How Nokia was disrupted. Part 2

In this two part article I look and try to understand what happened to Nokia over the past 4 years and what’s next for the company.

In short – what happened was pretty simple. Nokia was disrupted by the new model of true mobile computing invented by Apple and then accelerated by Google’s Android.

In the first part of this post I  looked at how disruption in general works, and how the disruption of Nokia started. The second part looks at how Nokia tried to fight back, lost and surrendered. And what may happen to Nokia next.

Nokia disruption ends

Nokia’s response to the new disruptive true mobile computing threat – was a classic incumbent. First dismissing the new development as niche and not a threat. Then quietly developing a competitive answer, without any real understanding what they are competing against. With phone hardware/feature guys in charge, their first try at a real mobile computer – Nokia N97 – was born crippled by underpowered CPU and too little RAM. The platform- S60 5th edition, with it’s thin touch layer over the aging phone/keypress optimized OS – was buggy as hell and a nightmare in usability. Developer tools were still antique, nightmare to learn and use. Early versions of Nokia (OVI) app store – boderline unusable too.

Their next try – Nokia N8 and Symbian^3 – could have fared better, but it was too little to turn things around and, what’s worse – it was way too late. Symbian^3 had a significant performance/usability improvements over S60/S^1. Had it come out in late 2009 or, at least as promised, early 2010 and then have been quickly followed by a major interface revamp in the second half of 2010, Nokia could have pulled through. Symbian^3 had a good chance to stand up against Android 1.6, and Nokia N8 was pretty competitive compared to the Android phones on the market for most of the first half of 2010. It’s possible that N8 could have even lured some potential iPhone 3GS buyers in early 2010.

Alas, it was not meant to be. In a typical incumbent fashion, Nokia first spent 2 years in a futile effort to modernize S60. Then, when they finally figured there’s no way to make it work, they severely underestimated the time and effort it would take to rewrite Symbian for the touch world. So Symbian^3 was late by at least 6 months from the planned launch date, probably a year to really help. And the typical phone company penny pinching – putting in a weaker CPU/GPU into Nokia N8 (680 ARM11 CPU/Broadcom BCM2727 GPU) then a year old iPhone 3GS had (600MHz Cortex A8 CPU/PowerVR SGX535 GPU), on a flagship that was supposed to show Nokia’s technological prowess, didn’t help either.

By the time N8 shipped – October 2010, it was up against iPhone 4 and a slew of Android 2.2 competitors on fast 1GHz Snapdragon chips. The only way Nokia could compete against them – was price. The pent-up demand from longtime Nokia fans, holiday shopping season, huge marketing initiative and comparatively low Nokia N8 and other S^3 handset price, helped to bump up Nokia smart device sales volumes a only a bit in Q4 2010.

And by early 2011, Nokia smartphone sales started slowing down. Then, this spring, preparing for the arrival of their next generation dual core powered Android 2.3 devices, competitors slashed prices for their last year’s flagships. Suddenly Nokia N8 had to compete with the likes of Samsung Galaxy S2 and HTC Desire not only on price, but in the overall user experience as well. Similar thing happened to the available Symbian^3 devices at all price points. In many cases, competitors were able to match prices of cheap Symbian^1 handsets with much more attractive offerings too.

That was pretty much game over for Nokia as we know it.

Nokia smart phone sales this April/May started falling off the cliff, with little hope of recovery. I strongly doubt that Symbian Anna, the new phones like X7 or the promised 1GHz Symbian devices this fall will help much. Especially when next generation iPhone will push iPhone 4 prices near the high end Symbian price range, while early 2011 Androids will get even cheaper.

And, in a typical incumbent fashion, the latest Nokia flagship, N9 is too little too late, again. Even Nokia itself doesn’t seem to believe that it can make a difference.

The main problem with Nokia N9 and Symbian Anna is that they are Nokia’s answer to a problem – user interface – that Android and iOS solved before 2011. And while Nokia is joining this battle of the past, Apple and Google have moved on to a bigger and better things. Building out a cloud services, creating working wireless payment systems for developed world, improving accessory/device integration, disrupting PC industry, making their mobile platforms a central point for home automation and more.

Some would like to blame Feb. 11th Microsoft partnership/Symbian death announcement for current Nokia woes, insisting that while Nokia had some execution issues, it was on the verge of turning around. The announcement may have had some limited effect, but I don’t think the effect was that big. Latest in Nokia software achievements – Symbian Anna and Meego 1.2/Harmattan, especially the time it took to make them market ready, only confirms it. Nokia problems were much deeper, started way before Feb 11th, were already visible early last year, the crash started in the second half of 2010 and Nokia was simply too slow to do anything about it.

Game over? Is this the end of Nokia?

So the game over for Nokia? Is this the end?

Not necessarily. Not all disrupted companies disappear. Some of them just lose the former influence in the industry, go through a major restructuring and, focusing on their key strengths, continue to live and sometimes prosper. Just look at IBM, who’s mainframe business was disrupted by the advent of mini and then micro computers, and who went through near death experience and major rethinking of it’s purpose during the nineties. This is where Nokia may be headed.

While I have some doubts of whether Nokia can survive 2011 as an independent company – those doubts are mostly related to the sharp decrease of Nokia share value. With Nokia as a company so cheap now, it can start attracting hostile takeover bids and I ‘m not sure it will be able to fend them off. As for the core business itself, even if Nokia starts losing money due to the crashing smartphone sales and declining mobile phone volumes, it should have enough cushion to get through 2011. And if Nokia’s bet on Windows Phone pays off in 2012, Nokia will survive and might even prosper eventually.

