Strategies for a discontinuous future.

Consulting & advisory, research notes, in the press, about bubblegen,
next wednesdays.

Friday, June 04, 2004

Some more thoughts on Reartalkin, Sidetalkin, and Nokia:

1) We sometimes make a distinction between engineering-led, market-led, finance-led, etc, strategies. I don't like to speak in these terms, because I think it's overly simplistic. But the N-Gage story is a great example of the inherent problems of perception and cognition with an engineering-led strategy.

Nokia's famous for being a firm of engineers - for giving engineers control over and most input into critical strategic decisions. This works very well - when you have the innovative capacity to create discontinuity either aligned with shifts in consumer needs, or to shift consumer needs themselves. Nokia did manage to shift consumer needs quite a few times, more than most firms - remember the 'stupid' keypads and ergonomics all the pundits thought would bomb? They didn't.

But the risk is that you can't see when engineering 'benefits' turn into consumer 'costs' - put another way, engineering-led strategies have problems perceiving and cognizing consumer needs, especially rapidly shifting consumer needs in times of hypercompetition. Reartalkin vs Sidetalkin, I think, is the best example of this I've seen in a while.

2) OK. That's the cognition end of the story. But there's another angle, which I think is more fundamental: the economic angle. With the N-Gage, Nokia had a chance to hugely disrupt and revolutionize the moribund economics of the games industry.

Like many media industries today, the games industry is dying a death by incrementalism. That's because of it's economics: as the industry's matured, publishers (suits and droids) have iron-clad economic control over what gets produced and made by studios (geeks, artists, and anti-suits and droids). Unless you're an established independent producer, you have to stake future royalties against an advance from publishers (or record labels, book publishers, etc) in order to finish production of your good.

Now, the suits and the geeks have very different ideas of what will sell: the suits want to target the '80% of the market' that focus groups and other crapware have told them will buy. The geeks want to push the envelope and make cool things. Of course, we know the rest of the story: the suits win, because they control the $$. That's where strategies like license-based games (think Mary-Kate and Ashley Pt 666) come from - suits think licenses will sell.

Of course, this doesn't work out: creative people like geeks, artists, and musicians are much closer to their potential consumers than suits, so they're usually far better judges of strategy, marketing, etc. That's why media industries are rotting.

The point to note is that these fundamental economics are completely dependent on the notion of a platform and platform ownership - that media (experience) goods are complementary assets tied to a mechanism for imposing a consumption charge - like the CD or DVD standards, or the various games consoles. That is, that platform owners (ie Nintendo) demand rents from someone in exchange for the right to sell complementary goods tied to their platform. There needs to be a risk-bearing intermediary in such a system - and that's the (ostensible) role of publishers.

And those are the economics that Nokia had a massive, golden, opportunity to change - because by being the platform coordinator, it could literally have arranged the platform economics any way it wanted. It could have eliminated or minimized the need for risk-bearing publishers, it could have reworked incentives to studios for massive discontinuous innovation in game design and development, it could have created not just a new platform - but a whole new platform economics.

But that's the point: Nokia, bein an engineering-led company, only saw the platform - not the economics, or the business model, or how fundamentally, desperately in need of disruption it is. Too bad, because someone's gonna make a lot of $$$ doing it - it just won't be Nokia.

-- umair // 1:16 AM //

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