An interview with Matteo Fumagalli

Matteo Fumagalli is a student of economics at University of Insubria, Italy. He is writing a thesis for a bachelor’s degree analyzing the smartphone industry.

He asked me to answer the following questions:

-First question is about you. Why did you found Asymco?

I founded the company to develop software, mainly apps. I began writing the blog as a way to drive traffic to the site. I would have preferred to build a blog only but did not think it was possible to earn any money doing that so I treated it as a hobby. Even after the site became more visible I changed from development to consulting and did not expect that writing in itself could be self-sustaining. It took about two years before I felt comfortable with the idea that I could do writing and speaking exclusively. I am still exploring additional business models however.

-You worked 8 years as analyst and business development manager at Nokia and you anticipated their current crisis with your first post on Asymco. Do you think Nokia will have the chance to recuperate, and eventually what will be the role of Windows Phone?

Nokia may recover or remain independent, at least. But it will be far smaller. The idea of a return to dominance or 40% share seems very unlikely. As I pointed out in the first post, the organization cannot cope with the new marketplace. Large organizations require extreme stress and damage to change. It’s a phenomenon at all levels of society that success results in rigidity. From the individual to the nation to the civilization, success makes change very, very difficult.

Windows Phone is an attempt to create a third ecosystem. I am concerned that the logic of having a third alternative is not solving a consumer need but an operator need. In other words, consumers are not asking for a third option and when they are presented with a third option they are not excited by it. The consumer does not think in terms of increasing their options. They decide once every two years which phone to buy and that is the end of their thinking on the subject. By focusing on the operator’s needs the platform is fundamentally mis-positioned.

What Windows Phone needs to be positioned as is either as fundamentally different, solving a different job for the consumer. Or fundamentally better along a new dimension like price or convenience. These are some of the claims it makes but they are very weak claims right now.

-What about RIM, other company which is going through difficult times? What do you think about their decision not to move to Android and stake everything on their closed OS?

The decision to remain with their own platform may sound risky but it’s a simple decision about retaining their business model. RIM is not a general-purpose manufacturer. They have always made an incremental margin on services, messaging and email. For them to use a third party OS would force them to build within the constraints of that OS or platform. That would result in a difficult competitive environment and not one where the company could sustain margins vs. larger competitors. In other words, the company faced two risky alternatives. They chose the risk they were more familiar with or the one that they already had an operating company organized for.

-Recently Apple lost market share in Europe and China favoring Android. What will be the impact of iPhone5 on this situation? As expert of Apple strategy, do you think Apple has done something wrong in these last months?

Apple lost market share when considering the smartphone market. I agree with management (and I’ve argued this before they did) that the market for the iPhone is all phones, not just smartphones. In that context, Apple is increasing its share consistently. Since Apple has only one product in the market (with some residual older versions as well), it’s very seasonal. It would be natural to see variance in share through the year. What should be watched is a four period average performance. Overall, Apple is growing its iPhone business faster than the overall phone market so it follows that its share is increasing. I see a long-term potential for the iPhone having 20% share of all phones. That would give it an installed base of over 1 billion users.

-Smartphone penetration is reaching 60% and we probably talk about saturation in next 2 years. What will be for you the future role of tablets and phablets, they will be threaths of substitution for smartphone or maybe an opportunity to offer complementary products?

The evidence so far is that buyers don’t mind having more than one device. It makes sense if each device is hired for a different job and it cannot be general purpose enough. We’ve seen this phenomenon with mobile phones where penetration in many markets is above 100%. That implies that even a basic feature like a phone number cannot serve all the needs on one person. To me it seems likely that one person will have more than one device and more than one form factor.

-What do you think about legal battle between Apple and Samsung? There will be consequences also for Google and Android?

I defer to my blog post Deus Ex Machina. Legal battles are not strategy.

-What will be the role of the possible entry of Amazon in the smartphone industry? It’s too late for them?

Amazon is a retailer. I find it hard seeing a retailer becoming a platform provider. Not only is retail a difficult to expand business model internationally, but it’s hard to imagine partners being comfortable building an ecosystem on top of retail. Retail is not sufficiently flexible as a business model.

  • Jordi Bruin

    Nice to see you interaction with your readers!

    Good luck on the thesis Matteo!

  • FalKirk

    “Amazon is a retailer. I find it hard seeing a retailer becoming a platform provider.”

    Amazon may or may not do well with the smaller tablet form factors. However, the larger tablets demand apps. Amazon’s efforts in the larger form factor are going to be crippled by their lack of apps specifically and their lack of platform generally.

    • Price is key. The Fire isn’t primarily intended to be an app platform, it’s a content delivery platform. As such it doesn’t need to chase Moore’s law towards better specs.

      Once they settle on a hardware spec that provides a good enough user experience, they can stick with that spec and ride the Moore’s law curve towards cheaper hardware rather than more powerful hardware. If in a year or two the contemporary10″ Kindle Fire costs a third as much as the contemporary 10″ iPad, that may well be a low enough price that only having a basic Apps market won’t matter.

      • FalKirk

        “Price is key.” – Simon Hibbs

        Value is the key.

        “The Fire isn’t primarily intended to be an app platform, it’s a content delivery platform.”

        Agreed. That’s why the larger form factors will struggle since their primary purpose is the facilitation of apps.

    • handleym

      Amazon is not in the platform-making business; it is in the “throw it against the wall and see what sticks” business. Amazon has always aggressively experimented with one thing after another — remember things their gold pot deals, or their foray into auctions.

      Bezos jumped into ebooks when he saw the technology allowed him to do so; not as an existential move, but as one more thing to try out. This is still the way he and Amazon think, which is why we have four different Kindle models — he has no strong feelings about which will be most popular, and no strong reasons to direct popularity at one model rather than another.

      If in two years the world has moved on and everyone is reading Amazon ebooks on their iPad’s, Surface’s, and Galaxy Note’s, because they all have solid ecosystems, and everybody owns one, then Bezos will stop making Kindles and move on to something else.

      This isn’t a criticism of one company or another, it’s just stating the basic facts. Apple, MS and Google all have very different long-term goals, competences, and incentives here compared to Amazon.

  • poke

    I would say that Amazon is a platform company. That platform is AWS. Retail is a service that runs on top of AWS. I think Bezos sees it this way. Amazon’s technological focus has always been its cloud computing platform and it has always styled itself as a technology company. Kindle is basically a window into that platform and its consumer content ecosystem. Android could be said to have a similar relationship to Google’s cloud platform. Perhaps one day we’ll think of iCloud, rather than iOS, as Apple’s primary platform.

    • kiran bhanushali

      Good points.

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  • cm3392

    @Asymco: Do you have other research or thoughts available about “success results in ridigity” besides your original Asymco post?

    • Nevermark

      An incredibly insightful book on how stable (successful) democracies naturally, even inevitably, become rigid and inefficient is “The Rise and Decline of Nations” by Mancur Olson.

    • Mathias Anderson

      There are loads of good papers on Path Dependency, Rigid Cognitive Patterns, Not Invented Here Syndrome, Dominant Logic and Unlearning Curves.