iPhone and Android: Modular to Interdependent and Back to Modular Again
The first presentation given, on mobile devices, at Ignite Boulder last evening got me thinking about a document I wrote on this subject a while back. It was based on Clayton Christensen’s theories on disruptive technologies and modular vs. interdependent architectures. So, I thought I’d share why I believe that Android actually might make 2009 (maybe 2010) the year of mobile devices; as well as why I think it (and other open platforms in general) is best positioned to become the market leader. First though it is important to give a quick overview on the concepts of disruptive technology and modular vs. interdependent architectures as they will frame my argument. So here it is!
Here is a brief overview of Clayton Christensen’s theory on disruption. Figure 3-1 taken directly from pg. 44 of the Innovator’s Solution will aid in this discussion. The vertical axis represents the performance of a product and the horizontal axis represents time. The third axis represents new customers and new contexts for consumption. The slightly upward sloping dotted lines represent the rate of improvement customers can utilize and absorb within the specific market. The solid upward sloping lines represent improvements companies provide as they introduce new and improved products.
The low-end disruption portion of the figure illustrates how technologies tend to progress faster than market demand. This happens when incumbent firms, often in an effort to provide better products than their competitors and increase their margins, overshoot their market. These companies earn better margins because they are typically adding new functions to their existing product and charging more for it, while at the same time investing less money in R&D. They end up giving customers more than they are willing to pay for. This does not mean all customers though. Customers in the highest, most demanding tiers may never be fully satisfied with a product’s performance, while those in the lowest tiers can be satisfied with very little. A disruptive product provides the customer with a new simple and more affordable way to accomplish only the tasks they deem important. It cuts away unneeded functionality and reduces costs associated with the extra functionality of sustaining products. Disruptive technologies that underperform today, may be performance competitive in the same market tomorrow. This happens because once a disruptive product gains a foothold in new low-end markets, an improvement cycle begins. Because the pace of technology is faster than the customer’s ability to absorb it, a previously seeming inferior product improves enough to compete in the market. This reveals a performance gap between sustaining products and disruptive products and allows entrants to enter the market.
The new-market disruption portion of the graph represents new contexts of consumption and competition. These include new customers who previously lacked the money or skills required to buy and use the product, or different applications in which a product can be used. Although new-market disruptions initially compete against non-consumption, as their performance improves, they eventually become good enough to attract customers in sustaining markets, starting with the least demanding tier. Clayton Christensen provides a framework for determining whether a product is a new-market disruption in his books and scholarly articles. He discusses how a product or service addresses three business dimensions; the targeted product performance or features, the targeted customers or markets, and the business model implications, if it is to be a new-market disruption.
Specialists and Displacements
Christensen lists specialists that enter a market and displace integrated players as one of the three forms of industry change that takes place when incumbent firms overshoot their customer’s needs. Displacements take place at points of modularity, and I will discuss this concept in more depth in the following section. Unlike low-end disruptors that first target the least demanding customers, displacements first target the main stream market. They are considered specialists who focus on one component of a product or service. Displacements can rattle incumbent firms because they often require the firm to rethink how it segments its market. Incumbents that are organized around defined product segments often find it difficult to respond when a new entrant segments the same market differently.
Since I left off with displacement in the above section, I will start by continuing that concept in terms of interdependence and modularity. The device industry has taken on a more modular architecture like that of the computer. To be clear, by devices I mean intuitive mobile solutions comprised of operating systems, applications and functional interfaces. Apple’s iPhone is a benchmark for these types of devices. Apple’s product offerings have always been developed in a proprietary, interdependent architecture as all components are specified and interfaced by Apple. See figure 3-2. Interdependent architectures optimize performance, in terms of functionality and reliability. When product functionality and reliability are not yet good enough to address the needs of customers in a given tier of the market, companies must compete by making the best possible products. Companies that develop their products around proprietary, interdependent architectures have a competitive advantage over those whose product architectures are modular. The reason being is due to standardization, modular architectures involve too many companies and products in the design process and ultimately hinder optimal performance.
This was the case in the smartphone industry. The majority of smartphones where being developed around modular architectures involving many partners, who were producing products that were still not good enough for their customers in terms of functionality. The largest issue related to functionality was the limited internet browsing capabilities these smartphones had. This was the case because until Apple introduced its multi-touch, button-less interface, smartphones where not being designed intuitively. They were using pressure sensitive, one-point touch-screens designed around limited mobile applications. By introducing a multi-touch surface on a device, Apple was able to transform an industry simply by changing the way we interact with technology. A year or so later some of the largest companies, including Google and its Android platform, are working hard to come out with multi-touch, intuitive interface based devices of their own.
As an interdependent, integrated architecture was needed to change an industry, a modular architecture will be needed to bring competing products to the industry quickly. The reason this transition will take place so fast here is because Apple found an innovative way to incorporate existing technologies into the right market application. Multi-touch technology has been around for twenty years, it just wasn’t being used in the best applications. Because the technology is not new, projects like Google’s Android platform and OpenMoko’s open source platform have adopted modular architectures in order to bring competing products to the market quickly. By having open and modular platforms they can involve many manufactures and developers in the design process of various devices.
As the industry becomes more modular, the devices will become more commoditized. The reason being is as the architecture becomes more modular, the overall product becomes less proprietary and the subsystems that make up the overall product become more proprietary. This then gives the modular subsystem suppliers bargaining leverage over the device hardware manufacturer. Once again the best performance-defining components will have the most power over the overall product design. Figure 3-3 demonstrates how profitability starts to fall from the overall product down into the various subsystems.
Wasn’t that fun!
[i] Christensen (2003). The Innovator’s Solution. Boston, MA: Harvard Business School Publishing. pg. 43