Apple WDC conference in 1997 & RIMM (Incredible to watch in hindsight of Apple’s success)

I often wonder what Research in Motion is going to do with their business. They are a great company who reinvented the smart-phone business before the iPhone arrived – but right now they are in a lot of trouble. RIM are still generating staggering amounts of revenue ($19bn last year on $4bn of profit) but they are at a dead end. I believe they are ripe for takeover or a private equity deal. They are where Apple was in 1997, when Microsoft was dominating in software and Dell, Compaq and HP in hardware. Apple however, managed to rebuild themselves and have staged a triumphant return of monolithic proportions. In 1997 Apple was not in the NASDAQ-100′s top 10. By 2010 Apple accounted for over 20% of the entire NASDAQ index.

Here is an amazing video of Apple’s WDC conference in 1997, with a unique open Q&A chaired by a much younger Steve Jobs.

It is incredible how a company was able to turn itself around in such a short period of time and to innovate with the pace and attention to detail that they have. RIM are faced with a similar challenge.

Some quotes that I liked:

Guy in the audience: What do we do about the press? The Wall St Journal guys have been reporting sell Apple short, and go write stories about us. It’s clear it’s perception versus reality probably, they don’t know shit about operating systems, they don’t know shit about tools, they don’t know whats going on in the future…

Jobs: If the press is selling Apple short, I would buy some shares, that is what I have done!


Jobs: Perhaps this notion of being so proprietary in everything we do has hurt us. The management and vision we have has encouraged us to be this way.

In 1997, Jobs had already understood that Apple required radical change to stop inventing everything themselves, and to use open standards that were readily available. In 2005 Apple announced their transition to Intel. He was 8 years ahead of himself.

Jobs: Much of the great leverage of using computers these days is not just for computational intensive tasks, but for communication intensive tasks. Never have I seen something so powerful as this computation combined with this network technology that we now have.

Of course he is talking about the internet.

Jobs: I have taken all of our local data, our home directories as we call them, and put them on a server. I have computers at Apple, at Next, at Pixar and at home. I walk up to any of them and log in as myself, it goes over the network, finds my directory on the server and I’ve got my stuff wherever I am. None of this is stored on my local hard disk.

Does this remind you of the cloud, drop box and the current trend of the web?

Hopefully RIM will get a second wind, as did Apple, however the Apple ecosystem and brand are particularly strong right now making this a very difficult position for RIM to be in, let alone Google.

The Amazon Effect

Since exiting Lind Golf I’ve spent a considerable amount of time in the United States re-connecting with the tech scene and understanding the current trends inside and outside of e-commerce.

A trend that comes to mind is what I dub “The Amazon Effect“.  Essentially this is the effect that Amazon is having on other online retailers lessening the viability for pure-play online retailers to compete by selling the same product that Amazon sells, particularly well known big brand items. It is a similar occurrence to the effect that Walmart has had on the offline economy.  If you do a price comparison search for a well known product Amazon usually offers that product for the lowest prices or they are within 5% of the lowest price. Amazon is particularly competitive when it comes to well known brands. Many major brands utilize the Amazon Marketplace to sell directly to consumers enabling them to undercut their other channels because of the direct margins they are making. For exmaple if you are looking for a Canon EOS 60D digital SLR camera, then chances are Amazon will offer the lowest price, and if they are not the lowest price, the Amazon brand makes up for the difference by being the most trusted online retailer on the Internet. If you are an Amazon Prime subscriber, then you will want to buy from Amazon in any case.

Customers generally value price, but they also value trust and they know that Amazon will deliver on time without the risk associated with buying from an unknown third party such as eBay or a website you’ve never heard of before.

In 2010 Amazon generated revenues of $18.7bn in North America. Total North American e-commerce revenue was $170bn. This means Amazon accounted for over 10% of all North American online retail revenue in 2010. In 2009 Amazon accounted for 8.6% of online revenue. In 2010 total North American e-commerce revenue grew 14% while Amazon’s 2010 revenue growth was 40%. The pie is growing, but Amazon’s market share of that pie is growing almost 3 times faster. The Amazon Effect is clear, and this is why their stock is trading at all time highs of $217 and 94x P/E. Jeff Bezos is well known for his long term thinking, and the results of his strategy are coming to fruition.

So as an online retailer, how do you overcome the The Amazon Effect?

There are two options.

Sell product online that you can’t get on Amazon. You don’t want to be shipping Canon EOS Camera’s unless the stock is sitting on your shelf in a retailer store and the web is part of a larger multi-channel strategy. The most extreme example of this is the Etsy marketplace where participants sell products that they have designed and handmade themselves. These kinds of products are not available on Amazon and probably never will be . They don’t have UPC codes, they are not mass produced and they are shipped directly by their sellers and not warehoused by Etsy. A similar example are products that can be customised. Amazon offers some customisation options but websites such as Cafe Press, Zazzle, Shoes of Prey and Lind Golf have all differentiated themselves this way.

Create your own brand that you can sell via a multi-channel strategy so that you own your product and can control pricing and distribution. The best example of this is Apple who design and manufacture their own products, but also sell direct via a multi-channel strategy – directly via the internet, through their flagship stores, via big box retailers and through the Amazon marketplace. Instead of retailing commoditized, brands have the benefit of offering something unique, owning the customer from direct sales, making high direct sale margins and controlling where product is sold, how it is marketed and how it is priced. Other examples include Ugg AustraliaAussieBum and The Pet Loo.

There are advantages and disadvantages to all of these suggestions however over time I believe The Amazon Effect will continue to take its toll on online retailers who are not in a niche or differentiated.