Updating My Smartphone Market Analysis: The Market Is At A Strategic Inflection Point

NOTE: My original post, originally published in January 2013, continues to be one of the most viewed on the site. Android and Apple have enjoyed an estimated 98% market share between the two, and many of my earlier projections regarding this market appear to have been borne out. However, the smartphone market has now matured to the point that it is at a strategic inflection point which has major implications for the future of this market and the major competitors. The rapid maturation of the smartphone market should have been foreseen: the rise of domestic Chinese competition combined with the predictable end of the Western consumer fascination with “the next smartphone”

The Rapid Maturation of the Smartphone Market Should Have Been Foreseen

The signs of a dangerous strategic inflection point in the global smartphone market have been evident for some time: the rapid rise of domestic Chinese competition combined with the predictable end of the Western consumer fascination with “the next smartphone.” Five years ago, Samsung Electronics, the South Korean technology giant sat atop the Chinese market, selling nearly one of every five devices there. Today, Samsung is an also-ran, controlling less than 1% of the world’s largest smartphone market. Samsung has trimmed local staff and last month closed one of its two Chinese smartphone factories. Surely, Apple must have been aware of this and the growing number of much lower cost domestic Chinese competitors that were already hammering Samsung. Apple’s release of a lower cost iPhone, the XR, in Asia in October 2018 appears to have been a case of too little too late. Sales of the device have been disappointing in both Japan and China, and Apple has been relegated to offering “trade-ins” to camouflage slashing the price of the XR. Apple had ample warning over at least a five year period.

Meanwhile, I sensed a very different kind of maturation of the smartphone market in North America and Europe. In what I like to call the smartphone market “Star Wars” phenomenon, each new generation of smartphones was greeted with a hysteria that was only paralleled by the Star Wars craze. This simply could not continue indefinitely. Beginning in 2017 it was apparent the smartphone market as a whole was already shrinking, and there was significant anecdotal information in the media that smartphone hysteria was waning, if not publicly available hard data. I began having discussions about this with Tim Bajarin, one of the top Apple analysts. As Apple moved to launch the iPhone X and broke the $1000 price point barrier it encountered clear if perhaps not overwhelming evidence that the smartphone market was softening: more people chose not to upgrade their phones. I like to say that the last major feature consumers seemed to want/need was water resistance, as so many had already experienced the disastrous “toilet drop.” I view the Bluetooth earbud phenomenon as a distraction and perhaps a hint of the coming change. Samsung flirted with water resistance as early as the Samsung Galaxy S5, perhaps because water resistance had become a standard feature in the Japanese market. By 2018, water resistance was standardized, and the market began experimenting with “the next big thing” for phones, folding screens. WTF? It was clear to me that the smartphone market had run out of gas, and was undergoing rapid maturation, as phones were no longer fascinating and novel, but just simply commodity devices.

To my mind, and IMHO, this has been a case study in a classic “strategic inflection point” that was missed by both Samsung and Apple. Samsung might be forgiven for being the first to cross into the inflection point, while the media was still promoting “the next smartphone” hysteria, and not yet recognizing the sense of the market. Apple has no such excuse. The rapid maturation of the smartphone market should have been foreseen by Apple. Apple’s most disturbing move was the decision to increase pricing rather than delivering greater value, at exactly the wrong time. The crucial rhetorical question is what are the larger implications for Apple’s future business?

Vendor Data Overview

Smartphone vendors shipped a total of 355.6 million units worldwide during the third quarter of 2018 (Q3 2018), resulting in a 5.9% decline when compared to the 377.8 million units shipped in the third quarter of 2017. The drop marks the fourth consecutive quarter of year-over-year declines for the global smartphone market.

Quarter	2017Q1	2017Q2	2017Q3	2017Q4	2018Q1	2018Q2	2018Q3
Samsung	23,2%	22,9%	22,1%	18,9%	23,5%	21,0%	20,3%
Huawei	10,0%	11,0%	10,4%	10,7%	11,8%	15,9%	14,6%
Apple	14,7%	11,8%	12,4%	19,6%	15,7%	12,1%	13,2%
Xiaomi	4,3%	6,2%	7,5%	7,1%	8,4%	9,5%	9,5%
OPPO	7,5%	8,0%	8,1%	6,9%	7,4%	8,6%	8,4%
Others	40,2%	40,1%	39,6%	36,8%	33,2%	32,9%	33,9%
TOTAL	100,0%	100,0%	100,0%	100,0%	100,0%	100,0%	100,0%

2009 to 2012

In one of the most interesting high tech scenarios in years, the “smart mobile” OS (operating system) market is shaping up to be a classic Battle of the Titans. Key strategic issues, theories, speculation, and money, lots of it, are making this a great real-time strategy and marketing case study for management students of all ages (smile). So as Dell prepares to fade into the sunset, get yourself a drink of your choice, and some popcorn, sit back and watch it all unfold.

