Google and Open Systems

Google’s SVP-Product Management Jonathan Rosenberg has published a manifesto explaining Google’s commitment to open systems. The post — otherwise a paean to the virtues of openness — contains a crucial caveat about the proprietary platforms that provide 99% of Google’s revenue. Rosenberg says:

While we are committed to opening the code for our developer tools, not all Google products are open source. Our goal is to keep the Internet open, which promotes choice and competition and keeps users and developers from getting locked in. In many cases, most notably our search and ads products, opening up the code would not contribute to these goals and would actually hurt users. The search and advertising markets are already highly competitive with very low switching costs, so users and advertisers already have plenty of choice and are not locked in.

So, search and related ad markets are highly competitive. Really? To echo Rosenberg’s point about the definition of open, competitive is “a Rashomon-like term: highly subjective and vitally important.” Many antitrust economists would balk at describing a market with just two players as highly competitive. That aside, Rosenberg’s analysis brings to mind the browser business in 2000, when Internet Explorer and Netscape had 80% and 20% market shares, respectively. That market was also “highly competitive with very low switching costs.” By Rosenberg’s logic, there was no need for an open source browser.

Has Rosenberg given us reliable rules for when it makes sense to open a platform? Chris Dixon doesn’t think so. He sees Google’s “closed core” strategy as a classic case of a platform owner seeking to commoditize complement providers and thereby extract more rent from its ecosystem.

I have two additional observations about the post:

• Rosenberg’s claim that MBAs don’t learn about the merits of open systems is wrong.
• His call for a clear and precise definition of open is on target.

Open Systems and MBAs. Rosenberg asserts that open systems are counter-intuitive for traditionally-trained MBAs, who are “taught to generate a sustainable competitive advantage by creating a closed system, making it popular then milking it … [seeking to] lock in customers to lock out competitors.” He promises that Google’s strategies for open systems will “rewrite the MBA curriculum for the next several decades.”

I hope so. I make my living teaching MBAs about platforms, and in the spirit of openness, I welcome new ideas from Google. However, I take exception to Rosenberg’s assertion that MBAs don’t learn about the merits of open systems. This topic wasn’t covered when Rosenberg got his MBA in 1985, but most business schools now have courses that examine open platforms and open innovation (for example, at Harvard Business School: Managing Networked Businesses, Strategy & Technology, Competing with Social Networks, and Managing Innovation). Scholars have learned a lot about the merits and drawbacks of open platforms. My working paper with Geoff Parker and Marshall Van Alstyne, "Opening Platforms: How, When and Why?" summarizes some of this thinking.

Defining “Open.” Rosenberg says “in our industry there is no clear definition of what open really means.” I agree and would add that in classifying a platform as open or closed, it’s vital to specify which platform layer is being referenced. Conversations about open systems often get confusing because open source and open APIs refer to fundamentally different platform layers. The following excerpt from my working paper with Parker and Van Alstyne expands upon these points.

A platform is “open” to the extent that: 1) no restrictions are placed on participation in its development, commercialization or use; or 2) any restrictions—for example, requirements to conform with technical standards or pay licensing fees—are reasonable and non-discriminatory, that is, they are applied uniformly to all potential platform participants.
Platform-mediated networks encompass several distinct roles, including: 1) demand-side platform users, commonly called “end users”; 2) supply-side platform users, who offer complements employed by demand-side users in tandem with the core platform; 3) platform providers, who serve as users’ primary point of contact with the platform; and 4) platform sponsors, who exercise property rights and are responsible for determining who may participate in a platform-mediated network and for developing its technology. For a given platform, each of these roles may be open or closed.

The Linux platform, for example, is open with respect to all four roles. Any organization or individual can use Linux (demand-side user role). Likewise, any party can offer a Linux-compatible software application (supply-side user role). Any party can bundle the Linux operating system (OS) with server or personal computer hardware (platform provider role). Finally, any party can contribute improvements to the Linux OS, subject to the rules of the open source community that maintains the OS kernel (platform sponsor role).

