1. Introduction
"Those who cannot remember the past are condemned to repeat it."
George Santayana, The Life of Reason
This thesis aims to analyze the sector of smartphones, a new product that experienced a very
fast growth in the last years. After the diffusion of mobile phones and the “constraints” put on
that sector by the market leader Nokia, the sector has been revolutionized in 2007 from the
launch of the iPhone.
Since 2007, the sector underwent through impressive shakeouts, where well established
companies like Nokia shrunk their market shares, favouring new competitors, like Apple,
Google and Samsung.
This thesis will use some theoretical tools, introducing them in the chapter 2; specifically it will
introduce the concept of industry clockspeed (para. 2.1) and the framework developed by
Valdani and Arbore, which divides the “life” of a sector in three different stages: Movement,
Imitation and Position (or status quo), each one started from different kinds of competitive
manoeuvres of companies (para. 2.2 and subsequent).
Furthermore, network effects (para. 2.4), open source alternatives (para. 2.5) and patent
litigations (para. 2.6) will be discussed.
The chapter 3 will review the history of the sector, from the first concepts of mobile phones
until the 2007, where Apple and Google revolutionised the sector with the iPhone and Android.
Errors made by companies as well as the opportunities exploited will be briefly introduce in this
chapter and will be analysed through the theoretical tools in the chapter 4, considering
separately each company.
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Finally, the chapter 5 will suggest some possible evolutions of the sector (para. 5.1), since it is
already showing signs of “hyper-competition”, so companies are trying to not shrink too much
their margins; a final paragraph (5.2) will deal with relationship between the figure sales and the
brand, as it is one of basis for the Apple’s product, where other companies are trying to match
its results.
The thesis will use books, such as the Valdani and Arbore “Competitive Strategies: Managing
the Present, Imagining the Future” (2013), to obtain theoretical background and frameworks,
but also on-line articles and newspapers; this choice is due to the fact that the subject is still a
“young” one, so there are not many academic pubblications.
Prices of products have been converted through historical exchange rate, to give to the reader a
more “modern” perception of the various pricing strategies, and to compare them.
The goal of the thesis is to expose all the errors made by the companies baffled in the sector, so
that they can be avoided in the future. It will also be exposed the competitive edge possessed by
some innovators in the sector, so that some of those aspects can be replied in the coming
scenarios.
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2. Strategic moves in a sector
“The supreme art of war is to subdue the enemy without fighting.”
Sun Tzu, The Art of War
As Sun Tzu wrote more than 2600 years ago, the real ability within a commander comes in its
ability to avoid a direct fight, indeed he win the battle before the battle starts. However, the
battle we are talking about are not the “real” ones, but the business ones: they are not fought
with real weapons, but its outcomes are quite heavy. Many companies lost the leadership of
their sectors, baffled by competitors who made unexpected and, as Sun Tzu suggested,
“unorthodox” moves.
This chapter illustrates how the timing affects the competition (para. 2.1.), and the framework
developed by Valdani and Arbore (2013) to analyse the moves that occurs in a sector (para. 2.2
et seq); then, the network effects (para. 2.3), the impact of open source developments (para. 2.4)
and the “patent troll” strategy (para. 2.5) will be introduced. All of those tools are essential to
analyse the evolution and the dynamic of the sector described in the next chapter.
2.1. Industry Clockspeed
All sectors have their own “clockspeed”, a concept introduced by Fine (1996) as the rate at
which:
• capital equipment becomes obsolete (process technology clockspeed);
• new products introduction or successive “generations” (product technology
clockspeed);
• changes in organizational structures (organizational clockspeed).
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Furthermore, he states that each sector has its own clockspeed, involving various effects within
the sector and its competitive dynamics; the most relevant effect of a fast industry clockspeed is
the shortening of the sustainable competitive advantage life-span (Srinivasan, 2008), as firms
need to react quickly to market changes, otherwise they could soon lose market share, or even a
lockout from an entire technology; the typical example is the Kodak decision to not follow the
breakthrough introduced by the digital photography, and later attempts revealed unsuccessful.
However, to complicate further the possibility of “measuring” (and act accordingly to) a
clockspeed velocity, can be useless since it can change: a leap in one sector can lead to new
leaps in adjacent one (either in a loosely related one). This creates a “catch-22” effect: the faster
the clockspeed is, the faster the sector become, causing the shift of the clockspeed towards
higher “values”.
2.2. Movement, Imitation and Position games: A framework
Valdani and Arbore (2008) developed a framework that helps to identify the nature of the events
that can occur in each sector: the authors defined three recurring moments, or “games”:
• Games of Movement;
• Games of Imitation;
• Games of Position;
They take place in a circular motion, over the entire life-span of a sector;
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Figure 2. 1 Games in the sector (adapted from Valdani and Arbore, 2013)
However, the route is not “mandatory”; in fact, as it will observed further in the discussion, in
some sectors, can be more than one move in the same moment (as for “battles” to set standards,
e.g. HD-DVD vs. Blu-ray), toghether or in a short span of time; furthermore, games of imitation
and position can wait to develop until other initiatives, own or competitors’ ones, have reveil
their outcome ; in fact, as Fine (1998) pointed out, companies involved in sectors with a high
clockspeed and high uncertainty, may decide to pursue a “hedging” strategy, since is too
dangerous to focus all the resources on just one strategy. Obviously, the firm must have the
ability to “cut” from its portfolio those business who did not proved enough profitability.
2.2.1. Barriers
Innovations introduced in each sector, and especially in the competitive ones, can cause what is
called a paradigm shift. Paradigms are constituted by models with which problems are faced by
companies: innovations are introduced to establish new models, needed to solve problems
emerged later, and previous assumptions are not able to solve them.