The best metaphor I can apply to this might be a “destruction derby” featuring at least two players, or perhaps a bizarre multidimensional Super Bowl or Rugby World Cup match, with four teams on one playing field with four goal posts at each cardinal point of the compass.. At the moment all four teams are tackling, passing, and running at each other in a confused pile. There are scrums, rucks and mauls in multiple locations. Two competitors, Google and Apple appear to be winning. The other two, Microsoft and Research in Motion, are pretty banged up, but still playing.

The two currently dominant competitors, Google Android with its acquisition of Motorola Mobility, and Apple IOS are rapidly consolidating and expanding their global market positions, via partnerships, vertical integration, and application development ecosystems. Microsoft has publicly committed to spending massively to make Windows 8 the third OS option, but a recent IDC mobile OS market forecast projects Microsoft with only a miniscule share in 2015. Something tells me that Steve Ballmer will go on a rampage if that happens, rather like the video of him screaming and dancing on stage in my post “Extrovert or Introvert, Authentic Presentations Take Practice,” November 30th. http://mayo615.com/2012/11/30/introvert-or-extrovert-authentic-presentations-take-practice/

The key question is whether Microsoft or RIM, will be able to establish a third mobile OS to a survivable market position. It is not at all clear that either can do so at this point. The market is also speculating that mobile hardware market leader Samsung, is possibly considering making its own play by creating its own mobile OS ecosystem. While this may seem far fetched, this kind of vertical integration seems to be making a resurgence as a strategic move, after having been discredited. Then there is the perennial Nokia, who has seemed to be on death’s door, but may be coming back. As a strategic partner for Microsoft, Nokia’s fate may have a huge bearing on Microsoft’s strategy to reinvent itself as the PC goes into atrial fibrillation. Will Amazon enter the fray with its own smart phone entrant, and if so, with whose OS? Will Research in Motion and the Blackberry be able to achieve a survivable market share, or is RIM already a walking zombie?

Finally, in a kind of death dance patent dispute reminiscent of the film, Gladiator, Nokia and RIM are now locked in new lawsuits and counter-lawsuits, as if to say, “If neither of us are going to survive, we might as well kill each other for the entertainment value.”

Here’s a more concise overview of the race to be the third mobile platform:

The argument in favor of a third platform is straightforward and compelling: A new, robust competitor will prevent the dominant platforms from growing complacent or stifling innovation. Apple and Google are pretty happy with the status quo. Consumers are probably not consciously pining for a third mobile platform. Developers would happily get behind a third platform if it widened their revenue streams.
Microsoft has a head start: It launched Windows Phone in 2010, and tablet-friendly Windows 8 this year. It is experienced in building developer communities. However, Windows Phone has so far only managed a paltry 3 percent platform market share.
Amazon has the most potential to upend the market: A smartphone would be a natural extension of Amazon’s distribution empire, and its Kindle Fire tablet play. Unfortunately, the most recent E-reader forecasts show them in sharp decline as growth in full-functional tablets squeeze them out. Amazon has 106 million unique visitors accessing its sites, many of them with credit cards on file.
Samsung is a dark horse: Its dependency on Android may become a liability and push the South Korean manufacturer into the platform business. Samsung’s strength is its hardware sales prowess — Samsung shipped over 56 million smartphones in the third quarter of 2012.

For Management students, this real time case study offers the opportunity to apply and ponder:

1. The time tested 1976 Boston Consulting Group (Bruce Henderson) “rule of three and four.” In a stable mature market there can be no more than three surviving competitors, the largest of which can have no more than four times the share of the smallest of the three. Here, the question is whether a third competitor can successfully emerge at all?

