Friday, February 28, 2014

Mobile+Cloud is the Next Big Thing

Last week, I bought a Lenevo Smartphone for my mother. It costed less than $100 (In India, we pay the full price for the handsets and there are no carriers subsidies)

The new phone comes with 16GB memory, 1 GB RAM, HD display, Andriod 4.3 Jellybean 16GB Flash, 5MP Camera, etc. In short the new phone is saturated with features and can do pretty much everything one can do with a high end iPhone.

Today, Smartphones and tablets are powerful enough to run applications that was once found only on a PC. The Network & Internet is everywhere. With 4G, Smartphones can download faster than most DSL services.

As hardware capability on a mobile platform matures to point where the next big innovation will happen in software. Some of this software innovation will be on the device - but big part of this innovation will be in the cloud.

Service providers and Startups and innovators are looking at means to make smartphones more useful and more valuable to customers. The revenue/customer from traditional phone services: Calls, SMS, & Data is declining and the value is shifting to the Apps. Dropbox is currently valued at $10Billion, Facebook spent $19B for WhatsApp! This acquisition is primarily driven by the potential value in the Apps - and not in the cellphone service.

Going by valuation alone, the total value of App companies is more than the combined value of phone companies!

As this shift happens, the use of cloud by mobile Apps will accelerate and create a new wave of innovation.

Types of Mobile Apps

As mobile phones evolved, mobile apps have also evolved and the apps can be classified broadly into 3 categories:

1. Generation-1 App: Basic Phone Apps
Application uses only the phone resources. These applications are tightly tied to the phone. Eg: iWork suite.

2. Generation-2 App: Web Applications. 
The Phone apps is a rehashed version of the web application. Eg: Facebook, Gmail, etc. The same application can be accessed on a PC or on a smartphone.

3. Generation-3 App: Cloud Apps. 
Cloud Apps leverage the compute & storage capabilities of the cloud and little phone resources to deliver unique experiences to users. For eg: Dropbox, Snapchat, Mobile gaming, etc.

Today, Mobile devices like smartphones and tablets are becoming devices to access cloud resources. As the trend catches on, the use of cloud by mobile applications will be the leading use of cloud computing, surpassing personal computers. And as that happens development of new and innovative applications - which will enable users to exploit cloud computing in multiple ways.

This shift is happening as we speak. Phone service providers and transforming into cloud service providers. Some carriers are moving the base station functionality from the cell site to a cloud data center. These cloud datacenters allow phone service providers with tremendous compute capability and that capability can now be used by new Gen-3 Apps.

For example, how about getting real time traffic & weather information on the route you are travelling on your mobile. Say for example alerting you of a traffic jam 400 meters ahead!
Another example could be relaying information about the best deals in a shopping mall to users based on user preference etc.

Phone Service providers and Cloud service providers can offer new Apps - that can give real time information to users. Cloud computing capability provides huge number crunching capability to process Big data, and end users can consume this results from their mobile phones - in new and unique ways.
For example, creating a mashup of Airline travel information and weather information can help a local taxi driver get more business.

Mobile network and phones will be rapidly commoditized in the cloud era, Forcing service providers to innovate and become platform providers or application providers.

For example, a user can create a document on a table using iWork & have the cloud services to get the document processed for publication. Proof reading, Editing, reformatting, Translating etc., can be done either by machines or humans or a mix of both - all enabled by the cloud, and finally published in the cloud.

Closing Thoughts 

The growth of mobile technology has clearly changed our lives. As mobile platforms mature, and cloud infrastructure evolves, the use of cloud computing through mobiles will increase and have a much bigger and deeper impact on our lives.

Phone service providers and application providers will have to innovate on developing new tools and capabilities - which will allow users to develop new and unique apps.

Thursday, February 27, 2014

What makes Customer Buy Your Products?

Answer to this question is quite tricky. First we need to define who is the customer, next we need to classify the product and then depending on customer segment - we can identify reasons why customer will buy your product.

Who is the customer?

We can broadly classify customers into two categories:

1. Individual Consumers: i.e, people like you and me.
2. Corporate Customers: Organizations, Companies, & Governments.

Products can be classified into three main categories

1. Utility Products: Eg: Trucks, insurance,
2. Image or Prestige Products: Eg: Cars
3. Comfort Products: Eg: Car Seat

Products can also be classified based on pricing/value.

1. High Value/Priced products
2. Low priced products

Buying Behavior

Customer show different buying behaviors when dealing with different products. The concept of perceived value as the basis of buying works mostly on Utility Products and for corporate customers - where the prices/costs are high & there are checks/balances on purchases.

Also see:

Impulsive buying is another factor - which is mostly seen in low value/cost utility products or even in high priced/value products.

Impulsive buying is seen even in organization - where a single individual makes the buying decision based on his instinct. For example, buying office furniture.

Impulsive or Instinct buying decisions are difficult to model - but can be easily exploited. 

Tuesday, February 25, 2014

How to identify and create disruptive innovation that customer would buy?

Everyone wants to create a disruptive innovation & change the world - but there are no formulas for success. Market research does not tell us how to create disruptive products which people will buy. Research can help identify opportunities for disruption, but success needs more that.