It’s just over for the Nokia as we knew it – a dominant force and trend setter in mobile industry. Nokia lost the battle for the current generation of mobile platforms and surrendered. From now on it should be important, but just one of the many mainly hardware players in the new true mobile computing world.

I know, the abrupt abandonment of Symbian and it’s next generation successor – Meego – upset a lot of loyal Nokia fans. Especially when, according to Nokia public statements all through 2010, Nokia transition was almost over, and the next generation Symbian and Meego devices were just around the corner. The problem is, these next generation devices – N97, N900, N8 and now N9 – have been just around the corner and then ready to turn Nokia’s fortunes around, for years. None of them arrived in time or were good enough to do that. Nokia N9 shows that, given time, Nokia can come up with software that may be good enough for a mobile computing platform. But there is no time, industry is moving too fast.  And, probably because of it’s deep roots as a hardware company, Nokia is unable to keep up. It took almost 2 years for Nokia to get from Maemo 5-N900 to Maemo 6/Meego 1.2 Harmattan-N9. Android went from 1.6 to 2.1-2.3 (Gingerbread) and 3.1 (Honeycomb) in the same time frame, while Apple delivered iOS4 and iOS5. Google and Apple are moving too fast, solidifying their lead in the things that matter in true mobile computing every month.

Faced with this unpalatable truth, Nokia surrendered and turned to another former smart phone industry incumbent –Microsoft. Microsoft recognized the disruption happening in mobile world years before Nokia, then took radical steps to save their business in time when it could still help. And had the necessary competencies to do it. They are still very late in the game, but, by most accounts, their new mobile computing platform –Windows Phone- is good enough to compete with the new incumbents – Apple and Google. It just lacks commitment from mobile device hardware makers and distribution.

With Nokia’s excellence in hardware and power in distribution, this alliance just might work.

What about the mobile phone business? It may be more interesting then you think

With all the talk about next generation true mobile computing devices (mistakenly called smartphones today) people usually forget that smartphones are only a half of Nokia mobile device business. The other part is mobile phones. And while the top, most lucrative part of mobile phone business has been taken over by smartphones/mobile computers, more then 70% of mobile devices sold in the world are still phones. And there is a big question how much of those 70% are actually susceptible to mobile computing disruption anytime soon.

Both iPhone and Android are designed around and strongly rely on internet connectivity for a great deal of their functionality. And they use huge amounts of mobile data compared even to smart phones. Take the connectivity away, and mobile computers lose a lot of their appeal. But mobile data is pretty expensive, and it’s unlikely it will get much cheaper anytime soon. Even in developed countries, there’s only a finite number of users who are ready or can afford to pay premiums for a data connection required to get the most from the iPhone or Android handset. In more poor countries, the amount of such users is even smaller. And as those who can afford and are ready to spend on mobile data get their mobile computers, moving down market might become a bit of a problem for data hogging devices. Data frugality may soon become much more important then anything else. Michael Mace of Mobile Opportunity just penned an excellent post about this issue.

There’s no doubt that even the lowest end mobile phones will be getting more and more computer like functionality. But will they become true mobile computers with app/net centric design, like the smartphones at the top end of the market did? Probably not for at least quite a few years yet. Vendors will have to figure out how to deliver computing experiences on a very thin data pipe. And here lies the opportunity for Nokia. While nobody seem to want Symbian devices anymore, Nokia S40 phones are still selling pretty well. Some recent developments hint that Nokia has quite an interesting vision how to add a mobile computer functionality to S40. And data frugality plays a very important role in this vision.

First – it’s Nokia Browser for S40, which, similar to Opera Mini – compresses internet pages on Nokia servers and can reduce data consumption by up to 90%. Then there are Nokia Web Tools for S40 enabling Web App development for S40 browser. Nokia Maps are now shipping on a number of S40 handsets, and require no or very limited data connection to work. Nokia is also working on a new full touch interface for it’s (S40) mobile phones, and N9 shows that they may have finally figured out how to make full touch centric UIs well. And then there’s a biggie announced during Nokia Connection event on June 21st. Nokia is porting Qt core to S40. Which will transform S40 into a smartphone platform overnight. And, with S40 sales volumes, it could become the biggest smartphone platform in world pretty quick. If Nokia is able to execute this vision well, they may soon have a new platform for mid-tier and lower end smart devices, which could succeed were Symbian has failed. And become a major competitor to Android and iOS in lower end, data constrained environment.

Unfortunately this is just a vision for Nokia now, or, more accurately – some hints of the vision Nokia may have for S40 mobile phones. And vision without an execution is just a dream. Nokia had many beautiful dreams about Symbian/Meego/Qt/OVI over the past few years and look where they are now. If Nokia fails execute again on their Microsoft alliance and on whatever they have in store for S40, then all bets are off. Nokia may be history much sooner then you think.

So let’s hope the new management have learned their lessons from past Nokia failures, and can finally deliver on the execution front. For now, the talk sounds pretty good to me. We’ll know if they can do the walk in the next 6-10 months.

 

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Staska – your recount of the Nokia saga was (is) brilliant in so many ways – it it surely one of the most worthy efforts I have seen to help folks understand how and why Disruptive Innovation is an important concept to understand.

    This case is also remarkable from the standpoint that everything about this case fits the traditional pattern of disruption laid out EXCEPT for the fact that the iPhone has NOT greatly reduced the price of handsets nor has it widely increased their useage (which is the normal way a disruptive innovation gains and maintains enough impetus to overwhelm the incumbent industry). Perhaps that’s why only some (rather than all) of the industry leaders were overwhelmed – Palm was clearly caught in the same wringer as Nokia while others such as Samsung were able to incorporate the iPhone philosophy as a SUSTAINING disruption.

