Endeavour Partners - Blog

My colleague Moe Kelley makes an incredibly important point in his recent post about the importance of aesthetics.

Yesterday I was teaching the E Ink case study in my New Technology Ventures program at London Business School. It involved a fascinating and lively discussion, about what were the key parameters that characterized the available technologies, and re-emphasized just how important the aesthetic of books is.

I love books. I have a house full of books. My wife worries about the load on the ceilings. There are stacks of them in our bedroom. And in lots of other places in the house. I have a clinical Amazon.com habit, going back more than 10 years to 10 September 1999 (my sister’s birthday), during which I have bought hundreds of books.

Nevertheless, the class almost unanimously recognized and embraced the elegance of the industrial design of the Kindle DX that I used to demonstrate what E Ink does. It’s a different aesthetic, but compelling nonetheless.

Kindle DX

Although technology (hard factors) matter, even in high-tech we must never lose sight of the importance of soft factors, such as aesthetics.

One of the most interesting and insightful pieces of thesis work that I supervised at MIT involved a systematic exploration of the relationship between these hard factors (functions, performance) and soft factors (ease of use, aesthetics), and how their relative importance to customers evolves over the life cycle of a particular product type.

Getting this balance wrong the other way can, however, also be disastrous; much of Motorola’s current parlous position flows from it being seduced by the soft factors success of the RAZR:

Motorola RAZR V3

It provides the user with a total sensory experience – from the innovative metallic finishes and use of materials to a truly revolutionary, chemically etched keypad created from a single sheet of nickel-plated copper alloy. The Motorola RAZR V3 is the ultimate, beautiful slim-phone.

Take time out to enjoy the feel, touch and finish of the model RAZR V3. The metal materials and finishes
create a smooth, easy-to-use phone that has real visual impact. The spun metal finish of the keypad is designed to gently reflect the light, whilst a blue electro-luminescence panel defines each character and key, creating an unmistakable RAZR V3 signature.

As a result, it lost sight of how technology was evolving, and was extremely late in responding to the transition to the app phone.

We’ve already noted that despite the excellence of WebOS, Palm needs strong support to become a credible platform player, competing with the likes of Apple, RIM, Android, Nokia/Symbian/Ovi and even (because it might do something radical) Microsoft with WinMo.

The point is now not lost on even the analyst community (Kaufman Sets Hold Rating; Many Possible Suitors), who’ve identified several options:

“…potential suitors include Nokia, Samsung, LG, Motorola, Hewlett-Packard, Cisco, Microsoft and Dell.”

Let’s leave aside the question of why buy now, when in December Palm was trading at less than one-tenth of its current value with a market cap below $200 million, the value of Palm is in WebOS and its US presence, not the Pre, so let’s take a look:

Nokia – already bought and paid for Trolltech, and has Maemo – not likely, unless its struggles in the US make Palm worthwhile for that alone

Samsung or LG – {neutral | non-aligned | independent} device players – very hardware-focused – do they want to transform their business model become a platform player with WebOS, competing against Android and Microsoft rather than collaborating with them, or trying to co-exist?

Motorola – too many of its own issues, also already stronger in US than elsewhere

HP or Dell – clearly want to build positions in smartphones from their personal computer position, could they re-focus WebOS development in the right direction?

Microsoft – not unless or until it admits (to itself, most of all) that WinMo’s not going to get it there…

Cisco – the wildcard, perhaps as the basis for entry into smartphones as they become a key element of the the interwebs

There’s a lot of buzz about apps for smartphones. Not all apps are created equal, however, particularly when it comes to making money from them as a developer.

And that matters to platform players (Apple, RIM, Android, Nokia/Symbian/Ovi, MSFT/WinMo and Palm/WebOS) and device vendors (Apple, RIM, Nokia, Samsung, Sony Ericsson, LG, HTC and Motorola) because apps matter to consumers, and the choices that developers make will play a big part in which platforms win.

For the core apps like mail, messaging and browsing, their importance and economics means that platform players or device vendors have to deliver a great experience, they’ll be prepared to spend $/€ millions to do so, and they’ll give them away for free. That’ll make it difficult or impossible to compete against them. The world does not need another mobile browser company.

There’s a related category where other big businesses will also seek a presence on a platform, such as the iPhone, because of the payoff to their wider online or offline business, through for example increased brand awareness or reach. Think Amazon, Barnes & Noble or BA Flights (Yes, I’m a transatlantic bibliophile).

At the other end of the scale there will be a gazillion applets or widgets. It’ll be really hard to make money from these, because customers expect them to be free, and they’re often the fruit of individual developers scratching their own (sometimes idiosyncratic or even idiotic) itch. Maybe a little advertising money, but on a small screen, even a smartphone’s high resolution version, there’s a limited window for this. Perhaps if contextual information about who and where and what can be used, the value of a click-through can be raised, if privacy concerns can be addressed effectively.

In the middle, there seem to be two possibilities:

1. focused apps targeting a well-defined and stable job that people want to get done, and whose utility and usability is high enough that people will pay a few $/€ for them, but which are not so universal that they get bundled into the core and given away for free
2. infotainment apps, that can be renewed and replaced, fueling our insatiable appetite for amusement, such as games

There’s some really interesting analysis by ChubbyBrain (The iPhone Inspired 2nd Economy: Over $100 Million Goes from VCs to iPhone Startups) which estimates that $100 million in venture funding has already gone to iPhone apps insurgents in the middle of the spectrum. These are business for whom the apps are the core of their business rather than a complement to it, between established businesses that can fund iPhone app development themselves, and individual developers.

The three biggest categories, both by numbers of companies, and by amount invested:

• gaming and entertainment
• information provider
• social networking

Yup, it’s all about amusing ourselves.

Interestingly, this is also why the economics of video are so different from the economics of music.