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Stephan Liozu will discuss how companies scramble to invest in IoT, AI, other digital investments because the digital revolution promises trillions of dollars in created value by 2030. Yet most companies struggle to monetize the data from those investments.My recent talk at IOT Thought Leadership Meeting
If you are interested in what I mean by “Digital First” strategy and what we are trying to do at xLab, please watch this 18-min presentation.
A Network View of the WordPress History
One of the key distinguishing features of digital technology is its generativity. Simply put, it is how the people do things that you as the original creator never thought about doing. Zittrain popularized the concept by analyzing the growth of PC and the Internet. In an ISR article that I wrote with Ola Henfridsson and Kalle Lyytinen, I proposed the notion of layered modular architecture as the technical underpinning of such generativity of digital platform ecosystems.
Despite its importance, there is not enough empirical research looking at the patterns of generative evolution of digital platform ecosystem. One such ecosystem is the platform that I am now using to write my blog. WIth the generous support from the National Science Foundation, my former student, Sungyong Um, and I have been looking at the evolution WordPress since its inception in 2004. Sungyong has collected every plug-in written for WordPress and analyzed their source codes to find out which APIs they use. We found out that plug-in developers mix both APIs developed by WordPress and those by others (such as Google, Twitter, and Facebook). In January 2004, there were 86 plug-ins using 40 APIs by WordPress and 4 by others. A decade later (December 2014), there were 23,218 plug-ins using a pool of 443 APIs, only 99 of which were created by WordPress and the remaining 344 APIs coming from other large and small web service providers.
We characterized each plug-in as a combination of APIs, which allowed us to build a dynamic network of APIs to understand the generative evolution of the entire ecosystem. Below is an animation that shows the dynamic growth of WordPress. In the animation, blue dots are APIs built by WordPress. A line connecting two APIs indicates that those two APIs are being used to build a plug-in. If two APIs are repeatedly used, the lines become thicker. The animation is a bit jittery as the software changes the angle for different years.
The full manuscript is in the final stage (we hope) of the review process. What you will see from the animation is the important role that certain outside APIs play as the network grows over time. We are in the process of analyzing the history of R ecosystem. I will share the results here soon.
What should Apple do?
Over the last three months, Apple lost over $400 billion in market capitalization which is larger than that of Facebook. Together with Tim Cook’s bombshell announcement of cutting its revenue forecast for the quarter that ended in December, this raises a lot of questions about the future of Apple. Of course, for those of us who follow tech companies, this should not come as a big surprise. Apple had a problem of introducing a new premium price hardware product since iPhone. The slow, albeit steady, growth of the revenue from service cannot make up the loss of annual sales of new iPhones. They have already sent a strong signal last year that they were having a problem with iPhone sale when they decided not to disclose the unit sales number. When Apple agreed to sell its products on Amazon, which means Apple has to share its revenue with Jeff Bezos (can you imagine how humiliating it must have been to Apple?), we already know that Apple is no longer the old Apple that defied all the normal rules that applied to other companies.
So, given all the signals, we should have anticipated some kind of bad news from Apple. At the same time, to say that this is the beginning of the end of Apple, and comparing Apple with Nokia (as some in Korea did, somehow suggesting as if Samsung is doing any better) is complete hyperbole in my opinion. Before we think about what Apple should be doing, let’s think about what is happening now.
What is happening now is that a larger percentage of the current iPhone users are not upgrading their iPhones. That does not mean, however, that they are ditching their iPhones. So, what Apple is losing is the incremental sales revenue that used to come from those who upgraded their phone on an annual basis. However, this does not mean that they are losing their user base, which is extremely important in understanding how the platform ecosystem works. I would start worrying about Apple’s future when a larger number of iPhone users are migrating away from Apple’s very sticky ecosystem.
What Apple has been able to do consistently in the past was expanding its user base with new hardware platforms started from iPod to iPhone. Mac, Apple TV, and iPad were important parts of the platform, but in my estimate, they did not significantly add new users to the ecosystem. And, it was primarily through its iOS / iTunes ecosystem that Apple used to keep those users into its premium-priced hardware products. For Apple, until recently, its ecosystem was not the primary source of revenue. Rather, it was to enhance the value of its hardware. Let me say it again. Apple is a hardware company. Software and ecosystem for them are just features!
So, what should Apple do? See, it all has to do with its business model. It is all about creating a steady revenue stream that can replace the loss of the annual iPhone upgrade cycle. Going forward, we can assume that fewer people will upgrade their iPhone each year. I didn’t, for the first time. That does not mean that they will never upgrade their iPhone. Perhaps the majority of iPhone users will upgrade their phones every other year. So, Apple needs to think about making up the loss of revenue stream from the annual iPhone upgrade. Given the way Apple’s business model is set up, there seem to be two things Apple need to do.
