Importance of owning a market segment – Monopoly, market leader, and innovator’s dilemma

I am having a great time listening to lectures for Stanford CS183B – How to start a startup online. All lectures have been extremely good, and it allowed me to get a sense of how Y Combinator accepted companies into its batches and what made them successful. I am learning so many things, and I see some common underlying themes I want to write about, but two lectures really struck a chord with me.

Before the Startup by Paul Graham and Business Strategy and Monopoly Theory by Peter Thiel, in my opinion, were dead on. Many startups were able to thrive on because many of their ideas seemed bad at the time. If you have an obviously good idea, then many people will go for the same idea. That leads to competitions. For consumers, competition is good, but for business not so. And in a sense, overarching goal of a business is to become a monopoly in its market.

I find Peter and Paul’s main points similar to those of Crossing the Chasm and Innovator’s Dilemma.

In Crossing the Chasm, the author, Geoffrey Moore, argues that in order for disruptive technology company to survive, it needs to reach beyond technology pioneers and early adapters and move to early majority market. The gap between them is so great that many technology companies fail, and he named it “chasm”. What’s the strategy for crossing the chasm successfully? He coined the first market segment in early majority “beach-head market”. This is where company has to put all its resources and try to conquer. Company can get it wrong, of course, and it’s imperative that company finds this sooner than later so that it can correct its course, and hopefully new one is the right one.

One thing he emphasizes in conquering the beach-head market is to be the market leader. Who is market leader? I believe it’s synonymous to monopoly. You need to have at least 60% of the market share in the segment. Market leader has several advantages over #2 and #3 in the market. Because of its reach in the market, there will be auxiliary companies supporting the market leader, thus creating the whole eco-system. Often times, cost of changing product from leader to another is so great that it gives the leader leeway with its customers. After taking the leadership, it can expand to adjacent markets with money and time it earned being the market leader of beach-head market (he compared to going to adjacent markets as using the top pin in bowling to knock down other pins). If I remember correctly, Geoffrey Moore suggested the beach-head market be adequate enough for a startup to tackle.

Similarly, in Innovator’s Dilemma, the author, Clayton Christensen provides examples after examples, time and time again, a startup seems to come out of nowhere and take over the 900-lbs. gorilla of the market. What’s interesting is that companies in Clayton’s examples represent diverse markets – consumer, enterprise, and even to steel mills. They all had a few things in common.

They all started by attacking the market segment with much lower margin so market leader is happy to let them take it. Market leader is usually larger in size, and thus require much higher margin to operate and make profits. While market leader grows nominally by producing products for handful of larger customers, startup becomes leader in its segment and advances its products at faster rate. When the market leader notices startups’ progress, it’s often too late and even its larger customers are ready to become startup’s customers.

Those two books definitely shaped my views of startups, and Paul and Peter’s lectures seem to validate the books’ main points. There are, of course, many other things that contribute to a startup’s success or failure – co-founder dynamics, team, culture, executions, and any external events. However, I believe, one thing is sure to attribute to startup’s success.

It could be that it’s a market segment on one cares or that the idea you are working on seems to be bad to everyone else. Whatever it is, startup needs to become a leader in market segment to survive and succeed.

Become a leader or monopoly in a market segment

Mobile Security

From business to everyday users

In US, BlackBerry is often referred as CrackBerry, because of its addictive nature. The best way to gauge its popularity is by witnessing most business users checking their emails or sending messages on BlackBerry phones in airports or even in business meetings. Smartphone has been the weapon of choice for business users, who use it everyday including weekends to find contact information, check schedule, and read and send emails. Those functions were essential to conduct business on-the-go and enough to pay premium for the phone and the service. In addition, since most businesses use Microsoft Exchange for contact management, calendar and email, most smartphone vendors support integration with Microsoft Exchange. While Nokia has the highest market share (~39%) in worldwide smartphone market, US market is dominated by RIM (Research-In-Motion, manufacturer of BlackBerry phones) with about 40% market share followed by not so surprisingly Apple with about 30% market share. Market shares of Microsoft and Palm smartphones have been falling since early 2006, and the same trend continues.

