June 23, 1999

from the Friends-of-the-Revolution dept

Be.to()|!Be.to()

As I was anxiously awaited my flight from Ithaca to San Francisco, I saw a first year MBA who looked like he was off to an interview. I approached the individual and began discussing the purpose of their trip. I found out that he was on his last round of interviews at Goldman Sachs and was nervous because he had to suggest a stock. He had chose Intel. This really surprised me. First; I was incredibly impressed with his lack of creativity, but secondly I was confused why he chose Intel over Microsoft? It boils down to this... which is a better business hardware or software?

Click below for more...------------------------------------------------------------------

Friends of the Revolution - Be.to()|!Be.to()
by Brian Day

As I was anxiously awaited my flight from Ithaca to San Francisco, I
saw a first year MBA who looked like he was off to an interview.  I
approached the individual and began discussing the purpose of their
trip.  I found out that he was on his last round of interviews at
Goldman Sachs and was nervous because he had to suggest a stock.  He
had chose Intel.  This really surprised me.  First; I was incredibly
impressed with his lack of creativity, but secondly I was confused why
he chose Intel over Microsoft?  It boils down to this... which is a
better business hardware or software?

Moore, Metcalfe and other hockey stick charts
---------------------------------------------
Don't get me wrong... both hardware and software are good businesses
due to all the various trends that I will spare even talking about.

Groundhog Day - Hardware Sucks
------------------------------
The hardware industry is like the movie "Groundhog Day" where the main
character wakes up everyday to to find themselves in the same situation
they were in the day before.  Intel's Xeon processor has nothing in
common with the Pentium Processor which had nothing in common with the
486.  Every eighteen months they have to throw their company in the
trash and start over.  They do however get to keep their existing
capital and their employees which give them an advantage since making a
processor is such a costly and complicated process.  Their market is
fragmenting which makes it more difficult to make a one-size fits all
product and more difficult to "win" on all fronts.

The point: They are on a treadmill and cannot stop.

Extortion - Software Mafia (I am not talking about Microsoft!)
--------------------------------------------------------------
Software on the other hand is more like extortion.  People learn how to
use your product (training costs), they create valuable data (letters,
spreadsheets, contact lists), and they share them with other people who
use compatible software (proprietary standards).  When competitors pop
up consumers have to learn a new program, that potentially will not
work with their existing data.  Even more importantly, when your friends and
neighbors upgrade to the latest version you must also upgrade.  Oh yeah
did I say that it is both cheap and easy to make as well?  Sure there
will be competitors, but unlike processors this business is all about
consolidation since everyone benefits if there is a standard set of
applications (did I say that?).

The point: Annuity!

Why revisit? Bad Strategies
------------
I am currently on a plane on my way to Chicago and in United's
Hemisphere magazine the first three ads are companies with bad hardware
strategies.

Common Hardware Components - First up is Sony with their new and
innovative memory stick!  It is a solid piece of some magic material
that can be used to store up to 4MB of information.  The stick can then
be inserted in any other compatible Sony device to transfer information
(a solid-state floppy).  At first glance it seems like a good idea...
much like the universal power supply that many power-tool companies
have.  Once you have the strip you will want all of your devices to be
compatible.  What they fail to see is that technology is moving so fast
that their memory stick will be lame in 18 months, making their product
lame as well.

Fear of Cannibalization - Next, Iomega had a wonderful product in their
Zip Drive that finally enabled them to knock out their competitor
Syquest.  While they were busy trying to make the Zip a standard in all
new computers, competitors ate into their market, and technology passed
them by.  Iomega is releasing a 250MB Zip.  Does anyone care?

Product from the heavens? - Finally, Iridium has succeeded in making a
system that cost a ton of money and no one wants.  Do your homework!  I
have a great idea...  a phone that works anywhere under the ocean...
all I need to do is place a matrix of semi-submerged buoys around the
world... (you get my drift)

Dos...
------
Some companies have been successful at handling the rapid pace of
change, here are their secrets.

Software - If you can't beat'em join'em.  3Com's Palm Division has used
the data contained in their Palm desktops from keeping people from
switching.

Form factor - Form factor and brand equity is increasingly important.
Sony's VAIO line of computers, Palm's PalmV, Apple's IMac and the Clio
have all been very successful.

Acquisition - When all else fails acquisition is the way to go.  Cisco
has been doing it for years.  They bought Gigabit Ethernet before they
had a product.


==================================================================
Friends of the Revolution
by Brian Day

A column that comes out every so often, and talks about something or
another...

If you would like to subscribe or unsubscribe, or maybe subscribe more
than once let me know via e-mail at bcd2@cornell.edu.  Past issues can
be found at

https://www.techdirt.com/fotr

The information contained in this newsletter reflect the opinions of
Brian Day, and do not represent actual fact.  Any decisions made based
on these opinions is your own fault.  blah... blah... blah...
==================================================================