Headlines in the Wall Street Journal's Business Section on May 22 featured the latest management shake up at Ford Motor Company. In some sense, this was surprising since the company has been racking up record profits on strong sales especially of trucks and SUVs. General Motors also has been raking in the dough; the pressure on CEO, Mary Barra, has been somewhat muted because the company brought out the Chevy Volt as well as made a significant investment in the ride-sharing firm Lyft. Underlying all this is the valuation of Tesla, whose stock has soared to the point where the company now commands a market value ($57.1 Billion) that exceeds both GM ($52.0 Billion) and Ford ($45.2 Billion). In some ways this is unbelievable since Tesla never has posted a profit in its history, while both Ford and GM are century-old icons achieving hefty earnings.
The underlying theme is potential; technological disruption and the force of destructive capitalism. If we go back and look at some examples of this mechanism, we can start with a relatively ancient occurrence of the transition from the fairly large vacuum tube business to semiconductors. RCA reigned as king of vacuum tubes, along with Sylvan and GE. None of these companies was in the top five in Integrated Circuits twenty years later when the top tier included TI, Fairchild, National, Intel, and Motorola. It's a well-known phenomena that the leaders in one technology rarely are able to move to the replacement with success.
In a more recent development, the now ubiquitous cell phone, the destruction has been even more vicious and pronounced, even within the same (on the surface) device. The initial development of the cell phone by Motorola was based on analog technology, where the human voice was transmitted and received over fixed radio frequencies. The signal was high-quality, but phone calls could be monitored by anyone with a receiver for those bands. This not only was not private, but took a lot of bandwidth for a call, and only a relatively few calls at the same time could be made through the network of base station towers. This of course was a financial drag, and the initial major technical disruption was the transition to digital technology from analog. The initial voice clarity/quality was iffy at best but it got better, many more phone calls could be handled with the same investment in the networks, and the conversations could be encoded for privacy. The new technology also required much more radio "spectrum," the amount of bandwidth (think five FM bands instead of only one) and soon the race was on with competing new digital standards between the US and Europe. Nokia, a sleepy Finnish home appliance maker, emerged as an unlikely, but real leader in the digital cell phone business, with a dominant share worldwide, with Motorola left behind in #2. However the real disruption still was waiting in the wings.
The Third Wave was the true coupling with the Internet. If you don't remember anything else about the Internet, remember these four words: "The Internet changes everything." Apple was the first to realize and achieve this with their iOS operating system and complementary hardware. Apple's approach was always the same: great software integrated seamlessly with proprietary hardware. It was, and is, a system hard to break. The iPhone was the first mobile phone to not only make cellular calls, but also to connect easily to the Internet. Apple always thinks broadly, and their phone accessed the Internet well as well as purchasing a big world of music as well as easy ways to buy some of the world's richest trove of independently developed (third party) applications. Everything Apple did made it easy to purchase an App in their fabulously profitable App Store, and the company soon knocked Nokia from the leader to a weak #2 just as Nokia had done previously with Motorola.
But just as it looked like Apple would dominate this new world completely, Google emerged as a strong competitor with a different strategy. They did not couple software and hardware together, but offered their software as a "free" operating system called Android. Apple licensed the new O.S. to all comers who would build a phone based on it, which eventually became everyone except Apple. Since no one could compete with their own O.S., the industry consolidated around the new tech Goliaths: Apple and Google. While Apple made a huge profit on the hardware and the Apps, Google gave away the software and made their fortune on selling advertisements on all sorts of popular applications including search engines, maps, and GPS variations. The companies who built their hardware cell phones fought it out on the phones themselves.
But what about Ford and GM? What will the industry look like in 10 to 20 years?
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