Thanks to Apple’s iPhone, now the flood gate has opened. Prior to iPhone, a slick, trendy version of BlackBerry called Pearl and low-price PDA-type phones called Palm Centro had gained some popularity among non-business users. Introduction of slew of Google mobile applications – Gmail, Google Maps, Calendar, Google Search, and YouTube to name a few – also helped more and more everyday users to appreciate smartphones. Another catalyst was carrier’s introduction of unlimited data plan. But the real tsunami began with Apple iPhone. According to comScore’s report in October 2008, adoption of iPhone by low-income demographics increased 48% from June to August 2008. Interestingly enough, iPhone was a smartphone targeted for consumers, but with Microsoft Exchange integration support, more and more business users are adopting iPhone as welll. The following numbers regarding iPhone are quite staggering, considering that iPhone was introduced to the market only about one year ago.

  • Best selling phone (6.89 million phones) in the US during Q3 2008 – not just in smartphone category. (Source: The NPD Group)
  • Ranked number two in worldwide smartphone market with 17.3% market share and 523% Year-over-Year growth according to a report by Canalys.
  • 300 million apps downloaded through App Store. (Source: Apple)
  • Average of 2.2 million apps downloaded per day. (Source: Apple)
  • More than 10,000 apps have been uploaded to App Store. (Source: Apple)

Table 1 – Worldwide smartphone market share

Another new entrant to the smartphone market with much anticipation was Google’s Android-based G1 smartphone. These two phones, iPhones and Android-based phones will be the center of smartphone revolution now and in the near future.

Openness wins, again

The major reason for explosive growth of iPhone could be attributed to the App Store. Yes, it looks good and multi-touch screen is revolutionizing the whole intuitive user interface movement, but the real drive is its openness. Before iPhone, most phones manufacturers guarded their phones like a walled garden. It has happened over and over before, where too many restrictions hindered true innovations. Users received whatever phone manufacturers or carriers decided to allow. But, iPhone provided a platform for developers to offer their software – for a profit if they wish – and more importantly gave users choices. Users decide what they want to download and/or buy. Developers have motivation to write good programs, better than other developer, so that their software could be purchased more and thus make more money. It’s truly a beautiful system and ingenious business model. The numbers I described above are clear evidence. If the rumor that Apple may introduce $99 version of iPhones before Christmas is true, it would be truly game-changing plan.

The whole premise behind Google’s Android-base G1 phone was also the openness. It’s even more open than iPhone since its operating system (Android) is open source and it does not have as stringent software review process as Apple. Starting December 5, Google is offering a development version of the G1 phone that is both SIM and hardware unlocked. It only costs $25 registration fee to register as a developer on Android Market, and pay $399 for the hardware. Google also plans to expand the territories that it’s available in, but initially it can be purchased in the US, UK, Germany, Japan, India, Canada, France, Taiwan, Spain, Australia, Singapore, Switzerland, Netherlands, Austria, Sweden, Finland, Poland, and Hungary. It’s a shame that most mobile-phone advanced country like Korea is not on the list. Korean mobile phone manufacturer had better wake up to the new mobile world, otherwise they may end up losing a lot of their market shares.

These two phones are shifting entire paradigm in not just smartphone market, but overall mobile phone market. As “Internet” generation grows up and adopt mobile behavior similar to that of desktop and Internet, demand for “open” mobile phones will grow stronger and stronger. It would not be too surprising that most of mobile phones in the future will follow Apple and Google’s model.

Open with care

Today’s smartphones do not deserve to be called phones. They are small computers and mobile phone capability. iPhone’s specification is better than even Playstation Portable (PSP).