2. Barriers to market entry. Former Intel Marketing VP, Bill Davidow‘s book, Marketing High Technology, An Insider’s View, still considered the standard on the topic, suggested his own metric for a barrier to a new market entrant, or even a competitor just struggling to survive the market shakeout. The market entry barrier rule of thumb in dollars is three-quarters the most recent annual revenue of the market leader. In this case, that is a very big B number… Microsoft has the bucks, but is it just too late?

3. Vertical integration. Rumors of Samsung introducing its own mobile OS seem implausible, but hey Nvidia just announced its own gaming console to compete with Microsoft, Nintendo, and Sony.

4. Resources and capabilities. It is necessary to consider the respective resources and capabilities of each of the many direct players, and those playing in related markets that bear on the mobile OS market.

5. Related markets, new markets, peripherally involved competitors and products which all could play a role in the eventual outcome of this. The integrated Internet HDTV market is only one example. Featuring Apple, Microsoft, Google, and Samsung, and the HDTV manufacturers, it could influence things. What if Amazon were to vertically integrate and introduce its own smart phone?

This is the hairball of this Century so far. Are you all still with me, here?

Why The Biggest Tech Companies Are Not In Canada

Mayo0615 Reblog from July 22, 2013

It dawned on me that my blog post from July 2013, still has particular relevance to the current situation in Canada. I discuss the longer term structural issues confronting Canadian entrepreneurs and Canadian venture capital. When I first arrived in Canada, I learned quickly that the Vancouver startup ecosystem was nothing like what I knew from Silicon Valley. My personal case study was Mobile Data International, a pioneering company in wireless data, well before WiFi and Bluetooth, that could have led the market and the technology. Instead, the company was taken public much too early. MDI was bought by Motorola Canada for $39 Million, in a hostile takeover, and was essentially moved out of Canada and shut down. Later, in 2012, I had another opportunity to be up close and personal with Canadian innovation, as a participant in the Canada Foundation for Innovation deliberations in Ottawa. These two experiences have played a major role in the development of my views on this topic.

The following reblog raises the tough questions that are holding Canada back.

From July 2013:

In 2013, ContentDJ founder Jerry Tian published a blog post addressing the issue of “Why Canada Has No Big Tech Companies” – Nortel is dead and RIM is quite obviously dying, he points out. Tian, who was himself responding to an interview with Boris Wertz, founder of Vancouver’s Version One Ventures, offers a thought provoking theory and one that applies to a large degree to all up-and-coming startup ecosystems.

The founder questions the commitment and willingness of Canadian investors and entrepreneurs to devote the ten years or more that it may take to build an independent multi-billion dollar company with staying power, rather than flipping that company for an eight, nine, or even ten figure exit – typically to Silicon Valley acquirers – and exporting that future innovation and wealth building. It’s a charge that could be applied equally well to New York, Los Angeles, Chicago, Austin, Boulder, and dozens of would be international startup hubs.

“’Silicon Valley is not a place but a state of mind,” Tian writes, quoting KPCB General Partner John Doerr. “Some of these insights are collaboration, competition, openness to innovation, failures and experimentation. Probably the most important one is the long term commitment behind technology companies.”

Of course, Tian and Doerr are spot on. What emerging startup hubs often miss when trying to “become the next Silicon Valley” – a flawed mission in and of itself – is that the grandaddy startup ecosystem is more than its physical infrastructure of entrepreneurs, engineers, designers, investors, service providers, universities, and the like. Equally important are the systematic irrationality and a feedback loop around the willingness to turn down the quick buck and go for the massive once-in-a-generation success story.

This isn’t the case with every company, founder, or investor, but it exists in enough density in the San Francisco Bay Area, and based on results to a lesser extent in Seattle, that these are the only two areas areas in the country that have led to multiple ten billion dollar plus technology and internet companies – the true giants that transcend their local ecosystems and seep into the lives of average consumers.

It is these companies, with their ability to attract talent, make acquisitions, invest in long-term R&D, and create systemic wealth that make ecosystems. And with very rare exception, getting to this scale requires a decade or longer commitment and a willingness on the part of founders and investors to turn down near and mid-term paydays. Similarly, it requires a vision and an ambition to build something that will be around forever.

Tian writes:

So, why is nobody talking about these acquisitions? I think it’s simply because investors are getting filthy rich off these deals.

