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An interview with Kenney Ho of The Chosun Daily of Korea

Kenney Ho, a staff reporter from Korean newspaper The Chosunilbo (The Chosun Daily) sent me a set of delightful questions.

According to Kenney, The Chosunilbo “has a history of 90 years, has been the most dominant, and influential paper of all time in Korea. It is the No.1 newspaper company in Korea with more than 1.8 million circulation, firmly holding the largest market possession. The paper is recognized Asianwide, where there are many readers in Japan and China.”

-You said “All mobile device vendors experiencing losses are not likely to really recover”. Even though, it wouldn’t mean that the employees, executives of Nokia has completely nothing in hands for recovery. If you are the CEO of Nokia right now, What are your steps to make Nokia recover its deficits?

My statement was based on the historic data which shows that 14 phone vendors have either exited the business or lost their independence during the last decade. No vendor that has reached a period of prolonged loss making has recovered. These are just observations and it’s possible that Nokia may be the first to recover. However, going by the patterns of the past, it would be very unlikely. When I thought about the reasons why companies have not been able to recover I came to the second observation about the way phones are sold. Once a brand reaches a point where it’s considered “risky” for distributors and operators to range they tend to defer purchases which leads to a spiral of continuing losses and more damage to the brand. The market amplifies “distress” and recovery becomes impossible.

If I were the CEO of Nokia I would set course for turning the company into a new business. I would approach the market asymmetrically and not try to compete directly with the other vendors. I would look toward services, platforms and software solutions and de-emphasize hardware.

-Many experts say that because Nokia dominated phone making industry in the 2000s, they maintained a corporate culture of complacency, which led them to decline. Do you agree with this? If you agree, Can you point out the examples of Nokia’s complacency?

Complacency would mean that Nokia would not invest or try new things. This is not quite right. The company invested in software, services and platforms. It tried many new things and had a large R&D budget. It was the leader in mobile software for many years. There was, however, a culture of arrogance about their position. This meant that they did not think the basis of competition would change. They thought they were too big to fail. They did not challenge the core business model of hardware-first and try to find an internal disruptive business.

-Experts note that Nokia should have reacted directly to Apple’s iPhone appearance at 2007. What should have Nokia have done at that time?

The iPhone showed that software and experiences matter more than operator relationships. Nokia did a lot of research on user experiences and software but when the decision came to implement the ideas, the constraints of hardware and logistics and operator preferences took precedence and the software was compromised. What Nokia needed to do is build product around software not software around the hardware and the market.

-Since Apple’s iPhone appeared in 2007, Samsung took a Fast-follower tactics which made them successful, which Nokia could not. Do you think Fast-follower have advantage over first-mover?

I don’t consider first-mover or fast-follower to be accurate descriptions of strategy. Success follows from innovation and only from innovation. There are various forms of innovation: there is new market creation, new business models, low cost or distribution innovation. Nokia tended to create low cost innovations which opened new, low-end markets. Apple created a new market for browser-based devices and for app-based experiences. These were enabled by an ecosystem that benefited from integration.

Samsung implemented a portfolio strategy with a large number of devices and price points which allowed them to find market niches that could be exploited. This was a distribution innovation. Each strategy has advantages and disadvantages and each strategy is usually linked to company core priorities and processes. There are times during a technology cycle when one strategy is better and another is worse. This is why companies find themselves successful and then fail. Their processes don’t match the technology adoption cycle.

For example, in the PC market there is little potential for new experiences tied to an integrated device (except for tablets) and hence there is little growth opportunity for an Apple-like approach. The innovation that matters in the PC market is mostly cost reduction. Nokia was doing cost reduction at a time when voice products were commoditizing. Cost reduction does not work when the basis of competition is new experiences and new business models. As smartphone hardware commoditizes, it’s unlikely that Samsung will have an advantage unless is goes to a low-cost approach and enters into direct competition with low-end devices.

-Can you predict the ‘Big 5′ in handset industry 10years from now? Many people think the list will include Apple, Samsung. Who else might be on the lists?

There is no guarantee that Apple or Samsung will be the top vendors 10 years from now. I expect Chinese brands to become dominant in market volumes. I expect online service companies like Amazon, Baidu, Facebook to create new platforms which and have their own devices, perhaps in large volumes. I expect new input methods (like voice) to create new opportunities and perhaps new platforms and ecosystems. I expect Google may make a lot of money. One thing is for sure, being a hardware-oriented company without software and services and platforms and ecosystems is a sure path to becoming disrupted.

