Focus on the derivative

You can go crazy trying to figure out directions into the future if you look at the problem at too fine a level of detail.

For instance, take sales figures for smartphones. Last quarter, Apple outsold Samsung. This quarter, Samsung outsells Apple. Does any of this matter?

Not on a quarter-by-quarter basis, although that’s precisely what will animate the headlines (“Apple being crushed by Android” was one I read recently).

You have to ask more penetrating questions than just “what’s the number”.

Where is each vendor making their money? In other words, what’s the underlying strategy — is it sustainable — and are they achieving it?

Apple’s strategy has been not to own the market for the device, but to be the developer’s best source of income.

That’s why the app store exists, and it’s why it’s heavily curated.

People who own iPhones (and iPads) buy from the app store. A developer can make a good living by having a successful product in it.

Apple, in turn, knows that that will move enough units that it doesn’t need to buddy up to the carriers.

A carrier than wants the iPhone (and they all do, now, although not every carrier is willing to adhere to Apple’s terms and conditions) has to give up all the usual tricks of their trade. No forced applications. No changing the user interface. No limits on software updates. No carrier logo on the device. Nothing.

When iPhone first came out, you may remember, it was on a single carrier in the US market. A single carrier in the Canadian market. And so on, country by country.

Carriers with incompatible network technologies — the old CDMA vs GSM split — had to do without. Apple wasn’t building a device for any other architecture. You want iPhone, first make your network compatible with it. Then we’ll negotiate (aka you’ll surrender).

It’s easy to rack up larger sales volumes if you’re willing to split them over more stock-keeping units (individual models). It’s also easier to rack up larger market share for an operating system if you licence it to many manufacturers than one.

But it’s harder to build a marketplace that makes money for the people who fill it with goods. It’s harder to build a consistent user experience. It’s harder to deal with the consumer dissatisfaction that comes from hearing about and reading about the latest version of your software that’s simply unavailable to them thanks to a carrier decision, or a manufacturer decision, not to bother with it now.

And, of course, every vendor has product cycles. It’s easy to have your sales fall behind a bit if everyone and their uncle knows that the next quarter starts with a product introduction, isn’t it?

That’s why — if you were planning a career in the smartphone industry — sales figures wouldn’t tell you which firm to hitch your star to.

Instead, you’d have to evaluate which strategy had what consequences and what it would mean for the firm if they achieved them (or didn’t: is this a crippling blow or a glancing one that can easily be adjusted for?).

Which matters more in the long run: a consistent user experience and a marketplace that makes money for its developers, or the absolute number of units shipped (regardless of how many variations end up in the field)? Which leads to more opportunity and thus to more reasons for customer loyalty, or solid pricing, or follow-on sales of other products?

Whether we’re talking cans of soup, barrels of oil or high tech gadgetry, the thought processes are the same. (They’re similar in not-for-profit work and public sector work, too, although you have to work a little harder to tease out the derivatives and to get others [if needed] to recognize that no mission, no institution, is permanent.)

Buying land more than 1/2 mile from a rail station in 1910 for future development would have been a multi-million dollar win if you’d seen that the rise of the automobile would change land use patterns.

In every line of work, there are similar tectonic shifts waiting to happen. Your own personal diligence should focus on finding the ones for the field you’re in.

4 thoughts on “Focus on the derivative

    1. Bruce Stewart Post author

      I agree, Steven, and have done so in previous posts (and will do so again in the future). Besides, that’s not the point of the piece: the point is that raw numbers (absolute sales, trend lines, which operating system touched my website, etc.) don’t tell the part of the story that matters if you’re trying to do diligence about your own future (as an entrepreneur, as a potential employee, or as a member of a firm and you’re concerned about your future there.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s