Tip:
Highlight text to annotate it
X
Besides business modeling one of the things I like to do is actually
study business strategy and
I don't even wanna tell you how many books I've read on business strategy but
the irony is that the greatest book ever written for business strategy
was actually
written 2000 years ago.
Sun Tzu: The Art of War. And yes, I know you've probably seen it quoted many times.
In fact, in Wall Street the movie
it was quoted by Gecko way too many times
and I think that people really don't understand the whole principle behind
Sun Tzu: The Art of War. And so what I decided to do is
do some episodes of how the strategy behind Sun Tzu: The Art of War
is applied to business and I see it all the time.
And one of the big battles that are you see
duked out every day is the battle between Apple and Samsung.
It's actually quite interesting
for us to study. But as I go through all the different chapters on
Sun Tzu: The Art of War, and it's actually only thirteen chapters so
the first chapter is
the chapter on Estimates. And one of my favorite quotes, it's probably one of my favorite
quotes in the entire book -- it applies to startup entrepreneurship
to the core -- is that "What is of the
greatest importance in war is extraordinary speed.
One cannot afford to neglect opportunity."
I actually quote that to myself
at least once a week to remind myself how speed is important
and this was actually a quote - it was a
I mean if you study Sun Tzu: The Art of War they actually have
quotes and commentary by different people throughout the history
and so this was a commentary by Ho Yen-hsi
and it's based on verse 26 and so
when you look at whether it's business or war, speed is very important.
One of the things I want to do is I'll show you how that can be
applied in business.
Whether it's a startup, or even a large corporation, or whether it's
a startup fighting a
large fortune 500 company, you can still apply the principles.
So the battle between Apple and Samsung is very interesting.
So if you have Apple here, Samsung here,
if you look at the iPhone market,
Apple came out first.
So in this whole battlefront
of trying to get you to buy
the product okay -- make happy customers right here --
is that Apple came out with a very disruptive revolutionary product --
the iPhone.
And so they dominated for quite some time. But what's so remarkable is that
Samsung came from behind
to literally catch up to Apple and they did it through the indirect method.
But one of the things that they were really did
was they used extraordinary speed. So they came into the marketplace.
They copied Apple, the smartphone.
One of the things they did -- they used the Android
operating system to get to the market.
So it was really one of those things that --
they outsource the operating system -- and Android was obviously put out by Google
and they included it inside the smartphone
in order to get out there. Now one of the things they did was,
because Apple had an exclusive with AT&T for awhile,
they were limited somewhat from a distribution perspective.
And because the margins are really high
they were able to generate a substantial amount of profit
in the early stages of the market evolution. So if you look at, and
you've seen me do this many times
when it comes to how to build a billion dollar start-up almost overnight,
I draw a graph. And so what happened was,
in the smartphone sector,
Apple was able to extract a tremendous amount of profit in the early phases
of their revolutionary smartphone design. And so what happened was
as the market accelerated
Samsung came in and they started to compete on quite a few different fronts
and they used speed as one of their advantages. They used speed in terms of
getting to the consumer on a global basis. And they also use the principles
of speed when it came to distribution channels.
So Samsung used cost
as one of their speed advantages. So they came out with different products
at a lower cost.
So if you get across the world, and I was in in Hong Long,
literally it was completely dominated by Samsung even though I went into the
Apple store and spent some time there.
So what you had was they used cost as an advantage
to penetrate the market. They also used distribution.
So when you look at Samsung's strategy of going into the marketplace,
into this smartphone sector, they used the distribution component and then,
last but not least, they used a tremendous amount of advertising
to get to the consumer.
In fact when you look at the just pure force
of advertising, dollar for dollar Samsung was outspending Apple
4 to 1 easy, just to get the consumer awareness. So when you
look at the principles of speed and using extraordinary speed,
Samsung was using these different factor points to get there.
Now at the end of the day
you have two principles involved
when it comes to speed -- speed to launch
and then you also have what I call speed to diffusion.
