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Making Fool of Dragons

 
 

Making fools of  Dragons

 

 

Roopen Roy

 

(Views expressed are personal)

 

 There is an ancient Chinese  proverb ,"In shallow waters, shrimps  make fools of  dragons.” Shrimps are small in size but they thrive in shallow waters.  A dragon is a mythical creature believed to be strong and powerful. But their natural habitat  is not shallow waters.

 

If you are a smaller player you can use Judo strategy using the  bulk and inflexibility of your opponent against him.  You may also mimic a  shrimp . You choose the terrain to pick your fight. For instance, if the tiger has to fight the crocodile, it chooses the jungle not the river.  

 

Let us look at the digital tablet market. According to IDC,68% of the tablets shipped in the second quarter of this year were iPads from Apple. All other Android-based tablets including those from Samsung (Galaxy) and Motorola (Zoom)aggregated 27%, The rest accounted for a mere 5%. If we split the pie chart of tablets shipped by value , Apple will appear  even more commanding  as it dominates the  premium segments of the market. If you have a  gorilla like Apple dominating your    competitive landscape, is it wise to take him head-on in its own habitat?

 

Research in Motion (RIM) is famous for its Blackberry device. Corporate executives were addicted to it- hence, the sobriquet “crackberry”. RIM  felt threatened when executives began switching to  iPads. It attacked by  launching  the Playbook .It failed and no one believes it will ship the planned  2.2 million units in a full year. Meanwhile, iPads continue to convert Blackberry users threatening its core business. Hewlett Packard launched its tablet called the TouchPad with much fanfare but humiliatingly did a  fire-sale of its devices and discontinued the TouchPad only a month after its debut.

 

Apple began selling  iPads in April 2010. Steve Jobs launched the iPad 2 in March of this year. It has shipped 9.25 million iPads in the June quarter alone and it is the second biggest revenue puller of Apple after iPhone. What is at stake? Is it a battle for  market share in tablets alone ?  The mobile device is only one  piece of the puzzle. The real war is about dominance of  eco-systems. 

 

 Microsoft dominates the personal computer eco-system because many hardware vendors adopted its operating system and numerous applications were written for it. In the mobile world, Apple has created an eco-system. There are more than 425,000 mobile applications for the iPhone and the iPad of which more than 100,000 are specifically designed and written for the iPad.

 

If someone wants to fight Apple- it would be foolish to moon the giant in its own territory. To make a fool of the Dragon it must be lured into shallow waters. One could take  the fight to geographies where Apple products are competitive only at the top  of the pyramid. Or it could change the terrain by attacking components of Apple’s eco-system with game changing strategies.

 

Let us look at the latest challenger of Apple in the tablet market: Amazon. Amazon started life with the ambition of   becoming the “Earth’s largest bookstore”. But it is much more than that today. It is a serious player in cloud services. It may be  a shrimp compared to Apple in the mobile  device market but its natural habitat is in digital content and now the cloud.

 

Last week it announced the Kindle Fire. On the day of the announcement Apple shares fell on Wall Street by $2.25 per share and Amazon’s shares rose by $5.50 per share. Wall Street is not the ultimate predictor of winners in technology  but  it is an astute weather cock of  business trends.

 

Amazon’s strategy is remarkable. It is not mooning the giant. It is behaving like the proverbial little shrimp at least for now. The Kindle Fire will have  a 7 inch display and will sell for only $199. The cheapest iPad sells for $499. You cannot video-chat or Skype on Fire. It will use Amazon Silk as the browser which will access the Amazon Cloud to achieve blazing speed over the internet.

 

Amazon is also attacking  the construct of  Apple’s  eco-system. Since its forte is content and e-retailing, it is offering a $79 dollar a year subscription which will give you unlimited access to streaming videos and a free two-day shipping for products from appliances to toys to books.  It  is , therefore,  taking the fight to the terrain  of volume procurement .It is asking the question: do you have my buying muscle? It is also changing the game by leveraging its Amazon Web Services. Kindle Fire buyers can store as many books, songs, movies, photographs and personal documents on Amazon’s Cloud servers for free.

 

Amazon will not restrict itself to a 7 inch no-frills tablet. It will soon  launch a tablet which will compete head-on with iPad 3. But for now we have to watch the counter-moves of Apple. Will it become nimble and agile to take on it many competitors like Google and Samsung by launching cheaper, no-frills iPhones and  iPads in markets like India and China as Intel did with its Celeron chip? Will its iCloud successfully navigate the shallow waters of the cloud? And will it harness innovative strategies to stop Amazon from conquering the war for content merchandizing.

 

The outcome  is  difficult to predict. But it is unlikely to end up in a one horse race. One is likely to see a burst of innovation and creativity in the tablet eco-system and the entry of new players with new game-changing offerings. It will be fun to watch how today’s  shrimps transform into tomorrow’s dragons and how dragons adapt and learn to be wise even in shallow waters.

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