    Although this is not a part of the ‘disruptive’ part of the story, HTC also owns a remarkable bit of this same tapestry in that it took the cue from the iPhone and lauched a series of phones with comparable philosophy – but did it in the CDMA world, where Apple hadn’t gone until recently. The battle there will clearly be one around operating systems, where – because of apps, Apple may well still have the advantage.

    In any event, the Nokia case is both notable and remarkable – and you really did a fabulous job of telling it.

  • http://www.staska.net Staska

    Thanks. And regarding the iPhone and early Android price – yes that is a glaring difference from most of the disruptions we saw before. 

    But in U.S., with carrier subsidies, price wasn’t such a big issue. And the new iPhone/Android greatly expanded the accessibility of the mobile computing functions to everyday users. Before that, only hard core/very technical users were able to access them  

  • aph

    Although this article has many valid points, a few points need correction. 
    The claim that Apple and Google are “ahead of the game” by developing an NFC-based payment infra structure is incorrect. Nokia had a trial with this in London (with O2) 3 years back. (http://www.mobilemarketingmagazine.com/content/o2-launches-major-london-nfc-trial) In the same period other payment trials were ongoing (http://conversations.nokia.com/2011/04/04/making-close-contact-with-nfc/?mobile). For some reason the trials did not evolve into large-scale deployment (user acceptance? service provider?) but the technology was there. The “Nokia money” system for the emerging markets is operational (but is done with “old” technology)Nokia has also mobile – device products. One example is the Nokia Play 360 (loudspeaker, mono or stereo). The N95 could be connected to a external device (OK, via a cable), and the SU-8W was a wireless keyboard for eg. the N75But the main point of your post is correct: Nokias problems are largely due to their obsession with “the best technology possible”, rather than finding a sufficiently good solution that can be deployed.

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    > (price) is a glaring difference from most of the disruptions we saw
    > before, But in U.S., with carrier subsidies, price wasn’t such a big
    > issue.

    You know – that’s a really good point. If price sensitivity is low Then the reduction in price isn’t as necessary for the disrupter to be able to gain momentum because even though they aren’t selling as many as disrupters typically do, they are making a lot more money (than a disrupter typically would) on each unit sold.

    > And the new iPhone/Android greatly expanded the accessibility of the
    > mobile computing functions to everyday users.

    Indeed, another clear indication of disruptive techoology.
    What can I say except that this is/was a very adept analysis
    Great work – Thanks again.

  • http://twitter.com/quadratschaedel Jan

    I just stopped purchasing my first Android (HTC Desire S) and stick with Nokia (still E72) till fall. 
    Sometimes it seems to be like the STAR WARS Trilogy: First there was “A new Hope” (Maemo), then came the moment of “Empire strikes back” (WP7) and now there might be “The return of the jedi” (Meego) 
    Fortunately a contract lasts 2 years and putting myself in bed w/th the very evil empires of Apple or Google hasn’t been a tempting option all over the time.

    They all say, it’s about the “eco-system”, (for developers this might be true) but don’t underestimate the  values of trust ;)

  • Anonymous

    Excellent recap on the disruption of Nokia. At the article’s end, though, you offer glimpses of hope for Nokia in the price sensitive, and data starved low end markets. I believe that hope is misguided. The sheer volume and economies of scale will insure that even smartphones, nay handheld computers of Android descent will be available at dumbphone prices. And data networking equipment pricing collapsing will shortly lead to very cheap and affordable data plans for even cost-constrained markets. When price & availability are no longer an issue, will dumbphones be able to compete against their smartphone competitors? This is exactly the future choice that will be presented to everyone. Only the computer-based companies have a role in this future.

  • http://www.staska.net Staska

    Thank’s, but it seems that you completely missed my point at the end of the post. 
    Yes, Moore’s Law will bring about drop in prices and increase in computing power to smartphones. But that does not matter in mobile. Because the amount of data you can deliver over the air is a ridiculously small fraction of what you can deliver over even a single fiber. There are some hard physics limit for this that is called Shannon’s Law or smth (have to read up on that). Just read MIchael Mace’s take on it, a guy who has been there, done that, and knows a lot:

    http://mobileopportunity.blogspot.com/2011/06/who-will-pay-for-mobile-data.html
    http://mobileopportunity.blogspot.com/2011/06/truth-about-wireless-bandwidth-crisis.html
    http://mobileopportunity.blogspot.com/2011/06/how-to-shape-mobile-data-market.html

    The thing is – while data networking equipment prices may be collapsing, wireless data delivery prices are not collapsing and will not collapse anytime soon. There’s just not enough spectrum. Those prices (with tiered data plans from AT&T and now Verizon) are already creeping up.

    And iOS and Android may find a solution. But right now they are extremely poor equipped to respond to the challenge where they aren’t connected and won’t be connected anytime soon

  • Tomchr

    I agree that android smartphones maybe in the range of 70-80 dollars will shift featurephone segments towards true smartphones. But some segments will stay, at least as long as the power consumption on the smartphone platform are reducing operating time to at least half compared to the feature phones. I also believe that the rapid growth in data consumption by smartphone users will increase, or at least sustain prices. It is not only about equipment prices, but also licence cost and not to forget telcos beeing the largest tax contributors inseveral emerging markets.

  • Mullenjl

    Rick / Staska-

    Re:  “HTC also owns a remarkable bit of this same tapestry in that it took the
    cue from the iPhone and lauched a series of phones with comparable
    philosophy – but did it in the CDMA world…”

    HTC was /is very prominent in 3GSM / WCDMA as well, with virtually all of their devices enabled by Qualcomm’s Snapdragon integrated platform (baseband + Applications Processor–CPU/ GPU).

