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Tuesday, 22 February 2011

First to market or first to create an ecosystem?

It was always said, be first to market and you carry an advantage over your competitors.  This is why we'd always see companies looking to innovate as the common belief was that if you were first, you had the greatest chance gain market share.

This is certainly a philosophy that companies like Intel follow, which is where Moore's Law (which said you should double the number of transistors on a processor chip within every two years) originated.  This obsession to be first to market at times has meant that someone has gained total market share overnight.  However, it has also meant that we've some absolutely horrible products which have been released or that products were released that weren't quite fully though through as there wasn't much use for them yet.

Being in an integrated, connected world as we are in today, it has become more about the ecosystem that exists around the product than the actual product itself.  The classic case is smartphones.  The fact that RIM has built a closed ecosystem (which was only strengthened by having their killer App - BlackBerry Messenger), has meant that unless you're able to penetrate RIM's ecosystem, as a rival smartphone manufacturer, you aren't able to grab market share.

Image courtesy: thetelecomblog.com

The same goes with Apple.  Apple weren't the first to market a smartphone or a tablet.  What Apple did do was be the first to create a fully integrated ecosystem that revolved around iTunes and its content distribution system.  Once you're a part of the ecosystem, there isn't much room to move around.  Ask an Apple iPhone user to move to an Android device and often times they stumble, just because they don't want to exit the Apple ecosystem.  This is also precisely why the hordes of tablets from unknown brands that are being marketed today have failed.

Sony also did the same in the television business when they re-emerged with LCD TV's.  Sony was in fact a late entrant into LCD TV's and never really figured in the plasma TV business.  Sony's main business was still CRT and projection TV's when most of the industry had already started investing in newer and better technologies.  Sharp was the global leader in LCD TV's, with Samsung, LG and Philips also in the race.  With the launch of Sony's Bravia, things changed over-night and Sony was well ahead.  Bravia wasn't just a brand name, but Bravia became a part of everything Sony did.  Everything connected to or was linked with Bravia.  Concepts such as high definition or HD capture and output became synonymous with Sony.  The same is the case now with 3D, though the success of this hasn't been quite what we expected just yet.  By creating the Bravia ecosystem, Sony had essentially transformed a category of products and made it its own.  The main downfall for Sony came from the fact that they had supply restrictions and the fact that the likes of Samsung had invested much more aggressively in manufacturing facilities meant they eventually lost their number one spot to Samsung.  While Sony's ecosystem helped it become number one, it wasn't a unique ecosystem and very quickly Sony's competitors learned they be a part of the ecosystem.

A blast from the past, the Sega Saturn.
Image courtesy of Wikipedia.
Another example where Sony got the ecosystem versus having the product first to market was when they launched the original Sony PlayStation.  This was back in the mid 1990's, when the gaming console market was largely dominated by Nintendo and Sega.  Sega was in the midst of launching their Sega Saturn console in 1995, months before Sony could get their first PlayStation out for sale.  Sega, being an incumbent, should've had the upper-hand but failed in that they launched at a higher price than Sony but apart from that, they didn't have as many games ready at launch time, which immediately diluted the impact the Sega Saturn could have.  Sony for their part launched the PlayStation with a plethora of games and ensured their ecosystem was robust, despite being a late entrant.

Today the gaming industry works on this ecosystem and this is why Sony, having realized they fell slightly behind the curve, is investing in Android gaming devices like the Sony Ericsson Xperia Play and is rumoured to be developing an Android-based tablet for gaming.  Sony is not restricting this gaming experience to just tablets and smartphones, but the successor to the PlayStation Portable (PSP) for now called NGP, will also be running on Android.

Amazon's Kindle is yet another example of how the ecosystem matters.  Amazon weren't the first ones to launch an e-book reader, but what they did do was integrate it with their content library better than anyone else did and just to ensure they've created enough stickiness for themselves, they've gone one step further and made sure that tablets like Apple's iPad are also compatible with their ecosystem.

All too often though, brands get lost in specifications and lose sight of the bigger picture.  There was a time when most manufacturers of DVD players and televisions were fighting to ensure they could guarantee the highest quality playback when little did they realize, most consumers weren't watch such high quality content but were rather watching MPEG or AVI files that they downloaded from the Internet.  Immediately, most manufacturers started bringing out TV's or DVD players that could playback DivX files either of a CD, DVD or USB drive.  This took a big mind shift for top manufacturers as the thinking was initially that if you make your products incompatible with pirated content, fewer consumers will buy pirated content.  It ended up being the other way around, fewer people bought their televisions or DVD's from the brands that were trying to stop pirated content from being viewed.  Today, you'll find nearly all the top brand names have products that can playback pirated content, else they risked further market share.

Having the best specs on a smartphone or tablet means little if you can't download any Apps for it.  Having the sound output from an MP3 player means little if you download your content onto it.  Having the best quality 3D playback means little if there is no 3D content or broadcasting in your region.

The ecosystem needs to be there if a product is to do well.   Nokia have learned this the hard way and are now changing themselves.  This is also precisely why we see everyone looking to market the fact that their product can connect to YouTube, Facebook, Twitter or Flickr for example.  Without this connectivity to these ecosystems, it becomes very difficult to sell your product, no matter how good your specs are so the next time you shop, think about ecosystem you want to be a part of and if your products allow you to be a part of this.

Posted By: Ashish Panjabi, Chief Operating Officer, Jacky's Electronics