-Nokia was the leading company in Finland. What are the reactions of Finland towards Nokia’s downfall?

People tend to blame each other for failures and this is the main discussion topic in Finland: who’s to blame. The failure of a company is rooted in complex decision processes which usually take years to run their course. It’s quite futile to lay blame on persons, especially since the same persons were celebrated for their wisdom at another point of time. At the same time as Nokia is failing however, another Finnish startup is celebrated world-wide and about to go public: Rovio, the maker of Angry Birds. It will be bigger than Nokia. Finland should make sure there are more Rovios to come.

  • http://omlc.ogi.edu/~prahl poxybowsy

    Horace, your answers are much better than the questions.

    • simon

      Some of Chosun’s questions were just terrible and I wonder if he read Asymco or Christenson’s work carefully before sending those questions. (Then again, for those who don’t know Chosun is pretty much Korea’s equivalent of Fox news even though they hire the smartest graduates.)

      About the “fast follower” thing. It has almost become a gospel among Koreans that Samsung is “threatening Apple” by being employing good “fast follower tactics”. That word is thrown around everywhere including all the newspaper articles that attempt to explain what the reporter asked a question with that buzzword.

      Interestingly what Horace said about Samsung’s distribution strategy probably wasn’t what the reporter expected to hear. The common wisdom in Korea is that Samsung achieved the success with the their hardware technology. The Galaxy S series has even become a symbol of a national pride for many as the epitome of Samsung’s Korean tech prowess and validation of the “fast follower tactics”. Then again a strength in distribution sounds far less appealing in boosting the patriotic jingoism – not that I do not respect Samsung’s tech. They make good components and I like their hardware products in general.

      On a related note I’d love to see someone’s analysis on Samsung’s product mix. They refuse to reveal their product mix but whenever I see their smartphones sales, it’s a lot more than that of high end Galaxy models. I’ll be very interested to see the regional mix as well.

      • Jake_in_Seoul

        A quibble: comparing the Chosun Ilbo to Fox news is misleading, given their venerablr history and rhetorical pomposity. They likely would rather be seen as The Times, but to my mind come across more as the Daily Telegraph. And the key point is that they are not the Chungang Daily, owned by Samsung. I suspect there is a buried anti-Samsung agenda to the questions and the fact he is interviewing HD at all. Many Koreans may be privately reveling in a kind of advance schadenfreude, anticipating that Nokia’s fate foreshadows that of Samsung. Loyalty to “the man” has thinned much over the past few years.

      • Jake_in_Seoul

        A quibble: comparing the Chosun Ilbo to Fox news is misleading, given their venerablr history and rhetorical pomposity. They likely would rather be seen as The Times, but to my mind come across more as the Daily Telegraph. And the key point is that they are not the Chungang Daily, owned by Samsung. I suspect there is a buried anti-Samsung agenda to the questions and the fact he is interviewing HD at all. Many Koreans may be privately reveling in a kind of advance schadenfreude, anticipating that Nokia’s fate foreshadows that of Samsung. Loyalty to “the man” has thinned much over the past few years.

      • simon

        I think the more pertinent point here is that even the supposedly well educated employee from Chosun clearly showed his lack of knowledge in the framework used by Horace and his work, which is somewhat ironic considering Chosun actually published a few long interview sessions with Prof. Christensen over the years. He expected to hear something about “Fast-follower tactics” which isn’t a term usually used to describe Samsung’s business strategy outside Korea. In Korea that term’s been used million times to describe Samsung’s success, and to a large extent, to validate Samsung’s apparent lack of creativity when it comes to product planning in certain areas.

        Speaking of Chosun, when it comes to political coverage, I don’t think Chosun really is much better than Fox, and their “venerable history” includes enthusiastically encouraging young people to join the imperial Japanese army back in World War 2 and quickly changing their tune to praise the new military government after the coups.

        But like Fox, who actually does a half-decent job of covering tech, Chosun is pretty good when it comes to things that are non-political simply because they really do have a ton of resources with the best people and, as you’ve put it, their rhetorical pomposity.
        I have to agree that Chosun is much more critical of Samsung than the other conservative newspapers, especially Joongang. Do mind you that technically Joongang is no longer owned by Samsung, as now it’s owned by the Hong family who’s connected to Samsung through the wife of the Chairman Lee. Of course, technicality doesn’t really mean much when we know better.

