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    Excerpt from book Communities Dominate Brands, by Ahonen ....doc Excerpt from book Communities Dominate Brands, by Ahonen ....doc Document Transcript

    • Excerpt from book Communities Dominate Brands, by Ahonen & Moore, 270 pages hardcover, March 2005, published by futuretext Ltd. CHAPTER 4 - SERVICES AND PRODUCTS FRAGMENTING A street brawl without any rules Digitalisation allows services and goods to designed, packaged and delivered in new ways. An ever increasing proportion of the global economy is based on digital goods and services. Digitalisation harmonises the competitive world, and allows copycats that appear with alarming speed to capture your customers. Even if digitalisation is not affecting your market directly, it is certainly affecting how you go to market and what route you might take. So how do CEOs of existing companies, trained and familiar with their traditional business value systems, embrace the disruptive new environment of the digital universe? This chapter will look at how digitalisation alters the competitive environment for services and products. A SPEED OF CHANGE Kodak has finally succumbed to the meteoric rise of the digital camera and the camera enabled mobile phone and getting out of the business of traditional film for consumer cameras. Lufthansa has sold its stake holding in the airline ticket booking system Amadeus, as it no longer sees the value in a technology that has been disintermediated by the Internet and the low-cost airline business model. IBM has shifted focus from making computers to selling computer servics. The history of business is an ever faster substitution of goods and services by ever better technologies. Transistors gave Sony the chance to eclipse that valve based giant RCA, wireless meant that Vodaphone became the new British Telecom, and ironically in MP3, Apple’s i-pod is the new Sony Walkman. Disruptive technologies Clayton Christiansen, the Harvard Business School Professor discussed the idea of "disruptive technologies" in his book The Innovator's Dilemma. Christiansen studied the pattern of well-managed companies, considered very innovative within their industries, that surprisingly stumbled with technological change. After studying a number of examples, he identified a leading reason why great companies fail. He summarized it as follows: Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use. Clayton Christiansen The Innovators Dilemma 2003
    • We can see this thinking everywhere around us. Skype the internet telephony service, iTunes on iPod, Freeview digital TV service in the UK, etc. One recent innovation is instore TV - where 80% of all purchases are made within 10 feet of the item to be purchased, These all represent the falling cost of broadcast technology. Not to mention the dramatic shift of retailing on-line. This all can be termed "creative destruction." Is creative destruction an opportunity or a threat? This depends on how one decides to look at the world. Embrace it or ignore it until it is too late. A significant thought to hold is that if the future will cannibalise your product or industry anyway, then is it not best for it to be you who cannibalises your business, rather than your competition. In addition to digitalisation, we are seeing simultaneous convergence of many technologies, delivery platforms and industries. Converging content and delivery, the internet with gaming and broadcasting, of voice and data in telecoms, etc. Convergence of these technologies means that businesses are beginning to cannibalize each others' industries. Sony Electronics Chief Operating Officer Hideki Komiyama puts it plainly, “Five or six years ago home electronics was a peaceful market. Now people from the outside are coming in like hunting tribes.” Sudden success of cameraphones On the surface of it, trying to patch together a voice telephone and an optical camera seems like trying to combine an airplane with a submarine. But as mobile phones converted from analogue to digital systems in the early 1990s and as cameras entered the digital age about the same time, it became technically possible to create digitally converged devices combining both. Even so, there was little practical areas of synergy during the 1990s as both technologies were relatively bulky and there was no excess capacity in processors, storage units, battery capacity, etc. Then at the turn of the decade smartphones introduced colour screens for internet surfing, and digital cameras started to abandon the optical viewfinder for the digital colour displays to be used as viewfinder. Now suddenly part of the digital camera was in existence on the advanced mobile phones, and thus it was no longer a prohibitively bulky converged product to add the camera functionality to the mobile phone. Japanese mobile phone operator J-phone (since renamed Vodafone KK) was the first to take the strategic step into cameraphones and had 60% of its 12 million subscribers adopted to cameraphones by 2002. The growth of the sales of cameraphones has been nothing less than breathtaking. In 2001 the global sales numbered less than 2 million units. The traditional digital camera market felt very safe as its sales were well over ten times that amount. Cameraphones were ridiculed as being of very poor picture quality, having limited storage ability, poor graphics of the displays, poor optics, etc. During 2002 the sales of cameraphones climbed to18 million units worldwide. Suddenly the traditional digital camera market took notice but as traditional digital camera sales kept growing, the industry was not particularly concerned. They were introducing multi-megapixel cameras and ever more advanced systems and most in the industry felt assured that their technical dominance over the cameraphones would keep them safe.
    • In 2003 the sales of traditional digital camera did again increase, to 48 million units. But cameraphones rocketed past those numbers selling a whopping 84 million units in 2003. Already by 2003 the world's bestselling brand name on digital camera devices was not a leading camera brand like Minolta or Canon or Nikon, it was phone maker Nokia. In just three years mobile phones had invaded the digital camera market and totally crushed the established competition within it. In 2004 the mobile telecoms industry shipped so many cameraphones that they now four years from launch, amount to more than all digital cameras ever shipped. Wedding photos on cameraphone? It is important to note that for specialist and professional use there will always be a "real camera" market. A professional wedding photographer will not show up at the wedding with a cameraphone. A sports photographer will use a real Canon or Nikon with the massive 300 mm telephoto lens. Professionals such as fashion photograhers, news photographers, nature photographers, etc will buy professional photography tools. These may be digital, or they may even be film-based, by photographer preference. These kinds of specialist markets will remain, and high-end specialist cameras will be made for these markets. Our point is that the mainstream digital market, the mass market, will inevitably converge to the predominant digital device. At the moment the clear champion is the mobile phone. Thus in the contest for any function that can be added to the mobile phone, the phone will hold a near-insurmountable lead in its attractiveness. We saw it already before the cameraphones with the brief battle between the stand-alone PDAs (Personal Digital Assistants) and the smartphones, which the smartphone won easily. Next for 2005 we are preparing for the next battle, between the stand-alone music player like the iPod and the music-phone. We expect this battle to be as easily won by the mobile phone as it did with the PDA and the digital camera. Music and new media The music industry is one of those on the leading edge of the disruptive effects of digitalisation. With the ever increasiing capacity of mobile phone memory storage and battery life, it seems music companies are indeed looking to embrace the digital age. Will it be enough? Will enough people want all their content on their phone? A special case is the new type of "3G" phone, that have been on sale in Japan and Korea for three years and now appearing in most Western markets. Most 3G phones have storage ability for at least a modest library of music files, and the ability to "stream" music ie play music from live feeds much like a radio. Significantly 3G phones are better than the current crop of iPods in that all 3G phones can play music videos. Again the mobile phone trumps the existing contenders and pretenders. The pop culture clearly proved how much more appealing a music video is to young generations rather than simply listening to the same music on radio, fulfilling the theme of the Bugles hit "Video killed the radio star" - the song that famously launched MTV in 1981. To put the numbers in context, both technologies are about three years old, but while iPods number about 10 million globally at the end of 2004, there are already 32 million 3G phones worldwide.
    • Will these new super phones be an iPod killer? The answer is yes and no. For the die- hard music fans, especially those with sophisticated digital music... (continued) To see more about the book Communities Dominate Brands or to order it, please visit www.futuretext.com