In 1980, when McKinsey advised AT&T to exit the cell phone business, its conclusion was based on its estimate that total US cell phone users by the year 2000, would be 1 million. It turns out: actual cell phone users in 2000 were 120M, off-target by a factor of 120.
| Cell phone in 2000 |
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| 1980 Cell Phone |
Of course, in 1980 a cell phone was bulky, costly and a not-so usable gadget. But, twenty years later, it was different ball game. When estimating growth in disruptive technologies, linear extrapolations (1,2,3, 4, 5....) simply fall apart. What is closer to reality is - exponential extrapolation (1,2,4, 8, 16, 32, 64....).
A key learning here is - Models are built on assumptions - some of which are explicit, while others remain hidden. Oftentimes, models really are an excuse to get the point of view across rather than be objective about anything. In five to seven years, almost every model breaks down as the underlying assumptions driving the model become invalid and irrelevant.
Are experts and pundits good at predictions? The 2005 book "Expert Political Judgment," by Philip Tetlock (psychology professor at UC, Berkeley) is based on two decades of tracking some 82,000 predictions by 284 experts. The experts' forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about. Result? The predictions of experts were, on average, only a tiny bit better than random guesses -- the equivalent of a chimpanzee throwing darts at a board.
"It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged any or few years of experience," Mr. Tetlock wrote.
"It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged any or few years of experience," Mr. Tetlock wrote.
Fast forward to 2011 - Mobile phones have become ever more convenient, useful and powerful. In the last 30 years, a cell phone has turned out to be 1,000,000 times more powerful, while getting cheaper by 1000 times. i.e there is a billion fold increase in bits/$. Now, the hardware of mobile phones has evolved exponentially (Moore's Law), its the software that lagging. Here's a snapshot of what we are seeing now in phone OS markets:
Over the past 48 months, there has been fierce competition between the two leading mobile operating systems platforms – Apple’s iOS and Google’s Android, while RIM, Microsoft, Symbian OSs seem to be losing market share. The narrative changed when Google entered the smart phone OS market. Four years later, in the last quarter of 2010, Google’s Android-based smart phones shipped more than any other at 29% of total international market share surpassing Apple. Now, YouTube sees 200 million mobile playbacks a day. The point here is that not only data usage growing, but the overall pie (number of users) as well.
Of course, the two companies have divergent philosophies and unique business models:- Apple has a closed, tightly integrated value chain for design and product development, where Apple iOS is made only for iPhones and its tablet iPads. The company claims that this gives it great control of the quality and brand value of its entire product experience, which is what its customers swear by. This unwavering brand power is Apple's primary source of high margins. On the other hand, Google follows an open model – its Android based platform develops operating systems on an open platform, which allows smart phone manufacturers to integrate seamlessly, at no cost. Google's bet to be open is aligned with its goal of maximizing global market share - a captive source of eyeballs for its search ads.
Of course, the two companies have divergent philosophies and unique business models:- Apple has a closed, tightly integrated value chain for design and product development, where Apple iOS is made only for iPhones and its tablet iPads. The company claims that this gives it great control of the quality and brand value of its entire product experience, which is what its customers swear by. This unwavering brand power is Apple's primary source of high margins. On the other hand, Google follows an open model – its Android based platform develops operating systems on an open platform, which allows smart phone manufacturers to integrate seamlessly, at no cost. Google's bet to be open is aligned with its goal of maximizing global market share - a captive source of eyeballs for its search ads.
This difference in strategy extends to their app platforms - Android and iTunes stores. The Apple App Store has strict control rules, while Google is more open and receives no % cut from its App Store downloads. The apps add another exponential dimension to the playing field - by allowing anyone to build and sell innovative apps.
Both companies have fast iterative design and development cycles and the ability to churn out amazing OS's. Now that the battle lines are drawn, what do we expect? What will be interesting to watch is - who is likely to succeed? Are there potential game-changers? At the risk of sounding like an expert, one certainty is - the competition will lead towards better, smarter phones that empower customers!!