Table 2 – Specifications of iPhone and PSP

And this is only the beginning. Be it mobile WiMAX or LTE, carriers will keep upgrading their networks to meet the demand and support faster bandwidth. Apple, other manufacturers of Android-based phone and incumbents will continue to push the envelope, developing better, faster, lighter and more powerful mobile devices. Does this sound familiar? Continuous improvement is no stranger to high tech world, but specifically it parallels laptops. When laptops first came out, they were much inferior to the desktops, as desktop PCs were to mini-computers much earlier. Nowadays, most laptops have become as powerful as desktops. And the day smartphones will be as powerful as laptops is just around the corner. They are not going to replace them, as we still have mainframes, mini-computers, desktops and laptops. They will all co-exist and serve specific roles.

The Internet opened the door to the world, where one can reach anywhere for instant access to any information he or she desires. Also, we have seen some who try to take advantage of the openness. In the dawn of desktops, malware then was limited to virus, and it had very limited way to distribute itself. With open network, where you can reach anyone, anyone can reach back to you. It doesn’t help to have vulnerable operating system and communication tools in the most desktops. Also, as opposed to hobby-like nature of virus writing in the beginning, financial gain is the main purpose of today’s perpetrators, and motivation to write good (?) and tenacious malware is much higher. Open network/system and free market are encouraging creative innovations not only in productivity but also in cybercrimes.

Mobile world is the next frontier (for cybercriminals)

There is a new report just published by Information Security Center of Georgia Tech, which predicts that mobile phones will be next target for botnets. It’s inevitable, as mobile phones are getting more powerful, faster Internet connection is possible and thus user behavior on mobile phone is shifting from voice communications to online communications. Previously, carriers charged users by number of SMS messages or amount of data used, but nowadays most carriers offer unlimited SMS and data plan at very attractive pricing points. The new rate plan in addition to the fact that mobile phones tend to be always on and often security is poor will make them even more attractive target for cybercriminals. The shifting user behavior makes similar “drive-by download” in mobile phones as in desktop possible. Also, another large difference between desktops and mobile phones is the sheer volume. There are estimated to be around three (3) billion mobile phones used worldwide, as opposed to about 800 million desktops. Apple and Google review the uploaded applications before publishing them to the public, but there is no guarantee that they will catch all of the malware.

With relatively low bandwidth, it’s hard to imagine mobile botnets launching massive DDoS (distributed denial of service) attacks. At least not the bandwidth flooding attacks, but logical and protocol attacks are certainly possible since there are so many more mobile phones available than desktops. For example, SYN flooding is quite possible with mobile phones, since it works by sending many requests to a sever and depleting its “half-open” session table, which is able to handle only about 1024 entries. More than DDoS attacks, there is more possibility of fraud and privacy invasion. Malware on the mobile phone can access paid contents and charge to user’s mobile phone account. Since mobile phone stores phone numbers of owner’s contacts, SMS spamming or even personal data leaking is possible. In places like US and others where there is tighter integration between mobile phones and company’s internal resources, the possible damage of data leak is even greater. Also, since user’s location can be pin-pointed using GPS data, a cybercriminal can track certain users for stalking or other criminal purpose. I know certain some companies in Korea already do this, so it shouldn’t be completely inconceivable. There is already an application like FlexiSPY that is used to spy on user activity. After FlexiSPY is installed on a smartphone, it allows you to use the phone to read SMS, e-mail, and call logs from the smart phone from anywhere in the world. The Windows Mobile and Symbian versions even allow you to listen to actual phone calls being made with the smartphone and use the phone as a secret GPS tracker.

There is also no doubt that some cybercriminals will use these powerful smartphones as a tool to a cybercrime.

