CUPERTINO, CA - SEPTEMBER 10: Apple Senior Vice President of Worldwide Marketing at Phil Schiller speaks about the new iPhone 5S. The 5S comes in three colors and contains an A7 chip. (Image credit: Getty Images via @daylife)
If business 2.0 was largely about dealing with the consequences of a more user-driven web, business 3.0 is about mobile and the need to exploit or respond to an Internet where many more “things” communicate. It is partly about an Internet “beyond people” and also the emergence of much more capable smartphones and how they may or may not dominate a device economy.
But crucially, in such a connected world, it is about business ecosystems. This week we learned more about ecosystem strategy from Apple’s titanic battle with Google and Samsung.
The smartphone industry is driven by business ecosystems. Business ecosystems are a phenomenon we don’t talk about much – well, we refer to them. The Apple ecosystem or the Android ecosystem. But we don’t do a whole lot to understand the dynamics of these revolutionary business processes. If we treated accounting or supply chain to as little analysis we’d be asking why.
The device age, the Internet of things, goes hand in glove with business ecosystems. Together they matter to every business because in order to enable transaction you need partners, a payments part (more than one), apps, an app platform, some dependence on APIs to one or more additional platform, services buried within services (my XBox is buried within Netflix, or is the other way round?), all, increasingly, connected to the phone.
Business strategists now need to wake up to the device age, when most business transactions will be accomplished through a device of some kind. They also need to start thinking of how their ecosystems stack up competitively against those of their competitors. What is our ecosystem strategy , should be a question for any CEO.
We’ve had competitive ecosystems for a while. In mobile that now means Android vs iOS vs Windows. In other sectors the idea of ecosystems is not as developed but the points of comparison are interesting, if only to flesh out the idea that this is a new “process”.
You might count Forbes’ contributor community as a content ecosystem that is competitive with that of the Huffington Post or the New York Times’ blogger community.
Forbes seems to have a better incentive system than its competitors and that is one reason why its visitor numbers have grown so quickly. Beyond that Forbes is continuously developing additional features for its site.
Content ecosystems are interesting. They are evolving. Incentives are a major factorBut I’d still contend that this week we saw ecosystem strategy notched up a level by Apple. Content ecosystems like Forbes and Huffington Post are much simpler entities. The smartphone sector is more complex and there is more to learn about competitive strategy from them.
So what happened this week that other executives can learn from? Apple’s introduction of the 64 bit A7 processor has allowed Apple to take back the competitive initiative from Google.
Processing power might seem like a technological contest similar to Samsung’s use of larger screens – a move that has left Apple looking outdated. But that is Samsung doing battle with Apple. Samsung makes better displays than Apple (of course, correction…. Apple does not actually amke the displays and I should be saying “better displays than Apple uses”). Company v company.
The processor upgrade is ecosystem vs ecosystem.
It matters to all the companies around iOS and Android. And that’s one takeaway for executives outside smartphones. Ecosystems can play off against each other. They are like systemic battles rather than just company v company.
The possibility of a 64 bit smartphone has been around for two years, yet Apple still seems to have blindsided Google. Android is not ready for 64 bit, iOS 7 is. To get to the next level Google needs to collaborate with Oracle owner of JAVA, as well as to do its own redevelopment work. The first is an uncomfortable prospect and it will take time; the second is just a matter of time but time is of the essence.
Meanwhile Apple arch-rival Samsung says it will incorporate 64 bit processors in its next top-end Galaxy smartphones. That has several implications. If Google is not able to organize its ecosystem quickly enough to enable Samsung, then one effect could be to delay the launch of the next generation of Galaxy phones, the Galaxy 5, and force Samsung onto a longer innovation cycle, taking away one of its main competitive advantages.
There are arguments over whether the extra processing power matters right now – many commentators say the apps just aren’t there for it, so before it gives Apple any significant market advantage Google and its partners will have caught up. But I think that is to misunderstand the strengths and weaknesses of the respective ecosystems.
The most important Android smartphone vendor is Samsung. And Samsung relies on being the new innovation leader. It is central to its own self-esteem, and to the culture that its executive team have created over the past decade. The company’s brand identity is that of an upstart that has shown the former kings of innovation at Apple how to get things done. It has created an incredible pace of innovation with, for example, 5 Galaxy S4 models launched within two months in Q2.
It is hard to imagine Samsung’s leadership team are not seething at being left behind in a core area of technology. They announced their own 64 bit processor plans the day after Apple but they are dependent on Google to get it done. Arguably the ecosystem leader is letting Samsung down and Samsung has immediately gone public with a statement that it will not let this happen.
So back to the A7. While some commentators have said there is little need for it yet, Apple’s invaluable asset is its developer community. And they along with many in the fan community have been bemoaning the lack of breakthrough innovation at Apple in the past year. Now they have a lead over their rivals. They can bring their own creativity and ingenuity back into play, seeking ways to use the extra processing power and the dedicated context chip, the M7.
That is what the Apple ecosystem is about, attracting first rate developer community and creating opportunity for them. Google has had an enviable lead in the past year or so, some argue because of its greater openness and accelerated development and design in the Android OS. But it has also relied on the substantial marketing muscle of Samsung, now the world’s largest handset seller. In the battle of the ecosytems Samsung suddenly looks like a laggard.
What are the lessons? Business ecosystems exist in other sectors. Content ecosystems like the one at Forbes are strategically underdeveloped. They actually stem from the Creative Commons movement. It is difficult to conceive of writer communities like HuffPo and Forbes existing if Creative Commons had not established new principles for copyright sharing.
That type of community is evolving now in hardware – take a look at the Autodesk hardware communities and the development of open hardware at GrabCad. Autodesk is anticipating similar developments in biological science.
From my own research I know that train makers are looking to go the same route. There might also be a new classification of company – C2C companies that set aside some competitive factors to collaborate on IP for new products and new open standards in transport and in telecommunications infrastructure. And “hybrid” ecosystems exist in areas like car manufacture, tiered supply chains, software developments and fuel distribution (petrol v electric v hydrogen fuel cell).
We’ve a long way to go in understanding how they function competitively, and how executives can best manage choices within them, but smartphone ecosystems lead the way. Apple this week created a whole new set of options. Options development, like incentives, is a key ecosystem management tool. The big lesson though is that ecosystems are competitive entities with a relatively unstable environment. You can lose your footing very easily. Creating options is the key.
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