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By John C. Dvorak dated 07.20.09

The talk at last week's Semicon West in San Francisco was, for the most part, about the economy. Everyone seemed depressed by the fact that things are not picking up as much we'd all like, and that there are few "bright spots" in the market.

Thing is, the picture never seems bleak for Apple. I mean, the company is killing everyone. What is wrong with this picture? What is Apple doing right? Well, first of all, Apple is still advertising like crazy and paying no attention to the doomsayers. In other words, it has a positive attitude.

In addition to a positive attitude, there are other issues that need addressing if this industry is to survive. I've listed them here in order of importance. I truly believe that if we fix these problems/issues, things like the economic crises would not have much of a negative effect. Seriously. Here is what we need.

1) New killer apps: Where are they? The last killer app was actually the World Wide Web. People have been fixated on it and produced various Web apps that have yet to set the world on fire. There are some note-taking apps, a bookmarking app, and a bunch of other cute niche products. While some of these hobby apps, such as Writely, the online word processor, get bought by Google, most are pretty simplistic and none are earth shattering. I mean, take Flickr (please!). You can live without it.

2) Core development: While Linux, for example, will do some load balancing with six-core chips, and some programs are coded to use multi core, the fact is that these chips have not set the world on fire with huge performance jumps. On a typical Windows machine that runs Word and Excel, these chips provide little improvement. You'd think four cores would be four times as fast but no. Where is the multi-core OS? This all harkens back to the debate over parallel processing: no genius has come along with great code that takes advantage of the inherent power so all apps benefit. Pity.

3) Robots: I thought I'd drop this zinger onto the list. Where are the robots? Roomba comes along years ago and that's it? A floor-sweeping robot? Sigh. Meanwhile, Japan is working like crazy on robots. In the 1980's people were jazzed about the robot idea. Over 35 years go by, and we've got little to show. Oh, and by robot, I mean some device that can pick up the dishes and wash them as well as scrub the floor.

4) The talking and listening computer: This is actually one step down from robots, and nobody can mange to do this either. IBM kept bragging about its upcoming human-centric computer, or whatever it was going to call it. You could actually chat with the device. I'll give up on robots for the sake of a simple computer that can talk like the one in Star Trek. The fact is that today's machines cannot understand a word we say, and the computer-generated voices are from the late 1980's. How hard can this all be?

5) Machine translation: OK, now you have probably noticed that I constantly complain about this topic. And here I go again. I know that the complexities of idiomatic languages are incredibly varied, but can't we do better that what we have. Without knowing the language, you can likely do better by guessing context than most of these translators do. Often the translations do not make any sense whatsoever. And yes, machine translation is very good at translating "hello" and "where is the train station?" And so are the reference books from Berlitz. So what?

6) Handwriting recognition: As I write this complaint, I realize that I write this almost exact same column every five or six years and nothing changes. This in itself, of course, suggests the overall stagnation in the business.

I suppose the iPhone represents where we are currently in our industry. One of the most popular apps for the iPhone is a flashlight. This is an app that turns the screen bright white, so you can use the device to find your keys in the dark. Handy, yes, but it's not the killer app we need.

And speaking of needing better translation tools, the iPhone would make the perfect translation buddy, using speech recognition. Say you're in Mongolia. You're lost and you're trying to get someone to help you who, of course, does not speak English. You pull out your phone and say "How do I get out of this town? I'm lost!" Suddenly, you get the translation (in a good computer voice). Then you get the person you're trying to converse with to speak into the iPhone in Mongolian, which is then translated into English. Oh, and you should not ever have to tell the iPhone that it is Mongolian. It should know immediately. Now we're talking!

Google may be going in the right direction with the Android phone, which will take your words, send them to some massive heavy iron someplace in the cloud, and return text. Some people get good results. The key with these devices is to use the cloud.

This would also work for handwriting recognition and other computer-intensive chores that are impractical on a phone. I suggest further research along the lines of Google voice recognition, meaning using the cloud for massive computational chores. That said, looking back on this list, you'd think you could actually do all of these things with, say, a four-core processor, wouldn't you?