    Your thoughts on HTC’s remarkable success and Snapdragon’s / Qualcomm’s role (Global carrier support, etc) ?

    Thanks-  Jim Mullens

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Hi Jim,

    I was attracted to this blog by way of the discussion pertinent to Disruptive Innovation rather than actually knowing anything about cellular phione technology, and given that @Staska has an excellent grip on both the technology and the principles of Disruption (al la Christensen), I’m going to defer to him for the most authoritative response.

    I will say that by far the greatest degree of error that occurs in analyses of innovation is mistaking sustaining innovation for disruptive innovation – and the first place to look to differentiate one from the other is not in the technology, but rather in the business model. If HTC as an incumbent adopted 3GSM/WCDMA in order to gain competitive advantage over its industry peers (and particularly if it’s contemporaries responded by adopting something similar or something that would offset the advantage) – it is (very much) most likely that the innovation is of a sustaining nature – meaning little if any change should be expected in the way the technology is brought to market.

    The reason that’s important is because if you can anticipate success in Disruption (per the Christensen protocol), you can also expect fundamental structural change in the industry as a whole and the way it interfaces with all other productive systems. An example would be in the discussion that just transpired between @crunkykd and Staska regarding mobile bandwidth (and or the lack thereof). If the technology of how much data one can stuff into a frequency gradually advances, or even if it advances greatly, but in a way which can and is adopted by incumbent carriers, the innovation is sustaining and you’re not likely to see any of the existing carriers go out of business save for their making some sort of serious strategic error, but even then, it would likely that only that particular carrier would suffer. If, however, some relatively straightforward means OUTSIDE of caching or compressing or otherwise stuffing more into the existing bandwidth were to be developed which would provide the desired results of having unlimited bandwidth (without actually having it or paying for it), the industry associated with carrier-based data delivery could be expected to change dramatically – and the longevity of existing (incumbent) firms depending on that market would be very much in question.

    Thanks for your attention – we now take you back to your regularly scheduled programming.

  • Radiomyk

    Excellent piece. I would offer that the original Disruptor to Nokia/Europeans taking over cellular leadership, invented at Motorola, was the American company that recognized by late 1988 the possiblities of mobile wireless computing, and that TDMA-based GSM was woefully inadequate for the challenge: Qualcomm.  They managed to plow past such obstacles as a Stanford professor saying that CDMA defies the laws of physics, being sued over the invention/essential patents for CDMA by Ericsson and ridicule by major tech media and players around the world.
    –From near “Wireless Valley,” San Diego
    Radiomyk

  • Mullenjl

    Hi Rick

     

    Re: 
    “ I was attracted to this blog by
    way of the discussion pertinent to Disruptive Innovation rather than actually
    knowing anything about cellular phione technology, and given that @Staska has
    an excellent grip on both the technology and the principles of Disruption (al
    la Christensen), I’m going to defer to him for the most authoritative response.”

     

    Thanks for your comments and
    hopefully Staska will comment further on Qualcomm’s contributions in “disrupting”
    the mobile wireless industry.

     

    A side note re: Clayton Christensen-

      

    Back in the day (early 2000’s ??) , I was listening to an analyst’s CC
    with Clayton Christensen
    discussing his disruptive
    innovation theory, surprising to me, both the analyst & Clayton were
    suggesting cell phones had reached the “good enough” plateau. I was even more
    surprised when I got in the queue to ask a question—

     

    Challenging the analyst’s / Clayton’s “good enough” with the future
    vision of using a cell phone to stream live a video of a kid’s soccer game to a
    grandparent …. Somewhat “disrupting” Clayton’s / the analyst POV that the cell
    phone could do everything needed … “good enough”.   As Clayton started to answer the analyst
    immediately jumped in stating they had reached their time limit and cut off the
    CC.

     

    Fast forward 10 years (??), the “cell phone” (hand held devices) has
    continued to add functionality at a remarkable pace following Qualcomm’s vision
    of an always with you / always on “computer “ w/ internet access with robust mass
    market acceptance in both developed and developing markets.

     

    Wonder if you can share your thoughts on the “good enough” aspect of
    Clayton’s theory?

     

    TIA-  Jim Mullens

     

  • http://www.staska.net Staska

    I don’t see neither HTC nor Qualcomm as the key to the whole Nokia/true mobile computing disruption. And certainly not CDMA. 

    HTC is just one of the smartphone mobile phone vendors who saw the disruption coming and bet on it heavily and is now reaping the benefits. You can say that HTC is the best managed. maybe even the most visionary among current smartphone vendors, but it still is just one of many hardware makers.  Motorola bet heavily on Android too, as did Samsung, Sony Ericsson and others.

    Even the first breakthrough Android device – original DROID came not from HTC but from Motorola. But it’s success was much more related to the huge backing and promotion it received from Verizon and quality of second generation of Android software, then anything Motorola or HTC produced. 

    As for Qualcomm – it’s also just one of chip makers, and other chip makers like TI, Samsung ST Ericsson, etc; were doing similar things and, in the end – these chips from all these vendors are pretty much interchangeable.  And iPhone got to were got to the top without any help from Qualcomm. Yes, they started using QC chips now, and CDMA iPhone, and it’s given them a nice bump in sales in USA, but that’s about it. iPhone prior to 2010 proves that QC was not in any way necessary for the disruption to occur. 

