Betting the farm on new products is in the best tradition of technology and Silicon Valley

Posted: July 24, 2012 in Apple, marketing, Silicon Valley, value propositions
Tags: , , , , , ,

Intel bet all its chips on the microprocessor business.  In hindsight, it was brilliant.

This was an instructive piece about the present, past and future of technology products.  Indeed, it addressed the whole innovation ethos of Silicon Valley.  Technology has hastened the tempo of change but there is nothing new about the way today’s tech king-pins can so quickly find themselves looking up at the new king-pin.

As part of this constant change, it’s long been a given that you must cannibalize products in order to sustain yourself into the technological future.  Likewise, you must be ready to roll the dice on some dicey propositions when it comes to markets and technologies. At least three of today’s tech titans, who remain hands-down leaders, made bet-the-farm decisions in their respective histories when it became apparent that staying the course would lead them right off a cliff.  This is apparent in retrospect only, however.  At decision time, you don’t have the luxury of hindsight.

Apple: The move into entertainment, in retrospect, seems logical.  The iPod is a computer after all.  As is the smartphone.  But this was still a ballsy move.  Might not seem like it today. But it was. Result: Apple in 2012 is a consumer technology brand, and all that this implies.  But to get here, from there, was hardly the slam-dunk it might seem.

IBM: In 1964, when Big Blue owned the business market for big, honkin’ mainframes, a smaller machine was a radical departure.  This was the year it introduced the revolutionary System/360, the first large “family” of computers to use interchangeable software and peripheral equipment. This concept was a huge step away from the status quo.  And IBM was not known for radical departures. At the time, Fortune magazine called  it a “five-billion-dollar gamble”. There was no guarantee that computer compatibility, a concept now taken for granted, was the wave of the future. If the S/360 failed, IBM’s existing computer product line would be quickly overtaken by competitors. To succeed, IBM would have to cannibalize existing, revenue-producing computer product lines and migrate customers from their current IBM systems to a wholly new, unproven product. Both scenarios were fraught with risk. When IBM committed to developing the System/360, it was bet-the-company time.  The rest is history.

Intel:   In the early 1980s its business was dominated by dynamic random access (DRAM) chips.  By then, however, increased competition from semiconductor manufacturers in Japan had begun to cut into the profitability of this market.  It was time for a bet-the-company shift, which is exactly what CEO Andy Grove did.  Intel bet all its chips, so to speak, on the microprocessor business. This also fundamentally changed the company’s business model.  By decade’s end, the bet was paying off.  Supplying IBM and its competitors with microprocessors, the engines of personal computers AKA “Intel Inside”, the company would begin a ten-year run of unprecedented growth.   But it was never a “gimme”.

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