Spotlight on Dan Steinbock
Spotlight on Dan Steinbock
Keywords: Interviews, Telephone, Mobile communication systems, Innovation
In this issue of Spotlight, Dan Steinbock talks to editor Sarah Powell about the development of mobile phone markets worldwide and the changing geography of innovation.
Based in New York, Dan Steinbock is an Affiliate Researcher at Columbia Institute for Tele-Information (CITI) at Columbia Graduate School of Business,Director of the New York City office of the Academy of Finland, and a Visiting Professor at the Helsinki School of Economics in Finland. Dr Steinbock lectures worldwide and has consulted for major international organizations such as the OECD and European Commission, and multinationals including Intel, Nokia and Ericsson. His research focuses on globalization, clusters, innovation and mobile communications.
A frequent contributor to the business and academic press, Dr Steinbock is also the author of a number of acclaimed books including The Nokia Revolutionand Wireless Horizon. His most recent book is The Mobile Revolution: The Making of Mobile Services and Markets Worldwide (Kogan Page, 2005).
Spotlight
In The Mobile Revolution you trace the erosion of the US position in mobile equipment since the 1970s, mentioning that, by 2002, Nokia took almost 38 per cent of the market against Motorola's 17 per cent. What led to this?
Dan Steinbock
A number of parallels can be drawn between the development of this market and the automobile market of the 1920s, which saw Ford lose its market hold to General Motors. Motorola dominated the mobile phone market in the 1980s offering just one model and size, in one colour – black. It was the counterpart of Ford's T-Model. Nokia, like General Motors, applied a strategy of segmentation in an industry where this had not been tried before. That greatly contributed to its success in the 1990s.
In the early 1990s, the penetration of mobile phones was below 10 per cent. By the end of the 1990s the annual shipments amounted to hundreds of millions of units and penetration to 80 per cent in the most advanced markets such as those in Nordic countries. A different era called for a different approach. In addition, it is unlikely that Nokia would have been so successful without the acquisition of Technophone which was one of the leading players in the mobile business towards the end of the 1980s. In the era of high penetration and wide segmentation, Nokia has been able to retain its leadership because it is dominant in so many categories and has continued to be highly innovative. Today,however, it's very hard to establish sustainable competitive advantage.
Spotlight
You have noted the “fascination” of Finns, and notably young Finns, with mobiles? Was this Nokia-led or does it reflect a cultural phenomenon, i.e. the mobile responded to a specific interest, whether technological, design or other?
Dan Steinbock
Many people attribute this to the geography of Finland, the most peripheral country of Europe with low density and a highly dispersed population – and of course young Finns, like young Americans or other Europeans, are very enthusiastic about new gadgets. I prefer to point to Stalin, rather than Finnish kids, as the driver of the mobile business in Finland... After the Second World War, the Finns had to pay reparations to the Soviets. At that time Nokia was a company with three major segments, one of which was cable. Nokia became the leading supplier of cable to the Soviet Union and through this became interested in R&D. Over time, this interest shifted toward digital R&D. In the late 1950s, early 1960s it led to involvement in mobile phone development. R&D with the contemporary third generation phones originates from the late 1980s. Transition from R&D to commercialization can take years. So the drivers of Nokia's success go way back.
Spotlight
Has the increasing challenge from Asia Pacific producers been built on outsourcing of manufacturing by traditional mobile players?
Dan Steinbock
The short answer is “yes” and “no”. Also, every Asian country has had a different path of evolution. Consider Japan. Its success has been in service innovation. Korea's has been in broadband. China has a massive market and enormous growth potential, and India has a similar advantage plus outsourcing – with development boosted by this country's ties to the UK and USA. Many of these countries have initially served as suppliers to major outside players, but all have sought to absorb the capabilities that made the incumbents great, in order to engage in innovation.
Spotlight
You note that in 2002 more than half of the top ten players, and particularly the rising challengers, originated from the Asia Pacific, and that the top players Ningbo Bird and TCL and a handful of others are expected to become large global handset makers. Is this because of sheer market scale or innovative capabilities?
Dan Steinbock
It's both but we need to look at the situation historically. In the 1990s,Chinese suppliers had no market to talk about. In 2001 they had less than 10 per cent; by 2003 they had captured almost 50 per cent of the market. Nokia and others launched a counter-offensive. The incumbents were able to recapture much of the market, but not without price discounts and expanded distribution. They were able to stop the market erosion. However, there was nothing in their strategy that couldn't be copied. An interesting aspect about the Chinese challengers is that they also outsource, manufacturing some of their phone parts in low-cost neighbouring countries, such as Malaysia, while developing joint ventures with leading western players. The objective is to learn more from the technology, whereas the western players are trying to learn more about the market.
Spotlight
Much pioneering market service innovation has taken place in the UK. To what do you attribute this?
Dan Steinbock
The UK has always been a pioneering centre for media, advertising and marketing industries; not only in Europe but worldwide. London is also a great financial centre and a global city. Pioneering mobile companies, or mobcoms as they're called, benefit from this environment. There are also contributing political factors such as the deregulation in the 1980s. Despite all the historical controversy, it greatly stimulated the expansion of the business.
Spotlight
Given different market drivers, ranging from functionality through design and peer pressure to fun, are there now two distinct product markets, i.e. the business market and the youth market, or are demands, interests and preferences of these different customer groups sufficiently similar to allow for one product that satisfies most users?
Dan Steinbock
These markets are different. In the 1980s the business customer became the king. With the 1990s and segmentation, the consumer market became the prime target. Today, the consumer mass market is rapidly globalizing. The business and youth segments are very different, even though one influences the other. Business phones are too expensive for the consumer market, although the pricing of these phones is bound to go down as new models diffuse in the global consumer mass markets. Youth segment phones are a combination of fashion phones and cheap replacement markets – a bit like a fake Rolex in street sales, often useful, seemingly original, but very unpredictable.
