It is a service, not a device

Amazon has just announced the Kindle Fire, a tablet based on the Android operating system, available for $199. What Amazon is selling is not a device but a service.

The device price is below cost (see Amazon tablet costs $209.63 to make, IHS estimates) because the remaining revenues and profits should come from the tightly integrated Amazon services. Amazon is a content company, with the ability to serve videos, music, apps, books, magazines over the air thanks to their powerful cloud.
The Kindle Fire presentation by Bezos is below, starting at the 31-minute mark:

The other tablets are on sale for much higher prices. The iPad WiFi, the Motorola Xoom WiFi, the Samsung Galaxy Tab 10.1 WiFi, the HTC Flyer Tablet 7′ WiFi, Sony – Tablet S, they all sell starting at $499. Asus – Slider Tablet with 16GB Memory $479. Toshiba – Thrive Tablet with 8GB Hard Drive $379. The BlackBerry – PlayBook Tablet 7′ is at $299. Prices found at BestBuy website on Sept 30 2011.

With the Amazon tablet Fire we see, once again, how digital convergence is transforming the mobile business. A content company can disrupt incumbents with a different business model. By selling the integrated service they can offer the devices to a price that traditional hardware vendors cannot compete with. Competition is in this space is brutal, HP has recently discontinued the TouchPad tablet, and now rumors on BlackBerry that may have halted production of its PlayBook tablet computer and canceled additional tablet projects.

And the prices of Kindle have been constantly dropping, as you can see from the Business Insider chart of the day When Will Kindles Be Free?
Another good article on Amazon margins and Amazon business model: Amazon’s $199 Fire sparks supply, margin questions

Some good blog posts on this topic:

Apple is another example of how digital converge is disrupting the mobile world. Apple is a hardware company, (came from the PC business) that sells the experience by complementing the device with content. In the case of Apple, the money are made on the hardware, the iTune store breaks even but provides a great complement to the device. A complement that makes the overall experience sticky and more compelling.

Another company that could compete using the asymmetrical business model is Google. And probably this is what will happen once the deal with Motorola Mobility goes through. In this case, search and advertisements, content such as books, video and music and other cloud services such as docs and content storage and sync are already part of the Google portfolio. The integrated experience could make possible to offer mobile devices for a very low price or even for free.

The question arise for the incumbents that base their business on the pure device offering. Can they survive? They certainly need to reinvent themselves and establish partnerships with content providers and or find a different path to differentiate and innovate.

Mobile devices, Where is the money?

According to a @asymco tweet, on September 15:

  • World-wide quarterly smartphone y/y unit growth since beginning of 2010: 59% 53% 87% 73% 79% 73%
  • World-wide quarterly non-smart phone y/y unit growth since beginning of 2010: 15% 8% 6% 8% 14% 1%

The graphical visualization comes from his post Mobile Impossible

Users are moving from feature phones to smartphones. See asymco’s post for the analysis: Biggest mobile loser? The non-smart phone. Some of the conclusions on feature phones were ” Not only is it an unprofitable product for almost every vendor, it is also being increasingly shunned by buyers.”

The growth and profits seem to be in smartphones, but if we look at the smartphone players, just a few are successful and profitable.

For a great overview of Q2 mobile phones share, see Horace Dediu’s post Apple captured two thirds of available mobile phone profits in Q2. For Q2 stats, see my older post Updates on the smartphones platform war.

And on the mobile platforms side from The fate of mobile phone brands:

Conclusions. Feature phones are not an attractive business. In the smartphones space Apple is the big winner. Competitors are mainly using Android and some use Windows Phone as well. In strategy, or you have a differentiation that you can claim a price difference for or you need to have a cost advantage. To differentiate while having a common platform is very hard. If you change and customize the platform, you increase the fragmentation with problems for the evolution of the platform and with the risk of breaking the apps, needed as a base for competition. Form factors and UI interaction are now standard, mono blocks with a touch UI paradigm. Hardware components have been commoditized: smartphones are all based on the ARM architecture. And for the rest, memory, cameras, sensors, displays are sourced from the same manufacturers and do not provide enough differentiation, at least not one that an end-user can notice and pay more for it. Different OEMs want to differentiate with exclusive services, but Internet services want scale, many users and work across platforms so their needs are not aligned with a single OEM or platform. The solution? Brand, distribution,  and more importantly innovation that goes beyond of what we have now.

The world of VC

VC blogs to follow:

Some interesting links to follow for whom is interested inVenture Capital and Entrepreneurship.

    Cognitive biases, Before You Make That Big Decision…

    The Big Idea: Before You Make That Big Decision… is a very interesting article appeared in HBR, issue June 2011. Authors are Daniel Kahneman, Dan Lovallo, and Olivier Sibony. Daniel Kahneman was awarded the Nobel Prize in Economic Sciences in 2002 for his work (with Amos Tversky) on cognitive biases. Dan Lovallo is a professor of business strategy at the University of Sydney and a senior adviser to McKinsey & Company.  Olivier Sibony is a director in the Paris office of McKinsey & Company.

    The article is well written and describes different cognitive biases that influence and “biases” our decisions. The objective is to make us aware that cognitive biases exist and to provide help to recognize,  and eventually avoid them.

