Sunday, 28 June 2009

More and more for Less and less

(By Richard Holway 1.00pm 28th June 09) “More for Less” has been one of our slogans for all of the current decade. I am constantly amazed, not just at the wonderful new products I can buy, but also at how ‘cheap’ they are compared with just a few years back. The new Acer Aspire One, on which I am typing this on the A380 on the way to Oz, is a case in point. An amazingly powerful machine weighing in at just over 1kg and costing just £299. With it I carry my iPod Touch which I think is one of the beautiful pieces of kit ever invented. And it too costs <£200. My new Nokia phone was given free when I renewed my Vodafone contract for another 12 months. It has a digital camera which is more powerful than my first digital camera bought 10 years ago for over £500.

I was reminded of this good fortune by an excellent article - Apple’s network helps prevent a fall - in the FT on 25th June 09. John Gapper reports on a study by Deloitte which found that the return on assets at US companies had fallen steadily since 1965, from c4% to c1%. It’s consumers that have gained from this and the losers have been shareholders. The report also makes the point that, as returns on assets have fallen, those with scarce skills have gained at the expense of the low-skilled.

So we are truly blessed. Hotviews readers tend to be those ‘knowledge’ workers with ‘scarce skills’ who have done very well out of this change. On top of that, we all get cheaper and more wondrous gadgets!

But maintaining both high margins and high ROI is not an easy trick to pull off. Apple is a rare example. They have never willingly competed on price or wanted market share in a commodity market. Both Acer and Nokia have. In Nokia’s case, not to their shareholders advantage. Another point that the Deloitte study makes is that to succeed, companies have to ‘adjust the terms of competition’. They have to know when to compete and when to collaborate.

Personally, I think we entered the ‘Age of Partnership’ at the start of this decade too. It certainly has been the case in IT Services where consortium bids have become the norm. The same applies in both hardware and software where no new product is the result of just one company’s work. There are so many examples. Eg Apple uses WebKit software at the heart of its Safari browser and Imagination Technologies graphic chips in its iPods.

Apple has now taken this collaboration to a new level. iTunes was the killer app for the iPod; providing the first viable collaboration for digital downloads between the record producers and the consumer. Nobody has so far been able to compete with that ‘first mover advantage’. Apple is doing it again with their Apps Store. At a stroke, the 50,000 iPhone apps makes it extremely difficult for entrants (like the new Palm Pre) to compete. (I've just discovered that my 4 year old Ozzie grandson Euan seems to have most of these on his iPod Touch!)

Microsoft achieved something similar in the first decade or so of their ‘reign’. The sheer amount of ‘collaboration’ around Windows (ie the wealth of third party software available) made it extremely difficult for competitors to break in. But, just like Apple, Microsoft jealously guarded the ‘secrets’ at the heart of their product and that enabled both Apple and Microsoft to maintain both margins and ROI.

It’s a difficult trick to pull off. Even more difficult to pull it off again and again over many years; something that Microsoft is currently finding.

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