Is Samsung the next Sony or next Apple?

Tonight I ended another quarter teaching MBA again at my alma mater, the second time teaching IT innovation strategy this year. There isn’t a great fit of the topic to my current employer, so it’s nice to be able to moonlight (with permission) to revisit the course I created at UCI more than 13 years ago.

The students did a number of final projects, and since I’ve been too swamped to blog here (while rarely blogging at my academic blog) — I thought I’d share a few observations here.

One topic that hit me near the end of the last class is that Apple sort of looks like the next Sony. Sony was the great consumer electronics innovator of the 1960s through the 1980s (Trinitron, Walkman) that failed to keep up its innovation as the rate of technological change and is now losing money badly in a commodity business. So with Steve Jobs gone, I have been wondering if Apple will also slow its rate of innovation and become an undifferentiated premium producer in a commodity business.

But my students suggest that however quickly Apple becomes a commodity producer, Samsung is getting their first. 2014 has brought various headlines about how Samsung’s smartphone market leadership is producing losses not cash cows.

By offering slightly nicer Android phones, Samsung is competing within a standard rather than between standards. So while Americans will pay a premium for minor improvements, developing country Android buyers are quite happy to buy Xiaomi, ZTE, Huawei, or some other generic brand.

Samsung does compete in some capital-intensive markets with high entry barriers, but (as with the DRAM of the 1980s) such businesses are prone to commodity price wars. Samsung’s attempt to create unique technology (notably Tizen) has failed: they are a long way from being the next Apple. It has a high rate of R&D spending but not a high rate of R&D outcomes.

Quoting from Geoff Moore’s book (a required text), the students recommend that Samsung compete on integration abilities. I think it’s a plausible idea (if they can ever learn to do UI and software) — they have an unprecedented scope of products, and so if anyone (beyond Apple) has the opportunity to do this, they do.

One thing that is clear: Apple is not the next Sony — yet. And this gives me a chance to quote from a newspaper clipping that I set aside a month ago. Here is an excerpt of an interview with CEO Tim Cook:

MR. [Gerard] BAKER: I want to ask about some of the broader strategic questions for Apple. This phenomenally successful iPhone, which continues to churn out extraordinary profits. You’ve got a very high margin, relatively low volume in terms of total share of the smartphone market.

Now you’re about 15%, 16% globally of the smartphone market. That model has been compared to the Mac versus PC model of old. You have these beautiful devices, which you were first with, which people adopted very, very quickly, but which were a smaller and smaller share of the market.

In the end, the Windows model blew away the Mac, in terms of market share. Is that a risk here?
MR. COOK: I don’t think all market share is created equal. Our objective has never been to make the most. We’ve always been about making the best.

The analogy to the Mac isn’t a good one. It’s clear when you look back what was happening in terms of the Mac platform was there weren’t enough apps on the Mac platform. Customers began to leave, because there weren’t enough apps. Look at iPhone and iPad. I get more customer notes than any CEO alive, I’m sure. I’ve gotten zero saying, “You don’t have enough apps on your platform.”

So Cook makes two crucial points. First, for decades its identity and positioning have been about being better, not cheaper. Secondly, there is no evidence (even with Android’s superior share) that Apple has any problems with developer loyalty (at least in developed countries).

But the most important point is the one that he hinted at but didn’t finish: “I don’t think all market share is created equal.” Samsung’s smartphone profits are dropping while Apple’s rise. Every year, I have to remind my students that unprofitable growth destroys value for firms — if necessary, reciting the old adage “losing money on every unit, but making it up on volume.”

So while Sony is losing to commoditization, and Samsung is fighting it, Apple (thus far) is keeping at bay. For now, Samsung looks more like it's trailing Sony 10-15 years behind than it is catching up to Apple.

Information economics on Bloomberg radio

Over the summer, I missed an important new part of Google’s strategy for total world domination. They hired one of the world’s leading information economists: Hal Varian, who spent 8 years as dean of the UC Berkeley information school. The general public knows Varian for his NYT monthly column, but my MBA students know him as the co-author of the Information Rules — the definitive MBA text on information economics.

