This article appeared originally in Gulf News: link to original article
A few years back, Sony’s PlayStation 3 and Microsoft’s Xbox 360 were launched almost simultaneously. At the time, Sony was going to face bankruptcy in no more than six months if its Sony 3 was not a hit. What was quite interesting back then was that the reason wouldn’t have been because of a failure to market and sell Sony 3, but rather the failure to sell millions of video games associated with it.
The Sony 3, six or so years ago, was sold for a few hundred US Dollars when that could be the price of one video game! This brings us to a certain notion that indicates that it’s not only the product, but the momentum created and maintained in the product or in products associated with it. There is only little that you can introduce in a device like a PlayStation. However, you can still develop and sell many video games associated with it to support the sales of Sony 3 and guarantee its survival until the market is skimmed for profits. In other words, you first guarantee a first mover advantage; then adopt a self-competition kind of strategy where a product replaces another once the momentum has slowed down.
According to the BCG Matrix, a product starts in its initial research phase as a “question mark”. Once it has been developed and is expected to excel it moves to the next stage of being a “star”. This is where you probably get the first mover advantage as growth potential is high. When other companies start manufacturing a product similar to yours yet you are still making money out of it; the product has moved to being a “cash cow”. Finally, when the product’s potential has been exhausted already, it moves to being a “dog” where it should be abandoned or in replaced.
Another example is Nokia in its good old days. When it was a leader in the mobile phone market,it initiated its strategy of competing with itsself, launching different models very frequently not only to attract as many customers as possible but to ensure its own survival through the survival of its products.
In reference to the BCG Matrix, Nokia was rushing towards developing products faster as more products moved to being “dogs”, i.e. low market share and low growth rate.
Then, as the dark ages were replaced by those of smart phones, Apple was there to guide us all. Despite the already existing Mac system in the 1980s, Apple could only rock the market when it launched its first iPhone in 2007, after the launch of its iPod. The mixed feelings of being surprised, curious, interested, amused, and impressed did the rest. Apple’s performance after that was stupendous. It bombarded the market with one upgraded model after the other to restrict movement between only “star” and “cash cow” phases. Now besides the innovation in Apple’s products, another cutting edge was introducing the iTunes. As a medium for songs, apps, etc. the product further ensured that each Apple’s product stays as a “star” or later as a “cash cow”, low growth but high market share, for as long as possible.
So even when you don’t want to replace your iPhone 4 with iPhone 5, you still get to enjoy the software upgrades and all of your favourite apps. And as a bonus for Apple; a year back, iTunes held a value greater than all of Blackberry, which is still in Nokia’s age with its most recently launched Blackberry 10.
Companies realise that there is a life span attached to each product launched. And so every company comes up with one way or another to postpone the imminent death of their “star” product.
In the examples mentioned above, Sony 3 succeeded because of its video games. Nokia, on the other hand succeeded temporarily by launching one product after the other. But because the entire company did not evolve, it got left behind. Apple focused its energy and creativity on a few products. It then developed iTunes to: 1) Enable its products to endure business cycles and, 2) to have another source of income.
Though now, Samsung’s rebirth is what’s new in town. With its existing pool of knowledge in making smart phones’ chips and parts, tapping into the market itself with Galaxy products, its “stars”, wasn’t a problem. And even though they still lack a decent app store, Samsung chose to do it differently by developing additional products, like its unique Galaxy camera.
Now the last thought that I want to leave you with is this: would Samsung beat Apple which has enough cash to probably bail out Greece?