The traps of tech dominance

Apple may be on top, but the tech giant should be wary of avoiding the pitfalls that unparalleled market power brings with it.

Apple has risen to become the world’s most valuable company, surpassing a milestone set by Microsoft. A remarkable feat for a company that almost went under 16 years ago.

The trinity of iPod, iPhone and the iPad has propelled the Cupertino-based tech giant to the top of the world and while Apple fans are no doubt cheering the company’s $662 billion valuation, others might be asking a more astute question: how long can the tech giant stay on top?

The simple truth is that no company can rule the roost forever. Every monopoly comes to an end sooner or later. It’s a point Deakin University’s graduate school of business’ senior lecturer Paul Harrison is keen to highlight when talking about the success of today’s incumbent tech companies.

There is ample evidence that attests to Harrison's point. One only need look at the woes of Nokia or Research in Motion to see how quickly the kingdom can come crashing down. 

The slow and painful demise of a company leaves an army of distressed employees in its wake and, as Harrison points out, many companies don't realise their decline until its too late.

“We only see the tipping point... and these things happen over time,” he says.

Today’s era of start-ups and accelerated technological innovation incumbency can be a burden for a company and its dominance a can quickly become a fleeting mirage. While the adage hold true for all businesses the tech sector is particularly susceptible to a sudden change of fortune.

So what are the some of the management sins that often foreshadow this turning of tables.

Arrogance

Perhaps the most poignant feature of an incumbent company is its arrogance around its success. As Harrison puts it, when a company sees nothing but success it gains what’s called an “optimism bias”.

“Because you're successful, you believe that success is going to continue," Harrison says.

And that success either lulls companies into either ignoring the concerns of its customers – as we previously pointed out with Adobe and its Australian price points – or alternatively stifles innovation.

Perhaps the most vivid example of a company failing to innovate as a result of arrogance is Nokia. Nokia’s chief designer Frank Nuovo told the media in June that his design team had plans to implement a touchscreen in Nokia’s phones almost seven years before the iPhone.

"We had it completely nailed," Nuovo said. However Nokia’s arrogance and belief in its own success squashed this plan. Rather than take a risky punt Nokia's management opted to stick with the low-end market which was generating plenty of cash.

Harrison says this kind of behaviour is typical of incumbent companies and  organisations that build their reputation on innovation aren't necessarily immune to this either. 

Slow to innovate

As seen with Nokia, incumbent companies aren’t short on ideas, but they are typically slow to bring them to fruition. It’s a dangerous position to be in given the current pace of innovation, where agility is the name of the game. Incidentally, it's a game that Apple has so far been very good at playing.

Eventually, incumbents have to pay a price for their lack of agility. Take Telstra’s Sensis division for example. Sensis’ inability to quickly adapt to the rise of Google and search engine technology saw the directory company fall from being one of Telstra’s most profitable division, to being its greatest loss maker.

The situation could have been avoided if Sensis had the foresight to see that its business model was being threatened by this new technology. Failing to keep an eye on an evolving competitive landscape is just another side effect of having it too good for too long.

Manipulate policy rather than adapt to it

This last sin is perhaps the least forgivable. It occurs when a company sees itself as being powerful enough that it won’t allow itself to be shackled by the chains of legislation. Rather than innovate, it appeals to the government to help protect its fractured business model or alternatively to drop red tape that is slowing its growth.

Buddecomm founder and analyst Paul Budde says you only need to look to the mining or technology sector to see companies that the government has trouble regulating.

When the government tried to introduce a mining tax, Australia’s major resources company waged a devastating ad campaign in protest. Meanwhile, companies like Google, Apple and Microsoft have easily – perhaps without proper scrutiny – escaped claims that they evaded local taxes and have still failed to appear at the government’s IT price inquiry.

However, Budde says that this power trip doesn’t last forever and governments have a way of “breaking down monopolies”.

All good things...

One point is certain, we’ll soon start to see more monopolies tumble as a result of technology. Just look at what’s currently going on with these other so-called incumbents, media monoliths are starting to buckle under the strain of the internet and Telstra is now actually trying to cater to customers rather than ignoring them.

Apple has managed to stay ahead of the game so far and deserves all the accolades. But does it have what it takes to beat the inevitable entropy that inevitably follows a sustained period of dominance?

So what do you think? Has Apple committed any of these sins? Are they on the way down? Let us know in the comments below.

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