Platform Wars Just Starting

Smartphones, tablets, and their digital ecosystems have had a stunning impact on a range of industries in just a few short years. Those platforms changed how we work, how we shop, and how we interact with each other. And their disruption of traditional product companies has only just begun.

The first casualties were the entrenched smartphone vendors themselves, as iOS and Android devices and their app marketplaces rose to prominence. It's remarkable that BlackBerry, which owned half of the US smartphone industry at the start of 2009, saw its share collapse to barely 10% by the end of 2010 and to 1% today, even as it responded with comparable devices. It's proving nearly impossible for BlackBerry to re-establish its foothold in a market where the number of apps in your store, your additional cloud services, and the momentum in your user community are as important as the device.

A bit further afield is the movie rental business. Unable to compete with electronic delivery to a range of consumer devices, Blockbuster filed for bankruptcy protection in September 2010. Over in another content business, Borders, the slowest of the big bookstore chains, filed for bankruptcy shortly after, while the other big bookstore chain, Barnes & Noble, hung on with its Nook tablet and better store execution -- a "partial" platform play. But the likes of Apple, Google, and Amazon.com already have won this race, with their vibrant communities, rich content channels, value-added transactions (Geniuses and automated recommendations), and constantly evolving devices. Liberty Mutual just voted on the likely outcome of this industry by reducing its investment in Barnes & Noble.

[Microsoft hopes its reinvention will keep it off BlackBerry's path. See Does Microsoft Have Its Mojo Back?]

What's common to these early casualties? They failed to anticipate and respond to fundamental business-model shifts brought on by advances in cloud computing, app ecosystems, and user devices and communities. They failed to recognize that their new competitors were operating on a far more comprehensive level than their traditional product competitors. Competing on product versus platform is like a catapult going up against a precision-guided missile.

Sony provides another excellent example of a superior product company (remember the Walkman?) getting mauled by platform companies. Or consider the camera industry: IDC predicts that shipments of what it calls "interchangeable-lens cameras" will decline 9.1% this year compared with last year, as the likes of Apple, HTC, Microsoft, and Samsung build high-quality cameras into their mobile devices. By some estimates, the high-end camera market in 2017 will be half what it was in 2012 as those product companies try to compete against the platform juggernauts.

The casualties will spread throughout other industries, from environmental controls to security systems to appliances. Market leadership will go to those players using Android or iOS as the primary control platform.

Over in the gaming world, while the producers of content (Call Of Duty, Assassin's Creed, Madden NFL, etc.) are doing well, the console makers are having a tougher time. Wii maker Nintendo, for example, is expected to report a loss this fiscal year. If not for some dedicated content (e.g., Mario), the game might already be over for the company. In contrast, Sony's PS4 and Microsoft's Xbox One had successful launches in late 2013, with improved sales and community growth bolstering both "partial" platforms for the long term.

In fact, the retail marketplace for all manner of goods and services is changing to where almost all transactions start with the mobile device, leaving little room for traditional stores that can't compete on price. Those stores must either add physical value (touch and feel, in-person expertise), experience (malls with ice skating rinks, climbing walls, aquariums), or exclusivity/service (Nordstrom's) to thrive.

It's often difficult for successful product companies to move in the platform direction, even as they start to see the platforms eating their lunch. Only this month did Microsoft drop the license fee for its small-screen operating systems, finally realizing that it can't win against a mobile platform behemoth that gives away its OS, while it charges steep licensing fees.

It will be interesting to see if Microsoft's hugely successful Office product suite can compete long-term with a slew of competing ecosystem plays. By extending Office to the iPad, Microsoft may be able to graft onto that platform and maintain its strong performance. While it's still early to predict who will ultimately win that battle, I can only reference the battle of consumer iPhone and Android versus corporate BlackBerry -- and we all know who won that one.

Over the next few years, expect more battles and casualties in a range of industries, as players leveraging Android, iOS, and other cloud/community platforms take on entrenched companies. Even icons such as Sony and Microsoft are at risk, should they cling to their product strategies.

Meantime, the likes of Google, Apple, Amazon, and Facebook are investing in future platforms -- for homes, smartcars, communications, robotics, drones, etc. As they leverage these new platforms, expect more casualties among traditional product competitors, even those in seemingly unrelated industries.

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