There's a lesson to learn from studying Apple and Kodak and then thinking about how to apply it to the Swiss Watch Industry.
My two kids don't wear watches. They use their phones for the functions of timekeeping. It's kind of like a Swiss army knife, it does a lot of things. And, they don't wear all that much jewelry either; maybe they will if they make more money, or maybe not. Demographics are changing for the watch industry and it seems that the Swiss Watch industry isn't worried, should they be? I just saw that they're making a smart watch similar to Apple's.
In some ways this reminds me of a battle that I was closer to, when Kodak made cameras that competed with those of Nikon, Canon and Sony. Maybe there's a lesson to be learned here?
Analysis of Apple’s Success
A mere seven years ago, if one would have posed the question of whether Apple could and should enter the cell phone market, many pundits would have suggested that it was a bad idea. After all, large successful companies including Motorola, Nokia, Blackberry and others were seriously entrenched and they had great IP (Intellectual Property), distribution and brand equity in this market and it seemed clear that the cell phone business didn't need another phone.
Then why Apple's success? One might simplify the answer to be that Apple’s success was driven by excellence in design and more specifically by Steve Jobs, personally, but I offer a somewhat different and more complicated analysis.
The ability to disrupt an established industry and build substantial growth for a new entrant requires several converging factors for which the timing is essential. In the case of Apple’s entrance into the phone market, these factors included:
- A Key Asset Mix - Apple’s core assets included: Strong brand equity among Apple enthusiasts, Established distribution channels that could sell and service phones, Various pieces of IP for computer software and hardware, Established relationships with computer manufacturing companies and material suppliers and Lots of cash.
- An Evolving Ecosystem - The Service Providers which included AT&T, Sprint, Verizon and others were all committed to the addition of bandwidth to their infrastructure but each lacked an understanding of what services could be sold that would use that infrastructure. Therefore, they were strongly committed to testing and supporting new devices in the market that could justify the need for 2G, 3G, 4G, LTE and so on.
- Evolving Technology - Moore’s Law continued to prove true. It predicted that the continuation of improvement in the circuit density of the Integrated Circuit manufacturing industry would reduce cost and power and increase performance (speed and storage) of computer products exponentially. As well, modem (telephone) technology that was the strength of companies like Motorola was becoming a commodity.
The convergence of all of these factors created a vacuum in the market that many companies could have tried to fill, but Apple was the first mover. The result speaks for itself. Over the following 5 years, IPhone revenues grew to dwarf laptop and desktop revenues.
Many strong and successful companies (and industries) have been confronted with a redefinition of their market and business through ever-changing technology. Some, like Kodak and Polaroid were unable to successfully transition. Others like Apple have shifted their business models and core technologies to achieve growth and transformation. And, these changes are being forced upon today's businesses at ever-increasing rates, essentially because of the increasing speed of technological change.
The Swiss watch industry may be confronting an existential risk. They clearly have strong assets including: IP, manufacturing excellence, distribution excellence and brand equity.
But the key question for this industry, however, may be whether it defines itself as a timepiece business, a jewelry business or something completely different that exploits their assets and yet seeks out a new larger vacuum elsewhere that is being created by changes in some other ecosystem and technology.
Kodak’s demise was a direct function of their inability to see beyond their presence in consumer imaging. In fact, their assets may have included more capability in chemistry than in imaging yet that part of their asset base was ignored as having the potential to be leveraged for their future.
It's also interesting to observe that other companies like Google and Amazon, even with all of their asset strength, were unable to successfully enter the reshaped cell phone market years after Apple, suggesting again that timing is everything.
Is there a future for the Swiss Watch industry? I think so, but it will require some real out-of-the-film-box thinking.