First, in the short term, Apple should try to monetize its ecosystem more directly by offering some type of premium membership model. Amazon Prime costs $120 per year. What can Apple do in a similar fashion? Apple has its music, movie, iCloud, Apple Care, and now its own video contents. How about free AirPod and all those annoying dongles? Can Apple come up with a super attractive membership program that includes both hardware, software and service at a premium price point? If Apple can convert a large percentage of its loyal users to sign up for it, it can stop the bleeding. In other words, instead of making people line up outside of the Apple store for a new iPhone, it can make users give up their credit card so that it can automatically renew their premium membership. It is all about creating a recurring revenue stream.
Second, given Apple’s DNA, they should try to find the next blockbuster premium hardware product. Obviously, this is what Apple has been trying to do unsuccessfully over the last few years, which is why many analysts seem to be increasingly pessimistic. Apple tried it with TV and it did not work. It seems like that it is still interested in autonomous vehicles, which is an obvious next premium-priced hardware platform. Of course, people will not upgrade their cars every year, but cars are much more expensive than smart phones. The good news is that with a strong iPhone user base, Apple still has time. If Apple can figure out how to do the membership right, it will have even more time. Will it be successful eventually? Who knows?
Finally, both of these strategies might require acquisitions. Perhaps, Apple can buy Netflix. Perhaps, Apple can finally buy Tesla from Elon Musk.
A new site
Launching xLab
The primary reason I returned to Cleveland 2.5 years ago was a simple conviction that one of the biggest crises and opportunities of our time is the digital transformation of the old economy. What we have seen so far is just the end of the beginning. What we will see will likely come from the transformation of the old economy. And, we have plenty of them here in Cleveland! When it comes to digital transformation, it is one target rich area. That’s why I came back to Cleveland and why I remain excited about being here.
This year, I am officially launching xLab@Case. It is a hub of an ecosystem of established firms, entrepreneurs, inventors, students, and scholars to foster digital transformation of the old economy. In the coming weeks and months, I will write more about what we do at xLab. So stay tuned.
How might we add an audio layer in everyday life?
We are surrounded by all sorts of sounds all the times. Some we choose; some we don’t. We set an alarm clock. We set up music playlist for our exercise. We choose podcasts for our commute. We play music for dinner parties. In between those moments, we have down time. We are surrounded by sound (or noise) that we did not design. Some are oblivious; others are obnoxious. Also in between those moments, we switch devices. From an alarm clock, to smart phone, to our car audio system, and to smart speakers in our dining room. We juggle multiple accounts, multiple playlists, and multiple apps. Can we design and edit the sound around us all the time, across different contexts and different devices? This was one of the ideas that my students today…
A Tale of Two Stores
Store One: Office Max
I went to Office Max to pick up chairs that I ordered earlier. The store was almost empty. I was happy to see my chairs stacked up in the cash register area. I thought it would a quick stop at the cash register to pay for the chairs and leave. Perhaps 5 minutes total.
There were two employees at the cash register. One was dealing with a customer who tried to get a refund. The other was trying to find a product that a customer wants to buy (if you buy a big item there, you bring a card from the floor to the cash register and they will bring to you). I was the first one behind these two customers. Lucky me, I thought! Well, not quite. The one customer at the cash register #1 did not seem to have receipts, and also got some type of discounts because she was a member of the "club". It seemed like a complicated return case and the cashier finally asked for a manager. When the manager came, three of them were going through the customers iPhone to find an email from the store. In the meantime, the line was getting longer, but the manager did not seem to be bothered by the growing line. At the same time, at the cash register #2, the other cashier did not seem to be able to locate the product the second customer wanted to purchase. He was running around the store, while the customer was waiting. The line was getting longer and longer, some of the customers starting to complain loudly that the store should have more people manning the cash registers. (I wasn't one of them!) The customer at the register #1 noticed that she was causing a long delay behind her, and suggested that she might come back later. To my surprise, the cashier told her that the customer could walk over to the customer service counter where a couple of employees were just standing. I was asking myself, "why on earth didn't the cashier tell the customer to go to the customer service desk, in the first place? and why didn't manager act as a manager, but as a super cashier?" Finally, my turn came. The cash register #1 crashed; cashier asked me to come to the register #3. I left the store with the chairs. Total time wasted: 40 minutes.
Store Two: Apple Store
Then, I went to an Apple Store. The store was packed with people checking out the latest iPhone X. I wanted to pick up new iPhone cases for myself and my son. I went straight to the shelf to pick up two cases. All employees were busy talking to customers. So, I whipped out my iPhone, started Apple Store app, scanned the barcodes on the back of the cases, and used Apple pay to pay. I walked out with two cases in my hand. Total time experienced: 5 minutes.
No wonder why the traditional retailers are dying. It is not technology. It is bad management. Apple is just good at using the technology to create good user experiences.
Re-imagining our cities with digital innovation [Beyond]
This is my latest contribution to Beyond by the Weatherhead School.
Re-imagining Our Cities With Digital Innovation
Herbert A. Simon, the late management scientist and Nobel Laureate, argued that we are living in an “artificial” world, one that is shaped by man-made artifacts. Throughout human history, we have mobilized our collective power with increasingly powerful tools to transform the natural world to advance our civilization.
The problem with innovation [Beyond]
This is a column that I contributed to Beyond.