The Cost of Delay for organisations that are not market leaders is very high. Whilst companies employing a “Fast Follower” strategy don’t have to invest as much time to discover what the market wants, they do need to be very fast at developing similar products in order to quickly catch up to and slipstream behind the market leader.
A classic example of this is Samsung in the mobile phone market. What’s really interesting about the state of the mobile phone market right now is that it is full of case studies of both disruptive and incremental innovation. What is common to both is the need for speed. The mobile phone market has similar characteristics to other markets (not just technology) – but the pace at which it is playing out means we can see the effects in years rather than decades.
The entire market experienced a shock event on the 9th of January, 2007 when Steve Jobs stood on stage at MacWorld and pulled a phone out of his pocket that was like nothing anyone had ever seen. It caught all of the incumbents napping. Some, rather embarrassingly with hindsight, derided Apple’s attempt, writing it off as little more than a joke before it even went on sale (just like the iPod was). Some reports that have leaked out of the Blackberry maker, RIM, suggest that senior executives there thought that there had been some smoke and mirrors employed during the demonstration. It just couldn’t be real.
At the time Nokia was the undisputed king of phone manufacturers. They had a dominant market share with a sea of product variants for every market under the sun. It had SKUs for every country and configuration possible, even chasing the low-end in developing markets with super-cheap devices for the masses. It even had a thriving ecosystem of third party manufacturers making accessories and faceplates to suit every taste (or lack thereof). But, despite its early efforts with smarter devices like the well-regarded Nokia Communicator and a seemingly “open” Symbian operating system. It was about to stutter and fall ungracefully, like only giants can.
And the payoff for Apple was asymmetric. Steve Jobs set out his stall for what was a fairly ambitious target at the time. 1% of the mobile phone market. Nearly six years later we can see that whilst the investment was effectively the same, the payoff and reach has been far in excess of what any sane analyst would have predicted at the time. Up until last year, when Samsung started to really throw a lot of marketing money behind the Galaxy brand, Apple was dining out on over 70% of the profits of the entire mobile phone market, not just smartphones.
That Apple was doing this with a relatively small share of the whole market (Nokia was still leading) paints a stark picture as to how much they had shifted and disrupted the industry.
The fast follower
But the lesson on speed doesn’t come from Apple, at least not in a way that is obvious to us, since we don’t really know how long they have been working on what they release. In the last few years it has been Samsung that has been able to go from almost nothing, to carving out the largest chunk of market share, as this chart by Horace Dediu of asymco.com beautifully demonstrates.
More recently, it has been Samsung that has more quickly improved in the areas where it was previously weak. Some observers might argue that Samsung aren’t actually innovating the product, instead preferring to play it safe and directly copy as much of the Apple design, packaging, marketing and even icons as they think they can get away with. This is somewhat irrelevant though. There is little doubt that Samsung has an incredibly fast, lean and agile product development system. Their ability to very quickly take an idea (not necessarily their own) from concept to cash is an innovation in itself. Samsung is nothing short of a speed demon. As a result, it has raced past all other players, bar Apple, ripping the shirts off their backs in terms of both market share and profit. The effect has been brutal on the incumbents like Nokia and RIM and Sony Ericsson, and even those who previously led the way in adopting Android like HTC and LG.
Drowning out “the rest”
It hasn’t just been Samsung’s speed of development though. One of the enablers for this has been their marketing machine, which dwarfs pretty much every other company on the planet, even Coca-Cola, who are known for their reliance on marketing to maintain their dominant position.
At over $11 billion, Samsung spends far more on marketing than Apple does on Research and Development ($3.4b). The probability of this investment succeeding is of course much higher. Marketing is not about discovering what the customer wants, it’s more about simply being recognisable: here, there, and everywhere. Whilst the tech press may well bill Samsung’s success as an “Android is winning” result, it would be interesting to know how many people buying a Samsung phone have even heard of Android, or know what it is. These customers are buying Samsung, or a “Galaxy” phone – not Android.
But the marketing problem is relatively easy given Samsung’s budget for this. What is much more difficult – and absolutely critical for companies like Samsung who employ a Fast Follower strategy – is that they rely on speed and agility to very quickly replicate and scale what has proven to be successful. They then market the hell out of it, making sure that their brand is the one on every body’s lips.
The effect on the old guard is obvious. Nokia, RIM, Sony-Ericsson, HTC, and many others are now drowning in a sea of red ink while only two companies, Apple and Samsung, race away with all of the profits and almost all of the market share. What this suggests is that there really are only two strategies that are succeeding in the mobile phone market:
- Innovate to stay ahead: this requires speed of development as well as a passion to solve problems that people don’t know they have.
- Follow quickly to keep up. This is lower risk but even more reliant on speed of development – and a marketing budget to drown out the rest. This only works in the short terms though. Ultimately, the leader knows where they are going, the follower only knows where they’ve been.
Jack Welch, the former CEO of General Electric, sums up quite nicely why the Cost of Delay matters in every organisation:
“If you are not moving at the speed of the marketplace you’re already dead – you just haven’t stopped breathing yet”