    The authors provide a quick list of questions that we should ask ourselves before making big strategic decisions:

    1. Check for Self-interested Biases: Is there any reason to suspect the team making the recommendation of errors motivated by self-interest? Review the proposal with extra care, especially for overoptimism.
    2. Check for the Affect Heuristic. Has the team fallen in love with its proposal? Rigorously apply all the quality controls on the checklist.
    3. Check for Groupthink Were there dissenting opinions within the team? Were they explored adequately?
    4. Check for Saliency Bias Could the diagnosis be overly influenced by an analogy to a memorable success? Ask for more analogies, and rigorously analyze their similarity to the current situation.
    5. Check for Confirmation Bias Are credible alternatives included along with the recommendation? Request additional options.
    6. Check for Availability Bias If you had to make this decision again in a year’s time, what information would you want, and can you get more of it now? Use checklists of the data needed for each kind of decision.
    7. Check for Anchoring Bias Do you know where the numbers came from? Can there be…unsubstantiated numbers?…extrapolation from history? …a motivation to use a certain anchor? Reanchor with figures generated by other models or benchmarks, and request new analysis.
    8. Check for Halo Effect Is the team assuming that a person, organization, or approach that is successful in one area will be just as successful in another? Eliminate false inferences, and ask the team to seek additional comparable examples.
    9. Check for Sunk-Cost Fallacy, Endowment Effect Are the recommenders overly attached to a history of past decisions? Consider the issue as if you were a new CEO.

    Excellent article, read more at The Big Idea: Before You Make That Big Decision…

    And Daniel Kahneman latest book is forthcoming, October 25 Thinking, Fast and Slow

    Rules and learnings for startups

    creating a startup is not an easy task, that’s why it is important to learn from people that have already experiences.
    A good blog post is from Evan Williams, creator of Blogger (acquired by Google) and Twitter.
    His Ten Rules for Web Startups is a must read.

    The ten rules are (with short excerpts):

    1. Be Narrow. Focus on the smallest possible problem you could solve that would potentially be useful.  If you get to be #1 in your category, but your category is too small, then you can broaden your scope—and you can do so with leverage.
    2. Be Different. There are lots of people thinking about—and probably working on—the same thing you are. And one of them is Google.  Second, see #1—the specialist will almost always kick the generalist’s ass.
    3. Be Casual. If you want to hit the really big home runs, create services that fit in with—and, indeed, help—people’s everyday lives without requiring lots of commitment or identity change.
    4. Be Picky. Another perennial business rule, and it applies to everything you do: features, employees, investors, partners, press opportunities.
    5. Be User-Centric.  User experience is everything.
    6. Be Self-Centered.  Create something you want to exist in the world.
    7. Be Greedy It’s always good to have options. One of the best ways to do that is to have income.
    8. Be Tiny.
    9. Be Agile. Many dot-com bubble companies that died could have eventually been successful had they been able to adjust and change their plans instead of running as fast as they could until they burned out, based on their initial assumptions. Initial assumptions are almost always wrong. That’s why the waterfall approach to building software is obsolete in favor agile techniques. The same philosophy should be applied to building a company.
    10. Be Balanced. Nature requires balance for health—as do the bodies and minds who work for you and, without which, your company will be worthless.
    11. (bonus!): Be Wary. Overgeneralized lists of business “rules” are not to be taken too literally. There are exceptions to everything.

    Other good learnings come from Guilhem Bertholet, a serial entrepreneur, who founded and ran the startup incubator at HEC Paris, a top-ranked European business school for three years. You can read more from the Business Insider article What I Learned After 3 Years Mentoring Over 80 Startups or from his post in French.

    The advises with short excerpts are below:

    1. Develop a vision. it’s important to be able to look to a bigger horizon, to have a “mojo” which gives personality to the company.
    2. Know (and love) your key metrics. You can’t win if you don’t measure. From day one, even if your numbers are flat, it’s incredibly important to understand what are the important metrics for your business.
    3. Run fast (for a long time). If you think you can be “successful” in 6, 12 or even 18 months, you’re wrong. In reality, it’s likely that the first 12 to 18 months will only be laying the foundations.
    4. Always be positive. Always.
    5. Stay focused and avoid distractions. Show some willpower and cut out anything unnecessary.
    6. F—ing do something! Instead of spending your time thinking, test a bunch of things out, always be doing something.
    7. It’s all about people. It’s hard to really be by yourself to start a company. Whether it’s co-founders, employees, freelancers, partners, peers…
    8. Learn to fail. Failing is good.
    9. Celebrate (even small) victories.
    10. Sell your project to your relatives. It’s fundamentally important that your close friends, family and loved ones be behind you 100%.
    11. (Do not) listen. This is what’s most paradoxal. You’re going to have to learn to listen, to open your ears, and to draw deep from the experience of others. But you also need to learn to not let others influence you too much.
    12. Know when to pull the plug. Life is long! ..sometimes, you need to just end it, figure out what went wrong, and get back in the saddle and do better.

    Vertical versus modular approach to smartphones

    It is not really defined whether the vertical or modular approach is the winning strategy for the latest smartphones war.

    In the video below you can find an authoritative point of view for the vertical approach, Steve Jobs keynote MacWorld Expo 2000:

    other great videos from Jobs are at the FastCompany website: How Steve Jobs’s Early Vision For Apple Inspired A Decade Of Innovation