Apple is compensating for two mistakes (1) the failure of Apple TV. (2) big investment in content too quickly without figuring out distribution.
Technological innovations have radically transformed the business landscape in many ways over the last two centuries, our research shows how digitization can significantly hurt incumbent firms in many industries, write Jacques Bughin and Tanguy Catlin in Harvard Business Review.
Technological innovations have radically transformed the business landscape in many ways over the last two centuries, from the introduction of steam power to the market conquest of radial-ply tires. Research by McKinsey & Company and the McKinsey Global Institute shows that digitization is having the same radical impact. In particular, our research shows how digitization can significantly hurt incumbent firms in many industries — depleting as much as half the revenue growth and one-third of earnings before interest and taxes (EBIT) growth of companies that neglect to embrace digital innovations.
It is not too late for incumbents to reverse the digital curse and re-create a more profitable growth path if they are willing and able to invest more in digital than their peers and take the offensive by reshuffling their activity portfolios and beefing up remaining activities with new business models. On top of that, incumbents would be wise to choose a “platform play” — creating value by intermediating in transactions between other parties, such as suppliers and consumers — because it opens the way to capture more value in disrupted industry chains.
Despite the demonstrated benefits of this path, which we call “digital reinvention,” only a minority of companies have fully embraced it. In our early research on 2016 data we had found that only 16% of companies had taken steps toward reinvention, meaning they restructured their portfolios (shedding declining businesses and expanding profitable ones) and poured more money than their peers into an aggressive digital strategy based on new platform business models. In more recent research in mid-2017, our data from 1,650 firms around the world still confirms that still less than 20% of companies take the path of “digital reinvention.” We conclude that, despite warnings from ourselves and others, most incumbent firms are failing to adjust to the digital era.
Hence, our new research, which focuses on understanding how to encourage more frequent (and more profitable) digital reinvention. We found six important and statistically robust factors that predict the probability that an incumbent company will choose the path of being a reinventor. They are, in order of importance:
1. Obsess about turbulence on the horizon. In general, incumbents tend to be disrupted because they neglect signals of turbulence. On the contrary, companies that understand the degree of digital turbulence are the most eager to go on the offensive. Those in the most digitally advanced sectors, such as high tech, already feel the pressure of digitization and are more inclined to take the offensive. In our survey, we found that one-fourth of high-tech companies are on the offensive, 2.5 times more than across all firms and sectors. In contrast, the automotive industry has barely half the rate of digital reinventors.
Even more interesting are differences within industries, where the perception of risk drives action. In the high-tech industry, we found that when companies conclude that their current model is not viable and must be fully adapted (versus making only marginal digital adjustments to the existing model), they digitally reinvent themselves 40% more often than the industry average. The tipping point for action is different by industry — in high-tech, companies often make the leap when cannibalization is perceived to hit 25% of their traditional revenue; in banking, the tipping point of perceived cannibalization risk is about 35%. In any case, at those tipping points the decision becomes relatively easy, as digital rules.
2. Understand all risks, not only those from startups. One mistake incumbents often make is to look at turbulence signals only from digital entrants. But for every digital startup in an industry, there also is likely be an incumbent reinventor in the making.
Imagine a firm in an industry with nine competitors. One competitor is a digital startup within the industry, one is a digital startup from an adjacent industry. The remaining seven are incumbents within the industry. These examples aren’t purely hypothetical; they’re estimates of a typical industry structure, based on our data. Companies typically face a mix of traditional competitors, new entrants within their industry, and entrants from adjacent fields. However, we also found that, on average, three of these traditional rivals are likely to have already chosen to forcefully engage in digitization, and one of them is probably already morphing into a digital reinventor.
In total this means the company in question faces offensive attacks from three digital players, not just one, and one of the attackers is a known competitor that has chosen to break from the established conduct of the industry — the so-called “red queen effect.” Furthermore, the more digitized an industry, the more often incumbent companies have jumped into digital reinvention. From an average of three offensive players, we found that grows to 5.5, or more than 50% of total competition in highly digitized high-tech industries.