        Regardless, while I also think many Koreans are just itching to relish the moment of Samsung’s fall due to many many factors, there is still a very strong feeling of reliance on a chaebol like Samsung , without which Koreans are afraid that they might lose their newly found envious position in the world stage.

      • Jake_in_Seoul

        I appreciate your nuanced observations, but using the “hakbyeong undong” issue to smear the Chosun Ilbo is disingenuous. Drag in Yi Kwangsu, Choe Namseon, Kim Seongsu et al. as well? To many at the time it seemed a racial war and U.S. immigration policies and later nissei internments were hardly reassuring. Even Yun Chiho, for his fancy Emory education, was still the object of condescension by oh, so well-intentioned US missionaries. Now, if you had mentioned Jang Jayeon I might have been more sympathetic your condemnation. . .

      • simon

        Jake, my point is simply that Chosun’s history is far from glorious. In fact, it is more interesting when you consider that Chosun is almost a chaebol in themselves in a different way. Jang Jayeon is just the tip of the iceberg as to how much they abuse the power given as the most powerful media in the country.

        In any case, the main point of this whole thing is the lazy journalism exercised by Mr. Ho and how the preconceived notion and lack of preparation caused that even at a “prestigious” newspaper.

        Or to be fair to Chosun, Horace has his own “lens” to see things, Chosun (and some Koreans) have their own “lens” when it comes to seeing the tech industry. For Horace it’s the asymmetrical competition and disruption theory. For Chosun and korean media, it’s usually the “fast-follower” along with “hardware spec war” theory as with the famous/infamous “blue ocean” theory.

    • simon

      I can’t edit my own writing. :( To fix my own posting:
      “About the “fast follower” thing. It has almost become a gospel among Koreans that Samsung is “threatening Apple” by being employing good “fast follower tactics”. That word is thrown around everywhere including all the newspaper articles that attempt to explain Samsung’s success and that is why the reporter asked a question with that buzzword in it. ”
      “Product mix” should be sales mix.

  • Mike Wren

    “There was, however, a culture of arrogance about their position. This meant that they did not think the basis of competition would change. They thought they were too big to fail.”

    This was also the case at RIM. Perhaps most companies turn arrogant when they are dominant. So RIM waited too late to buy QNX. It looks like Nokia waited too late to hook up with Microsoft.

  • Nokiafanboy

    I do not agree with the recommendation to Nokia’s CEO: “I would approach the market asymmetrically and not try to compete directly with the other vendors. I would look toward services, platforms and software solutions and de-emphasize hardware.”
    If there is one clear learning from the Nokia debacle, it is that they could not do anything other than high volume voice hardware. The services and solutions (Ovi, MeeGo) attempt cost billions and resulted in nothing.
    The question then is whether hardware companies can morph into more software companies. I think that it is difficult but IBM for one proved that it is possible.
    Why did Nokia fail then? I think the answer is the absence of software knowledge in the company. The top team until Elop turned up have all been voice hardware veterans. Most have never seen anything else. They remain and their cronnies are still there. This permeated the entire organisation. New hires from the software industry were systematically marginalised unless they fell into line. Software acquisitions by Nokia have all been a costly disaster.
    I think that the cultural anchor of stressing the Finnish while quaint and effective when the business was based on scale is now a major disaster that perpetuates “not invented here”, does not help with accountability, severely limits the gene pool and makes acquiring or being acquired close to impossible. I think that this will be Elop’s major learning. Either he did not want to change the team (I don’t believe this since he is a bright guy), could not change the team (board, press etc pressure) or could not attract sufficient replacements.
    The one good thing is that Nokia now has software people developing the software (at least in the higher price points with MSFT). I just don’t see many options for them other than a much smaller existence with Microsoft especially as the s40 business gets challenged. A really tough spot imho which could have been prevented by aggressive management in the 2008 timescale-this did not happen and you do not get 2nd chances in this industry.

    • http://www.asymco.com Horace Dediu

      IBM migrated from (primarily) hardware and software to services. Apple migrated from hardware to software as part of an integrated computing experience. The explanation that a company does not have knowledge is difficult to accept. Large companies can acquire almost any knowledge they desire. It comes through buying other companies and the top experts in any area. What companies cannot easily obtain is the priority setting process which is what I pointed at. Priorities come from how you make money and how you act on a daily basis to opportunities and data.