By contrast, Apple’s iPhone is closed with respect to all four roles. In the U.S., only AT&T Wireless subscribers can use an iPhone. To buy one, other mobile carriers’ customers must switch to AT&T, incurring inconveniences and contract termination fees (demand-side user role). Software applications for the iPhone are only available through Apple’s iTunes Store. Apple reserves the right to reject third-party applications due to quality or strategic concerns, and often does so (supply-side user role). Finally, only Apple manufactures and distributes the iPhone (platform provider role) and Apple is solely responsible for the iPhone’s technology (platform sponsor role) 

Between these extremes, we find platforms that mix open and closed roles in different patterns (see figure above). For instance, Microsoft’s Windows platform is closed at the sponsor level but open with respect to other roles. Apple’s Macintosh platform is closed at the sponsor and provider levels but open with respect to both user roles. Since all of the platforms in the figure are successful, it should be clear that without careful definitions, we cannot make general statements about the attractiveness of open versus closed platform strategies—notwithstanding enthusiasm about the profusion of open source software and content created in collaborative communities like Wikipedia’s.

The Fittest don’t Survive

IN THE PRESENT SCENARIO IT’S NOT THE FITTEST THAT SURVIVE. INSTEAD THAT GLORY IS RESERVED FOR THE “ADAPTABLE”. IF YOU ADAPT, YOU CAN ‘FIT’ IN ANY ENVIRONMENT & SURVIVE

“GO ON BE A TIGER” proclaimed the tagline of Accenture - said to be the largest consulting firm in the world with more than 1,86,000 employees and branches in 52 countries, with 96 of the Fortune Global 100 companies as its clients. The advertising campaign was seen as a perfect fit between the celebrity (Woods) and the client (Accenture). Tiger Woods was known world over for his strength, mastery, discipline and relentless focus on winning – much similar to Accenture and its business performance. This was 2003. Last month the tagline took on a whole new meaning when the world came to know about Tiger Woods’ frolic with porn stars. On the night of 13th December 2009, Accenture become the first company to drop Tiger Woods from its multi million dollar endorsement deal. For a company that for years had built its whole advertising campaign around this one man – the move was a strong indicator of how Wood’s popularity had sunk.

Tiger Woods surely knows what it feels like to hit rock-bottom. From being a cynosure of all eyes, the perfect celebrity endorser has become a toxic taboo subject overnight. So has Woods outlived his utility for the brands which he endorses? Moreover, is it time to rethink the celebrity endorsement industry as a whole? Well, the correct answers to these questions are still not clear. What is clearly emerging however is the impermanence of it all. Someone whom the media (and the rest of the world) called the epitome of success was labeled a “loser” in a jiffy. Herein lies the secret of real success. As Winston Churchill once said “success in not final, failure is not fatal, it is the courage to continue that counts.” The world will be watching Woods and how he continues after his fall.

FALL – YOU WILL
The road to success is long and difficult, but if you are determined to succeed and if every part of your being longs for that, then there is no one who can stop you from succeeding. If you have the courage to follow your heart and know what you truly want to become, everything else becomes secondary and every step you take will bring you closer to success. However, with success come great responsibilities and with success also comes undisputed failure. A truly successful company or individual is one who knows how to manage his success and failures equally well. There is no law of nature that states that the most powerful will inevitably remain at the top. Almost everybody faces a fall. But then success is what Nelson Mandela said: “The greatest glory in living lies not in never falling, but in rising every time we fall.” It is true for individuals, for corporations and even for kingdoms and empires.

Look at some of the greatest companies. Apart from their ‘greatness’ as a common denominator, they also have one more thing in common – each one of them have taken at least one tremendous fall at some point in time, but found a way to recover. Be it IBM, Disney, Boeing or Xerox, each of them have stumbled but have refused to give up. Each crisis has only taught them some new lessons in leadership.

The reason for fall may be different for different companies. As Leo Tolstoy very rightly quoted in his book Anna Karenina: “All happy families are alike, each unhappy family is unhappy in its own way.” Merck, for example, faltered because it became obsessed with growth. It grew so fast that it was not able to find the right people to sustain this sudden spurt in growth. Much like the Roman empire, which once seemed invincible and indestructible under Julius Caesar. But according to some historians, it was the empire’s rapid growth that caused its eventual demise. Its colossal size made it near impossible to manage and protect.