To become a reinventor itself, a corporation would be wise not only to track new digital entrants but take a good look at traditional competitors that can become digital reinventors and must keep an eye out for established companies crossing their industry border.
3. Deliver a dual offensive: core and diversification. Today, many companies have in mind to defend their core business first and attack via diversification second. A typical incumbent focuses only about 30% of its resources on activities outside its core business. By contrast, true digital reinventors devote an equal amount of resources to revising core business models and investing outside the core.
However, we found that focusing only on non-core activities may be a mistake. First, revenue and, to a lesser extent, profit growth tend to be diluted though diversification as companies take time to build a presence in each new field. Further, companies’ assets and competencies outside the core are not yet as comprehensive and established, as they are in an incumbent market. Second, as discussed, core businesses are still the bread and butter for many companies; a digital reinvention in the core may still lead to a better growth path.
When digital reinventors increase offensive actions in both core and digital, we find that total revenue as well as profit growth is enhanced. The effect is not large, statistically — it is in the range of 0.5% to 1% of yearly revenue growth on top of base line depending on industry — but the effect is three times larger on profit, and further such an increase builds up over the years.
4. Fix leadership skills first. Many incumbents still face major roadblocks in their digitization journeys. In one way, this is natural, as incumbents have succeeded by establishing robust routines and competencies over the years. In general, the more successful those competencies were at providing non-replicable assets, the more difficult it is to let them go. What we find in our statistical analysis, however, is that companies are more likely to take the path of digital reinvention when leaders are committed to taking action, e.g. CEO sponsoring the program heavily, executive board appointing specific managers in charge of the transformation, etc.
5. Prioritize demand-centered business play. We mentioned earlier that incumbents see higher returns when they shift business models to a platform play – this effect is even greater for incumbents who show the other indicators of digital reinvention. Our new survey reconfirms the finding, but we also find two new nuances. The first is that one reason why digital attackers are often more successful than incumbents is that they select the platform play as their top priority two and an half times as often as incumbents choosing to go for digital reinvention. The second is that a platform model re-centered on the demand side increases the chance of being a digital reinventor, and making better profit inroads. This recipe for digital profitability is the consequence of the potential of large demand network effects, as it is emphasized in the management literature of platforms.
6. Experiment with frontier technologies. Digital reinvention only works if companies master the right digital technology architecture. Consistent with findings in parallel research, we found that digital reinventors ensure that they have adopted the full range of digital technologies, and diffused them across their organization to support mission critical applications and processes. Further, they are already investigating emerging artificial intelligence technologies, such as upgrading machine learning algorithms to deep learning ones, or investing in new generation of smart robotics, as a way to have an edge. Surprisingly, we see no evidence of leapfrogging in our data: companies that kickstart AI without mastering the first wave of digital technologies, such as social media or mobile, are not only rare but also do not get full return on their investments. Companies must master each generation of technology, and fast, in order to become digital reinventors and obtain good returns on their technology investments.
Source: Harvard Business Review.
Honing your typography skills for UI design — an action plan
Just recently I felt the need to improve my typography skills for UI design, so I outlined this action plan for myself, and I hope it will also help you in designing better interfaces with better typographic choices!
Action 1. Read
Here are 5 books on typography that I consider must-reads for user interface design.
Thinking with Type: A Critical Guide for Designers, Writers, Editors, & Students
— by Ellen Lupton
I first came across this book as a textbook for a design course. It laid the foundation for a solid understanding of typography.
I was able to use what I learned in design projects right away.
Filled with visual examples, this book is a definitive guide on typography for visual communication.
The Elements of Typographic Style
by Robert Bringhurst
This is the book to get if you really want to nerd out on typography and get a deep dive into the technical aspects of it.
I love the parts of the book where the history and evolution of typefaces are discussed.
