The Fatal Mistake of Microsoft with the Kin

An ancient history lesson. 

Arstechnica.com has a post mortem of the KIN, one of Microsoft’s stabs at a smartphone.  The KIN initially appeared as the Sidekick by Danger, which MS acquired for about half a billion dollars in 2008.  After 2 years of development, the KIN was released in 2010.   If you’ve never heard of it, I’m not surprised.  It sold less than 10 000 units when released. 

How did MS manage to evaporate over half a billion dollars in 2 years?

The central theme of the article on Arstechnica is focus of the Sidekick, versus lack of it on the KIN.  Think of the Sidekick as an Android smartphone with a keyboard and IM, but without an app store.  Online integration of contacts, emails and media was offered, but the apps on the phone were all that you got.  The upside of that was the price: just slightly more than the dominant Nokia style “dumb” phones.  Pre-2008, that was quite a compelling offering.  Heck, even now, it’ll probably have a substantial market.

The KIN was a similar offering, but somehow in 2 years, MS managed to take away features offered compared to the Sidekick, while still raising the price to near smart phone levels, with which the KIN could not possibly compete.  How?

One of the central teachings of disruption is that when goals of divisions within a company differ, conflict over resources and direction will occur, leading to compromised, worst-of-both-worlds products.  The recommendation is that these divisions be kept separate, reporting to and utilising completely different company structures.

However, the desire of most companies is standardisation and maximisation of resources.  Let’s see what happens by using the Kin:

When Danger, who developed the successful Sidekick, was bought by Microsoft, they had already established their brand values as appealing to young customers who stored their contacts and info online.  Their platform was also on Java.

This conflicted heavily with Microsoft’s push to use CE for everything, as well as a conflict over resources for the upcoming Windows Phone 7, a full on competitor for iOS.  Cue a fight which the predicted higher profit potential team won.  The KIN was starved. 

Not only that, but instead of a lean custom-built Java platform, the team had to fight with a platform meant for more robust and powerful phones.  The resource shortage meant they couldn’t win this fight in a reasonable amount of time.

The fatal mistake was the desire of MS to use CE everywhere for resource and cost efficiency, which ultimately led to inefficiency in values and goals, the vastly more important factor in determining product success. 

The KIN’s goal was compromised heavily instead of enhanced.  The CE base might have been great for WP7, as both of these are aiming at handheld computers, but the Sidekick was aiming for something different.   The work needed to force CE in this direction is what ultimately killed the KIN.  Even if they had obtained the resources to complete it quickly, the extra cost involved would have placed the KIN in smartphone territory anyway.

Replace all the proper nouns in this post and you can use it to tell the story of acquisitions with differing, established markets being brought into the parent company reporting structures.  The drive is to reduce cost. 

MS did so and saved a huge amount of work on the KIN by using CE.  I wonder if the 500 mil plus development, together with the loss of market opportunity offset that saving a bit.

Frankensteins

An interesting conversation with a colleague regarding hybrid frankensteins started from this article regarding smartphones crushing the camera market, given to me as a nice example of disruption.

My response:

Interestingly, there’s 3 separate disruptions being talked about in the article.

1 and 2 

Smartphones are disrupting the compact camera market, while compact cameras (from Canon) are disrupting the higher end cameras (from Nikon) above them.

Notice how there’s a pull upward to innovations which enable higher image quality from all 3 products, with smart phones being on the right side of the wave.

The motivation is to go upward. 

Canon is saying they aren’t going to abandon the compact camera market, which probably means they’re going to release a Frankenstein product with some communication features tacked on to their cameras.

And there’ll be a constant marketing refrain about how the image quality is so much better, so customers should buy their product.

What will be missing is the understanding is that a picture isn’t just a pic, it’s another form of communication.

So the performance gap isn’t in the quality, it’s on the ease of sharing, which a cellphone has in spades.

Canon and others will focus on being better picture makers, which shows a misunderstanding of the real customer need, that of increasing their area of influence, by letting people see what they see. 

(As an aside, this is also why video calling hasn’t taken off.  If you have to look at your phone, you have to reduce your mobility.  On your mobile phone. And people wonder why it isn’t more successful.  There’s also very few use cases where video is required.  But turn the camera around and suddenly, what you see becomes mobile, which is what you really want to transport when mobile, not your own image.  The tablet is taking over video calling from laptops as you naturally sit down with them more easily.  This also shows the danger of adding attributes instead of looking at jobs.) 

Even more interesting, the real money in smartphones is moving downward to the hardware components, such as the camera, and the OS.

Apple’s in a bit of trouble with that.  Their iPhone 5 is way over what people need.

The money should also move upwards into new  channels for obtaining the phone/tablet itself and the content on it.

3 

In addition, smartphones and tablets are disrupting the pc/ cerebral type games from Microsoft/ Sony. 

