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The Innovator’s Stopwatch. Part 1

At the end of October 2014 about 73% of US mobile users owned a smartphone. In March of 2005 2% of US mobile users owned a smartphone  (comScore). In absolute terms the number of users increased from about 4 million to 176 million and these 172 million new users were added in less than one decade.

Remarkable as that may be, what is even more exciting is that the pattern of adoption is predictable. The following graph charts the adoption of this product category with a monthly resolution between January 2010 and October 2014.

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Knowing the datum for March 2005 allows us to fill-in the graph with a logistic function approximation for the period to date.

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The logistic function is a wonderful model for how technologies are adopted. It’s been evident in samples take for dozens of diffusions, from 18th century canal construction, 19th century railroads, 20th century consumer products as well as industrial and agricultural innovations and the internet itself.

Screen Shot 2014-12-10 at 2.15.00 PM

The reason the logistic curve is so commonly observed is because of its reflection of sociological behavior. When a technology serves a manifest need (or can be hired for a distinct, unmet job to be done) its universal adoption is a certainty. The only unknown is the rate at which this happens. As the graphs above show, some technologies are rapid (examples) and some are slow. Some could be constrained by the communication of its benefits or by the presence of regulation or by the unavailability of infrastructure or resources or financing. Conversely, some could be accelerated by conformability with existing infrastructure or by network effects resulting from communication between adopters. The balance between accelerants to adopting and the constraints on adoption yields the “slope” in the logistic curve.

So given a high degree of confidence in the model, we can forecast how smartphones will be adopted. This model yields further details such as when the various classes of adopter (Early/late/laggard) will join and perhaps that itself will allow managers to plan their marketing and product development.

It would seem therefore that this tool is the answer to building a successful and sustainable enterprise. It would seem that the early movers would have an advantage as their users create the virtuous cycle of learning which the firm will use to capture later adopters. It would seem that firms can effect strategy changes to adopt to each wave of users added to the user base.

It would seem but it has not proven to be the case. For most technology categories, the predictability of adoption has not aided or informed success for firms competing to supply the burgeoning market. If we look at the firms which supply the smartphone market in the US (with platforms as proxies) we see how much turnover has occurred. All the early movers are highly disadvantaged and even some of the later entrants are not assured of viability into the later stages of the market.

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It’s a something of a paradox that as a technology takes root we might be able to predict how it gets bought but not who will sell it.

This paradox is at the root of the volatility in asset pricing around technology firms. The question investors typically sweat is not whether a company is in the right market, but whether it’s in the right time.

 

  • ePatient_Dave

    It’s a pleasure to meet you – looking forward to this series! Just posted about it on FB https://www.facebook.com/photo.php?fbid=10204810635603529&set=a.1260495870327.2040264.1167572670&type=1

  • http://www.collideconsult.com/ Ed Dietrich

    Good post, some thoughts:

    Smartphones are, IMO a relatively unique invention in the sense that their “jobs to be done” continue to expand, and therefore, to unlock new audiences and sources of growth. When smartphones were first deployed, they were limited to “jobs” including email and phone, and there was little in terms of a developer universe to support adapting them to new “jobs”. Their horizon in this regard is much larger than most of the other inventions whose diffusion curves you mention.

    Relative to your thought that: “It would seem that the early movers would have an advantage as their users create the virtuous cycle of learning which the firm will use to capture later adopters” we know that the story in many technologies has been that the early leaders have been unable, or unwilling, to see beyond the limited applications and audiences which provided them with their initial success, and become subject to new market disruption when a company with a different vision enters the market. The early leaders were focused on business applications and caught flatfooted when smartphones became a consumer technology.

    And that’s why Apple is never the first entrant in a category. They’re patient, and learn from everyone’s experience.

    • http://www.isophist.com/ Emilio Orione

      I agree to the principle, apple is patient and learn how it could do better before entering, but I don’t think iPhone was just a better smartphone, for me the iPhone was part of another category completely inexistent in the phone market and so in this category Apple has been an early movers.

      iPhone was the first multi purpose pocket size mobile computer with built in phone and full internet capabilities and extended 11 input multitouch display.
      The other smartphones in 2007 was computer way more limited, the blackberry had 50 kbyte of operating system, the first iphone 800 kb.
      The real innovation of iPhone was, besides multitouch, a full fledged operating system with full day battery life.