And that’s exactly what not to do if you want to create the next Silicon Valley. You cannot sell the hen that lays the golden eggs for a few quick buck [sic]. Technology companies take 10 years to really manifest the value. To really build a billion dollar company, it takes tremendous multi-decade commitment. And that’s the biggest missing piece in Canada.

Like or hate Zynga founder and former CEO Mark Pincus, one has to respect him for saying that he wants to build a “digital skyscraper,” a company that would be around for 100 years. Pincus went further to say that he views serial entrepreneurship as failure and that he wants to run Zynga for the rest of his career. Ironically, he recently replaced himself as CEO, personally recruiting Don Mattrick for the role. But Pincus made the ego-busting move in an effort to return Zynga to its former glory and to get it back on that century-long track.

In his somewhat controversial on-the-ground reporting on the Chicago ecosystem last summer, Trevor Gilbert delved into “the Midwest Mentality” and the impact it has on the types of companies that are built there. Gilbert called Chicagoans “pragmatic.” Lightbank partner Paul Lee offered an example of this pragmatism, saying that Chicago startups typically focus on generating revenue from day one, rather than building a massive, but unprofitable user base, a la Facebook and Twitter pre-monetization. Profit is all well and good, and should be the ultimate goal of any business that wants to be around for the long term, but focus on it too intently early on and it can be impossible to invest in growth. It takes a special kind of vision and fortitude to look past the short term and make the big bets required to create massive companies.

This is not to pick on Chicago. A similar phenomenon seems to exist in LA where companies race out to a low nine-figure valuation and then either stall out in that vicinity or sell for sub-one billion dollars to a larger out of town acquirer. Call it the curse of the big-little deal – maybe everyone here just wants to see their name in lights. In a market that is desperate for success stories and validation, these medium-sized exits are hailed as “wins” – and they are, given the difficulty of building a hundred-million dollar company – but they often rob the ecosystem of potential multi-generational tentpole companies. This is a mentality that appears to have changed in recent years, but that change has not yet bore fruit in the form of LA’s answer to Google, Amazon, or Facebook.

New York has seen its own version of this phenomenon, with the ecosystem’s biggest success stories, DoubleClick and Tumblr, being exits to Google and Yahoo respectively. Local darling MakerBot followed suit, selling for $600 million in June. New York does have Fab, Gilt, and Foursquare all shooting for the moon but these companies and the ecosystem as a whole still must prove that they can sustain this ambition and parlay it into a giant company.

As Tian points out, part of the blame for these exits falls on investors. It’s not that investors aren’t interested in massive outcomes – they most certainly are. But not all non-Silicon Valley investors are equipped for the financial and time commitment it takes to create them. These investors, many of which operate out of first- or second-generation funds, often have smaller pools of capital to invest out of.

Write a $2 million check at a $10 million valuation out of a $100 million fund, and a 50x return looks pretty good, returning 98 percent of your fund. Make that same investment out of a $1 billion fund and the impact on fund economics is decidedly less interesting. This is one of the few arguments in favor of mega-VC funds. But it also benefits firms that are on their fourth, fifth or sixth fund and have less to gain reputation-wise with solid base hits.

Returning to Tian’s piece, he closes by writing, “If you are wondering why Canada doesn’t have the [sic] billion dollar company, it cannot be more obvious than this. Too many people are in it trying to get rich quickly off entrepreneurs. Not enough people have the gut [sic] and commitment to create or help create something truly meaningful.”

Tian paints with a broad brush, yes, which ignores many of the subtle nuances and external factors that contribute toward building massive technology companies. But there’s little arguing that people in Silicon Valley think differently. Armed by decades of case studies and social proof, the ecosystem has developed a healthy disregard for rationality.

Mark Zuckerberg famously did just that when Yahoo came calling. He was just 20 years old and Facebook, at less than two years old, was unprofitable with just $30 million in revenue. Yet Zuckerberg and Facebook’s board, which included Peter Thiel and Jim Breyer, turned down Yahoo’s $1 billion offer. When the elder advisors tried to convince the young founder that his 25 percent of that offer would be a big number he said, “I don’t know what I could do with the money. I’d just start another social networking site. I kind of like the one I already have.”

