‘The Perfect Store’: The Rise (and Rise) of eBay is review of a new book by Adam Cohen: “EBay has become one of those unstoppable business phenomena, like McDonald’s in the 1970’s or WalMart in the 80’s.”
Its immediate problem is that sales of microprocessors for PCs, which account for most of its revenues, have levelled off as the PC industry has matured. After years of double-digit growth, the number of PCs sold declined in 2001, and there is little prospect of any more than slow growth in future. In a flat market, Intel’s rivals, the largest of which is Advanced Micro Devices (AMD), another American company, can concentrate on boosting market share. But Intel, with a share of 81%, has little room to grow.
Acer is the subject of a Fortune story. It is also part of the theme for the book I am reading which makes the story all the more interesting. Stan Shih is betting the company on China and IT Services. Concludes Fortune:
Shih’s dream is to make Acer into an acknowledged member of the tech elite–a sizable fish in the very big pond that is the global market for computers and IT services. That is the kind of ambitious thinking that helped him propel Acer out of the crowd of look-alike Taiwan tech companies. But Acer’s probable future is a more modest one–as a big fish in the small pond that is Taiwan, where its brand actually has the kind of clout that Shih dreams of. Home may not be where Shih’s heart is, but it’s likely to be where the profits are.
Shih has faced challenges before. It would probably be too early to write Acer off so quickly. It is one of the true “dragon multinationals” to emerge from Asia in the last quarter-century. India is still waiting for its “Lion Kings”.
I have just begun reading this book by John Mathews. It is about how companies in the Periphery (outside the Triad of North America, Europe and Japan) can build global businesses. Examples mentioned in the book are Acer, Ispat International, Cemex, and Li and Fung. These are “latecomers who have used clever strategies and organisational forms to achieve global coverage and compete with established giants.”
I bought this book because I liked its premise. It provides a viewpoint from emerging markets (the Periphery) of how companies can become global players. Thats what I’d like us to do with the vision of Emergic. Create an organisation which can provide cost-effective technology solutions to SMEs in emerging markets globally. Right now, its a dream. I do not have a detailed business plan or roadmap of how I will make it happen. I know the general direction in which we need to proceed. So its always good to read about others who have done so previously.
The May issue of Harvard Business Review has an article by Joan Magretta on “Why Business Models Matter”. Business models, according to Joan, are “stories that explain how enterprises work”. Creating a new business model is a lot like writing a new story. Joan gives many examples in the article — American Express (Traveller’s Cheques), Walmart, Eastern Exclusives (coupon-based direct marketing) and Dell.
We often mistake business models and strategy. Strategy, explains Joan, takes into account competition. Business models are about making the pieces of a business fit together. In that sense, according to me, putting together a business model is a lot like writing the screenplay for a movie. It takes time, there has to be continuity, the loose ends have to be tied up, and above all, the story has to be great.
Telling a story is what a weblog helps to do well. This has been one of my learnings in the past two weeks of writing the weblog. I am actually thinking aloud the business model of Emergic. It would be good if more entrepreneurs actually did this. It will allow us to learn from each other. It allows us to look back at our decisions and why we made them and then reflect on whether we did the right thing or not. Its like a real-time case study!
An article on Xbox economics from Red Mercury: “The economics of the XBox don’t add up now, and they get worse with time. Sony and Nintendo can kill the XBox on cost alone. The software subsidies that Microsoft expected are a myth. Game console prices will continue to drop, from $199 to $149, then on down to $99. Will Microsoft ever make it to the $99 level of this game? We’ll see. According to XBox economics, it all depends on how much money they are willing to lose.”
The article makes the point that Sony and Nintendo are unlikely to be losing money on their consoles, while Microsoft most certainly is. This, even after Nintendo dropped its price to USD 150 from USD 199.
Microsoft, says the article, is looking to make up via software sales. It would need users buying 15-20 titles for Microsoft to break even.
I think Microsoft is looking at an additional source of revenue coming in from their online service – Xbox Live, which is likely to cost USD 49 per annum. That is likely to be the base entry pice, with additional charges for premium areas — much like how CompuServe used to be in the early 1990s.
For Microsoft, its a great (and cheap) way to learn to (a) how to get into the living room (b) build and sell hardware (c) offer a Net-based subscription service which could later be extended to enterprises and Office.Net.
