The Right Question

Horace Dediu wrote a piece on Tesla and SolarCity. He starts the article with a very simple explanation of what is meant by mergers, integrations, spinoffs and acquisitions.

A merger is the result of two entities in the same business joining forces. It is usually justified through “synergy”, a euphemism for removing redundancies from their unity. Arithmetically, the desired outcome is that the resulting organization should be smaller than the individual parts (which is desired if the available market is shrinking.)

An Integration is the answer to the question of “Why two companies in different businesses are better off together.” Arithmetically, it suggests that the proposed sum is greater than the individual parts.

The spin-off is the response to a situation where one company houses two unrelated businesses.

For completeness, we can define an acquisition as the purchase of an unequal entity in order to improve the value of the acquirer.

This explanation is extremely simple to understand from a strategy and markets point of view, a trademark of Horace's writing. He continues the article with the importance of questions.

Henry Ford asked, “What would enable everyone to have a car”. The result was  not a better car but a better production system.

Steve Jobs asked, “What would enable everyone to have a computer”. The result was not a faster computer, but a more approachable computer.

Akio Morita asked, “What would enable young people to have their own music”. The result was not a better audio quality but a smaller audio player.

Kiichiro Toyoda asked, “How can a car be built without faults”. The result was not a bigger factory but many smaller ones.

For Product Managers, this is a good way to crystallise your thinking around your product's strategy and positioning. What is the correct question for your product? Your answer defines your vision and identifies the strategy you need to get there. 

A similar approach is to focus on the "problem" part of the equation (customer, market, technology) and less on the "solution". 

Product Managers need to keep asking the right questions. Keep focusing on the problem. Right solutions and strategies emerge out of your answers to the right questions and problems.

Nietzsche and startups

A few days ago, I came across the following article on Nietzsche on Maria Popova's excellent website -

The article quotes Nietzsche's essay "Schopenhauer as Educator", on how to bring forth our gifts and find ourselves. That to achieve true happiness, our soul needs to be unshackled from the chains of opinion and fear. He touches upon the role of our educators as liberators and how this helps us find purpose and happiness. The whole article is a wonderful read. Truly beautiful.

Read in another light, we can also use Nietzsche's advice for starting up new companies and building new products. For example, a perennial question facing many "to-be" entrepreneurs is when to start and what to work on. Here is some guiding light from Nietzsche on these two subjects -

“What have you truly loved thus far? What has ever uplifted your soul, what has dominated and delighted it at the same time?” Assemble these revered objects in a row before you and perhaps they will reveal a law by their nature and their order...

Any human being who does not wish to be part of the masses need only stop making things easy for himself. Let him follow his conscience, which calls out to him: “Be yourself! All that you are now doing, thinking, desiring, all that is not you.

Timeless advice can be applied to any problem, no matter what the field or times of the question. To find answers, you can rely on books, mentors and experts in your field of interest today.

Or you can seek guidance from the greats who have withstood the test of time and use their advice to build your own way forward.

No one can build you the bridge on which you, and only you, must cross the river of life. There may be countless trails and bridges and demigods who would gladly carry you across; but only at the price of pawning and forgoing yourself. There is one path in the world that none can walk but you. Where does it lead? Don’t ask, walk!

Apple's Q3 2014 numbers

Apple's Q3 2014 numbers are in. My observations on Apple's financial data -

  1. iPhone rules the company. Product revenue was up by 9% as compared to the last quarter but dropped 24% sequentially. People around the world held on to their battered and scratched phones for a few more months and wait for the next version of Apple's flagship product.
  2. Retail store sales are flat as compared to last year. This surprises me. Given Apple's focus in this area, I expected a healthy growth in retail sales as compared to last year.
  3. Sequentially, revenues from Greater China and Japan fell by 35% and 36% respectively. The early adopters pool has dried out in these markets.
  4. The iTunes/Software/Services revenue remained flat sequentially. Apple customers did not buy more content and services than last quarter. Next quarter numbers will tell whether this is a one off case or the content consumption has peaked in Apple's ecosystem.
  5. The Mac had a good quarter, almost equalling its so called disruptive nemesis in revenue. Yosemite announcement and Macbook Air price drop worked as the Mac reported a healthy 18% units growth compared to last year.

At my home, the iPad is used as the goto device for routine stuff. It is also the device my kid uses the most. I use the iPad mainly used for browsing and see no reason to upgrade to a new one within the next one year. My iPad is two years old and still works like a charm.

I believe the iPad will follow the TV replacement cycle. Still, only 13 million units sold in this quarter should worry Apple. Maybe IBM can fix this problem. We will see.

Beats with Apple

Apple's acquisition of Beats Music and Beats Electronics has perplexed the inter webs. Some say this is a clear indication that Apple's best days are over. Others say this is proof that Apple is getting smarter. Many have admitted that they have no idea why Apple would acquire Beats as there is nothing about Beats that Apple can't manage on its own. My perspective is a bit different. I looked at Apple's Press Release announcing the acquisition and their reason is clear.

"Apple® today announced it has agreed to acquire the critically acclaimed subscription streaming music service Beats Music, and Beats Electronics, which makes the popular Beats headphones, speakers and audio software…"

OK.  So you buy a company for $2.6 billion. What do you say when you announce the deal? Why you bought it, right?

Apple wants Beats for it's subscription service. Everything else is just icing. Beats Music is a very small part but gets the first mention in the press release. Ahead of the headphones, and ahead of Iovine.

Yes, there is $400 million more, but it vests over time, so relax.

No? Not convinced? Here is another example. This is the opening line in Satya Nadela's statement on the Microsoft - Nokia acquisition.

“Today we welcome the Nokia Devices and Services business to our family. The mobile capabilities and assets they bring will advance our transformation...”

It is clear why Apple bought Beats. They wanted a music subscription service. So they bought one. But can't Apple just build a service like Beats Music instead of spending the monies? Yeah, of course. Here are a few reasons they bought instead of built.

A stitch in time

Apple needs a music subscription service. The likes of Spotify and Pandora have proved there is a market. Apple's data shows that the "buy" music model is on a decline. Apple wants to retain its position as the top destination for Music lovers. And Apple has run the numbers. Such a service will work. Apple will give it prime real estate on the iOS home screen.

But Apple already has a brand in the music space, iTunes. And brand iTunes works not only for music, but also apps, movies, podcasts and much more.

If Apple has to enter the music as a subscription space, it needs a new brand. And Apple has to enter the music as a subscription space.

A good option

Beats Music was the only viable option for Apple. It is run by industry veterans and not software entrepreneurs. The founders understand the music business better than most and have connections inside the industry. The Beats Music service uses a personalization algorithm that is a mix of digital innovation and musical passion. 300 years of experience in the music industry comes with this acquisition. This rich team cannot be built just by snatching Jimmy Iovine and offering him a lucrative contract to bake this within iTunes. Plus, Beats has fantastic relationships with some of the big artists, a mandatory requirement after the Ping debacle.

A trojan horse

Whenever Apple is compared with Google, the following quote is never far behind in the discussion. That Google is getting better at design faster that Apple is getting better in services. Maps and mail are cited as proofs.

A new, independent brand will give Apple the flexibility to launch the service on Android and Windows. It will open the market and bring the Apple experience to many more users. Since the smartphone market is getting saturated quickly, growth can come only from customers jumping ship. What better way to start than with Music? Email and maps are covered. But Music is still wide open.

And the headphones? Yeah, they are important. They sell a lot and are profitable. Apple will shore up this part of Beats, and introduce another accessory for its devices. So there's that.

Most of the data and facts in this blog post come from Apple Press Release announcing the acquisition. Here it is.