Israeli social mapping company Waze just made the opposite decision, selling to Google for slightly more than that mythical $1 billion. Sarah Lacy cautioned Israel-bulls to “reconsider too much high-fiving over Waze.” While legendary local angel investor Yossi Vardi likes to compare Israeli startups to tomato seeds which need more experienced farmers to grow properly, Lacy believes that the country has the potential to build and sustain globally dominant Web companies without selling, offering MyHeritage as an example.

None of this is to say Silicon Valley is immune from this syndrome. There are thousands of entrepreneurs in the Bay Area who would rather flip their company than do the long, hard work of building something sustainable. But the sheer density of the ecosystem means that a dozen or so each year choose the road less traveled. Also, given the scale of the Valley ecosystem, building a big company is the only way to move the needle and attract talent and capital. Everyone in line at Philz coffee is working on the next “billion dollar business.”

Finally, Silicon Valley is a magnet for those entrepreneurs around the globe who want to build great technology companies, and the ecosystem surely benefits from this imported talent. This was actually Wertz’s central point in the original interview and is one that Tian touches on briefly. It’s a difficult problem to solve, given the power of knowing someone (or several someones) who has summited the mountain before and who can show you that it can be done. In each of these other markets, someone will have to be the first.

In many cases, it is highly irrational to turn down a nine- or ten-figure acquisition offer. There are real benefits to gaining access to the financial and personnel resources of a larger acquirer, ones that can often make or break the success of a still fledgling company. But, if there’s anything in Silicon Valley that Canada, LA, New York, and other startup ecosystems should aspire to it’s this willingness to roll the dice. Sometimes the shooter rolls a “7.”

“Culture of arrogance” felled Nortel, anti-climactic Ottawa U study concludes. Was RIM any different?

This is another on my series on industry analysis. The recent University of Ottawa study on the demise of Nortel Networks, tells us what many of us already knew. The most important constructive criticism of this study is that it should have been done years ago. The Nortel collapse was followed by a surprisingly similar scenario at RIM, now Blackberry. Mike Lazaridis, who served as RIM’s co-CEO along with Jim Balsillie until January, 2012, are generally considered to have failed to respond adequately to the market encroachments of Apple’s iPhone and Google’s Android phones, as Blackberry’s market share plummeted. I recently showed my undergrad and graduate strategy students a video of a Charlie Rose interview with John Chambers, CEO of Cisco Systems. Chambers emphasized the acceleration of the Adizes corporate life cycle, in many cases to less than ten years, and the need for constant reinvention to survive in this challenging and rapidly changingnew world.

Former Nortel CEO John Roth

Former RIM CEO, Jim Balsillie

This is another on my series on industry analysis. The recent University of Ottawa study on the demise of Nortel Networks, tells us what many of us already knew. The researchers should be congratulated for their work and their conclusions, in what is an important case study of Canadian corporate mismanagement, which will help Canadian business avoid a deja vu. But many of us in the high tech industry already knew the answer in our guts. The most important constructive criticism of this study is that it should have been done years ago. The Nortel collapse was followed by a surprisingly similar scenario at RIM, now Blackberry. Mike Lazaridis, who served as RIM’s co-CEO along with Jim Balsillie until January, 2012, are generally considered to have failed to respond adequately to the market encroachments of Apple’s iPhone and Google’s Android phones, as Blackberry’s market share plummeted. There seems to be a pattern here for students of Canadian innovation and management. I recently showed my undergrad and graduate strategy students a video of a very recent Charlie Rose interview with John Chambers, CEO of Cisco Systems. In that interview Chambers emphasized the acceleration of the Adizes corporate life cycle, in many cases to less than ten years, and the need for constant reinvention to survive in this challenging and rapidly changingnew world. This is now also true about the teaching of Information Technology to management students and to all undergraduate students for that matter.

Cisco System’s CEO, John Chambers discusses the acceleration of the corporate life cycle: Chambers Interview

Read more: Management in the Brave New World

TECHNOLOGY

‘Culture of arrogance’ felled telecom giant Nortel, study finds

JANET MCFARLAND

The Globe and Mail

Published Monday, Mar. 17 2014, 2:16 PM EDT

Last updated Tuesday, Mar. 18 2014, 7:16 AM EDT

The collapse of telecommunications giant Nortel Networks Corp. was caused by “a culture of arrogance and even hubris” that led to numerous management errors and weakened the firm’s ability to adapt to changing customer needs in a fast-paced industry, according to a new in-depth analysis of the company’s final decade of operations.

