Before I resume my old threads, I think that I should make one post regarding the future of tech companies, before those thoughts vanish from my memory.
This line of thought first occurred to me some years ago when Indian government auctioned 2g spectrum and more than 20 companies won different zones all over the country. Right now, after 5-6 years down the line, only 7-8 players are remaining on the ground. Rest of those closed their shops by selling their won spectorms to other companies. Some made profits but most of them suffered losses in winding up. I suspect further consolidation and my guess is that the ultimate survivors would not be more than 4-5.
I see the same happening slowly in the tech companies (computer hardware and software) at the global level too. A lot of amalgamation is due.
Right now, I see only such four major players in the computer/mobile hardware and software sector, which have the capacity to survive in the long run, namely Apple, Microsoft, Google and Samsung. Though, the situation is quite different now as there are many big and small players both in the computer/mobile hardware and software business. But, most of them will succumb to the pressure created by the successful forward and backward integration of some peers.
The key to survive in the future is solely dependent on how far, innovatively and successfully any company would be able to implement forward and backward integration. Nothing else would matter. Small or one dimensional players will be thrown out of the game.
If we look closely at the present computer/mobile manufacturing companies, we will find that the majority of these companies are doing nothing more than mere assembling of different hardwares and softwares gathered from different OEMs. OEM is an economic term which stands for original equipment manufacturers. The problem with companies like Dell, HP, Asus, LG, Sony, Lenovo is that they can innovate only in assembling, which is in the outer or final design of their product, nothing else. Means, for its computers and tablets/mobiles, Dell has to buy either android OS from Google or windows OS from Microsoft, chipsets from either Intel or Qualcomm and some other things from some other OEM companies like Oracle and Nvidia. The way of assembling is the only thing that is left in the hands of Dell. This cannot go forever. The time will come soon for such assemblers when they either have to wind up or sell their business to more successfully integrated peer companies.
Let us look at this way. What will happen if both of Microsoft and Google refuse to sell their OS to companies like Asus or Lenovo, or ask for unreasonable price? After all, their OS are their brainchilds and they have every right to do what they want to do with them. It will take years to develop own OS if all computer/mobile manufacturers are forced to do. As a result, they will have no option but either to shut the doors of surrender to big OEMs.
And, we are slowly but steadily heading to that situation. Microsoft acquiring Nokia and Google doing the same with Motorola are the first signs of this phenomenon. Both of Microsoft and Samsung have been tried to takeover BlackBerry in the past, though unsuccessfully but that is inevitable, and will happen for sure sooner or later. By choosing Android OS for its latest phones, BlackBerry has included Google also in the list of interested takeover parties. Using Android OS will push more pressure on the profitability of BlackBerry as it has to pay patent charges for Google from hereon. That will reflect in the upcoming balance sheets of the BlackBerry for sure.
Coming back to the main assumption, I see only four survivors in the future, mainly because all those are more forward and backward integrated, which lessens their dependence on other peer companies, besides increasing their profitability, though there are some other factors too.
Let me take Apple first as it is considered the most valuable company in many parameters.
Apple has a unique position amongst its peers. There is absolutely no doubt that it’s products are good. Though, I doubt that it is most innovative company but its products certainly give an overall good experience. It looks to me that right now, it’s real strength lies more in becoming some sort of status symbol rather than quality or innovation. It is precisely in the situation where BlackBerry was some years ago, or Sony was two decade back in consumer electronics.
Apple enjoys high loyalty among its consumers. That enables it to keep the price of its products extraordinarily high, as far as to double to its peers. That increases its profitability. Besides that, it enjoys backward integration up to the last mile, though only in software. It still lacks some hardware making facility, especially semiconductors, which it borrows from Intel and Qualcomm.
That is one minus point it has. Besides that, high prices of its products is another issue. So far, the area of development was concentrated in developed nations, where high priced products can be sold easily. But, the situation is changed now. Apple had to sell its products now in such Asian and African markets which are more price sensitive. Apple has to change its strategy if wants to remain no 1 in the future too. But, I do not see it learning. That is precisely why Samsung outnumbered Apple in selling units of smartphone, though not in revenue. If Apple will continue to rely to only high priced products, I fear that it would have to face the same fate of Sony and BlackBerry. Apple is cashing its goodwill since long, which tend to lessen with every encashment. It is high time when it should start earning it back.
The second big player is Google. It has come a long way from a search engine. The introduction of Android OS was a masterstroke. Having said that, revenues based on advertising on its search engine are still the main source of its profits. I am not sure of the present stats but search engine was generating more than 90% of its revenue in 2011. But, of late, the search engine is not at the main focus of the Google. Its management has been taken it for granted that people will use Google search whether it pays any further intention on it or not. But, they are forgetting that innovation and development is not under the sole proprietorship of Google. It may stem out from nowhere, just in the same way as happened in the case of Google itself.