So Apple was able to segment a market
at a higher price point, and they were able to diffuse their
technology into those markets.
But they left the middle and the low-end market wide open.
And this is where Samsung came in.
Now one of the things that you learn when you study
Sun Tzu: The Art of War
is the concept of the indirect approach. And so one of the other things that
Samsung did
is not only did they use the advertising
firepower to get to the consumers minds,
not only do they use different, wider distribution mechanisms and channels
to get to as many global points as possible,
but they also used the principle of
form. As the smartphone --
if you look at the innovation
of the smartphone,
this size, first of all, it really came down to the size,
if you look at the plus sign up here
and this is the negative sign, so for instance Apple came out with the phone
of a certain size X, okay, and then as the evolution
of the phone started going up with more features,
and the irony is that a certain point it started becoming commoditized
where the smartphone features really, to some extent, are becoming a commodity
what happened was, Samsung came out with a bigger
form of a phone. And I can tell you when I was in Hong Kong
literally everybody had these larger phone sets.
And so what they did was they not only changed the game from a distribution,
advertising, and pricing standpoint, but they also came out with
a larger size of a phone, which is now
forcing Apple to do two things. So Apple, if you look at it,
what they did was, in order to use speed to get to the market,
what Apple was doing was -- let's say you segment the market
to three different markets: high end,
middle end, low-end. So Apple was basically feeding into this market.
Now what Samsung did was big game is
and they started appealing to the middle and the low-end markets
on price and distribution and all that.
So that's where they've been successful. Now what's interesting is that
Apple has to react.
So if you look at strategy in order to -- once again, you've got to remember
they're still fighting
to get their product diffused into the consumers' minds on a global basis.
So now what Apple has to do is come out with a middle-end, which they've been doing
and especially the low-end. Because when you go to Africa,
I can tell you, when I was in Africa
people wanted to get my iPhone. They were willing to pay $1000 for it.
But overall, most to the people in Africa, as an example,
prefer to get mid-point or low-end phones.
So now here's what's happening -- I go back to the
analysis of extraordinary speed.
You have Apple and you have Samsung duking it out on the
smartphone sector side.
Now what's coming up is the
smart watch
sector. And here's the irony,
Samsung beat Apple to the punch.
So Samsung came in
with their own set of smart watches. Obviously you see them.
You can see them anywhere on the internet
And they beat Apple in terms of
speed to launch.
Now I've seen the smart watches by Samsung and
to put it bluntly really not that impressed but I know a lot of people are but I'm not.
So they were able to penetrate the market so far,
when it comes to speed to launch,
and beat Apple to the punch. Now from a business strategy perspective
there is some obviously positioning and
and branding and is business appeal
to being first to market.
But if you look at the history of Apple, they've never really been
first to market in any sector.
You look at the smartphones, you look at the tablets -- they've never been the first.
What they've done is come out with revolutionary
designs within the existing market.
So yes, Samsung has beat
Apple to the launch sequence.
But even more important is speed to -
speed to diffusion.
So who is going to end up
owning a huge chunk of the consumer mind
and the consumer pocket when he comes to SmartWatches?
I can tell you this is just one of the first battles in this huge
SmartWatch war that's going to be played out not only by Apple
and Samsung but I'm pretty much probably every major player's gonna be in it.
I could see of course Microsoft, Google
Amazon coming into play as well
And then players like Fossil that have been around for awhile
and they build a huge business
as a fashion brand, now they're going to have to figure out what to do in that sector.
And how are they going to play with it? It's going to be interesting so
What you're seeing right now is that Samsung, in summary,
had used extraordinary speed to get it to the market first
in terms of launch but at the end of the day
you could win the first battle in any war, and that's happened, obviously,
but lose the war in the long run.
This is what's going to play out. I love watching Apple and Samsung and
it's a great business strategy lesson.
If you can get anything out of this, it is that extraordinary speed is
incredibly important when you're going into markets. But by the same token
you have to be able to not only launch it but then penetrate those markets.
Until next time.