IBM fell in 1980’s when its top leaders refused to accept that times were changing and new companies and products were slowly edging it out. Scott Paper thought it was the best in making paper towels and no one could touch it. Companies like P&G and Kimberly Clark came out with products that attacked Scott Paper and still the company refused to acknowledge that things were going wrong. The result: from being the most successful and commanding company in paper-based consumer products, the company went into total oblivion. It didn’t take its competitors seriously.

That’s something Kalanithi Maran, India’s undisputed leader of regional broadcasting never overlooked. “I don’t take competition lightly,” he said. When everyone (including Zee Network) rejected his proposal of starting a regional channel, the man believed in himself and went on to start SUN TV Networks. Today, his collections of 20 satellite channels and 46 FM radio stations have helped him dethrone Zee and become India’s most valuable listed media company with a market capitalisation of $3 billion. If Zee wants to hold on to the top place, it needs to be careful not to go the route IBM traveled in the 80’s. IBM needed a great leader like Louis Gerstner Jr. to pull the sinking company back into form and his book ‘Who says Elephants can’t Dance’ showed how when everyone suggested he break up the giant, the man slowly infused life back into it and showed the world that even elephants are manageable!

THE DINO BLUNDER
An old adage goes that it’s all about the survival of the fittest. But when you look at dinosaurs, the adage is proved wrong. Fittest means in ‘best physical shape’ which is what the dinos were in. But as in business, so in nature it’s not the strongest of the species that survives, nor the most intelligent, but one that is most adaptable to change. Survival is a choice, an option. You decide to adapt, you survive. Madonna, adapted and changed and today she still tops the charts. Big B changed from the ‘angry young man’ to PAA and just look at the man today.

If corporates want to survive, they need to change too. They need to adapt with changing times and not make the same blunder that the dinos made. An interesting study by Aries De Geus reveals that average Fortune 500 corporations survive for less than 50 years, while special corporations like Nokia survived for centuries. The difference was in the attitude, in the way they looked at success. For these hardy survivors the sole purpose of an organisation was not just to make money, but make a difference to the world they were living in; not to look after Wall Street, but after their people; not to just help their employees make money, but to make a ‘life’. This was how they defined success and every time they failed these are the thoughts that brought them back from the brink and helped them survive not just for a few years, but centuries. These corporations were ‘living organisations’.

So as we ready for the New Year, let us make a choice. Let’s redefine what corporates are meant to do, let’s redefine leadership and in the process, let’s build ‘living organisations’ that would not perish with one fall but would rise again and again and again. After all, we do know that survival is a choice and it is not always the fittest that survive...

Pitching

Last week, one of my students shared the pitch deck for his startup. His ideas were great – he’d come a long way in a couple of months – but I was also struck by the quality of his presentation. The text was sparse, the fonts and colors were attractive, and the design was simple and elegant without drawing attention to itself. I was surprised, because most of my students — trained at consulting firms and investment banks before arriving at Harvard Business School — produce over-complicated and unappealing PowerPoint decks. Unfortunately, at HBS, we teach our students nothing about how to create and deliver a great presentation.

I said, “You did this on Keynote, right?” He acknowledged using Apple’s presentation software. I said, “This is very good, but you can make it even better. Track down the presentation that Matthew Prince and Michelle Zatlyn delivered when their startup, CloudFlare, won last year’s HBS Business Plan Contest. It’s the best I’ve ever seen, and I think it was a big factor behind their success. You can learn from it.”

Matthew shared the presentation, along with some good advice. Here’s his email to my student:

I've attached the printed version of our Business Plan Contest presentation. This is the version that judges had in their hands while we presented. It is a reflection of, but different than, what we actually projected on the big screen while we talked. A few points:

1. The presentation itself is important, but energy and comfort are the real keys. What I think really came across in our presentation for the Business Plan Contest was that Michelle and I were having fun, we were comfortable public speakers, and we had a real enthusiasm for what we were doing. Great slides help, but they can’t replace these crucial ingredients.

2. Recognize that the printed page and projected screen are different media and should be treated as such. For our presentation for the Business Plan Contest we only had 20 slides in the printed version and maybe 60+ in the projected version. For example, the printed deck may have a list with 6 bullet points where the projected version would have a slide for each bullet. While not everyone will agree, for a projected presentation to an audience, I'm a big believer in a lot of slides, with little content on each slide, big fonts, and the whole thing rolling by almost as fast as I can advance my remote. If I use transitions at all, I turn down their play time to a fraction of a second — significantly below the default. I think this all helps ramp up the energy and excitement levels.