Seize the opportunity

So far, any serious, widespread malware has been unheard of. It’s because until just about a year ago before iPhone and Google’s Android phones, most phones operated in closed, walled-garden environment. But, as amazing success of iPhone shows, there is huge paradigm shift happening in the mobile phone market right now. I have mentioned several ways cybercriminals can benefit from compromised mobile phones, but if I can think of them, cybercriminals may already have thought of many more creative ways. It’s only a matter of time. There is a great opportunity for a security company to dominate mobile security market. There are already many anti-virus and SMS anti-spam programs are available for all popular mobile operating systems from companies like AirScanner, F-Secure Corp., McAfee Inc., Symantec Corp., SMobile Systems, Trend Micro Inc., and Sophos plc., but none of them is a clear leader yet. Many IT departments in US already have or are in the process of creating mobile security policy. Just as in desktops, they will require installation of security software (anti-virus, firewall, and/or encryption) on smartphnes and can restrict which software can be installed. So far, no major mobile security threats have been widely reported, so they are not on consumers’ radar yet. But, it will just take one outbreak for them to come to the realization. In addition to security software on smartphones, carriers or other 3rd-party vendor could also provide network-based, cloud security services by scanning all mobile data on network level.

For consumers and non-business users, they need to employ the same cautious behavior as in desktop environment. They should always be careful when downloading an application or clicking on a link. Just as in desktop, even with whatever mobile security software they have on the phone, they will not be able to catch everything. They should also create password to access the phones so that their information is relatively safe when stolen. But as in desktop, most users may choose convenience over security, which would be a great tragedy since they may become the source of a large outbreak.

In conclusion, it should come as no surprise that technology advance always comes with double-edged blade. While open smartphones promise another whole new level of productivity gain (or loss to some), they come with a quite strong warning label. But those who seize opportunity will reap great benefits.

Future of advertisement

I was watching “CSI” and “Eleventh Hour” today, and I was amazed at product placement of iPhone. It also reminded me of the first season of “24” where I saw clear product placement of Cisco and Dell.

Today was rare. I don’t watch much TV. I spend a lot of time online to watch TV shows (and video clips) on Hulu, Veoh, and YouTube. Why? It’s purely convenience. I can watch it anytime at anywhere whenever I want. I guess I could have TiVO, but I am cheap.

A few weeks ago, I attended Bay Area K group’s technical seminar on IPTV, and I am not quite convinced whether IPTV will be the future. Unless there are programs that clearly take advantage of two-way communications, I don’t see the need for IPTV.

I don’t know if video websites will ever take over cable or over-the-air market, but it’s getting clear that new business model for TV advertisement will be required. One of them is obviously product placement, and I can’t believe so many actors you see on TV are using iPhone! That’s one great strategy. 

Open, Closed and Whole Product

In previous entries, I have covered the rate of change in technology advances, peril of attempting to predict the future, and current trend in developments of cloud computing, data centers, and smart phones. A report by NPD says that iPhone 3G is now the best-selling smart phone (past BlackBerry’s and Palm Treo’s) and 2nd-best selling phone after Motorola Razr in US. The proliferation of new smart phones and the birth of whole new eco-system of applications developed by any programmers and available to all users present interesting security problems.

Mobile phones in general are now considered an essential item in one’s life. It’s hard to imagine what the world was like without them, not being able to connect to anyone at anytime from anywhere (even interrupting us at anytime). Most people nowadays cannot imagine what it was like before the Internet and mobile phones. Because of its portability and must-have status, the number of mobile phones vastly outnumbers any devices that connect to the Internet.

I can’t say for any other countries, but in US, smart phones are absolutely necessary in business because of its ability to access corporate emails and calendar. In fact, they are two major functions why millions of business users buy smart phones, which have become mandatory communications device for business users.

In addition to the vast volume of general mobile phones, smart phones are becoming more and more like small computers. With wide variety of applications available to download and install, new smart phone users enjoy the same freedom of choosing whichever application they’d like to use as those desktop users. As a rule of thumb, the technology advancement will continue and they may become as powerful as some laptops, as today’s laptops are as fast and powerful as desktop. It’s inevitable and just matter of time.

So, if you think about billions of laptop-like mobile devices with wide variety of Internet applications, any security professional will cringe. Infecting mobile devices with malicious code could result in devastating results. All the personal information stored on the laptop including address book and emails could be leaked. Someone could also tap into user’s location information through GPS and keep tracking the user for criminal purpose. Since they will become as powerful as some laptops, it’s entirely conceivable that some sort of P2P applications (good or bad) might be developed for mobile phones. As more advanced botnet uses encrypted P2P network rather than traditional IRC channels, the mobile botnet can be certainly created with P2P network as well.