    And CDMA had nothing to do with a disruption at all. There are some things that CDMA does better, and there are some things GSM/UMTS does better. But, from a global perspective, GSM/UMTS have won 2G and 3G data standard wars long ago and CDMA is now a dead end technology with no continuation path. Even it’s strongest supporter – Verizon in USA- has given up and is now moving to LTE – which has evolved from GSM/UMTS/HSPA and not CDMA.  

    And if you’ll notice, the disruption actually started on GSM/UMTS networks (AT&T in USA), first Android phone also was launched on GSM/UMTS network (T-Mobile), and majority of Android phones are now runing on GSM/UMTS networks around the world.  

    The disruption in mobile that happened in mobile over the last 4 years was about software. Underlying chips and data transmission standards have very little to do with it. Except for enabling the software run well enough to be able to do those disruptive things. But there were a lot of these underlying hardware suppliers, and it does not really matter who won or is now winning the game. Just as it did not matter who supplied CPU’s, RAM and hard drives for Apple II, Mac or PCs at the time. Or whether Compaq or Dell or IBM won the mini/mainframe computing disruption game.  

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Hi Jim and thanks for writing back,

    Sorry to hear that Christensen was not given the time to answer your question ‘back in the day’ and very pleased to have the opportunity to give it a shot in his stead.

    Cell phones offer an ideal opportunity to explore this aspect of Disruptive Innovation in that they have never become the equal of land-lines in a number of (well recognized) respects, one of which is call quality (“Can you hear me now?”). They also can’t be enrolled in the 911 emergency response system, they can’t be equipped with extensions (that is, you can’t have more than one with the same number, so you can only use one unique phone to call or answer on a particular number), you can’t look them up in the White Pages, their use is believed to contribute to brain cancer – and the list goes on.

    And – when they were first offered, they didn’t do anything other than make and accept calls, just like the land lines they were destined to disrupt. Despite their flaws, market reaction clearly indicated that they were “good enough” to be used in the place of specific land lines (such as pay phones) in the event of an mobile emergency or while engaged in a encounter that where input and/or response from a remote source (perhaps one’s manager) in real-time was either either a necessity or at least highly advantgeous.

    Between then and now, cell phone cameras (although they’re really not very good) have been ‘good enough’ to induce people to defer (or even cancel) plans they may have had to purchase a standard stand-alone camera, and the camera-industry hasn’t been a part of that, so there’s a more recent disruption to use as an example.

    Jumping forward to today, cell phones are ‘good enough’ to use to do many things that we might have ordinarily looked to a computer to do in the past, such as get and send e-mail, check calendars, and browse the internet. So it should be pretty easy to guess what item and industry cell phones are in the process of disrupting.

    “Good enough” really is a function of how the market responds to a product offering, and if displacement occurs as it has in the examples above, and the incumbents doesn’t pre-empt the transition (and I can’t think of a single example other than perhaps the Intel celeron chip where they have), the potential for disruption becomes significant, if not imminent.

  • Mullenjl

    Thanks Rick for your quick reply and continuing conversation.  Searching my archives, the CC was back in
    2002 with Peter Friedland ( W R Hambrecht) — “The Commodization of Wireless
    Handsets”.  Friedland was using Clayton’s
    theory to advance his premise that “handsets have reached the stage where
    differentiation will be difficult because current functionality meets or
    exceeds customer needs.

     

    I challenged Friedland’s premise and believe you would agree that with
    the past / future robust growth in cell phones (hand held devices) the
    functionality back in 2002 certainly did not satisfy the consumers thirst for
    added features / functionality with continual upgrades. 

     

    I was not at that time viewing it from the disruptive respect to land
    lines, rather suggesting that the cell phone of 2002 had barely scratched the
    surface of what it eventually would morph into and that the consumer would
    continually demand more features / functionality as technology advanced.

     

    At that time I believe Clayton was about to respond favorably to my
    point of view,  when the CC was abruptly
    ended.

     

    Looking at some old (2002) notes – disruptive  list

     

    Digital video recorder

    Digital audio recorder

    Digital camera

    Mp3 player

    FM stereo radio

    Mini tv

    Game boy

    PND- GPS navigation / maps

    Compass

    Walkie/talkie

    Coupon dispenser

    Credit payment device

    Mini computer

    High speed wireless connectivity device- replacing DSL

     

    Thanks again for the interesting conversation—-  Jim    

  • JeffreyHF

    Excuse me? It was CDMA that allowed GSM/EDGE to get past the inherent limitations of TDMA technologies, and their unsuitability for the world of high speed data. That is why CDMA is the air interface for UMTS/HSPA technologies, and only became possible by Qualcomm’s disruptive innovation. To call Qualcomm just another silicon provider, is to completely revise the history of the wireless Holy Wars. There is only one reason why Nokia paid Qualcomm $2.5 bil in cash, gave them a complete cross-license, gave them numerous patents from many patent families, and agreed to pay ongoing per unit royalties to Qualcomm for a 15 year deal, and it has nothing to do with CDMA2000. All CDMA flavors – WCDMA (UMTS/HSPA), TD-SCDMA, and CDMA2000 – are covered at the same rate, as are all 4G technologies.

  • http://www.staska.net Staska

    Ok. I’m only vaguely familiar of the patent/technology wars between Nokia and Qualcomm, and I know Nokia lost them to Qualcomm. But it’s obvious now that I don’t know enough about the underlying technology issues and shouldn’t have ventured there   with my layman’s take on it. 

    However – from the disruptive change/innovation POV, this does not change much. Even if Qualcomm invented most of the underlying high speed wireless data transport technologies, these technologies themselves and wireless networks didn’t disrupt anything.  

    Sure, they have enabled the disruption wrought by Apple and Google to happen. But it was software/business models/services built on top of them that caused the actual disruption. Just like internet itself (TCP/IP) did not disrupt music business, it was Napster and P2P file sharing software enabled by broadband internet that disrupted it.   