      • Mark

        Large companies can acquire “almost any knowledge”. Almost. Even aside from management culture, by the time others recognized what SJobs knew all along, that small teams of highly skilled developers inculcated with certain values were the key, it seems to me that companies could not acquire that knowledge. You’d have to buy the whole team, or much of it, which probably isn’t feasible if even legal. Buying a company with good developers is one thing, buying one with the expertise of Apple’s developers is another. In my opinion this is the identifiably non-management reason for why competitors can’t keep up with Apple.

      • MartinR

        Very well stated Mark. I quoted you in reference to sharing the “Valve handbook” with my crew.
        http://newcdn.flamehaus.com/Valve_Handbook_LowRes.pdf

      • Nokiafanboy

        I agree that hardware to software shifts are possible but respectfully disagree on the rest. Name one software acquisition that Nokia has been successful with? Name one software guy in senior management (aside from Elop)? One can acquire knowledge but, in this case, it has been a waste of money. Why this is is the real question?
        Software and services has been, at least on the surface, a priority. There was even a massive Services organisation created not long after iPhone launched with all the best and brightest but it delivered the square root of nothing. The priorities were set but the culture has killed the organisation.
        My point is that you cannot run a successful global organisation as an incumbent in a rapidly changing environment with such a mono-cultural/mono skill set (e.g. hardware) culture. Look at SAP as one example, although deeply German in heritage, they have really introduced new blood to reflect new realities, skill requirements and rapid market change (cloud etc). And they had a gene pool at least 10x bigger. Nokia never did this and has paid for it.

      • Secular Investor

        “Apple migrated from hardware to software as part of an integrated computing experience.”

        Surely that is not correct?
        Has not Apple always been a vertically integrated, software and hardware company?

      • http://www.asymco.com Horace Dediu

        Apple has always provided software but the subtle shift is from software offered as a means to sell hardware to the experience itself being what is sold. It may be too subtle to make the point.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        “Apple migrated from hardware to software as part of an integrated computing experience.”

        Apple was a hardware company in the Apple II days but that was decades ago. Since the Mac debuted, Apple has been a systems company combining both software and hardware. It is what makes them an enduring company and difficult to compete against.

    • Anil

      The aspect of cronnies in the management of large established companies that eventually failed needs further attention. Failure of HR/ Management in identifying the right talent should be studied as somewhere it is human capital of the company that is taking right or wrong decisions as management team that eventually result in success or failure of the organization.

      Could it be that cronyism brings with it a culture of complacency. The cronies are not without talent, they all did something fantastic at some point of time in past. But after that they get labelled as Outstanding performer and continue to reap the benefits without necessarily doing/ thinking anything disruptive. Once you are labelled Outstanding there is possibly no need to rock the boat.

      A startup organization typically has small group of like minded people brought together by passion to excel/ achieve. Not sure if the same degree of passion is present all across a large organization.

      Could it be that large companies like Apple who continue to innovate because their management has been running it like a startup, not allowing pockets of complacency to take root in any part of the global operations.

      Look forward to some comments….

  • Secular Investor

    “I expect Google may make a lot of money.”

    In the mobile space? Surely not?

    Horace, your own research shows that Google is making a tiny amount in mobile, even less than Apple makes in payments from Google?

    Is not Google’s tiny margin model highly vulnerable?

    Surely Google’s margins will be squeezed inexorably as Apple migrates more away from Google searches and as Android becomes more and more forked, cutting Google out?

    Don’t forked versions of Android undercut Google’s model, creating more competition opportunities for others in the search advertising and in content sales from such as Bing, Baidu, Amazon, Facebook etc.?

    • http://twitter.com/davidchu David Chu

      I think the mobile space is too young to assume that Google will not make a lot of money from it.

      If memory serves me right, search started out as being less profitable than banner ads, a major reason why Yahoo chose not to buy Google’s technology when Larry and Sergei were looking to sell. It was keyword Ad auctioning that made search profitable.

      The mobile space is the same. A new business model will eventually rise and become dominant. I still think it’s anybody’s game right now.

    • http://www.asymco.com Horace Dediu

      Google is going to make more that it is making today and may make more than its device ecosystem makes in total. It still won’t be as much as an integrated player makes in the early stage of a market under construction.