Microsoft already has the infrastructure in place via MSN for the online service. Now, if only people would buy the Xboxes….
The Sprint 2002 issue of Sloan Management Review has 2 articles I found interesting. The first is on “Disruptive Innovation” by Christensen and others, and talks of how to build disruptive businesses. The second is by Michael Cusumano and Annabelle Gower on “The Elements of Platform Leadership”, which discusses how companies like Intel, Microsoft and Cisco build “platforms” for industry domination.
Christensen’s article builds on his other articles (including one in the Harvard Business Review last year which won the joint 2nd prize for the best article of 2001) and book “The Innovator’s Dilemma”. It highlights two tests which a disruptive innovation must pass: one on creating a new market as a base of disruption, and the second on disrupting the business model from the low-end.
I have very much liked Christensen’s thinking, and this article is no exception. As I was reading it, I applied it to our ideas on Emergic — how we want to (a) use second-hand PCs and low-cost software to open up new markets in enterprises — people who haven’t been using computers before, and (b) create a new business model of software as a subscription service. Our targets are the world’s poorer and underserved markets — the low-income, developing countries. Our Thin Clien-Thick Server will be simple and affordable, and give computing access to current non-consumers at no more than USD 10 per month.
The second article on Platforms is relevant from the context of what we want to do in creating an Integrated eBusiness software for SMEs. There is no way we can go and create every module businesses need. So, we need to think of an architecture wherein we create the platform and others can build upon it.
Reading the management magazines like SMR and HBR are interesting when one has some ideas in mind because there’s always something to learn if one can (a) choose the right articles to read (b) apply these ideas to the challenges / thinking on hand. They can either contradict or reinforce what one is thinking. The magazines may be expensive to subscribe, but for any entrepreneur, I would strongly recommend investing both the time and money. As entrepreneurs, this is, in fact, a very inexpensive mechanism for exposing ourselves to new, innovative thinking from some of the best experts in the business. The key is to read the articles and think from our context, and not necessarily, the BigCo context that is embedded in the writings.
The Gaming market is set for very interesting times. All three consoles on the market (from Nintendo, Sony and Microsoft) are now priced at USD 199, after PlayStation 2 and Xbox prices were slashed by USD 100 last week. Hardware (the console) is now becoming a commodity. Which means software makers are going to get increasingly important and the differentiators. Unlike the computer industry, software is not yet interoperable. So, for the game makers, the consoles are the razors (they are willing to lose money selling them) while the software sales (their own or royalties from others) are the blades. Expect a lot of innovation in this “emerging market”.
Some recent stories:
What interests me about the Gaming business is its similarity to what we want to with the Thin Client-Thick Server concept. Need to get enough of the TC-TS combos out there to ensure there is a lot of developer interest to build applications for SMEs.
Gaming is also the one market where Microsoft is the underdog: Sony leads it by 10:1 in the console installed base. Would be very interesting to see how Microsoft builds out its strategies — there is a lot to learn from them. Writes the NYT on what they are trying:
On Monday, Microsoft will announce Mr. Allard’s next big gamble: an ambitious billion-dollar-plus investment in an online game service to be called Xbox Live. Microsoft hopes to create what it describes as the equivalent of an online Disneyland, globally accessible over the Internet, where gamers who subscribe can find partners for dozens of different adventure, racing and sports games.
The weekend sees stories on both companies: on Amazon in the NYTimes and on eBay in the San Jose Mercury News. Amazon began as a merchandiser and eBay as a marketplace…they now seem to be slowly edging into each other’s markets in search of growth.
I think there is a definite opportunity for an SME Marketplace — more on the lines of eBay, where small businesses and buy and sell among each other.
A Fortune article on 10 mistakes that companies make. This is the BigCo point of view. SmallCos have a very different set of challenges, but nevertheless the article is good reading.
Fortune’s List: Softened by Success, See No Evil, Fearing the Boss more than the Competition, Overdosing on Risk, Acquisition Lust, Listening to Wall Street more than to Employees, Strategy du Jour, A Dangerous Corporate Culture, The New-Economy Death Spiral, A Dysfunctional Board.
Maybe I should compile a SmallCo list of 10 mistakes!