To begin with, we need to understand what is disruptive innovation?

Disruptive innovations are innovations that disrupts the current market leaders. For example, Bicycle, or the early cars were not disruptive innovations. Back then in that era, the personal transportation market was dominated by horse drawn carriages, trains and Boats/Ships. It was Ford Model-T which disrupted the market, and hence mass production of Model-T cars was a disruptive innovation, but not the car in itself.

In general disruptive innovation must have at least one of the following traits:

1. Creates a New Market: Eg.: MySpace, Yahoo, Netscape, Napster

2. Changes the value perception: Eg.: iTunes/iPod, WhatsApp,  

By this definition, disruptive innovation is relatively easy - just know/understand the existing business models and create a new product/service that creates new markets or changes the value proposition.

For example: VIBER is disruptive for telephone service providers. iPad/Tablets is disruptive for Laptops etc. BitCoin is disrupting the global currencies etc.

But making this successfully is a different story. A successful disruptive innovation is a whole lot tougher.

Creating successful disruptive innovation has two equally important parts:

1. Creating the disruptive technology

2. Overcoming the barriers to success. 

Creating a disruptive technology is the first necessary step. But in most cases, the original inventor of the disruptive technology has failed to make is successful - because there are several business barriers which prevents widespread acceptance.

For example, Alta-Vista & Yahoo created a web search technology much before Google & yet failed. Erricsson invented a smart phone and yet failed. Motorola created a satellite phone system called as Iridium and failed.

Disruptive technologies are often characterized by the "10X Factor" i.e., the new technology is 10X better or cheaper or faster or easier to use than the current alternative. A lot has been written about disruptive technology and you can read it yourself.

In this article, I am going to concentrate on the second part - Overcoming the barriers to success.
Knowing what are the challenges and barriers to success is just as important for success.

There are several challenges one must overcome to make a successful disruptive innovation.

Some of the major challenges are:

1. Legal rules. 

Usually the rules favor the current market leader. For example take the case of AirBnB. All the current hotel rules are designed to suit current incumbents, but the rules does help individuals who want to rent out a spare room to travelers on AirBnB.

2. Business Ecosystem 

When S3 Diamond/Rio MP3 player was launched, there were no online MP3 stores to download MP3 songs. Music distributors were suing individuals who downloaded MP3 songs from Napster and created an air of fear of using MP3 music in the market. So no wonder Diamond MP3 player failed in market, while Apple created iTunes Store - which enabled iPod to succeed.

Similarly, Ford's T-Model car was successful because of Standard Oil had built all refineries and there was gas stations in all cities.

3. Consumers readiness to change

Just because one introduces a revolutionary technology, people will not readily buy a new product. Most buyers prefer to wait and watch, before opening their wallets. For example take the case of Hybrid Cars: Chevy Volt or Toyota Prius. Though these cars give 2x-3x more mileage than the regular cars, customers prefer to wait and watch to see if other people are buying it. Customers readiness to change also depends on the comfort factor with their current option. In case of hybrid cars, customers were happy with their gasoline cars and were reluctant to change their buying habit.

4. Ease of use of the new product.

New products may not be easy to use. For example, Erricson introduced a touch screen smart phone called Erricson Communicator - 10 years before Apple's iPhone. But using it was not easy, so the product failed. In general, customers do not like easy to use products.

Similarly, Nokia's Tablet - which predates iPad, or Sony Surfboard which predates Nokia Tablet - they all failed because of its complexity to use & lack of public awareness.

Another classic example is that of Electric cars. Electric cars was introduced in early 1900's = yet even in 2012, electric cars are yet to succeed - because of difficulties (and time) involved in charging the car. Also the ecosystem for electric cars does not support rapid adoption of electric cars.

5. Total cost of transition to new product

If customers have invested heavily in one technology/platform, then the cost of transistioning to a new product will be a major barrier. For example, Maglev trains failed in market - though it was mush faster and better than the current system - because of the cost of moving to the Maglev trains.

HD television took almost 80+ years to gain popular acceptance. Analog HDTV was first introduced by BBC in August 1936, but the total cost of transistioning to High Definition standard was prohibitively high till 2008!

6. Awareness on new product

Its a lot easier to develop disruptive technologies, when compared to building the awareness in the market and building the ecosystem needed for the product to succeed. In many cases, the original inventor would have exhausted all his resources building the product and will not have anything left to build market awareness.

For example, a startup in Silicon valley called Electriphy created a new technology to connect houses with high speed Internet using power lines, Which was must faster than phone lines (DSL), but it lacked the resources to make this new technology popular.  Similarly ReplayTV invented hard drive based Digital Video recorders - but did not have money for marketing it, and hence lost to TiVO.

Closing Thoughts

Everyone in business aspires to create disruptive innovation, but very few have succeeded. Companies that created the first wave of disruption have failed in their other attempts - and have been disrupted by other new entrants. The barriers to succeed are huge and is extremely difficult to overcome. There is no formula or a proven plan to create disruptive innovation.

In many cases, disruptive technologies suffer from various setbacks which has to be addressed first to make it successful - but the inventor does not have resources to eliminate these barriers.

