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http://www.economist.com/node/17633138

This article from the Economist chronicles some of Google’s biggest successes and problems. Although the article does not refer them specifically, we can derive two major concepts from class:

1) Strategy

Google derives the vast majority of its revenues from search-based advertising, just as Microsoft derives its revenues from Windows and Office. While Google remains a highly lucrative company, its stock prices have remained relatively stagnant (though not as stagnant as Microsoft’s) because investors worry about a lack of revenue streams for future growth. Youtube

However, Google’s diversification strategy is beginning to bear fruit. Its smartphone operating system, Android, has gobbled up 26% of the world market after only 2 years since its introduction. Youtube, which was purchased by Google several years ago, has a promising future ahead as mobile advertising gains momentum. (What do you do on a smartphone? Play games and visit Youtube!) Other projects, such as power generation and self-driving robocars, may have far-reaching consequences for the future.

2) Scale

While economies of scale certainly allow companies to minimize per unit costs, at a certain point, these cost savings will be overshadowed by the inefficiencies of a bloated corporate bureaucracy. Recently, Google has seen some of its best people migrate to other firms such as Facebook. These people complain that Google’s bloated bureaucracy is paralyzing decision-making and destroying its quirky and innovative culture. Google has responded by making multi-million counteroffers for leaving employees, increasing all employee pay by 10%, and giving business units more autonomy over their operations. Let us hope these measure will be enough.

http://www.engadget.com/2010/12/02/rim-buys-tat-blackberry-ui-in-danger-of-becoming-awesome/

An update to yesterday’s post: RIM is about to score a swish on the user interface (UI) of its products with its (just announced) acquisition of TAT, a Swedish UI design company. TAT is perhaps most famous for its design of the UI for the original T-Mobile G1, the seminal Android phone that spawned the army of Androids we see today. What this means is that RIM is already on its way to addressing some of the problems I’ve outlined in the post yesterday. In addition to making its existing line-up of products more attractive, TAT may also turn the soon-to-be-released BlackBerry PlayBook into a major hit.

http://www.amazon.com/gp/feature.html?ie=UTF8&docId=aw_ppricecheck_iphone_mobile

That’s exactly what Amazon has been thinking. Amazon has just released an app for the iPhone that allows consumers to instantly compare prices of products on store shelves to their prices on Amazon.com, simply by scanning the bar code with the iPhone’s built-in camera. Now that’s convenient.

It’s also quite devastating for traditional retailers because Amazon has just taken another crucial step toward driving them out of business. How? Because Amazon is almost guaranteed to have lower prices than most retailers and it now has an effective method to broadcast its lower prices to every shopper who owns an iPhone. Amazon is able to achieve these lower prices because, unlike most retail outlets, Amazon has much, much lower costs. It achieves low costs using 2 primary methods:

1) Keeping most of its wares in cheap and efficient mega-sized storage facilities on desolate strips of land where per-unit inventory costs are virtually nonexistent (economies of scale!), and shiping items out whenever necessary through efficient courier services (economies of scale!)

2) Selling thorough a website, which only takes a small team of team of people to manage.

In contrast, traditional retailers (such as Staples) have to keep their wares in expensive locations in populated areas, create complex distribution networks to supply these locations, pay numerous associates to hawk their wares at each location, and hire managers, HR personnel, janitors, accountants, marketers……

Amazon can lower its prices because it doesn’t need to do any of the above. But wait – it gets even more ingenious. With this move, Amazon has also eliminated one of the biggest problems of online retail – the lack of real products on display. The app allows Amazon to piggyback on retailers’ showrooms: if I want to buy a laptop, I go to Staples to check out the real item, then scan the bar code, and buy it on Amazon instead.

http://www.engadget.com/2010/12/01/nielsen-android-makes-huge-gains-in-us-smartphone-marketshare/

Has RIM lost its edge? According to the latest Nielson report (posted on Engadget), RIM’s BlackBerry line has lost significant market share in the smartphone market. Its share has fallen from 35% to 27.4% in just one year. That’s a 7.6% drop while Google’s Android increased its market share from a mere 9% to 22.7% in the same period. (iPhone’s market share stayed steady at around 28%.) This development should be a cause of concern for RIM’s management.

RIM has always positioned the BlackBerry, with a multitude of security and corporate features, as a smartphone for “cool” professionals (including Sauder students and Barack Obama). This certainly made the BlackBerry successful, but important changes have begun in the smartphone landscape and RIM still hasn’t caught up.

Take new BlackBerry models such as the Torch for example. These models retain BlackBerry’s traditional features such as a long battery-life and solid security. However, the lag behind the iPhone and Android models in just about everything else. The Torch has a much weaker processor, lower resolution screen (especially compared to the iPhone’s “retina” display), somewhat-outdated OS, and countless other features that lag far behind the competition. RIM must address these issues to stay competitive, especially in this multimedia age when processing power and display clarity on a smartphone (or entertainment device) is arguably more important than the traditional telephone function itself.

There is good news. The soon-to-be-released BlackBerry PlayBook seems like a compelling replacement for the iPad. That’s the first step in the right direction. Hopefully RIM can continue this momentum. As the company that popularized smartphones in the first place, it would be truly ironic if RIM misses the rim again.

http://www.economist.com/node/17309237

It looks like smart phone prices are on the rise. Companies in smartphone related industries that formerly lived harmoniously have suddenly decided to turn on each other and engage in all-out legal warfare. As a result, we may see prices increase dramatically as the costs rise due to patent loyalties. (On the flip side, companies may offset some of this cost by winning their own patent suits.) According to the Economist, this legal battle “is not merely about individual products, but entire platforms and operating systems.” Should any platform emerge victorious, it may dominate the smartphone market for years to come, just as Windows had dominated the PC landscape for decades and even today.

