it’s hard to change things. This is why politicians sometimes compromise their principles in order to broaden their support - for a politician can only really change things if they get elected. To be elected on a manifesto of doing half what you would like, is better than not to be elected at all.

Once you’ve become elected or gained entry to the rule maker’s club, that’s when you can start changing things. Perhaps. Maybe you’ll just bide your time a little more to consolidate your position. You’re a new girl/boy in the club, after all - it would not be prudent to make a noise until your support is broad. Perhaps you can make some small changes whilst you prove yourself. Next year might be the time to do something more dramatic. Perhaps.

Do you still want to take the red pill? Perhaps the blue one is looking more attractive? Does the blue pill feel like you’re selling out? Or maybe you feel you can manage the conflicts associated with it? Maybe the blue pill is the way to get things done? Life is complicated.

Breaking rules

We should all follow the rules, right?

Countries have laws, companies policies, societies rules. They all amount to the same thing - an attempt to place some order on chaos.

If the rules are wrong, we work to change them, we don't break them. For if we just ignore them, chaos would reign. No organisation can allow any random person to ignore its rules. This is how civilisation and business was built, right?

Actually, no.

Civilisation was built by people breaking the rules. Women got the vote because people were willing to break the rules of the day. Slavery was abolished because people broke rules.

Maybe we shouldn’t compare the epic struggles for human rights with the stuggles associated with a startup business. That might be going too far. Or is it? There are some similar principles at work - the overriding need for change.

Uber cannot request new rules to support its new form of taxi service. To do so would probably take decades, as a combination of intertia and vested interests work to frustrate any change. No, it sometimes needs to break or skirt-around those rules in order to launch its business in a new city. In so doing, it creates evidence of demand for its service that pressures authorities into making their rules match the new reality. Change doesn't happen by people asking politely, because the polite request is likely to be squashed. To get change you need to create a lot of noise.

It turns out that most rules are put in place by old rich people. I say that provocatively. I don't necessarily mean really rich people, just people who have something to lose. Those with a certain investment in the way things are. That immediately means anyone who’s worked their way into a position of influence - they owe their role in society to the rules within which they've worked. They're probably a bit older than most because you have to work your way through a system to be the custodian of the rules. Rules are hardly ever made by the people at the bottom - the poor, the young, those without influence or eduction. No, rules are made by the old rich people. And there’s a problem with that.

Old rich people are susceptible.

Some of them just can't envisage a world that's different. They’ve spent their lives getting to where they are with a certain mental model. It's not their fault, but they just struggle to see that things could or should be organised differently. They have become set in their ways and are blind to the need for change.

Some of them just don't want to change because it's not in their own interest.

And some of them are perhaps easily influenced. There are a lot of vested interests lobbying to keep things a certain way. A little naivety can make an individual susceptible to the wrong influence. A friendly handshake, a nice meal, a feeling of friendliness - these and other flatteries can influence minds. In contrast, the uncouth protestors, the angry, the disrupters - they're dangerous, not one of us. This is why “political lobbyist” is a job - subtle influence works. It’s especially effective when you have money - for the nice meal, the day at Ascott and the like don’t come cheap.

There's one other thing about the rule setters. They're very good at coaching their successors, in creating a system whereby others achieve a role in the system through effort. Small incentives of prestige ensure there's always a new generation to take over - but one which fundamentally thinks the same way. The status quo can be maintained.

So for those that want to fundamentally change things, it's a tough gig. That's why they often don't play by the rules. For if they did, nothing would happen. Or it would happen at a glacial pace, which is the same thing.

That's why companies like Uber sometimes fly a bit close to the wind. It's why some argue that Google plays it fast and loose with the copyright of newspapers and books. It's why technology companies sometimes get sued - for to build a new product without treading on the toes of any existing providers is sometimes impossible. It's why the phrase “it's better to ask for forgiveness than permission” is a mantra of those wanting to change things.

Change often doesn't happen within the rules. The rules are put there to keep things the way they are. Maybe that's not the explicit objective of those setting them, but it's the inevitable outcome. Old rich people just don't change things quickly or easily.

This is why the rule setters are often outraged to see rule breaking. The outrage is genuine, but sometimes misplaced. For rule breaking is a critical part of change. It has to happen, or things stagnate. It's why some companies lose markets - their system of rules and politics prevents them from recognising the need for change. Blackberry and Nokia, I'm thinking of you.

But of course breaking any and every rule will just get you into trouble and results in chaos. So, a key life skill is learning which rules to break and when. Which ones will be overlooked if the change turns out to be good? This can often be a finely balanced evaluation. Go too far and you're sacked or put in prison. Don't go far enough and nothing changes.

I wonder why our schools and universities don't address this challenge? These institutions seem the embodiment of “the rules are here for a reason” attitude. But I'm not sure that helps in passing on the skill of rule breaking.

After all, were some people not willing to break the rules, women might never have got the vote, slavery not have been banished and we’d be standing in the rain waiting half an hour for a taxi.

So perhaps we should all stop before venting at a rule breaker. Perhaps their form of rule breaking isn't so outrageous if we stop to think about it? Perhaps they're ushering in a form of positive change that can't happen without some rule breaking.

Rather than criticising those who break the rules, maybe we should consider rule breaking as part of a broader system? A system that tolerates some rule breaking in order to remain flexible to change. Exactly which rules we can break is the big life lesson we all need to learn.

By the way, you have watched ‘The Matrix' trilogy, haven't you? For ‘The Matrix’ is the embodiement of a system that survives precisely because it has learnt the need to allow rule breaking.

“You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes.” The Matrix.

I salute the rule breakers, the ones who take the red pill.

 

Posted with Blogsy