Apple keeps tight control over applications developed for iPhone, but when the number of applications is increasing faster and faster, they won’t be able to keep the full control. However, restriction and control are not the answer. They will only limit innovations and may even kill the very technology and/or product it is trying to protect. Internet was able to flourish because it was open. While there are some parasites, the benefits of openness vastly outweigh negatives. There are numerous cases when open system/architecture triumphed over closed counterpart. Open system encourages competition, which in turn fosters innovations in the market. Then, how does one make money in such environment? It may not be easy, but it’s possible. Good example is Cisco. Most Cisco products are based on open standards, yet they command highest market share in most markets. Worse yet, they do not build the best or the fastest products in the industry. Slightly different, but similarly, Apple was able to come in to crowded MP3 player market and dominate in short period of time. There is no secret to make a MP3 player, as you can see in high number of MP3 manufacturers. How did Apple do it? Is it because it looks beautiful? Americans are quite practical folks. Knowledge of America might be limited to what they see on TV or movies for some, but most Americans are definitely not frivolous. It wasn’t because of its looks. Then, how did Apple succeed?

In marketing there is a concept of “Whole Product.” It’s not enough to win in the market with just main product. In order to complete user’s experience, you have to consider what user would go through from before the purchase to what afterwards. Apple iPod was successful because of iTune software and iTune store. In order to complete MP3 experience, a user would have to find a way to manage his music collection and a way to add more songs (either by ripping a CD or buying online). iTune software and store completed that, and they worked flawlessly with iPod. How about Cisco? Cisco’s “Whole Product” is Cisco product plus millions of professional service and technical support professionals either from Cisco or 3rd-party vendors. Cisco made it legitimate with its certification program so that their customers, if chose to seek outside help, can find quality professionals by checking their certificates. It’s this auxiliary knowledge base that is keeping Cisco in the top place. Because they are market leaders and have most customers, their position is reinforced by many other companies that build and offer additional auxiliary items/accessories and service for them such as cases, boom boxes, adapters for iPod or training centers, system/network integrators for Cisco.

So which way is right for mobile security? It’s a million dollar question, and also where incredibly attractive opportunity could be.

Danger of isolation

The release of Chrome solidifies the importance of web browser and decline of desktop in the future of computing. There is a new wave of computing revolution going on, and I am afraid Korea is being left behind in spite of its blindingly fast technology adoption. I believe here is where the difference lies: adoption vs. innovation.

Since the birth of the Internet, Software-as-a-service (SaaS) model has been attempted (remember those Application Service Providers in the early 2000’s?), but it truly gained momentum with rush of web 2.0 sites and also wild success of mega Internet companies like Google, Amazon, eBay, and etc. Since these companies needed to have massive processing power and deal with tremendous amount of data, they were early (commercial) adopters of high-performance computing. They wanted to monetize their expertise in running scalable data centers, and that’s how (commercial) cloud computing was born. Both Google and Amazon let a company or individual to run their web applications in their data centers and they charge only for resources used. This is especially good for web 2.0 start-up companies who cannot afford to run their own scalable data centers. Current cloud computing service isn’t perfect as demonstrated by outages from both companies. But, you can bet this is where the future of computing is headed. In turn this is also pushing development of products specifically targeting high-performance data centers, and both larger companies such as Cisco and Juniper and many start-up companies are jumping in the bandwagon.

This is also exactly why desktop and subsequently operating system is losing its significance. In other words, they both are going back to their basics, as they were meant to be. There is no reason for bloated OS. Actually some will even argue that OS is really just the kernel and anything else is application. It’s a religious war that I don’t want to get into. Nevertheless, it’s clear that as desktop applications move to the Internet (or cloud or somewhere remote accessible by URL or IP address), web browser becomes the window to all the applications. It doesn’t matter whether you use Windows OS, MAC OS, or Linux OS, all you need is a web browser. There will be some specific desktop markets that always need more processing power such as gaming and intensive computer graphics, and they will become only small fraction of entire desktop market.