A University of Ottawa team of professors, led by lead researcher Jonathan Calof, released a detailed analysis Monday of Nortel’s failure, outlining a litany of complex factors that caused Nortel’s collapse in 2009, when the firm filed for bankruptcy protection and was disbanded.

The report is based on three years of research and dozens of interviews with former employees, executives and top customers to try to understand what went wrong at the company. The project was launched after former chief executive officer Jean Monty approached the research team and offered to contribute to the financing of the project.

The study concludes that Nortel lacked the internal “resilience” to cope with a changing external marketplace, and missed key opportunities between 2002 and 2006 to retrench as it struggled to survive. In the end, customers said they could not stick with Nortel as a “black cloud” formed over the company, raising doubts about its long-term future.

Prof. Calof said in a release Monday that the findings are “more than a Nortel story” and present broader lessons about preventing further failures of large companies in Canada.

“It’s our hope that this research will aid in educating tomorrow’s leaders,” he said.

The report says Nortel in its early days was a model of deep technological expertise through its Bell Northern Research (BNR) laboratories and its strong connection to customers, enabling the company to maintain a “first-mover” advantage in many markets. At its peak in 2000, Nortel was Canada’s largest public company, accounting for a third for the value of the S&P/TSX composite index, and employed more than 93,000 people worldwide.

But the authors concluded that Nortel’s growing dominance in its markets in the 1990s “led to a culture of arrogance and even hubris combined with lax financial discipline. Nortel’s rigid culture played a defining role in the company’s inability to react to industry changes.”

While Nortel doubled its revenue between 1997 and 2000 through a spree of expensive acquisitions – and tripled its share price in the same period – the company lost focus on profitability and was in a “precarious position” when the market for technology companies crashed in 2001, the report says. The report says its acquisition spree was a “complete departure” from Nortel’s established skills base and from its tradition of developing its own products.

“This approach proved to be a failure because ill-chosen and poorly integrated acquisitions defocused and overcomplicated the organization,” it concludes. “The company’s high cost structure and lack of financial discipline eventually led to financial ratios that were among the worst in the industry.”

The company also made a series of poor product-related decisions in the same period, including deepening its focus on the declining market for land-line technology and in the increasingly competitive optical market, while missing opportunities in the exploding wireless technology market, where it once had an early lead.

The researchers also concluded that Nortel made operational mistakes, including dismantling the centralized research and development platform from BNR “that was culturally and structurally optimized to create, innovate and develop telecommunications products using co-operative teams.”

From the era of John Roth’s leadership as CEO in the late 1990s onward, “it was felt by many R&D staff that management rarely listened to the engineers and that, when they did, they did not appear to understand.”

In the same era, Nortel gave more power to individual business teams, “which resulted in increased internal politics and fruitless competition.”

The report also says Nortel could have solved its problems in 2002 by retrenching and selling business units, but missed the opportunity, and again missed an opportunity in 2005 and 2006 to sell units and retrench in key business sectors.

“As difficult as it is to consciously reduce the size of a business by selling units, this study concludes that, in the case of Nortel, this option may have been the best and only alternative.

Mobile Market Share: A Multidimensional War of Titans Worth Following

NOTE: This post, originally published in January 2013, continues to be one of the most viewed on the site. As Google and Apple now are estimated to enjoy 98% market share between the two, many of my projections regarding this market appear to have been borne out.

Here’s a more concise overview of the race to be the third mobile platform:

The argument in favor of a third platform is straightforward and compelling: A new, robust competitor will prevent the dominant platforms from growing complacent or stifling innovation. Apple and Google are pretty happy with the status quo. Consumers are probably not consciously pining for a third mobile platform. Developers would happily get behind a third platform if it widened their revenue streams.
Microsoft has a head start: It launched Windows Phone in 2010, and tablet-friendly Windows 8 this year. It is experienced in building developer communities. However, Windows Phone has so far only managed a paltry 3 percent platform market share.
Amazon has the most potential to upend the market: A smartphone would be a natural extension of Amazon’s distribution empire, and its Kindle Fire tablet play. Unfortunately, the most recent E-reader forecasts show them in sharp decline as growth in full-functional tablets squeeze them out. Amazon has 106 million unique visitors accessing its sites, many of them with credit cards on file.
Samsung is a dark horse: Its dependency on Android may become a liability and push the South Korean manufacturer into the platform business. Samsung’s strength is its hardware sales prowess — Samsung shipped over 56 million smartphones in the third quarter of 2012.