Over the summer, Varian took leave from his chaired professorship at Cal to become the first “chief economist” at Google. Starting with a sabbatical at Google in 2001-2002, he has worked hard to help Google get even better at data mining:

I had a great time working with them on a number of projects, primarily involving quantitative analysis of one sort or another. For example, I’ve studied the Google ad auction quite a bit and that turned out to be very interesting from an economic point of view. …


During my time at Google we have built up a world-class group of quantitative analysts, and the economics team will complement these existing resources. Google has a great infrastructure for data analysis, and a management team that is very receptive to quantitative methods and willing to invest in this area. So what more could you ask for?

In addition to working on analytics, I’ve also worked on various business strategy and public policy issues, and will continue to do so as the occasion arises. This set of issues will only get more important to Google as time goes on, so I expect that this will also involve a fair amount of my time.

I learned of Varian’s new title when a PR person from Bloomberg Radio sent me notice of its interview with Varian, part of its interview series “Bloomberg on the Economy.” Tuesday’s podcast talks about the economics of data storage (improving faster than Moore’s Law), his new job, Google’s perchance for data experimentation, general macroeconomics. In general, he sounds aligned with Google’s party line (e.g. China censorship, its laissez-faire attitude towards copyrighted material).

The series also had two interviews Thursday following up on Varian’s June 28 column on the allocation of the value from the iPod, based on recent research done by Jason Dedrick, Ken Kraemer and Greg Lindenat the Sloan Foundation’s Personal Computing Industry Center.

One interview was with my good friend Jason Dedrick of UC Irvine, who talked about the allocation of the $150 wholesale price of the iPod to the trade deficit: the money is recorded to the China bilateral deficit, but most of the money gets passed to component suppliers to Korea, Japan, Taiwan. A related interview with Greg Linden of UC Berkeley compared the value flow of the iPod with that for laptops.

Technorati Tags: Google, iPod, UC Irvine

40 years is a long time

Tuesday night I detoured back to Irvine for a retirement party honoring one of my former faculty, Kenneth L. Kraemer, Taco Bell Professor of Information Technology for Management at UCI.

In 1967, with his USC PhD fresh in hand, Ken arrived at the Graduate School of Administration at UCI, two years after the university was launched. The school has gone through two name changes since then: the Graduate School of Management (1980) and the Merage School of Business (2005). Lyman Porter — who also arrived that year — recalled that in the fall 1967 the school grew to 8 faculty and 13 students; one of those first students was John Van Maanen, well known sociologists and qualitative researcher. Today the Merage School has 51 faculty and 850 students.

For almost the entire 40 years, Kraemer headed UCI’s two major IT research organizations: PPRO (Public Policy Research Organization) which later morphed into CRITO (Center for Research on Information Technology and Organizations). CRITO funded my 1994-1996 research on the Japanese computer industry, which lead to one major paper and provided key inputs for Chapter 3 of the 1998 book by Jason Dedrick & Kraemer book. Two years later, Kraemer’s student John L. King was my dissertation co-chair.

Overall, Kraemer has authored or edited 22 books and co-authored more than 150 scholarly papers, as well as many NSF and industry-sponsored research projects. The books (and his major impacts) have including government computing, the Asian computer industry, and global e-commerce. Kraemer (along with the late Rob Kling) is largely considered the founder of the “Irvine school” focusing on the social impacts of computing. As John King (former dean of the Michigan School of Information) noted, this Irvine school has been a major thread in forming some 50 information schools in the U.S.

The most common comment about Ken was “I never thought I’d see him retire.” Speaker after speaker talked about how Ken’s retirement was always 3 years in the future (a constant 3 years, ala the “mañana constant”). Of course, as Ken told me during the reception, he’s not actually retiring. He’s just giving up (most of) his UCI duties to work on his own research, including co-charing the Sloan Foundation-sponsored Personal Computing Industry Center.

Ken honored by many loyal former Ph.D. students. Although my flight home Tuesday night was only to San José, others came from Boston, Ann Arbor, Waco and Denver, as well as two from Canada. We got the students assembled with Ken for a last group shot.
Forty years in academia is a long time, even more so holding essentially one job at one university. Ken has the output and impact reflecting both his long record, but also an intensity that left his younger colleagues in the dust. (John and Jason both agreed: “never try to keep up with Ken.”)

I’d never make it 40 years at anything, except (health permitting) a wedding anniversary. I’ve been working at SJSU for five years, which at least beats my dad (God bless his soul) whose record was four years of active duty in the US Army Reserves (1942-1945). But not my mom, who spent more than 20 years with San Diego City Schools.

Picture: Courtesy of Dr. Paul Tallon.

Technorati Tags: academia, UC Irvine