This whole trend got me thinking about how come Korea wasn’t able to cash in on its technology achievements. Anyway you look, numbers are amazing: highest broadband penetration, highly advanced mobile phones, highest mobile Internet speed, and etc. But why doesn’t Korea lead rest of the world in Internet or mobile innovations? Why isn’t there a Korean company or innovation that everyone talks about as setting the trend for the future, changing status quo, and making significant differences in high-tech world? Why isn’t there a Korean people talk in the same breath as Steve Jobs, Bill Gates, Jeff Bezos, Elon Musk, Bill Joy, Andy Bechtolsheim, Will Wright, etc.? Then I realized that it was because what we see on the surface is the result of fast adoption, not innovation. In addition, Korea is too isolated in terms of its technology reach. Concepts like Software-as-a-Service or cloud computing should have been initiated in Korea. Online gaming craze in Korea is well published even in US, but it’s a result of people spending tons of time playing games programmed and published elsewhere. Should fraction of these gamers have studied programming instead, we may have a different story. The social networking website was also pioneered in Korea. Cyworld was hugely popular and successful in Korea, but they failed to capitalize outside Korea. They tried much later, but it was too little, too late. A recent report shows that Facebook, a hugely popular social networking website in US, is growing the fastest outside US. I saw some report in Korea that complained Mozilla’s Firefox and Google’s Chrome do not display most of Korean websites correctly. It’s because most Korean websites were developed for Microsoft’s ASP.Net. This is certainly not Mozilla’s or Google’s faults, and they certainly should not change its code to support non-W3C standard web pages. Korean mobile manufacturers have been in mobile phone industry for a while, but they never have generated hype and loyal following like Apple had with iPhone (to be fair, it applies to all other mobile phone makers). Also, by opening of API and free SDK, and allowing users to buy and install any applications they wish, Apple is pushing mobile application development to whole another level. In addition, Google’s open-source based Android phone is sure to bring additional push for mobile application innovation. What’s interesting is while Apple has full control over its hardware, Google doesn’t. Google relies on others for hardware, and this is quite similar to Microsoft and cheap PC hardware alternatives to IBM PC and its OS. Mobile phone’s hardware is getting commoditized, as all electronic hardware goes through, and tremendous value is placed in OS and other software running on top. That’s why Kleiner Perkins Caufield & Byers, the most well-known VC in the Silicon Valley, has created $100 million iFund to invest in iPhone and iPod Touch applications. In addition, Research In Motion, the RBC and Thomson Reuters have invested in an $150 million venture investment fund, called the BlackBerry Partners Fund, to support developers of applications running primarily on the Blackberry.

In essence, I think Korea’s high-tech industry is not taking full advantage of its potential. One major part of the problem is the whole start-up environment, from investment community to engineers and marketing folks who are too isolated. When a start-up is started, it should look to US and Europe (and perhaps China) as its main markets, not Korea. Products should be architected and designed for more than just Korean market. The key to successful business outside Korea is to understand local business and consumer cultures, so Korean companies should not be shy of hiring someone outside Korea, and also tolerate other cultures or different way of thinking. Also, you need more personal investors willing to take very high risks and provide seed money. Successful entrepreneurs should be available to offer advice to those in need. Koreans are no doubt very smart on paper. What separates them and successful entrepreneurs in the Silicon Valley are basically thought processes: creative problem solving, seeing beyond what’s obvious, thinking outside the box, etc. There is a reason why most innovations and value/wealth creation is still happening in the Silicon Valley. One of the reasons is general acceptance of immigrants and differences in cultures and thinking. Silicon Valley’s position may certainly change in the future, but so far I believe it is still here. I sincerely hope that Korea can take full advantage of its highly-educated, smart population and its technology achievements to start creating values outside Korea (but NOT with Government initiatives). She has the potential and just needs to spread her wings.

