Tuesday, June 9, 2015

Lessons of Moore's-Law History 3: The Consumer is the Chasm

In the previous two blog posts, we have seen (hopefully!) the importance of betting on technologies and suppliers that most closely resemble the silicon-transistor-chip evolution process, and the need to bet on suppliers adhering to that process that emphasize infrastructure software combining openness to technology evolution with support for existing systems – but we have not dealt with the “chasms” that occur when Moore’s-Law evolution results in new, radically different higher-level technologies. 
Here I am combining two books popular back in the 1990s:  Crossing the Chasm, by Geoffrey Moore (no relation), which talked about how innovative startups bridged the gap between early techie adopters and the bulk of the market; and The Innovator’s Dilemma, by Clayton Christensen, which argued that “disruptive innovation” driven by new technologies would over time change existing markets profoundly, usually to the detriment of larger, well-entrenched companies presently dominant in an industry.  In an industry like the computer industry (including software and services), where Moore’s Law drives a more rapid pace of underlying improvement to platforms, entrenched companies must often react to disruptive innovation by “crossing the chasm” rapidly with their customers to the new technology, else they risk losing their markets and their ability to survive.

When A Company Is Ultimate-Customer-Blind

The 1990s and early 2000s gave us a good set of data on who succeeded and who failed in “crossing the chasm.”  The results were surprising to many.  It seemed reasonable that a Sun or an Oracle would surpass a Microsoft, that a Digital Equipment would beat a Novell, that an IBM would dominate a Compaq or a Dell in the PC market.  And yet, here we are 25 years later, and by no stretch of the imagination can we say that these things happened.
It seems to me that a common theme of this litany of successes and failures at adapting to new Moore’s-Law technologies is that companies that sold to the business market failed far more often than companies that sold to the consumer market.  Sun, which did a superb job jumping from the workstation to the server market, failed among other things to note consumer-driven Linux/Windows open-source software that was undercutting its prices and playing better with the server farms that later led to public clouds.  IBM’s initial great Charlie-Chaplin PC marketing fell before the next-day delivery and Intel allegiance of Dell and Compaq.  On a smaller scale, we saw Informix’s Oracle-protected VAR channel fail fatally when Informix failed to reach through that channel to detect that the servers it was shipping to VARs were no longer being bought at a comparable rate by the ultimate customers. 
On a longer time scale, the proprietary chip sets of IBM, HP, and Sun/Oracle have steadily lost ground compared to Intel markets.  It may seem logical that IBM over the last few years is walking away from the PC, starting with its consumer PCs/laptops; but that approach has steadily given it less and less sense of trends in the consumer market, and that, Moore’s-Law history would suggest, is dangerous.  It was once assumed that one’s employees would buy consumer versions of what a business-focused computer company offered; but, starting in the 1980s, the opposite has appeared true:  Word/Lotus, Excel, presentation software, laptops, smartphones, and social media have all been imported into businesses before and despite corporate standards.  If a computer company wishes to handle a disruptive innovation, Moore’s-Law history suggests, it must immediately sense the consumer movement, and then follow the consumer across the chasm, and quickly.

The Top Line is Now the Bottom Line

From 2008 on until fairly recently, a focus on cutting costs allowed companies like IBM, Oracle, and HP to look good to Wall Street although revenues were slightly down to slightly up.  Now, however, the contrast with consumer-focused companies like Google, Amazon, and Apple that continue to grow revenues by leaps and bounds is becoming all too obvious, and the chasm to cross to support the new mobile and cloud technologies is becoming wider by the day.  Generalizing to other industries, it is not enough to keep in sync with a Moore’s-Law-related process and focus on flexible, forward-compatible software.  One should also focus on growing top-line revenues by crossing the chasm with the customer. 
That means aligning platforms with consumer-successful companies like Intel.  That means aligning strategies with Google's, Amazon's, and Apple’s smartphone and cloud technology changes.  And that means far better coordination with and analytics about ultimate end-user customers – e.g., agile marketing.
Moore’s Law won’t last forever – it probably won’t last more than 5-10 years longer.  But the lessons of its history will last much longer than that.  Caveat seller.