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.