  • Mullenjl

    Staska,
     
    Re: “…these technologies (3G/ 4G- high speed wireless data) themselves and wireless networks didn’t disrupt anything.  
     
    Sure, they have enabled the disruption wrought by Apple and Google to happen. … But it was software/business models/services built on top of them that caused
    the actual disruption. “
     
    Thanks / OK, good you conceded on not knowing enough about the “underlying technology”.  However, it seems to me the “disruption wrought by Apple and Google” would not have seen the light of day without first the disruption enabled CDMA based wireless technologies ….high speed wireless data.
     
    Re: “As for Qualcomm – it’s also just one of chip makers, and other chip makers like TI, Samsung ST Ericsson, etc; were doing similar things and, in the end – these chips from all these vendors are pretty much interchangeable.”
     
    I’m also guessing you may not be too familiar with the differences in the “chip makers”, and why Qualcomm has surfaced to be number one in both baseband and application processor revenue… Qualcomm’s unique integrated (BB / AP) solutions and the fact that the software solutions embedded in their chips constitute well over 70% of the chip’s composition.  Another little known fact regarding the “underlying technology” (multitude of growing air interfaces) centers around Qualcomm’s vast global carrier / handset maker support network (testing / certification) that “the other chipmakers” have great difficulty coming close to matching.
     
    Bottom line, I believe you
    as most others greatly underestimate Qualcomm’s contribution in everything
    associated with mobile wireless today.        

  • Mullenjl

    Staska,
     
    Re: “…these technologies (3G/ 4G- high speed wireless data) themselves and wireless networks didn’t disrupt anything.  
     
    Sure, they have enabled the disruption wrought by Apple and Google to happen. … But it was software/business models/services built on top of them that caused
    the actual disruption. “
     
    Thanks / OK, good you conceded on not knowing enough about the “underlying technology”.  However, it seems to me the “disruption wrought by Apple and Google” would not have seen the light of day without first the disruption enabled CDMA based wireless technologies ….high speed wireless data.
     
    Re: “As for Qualcomm – it’s also just one of chip makers, and other chip makers like TI, Samsung ST Ericsson, etc; were doing similar things and, in the end – these chips from all these vendors are pretty much interchangeable.”
     
    I’m also guessing you may not be too familiar with the differences in the “chip makers”, and why Qualcomm has surfaced to be number one in both baseband and application processor revenue… Qualcomm’s unique integrated (BB / AP) solutions and the fact that the software solutions embedded in their chips constitute well over 70% of the chip’s composition.  Another little known fact regarding the “underlying technology” (multitude of growing air interfaces) centers around Qualcomm’s vast global carrier / handset maker support network (testing / certification) that “the other chipmakers” have great difficulty coming close to matching.
     
    Bottom line, I believe you
    as most others greatly underestimate Qualcomm’s contribution in everything
    associated with mobile wireless today.        

  • http://www.staska.net Staska

    Ok. Maybe I’m missing something but what do you mean by “disruption enabled CDMA based wireless technologies ….high speed wireless data. ” ?  What disruption did high speed wireless data networks caused by themselves? 

    Again, really don’t know much the technical side, but looking from business/disruption perspective high speed wireless data was typical sustaining technology. Incumbent wireless carriers were spending billions on 3G licenses, and then investing billions building out 3G networks and then using those networks to offer us data plans for our laptops via 3G dongles, access to e-mail and limited browsing via pre-2007 smartphones, and building their own walled garden data service offerings like music stores, mp3 ringtones, games and other stuff.  And would continued to do so if not for iPhone.  

    I would even say that 3G wireless networks actually was one of those typical sustaining technologies that overshot, exceeded the real needs of the users and allowed  disruption to happen. After all, as story goes, AT&T was so interested in iPhone exactly because they had this brand new data network coming up, and didn’t see enough demand for the new capacity it had built-out.  

    But 3G networks was only one of such technologies among several. Another one was – mobile CPUs – fast exceeding what was needed for smart phones, (see N95 CPU vs iPhone). Almost all of them running ARM architecture. So did ARM  cause the disruption? No, they only enabled it too. 

    Then we have cheap and small enough RAM , capacitive touchscreens, even Li-Ion batteries, that by the time got to store enough power in a small enough package to run the whole shebang.  A bunch of technologies that overshot at about the same time and exceeded customer needs,  came together for Apple to see the waste/inefficiencies and create a new kind of device. 

    The same applies to QC SoCs – yes – they might be great , better then anyone else’s. Though my guess is that TI and NVidia (now with Icera) and others will dispute that. But SoCs, APs,, baseband chips are sustaining technologies. They were sustaining the old smart phone order. Got too good in the old paradigm, while nobody was paying attention to mobile CPUs and other chippy stuff. Then they enabled disruption, and now are sustaining the new paradigm and reaping the benefits.  

  • Radiomyk

    Rick: 3 responses to your comments:

    RE: “Cell phones offer an ideal opportunity to explore this aspect of Disruptive Innovation in that they have never become the equal of land-lines in a number of (well recognized) respects, one of which is call quality (“Can you hear me now?”). They also can’t be enrolled in the 911 emergency response system, they can’t be equipped with extensions (that is, you can’t have more than one with the same number, …”

    1) I don’t know where you reside, but in the US, people have been abandoning landlines in growing numbers for the past few years. Among young people, few have landlines. I think the last stats I saw were that, nationwide, about 25% of households have dropped landlines and among youth, closer to 50% because in establishing their first residences away from parents’ homes, they just never start landline service. Re call quality, I think it’s more a function of signal strength now that we’re all digital. Dropped calls are a problem at the margins of a celltower’s coverage, but I frequently ask about the quality of my cell calls and most folks didn’t know I was on a cellular device, especially with my Plantronics headset. With global cell subscriptions now somewhere north of 5 billion accounts, I would say that the people have voted, willing to put up with some limitations vs. a wired connection. Many locations in devleoping countries nerver had and never will have wired telephone service, but mobile wireless telephony and comiputing services are reaching the outback.

