Are the ecosystem wars won on the factory floor?

I’ll be speaking at the Harvard Business School Technology and Operations Management Digital Seminar Series on “The evolution of value chains in a computing markets measured in the billions of units per year.”


2013 will see two billion phones shipped into a market of over 6 billion points of network connectivity for over 4 billion consumers. In addition to phones, there will be a few hundred million more tablets and mobile computers shipped. It’s very likely that the majority of these devices will be “smart”, meaning designed to be a part of an ecosystem of software, content and services. Contrary to the common assumption that larger markets sustain more competitors, this immense and rapidly growing market has become profitable for only two device vendors. The reason is that the windows for competitive advantage are fairly narrow and although production can be ramped more quickly than ever, the resources needed are available to few.  The frequency and amplitude of market flux benefits only those who can operate at scale and punishes those who can’t. Close observation of the investments of these “superpower” competitors shows an extraordinary level of capital purchases of manufacturing equipment, regardless of their nominal position in the value chain. These capital expenses have been growing in proportion to in the frequency of product launches. I present data showing a correlation between manufacturing equipment CapEx and ecosystem success and put forward a hypothesis that this relationship is causal. I also discuss the implications for ecosystems owners with regard to the processes, resources and priorities necessary to succeed in this evolved value chain.​


The event is open to the public and taking place March 7th, 3:00PM to 4:30PM in the Cotting Conference Room.

  • Richard

    Exciting! Are you planning to have your talk recorded?

    • Yes. It will be captured through the presentation software itself (Perspective).

      • kgbraund

        Nice! Look forward to it. Good job!

  • obarthelemy

    If the conclusion is “yes”, that means ecosystems are not that important after all: ecosystems are devices + OS + content + peripherals + other intangibles (image and user skills). The factory floor only deals with devices (peripherals have not been at the forefront, I’m really wondering why Apple are not pouncing there, their standard connector is a huge advantage). Saying the factory floor is the key element means devices are the key element means ecosystems around these devices are not that important.

    I tend to think the devices are indeed key, with a caveat that other elements can be “limiting factors”. ie, customers who like a device won’t care if its content, peripherals and intangibles are “good” or “very good”, but they will care if those are “bad”. I’m betting few are choosing an Android device over an iOS device because of ecosystem, but that lots of people are disqualifying Windows, BB10, Bada, S60… over ecosystem.

    The one caveat is that devices are all fairly similar, implying that anyone can build anything. Sourcing good components seems to be harder than assembling devices…

    • I think you are conflating necessity with sufficiency.

  • Juanm105

    Hi I checked on harvard’s website to learn more, especially if pre registration is required to attend. I found a schedule for the Cotting Conference Room but didn’t see your presentation.

    • If you check out the link in the post, it appears that registration isn’t needed.

    • You can click through the link in the post. The event is open to the public.

  • stevesup

    Does the factory factor suggest how “young” the disruption of mobile devices is? The disruption is in acceleration and so the newer, more beneficial hardware components gain huge value, where is a mature market, washing machines, hardware changes are far less significant.

  • arnaud

    in his paper “When Every Customer is a New Customer”,
    Karel Cool presents a notion of NTR Net-Turnover-Rate.

    Looks like we are in a blitz equipment phase for smartphones & tablets,
    that almost everybody is a new customer currently.
    (commenters will debate on the % of iPhone 5 that are ‘only’ upgrades, and on whether all androids should be counted as smartphones, in the end we’d trust your estimate of this industry’s NTR)

    So indeed being fast as lightning is necessary, for this original opportunity, and there’s an arms race to be run on the factory floor.

    That’s for volume.
    For value, K. Cool’s article
    – recommends for entrants (android? but also apple) to “cut customer’s (trial) cost”, so investing for economies of scale (scale?) is welcome
    – and recommends for incumbents (apple? but also android) to “increase platform value” , meaning (R&) Development investments, including manufacturing, to handle the costs of … “learning curve” 😉 of ramping up new technologies ?

  • Gaussian Blur

    Your comment “available to few” harkens back to a comment made by, I believe, Tim Cook during an earnings call years ago, though in reference to unibody Macbooks. He talked of unique competitive advantage (laser milling) unreadily replicable by the competition. That evolved similarly in describing purchasing scale for NAND when flash memory iPod sales took off, and now, it seems, in manufacturing mass quantities of high cost/quality smart devices. “Boxing out” the competition, to use a basketball analogy, has been a cornerstone of their strategy for many, many years.

  • Rushbc

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  • Dirac

    ”The evolution of value chains in a computing markets measured in the billions of units per year.” -> perhaps that should be “market”.

  • KirkBurgess

    Does this post imply it will be very difficult for Samsung and Apple to be joined by a third company at the high volume end of the market?

    Also, what does this imply would happen if Samsung dumped Android for an alternative mobile OS? Samsung would retain handset marketshare but OS marketshare would change drastically fast?

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