For Management students, this real time case study offers the opportunity to apply and ponder:

3. Vertical integration. Rumors of Samsung introducing its own mobile OS seem implausible, but hey Nvidia just announced its own gaming console to compete with Microsoft, Nintendo, and Sony.

This is the hairball of this Century so far. Are you all still with me, here?

“Parking” : The Crucial Venture Capital Skill No One Wants to Talk About

John Doerr, Parking Attendant, Senior Partner at Kleiner Perkins Caufield Byers, and former Intel executive

What is parking? It’s finding a good acquisition for a startup that didn’t do as well as you expected.

A local Okanagan company has recently been “parked,” with great fanfare as if it were a major success, but also to obfuscate the reality of the situation. This reality needs to be openly discussed, but it is unlikely that it ever will be. It is more important locally to loudly tout the company’s exit, primarily because there really has not been much else to celebrate here over the last few years. Locally, there has also been naivete’ about multinational corporate investment in a local startup.. Nobody wants to talk much about that either, but the stark facts are there.

Canadian Business has just published an excellent story about Ryan Holmes and Hootsuite, BC’s most recent “gazelle” startup, and current wild speculation about a $1 Billion valuation for Hootsuite. More importantly, the CB article confronts the deeply imbedded challenges and problems with Canadian innovation, investment, and the hope that somehow Hootsuite might avoid the sorry long history of Canadian high tech companies.

Is HootSuite Canada’s Next Billion Dollar Tech Titan?

Ryan Holmes, CEO of Hootsuite

Venture capital is described as a “hits business” and that’s true enough: a few exits produces the majority of the returns. 80% of VC profits comes from 2% of deals, a top European VC told the Business Insider. Others have told me the same story.

But that’s only part of the story. A rule of thumb is that to be considered a good performer, a VC fund has to return three times its capital. But in many a VC fund, while 2X will come from the big hits, the third piece w ill come from smaller “long tail” exits, which individually might not make a big difference to the fund, but when added up can make or break it. It is classic “marginal cost” thinking. Said another way, better to come as close as possible to breaking even than to go bust.

So “parking well” is a very important VC skill. And it comes down to the VC to park a company that hasn’t been performing as well as expected, because most often they’re the ones who have the industry relationships and the M&A experience, not the entrepreneurs. Cisco Systems has historically been the parking place for many unsuccessful startups. More recently, Google has enthusiastically joined the party, and their “parking” acquisitions have been labeled “acqui-hires.” For Google, it has been a simple calculation. Acquiring the target company, and tying up the key employees with a variety of incentives, versus the cost of an external hiring campaign, bonuses, relocation, and perhaps most importantly, excessive delays which negatively impact the acquirer’s competitive advantage.

VCs don’t like to talk about parking because they’d much rather talk about helping startups grow into huge blockbusters than mitigating losses on underperforming investments.

And Kleiner Perkins is known in the industry for being great at parking.

In a talk at Stanford, when talking about how VCs need to be good at finding exits for their companies, straight-talking VC Mark Suster phrased it thus: “Are you Kleiner? Can you get $400 million for ngmoco when it probably wasn’t worth it?,” adding jokingly: “Oh, maybe it was worth it.”

The point here isn’t to diss mobile gaming company ngmoco (your writer enjoyed many wasted hours on Rolando, one of their hit games), but it pivoted several times in search of a business model and when the acquisition happened, many eyebrows were raised at both the price and the acquirer, DeNA, a big Japanese gaming company that had done practically no US acquisitions to date.

In the case of Pelago, it probably works out for everyone. Groupon gets a great team who understands mobile, one of its big growth areas. The entrepreneurs get pre-IPO stock options into one of the hottest companies on Earth, and maybe even some cold hard cash if they weren’t too diluted and/or didn’t have too harsh liquidation preferences. Kleiner gets a small but valuable notch on its belt and helps talented entrepreneurs get a good save, who probably won’t forget that the next time they go raise money.

Parking is crucial for VCs, and Kleiner shows how it’s done.

The Rapid Maturation of the Smartphone Market Should Have Been Foreseen

Vendor Data Overview

2009 to 2012

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Mayo0615 Reblog from July 22, 2013

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