    2) I know that 911 service policies vary by local juridictions, but in San Diego County, no one has to “enroll in the 911 system.” You simply dial 911 from any phone device. In fact, the SD County Office of Emergency Services has a special reverse 911 program for landlines and cellfones. Landlines are automatically in but we have to call and enroll our cell numbers into this program that automatically calls locations that are being threatened by, mainly wildfires, but any other threat that might require evacuation.

    Cellfones have a huge advantage over wired lines in that, especially starting about 2002 with all cdma2000 equipment, A-GPS has been integrated in all the chips. Before that, the only way a 911 operator knew the caller’s location was from the landline, but from TDMA/GSM/UMTS devices at that time, the caller would have to know their own location or hope that “E-911″ equpment was operational in the PSAP (public service access point) that could try to triangulate the calling location in an urban area. Out in the desert between San Diego and Phoenix, only the circular footprint of an individual celltower becomes the search area for the caller. I certainly would not have liked to have had TDMA-GSM/UMTS service back then, hanging upside-down from my seatbelt after I had dozed off and rolled off into the desert and try to explain to a 911 operator where  I was. Triangulation (3-towers seeing my signal) in urban areas could be accurate to about 100-200 yards. In the desert, the radius of a tower on a high spot might be measured in miles, especially at 800Mhz. Qualcomm pioneered much more accurate, assisted GPS, which has recently become more common, especially in Qualcomm’s own ~50% share of UMTS (WCDMA/HSPAx chips.

    The advantage of A-GPS for 911 calls was  dramatically shown in its early days when a woman called to say her house was on fire, but when she gave the operator her address, the operator said that the GPS co-ordinates sent by her cellfone showed a different location. The caller had recently moved and in the excitement gave the operator her previous address.

    3) While you’re right that cellfones normally don’t have “extentions” to other devices, here’s a description of a system by Panasonic that helps:  “The Panasonic KX-TH1212B DECT 6.0 Expandable Bluetooth Cell Link Coverage Telephone System is a wireless cell phone accessory that allows you to make and receive cell phone calls at home, with a stronger signal and a more comfortable handset–without draining your cell battery. By using Bluetooth technology to link your cell phone to cordless handsets around your home, you can make and receive cell phone calls anywhere in your house with comfort and clarity. Best of all, no land line is required. ( http://www.amazon.com/Panasonic-Expandable-Bluetooth-Enabled-System-Handsets/dp/B00138AJPO/ref=sr_1_15?ie=UTF8&qid=1309210024&sr=8-15 )

    Cheers,
    Radiomyk

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Radiomyk – thanks for writing.

    I don’t disagree that cell phones have disrupted the land-line telephony business (which is precisely what is being reflected by the number of land-lines decreasing while the number of cell phones is increasing). And I certainly don’t disagree that cell phones can (today) do all kinds of things that a land-line phone cannot. Heck, modern cell phones do things many computers cannot!

    But if you read the context, there are 3 points which are critical. One is that our discussion was specifically about the meaning of “good enough” in the context of disruptive innovation by cellular telephony. It wasn’t a comprehensive comparison of cell phones vs land-lines.

    Second, the context of the discussion was set in the early 2000s, when land-lines were still predominant (in the US) and cell phones were more of a luxury than a necessity. At that time, cell phones, which could claim portability as their only advantage (amongst many disadvantages, of which I only mentioned a few) still made enough headway in the market because they were “good enough” for certain purposes. Being “good enough” is essential for a disruptive innovation to get and maintain traction fo ongoing development, and development is key for a disruptive innovation to grow in capability such that it can eventually overwhelm the incumbent (in this case, land lines).

    The third important point (in the context of which I brought up call clarity, 911, and the ability to have extensions) was that one technology does not have to replace all of the functionality of the incumbent technology in order to disrupt it. It just has to be “good enough”. In this case, the clarity of a land-line is still the gold standard, 911 works automatically when you have a land line, and you can have an extension of each line in every room of your home or office – as well as the garage, if you wish. (Although there are wireless networks desgined to create extensions for your cell phone at home, unlike land-line extensions, they remain dependent on the cell phone for functionality. With a land-line system, if an extension fails, you simply unplug it and plug in (or just go to another room to use) another one. If, on the other hand, you drown your cell phone, none of your ‘extensions’ will work.

    Thanks again for writing – I hope this helps indicate that we actually agree about the current trends and relative functionality of different telephony technology - and also provides an improved understanding what (and why) ’good enough’ means in the context of disruptive innovation.

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Radiomyk – thanks for writing.

    I don’t disagree that cell phones have disrupted the land-line telephony business (which is precisely what is being reflected by the number of land-lines decreasing while the number of cell phones is increasing). And I certainly don’t disagree that cell phones can (today) do all kinds of things that a land-line phone cannot. Heck, modern cell phones do things many computers cannot!

    But if you read the context, there are 3 points which are critical. One is that our discussion was specifically about the meaning of “good enough” in the context of disruptive innovation by cellular telephony. It wasn’t a comprehensive comparison of cell phones vs land-lines.

