In tech world, good to great to — gone?


Nokia CEO Stephen Elop introduces the new Nokia Lumia 920 and 820 Windows smartphones during a joint event with Microsoft on Sept. 5. Finland-based Nokia has, after 14 years, lost its title as the world’s leading maker of mobile phones. Overall, its 40 percent global market share is now cut in half. Over the past 18 months, its stock price has dropped more than 70 percent. (Spencer Platt/Getty Images)
Steven Pearlstein
Columnist September 15, 2012

I am what they call in the technology world a “late adopter,” although the term doesn’t quite capture the full measure of my backwardness. I skipped over the whole cellphone and BlackBerry thing until my children presented me with an iPhone not quite three years ago.

Naturally, one of my first stops with my sleek new phone was The Post’s IT department so I could arrange to retrieve my e-mail. Turned out, that wasn’t so easy. The Post then was a BlackBerry and Lotus Notes enterprise, and while a workaround had been devised to accommodate iPhone users, it was so cumbersome that only a handful of people were allowed to use it.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

Like who? I asked, hoping I might sweet-talk my way onto the list. It turns out it was the publisher and the company chairman.

That’s the moment I should have realized that BlackBerry’s maker, Research in Motion, was at risk of losing what was then its near-total dominance of a business smartphone market. Just three years later, its quarterly sales are down 40 percent, big profits have turned to losses and its shares are off 95 percent from its 2008 peak. The decline has been so steep that some analysts wonder whether Canadian-based RIM can survive.

Things aren’t much better for Finland-based Nokia, which, after 14 years, has lost its title as the world’s leading maker of mobile phones. Overall, its 40 percent global market share is now cut in half. Over the past 18 months, its stock price has dropped more than 70 percent, and the company was forced to lay off 10,000 workers.

It’s not that Nokia failed to anticipate the smartphone revolution. A decade before the iPhone was launched, its engineers had a prototype of a sleek handheld device with a color touch screen that would allow you to manage e-mail, locate a nearby restaurant, play a game or order shoes on the Web.

“We had it completely nailed,” Frank Nuovo, Nokia’s former chief engineer, told the Wall Street Journal.

But after spending $40 billion in research and development over a decade, Nokia has failed to turn its technology into competitive products fast enough to keep up with Apple and other rivals. As a result, its share of the smartphone market has fallen to 6 percent in just two years — a slide it hopes to reverse with a sleek new line of smartphones hastily unveiled this month.

A similar story of lost dominance can be found at the other end of the technology distribution chain. It was only a few years ago that Best Buy had knocked venerable national retailers such as Sears to the mat, crushed thousands of local appliance stores and driven big-box rivals such as Circuit City out of business. Nobody, it seemed, could beat Best Buy for price, selection and the service provided by its Geek Squad.

But almost overnight, the new technology that Best Buy was so good at selling suddenly became the instruments of its own undoing. It allowed once-loyal customers to see and touch the products on its shelves before buying them at a lower price from Amazon and other online retailers who didn’t have to pay for sales staff and showrooms or even collect sales taxes. And it allowed customers to download their music, their movies and their games online rather than picking them up at Best Buy.

If all that weren’t enough, a housing bust and credit crunch cut deeply into Best Buy’s sales of refrigerators and dishwashers and home-entertainment systems previously financed with easy credit.

Earlier this year, after a mini-scandal in the executive suite, Best Buy brought in a new chief executive who announced the closing of 50 stores, the redesign of 100 more using a smaller, updated format and a crash program to enhance the training of sales staff. But at least one person thinks a more radical transformation is necessary: Richard Schulze, the company’s founder, largest shareholder and recently deposed chairman, who last month announced an $8 billion bid to take the company private and return it to its former glory.

What is common to all three of these stories is the degree to which these companies came to dominate their markets and the speed and unpredictability of their falls. This dynamic is something relatively new in business and one that we are only just beginning to understand. And while Apple, Google and Amazon have emerged as the big winners from this dynamic, they are no less vulnerable to it than RIM, Nokia and Best Buy once were.

One lesson to be drawn from all three stories is the danger faced by dominant firms that refuse to cannibalize themselves — to give up existing sales in order to get the jump on next-generation products and services.

“The reason these businesses don’t change fast enough is because what they do is still working,” says Alan Wurtzel, a former chief executive and chairman of Circuit City during its heyday. Wurtzel and his company were profiled in Jim Collins’s best-selling management book, “Good to Great,” in 2001. Next month, Wurtzel will publish “Good to Great to Gone,” which outlines lessons he takes away from Circuit City’s subsequent demise.

Rapid change in technology is obviously a common thread running through all of these stories. While it’s difficult to figure out how new technology will develop, it’s impossible to say how it will be adapted. It is only in hindsight that Nokia looks so dumb not to have fully understood the promise of surfing the net while listening to music or for BlackBerry not to have realized that people would prefer to type their messages on a flat screen than pushing buttons with their thumbs.

The key to success in such a fast-changing environment isn’t developing clairvoyance. It’s keeping a mind open to numerous possibilities, having the discipline to experiment with several conflicting strategies and moving quickly to embrace one of them when the direction of the market becomes clear.

A second lesson is that as long as the technology remains unsettled, so will be the business models around that technology.

Today it is gospel that success in the smartphone market requires integration and control of both hardware and software, just as Apple has done with all of its products. But that hasn’t assured the success of BlackBerry, which has stubbornly embraced the same model. And it doesn’t explain why Nokia, which once had not one but two operating systems, has scrapped them both and gone in with Microsoft’s new mobile operating system. Unless, of course, you believe that it’s only a matter of time before Microsoft buys hardware maker Nokia, following the path set by software maker Google last year when it bought hardware maker Motorola.

It may appear today as if competition from the likes of Amazon dooms brick-and-mortar retailers like Best Buy, particularly for low-margin appliances and electronic equipment. But perhaps there is a good business to be had by unbundling the sale of hardware from the services required to demonstrate and explain it, install it and service it, which can be charged separately for customers who chose to buy their equipment elsewhere. Under such a model, it would be Best Buy that has the brighter future, and Amazon that gets stuck competing in a low-margin commodity competition.

The point here is that over the next decade we’re likely to see many more Nokias, RIMs and Best Buys before the technology sector settles into a more stable, predictable competitive dynamic. Until then, you should be highly skeptical of anyone who claims to know how it’s going to shake out.

Then again, what do I know about technology? I’m the seer who, upon hearing a pitch for a new company called Twitter at a conference in San Francisco, declared it the stupidest idea I’d ever heard.

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