Many months ago, I got into arguments with an Apple fan. This was no ordinary Apple fan. He was a tech writer solely for Apple and was pretty good at detailing Apple’s business moves and direction of the tech world in general. He kept saying that Apple’s Iphone was going to cannibalize the DS. I wrote back to him, “ARE YOU STUPID?” But he kept repeating that Apple would going to cut into DS’s market.
Apparently, he had some inside information as news stories began to be released sensationalizing how Iphone might cannibalize the DS. At the latest Steve Jobs appearance, he revealed the second generation Iphone, the 3G, and everyone is currently applauding and going, “Hail! Hail! Hail!”
The idea that Iphone could cannibalize the DS market is so absurd that I thought that the Apple tech writer who kept insisting on it was just being crazy Apple fan. But others are saying it making me think I have entered a Twilight Zone.
Simply putting games on hardware does not make it a games system. A game system is all about the user experience. Both the hardware and the software must be designed to maximize the user experience. The reason why cell phone gaming has made no impact on the dedicated hardware handheld gaming is because cell phones are primarily designed for the phone experience. Dedicated handhelds can focus on maximizing the handheld experience.
”But Apple focuses on customer experience all the time!” Not for gaming. Apple may be an integrated hardware and software maker, but what type of software? Apple doesn’t make game software, and if it did, it most certainly wouldn’t be anything near of market impact like the Nintendo games.
Reggie has talked about this directly. Sometimes technologies don’t go well together. Gaming (of say DS and PSP standards, not cell phone gaming of like Pole-Position and Pac-Man) and cell phones do not go well together as the technologies tend to interfere with one another.
There are various smaller reasons why Iphone gaming won’t do anything to DS gaming, but the big reason comes down to Blue Ocean and disruption. DS is not a disruptive product, but it does use the Blue Ocean Strategy. Blue Ocean Strategy is all about focusing on values that is neglected or unseen by your competitors. The DS interface that allowed mega-hits like Brain Age and Nintendogs made DS to rise above PSP despite PSP having ‘better graphics’ and the likes. The Iphone having better graphics or even a ‘better’ touch screen are not new values. In its approach to dedicated gaming handhelds, Iphone’s approach is Red Ocean. This means ‘little growth’ opportunity.
When the Apple tech writer was, by now, spitting mad at me for daring to question the inevitability of Iphone gobbling up DS (his mistake was not really studying DS’s success in the first place. In order for product A to surpass product B, you need to study what made product B successful in the first place), I went even further. I told him that while Iphone had a good first approach; it has gone totally off the tracks. 3G is the wrong direction for the Iphone.
Iphone is not a disruptive product. This comes as direct analysis from Christensen itself. Disruptive products tend to have a long runway and then, suddenly, skyrocket into ascension. Think of the Blackberry. There seems to be a united belief in Apple and other tech watchers that Iphone will magically skyrocket and become everywhere. In its current direction, I highly doubt that for the following reason:
Iphone is in the Red Ocean. While its debut, especially with the new interface, gave it Blue Ocean qualities, other companies jumped in to compete with Iphone directly. What is Apple’s response? To compete back and to stay in the increasingly red ocean of the smartphones.
The presentation showed examples of the Iphone ‘beating’ the competition in webpage download time among other things. It is clear Apple is attempting the Iphone to ‘battle’ other phones based on the same values instead of venturing to a Blue Ocean for new ones. The major red flag was the commercial that Steve Jobs loves so much he had to play twice. If you were a non-customer, does that make you want to buy the phone? No. A ‘better’ phone is not the key to get non-customers. A big sign of Red Ocean thinking are price cuts. Cutting the price of Iphone won’t have the effect analysts believe. And customers will see the rise in the service price which will turn them off even more.
The HD Twins, Xbox 360 and PS3, are clearly in the Red Ocean. What is the behavior of those products? Constant price drops with attempts to raise the ‘value’ of the product by focusing on non-essential elements (the opposite of value innovation) such as with movie downloads, PC streaming, and the stuff people didn’t buy a game console for. The job people hire a game console for is to play games. Focusing on all this other stuff is just technology cramming and not solving any jobs for the customer. (While DS did have a price drop, its sales were very strong even right out of the gate.)
The Iphone is acting like the HD Twins. Iphone has a price drop and is cramming technological clutter in an attempt to boost its ‘value’. No one is going to buy the Iphone primarily for gaming. A DS or PSP is not only cheaper, but you aren’t stuck in a service plan. After being a year on the market, Iphone has sold around 6 million worldwide. DS was around 14 million I believe by its first year. No comparison. DS kept accelerating but as Iphone and other competitors make the smartphone red ocean even more red, I think the opportunities for growth will be flat. Iphone’s success will come from cannibalizing other smartphone markets as opposed to making new customers.
I’m not sure whether the Iphone’s sudden love affair with gaming is due to game companies simply wanting to take advantage of an innovative product or because Apple sees gaming as a way to spur lighting sales that game dedicated hardware tends to do. If it is the latter, Apple is going to be facing a tough reality. Iphone gaming won’t cannibalize DS, but it will cannibalize the other smartphone gaming. One cell phone will gobble another.
The Iphone debacle should illustrate that innovative products, good marketing, image, and brand are not enough. You must have and continue to have a good strategy that is catalytic with technology, not technology for technology’ sake. This is why Blue Ocean and disruption matter.
Note that not following Blue Ocean doesn’t mean failure. It just means less growth. Iphone is saved by being in front of a big trend toward smartphones. They can still ‘grow’ while being in the Red Ocean. In a similar way, games consoles still ‘grew’ by being in the red ocean because they were in front of a growth trend. Nintendo’s argument is that you can not longer take growth for granted (that the market will grow ‘just because’). There won’t always be more young people hence the need to fight back indifference meaning Blue Ocean and disruption. Smart phones haven’t reached that wall yet.
Anyone can grow when they are in front of a trend. Gerber’s Baby Food business booming was not due to any real strategy but being in front of the Baby Boom of young kids decades ago. Many tech companies grew precisely because they were in front of the computer trend. Real Estate flippers thought they were business masterminds, but they were simply in front of a growing rise of real estate rates. Now that that has reversed, they are all crying for the government to bail them out of being on the wrong side of the flip. The real test is when growth is not certain and one has to do something other than rely on trends or growing demographics to make the business work. Apple may ‘win’ the smartphone market by outcompeting the competitors but who cares? A Blue Ocean strategy would greatly inflame growth to not just Apple but the smartphone market entirely.