3. You want your audience watching you, not your slides. Your presentation is what you’re saying, your slides are there to help emphasize the key points and make sure your audience is following you. For example, my favorite slides often have one word on them, like "MARKET." They serve primarily as a cue to you and your audience as to what’s coming next. Slides should never be so complicated that someone is squinting to decipher them. Instead, they should serve as chapter headings to help the audience focus on what you're saying.

4. PowerPoint makes ugly presentations. Period. If you want great slides get a Mac and buy Keynote. We actually had a VC at the Business Plan Contest say, "Well, I'm not sure about the business, but I'm 100% convinced that I need to get a Mac before I ever do another presentation." At CloudFlare we use PowerPoint for things that will primarily be printed. Anything that’s going to be displayed on a screen to an audience of more than 6 people we build in Keynote.

5. Use the technology to look smooth. For example, both Keynote and Powerpoint let the display on your laptop — but not on the main screen — show both the slide you're on and what’s coming next. I’m amazed that everyone doesn’t use this because it is so helpful. Being able to see what is next up and talk to a transition that makes sense really helps the flow. It helps you look extremely practiced even when you just finished the presentation a few second before you’re giving it.

6. Watch great presenters, especially great product demos, TED talks, and Steve Jobs's keynotes. I like this Larry Lessig talk on copyright:

http://randomfoo.net/oscon/2002/lessig/free.html

In that video you don't see Larry speaking but you do see how he uses very simple slides to help signpost the complicated concepts he’s talking about. What you don't see are any bullet-point lists with tons of text.

7. Finally, know your audience and be careful about going too far. You can take this advice and put together a terrible presentation that will come across as gimmicky. For example, while I think the Lessig talk linked to above is great, I watched him give it at a highly technical conference where it just didn’t work. The audience grumbled about how thin the slides were and how the talk contained almost no real information. A presentation has got to be aware of its purpose, which is defined by its audience, and it must clearly serve that purpose. It has to feel comfortable. And, most of all, you have to feel really comfortable when you're giving it.

Good luck!

I’m no expert in this area — I have a lot to learn myself about designing and delivering presentations. Books that have proved helpful include Presentation Zen by Garr Reynolds, Art of the Start by Guy Kawasaki, and Confessions of a Public Speaker by Scott Berkun. I hope that readers will share other recommendations.

Addendum, Dec. 23: Phil Michaelson, founder/CEO of KartMe offers a terrific set of pitch tips. He makes the case for presenting without Powerpoint and building energy by featuring the product.

Jan 3: Carmine Gallo's slide show on the Presentation Secrets of Steve Jobs is also superb.

WAKE-UP WAL-MART!

KNOWLEDGE ABOUT CULTURAL NUANCES AND ETIQUETTES GOES A LONG WAY IN ENSURING THE SUCCESS OF YOUR BUSINESS ON FOREIGN SHORES AND IN AVOIDING SURE-SHOT FAILURE.

Women don’t wear pants in Japan! Now before your imagination runs riot, let me tell you this is one of the guidelines prescribed to many female business travellers to Japan. As per Google, “Japanese business etiquette” is one of the most searched for Japan business related keywords. According to these guidelines, Japanese men do not relate easily to women with authority in business and that can cause problems while doing business. The Japanese culture encourages women to wear long skirt suits to work. Most Japanese companies prefer that their female employees not wear high-heeled shoes as Japanese men are not very tall, and towering over them might offend some.

While “Going Dutch” is a culture common to Netherlands and accepted in many other cultures, the Turks don’t believe in “Going Dutch” at all, and a suggestion to that effect may not be appreciated much.

The head is considered a sacred place and nobody in Singapore appreciates it if you fondly pat a child on his head. In India, it’s a way of showing affection – not there.

