Innovation Blowback

AlwaysOn Network has an interesting comment by John Hagel:

Innovation blowback refers to a phenomenon that’s occurring in the global marketplace, particularly [in] emerging markets like China and India. My sense is that most companies significantly underestimate the importance of those economies. In part because they’re viewing them simply as a growth market; they’re rapidly growing markets, they help to compensate for lower growth in the more developed economies, and so you ought to invest in those markets.

In fact, that’s only a small part of the opportunity. The real opportunity in those markets has to do with the pressure of very demanding customers who want more value at much lower prices and [who] are forcing product innovation in a variety of industries. It goes across from healthcare, to motorcycle manufacturing, to cell phone and wireless network equipment, where companies are being forced to fundamentally redesign products to deliver more value at lower prices. And guess what? Those products are not just going to serve those marketsthey’re going to blow back into the developed economies and become the basis for attacker strategies against products in these markets. So think about these emerging markets not just as growth engines in their own right, but as a seedbed for product innovation that will provide the basis for attacking strategies here in developed economies.

Apple’s Flash iPod? discusses the possibility:

Apple is widely expected to announce a flash iPod at Macworld in January. But for now, the company has declined to comment.

Today, the flash market overall is larger in units than the hard-drive market, but it’s split among a number of players. The largest share of the U.S. retail market over the past year belongs to iRiver, followed by Rio and RCA. Other players include Nike/Phillips, Samsung and Creative Technologies.

NPD analyst Stephen Baker said that flash will carve out a larger slice of the market, likely forcing Apple’s hand.

“They have to get into it eventually,” he said. “If you look at the reasons for success of the (4GB iPod) mini and the price value curve in flash, at some point soon you’re going to get some flash players with some pretty hefty memory–2GB to 4GB–at price points that are between $149 and $199.”

Flash players, because of their lower prices, have proved more popular overseas than in the United States. Still, Baker questioned whether now is the right time for Apple to enter the flash player market.

“I’m not sure they need to go there now, given that the (iPod) mini’s only been out a year,” Baker said.

The 4GB to 5GB player is an area where the battle between flash and hard drive is likely to be most intense, as flash prices come down and capacities go up.

Resolutions for Microsoft has a list of suggestions for 2005 from Directions on Microsoft:

  • Better detailed, multiyear road maps for major products such as Windows XP, Office and Exchange.

  • Revenue-generating acquisitions. According to Directions on Microsoft, the Great Plains Software, Navision and GeCad buys are not delivering enough fast enough.

  • Better security–“despite laudable efforts by Microsoft, such as drop-everything-else code review, security is still a problem…In fact, the bad guys seem to be winning.”

  • Making the PC a home entertainment hub, not trailing integrated digital-lifestyle approaches that, at the moment, are led by others, notably Apple Computer.

  • Fending off open-source software. This is about server software but now increasingly also about the desktop, in the form of the Linux operating system, the Firefox browser, and and its commercial variants.

  • There are a few others, but no hints for an emerging markets strategy. Arguably, that’s a critical challenge and opportunity.

    Video Games: Big Bets and Big Bucks

    WSJ writes:

    U.S. videogame sales are expected to rise 10% this year to $7.76 billion, according to Wedbush Morgan Securities. That’s not far behind total U.S. box office receipts, which stood at $8.6 billion at the end of November.

    But the fast-growing industry also faces a major challenge: Escalating development and marketing costs are sowing the seeds of an “arms race” that analysts say will intensify as publishers rely more heavily on big releases to generate the lion’s share of their profits.

    The string of big-budget games released for the holidays is expected to put pressure on some of the smaller publishers, who have significantly fewer titles on shelves and may not be able to survive if even one of them stalls…Once the arena of children and hobbyists, videogames are now a big business dominated by a handful of large media firms that are spending heavily on popular franchises.

    Developers now spend upward of $10 million to create their leading games — an unheard of amount just a few years ago — and budgets for some high-profile titles can be much higher. Analysts estimate production costs for Microsoft’s “Halo 2” were about $20 million (a Microsoft spokeswoman says the cost was “less than $20 million,” but declines to be more specific). It’s not uncommon for publishers to spend even more on marketing for a hot game.

    Despite rising costs, hit games are extremely profitable. Take Two Interactive Inc. spent less than $10 million to develop the latest “Grand Theft Auto,” says President Paul Eibeler. The game, which retails for $50, could generate world-wide sales of $400 million by year end, says Michael Pachter, analyst at Wedbush Morgan. After taking into account advertising, bonuses for the designers, hardware royalties and manufacturing costs, Mr. Pachter figures the game’s gross profit — in the three months since its release — has been about $285 million.