Thursday, February 20, 2014

Why is Facebook buying WhatsApp for $19Billion?

Feb 19th 2014, Facebook agreed to Pay $19 Billion for WhatsApp

While the whole world goes ga-ga about this eye popping, earth shaking deal. The deal makes perfect sense!

Let me explain.

There are few points I want you to consider first. Few weeks ago there was two big headlines

1. Facebook turns 10!

But along with the headline, there were tonnes of articles regarding how Facebook is making money off the people posts, and issues relating to privacy.

2. Facebook will lose 80% of users by 2017, say Princeton researchers

Here are some of the interesting snippets about Facebook from the media.

3. Facebook knows when you are about to fall in love

4. Facebook deal on privacy is under attack

One of Facebook's masterstrokes in this campaign has been to devise a set of metrics to help marketing executives measure the financial impact of advertisements they buy on the social network. It has formed a partnership with Datalogix, the sales analysis firm, to use information from loyalty card schemes to work out how much business every £1 spent on Facebook advertising generates offline. In 70pc of cases, that £1 translates to £3 in real-world sales – much more persuasive than how many people have "liked" a brand's Facebook page.

"Facebook is sitting on a huge repository of very valuable information about its users. One of its challenges is working out what it can actually use," Aho Williamson says. "Privacy will continue rearing its head as Facebook tries new things."

Privacy concerns have dogged Facebook since its early days as a website for Harvard students, but those concerns have intensified.

The social network is continually embroiled in controversy about how much data it is collecting, particularly in Europe, where privacy laws are much tighter than on the US company's home turf.

Many users have become much more careful about self-censoring, after being bombarded with advertising that transparently mines the content they post to friends. Women who announce their engagements on Facebook can rely upon advertisements for wedding dresses. 

Give it a year and the wedding dresses are pushed out in favour of maternity wear.
Some users find this second-guessing invasive, but from Facebook's perspective it is doing users a favour by offering content users are likely to find interesting.

"Our goal is to reach a point where the ads are as relevant and timely as the content your friends share with you," Zuckerberg said on a conference call with analysts last week.

As you read these articles together, it becomes clear that Facebook is heading to a mid-life crisis.

Now, let's look at WhatsApp.

WhatsApp is 5 years old and with its rapid growth and success is facing an infliction point.

With 450 Million users, Adding Million new users per day! 1 Billion messages sent via WhatsApp per day! 200 Million  photos per day!

WhatsApp is burning cash faster than a bush fire. To sustain this hyper growth, WhatsApp needs tonnes of cash for the next few years till they can figure out how to make money!

For WhatsApp, the choice was simple: Go IPO or sell out.

Its tough to launch a multi-billion dollar IPO and it takes time, during which WhatsApp could run the risk of running out of cash. So I guess WhatsApp choose to sell itself.

Coming back to Facebook and my personal observations and experience.

I have been an early adopter of Facebook and in last two years, I have seen a dramatic change in how I use Facebook.

Earlier, Facebook was a communication platform. I used Facebook to communicate with all my friends and relatives. Slowly, as Facebook tampered with its privacy settings, I stopped sharing things on Facebook and urged all other to stop as well. Over a period of two years, my Facebook wall has become a "read-only" page for me, and 90% of the postings on my wall are from organizations and not from my friends.

I checked this observation with my friends in Bangalore and with students at Manipal University, and all the observations were the same pattern. Young people and middle aged people are abandoning Facebook!

Also See: 

Teens Loathe Facebook Because of All the Old People and Baby Pics

Young users see Facebook as 'dead and buried'

"Facebook is not just on the slide - it is basically dead and buried," wrote Daniel Miller, lead anthropologist on the research team, who is professor of material culture of University College London.

Students in Bangalore and elsewhere in the US & Europe & India are not using Facebook as a sharing/communication platform. Only older generation (aged above 60) are still active on Facebook.

In short, Facebook is on a rapid decline.

Another major problem brewing at Facebook is total lack on innovation internally at Facebook. In last 10 years, Facebook has not added any new innovative products - which is not tied to the core site. The Facebook mobile app was a belated and knee jerk reaction. Facebook's lack of focus on mobile platform in terms of launching new products is a major worry.

While I can see a rapid decline in my Facebook usage, usage on WhatsApp is a different story. In a typical week, I see about 600+ messages on WhatsApp and all these are from my friends.

So in short, WhatsApp is replacing Facebook. So as users abandon Facebook and move to WhatsApp or similar apps (such as WeChat, Line, Viber etc), it becomes clear to me that Facebook must expand beyond social networking to social messaging and purchasing WhatsApp is one surefire way to extend Facebook's life span and survivability.

To survive Facebook must add other products into its portfolio. Just the social networking site is not enough. Facebook lacks internal product innovation and to survive and grow, Facebook will have to buy innovation.

To survive, Facebook will have to buy several mobile apps and platforms.  Instagram was $1 Billion pill - but it was not enough.

For a company looking for survival, $19 Billion is a small price to pay for getting another shot at elixir of youth. 

Buying WhatsApp is just one such acquisition. I am sure there will be more to follow!