Whole Product

The concept of “Whole Product” has been well known. In order to complete user experience, you need additional products, features or services in addition to the main product. For Apple iPod, it was the iTune that managed music collection as well as vehicle to buy a song at $0.99 (as opposed to buying an entire album). Apple perfected the art with iPhone and its App Store.

Thinking back, Samsung made critical mistake when trying to enter enterprise networking market. Most companies buy Cisco products not only for their technology, but also support and professional services, which make up the whole product. Even though networking products are based on open standards (IETF), because enterprise network is complicated and mission critical, it’s important to design it correctly and to receive immediate support when something goes wrong. Samsung wasn’t willing to invest money in the support and services structure.
Along with iPhone, Google’s Android phones will also have Application Marketplace, so it would be very interesting if the success can be replicated. I say it would, but we shall see. There is clear business model for Apple iPhone application developers (by charging for apps), but I don’t see it for Android. I suppose they would have to give developers freedom to charge for an application. So far I think they are supposed to be free, but money could be very strong motivator, so Google should strongly consider it.

History repeats itself? iPhone and Apple Mac’s

My current mobile contract is over in October. I set my mind to buy an iPhone next, but then T-Mobile’s Android phone, G1 will be also available in October. That complicates things a little bit.

But one thing is for sure. I don’t like G1. HTC and T-Mobile should’ve done better job at designing an aesthetic phone. It’s fugly. I see it as a beta phone, and I hope Samsung or LG make much better Android phones. Then shall I wait till those phones are available? Next Android phone is most likely from Sprint, and I wouldn’t buy it even if it’s free (unless I can unlock it and use it in AT&T network!) because Sprint network sucks and the company will be extinct in a few (or several) years.

It also dawned to me that there are some similarities between different routes PC/Mac took and how Apple and Google are approaching mobile market. Apple iPhone is definitely vertically integrated. Apple controls the hardware, but lets 3rd-party software developers to publish their applications as long as Apple approves them (thus the similar to Mac). On the other hand, Google’s Android is open-source and it relies on others to make platforms and anyone can develop software (thus similar to Microsoft and PC). Even in Google’s case, I think they would need to screen some applications that might be borderline immoral – offensive, racist, unethical, or just plain wrong (wrong on whose standard? That could be a source for a debate). So, with such parallism, I have to wonder whether iPhone will suffer the same fate as old Mac did. While many phone manufacturers are coming up with different phones with different tastes (thus much broader appealing than iPhone), iPhone will be limited to designs that Apple can release.

In addition, as recent smart phones have demonstrated, future mobile phones will be just like mini computers. There will some mini computers for average folks, some for advanced, and some for ultra geeks who may even buy off-the-shelf-components and build their own. The key is to let hardware vendors package them differently and target different market segments. Google just provides OS and default search, many many 3rd-party developers offer their applications. This is what Microsoft wanted with its Windows Mobile OS, but Google is definitely crashing Microsoft’s party. Who would win? I don’t know about you, but I am going to bet on Google. Google (Android) will dominate smart phone OS in 3-5 years. Because it is open source, someone can easily build an affortable smart phone based on Android and create mini smart phone reveolution in developing nations, where cheap phones are dominant, but people will naturally want to move up to better, sophisticated phones. In other words, even in smart phone market, there will be different segments; more basic, cheaper to advanced, more expensive phones. Someone might even sell mobile phone kit(s) with different components.

One hurdle I could see is carriers. In many places, you are locked in to a carrier. This must change. It is hurting mobile innovations. Those fat cats must go. FCC must allow open competition. Google’s bid for spectrum was more self-served, but open airwave would have spawned amazing innovations in mobile industry. In the end, perhaps, all telecom service providers (either wired or wireless) might become just pipe provider. They want to avoid that, thus make you lock-in or monopolize the market.