    Second, the context of the discussion was set in the early 2000s, when land-lines were still predominant (in the US) and cell phones were more of a luxury than a necessity. At that time, cell phones, which could claim portability as their only advantage (amongst many disadvantages, of which I only mentioned a few) still made enough headway in the market because they were “good enough” for certain purposes. Being “good enough” is essential for a disruptive innovation to get and maintain traction fo ongoing development, and development is key for a disruptive innovation to grow in capability such that it can eventually overwhelm the incumbent (in this case, land lines).

    The third important point (in the context of which I brought up call clarity, 911, and the ability to have extensions) was that one technology does not have to replace all of the functionality of the incumbent technology in order to disrupt it. It just has to be “good enough”. In this case, the clarity of a land-line is still the gold standard, 911 works automatically when you have a land line, and you can have an extension of each line in every room of your home or office – as well as the garage, if you wish. (Although there are wireless networks desgined to create extensions for your cell phone at home, unlike land-line extensions, they remain dependent on the cell phone for functionality. With a land-line system, if an extension fails, you simply unplug it and plug in (or just go to another room to use) another one. If, on the other hand, you drown your cell phone, none of your ‘extensions’ will work.

    Thanks again for writing – I hope this helps indicate that we actually agree about the current trends and relative functionality of different telephony technology - and also provides an improved understanding what (and why) ’good enough’ means in the context of disruptive innovation.

  • Radiomyk

    Hi Rick:

    You’re right. I wasn’t dealing at all with the original issue of diruption and the “good enough” concept. Part of the reason I explained my points is that this seems to be an international forum but, as one would expect, not a lot of personal experience with the original wireless Holy Wars during the 1990s over whether TDMA/GSM would become a total global standard or if cdmaOne would make it past a single commercial opearion in Hong Kong.

    Even in the US, most media brokerage analysts write as though CDMA is only used by Verizon and Sprint and a few small cellcos in Asia. One almost never sees mentioned that all 3-4G use Qualcomm’s technology, whether WCDMA (UMTS & HSPA are maketing terms, not technologies), TD-SCDMA and even Sprnit’s WiMAX kit also must contain cdma2K/3G parts in order to function where WiMAX isn’t deployed. I don’t expect GSM/GPRS/EDGE to last much longer because the cellcos know that that stuff uses way too many resources and they can’t sell serious data services to 2G subs. A cellco will get a nice boost in network capacity by ending sale of 2G kit and making nice offers for subs to switch to 3G kit (xCDMA). I’m just trying to explain things I seldom see mentioned regarding the technology and standards.

    One of the most common errors I think I saw recently somewhere here, is that UMTS is based on GSM. I think I also saw smoeone write that LTE is also based on GSM, when neither UMTS (wideband CDMA), nor LTE, OFDMA) have anything to do with the underlying technology of GSM, which is TDMA. Even including the mention of GSM with smartfones/PPCs (pocketable PCs) and 3-4G is kind of silly because there’s no such thing as a GSM smartfone/PPC. 2G just doesn’t. GSMGPRS/EDGE are legacy technology that is much like analog and TDMA-only networks that AT&T WIrleless hung onto for way too long in the 21st century.

    Sorry Rick, I’m not aiming this at your discussion and I know I wanderd off your points. I’m just looking for clarity. A good source that covers cdma2K, WCDMA and LTE, globally, is http://www.cdg.org.

    Alles guete, Herr Mueller,
    Radiomyk

  • Radiomyk

    Here is a short list of cdma2000 facts from http://www.cdg.org that some readers here might find surprising.

    I stand corrected. Years ago, this site included data on WCDMA deployment, but no longer seems to. www.gsm.org is the go-to site for the GSM-centric.
    Radiomyk

    Quick Market Facts
    323 commercial operators 123 countries/territories 310 commercial CDMA2000 1X networks 120 commercial 1xEV-DO Rel. 0 networks 122 commercial 1xEV-DO Rev. A networks 3 commercial EV-DO Rev. B networks 574,935,000 CDMA2000 subscribers (4Q 2010) 162,588,000 CDMA2000 1xEV-DO subscribers (4Q 2010) 2,730 devices have been introduced in to the market(as of June 20, 2011) View a full list of CDMA2000 Market Statistics (hot at liink)

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Hi Radiomyk and thanks for explaining all of that. It does (despite my complete lack of any meaningful background in cellular communication technology) help me to understand a little more of what I see and hear. (And from what you’ve said, it doesn’t sound as if the analysts know much more!)

    I would think that the matter you’ve spoken of (appears to me to be a rather widespread misunderstanding of the nature of high speed cellular communication technology) is important in its own right as thus probably deserves its own thread, Perhaps you might prevail upon Staska to initiate such a discussion by posting an article on the subject (perhaps you can help co-author)?

    Hope this helps and look forward to hearing (perhaps here) of your success in that regard.
    Thx again & take Care,
    Rick

  • http://twitter.com/WaltFrench Walt French

    Very fine narrative; thanks! So much of it agrees with other info that I have, that the new points you make carry more weight.

    I’ll just point out that “Google – quickly pivoted their own mobile efforts and now started working on a real computer instead of a smart phone for your pocket” seems a bit of a mischaracterization. By other accounts, their original business plan was to disrupt the Microsoft WM model of an inexpensive OS on multiple OEMs’ hardware (with a FREE OS). Why bother? The entire reason for Android’s being was to keep Microsoft from disrupting the ad channel from which Google gets all its revenues. Google’s mobile efforts have ALWAYS been about providing a way for their advertisers to reach mobile consumers.

    Google’s fast pivot was the realization that a touchscreen was obviously going to capture the majority of mobile computing, and their exceptionally quick adaptation to that UI.