      • art hackett

        The iPhone is the device I’d been waiting for since my first mobile that barely passed as a phone, literally, a transportable phone with a slightly larger ‘speed’ dial memory. Every other device till then was excrutiating to use and retarded technically, let alone imaginatively priced, not forgetting user interface…… hang on, everyone did forget user interface. Every current manufacturer and platform should get on their knees and plant their faces in the dirt and thank Apple for showing them the way, the truth and the light (sorry, couldn’t resist it). The failures and wannabes only have themselves and their limited vision to blame. Can you imagine if we’d gone down the blackberry clone path? Talk about dark ages. The iPhone was like aliens brining us New Technology (you know, actual new technology) – or did Steve steal it from Area 54 PARC?
        You had to be a masochist or delusional to even bother with The Communicator (seriously, the communicator?), the various so called organisers where everything could be lost to a minor mistake, glorified messengers, the buried under baggage Windows Phone, etc, nightmarish etc.
        I can still revel in the anticipation of that day day in January when the world changed, and far more was delivered than we could have hoped or imagined.

  • Walt French

    I’m not getting “some technologies are rapid (examples) and some are slow and causes.” Missed edit?

    • http://sharonsharalike.com/ Sharon Sharalike

      Cautious?

  • Christian Peel

    Every time I see that damn logistic graph of adoption of various technologies, I end up spending an hour or more studying it and thinking about the past and future. From an old post, here’s a higher-resolution and easier-to-read graphic: http://www.asymco.com/wp-content/uploads/2013/11/Adoption-Rates-of-Consumer-Technologies.png

    If we believe what is says (the curves are getting steeper with time) then an obvious question is what would enable a new hardware platform to be adopted in some very short time, say in a few months. I guess one answer is that new platforms won’t be hardware, but rather new software platforms. Even so, I wonder what the future of hardware platforms will be. Will Apple somehow be able to introduce a new hardware product that will go from zero adoption to 90% in a year or in a few months?

    • Walt French

      Thanks for putting that chart into this context. The VCR line on it suggests an alternative question for investors.

      By my eyeball read of the chart, VCRs came from nowhere in 1984 to over half the population in 1988—but declined almost as sharply since peaking at a commanding 88%+ penetration in 2004.

      In 2004, did Americans start losing their appetite for home entertainment, the putative Job To Be Done for a VCR? No, we watch more TV than ever. The explanation has to be that other products and services—Blockbuster & Netflix come to mind—displaced the VCR.

      There’s no line for portable music players, but PMPs were surely decimated the same way that VCRs were, by products that solved the JTBD without having a clunky, job-specific box. I personally can’t see how game consoles will hang on any better; another couple of ticks of Mr. Moore’s clock will make every PC, smartphone and tablet capable of almost everything console boxes will be able to do, especially if you modularize the I/O with controllers and VR displays.

      Apple seems to be doing a great job of expanding and managing the JTBD for smartphone hardware, systems and services, in a way that makes it much harder for modularization to work on any basis other than the one we’re familiar with today: apps that a user installs trivially easily. So I discount much uncertainty about Apple’s share of the smartphone marketplace, at least if you ignore the rabid fanboys with their prediction that modularity such as replaceable batteries and interchangeable hardware that all works on the Android platform will drive Apple out—if anything, that seems less likely than 5 years ago.

      Instead, I’ll note the risk of a brand new product category displacing what we now use smartphones for. It “could” be a Google Glass type wearable. (Well, not really, but kinda.) It could be something that I can’t imagine right now. (I need to get on to other things and don’t see anybody paying me to tell Microsoft what the Next Great Thing will be, the one that’ll be the 2017 analog to Jobs’s 1997 exhortation.)

      But I’m not worried about the investment risk to holding AAPL being some other smartphone.

      • Christian Peel

        So much of software has modularized and turned into a commodity.

