Friday, October 22, 2010

Reject Apple's Information Sharing Model

My previous blog entry proposed a model for how Apple picks a product, and advocated emulating that model.  In this blog I examine another aspect of Apple's behavior and recommend rejecting it: Apple's Information Sharing Model.

What is Apple's information sharing model?

It seems that Apple's information sharing model is, "Share information with no one.  Keep your ideas, insights and everything else a secret as much as possible for as long as possible."

Why does Apple behave in this way?

The PBS documentary,  Triumph of the Nerds contains a dramatization of what it might have been like for Steve Jobs to experience Microsoft's go-live of Windows, which was all too easily perceived to be a cheap knock-off of the beautiful insights from Xerox PARC that his team laboriously codified into Mac OS.

Ever after, Apple kept new ideas and new products a secret until the last minute.

Several people nodded in agreement when I said in casual conversation, "There are Kremlinologists hard at work trying to divine what Apple is up to."  Yes, Kremlinologists -- the people who study very scary, very secretive organizations, like the Russian Kremlin, are studying Apple.

Why not share everything?

One powerful motivator for Free and Open Source is, "Many hands make for light work."  To be open with ideas and code is to invite helpful improvement.

Mike Masnick in his prolific blog postings at techdirt makes extensive analysis of policies that affect innovation.  He points at myriad research that supports the idea that openness helps and secretiveness harms the ability to grow new and better ideas, products and services.  In his article, The Grand Unified Theory On The Economics Of Free, he does a great job of describing how to achieve success, profit, and foster greater innovation going forward, by leveraging off things that should be free and open (like ideas, and files that are easily copied) to enhance and add value to what is scarce and what people will pay for (like time, physical objects, and access to interesting people.)  This article is a MUST READ for people trying to make up their minds about what to charge for and what to give away; what to keep secret and what to share.  But I digress...

Apple learned that openness is not good.  I suggest we should reject this insight, and look for ways to be open, but to recognize that it must be done prudently so as to prevent what I call, "Misplaced credit syndrome."

Misplaced credit syndrome happens when a small change to a big thing results in the maker of the small change getting the credit for the whole thing.

How often have you seen a sale fall through because the customer has decided the product is missing one critical feature?  Sometimes it's a really easy feature to add.  Some people won't buy a car unless it is a particular color.  While painting a car is a non-trivial activity, it's much easier to repaint a car than to re-invent the car, or to re-create the Mazda 6 Sedan from scratch.

In software, a big reason why companies guard their source as their, "Family Jewels" is because with software it is really easy to take a huge piece of software, make a few quick changes, and then sell it as useful to someone who would heretofore not have bought.

The dramatization in Triumph of the Nerds shows that even certain ideas can be re-implemented in a low cost way at critical points in the market cycle such that the hard work of product development by an organization is lost.

The solution here is not universal secrecy, but enlightened disclosure.

What is enlightened disclosure?

To explain what I mean by enlightened disclosure, I want to talk for a moment about delivering bad news.  When you have bad news to deliver, do you rush to the recipient and blurt it all out?  Not if you want to be kind about it.  You go to the recipient, you listen to where he or she is right now and you make as kindly a disclosure as you can.  You do this because you want to protect the other person as much as possible from discomfort.  You deliver the uncomfortable news to prevent bigger discomfort in the future. You make an enlightened disclosure.

Imagine then, how you should disclose your ideas.  You need to disclose them in a way that enables you to protect yourself.

For example, I believe that Apple is actively doing itself a disservice keeping its products SO secret that the sales force cannot say to big clients, "Wait a week before you place your order.  There may be important changes you will want to make."  Instead Apple regularly does post-hoc damage control with alienated customers.

There was a time when the American Department of Justice reprimanded IBM for announcing products it had no intention of selling so as to manipulate the market.  There are corporate lawyers who applaud Apple's secrecy as a way to guarantee the company never gets into that kind of trouble.  The lawyers are being silly.  Once when I was denied an educational licence to experiment with a piece of software written by a friend employed by a large company, I responded saying, "You have prevented the escape of valuable toothpicks by epoxying them to an Anvil.  Good bye!"

What should we learn from this?

Goodwill often generates more profit than the exposure to far flung liabilities generates losses.  Cognitive psychologists tell us the human animal overrates risk of loss and underrates chance of reward, so this sort of thing is a common failure.  But it is an error, and we should strive not to make it.

