Business models, not technology, will fuel recovery
Guest comment
By Pierre Loewe
From the October 18, 2002 edition
© 2002 American City Business Journals Inc.
Here's a pop quiz for all you online auction addicts: What company was the first to use the Web to put products up for bid?
That's easy. eBay, right?
Wrong. Try Onsale, which hosted its first online auction several months before eBay went live on Labor Day of 1995.
But don't waste time trying to log onto Onsale.com because it's dot-gone, as the various bits and pieces of Egghead — the all-e-commerce company Onsale acquired in 1999 for $400 million at the apex of its e-scendancy — are, ironically enough, being auctioned off.
While bidders surf for second-hand Slam Man punching bags and the ergonomically-correct Aeron chairs that used to swivel the hips of Onsale execs, Onsale's old rival eBay boasts 42 million registered users, a market cap of over $15 billion — and at least 10 Slam Man punching bags up for auction (current bid: $149.99).
EBay's eclipse of Onsale is no anomaly. High-tech history is littered with companies that won the technology battle, only to lose the war for customers: Sony's Betamax, which lost to JVC's VHS; Bay Network's ATM, bested by Cisco's Ethernet; 64-bit Nintendo, blasted by Sony's 32-bit Playstation; Apple's Newton, equipped with handwriting recognition, slapped down by Palm.
Moore's Law has taught us all to worship at the altar of Faster, Cheaper, Better. Yet the greatest triumphs of the tech sector's titans have come on the business side, not the technology side. Witness Microsoft, with Bill Gates' creative licensing deal with IBM, product bundling (Microsoft's Office suite), and its mainstreaming of stable, known technologies, like Windows and NT.
It's the same for Applied Materials: Applied's deepest and most durable competitive advantages have had less to do with building great semiconductor-making tools than with challenging industry conventions around global reach, providing not just products but total solutions, and investing in industry down cycles.
Ditto Dell, which didn't get to be the leader (and the only profitable company) in the PC sector by way of its technical prowess, but by coming up with an entirely new way of helping customers customize their own PC platforms.
There are scores more examples across a half-dozen tech sectors. In fact, readers might turn this into a tech version of trivial pursuit at their next cocktail party (with a cash bar in today's Silicon Valley, of course). The player who can reel off the most examples wins a NeXT computing machine.
What separates most winners from losers isn't the technology they use, but the business model that technology serves. Go back to eBay, for instance. Onsale may have been the first to build an online auction engine; it lost because Pierre Omidyar was busy building an auction community, empowering eBay's users to create their own marketplace microcosm. Onsale, for instance, had no equivalent to eBay's feedback forum to enable users to evaluate their auction experience — and allow eBay a window onto customer needs that it could use to refine its site.
It's not that technology doesn't matter; it does. But technology is now table stakes: The ante that gets a company into the game. Take what we know about today's tech market, and project it forward: Dimensions of semiconductors will continue to shrink, devices will get smaller and more powerful, software will continue to standardize, bandwidth availability will increase, and finally, IT spending will remain flat and gravitate toward GDP-like growth over the medium term.
No more rising tech-tide to lift all boats. No more making it hand over fist simply because you have a bunch of smart engineers who make a great cut-rate "me-too" product.
The danger is that in this cost-cutting, efficiency-seeking, hunker-downsizing mode that most managers are struggling with right now, business models are least likely to change. Yet it is exactly during these times of industry retrenchment when business model innovation matters most. And that's not so much a matter of throughput, bandwidth, carrier class or nanochips as it is a function of who sees best that unarticulated need that consumers are only now beginning to dream of.
What upstart company will be the next eBay, and which incumbent the next Onsale? Winners in tomorrow's technology sector will be the companies that take their cue from the customer, and see innovation in terms of the business model, not simply the flexing of technological muscle.
Smart business beats smart technology — every time.
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Pierre Loewe is a director of Strategos, a strategy and innovation services firm based in Menlo Park.
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