        If Apple were to incorporate something like the Echo device (maybe the H2 as well) in the following link into an Apple watch, they could continue to expand the set of software that could be easily built on their platform and increase the value of the platform. https://www.indiegogo.com/projects/echo-h2-hydration-lactic-acid-and-glucose-sensor The sort of features in this device are what I’d hoped for from the
        Apple watch (which seems kinda boring in it’s current incarnation).

      • http://www.collideconsult.com/ Ed Dietrich

        Apple is unique in succeeding along a number of vectors, which include:

        – JTBD – App universe and expanding functions, ApplePay being the most recent
        – Form Factor platforms – iPhone, iPad, Mac and upcoming AppleWatch
        – Consumer perception – high end, conspicuous consumption, personal differentiation

        Others, Google or MSFT, could conceivably catch up or surpass on the first two vectors, but it’s very, very hard to move ahead on the 3rd.

      • Tatil_S

        VCR question is easy to answer. Its fall was not due to Blockbuster, which had been around long before 2004, and for a while its rentals were actually driving VCR purchases. Some people used them to time shift broadcast TV, but I’d wager most people needed a VCR to watch rented or purchased content instead. By 2004, DVDs have replaced video cassettes in the rental and home purchase markets, so VCRs got replaced by DVD players. However, I would not really consider DVD players as a disruptive innovation. It does almost exactly the same job, albeit at a higher quality and in a more user friendly fashion, for the same set of customers and the content providers and the distributors got to keep their business models intact. Netflix displaced Blockbuster, but I doubt that transition would fail to happen if the video industry stayed with VHS tapes.

        The inability of VCRs to record HD broadcasts coupled with better user interface made many to move towards Tivo and similar digital recorders, so it also fell behind in that aspect of its mission.

  • http://www.collideconsult.com/ Ed Dietrich

    I think it would be interesting to see a plot of logistic curves for technologies which are purely B to B, especially as regards disruption theory.

  • Sacto_Joe

    One element I’ve mentioned repeatedly is that Apple came very late to the cellphone market. And the cellphone is what “cracked” many foreign markets, thus had huge room to grow. Note that Samsung was hugely advantaged over Apple by the presence of a pre-existing user base that was world-wide, plus a manufacturing base capable of producing and distributing to that user base. By effectively ripping off Apple’s IP, which none of the others of comparable size and capacity did to the same degree, they thrived while the others failed. Meanwhile, Apple was forced to acquire over time the user base and manufacturing capacity that Samsung already had.

    Cut to today: Samsung’s advantage has (finally) disappeared, but Apple is still ramping up its capacity to build high quality mobile devices.

    Ergo, we are still in an era when Apple can continue to grow, but now at the expense of Android. The question that needs to be answered now is what or who can now slow that growth?

    • Ian Ollmann

      How would we tell the difference from supply side problems dominating sales, as you describe, vs. something attributable to demand side behavior? That is, do people who tend to be early adopters favor one company over another for some reason and mid/late adopters prefer another?

      Is it a mixture? Would a company’s history of taking 3 major revisions to get it right deter early adopters? Can they find themselves shut out of a platform market as a result?

      • Sacto_Joe

        “How would we tell the difference from supply side problems dominating sales, as you describe, vs. something attributable to demand side behavior?”

        When was the last time Apple’s holiday season was not supply-constrained? Answer: When the new iPhone releases happened in June rather than in September. Apple flat owns the holiday season, because nobody in their right mind is going to go head-to-head with Apple in the holidays. But how does Apple justify idling capacity for other parts of the year when demand drops off dramatically? It seems likely that this issue is holding back a full-throated explosion in production capacity by Apple. That’s fine only for as long as they avoid the appearance of smartphone commoditization.

  • Fadil

    Fascinating.

    I’m still trying to understand what factors position a particular technology for ubiquity. You began to explore this idea when you wrote “When a technology serves a manifest need (or can be hired for a distinct, unmet job to be done) its universal adoption is a certainty.”

    Could you please elaborate? Pretty please. Its such a vital contemplation for the ambitious entrepreneur.

    Thanks