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Walkman to iPod: Business-Model Transformation

Samsung wants to be Apple. And it could be.

Excerpted from “Disrupting Digital Business: Create an Authentic Experience in the Peer-to-Peer-Economy,” by R. “Ray” Wang. Reprinted by permission of Harvard Business Review Press. Copyright 2015, Harvard Business School Publishing Corporation. All rights reserved.

You’re either going to disrupt or be disrupted in a digital transformation. As we all know, the pace of change has been intense. The incremental innovation that is out there is normal, but companies that follow that approach won’t be able to keep up.

Consider the Sony Walkman. It was invented nearly 35 years ago. One could argue that this was Sony’s big transformational innovation, the one thing that really put Sony on the map as an innovator. You could make the case that other products — perhaps TVs — did that, as well. You could argue that PlayStation was an innovative part of Sony’s identity. But other companies also had video game systems. You could say that Sony led in CD and DVD players. But they partnered with Philips, so Sony wasn’t alone. You could talk about Sony’s Trinitron technology, but that was before the Walkman.

Sony actually hasn’t really innovated in the past 35 years. In fact, the company has been destroyed by others like Samsung because it hasn’t had much transformative innovation. Sony’s next innovation after the Walkman was the double-cassette Walkman, allowing users to put two cassettes in the cassette case and play up to 180 minutes of music.

But that shift from the Walkman to the double-cassette Walkman was an incremental innovation. The transformational piece would have been an MP3 player.
Sony actually had three MP3 players. There were different divisions warring with each other within the company. The units were coming out at a time when Napster, LimeWire, and others allowed anyone to share music for free. You never had to pay for music again. These services, and their users, were flipping the bird to the music industry for, as they saw it, gouging customers for years by charging $20 for an album that really had only one to two good songs.

Let’s be clear. Since Sony was also in the business of producing and selling music, there was no way it was going to cannibalize itself by introducing one of those three MP3 players into the market so that people could more effectively steal the company’s music. So it sat on the technology.

At the same time, Apple decided to get into the music industry. And the company came through with a breakthrough innovation: The iPod. When Apple announced and launched the device, it was not the best-sounding music player. It didn’t have the best battery life. It was actually predicted to fail because of these problems. It had a great interface, but its real success was the fact that it was a business-model innovation. Apple got users to spend 99 times more for music that they could get for free. People were willing to go from free to 99 cents because they liked the iTunes store, they liked the ecosystem, and they liked the interface. Apple changed the music business.

Sony wanted to be Apple. Sony had all the digital IP and design — the same components Apple had. But Sony didn’t want to cannibalize its existing music business with a new business model, so Apple eventually took that digital mantle away from Sony. Then Apple released another breakthrough innovation — the iPhone. The iPhone singlehandedly destroyed 27 business models.

We’re talking about businesses that are never going to come back, businesses that were part of the 52 percent of organizations that have been eliminated, merged, acquired or fallen off the list of the Fortune 500. That’s huge. It’s everything. Where do you go to get your film developed? Not a one-hour photo shop. You don’t do that anymore. Film’s gone. Kodak’s dead. What do you do when you want GPS? Do you get a Garmin or other navigation device? You don’t need that. It’s on your phone. What do you do to take a memo? Do you buy a little Casio recorder? No. What do you shoot movies with? A camcorder? You don’t need that video camera anymore. You don’t need a compass. You don’t need a flashlight. You don’t need an alarm clock. It’s all on the iPhone.

Just look at the mobile business. If we go back to the year 2000, the companies that were going to be hot, the companies that were in charge of mobile, that were going to change the world, were BlackBerry, Microsoft, Nokia, Symbian. BlackBerry scoffed: Who wants a smartphone? Those things are ridiculous. But the fact was, this was the breakthrough innovation, the business-model innovation that led the way.

The pace of change is fierce as these business models converge. Apple, seen as innovative, puts out one device a year. But that’s not fast enough on the phone side. It’s not fast enough on the tablet side. Samsung, which produces many of the components for Apple, puts out a new device every 30 to 40 days. It might be a Galaxy S, it might be something else, but they put out a new phone every 36 days. They are putting out innovation at a faster rate, and some say maybe they’re copying innovation at a faster rate. But the point is, Samsung wants to be Apple. And it could be.

R. “Ray” Wang is the CEO of Silicon Valley-based Constellation Research. Reach him @Rwang0.

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