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For example, the invention of the steam engine, by James Watt, ignited the industrial revolution,
since the men started to use other sources of power, besides human or animal strength.
Compared to the past innovations, this “invention” gave a tremendous boost to the modern
society; Valdani and Arbore call those events “quantum leap”, indicating a jump from one state
to another one, without a smooth transition, as the quantum leap in quantum mechanics
describes the movements of electrons.
However, it was proved that the mechanism was already developed many years ago before the
Watt’s engine: the ancient Greeks developed a machine, called “aeolipile”, a sphere that can
rotate thanks to the emission of steam from two nozzles, as it was placed over a fire; the device
was inefficiently, but no one continued to improve it, because many slaves were available as a
“free” source of energy. The slavery was a fundamental part of the Greek society, so it seemed
useless to replace them with other sources.
This historical example shows one of the biggest issues within a potential revolutionary
invention: it can be too much forward-looking for the actually socio-politic-economic
environment. Furthermore, we could barely try to imagine the actual world, if that innovation
was introduced 1800 years before. It also shows that innovation, in spite of their
unpredictability ex-ante, are always based on previous developments; this is the concept
introduced by Kauffman, which calls those events adjacent possibilities, since they can be
pursued just if the “way” is paved by previous possibilities.
The human nature always tend to creates resistance to a change, since they need a lot of
resources: in fact, when a markets reaches saturation (i.e. mature markets), it is impossible to
reach new customers and companies need to fight for the existing ones, so they improve
efficiency by the standardization of processes and routine. This creates technical and
organizational idiosyncrasies, that can lead firms away from the dynamic of the emergent
customers’ desires. In spite of this human tendency, a company that wants to survive needs to
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overcome those resistances to the changes and introduce changes before competitors. And it is
far more important to maintain this “seeds of destruction” inside the company, that must always
calls into question its actual situation and the dynamics into the environment.
For example, Cisco Systems was able to capitalize on the Internet expansion in the 90’s,
becoming the most valuable company in the world in 2000, with more than US$500 bln of
market capitalization (Reuters, 2000). However, as Mourdoukoutas (2012) pointed out, the
company “lost its innovation momentum and customer-centric orientation” (now it is valued
US$94 bln). Cisco’s source of innovation was solely the acquisition of innumerable start-ups,
even if they cannot judge in a reliable way their future performance. This strategy is now losing
against “internal sources” of innovation, supported by the acquisition of few promising
companies (i.e. Google, Apple). This example shows that companies, even if they are founded
on basis of modern technologies, can lose their innovation drive.
Barriers to innovations can be classified in the figure 2.2:
Figure 2. 2 Kinds of barriers present in the markets (adapted from Valdani and Arbore, 2013)
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A company must force itself to become very close to the markets, so that can evaluate emergent
opportunities and threats, without the intent to oppose to them, but to adapt to the new
developments in the market. The initiatives that can be undertaken are classified under the
games of movement.
2.2.2. Games of movement
The “games of movement” are the attempts made by companies to overcome the actual
condition of a sector; the metaphore between war battles and business ones, can suggests two
ways of facing rivals.
An occidental approach, “inspired” by Von Clausewitz and his “Vom Kriege” (“On war”),
where a battle turns into the “total war”, with the only goal of the total ruin of the enemy: a
general must focus its resources against the enemy’s center of gravity. The problem with this
approach is the fact that the attack is exactly where is expected, leading to a bloodsheed in both
sides, and, since the final outcome is the total distruction of one among the two battlers, this
leads to a further loss. Sun Tzu suggest to attack the enemy’s strategy, finding smaller centers of
gravity, out-thinking the rival, to obtain a quicker victory and a peace, without excessive
bloodsheed. This can be obtained with unhortodox moves, that the enemy cannot foresee.
Shifting the Sun Tzu’s approach into business competition, it seems more appropriate than the
Clausewitz’s one, because a “direct” attacks against competitors waste resources and could lead
to a failure, if the rival is strong enough to counteract moves. Sun Tzu suggest the use of
flexibility, creativity and foresight (Zapotoczny, 2006), to take by surprise the rival.
If the competitors did not see the the potential of an innovation, it ususally take much more time
to start countermoves, so, even if the clockspeed is very fast, the competitive advantage gained
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by the surprise movement can help the innovator to recuperate the resources utilized for the
development and to set barriers against rivals.
The “adjacent possibilities” are the paths available to a company which wants to engage in a
“movement game”; the are usually classified in two types, based on the core business of the
company:
• Concentric – If the company do not change sector, but modifies the strategy to compete;
• Diversified – If the company chooses to expand or modify its core business.
Usually, the concentric movements have lower impacts as opposed to the diversified ones,
which have higher impact on the sector of competence (Fig. 2.3). The term “impact” stands for
the effect of the move in the dynamics and the clockspeed of the sector.
Figure 2. 3 High and low impact movements (from Valdani and Arbore, 2013)
For example, Swatch decided to take back from the japanese competitors the leadership of the
wristwatch sector; the japanese firms took the low end segment of the market, with their quartz
watches, with a low pricing strategy, which was not feasible for the swiss watches with analog
movements. Swatch, decided to introduce a new kind of quartz watch, with high quality and low
price, but, further than the japanese ones, endowed with a high value “message”, obtained
through remarkable marketing skills and campaigns. Still now, the firm is leading the entire
sector, showing that its “redefinition of value proposition” movement (more than 30 years ago)
had a huge impact on the whole sector. Obliouvsly, the “after-movement” strategy is equally
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