    Banking Growth in India

    WSJ writes that the Indian government may ease banking restrictions to allow more foreign investment:

    Deregulation and a burgeoning middle class are spurring an Indian banking boom that is likely to attract fresh investment from international banking giants eager to get in on the action.

    India’s central bank is expected to announce new guidelines soon on how banks — both local and foreign — will be allowed to expand through acquisitions or mergers. International bankers, in particular, are hoping for relaxed restrictions on foreign ownership of banks that will allow them to cash in on the millions of increasingly affluent Indian consumers who have benefited from economic liberalization in recent years.

    With millions of Indians opening savings accounts, using credit cards and taking car loans for the first time, Indian banks cumulatively reported a 13% jump in income to about $30 billion in the year ended March 31. While India’s stodgy state-run banks have been slow to innovate, privately owned domestic and foreign banks have led the way, with income growing more than 30% annually during the past five years. Income from the high-profit credit-card and consumer-loan businesses — dominated by foreign banks — has been expanding at more than 40% a year, bankers say.

    “We expect an average of about 12% to 13% [revenue] growth for the next five to 10 years definitely, if not beyond,” said Neel Chatterjee, senior vice president of Standard Chartered Group in Bombay. “That’s huge compared to the developed world where banking is not growing more than 2% or 3%.”

    PCs Growth

    AlwaysOn Network offers a projection from ITfacts: “By 2010, mature markets in the United States, Europe and Asia-Pacific will have added 150 mln new PCs, while emerging markets will have added 566 mln new computers, Forrester says. Overall, there will be 1.3 billion PCs, up from 575 mln today. The number of PCs in emerging markets will grow at a 31% compounded annual growth rate.”

    TECH TALK: Best of Tech Talk 2004: Indian Portals

    I write 500-odd words Monday-Friday as part of Tech Talk on the blog and Tech Samachar. This column completed four years in November and is still growing strong. I have plenty of topics to cover for the next year also! For the last week of this year, I decided to compile what I think are some of my best(est) writings during 2004. I have split this series into four topics covering Indian Portals, Rethinking Computing, India and Bharat, and Entrepreneurship. We begin with Indian Portals.

    The content space in India continues to disappoint. A combination of lack of innovation and slow growth in the Internet user base in the country has hobbled the growth of useful content sites in India. A ray of hope going ahead: growth of broadband and cheaper access devices may change this picture in the coming year. One area where there has been increasingly rapid growth is value-added services around cellphones. Even though for now much of the money is still garnered from SMS, ringtones and games (centred around targeting youth and entertainment), the coming year should see a richer set of services as the mobile phones become faster, better and cheaper. 2.0 (Jan 2004): The digital infrastructure in India is undergoing a dramatic change, which may not be very obvious. This transformation will create opportunities for content and community portals and websites, and rekindle interest in Internet information services. But along with the change in the connectivity and access devices will also come the need for change in the content that users would like to access. In short, computing and communications technologies stand at the threshold of making the Internet a utility in India the question that needs to be discussed is: how can the portals rise to the occasion? The solution lies in taking Push, a Microcontent Client, Subscriptions, Narrowcast, Writing, Multimedia, Blogs, Contextual Ads, Social Networks, Localisation and Real-Time Updates into a common framework. Think of these as the elements that make up the New Information PlatformThere are three ideas built around the New Information Platform which can help launch the next generation of activity in the Internet space: NINE, PIN and STIM.

    Rethinking Search (Jan 2004): As we look at the attributes of the Next Indian Search Engine (NISE), there are two principles from open-source software development which we should keep in mind: user customisability and distributed collaborationThe focus for NISE should be on building a search platform which can be customised and extended for users, and which thinks of not just the web browser but also the mobile devices as the primary target access method.

    Thinking a New Food Portal (Sep 2004): The past few years have seen the emergence of many new technologies which promise to change the way we consume content, in much the same way as the combination of iPods and iTunes has transformed the way many consume music. Cellphones are now micro-computers with always-on connections to the Internet, broadband connections can download video clips quickly, and blogs and RSS are creating an easier way to publish and subscribe to content. So, how can all of this impact the world of Indian food portals? Lets imagine the future. What if we could getimproved search, calorie information, recipes on mobiles, videos, RSS, community, information marketplace and multiple languagesFood is a very important part of our lives. A new food site done well could be financially lucrative. The time is right for leveraging a mix of content and technology to create richer user experiences. More importantly, it would also create a platform to build other vertical sites along similar lines.

    Tomorrow: Rethinking Computing

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