So, in this situation, the consumer will most likely lose. And what of the companies? The likely result is that none will emerge the winner. According to Game Theory, players in an oligopoly have the option of cooperating or not cooperating. Cooperation (in this case, not suing each other) by all players will naturally result in the best outcome for the industry as a whole (win-win). Currently, it seems that most players have chosen to compete instead of cooperate (lose-lose), resulting in increased production costs due to patent royalties, higher prices of their products, and lower sales for the industry as a whole (lower quantity demanded due to higher prices). Maybe it’s time for these companies to sit down at the negotiating table and rethink their strategies.

http://www.engadget.com/2010/09/27/rim-introduces-playbook-the-blackberry-tablet/

It seems like RIM is adopting a new strategy – competing with Apple and several other newcomers (like Samsung) in the tablet market. Based on the marketing material, the PlayBook seems like a viable competition to the iPad, offering more features in a similarly attractive package. However, by the time the PlayBook arrives we should expect to see an update to the existing iPad, one that hopefully incorporates a camera and Flash capability – two items it sorely lacks.

While the PlayBook may indeed be a better product than the current iPad, it will have a much tougher time staying in the consumer conscience. As we learned in positioning, it’s easy to get into someone’s mind if you’re first, but so much harder if you’re second – even if you have a better product. The PlayBook may just be a tad too late, especially when other companies plan to enter the tablet market at around the same time as well. Can the PlayBook beat the information overload? It’ll be interesting to see.

http://online.wsj.com/article/SB10001424052748703743504575493504267114766.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

Volkswagen will (finally) take the North American market seriously, as part of its efforts to dethrone Toyota from the car manufacturing crown by 2020. To do so, VW of North America plans to make two broad shifts in strategy:

1) Cost/price reduction. Today, all Volkswagen vehicles are manufactured in Europe and imported to America. Soon, many of these same vehicles would be built in North America instead. This tactic will significantly reduce labor, shipping, and foreign-exchange-related costs. These cost reductions will, in turn, allow VW to lower its prices to better compete with cheaper offerings from almost every other manufacturer on the market.

2) Vehicle design. Almost all VW models on sale in North America today are designed in Europe for European consumers. To address this problem, VW will introduce a new Jetta and a new Passat designed exclusively for the North American market. They will be bigger and cheaper while maintaining the sportiness and quality VW is known for.

There is, of course, a counter argument. Many believe that VW should instead introduce more models from Europe, such as the popular Scirocco hatchback and minivans similar to the original microbus – cars that define VW’s quirky, sporty, counter-cultural personality. By appealing to the masses instead of bringing masses to VW, they contend, VW would lose the essence that makes it what it is.

http://blogs.wsj.com/wealth/2010/10/04/uh-oh-the-rich-are-buying-gold-again/

It seems that the court of investor opinion has again shifted its verdict to gold as the investment of choice. Not surprisingly, the economy isn’t doing well – again. Last time, the gold rush happened in 2008-2009, when the economy tanked. Stocks fell like never before, Freddy and Fannie got absorbed by big government, AIG got an $85 billion package, and Lehman tanked. So investors sold their stocks and ran for gold, a precious metal eternally increasing in value. History will repeat itself, to the further detriment of the economic recovery.

An economic recovery cannot happen without increased spending by consumers and investment by corporations. The problem is, consumers aren’t willing to spend (because they have no money) and corporations are afraid to hire (because they have no money). There is one group (aside from big government in debt) that has money – investors! But, sadly, their money isn’t being sent to the right places. Instead of pooling funds into companies, who, in turn, use these funds to purchase labor and capital, investors are buying gold, which does nothing but sit in a safe looking pretty. Now that’s bad finance. But who can blame them? Investors too, fear buying stocks and losing their money forever.

While doing our business plan, I noticed something very interesting about the business plan that ties in well with the marketing we learned in class. Our business plan is one about opening a new high-end fitness center (Woodland Gym) in downtown Beverly Hills, an affluent Californian suburb most commonly associated with Hollywood celebrities. The gym will be the only one in its near vicinity, which effectively gives it total monopoly of the market. While this monopoly alone will almost certainly guarantee good business, it is interesting to note how the gym plans to set itself apart from a competing gym 10 miles away. Woodland Gym will position itself several tiers above the competition, offering customers a luxurious environment with high-end, but expensive, services, while the competing gym offers lower quality services and facilities at a lower price point. Essentially, Woodland Gym plans to differentiate itself from the competition by targeting a completely different demographics. It will target BMW-driving, upper-class individuals while the competition targets the average Joe and Jane with much lower incomes – two different pieces of pie, so to say. I do wonder, however, how the fight will break out if a competitor similar to Woodland enters the fray?

It seems that companies these days love to use sex to sell products. Sexual innuendo, whether cleverly subdued or downright in-your-face, seems ubiquitous. Many ads pertaining to such subject matter also seem to totally go against the concepts of positioning, showing neither a product’s similarities nor its differences in respect to the competition. They feature scantily clad men and women taking up huge chunks of space, with the actual product relegated somewhere in the corner. They imply that the products will get you laid.

Two questions arise from this issue. 1) Is it morally risqué? and 2) Is it effective? While I’m no expert on such matters, I think the ads are acceptable, though not necessarily appropriate. Many companies are faced with few other alternatives than using sex to divert customers’ attention from the merits of the product itself, because they cannot differentiate their products from others’ and that other companies are using sex as a tool as well. To not join the bandwagon would spell certain death unless companies develop novel alternatives. As to the efficacy of the ads, I would have to assume that many consumers are indeed swayed by the sizzling images, otherwise most companies would have given up with the sex already.