A Blog by Jonathan Low


Apr 17, 2015

The Decline of Differentiation

It's become an annual seasonal rite: the announcement of the latest Apple iPhone model, followed by the lengthy, overnight lines of fanboys outside stores wanting to be the first to buy the latest whatever.

This has great meaning to Apple and its rivals: the faithful trading up and paying down for yet another iteration which is, well, if truth be told, not all that different from its predecessor - or its predecessor's predecessor. Samsung even mocked the phenomenon in its own ads to great attentive hilarity, if not commercial effect.

But the issue facing all technology companies is that differentiation is declining. In fact, as the following article explains, the features most prized by the greatest numbers of customers are easily identified, copied and distributed. The differences in physical attributes between brands and between models within brands is shrinking.

This is what has spurred the ever more expensive and fruitless lawsuits between industry protagonists. And to the focus on products like the Apple Watch. Commoditization is the bane of every business. It lowers prices and profits, forcing power to the lowest common denominator.

Which is why, ironically, in a field known for engineering prowess, the emphasis will continue to shift to intangibles like brand or 'look and feel,' or 'customer experience.' Value is not just where you create it, but where the consumer perceives it. JL

Christopher Mims comments in the Wall Street Journal:

Notebooks, PCs, smartphones and tablets have come to be, regardless of manufacturer or operating system, more or less equally usable. Manufacturers are increasingly at pains to tell us not just how their latest models different from older ones, but from each other. It has lead to “the smartphone industry’s weird narcissism of small differences.”
You may be relieved to discover, as I was, that there is a mathematical reason for why you don’t have to always buy the latest and greatest gadget. The principle doesn’t have a name, but it’s common to any number of human-made phenomena, including baseball batting averages, the stock market, and the relative performance of economy and luxury automobiles.
Take Ted Williams, who in 1941 became the last hitter in Major League Baseball to bat over .400 in a season. As observed by the late evolutionary biologist Stephen Jay Gould, the straightforward reason no one has matched Williams in the past 60 years is that all players in baseball have since become uniformly more skilled—including pitchers. As best practices in training and recruitment spread, everyone has gotten better, and the difference between the performance of the worst player and the best one has narrowed. In statistical terms, as the performance of players has increased, the variance in their batting averages has shrunk, year after year.
The same thing has happened in the stock market, notes Michael Mauboussin, managing director at Credit Suisse. “2014 was a record year in terms of collapse of difference between best performing and worst performing mutual funds,” he said in a talk last week at Wharton. After, I asked Mr. Mauboussin if the principle applies to the relative performance of things humans make—that is, our technology. Sure, he said, and pointed out that in terms of functionality, the difference between luxury vehicles and econoboxes has never been smaller.
So it is with consumer and even enterprise technology. Take smartphones. The functional difference between last year’s generation of Android smartphones and iPhones and their latest versions has, subjectively at least, never been smaller. That’s because, as with notebook computers and automobiles, smartphones have become a more mature technology. As a result, their manufacturers are increasingly at pains to tell us not just how their latest models different from older ones, but from each other. It has lead to, as John Herrman wrote in Medium “the smartphone industry’s weird narcissism of small differences.”One result is a growing marketplace for used electronics of every kind. “We’re trying to educate consumers around the [total cost of ownership] of a smartphone, and how smart a financial choice it is to skip the ‘drive it off the lot’ or ‘take it out of the box’ experience,” says Sarah Welch, chief marketing officer for Gazelle. Gazelle’s primary business is buying used phones from consumers, then refurbishing and selling them. Ms. Welch says Gazelle aims to become the “CarMax of used consumer electronics.”

The most popular device Gazelle sells is the iPhone 5, which goes for all of $219—a third what a new phone from Apple or an unlocked one from a carrier would cost. It is an option that makes sense for consumers who are more than ever rejecting expensive mobile plans that subsidize the price of a new phone. And, speaking as someone who is constitutionally opposed to upgrading my devices more often than once every couple of years, I can tell you it’s a perfectly functional device, as is the comparable Samsung Galaxy S4, which Gazelle sells for $249.
Gazelle, a privately held company, says its only problem in selling these devices is keeping up with demand. “The prior generation phones have such a strong subset of the functionality of the brand new ones that a lot of people think it’s worth the trade-off,” says Ms. Welch.
Another route consumers are taking is repairing their supposedly difficult-to-repair devices. Recently, when the battery on my year-old iPhone started to go, I had a tech from iCracked come to my office to replace it. The total cost, including parts, was $40. For the price of a nice dinner, I bought an additional year of service for the most essential gadget on my desk.
AJ Forsythe, founder and CEO of four-year-old iCracked, told me that demand for his company’s on-demand phone repair service is growing so quickly that he’s hiring 400 to 500 new technicians a month. The company has also just launched a phone-insurance program called Advantage, which guarantees a new phone of the same model if iCracked can’t repair the old one.
Other companies, like Glyde, allow consumers to sell their old phones to each other directly. And every major U.S. carrier now has some kind of trade-in or take-back program, and some even have phone insurance. Taken together, the market for mobile devices is coming to resemble the market for vehicles, with the same stratifications by price, and the same measures—used phones, insurance, repair—to keep expensive devices going or otherwise make them more widely available.
All of this is possible because our notebooks, PCs, smartphones and tablets have come to be, regardless of manufacturer or operating system, more or less equally usable. It isn’t hard to see once you look around an office or coffee shop: People using devices of every make and vintage. It can be liberating to realize that each individual’s quirky, personalized tool chain is as valid as the next. Rejecting the cult of the new and shiny and embracing good-enough technology isn’t a matter of compromise. It is simply a recognition that all mature technologies eventually become, on average, pretty darn good.


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