Having its own OS is huge plus for Google. It rightly decided to enter into mobile/tablet manufacturing as a forward integration. It has a good future ahead, though I still see two negative points. Firstly, lack of semiconductor/chipset manufacturing facility and secondly, much focus on undesired, hypothetical and unpractical projects like self driven cars.
It looks to me that Google management is obsessed with the success of its search engine and Android OS. Somehow it is believing that it can do whatever it want, no matter how difficult and unuseful it may be, aka playing god. I think that Google is wasting the money that it earns from its core businesses. If Google can overcome these two shortcomings, sky is the limit. Besides these, Google should enter in formal laptop manufacturing as soon as it can. The more it delays, more difficult it would become to catch up Apple and Microsoft. It should not repeat the mistake that Microsoft did by entering too late in laptop and mobile manufacturing.
The third entrant is well known Microsoft. Like Google, it also had and still has all potentials to grow by leaps and bounds. Having said that, the problem with Microsoft is that it is very slow company in comparison to Apple and Google. It hesitates far too much in taking necessary decisions. It lacks aggression and courage of risk taking. Sometimes, people and institutions have to take some calculated risks to survive and grow.
15-20 years back, there was a time when Microsoft was in the position in computer industry that it could have done whatever it wanted with its windows OS. It would have entered in laptop and desktop manufacturing easily. But it hesitated and lost a golden opportunity. The success of Google forced it to think of forward integration, and it rightly decided to take over Nokia and starting making mobiles and tablets. Having said that, it still has not entered into formal laptop manufacturing, which it should be as soon as it can. I am sure that it’s management would be serious as about this. I would not be surprised at all, if Microsoft buys any computer manufacturing company or enter any sort of arrangement in the near future.
Just like Apple and Google, Microsoft also do not have complete hardware backward integration as it also lacks semiconductor/ chipsets manufacturing facilities. It second negative point is that it is a very slow company and tend to waste time, which can be fatal it today’s world, which changes so rapidly. Having said that, it still has a good future ahead.
The last entrant in my list, Samsung, is the least praised one, perhaps because it is an Asian company. People do not know enough about it. Many people will be surprised to know that it’s revenue is more than even the total sum of Apple, Google and Microsoft. And, the reason is that, unlike other three, it is well diversified company. It has healthcare, consumer electronics, insurance, shipping, and many other businesses in its kitty. And, most importantly, it also own semiconductor manufacturing facilities, which none of the other three have. Besides this, it makes all types of computer devices, right from cheap 50 $ mobiles to laptops, though it’s laptops are not much popular outside South Korea, but mobiles certainly are.
Till recently, Samsung was lacking one major ingredient in backward integration, which was its own OS. But, it introduced its OS Tizen last year in Z1. It was a cheap smartphone but suitable for mass market like India. Within an year, it has given two more Tizen phones. Apps list on Tizen is increasing by each passing day. Tizen in not as good as android but still works fine enough, and that is enough for the majority of the mobile owners. And, that is actually what matters, not what critics say.
With the introduction of Tizen, Samsung has completed the chain. It is fully integrated company now by all means, both in hardware and software. Now, it need not to look at anyone else for anything. It can sell make computers and mobiles almost from the sketch. And, that is going to help its bottom line hugely because the value addition at each step will add something to its profit.
Besides that, Samsung is going to use Tizen in its other electronic devices too like TV. Tizen based synchronized and cloud service is due shortly, which will be on the lines of Skydrive and Google Drive, and will be accessed from anywhere.
A new and huge semiconductor manufacturing facility of Samsung is coming up in South Korea, may be in an year, which will cater its all future needs. Samsung uses its own chips in the most of its products, but not in all. It’s processors fall slightly behind in efficiency in comparison to Intel and Qualcomm, thus company do not use its own processors in high end products, but they work fine otherwise.
My assumption is that Samsung has potential and all necessary ingredients to become no1 in the computer and mobile industry, and most likely it would become too. But, despite all its positives, it has a major drawback, and that is its human resource procurement and management.
Samsung is very conservative when it comes to hiring people. Unlike its western counterparts like Apple and Google, Samsung does not go for the best talent, but tend to settle for mediocre hiring. That is almost a crime now in the software industry, especially for those companies which rely heavily on innovations.
Innovation is not everyone’s cup of tea. It takes some extra skill and intelligence to innovate. If that was not true, everyone would have become innovator. Samsung values loyalty more than skill, which is fine, but it is better to have the loyalty of intelligent people. Samsung needs to understand that it has to hire intelligent people before trying to earn their loyalty. It cannot be other way around. One can make its intelligent employees loyal in one way or another, but there is no way that unintelligent but loyal employees could become intelligent.
Barring this, there is no stopping for Samsung.
With love,
Sanjay
