The New Big Three after Google‘s Big Day

UPDATE: 24 hours after I published this, Samsung bought VIV, an artificial intelligence platform that aims to provide an “intelligent interface to everything”. VIV is created by the guys who built Apple’s Siri, so this is huge. Expect the Korean giant to be in the “Big Three” also for AI dominance.

Today, Google truly shed its skin as a software developer, joining the fray of big mobile & connected device brands producing gadgets for the tech-hungry masses, alongside Samsung & Apple.

Rather than asking who will emerge as the sole winner, it is more interesting to look at the situation through the Rule of Three. The rule dictates that in any competitive market, the number of full-line generalists (in contrast to niche players or product specialists) that can profitably dominate a market is — as you might expect — three. Like all models, the Rule of Three is not perfect and it has its exceptions, but there is a lot of data and extensive studies to back it up. You can see the effects of the rule around you every day in most mature industries, such as fast food (McDonald’s, Yum!, Subway), sports apparel (Nike, Adidas, Under Armour), and airlines (American, Southwest, Delta).

After Nokia magnificently dropped the ball, the western mobile device markets have been dominated by only two brands per area, Apple and Google on operating systems, and Apple and Samsung on devices. Now I think we might finally have a third device manufacturer that can come to co-dominate in the long term.

Now, Google’s market share is naturally non-existent at this point, and it has some way to go to surpass the big Chinese device makers Huawei and BBK, whose Oppo & Vivo brands are numbers four and five in the world. But the fact that you didn’t even know Oppo & Vivo, and barely know Huawei, is exactly why I think Google will, at least in the western world, steal the spotlight among the top three with relative ease. Google’s brand is number two in the world after Apple, and the pervasiveness of Google’s services in search, video, maps, email, smartphone operating systems, and increasingly also in office and home software, will be a tremendous asset in convincing consumers to adopt new Google devices for a seamless experience.

But there’s a catch. The three dominant players, despite being full-line “generalists”, do each need to have a well-founded, consistent and successfully executed competitive strategy and market positioning, that also differs from each of the two others’. Michael Treacy and Fred Wiersma describe the three generic, alternative competitive strategies in their book “The Discipline of Market Leaders” (1997). These alternatives strategies are:

1. Product Leadership
2. Customer Intimacy
3. Operational Excellence

Based on this framework, I will in the following speculate what position each brand might take as the market converges towards the “big three”.

The Product Leader: Apple

Product leaders aim to build products and experiences that are perceived as superior by loyal customers, and can command a price premium in the market. Apple is also a natural product leader for it’s cult-like culture and well-established obsession with perfected and polished experiences that deliver rather hefty margins.

Apple, like many other product leaders, believes in tight, centralized control of the customer experience, and is known to cherish corporate disciplines usually associated with product leaders, such as rigorous portfolio and product management, excellence in marketing, as well as focusing on talent and creativity.

Whether Apple can hold on to its tight grip and leadership in these areas after Steve Jobs is still too early to call. But the successful launch of the iPhone 7 shows that the company is far from stalling.

The Customer Intimacy Leader: Google

Google is well-placed to pursue a strategy that focuses on serving the unique needs of a target market of one. The company has since its beginning bet big on artificial intelligence and machine learning to build personalized services that not only cater to an individual, but increasingly predict and anticipate her needs. No other device maker can claim to possess deeper insights en masse about people’s desires, tastes and secrets than Google, with its domination of search, content (YouTube) and communication (Gmail).

With the new Google Assistant coming built into the new phones, Google can easily combine all of its services, as well as many 3rd party ones, into a personalized bundle, a characteristic of many Customer Intimacy leaders. What’s more, this bundle will dynamically adapt to the changing situations in their users lives, learning more every day.

Google is cherishing customer intimacy by focusing on opportunities in serving an individual’s needs across a multitude of everyday situations. It has a playful, learning-focused culture from product development to production, distribution and service. It’s is also characteristically a customer intimacy leader in that it is decentralized: for any one customer need there might be several teams working on a solution, often without even knowing about each other. This allows them to iterate and fail fast and surface and combine the best of the competing ideas quickly for the end solution.

The Operational Leader: Samsung

Samsung has traditionally focused on products that offer an equivalent or superior feature set with a reduced price compared to the competition, e.g. taking on Sony on TV’s or Apple on phones. Samsung don’t make it easy to find and choose a product for a need; just look at the range of options for any given TV or smartphone size. Nor is a premium user experience as central for Samsung as it is for Apple; you can compare Samsung’s “smart” TV’s to an Apple TV any day. But you usually get more bang for the buck in objective terms when you look at the spec sheet. Paying too much for inferior kit has indeed been many Samsung-believers’ constant argument against the starry-eyed Apple fanboys.

An operational excellence strategy naturally requires cost leadership, which Samsung hasn’t always excelled in: e.g. the cheaper Galaxies have reportedly been costlier to make than the more premium-priced iPhones. But Samsung has been undeniably effective in their market entries; upon recognizing a market that’s on a growth curve, and where operating would benefit from synergies with Samsung’s other businesses, they have set up operations quickly and flooded the space with marketing dollars to build scale fast. The operations-focused strategy is also well aligned with Samsung’s strict, hierarchical structure and rules-based operations, feats that also define operational leaders.

The Endgame

One of the key questions will naturally be: now that both Apple and Google both have fully integrated ecosystems covering devices, operating systems, and a range of software, how does that affect Samsung’s long term prospects? Samsung is not traditionally a software company, unlike both Apple and Google, and their Tizen OS has been nothing to write home about. Interestingly, this was also partly why Nokia was decimated back in the day: as software became increasingly important, there was very little and very fragmented focus on software, app ecosystems and user experience inside the Finnish juggernaut. Google in contrast has had years to perfect its software both on desktop and on other brands’ smartphones, including Samsung’s. While the Korean firm has seen great success in focusing on hardware and running another brand’s OS, the Seoul HQ has been surely, and rightfully, worried about the new situation. Time will tell how the tables will turn, and if also a new OS alternative will emerge to challenge the two dominant operating systems of today. This might come from Samsung, but more likely from a yet-to-be-seen player.

But until then, I think I’ll take a look at that Google Pixel. It has a headphone jack, after all…

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