Early Adopters Don’t Always Win (e.g., Sprint can’t catch a break) - redux

I wrote previously that Sprint could not catch a break trying to differentiate their service (Early Adopters Don’t Always Win).  So from a network technology perspective, Sprint first made a deal with ClearWire for 4G services using WiMAX technology (Sprint-ClearWire).  This $14.5B deal in 1998 was supposed to seal Sprint’s future and leadership in 4G services - ClearWire brings the technology and Sprint brings the spectrum.  So, there are many curious elements – what the heck is going on?  We now find that ClearWire is experimenting and may be moving towards LTE (ClearWire LTE), with very successful field trials.  However, that is not the end of a potential change from WiMAX to LTE or strategy associated with getting 4G network capacity.

Sprint has now signed an over $10B deal with LightSquared for Sprint to host LightSquared’s network.  This leads to the clear (no pun intended) customer confusion and vendor confusion on where to place their emphasis – on WiMAX or LTE.  It also means that Sprint again has multiple networks, something that they have not shown themselves to be too adroit at doing.  If you remember, they bought NexTel which used the Motorola proprietary iDen system that provided a market differentiating “push to talk” capability.  Sprint was not able to manage the capacity growth on their two parallel systems, and the iDen network started getting bad word-of-mouth.  Today it is hardly the marketing or company building differentiator it once was.

At the same time that Sprint was probably negotiating their deal, the results of the commission created by the FCC to determine the impact of LightSquared’s LTE network on the GPS system were starting to become clear.  The results were not good in the extreme.  In fact, LightSquard has essentially admitted that they really do not have a plan to use their allocated frequencies for their LTE build-out (potentially using less than half their specturum), and floated the idea of using spectrum from another sources. 

Sprint says that is now has the ability to trade between its organic network, ClearWire’s WiMAX (and eventually LTE?), and LightSquared.  Stay tuned, Sprint is going to unveil their LTE plans on October 7^th.  It seems to me, that what Sprint was really after was a cash infusion from the investors in LightSquared – which if LightSquared can use only half their spectrum (if they can use any at all) may be in jeopardy.

So, while AT&T and Verizon Wireless are moving rapidly and definitively on their LTE deployments, Sprint again is moving in a bit in circles trying to move from WiMAX to LTE.  They have found that their early adoption of technical differentiators may actually turn out to be burdens (as they have to support three and then four networks – EVDO, iDEN, WiMAX, and LTE) and they really have not been able to take advantage to attract a substantial number of new customers.

Goin' a Mile Wide and an Inch Deep: Thoughts on sustaining success- Part 1

Successful companies grow. They grow in terms of revenue, market share, customers, technology portfolio, and more. This is a good thing. However, companies approach growth in many ways and some don’t result in sustainable growth. The real question is “How do successful companies confront these issues and stay successful?”

There seems to be a trend for some technology companies that cause them to expand their product lines and services to what I would describe as “Mile Wide”.  Not content with the product areas where they’ve demonstrated success, they stray into new area.  The exemplar goes something like this:

1)      Company starts and grows with an initial product set that lights the market on fire generating lots of cash for the company through increased investor participation and, possibly, revenue

2)      Corporate leadership and technical staff become confident of their unique ability to develop technology, creating new groups to develop new products (this is a continuing process until re-aligned by items 6 and 7)

3)      In addition, corporate diversification strategies starts a series of acquisitions of other companies to reduce the risk of being too dependent on a single product line or market

4)      Different cultures and groups brought together from the different companies start internal-based competition, bringing out additional products that are poorly differentiated from each other and often have significant feature overlap

5)      As corporate structure becomes more complicated, and product line scope creeps wider and wider, the company becomes increasingly introspective rather than customer focused

6)      Short-term, or even medium-term, success masks the inward focus and increasingly diluted direction of the company

7)      Company starts sputtering in the market as other companies with better focus snap up customers

8)      Inevitable massive change at the company starts.  This can be a cancellation of product lines even recently acquired, divestment or break-up into multiple companies, or cause the failure or acquisition of the company or its parts to other companies

The recent significant layoffs and reorganization a Cisco, as well as their dropping some product lines (e.g., the Flip) is just one example of this phenomenon.   Without being exhaustive, Cisco’s history, according to my items above goes something like this:

1)      The Router business goes nuts and Cisco is on the leading edge of products for the new Internet ecosystem resulting in massive volumes of cash from a 40% profit margin and one of the largest Initial Public Offerings in the “.com” boom.

2)      Lots of different internal vertically oriented organizations are created to build product lines complimentary to the routers (such as servers or optical transport solutions), which also begin building new routers because they know better (this is only speculation), as well as addressing specific markets (like government or service provider segments).

3)      Cisco bought a series of companies (such as Catalyst and Cerent) to fill on holes in the company, as well as new ventures such as WebEx, Linksys, Scientific Atlanta, etc.

4)      Overlapping capabilities start with product that may even have started with similar bases are now remote cousins (e.g., the 6500 and 7600 products).  In addition, new products are developed (e.g., the Nexus) and introduced to the market that again introduce overlap and incompatibility.  Overlap in LinkSys and other router and VoIP products also causes some confusion (where does the “Flip” fit? Do I buy Cisco or LinkSys VoIP phones?).  Getting into the data center server market without significant differentiation.

5)      Cisco was and is making a good profit, but not a lot of financial excitement.  Plans for unifying operating systems and rationalization may not have had the urgency as it would if the company was short on cash or cash flow.

6)      Competitors with better focus and cost basis start pulling at the base, and many of the new but “Inch” deep products do not really make a meaningful market impact (e.g., portable HD video cameras being replaced by smart phones).

7)      Cisco announced significant organizational changes and staffing reductions.

Cisco is not unique as there are other companies that have gone down this path.  Some have failed, some have navigated successfully, and some are a story that is unfolding.  Some examples and associated very brief summaries include: 

DEC (Fail) Digital Equipment Corporation started with great minicomputers, expanded into multiple overlapping computer products.  Let old products linger.  Fell in love with its own success.  Developed wonderful networking and printer products.   The love blinded them to significant market shifts.   Other more focused companies exploited weaknesses.  DEC is disassembled and pieces sold to other companies (some eventually to HP via Compaq)

 HP (Success).  Interesting here as the company looked a lot like DEC but was able to maneuver, change, and make strategic divestments and investments that have helped the company through significant changes in the marketplace and remain a major competitor in a commoditized market.  When HP realized that the advanced technology testing equipment business was significantly different than the desired growth direction, they spun it off.   The contrast with DEC (from which HP acquired customers, technology, people, and Intellectual Property) is stark. 

RIM (Hmmm…).  Lack of focus and reading of the marketplace.  I have written about this previously, but a Mile-Wide set of products with different operating systems and customer marketing messages will continue impact RIM.  The Blackberry is a business-oriented device or a device that competes with the iPhone for the cool factor?  The Playbook is a tool for business or is it cooler than an iPad because its runs Flash?   Now they are rumored to have a home video box and may try to launch an Apple TV or NetFlix type of service.  Good luck in sorting this out.  Some additional comments at RIM goes the way of DEC.

Comments on Sprint Early Adopters Don't Alway Win.  Based on another shift in approach at Sprint Sprint/LightSquared Deal - The Shift from WiMAX,  a new entry to the above summary is in the making.

Part 2, will discuss the "Kaplow-Goeringer Rules for Sustained Business Growth".

Tremendous thanks to Steve Goeringer who made significant contributions of ideas, content, and edits.

You can see more about my company at www.polarstarconsulting.com.