Again and again, the higher you go up on the value chain, more important it is. Content/software is the king – applications on PCs, OS in routers/switches, programming on cable network, etc.

Coming back to the original point, Apple had better be prepared to not repeat the history.

What makes a company great?

It was my junior year in college that I picked up this free issue of BusinessWeek. It had a special section about Silicon Valley, and reading it was like an epiphany. It was amazing to read about unconventional folks, mavericks, and renegades were truly shaping our world. They were because after the industrial age, we live in formation age and these companies were creating innovative software and hardware that were fueling and driving information age. I wanted to be one of them, creating a company that would change the world and perhaps make a lot of money on the side. But, I wasn’t sure how I would go about doing it. I was naive and still trying to figure out my place in this relatively new world, having immigrated to US just about seven years ago.

Well, I had an opportunity to work for startups in the Silicon Valley, and it was during this time that I became fascinated with high-tech marketing, thanks to VP of Engineering at Caspian Networks who recommended Geoffrey Moore’s Crossing the Chasm. He is now founder and CEO of Ethernet fabric company. Since then, I wanted to move onto product marketing area, but the opportunity didn’t arise until 2004.

I had a chance to work for Samsung Electronics in Korea. It wasn’t an easy decision. It took me three months to decide. I’ve heard some horror stories about harsh treatment from jealous colleagues and cultural shock experienced by Korean Americans who went to work for a company in their mother land. Also, they were going into a very tough market, router market where Cisco owns 70% market share in all segments and 95% in mid-range segment. Other big telecommunications companies like Nortel, Alcatel and Lucent tried to challenge Cisco, but all failed. What I liked about Samsung was that it had huge amount of cash. If Samsung were in the game to win, it was going to be a long battle that would require lots of cash.

But, what I faced was quite dismal. Samsung, a large company in all aspects with 200K+ employees worldwide, truly exhibited everything you could expect from a large company. Working there was living the words of Clayton Christensen‘s Innovator’s Dilemma. And we are not even talking about a disruptive innovation. Actually, most of the leading Samsung products happen to be with sustaining technologies instead, like more dense memories or phones packed with more and more advanced features. Clayton Christensen’s definition of disruptive technology is not radically different technology, but entirely different application of current or new technology targeting entirely different market.

I am a Korean American, and I am somewhat passionate about Korean companies. In the back of my mind, I thought my high-tech marketing knowledge with heavy experiences in data networking and in startups, I could make a real impact and be the real change agent at Samsung. It didn’t happen, and I could spend another full post on why. At any rate, in the light of iPhone’s huge initial success, selling out 500K units last week, I wondered how come no Korean company, with heavy chips on their shoulder and arrogance could not create such “iconic” product that people could get really passionate about. Other foreign companies have done it. Sony certainly has done it…., many times with Walkman, Playstation, etc. According to Tony Seba and in his book, Winners Take All, success of Apple’s iPod could be attributed to creation of “whole product”. iPod was only successful with iTune application and iTune store by providing users a complete digital music experience. iPhone might actually fail because of poor experience with AT&T. Wireless carrier matters a lot to create “whole product” of a cellular phone since poor cellular quality will hinder users from positive experience.

I think it’s useless to exclaim R&D or technical strength if you cannot exploit it and lose in the market. To win in the market, you have to know the market. Peter Drucker once said that “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” Perhaps the problem with these Korean companies and why they have not been able to create an iconic product is that they do not know the market.

Do you dare to predict the future?

“I think there is a world market for maybe five computers.”

  • Thomas Watson, Chairman of IBM, 1943

  • “There is no reason anyone would want a computer in their home.”

  • Ken Olson, President, Chairman, and Founder of Digital Equipment Corporation, 1977

  • 640k ought to be enough for anyone.

  • Bill Gates, 1981

  • What the hell is [a microprocessor] good for?

  • Robert Lloyd of IBM’s Advanced Computing Systems Division, 1968

  • I see little commercial potential for the Internet for at least ten years.

  • Bill Gates, 1994