Once your product ships, or maybe a little before, it might make sense to share it so as to foster future improvement.  There is nothing wrong with this happening after go-live.  It is important that proper credit go to the persons or organizations who did the work.  That credit enables good people to do more good things.  Although a moral case could be made against theft, the argument gets pretty abstract when you're talking about theft of intangibles.  So I advocate the utilitarian argument instead:  It is in your best interests to make enlightened disclosure.

The value of openness can be measured.  See techdirt for lots of examples.
The value of scheduling when to be open can be measured.
It is worth doing.

So, seek to make a dramatic improvement on an existing product, but make enlightened disclosure of your ideas and your code.

Monday, October 4, 2010

Apple's Business Model is Well Worth Emulating

What is Apple's business model?

I believe Apple's current business model is:

Identify an established product or service, and produce a radical improvement that can be made by applying Apple's unique expertise.

How did Apple arrive at this model?

I would say that Apple's original business model was:

Introduce the world to a new and exciting technology that empowers the individual.

When Steve Jobs and Steve Wozniak produced the Apple 1, the personal computer was new.  It was exciting.  It was not at all well established in the marketplace. With the benefit of hindsight we can say that the Apple 1 was successful in a small emerging market.  The same also could be said for the Apple ][.

The Apple ][ was a step in the direction of defining Apple's unique expertise.  Apple did not stick with single board computers without cases that required technical savvy to assemble.  The Apple ][ had a slick case, and could be plugged in and turned on by a non-techie.  Unlike many of the personal computers of the time, Apple introduced the world to the new and exciting technology of color displays.

Although Apple's product was not the first or only complete personal computer offering color to  non-techie owners, its position as one of the few is sufficient to be consistent with the model of being one who introduces.  Apple did not seek to be an also-ran.  Every product aimed to be different and better from what was already out there in a way that would credibly introduce the new idea to the world.

The Macintosh was another example of introducing something new:  A computer that would let the user compose rich and beautiful documents and drawings and perform computing tasks with power and ease through a slick and graceful graphical user interface.  The package was available at a new,  extremely low price point.

The market embraced the new functionality and particularly the graphical user interface, but was unwilling to pay a premium above the price of Microsoft Windows for the Apple interface.  I believe there was indeed value above and beyond the Microsoft offering but that the mass market did not perceive that value.

Apple is a company that learns from its mistakes. I believe that Apple evolved its business model in recognition of what it learned about what the mass market would and would not pay for.  But before making a radical change to the business model, Apple needed to explore one more push into introducing an exciting new technology to the world:  the Newton.

Clayton Christiansen in his book, The Innovator's Dilemma, gives the Apple Newton as a case study of a disruptive product that was not viewed as successful, even though it actually sold 140,000 units in its first two years. Christiansen uses this as an example to advocate his principle:  "Match the size of the organization to the size of the market."  I think Apple learned that it wanted to stay with products with mass market appeal, rather than to get involved in creating a market for something totally new.

Upon his return to Apple, Steve Jobs killed the Newton but set out on in the current direction. He said, "People hate their cell phones," and set about creating a cell phone people would love.  He succeeded.

Ask anyone, "How do you like your iPhone?"  and you generally get back, "I love my iPhone!"

Mind you, the thing I hated about cell phones was that they did not reliably make telephone calls.  Steve Jobs did not remedy this fault.  Ask people, "How is your iPhone for making calls?" and you generally get back, "I have trouble with calls." You hear some specific example of a call-related hate, and then, "But I LOVE my iPhone!"


The cell phone  was an established product, with a smartphone segment that was significant, but not huge at the time of the introduction of the iPhone.  Through what I would describe as artistic insight, Apple made a dramatic improvement to the established smartphone product, and garnered tremendous profits from doing so.

What should we learn from this?

Aspiring product developers should learn this:  If you want your product to have a big impact, quickly, then you must take an established product and make a dramatic improvement.

We're not talking twice as good.  Twice as good isn't good enough.  It has to be ten times better to get the attention of the entrenched buyers of the old thing to motivate them to overcome inertia and switch to yours.

This understanding seems to elude much of the Free and Open Source community.  Making a free version of something that already exists will not overcome inertia.  Making it twice as good probably won't either.  Seek to make a dramatic improvement.

Emulate the example from Apple's business model.