Today, the Chinese market has the highest number of subscribers in the world. However, the volume of subscribers is not synonymous with the profitability of the mobile market. China is tipped to be the most lucrative world market in three to four years' time. The pioneer in the business market remains the USA and the pioneering lead in technology and innovation previously held by Nordic players has dissipated. Historically, American corporations have been more eager and faster to adopt new technology.
Spotlight
Can the needs of experienced consumers, i.e. the replacement market, seeking multiple services, be met by the same products as those suited to new users requiring simplicity and ease of use?
Dan Steinbock
Just as there will be no return to the old standard Ford car, there is no return to the old standard Motorola first generation phone – the trend will be for increasing diversity. Many vendors have invested in single-application phones, assuming there are people who primarily want a game phone, others a smart or music phone. However, technology-driven products sell poorly in saturated markets, where experience marketing makes more sense. All markets are now really replacement markets. All vendors face the same challenge:what can you offer people to encourage them to switch? The secret of success is value-added service, with unique positioning.
Spotlight
You have written of a number of cultural differences impacting on the market for mobile phones, e.g. the desire for fun and novelty in Europe, discounts,free trials and online games in China. Are markets converging?
Dan Steinbock
Most industries face globalization and localization pressures. The mobile industry is no exception. Globalization means standardized, universal,homogeneous products but people want personalized products and services. Historically, technology innovation and market innovation used to occur primarily in one country – the USA. Today mass marketers such as Coca-Cola and Procter & Gamble test the advertising potential of mobile phone markets in China or Japan before using what they have learned in US and European markets. Over time, this does not mean more convergence, but greater divergence.
Spotlight
Has the success of text voting on TV phone-ins (as in the USA/UK) and the text-based consumer research carried out, for example, by Cadbury among young people in the UK been replicated elsewhere?
Dan Steinbock
Market research conducted in the USA and in Europe, Korea, Japan and, in some instances, in China confirms the importance of youth markets in the adoption of new devices. However, whether the youth market is actually the most lucrative is another question – young people are eager to use new gadgets but not so eager to pay for them. Targeting the young may be more a sort of “puppy in the window” approach. Once young people use mobiles for voting or gaming,this creates publicity which can be used to sell phones in the other segments.
Spotlight
Service innovation has flourished in Japan which is mentioned as the “test laboratory” for new mobile content. Is this producer- or consumer-led?
Dan Steinbock
The Japanese have branded service, not technology. As a result, they have managed to create a mass market of over 40 million people very rapidly,precisely because the business model is very user- friendly –consumer-led. No other operator has yet managed to replicate the drivers of NTT DoCoMo's great service portfolios (i-mode, FOMA). One reason involves the business model. DoCoMo takes less than 10 per cent for its services, content providers get more than 90 per cent. That's the precondition for user traffic– but not easy for many operators to swallow.
Spotlight
You have noted that the mobile market is more advanced in Asia than Europe or the USA and that in Asia people use cellphones for everything – although in China it is the SMS function that dominates for reasons of cost-effectiveness. Are such cultural differences an impediment to the emergence of global players/products at the moment?
Dan Steinbock
Necessity is the mother of invention. However, the different uses of SMS often reflect economic differences than cultural ones. Texting is cheaper. In low-income countries, it is very popular. In high- income countries, it's one alternative among others; not so efficient as rich voice call or multimedia.
Spotlight
Can a technological edge be translated into sustainable strategic advantage or is this market ever-changing and too dependent on other factors such as personal preferences for design, personalization, privacy/security, services?
Dan Steinbock
In contemporary markets, it's very hard to create sustainable competitive advantage. While it's not difficult to translate a technological edge into a strategic advantage, the moment you add the word “sustainable”there's a problem. As markets have become more liberalized, privatized and deregulated, most advantages have dissipated. Intense competition taxes winners. Consider a mobile vendor such as Nokia. This company was able to use its edge in GSM throughout the 1990s. Of course, GSM was not Nokia's only driver; it also excelled in segmentation, design and operations. With the third generation, the core technology is CDMA which was created by Qualcomm. It's hard to keep the leadership position even when it has been sustained for a few years.
Spotlight
You predict that RFID tags are poised to become the most far-reaching wireless technology since the cell phone. What other developments do you foresee, whether in terms of products themselves or services, and where do you expect to see them originate?
Don Steinbock
We can already see certain trends. RFID is certainly one. Others include variations of mobile imaging – although we are still too early in the learning curve to assess the success of this concept. Certainly many people like to have the capability of a phone with a built-in camera; but many also like to have a distinct camera. Mass TV and mobile handsets are complementary, not substitutes. Watching a political crisis or a major sports event on my mobile, I find the screen too small. Mobile TV may prove to be a great audience driver. After I see something important on my mobile, it drives me to the big,flat-screen TV.
In business markets new technologies include Wi-Fi and successor technologies, such as WiMax. Many mobile players have been sceptical, pointing out that, with Wi-Fi, users are stuck with a “hot spot”. But corporations don't walk, they are in situ, so whether mobile vendors like it or not, this is an important development. It provided an entry window to great IT enablers such as Intel and Microsoft.
Among Hollywood studios, Walt Disney is said to have invested more than others in mobile content development. It has been very active in Japan, which provides a test laboratory for the US consumer market. Instead of Californian surfers, Tokyo's teenage girls offer information on the use of mobile phones. Innovation is no longer the sole domain of the USA or the key countries of Western Europe – or even China, India, Korea or Japan. We're moving towards an era when innovation can come from anywhere – and this is an important theme of my book.
Dan Steinbock in conversation with Sarah Powell