Getting to know the history of typography helped me understand what makes a font look old-timey, what makes it look modern and what gives it a contemporary twist.
This knowledge really comes in handy when choosing the right font pairings.
Parts of this book can be packed with exhausting details that you may not be able to read through in one sitting.
However, you can use the rules and guidelines for reference anytime you want to create that typographic magic for a design project.
Type on Screen: A Critical Guide for Designers, Writers, Developers, and Students
by Ellen Lupton
This book concerns mainly typography in digital forms, such as how people read on different devices and common interaction patterns.
It also includes lots of example case studies that can immediately be put to use by a digital product designer.
I especially love the highly applicable do’s and don’ts on elements like navigation, tables and data display.
On Web Typography
by Jason Santa Maria
I wish I had read this book when I was a junior designer. It covers the essential aspects of typography that a digital product designer uses on a daily basis.
It includes sections on choosing and pairing fonts, setting hierarchy and creating contrast when composing a typographic system.
My favorite section of the book is when Jason cautions designers on using free fonts.
Before you go download and use that free font from a random corner of the internet, read this book first!
by Bram Stein
When it comes time to implement the fonts that you have chosen for your designs, this is the book to get.
Whether you’re in a position to implement your own fonts of choice or you’re working with a developer, knowing the technicalities outlined in this book will help get your fonts to load fast and render correctly.
This will greatly reduce your chance of hearing: “Well, maybe we’ll just switch back to using Arial…”
Action 2. Practice
I wanted to give myself a chance to experiment with choosing and pairing fonts for a variety of projects.
You don’t always get to do that in a work situation, so here are two ways that I found that offer designers a chance to play and experiment.
Daily UI Challenge
You’ve probably heard of the daily UI challenge before. It’s a great way to experiment with typography with a project a day sent by email.
These projects can be small and quick. Over time you may be surprised by the amount of work and progress you’ve made!
Focus on how your typographic choices influence the user’s overall experience.
Action 3. Observe
Have the critical eye running in the background of your daily life
There are tons of typographical user interfaces in the physical environment that we live in.
For example, highway signs, furniture assembling instructions and emergency exit signs to name a few.
Keep an eye on how these text and signage look, and your experience interacting with them.
Keep a visual collection
When you encounter interesting typography examples in digital products or design inspirations from around the web, take a screenshot and save them in a collection that you can go back to later.
When you need some inspiration for a project, you may just find the perfect solution from your personal visual collection.
It’s time for action
I hope this action plan gives you some steps that you can take right away to start honing your typographic skills for UI design.
I believe that no amount of reading or looking can replace doing the actual design work.
So go forth and design something with typography today!
Editor’s Corner—Apple TV will die so TV+ can live
Apple may have whiffed on its Apple TV+ announcement Monday by offering too few key details about the service. But the company did say that its TV app was coming to Roku and Fire TV devices, essentially sounding the death knell for Apple TV.
Apple had been telegraphing this move for months. At CES, the company announced that a version of iTunes was launching on Samsung smart TVs later this year and touted incoming AirPlay 2.0 support for smart TVs from Samsung, Sony, LG and Vizio. These moves, while not a complete distribution strategy by any means, signaled Apple’s willingness to break down its walled garden for the sake of getting its video service further out into the world.
Wide distribution is key if Apple wants to take on Netflix—which is the notable holdout for Apple’s video aggregation scheme. As Strategy Analytics pointed out, Apple’s new TV app (arriving via update in May) is starting out with a huge built-in disadvantage, with only 175 million addressable TVs compared to more than 900 million for Netflix.
Apple has plans to close the gap. The company is launching the TV app on Mac this fall; launching on smart TVs, starting with Samsung in spring followed by LG, Sony and Vizio; and on Roku and Amazon Fire TV devices “in the future.”
The Roku and Fire TV agreements were the announcements of the day, according to Alan Wolk, co-founder and lead analyst at consulting firm TV[R]EV. He pointed toward a tweet from Prashanth Pappu, founder of Vizbee, as a good summation of why those two deals are significant.