Nintendo is another extremely interesting story, because that’s a study on the jobs of gaming. 

Nintendo started with a different type of gaming, that of tactile, physical games.  Arcade games essentially.

PC games started with far more cerebral games, translating board games onto pc.

Think of the difference between baseball and Ticket to Ride and you get the idea.

Although there is some overlap, such as FPS and platformers, most of the games for these platforms fall into these 2 areas.

Tactile games require an integrated hardware/software company to provide ‘feel’ to the customer.  (Guitar Hero, Wii Sports)

Cerebral games tend to be more modular with regards to hardware as they’re far more abstract, so the companies that provide it follow suit.

While there is some integration in MS/ Sony, there really isn’t much, especially when you consider how Wii Sports drove the hardware of the Wii internally at Nintendo and vice versa.

I can’t really see that happening at MS/Sony, where the OS is almost all the integration done.

It’s easy to see that smartphones and the Xbox/ PS are ‘dumbed-down’ pcs, respectively disrupting computing as their processing power increases.  (Think of the move from Sudoku to Angry Birds to your shooter games on your  iPad and their gradual adding of pc like attributes, such as Internet, video, etc)

Nintendo simply isn’t doing their job.  With the Wii, they returned to that tactile feel and sales exploded as there was huge pent up demand for tactile games.

Then in about 2010, as with the Gamecube, they went back to competing with PC games, at which they are inferior, so sales collapsed.

Smartphones aren’t really disrupting Nintendo as much as catering to some of that demand with overlapping, slightly tactile games.

Nintendo isn’t fulfilling any job, only trying to ram their own ‘creativity’ onto the customer with their bad, weird, puzzle and cinematic games.

So their sales have tanked.

They’re surprisingly immune to what’s going on in the rest of gaming, especially with Sega, the only other integrated hardware/ software company, going third party.

But Nintendo’s not immune from their own pride, which causes them to ignore customer pleas to a return to tactile gaming.

The reply:

 Search for the samsung point and shoot hybrid… It is the frankenstein you mentioned

And a further comment:

And right on time

This thing will tank.

Conflicting values of image quality vs portability harms both.

One size fits none.

What I find interesting is the similarity on the previews to the Surface.

Only mention technology/ attributes, very little with the customer’s use case.

Calling it a best of both world’s device when it’s really the opposite.

And what I find absolutely fascinating is why companies keep doing this.

Short summary (for me at least)

-          Fear of loss of market, resulting in desire to control the whole market, leading to attribute explosions on products

-          The desire to maximise resource use, without thinking about values and the cost of compromise

-          The compromise starts with the resources being asked to aim for 2 disparate things

-          The compromise ends with these frankensteins, that are technologically brilliant, but disasters in fulfilling a job 

It’s hard to draw these boundaries.  There must be a better way.

(The reader may notice a slight un evenness in the length of the sides of the conversation.  Brevity may be a lost cause with me)

The Forces of Specialisation

What is happening with all the specialisation in the PC development world?

The process can be explained by the disruptive view on market dis-integration, or rather modularisation.

Completely new products that successfully cater to a market need/ job start off being integrated up to well defined boundaries.  Observe the near complete integration of the PC, and for a less historical example, the iPad.  Yes, the components were manufactured by different companies, but the iPad can be viewed as a complete whole.

However, in time, as the new product begins to overshoot customer need, the components at lower levels become the most important pieces to the customer.  This is due to the integrated product offering too much functionality and reliability.  A modular product naturally offers more convenience and commoditisation.  Each one of these modular components then becomes an integrated whole and performance is prioritised by the customer within each component.

So with the PC, that became the OS and the processor, not the hardware design.  This led to the success of Microsoft and Intel to the detriment of Apple.  With the iPad, Android and the hardware component manufacturers are the ones moving to the highest profit activities.  Samsung may have the best-selling smartphones, but unless they’re also making the components, I doubt they’re really making much profit relative to expenditure.

At the moment, development is done in an integrated manner from Analysis through to Testing.  However, if you really look at it, the disintegration process is already happening.  A single developer used to do everything very efficiently, but over a very long period of time.  The high profit activities of Analysis, Design and Testing have been split out, leaving the former high profit activity of Development to be farmed out.  These activities are high profit precisely because they don’t yet offer good enough performance to the customer (no offense to those reading this, you are limited by technology, not expertise).  As the core aspects of each of these become good enough, they too will become commodities, with more specialisations happening in each area. 

The reverse process is not so much that of re-integration of these parts, but in a huge new disruptive wave.  Modular Unix development teams didn’t suddenly become Wintel developers.  Why would they?  There was no profit in it.  Instead, new small teams were formed that served the smaller customers of the Wintel machines, growing along with them.  In the same way, the new wave of integration has started with tablet developers.  They will disintegrate in a similar manner in time.