Each country comes with its unique cultural nuances, and as a business traveller, it’s of utmost importance that one remains sensitive to these seemingly small irrelevant details. They will help you strengthen your bonds with your foreign partner and help you do business better. Though it might not in any way affect your balance sheets but it helps to understand your counterpart better when you know that sitting cross-legged in Singapore may be considered offensive, or that Germans consider a weak handshake as a signal that you are insecure and not convinced of your abilities, or that in Israel (due to years of fighting) men prefer to sit with their legs slightly apart and upper body leaning forward (akin to a position where they are ready to get up at a moment’s notice), or that in Switzerland, before starting a conversation, it’s important to shake hands with everyone – including children. While Arabs consider it a show of trust and solidarity when they put their arms around you and hold your hand with both their hands, doing the same in Germany could be one of the biggest etiquette blunders one could make. Germans avoid physical contact and placing your hand on someone’s’ shoulder could make you appear too authoritative and not appreciated. Knowledge about the etiquettes of other cultures is becoming very vital as it could as well be a deciding factor in whether you succeed in that country or not.

ACROSS THE SEAS
Yes, gone are the days when simply understanding your own country’s business environment well was enough to succeed. Today, if you really want to make it big, you need to stretch out, go beyond the boundaries and learn to do business in strange, foreign cultures. Ratan Tata, during his 18-year tenure as Chairman of the Tata Group, ensured that his company expanded internationally – a strategy that India’s other business houses copied and are still trying. Today, the Tatas have annual revenue of about $70 billion – that’s great, but what’s of significance is that 65% of the group’s sales are derived from outside India. If you really want to grow big, you not only need to expand but also need to have a global mind-set too.

WHEN YOU DON’T THINK GLOBAL
This company’s revenues are more than the GDP of at least 144 nations, and today, it’s the world’s second largest company – yes, you guessed it right, it’s the retailing giant Wal-Mart! It’s an organisation that’s been super successful in America. As someone once said, “If you want to reach the Christian population on Sunday, you do it from the church pulpit. If you want to reach them on Saturday, you do it in Wal-Mart.” There is hardly any American who has not shopped at least once in Wal-Mart. That’s the power and reach of this retailer.

Yet, when it comes to going global, this is one company that has committed some very costly mistakes, for it failed to understand he local culture.

In Mexico, Wal-Mart started its stores and set up huge parking lots. Little did it realise that what was considered as a “facility” had no meaning for Mexicans as most came to the outlets in buses. It entered China in 1997 and in spite of doing business in the country for more than 12 years, the company has still not made a profit – it definitely has failed to understand the Chinese market. It tried to bulldoze its American styles into the Chinese market; a move that failed as expected. Selling golf balls in a low-income country like Mexico was as wrong as selling meat, neatly packaged in Styrofoam and cellophane to Chinese customers. A country where consumers insist on live fishes in grocery stores and on killing them in front of their eyes, packaged meat was looked upon as stale food and did not sell – despite being correctly priced and being of good quality.

Wal-Mart tried to export its American consumer culture to the world. Even its ‘Everyday Low Prices’ strategy failed and did not pass muster against the cultural preferences of consumers. No wonder it beat a hasty and costly retreat from Indonesia, South Korea and Germany. It’s not always a good idea to retain your individuality and be rigid. It pays to be flexible and Wal-Mart learnt it after incurring billiondollar losses. Today, the Wal-Mart of China keeps live fishes and turtles in its stores; it stacks up on diapers in the ‘Year of the Monkey’, which is considered a lucky year to bear children. It’s slowly learning to woo the Chinese shoppers

Wal-Mart seems to have found its footing in India too. It’s realised the importance of understanding the people and their culture before trying to sell its goods. So the first thing it did was to look for a man who understood the Indian consumer to head its Indian operations. It understood first what the Indian people wanted, studied the local kirana shops, understood which paneer sells where, and also realized jhadoos where more important to Indian households than vacuum cleaners! With 50% of Wal-Mart’s assets outside USA, it was high time Wal-Mart woke up from its stupor and realised that every market is not like its American one. Under Mike Duke – the new CEO of Wal-Mart – things seem to be looking up.

You too should know how important it is to understand the different cultures. Don’t commit mistakes like Wal-Mart. As Jawaharlal Nehru said, “Culture is the widening of the mind and of the spirit.” Widen your horizons too. If you don’t want to fail, don’t do what Wal-Mart did in the various countries. You will learn all your lessons in culture through one exercise – keeping an eye on Wal-Mart goof ups. So keep watching Wal-Mart.