It's sad when the flashlight app is the only bright spot out there. (Pun intended).

Demand Trends in Post Recession Economy

Author: Tim Smith

The current recession has been longer, deeper, and generally more damaging than any other since the great depression. As we move past the recessionary scramble to survive and into some semblance of a recovery, no intelligent executive should expect things to return to the way they were. The world has changed.

Research into customer behavior is showing two general trends:

• Demand is not only generally lower, but also the demand that does exist is at a lower price point.
• This shift in customer demand and preferences is likely to persist for the foreseeable future.

These observations imply that a change is needed in supply:

• Corporate strategy must adapt to the new demand profile if a company is to thrive.

Easy enough logic so far, but stating that things are changing is about as meaningful as stating that the sky is blue. How should this persistent shift in demand affect corporate strategy? To show the effects of this statement on corporate strategy, we need to examine the demand profile, its influence on past pricing strategy, and how the changes in demand should influence the pricing strategy of a customer focused company.

The concept that demand is dispersed between those with a high willingness to pay and those with a more frugal appetite is well understood in industry, corporate, product, and pricing strategy. This dispersion in demand often leads to what is sometimes called a versioning strategy: products are made with varying levels of benefits and offered at varying price points. In a typical versioning strategy, good products are sold with minimal features at a low price, while better products are sold with more features at a higher price point, leading up to the best product in the category. (See the lower portion of New Opportunities at the Bottom.)

What is different in this post recession economy is not only the height of the demand profile, but also the position. This in turn should influence pricing, product, and corporate strategy.

A demand profile describes the maximum willingness to pay of specific customers within a market. In a typical market, few customers are willing to pay a very high price, most customers are willing to pay a more moderate price, and a few customers will refuse to purchase unless the priced is very low. (Customers that refuse to pay at any price are not customers, they are freeloaders and hence do not count as customers.) A plot of the number of customers with a specific maximum willingness to pay against price reveals the demand profile.

In this post recession economy, the overall demand expressed is lower. Moreover, the peak in demand has shifted to a lower price point. (See the upper portion of New Opportunities at the Bottom.)

New Opportunities at the Bottom

Recent research by Flatters and Willmott partially explains this observation. They measured a number of specific changes in customer demands that are likely to persist for the foreseeable future. They raise three concepts that will particularly affect corporate strategy: a rise in the demand for simplicity, an increase in thrift, a willingness to accept good-enough solutions.

Because demand has shifted to a lower price point, albeit accepting a lower set of benefits, executives may now be in a position to seize an un-served market at the bottom.

Companies that have offered a wide variety of goods and services may find it profitable to shift their focus from “Newer” and Better” towards “Good-enough”. Good-enough products are those which provide the minimal required functionality to deliver the minimal required utility to compete in the category and are priced at a proportionately lower point.

A recent example of companies uncovering opportunities at the bottom comes from consumer product titan P&G. Recently, they launched Tide Basic across the southern US, an entry level formulation of Tide, selling for about 20% less.

While P&G is aware that the new Tide Basic will cannibalize some sales of regular Tide, they are also well aware that the demand for a basic laundry detergent will be filled by someone. Rather than hand this market over to competitors and store brands, P&G has chosen to seize it.

Business markets can, and perhaps are already, execute a similar strategy. For instance:

• Software as a Service (SaaS) is one mode of moving to “Good enough”. In SaaS offers, it might be possible to encourage customers to forgo some customization of enterprise software in exchange for declining installation and up-front licensing fees.
• Maintenance, Repair, and Operations (MRO) suppliers can shift their portfolio to entry-level, effectively shifting their professional class products to a lower price point with minimal benefits.
• Heavy machinery manufacturers can reduce features such as automatic transmission or sensors to detect potential future faults, in exchange for lower upfront capital costs.

But beware, simply reducing features and benefits in order to lower the price point should never yield an unreliable product. Brand value, which takes years to develop, should not be sacrificed for a quick buck. No customer is so rich that they can afford to repeatedly purchase cheap products.