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- THE FRIDAY LETTER -

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| http://www.gilder.com/ | Issue 371.0/February 6, 2009

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HEADLINES:

- The Week / The Innovator’s Prescription
- Friday Feature / Motorola Reassures on Qualcomm & TI
- Friday Blogger Bonus / Twitter Time
- Readings /

The Week / The Innovator’s Prescription

Rick Merritt, EE Times (1/29/09): Health care will follow the model of the computer industry, creating waves of disruption with increasingly de-centralized systems and services. That's the prediction of Clayton Christensen who is spending time lobbying lawmakers to help make it come true.

The Harvard Business School professor's most recent book, "The Innovator's Prescription” applies Christensen's widely discussed ideas to the health care industry where he projects significant changes in medical electronics and pharmaceuticals. But moving health care out of hospitals and clinics and into the home will require policy changes in insurance reimbursement, a fact that is increasingly taking him to Washington D.C.

Christensen spoke of his work in health care and his views on the current recession in an interview after a keynote at a supply chain summit sponsored by Microsoft.

View Christensen’s Talk (video):
http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=212903571

His talk at the Microsoft event reflected his views that up-end conventional thinking about managing innovation in business. "It's the principals of good management that we teach at Harvard that cause innovation to be a crapshoot," he said, noting only 20 percent of new products by established companies and a similar fraction of startup companies ever find success.

Companies waste time segmenting markets by product and customer types, generating "one-size-fits-none products." Instead they should try to understand "the real job a customer hires a product to do," he said.

"That job is the fundamental unit of analysis, not the customer," he said. "The average customer doesn't exist."

Christensen also gave several examples of how companies fall into the trap of "going up the ladder to invest in high-profit margin products and wind up liquidating their business models."

PC makers such as Dell have fallen prey to that pratfall from Taiwan ODMs such as AsusTek. In the car industry, that's how Toyota overtook General Motors, he said, and the problem continues.

"Today the Koreans have taken the low-end of the car market, and now you have Cherry coming from China that no one has to worry about ever," he quipped.

He also reiterated his celebrated theme that companies get trapped into sustaining existing innovations and miss out on new ones. That's because existing products have their own set of resources, processes and financial models that people in the company get locked into defending.

To overcome that force, companies need to set up independent business units free to create their own processes and models, he said. IBM successfully did that when minicomputers threaten its mainframe business and again when PCs threatened its minis.

"Accountants want these new groups to share resources with the old ones because they have no way to quantify the value of focus," he said. "Creativity is rarely in short supply, it's the processes that force new ideas to conform to current practices," he added.

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Friday Feature / Motorola Reassures on Qualcomm & TI

Judy Weil, Seeking Alpha (2/04/09): Motorola is banking on Google's (GOOG) Android navigating system for its Smartphone strategy. Analysts asked if that would change Motorola's relationship with Texas Instruments. Motorola (MOT) on Texas Instruments (TXN) and Qualcomm (QCOM), from the company's Q408 conference call:

Our Smartphone road map includes a variety of devices, many based on the Android operating system.

Q: I know Qualcomm (QCOM) has done a lot of work with Android and so the chips are pretty well tuned and the software, it’s tuned for Android. I wanted to get a sense if you thought from a funding perspective you might back off on your work with Texas Instruments there?

A: Between 30% and 40% of our R&D investment is on Smartphone going forward. We think that one of the reasons that we’ve liked Android is that we could focus a lot of those dollars on differentiating, because we don’t have to develop the platform ground-up.

Q: Is Texas Instruments, is that going to be your lead horse or are you going to back off on that work and move more towards QUALCOMM, do you think?

A: In the low end, we are committed to Qualcomm solutions. In the high end, we have committed to TI and we remain committed to that strategy.

Read the Full Conference Call Transcript:

http://seekingalpha.com/article/118199-motorola-inc-q4-2008-earnings-call-transcript?page=-1
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Friday Blogger Bonus / Twitter Time

Renee Hopkins Callahan, Forbes.com “Disrupter of the Month” (2/05/09): Distributing software for free or making a Web application for free isn't an unusual business model. The basic idea is to attract people, build an audience and then make money by selling advertising. While print publications have long thrived this way, ad sales have also been the basis for the success of Internet-based companies such as Google (GOOG), MySpace and Facebook.

But San Francisco, Calif.-based Twitter, the micro-blogging service that looks like a standalone version of Facebook's "status update" feature, seems to fly in the face of these successful companies. Started in 2006, Twitter has managed to gather around 6 million users to its free service. But unlike the others, Twitter hasn't developed any revenue streams or even a business model. Its chief executive, Evan Williams, has been notoriously against allowing advertising on his site.

Our opinion: Don't discount Twitter. The company could become a big disruptive force.

Let's look at Twitter's options. One thing Twitter cannot do is maintain its status quo. While it seems unlikely that another large company would build a Twitter competitor, it's worth noting that Twitter can't rely on its first-mover status. Google, Facebook and LinkedIn, for instance, were not first in their respective businesses. Apple's (AAPL) iPod was not the first MP3 player. Today, these companies all dominate their businesses, and the first movers are all but forgotten.

Another reason why Twitter has to move fast: It faces at least one potential threat from a new company called Yammer, which allows employees in any organization to start their own Yammer network, creating databases of ideas, news, links, questions and other information for internal use. Yammer's intention is to figure out what kinds of services it could offer companies that they would be willing to pay for. If it succeeds, Yammer could be, potentially, a Twitter killer.

So what can Twitter do? One possibility: It could be acquired by another company. Potential suitors might include Google, Yahoo! (YHOO) or Facebook. However, this seems unlikely. In November, Twitter's founders decided to forgo a $500 million acquisition offer by Facebook, concerned about the valuation of the Facebook stock that was being offered and preferring to remain independent.

A second, more likely option…? Read on:
http://www.forbes.com/2009/02/05/twitter-google-apple-leadership-clayton-christensen_0205_business_model.html
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Readings /

Microsoft: We’re Not Making a Smartphone
http://blogs.wsj.com/digits/2009/02/05/microsoft-once-again-were-not-making-a-smartphone/?mod=rss_WSJBlog?mod=

Ten Ways to Use LinkedIn to Find a Job
http://blog.guykawasaki.com/2009/02/10-ways-to-use.html

Lenovo Refocuses on China
http://online.wsj.com/article/SB123380896784051197.html

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