Wolk said that Apple used to be able to sit back, wait until an emerging product category became nascent, and then swoop in with a superior product and take over. But lately that strategy has failed, with Apple Music still dwarfed by Spotify and the pricey HomePod lagging behind Amazon and Google in the smart speaker market.
Apple TV is another example of the company’s hardware strategy falling flat. According to Parks Associates figures from the first quarter of 2018, Amazon and Roku combined control more than 50% of the streaming device market among U.S. broadband households. Apple has about 15% of the market. A big contributing factor to Roku and Google’s market dominance over Apple TV has to do with their $30 price points compared to Apple’s $180.
“There aren’t that many people going ‘I want to spend six times as much money,’” Wolk said.
Apple has been able to create perceived value because its products are so expensive. But Apple’s rigid adherence to premium pricing has come back to bite the company in the form of iPhone sales plateaus and sagging revenues for the company’s other devices.
“They’ve hit a point of diminishing returns,” Wolk said.
That hardware conundrum had sparked Apple’s renewed focus on growing its service revenues. The strategy appears to be paying off. In January, Apple said fiscal first-quarter services revenue reached an all-time high of $10.9 billion, up 19% over the previous year. That figure could keep climbing considering that, in addition to its video streaming service, Apple on Monday announced a subscription news and magazine service, a credit card and a streaming video game service.
The tradeoff for this services pipeline, at least in terms of video, appears to be the abandonment of the Apple TV. Once the Roku, Amazon and various smart TV deals are in place for the TV app, the Apple TV will essentially become an overpriced streaming box stripped of some of its exclusivity with Apple software and services like TV+.
Wolk said that at that point, Apple can let the Apple TV slowly die off and stop pushing upgrades; or do a complete reboot and put out a less expensive version of the device, similar to what the company did with the iPod Nano.
Google Stadia Gaming Service ‘Will Not Have Any Adults-Only’ Content, Executive Says
A Google executive offered new details on Wednesday about the company’s upcoming video game streaming service, telling Reuters that game makers may use competing cloud providers and must avoid some inappropriate content.
Google, owned by Alphabet Inc, unveiled Stadia on Tuesday, saying the service launching this year would make playing high-quality video games in an internet browser as easy as watching a movie on its YouTube service.
The game would operate on Google’s servers, receiving commands from a user’s controller and sending video streams to their screen. Player settings, leaderboards, matchmaking tools and other data related to the game would “not necessarily” have to reside on Google’s servers, Phil Harrison, a Google vice president, said in an interview.
Hosting the data elsewhere, however, could lead to slower loading times or less crisp streaming quality, he said.
“Obviously, we would want and incentivize the publisher to bring as much of their backend as possible” to Google servers, he said. “But Stadia can reach out to other public and private cloud services.”
The approach could limit Google’s revenue from Stadia. It has declined to comment on the business model for the new service, but attracting new customers to Google’s paid cloud computing program is one of Stadia’s aims.
If a game publisher was using Amazon for some tools, “the first thing I would do is introduce you to the Google Cloud team,” Harrison said.
In addition, Stadia will require games to follow content guidelines that build upon the system of Entertainment Software Rating Board (ESRB), a self-regulatory body, he said.
“We absolutely will not have A-O content,” Harrison said, referring to the ESRB’s moniker for the rare designation of a game as adult-only because of intense violence, pornography or real-money gambling.
He said Stadia’s guidelines would not be public.
Asked about growing public concerns about game addiction, Harrison said Stadia would empower parents with controls on “what you play, when you play and who you play with.”
Google views Stadia as connecting its various efforts in gaming, including selling them on its mobile app store, Harrison said. But game streaming, he said, is an opportunity to tackle among the most complex technical challenges around and potentially apply breakthroughs to other industries.
“We think we can grow a very significant games market vertical,” he said. “And by getting this right we can advance the state of the art of computing.”