Two Giants Try the Beanstalk…Again

Today we have two indicators that even giant companies have to face reality, meaning have to face the future evolution of their markets and the consequences of their past strategies.  Apple (seriously) is said to be looking at an “iWatch” and Cisco has created a software group.  OK, you probably don’t find the two comparably interesting, but they’re comparable in their drivers.

Apple has made itself into an appliance company.  Since the iPod, its growth has come because it’s been able to define a follow-on gadget that it could create a cool version of, a version that would appeal to relatively affluent buyers and command high margins.  They’ve engineered to that market to perfection.  But the problem with appliances is that any one you get reduces the need for similar ones down the line, and so you either have to expand your addressable market by inventing new appliances or go down-market and lose margins.  So you jump to TVs or iWatches, but the problem is that these are still appliances and your next jump will be even harder.

Cisco has made itself into a box company.  For two decades they’ve ridden the wave of network growth, but the problem with connectivity as a business model is that the valuable connections get made first and the marginal utility of later connections is harder to establish.  That’s not just because the later connections are late because they’re offering less ROI either.  It’s also because what you need to gain the “utility” of those connections is increasingly a software-set context of productivity.  We got as far as we could get with bit-pushing, and Cisco then went to server-pushing.  The only thing is that servers are still boxes.

Apple’s decision to look hard at TV or watches is probably at this point nothing more than an exploration, an effort to see whether their winning model can win for just one more cycle.  Cisco’s decision to collect software into a group (the Service Provider Software and Applications Group) is probably a reflection of a view that software needs to have a combined voice.  For both companies it doesn’t address the fundamental question, which is what the market they’re committed to be in will demand of them in the future.  That’s a big shift from thinking about what you can milk from it.

Every device Apple adds to its repertoire further advances the Cause of the Cloud, because symbiosis among the devices becomes the natural limiting factor to how big a device ecosystem can be.  And you need a device ecosystem or your past successes can’t pull through your future successes.  But Apple is arguably the most behind of all the major players as far as cloud-committed strategy is concerned.  Why?  Because cloud-centric planning contaminates appliance-centric selling.

Cisco has had software groups before.  Is it possible that spreading software across a bunch of managers would erode its value?  Sure it is.  The problem is that SPSAG doesn’t fix that spread; it’s simply collecting the service-provider-oriented M&A results and some existing software into a common position.  Cisco needs to be embracing the reality, which is first that the cloud is the vision of evolution for ALL intelligence and second that there’s no such thing as a cloud architecture for providers and another for consumers.  They’re part of the same food chain, just at the opposite ends.

We are in the most innovative industry the world has ever known, but we seem to be losing our edge.  Big companies like Apple and Cisco are just feathering the old nests, and VCs are funding startups that are simply playing to short-term consumer trends that depend on a set of business and technical relationships those VCs aren’t interested in advancing.  Is innovation dead?  Probably not, but it’s looking like a lot of the innovators are.

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