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Learning from leopards - How digital evolution is creating new markets and market segments

by Dr. Rudolf Aunkofer , 18.03.2012
Evolution, as described by Darwin, is a slow, gradual process in which all creatures that exist today, with their diverse characteristics, have developed from the simplest forms of life. All biological species therefore have a common origin and are related to one another to a lesser or greater extent.A common origin can also be identified in the digital world: the mainframe computer, which was conceived in the 1930s and 1940s. The three "progenitors”, Zuse Z3, Mark I and ENIAC, were just the beginning of a development process that eventually produced the personal computer in the mid- 1970s. Each of the many variations of the PC – such as the Xerox Alto, the MITS Altair 8800, the TRS-80 from Radio Shack, the Apple I and II, the Commodore PET and the IBM PC 5150 – in turn formed the basis for an amazing variety of new "species”.
Software – the DNA of the digital world

It was not just the appearance of the personal computer that altered quickly and radically over the years. Its inner workings, the software, also underwent major changes. Thanks to the invention of the microprocessor, its continuous miniaturization and increasing capabilities, computers and mini computers called "embedded systems” are now integrated in a number of products, such as mobile phones, navigation systems, digital cameras, portable media players and netbooks, as well as household appliances and perhaps pieces of clothing or jewelry in the near future. Digital technology has conquered virtually all areas of life. Ultimately, these new products are a symbiosis of hardware and software, and their software could almost be viewed as a form of DNA – because like genes, their bits contain concrete product information.

Take, for example, a smartphone: externally, almost all manufacturers’ touch screen designs look very similar. But the difference is on the inside: through the installation of small software programs called applets, the device can be adapted to meet any individual requirements. And the needs of users now extend far beyond simply making phone calls. They want to be integrated in virtual worlds, to access all information on the internet at short notice, or to watch mobile TV. Therefore, alongside general technological progress, it is the selective behavior of users that really steers the development of products. As in nature, the "survival of the fittest” principle also applies here – the best-adapted device comes out on top. It could even be said that the smartphone in its current form is simply a miniaturized monitor or TV screen that has been adapted to the preferences of its mobile connected users.

However, despite the variety in the field of digital development, there are also products which have not been able to adapt to changes in the pattern of demand – and which therefore represent a dead end from an evolutionary perspective. Examples include the home computers from Atari and Commodore, the PDAs from Psion and Palm and the Newton from Apple. Similarly, traditional scanners and dot matrix printers, for example, belong to a "species” that can only survive in certain narrowly defined niches.

The internet as a driving force

The mass medium of the internet, with its overwhelming variety of blogs, online communities, social networks and shopping opportunities, is a major driving force behind the varied design of digital products. Since the content of individual internet usage is different and the way in which this content is accessed varies at local, regional and global level, products must therefore be designed accordingly. Screens are a good example of this. On the one hand, displays designed for stationary use are becoming increasingly large: there are now huge public screens for watching football matches in public and TV sets have reached sizes of 32 inches or more. On the other hand, there is a trend towards miniaturization when it comes to mobile devices. Manufacturers are already producing mobile phone displays with 3 to 4-inch diagonals and netbook screens with 10 to 13-inch diagonals.

It is interesting to note that up to now – similar to a selective process of evolution – only one product category has been able to assert itself on the market for each display size. For example, screens with 13-inch diagonals are almost exclusively produced for netbooks, and 7-inch screens are currently only used for the new generation of tablets. This is reminiscent of Darwin’s finches on the Galapagos Islands. On each island, the birds developed to form an independent, new species of finch, and to this day the individual species can only be found on their respective islands. The shape of their beaks, their plumage and their body size adapted to the natural conditions of their habitat.

AIO: future market

In connection with the trend towards miniaturization and the integration of functions, it seems likely that a novel category of all-in-one products (AIO) will crowd out a series of specialized product categories. However, this is only true in certain areas, for example, in the office segment. The sales share of multifunctional products that are simultaneously printers, fax machines, scanners and photocopiers has risen worldwide from 38% to 64% over the past five years – and it will continue to increase. On the other hand, there are a series of AIO products, such as fridges with an integrated display screen and internet access, for which sales success still seems a long way off.

For AIO computers, which combine the monitor and central processing unit in one case, the integration of individual products was only successful after a certain amount of time. This segment, which includes the Apple iMac for example, was for many years a niche market among private users – until recently. Today, AIO computers are the primary growth segment among desktop computers, recording high double-digit growth figures worldwide: in 2010 alone, global sales rose by around 85%.

 

The share of AIO computers in the total volume of desktop PCs sold worldwide now exceeds at 11%, whereas it was just under 1% in 2005. So what brought about this fundamental change in patterns of demand in just under six years?Firstly, manufacturers succeeded in tapping new target groups with a considerably more aggressive pricing policy. Secondly, there was also a change in the way in which people viewed computer use. Whereas at the end of the 20th century, consumers still planned to use a monitor for around seven years and therefore for nearly twice as long as a computer (i.e. the central processing unit), the usage cycles for which these two individual products are used have become increasingly similar: in this short period of time, the replacement cycles of PCs have increased from two or three to about six years.

For the integration of individual functions with an equal value, the "harmony” best practice rule can be identified: AIO products have a high probability of success if the usage scenarios of the combined devices are aligned with each other in terms of usage.

Conversely, in cases where the functions being integrated do not have an equal value, but rather a dominant main function is being merged with a series of less dominant side functions, the "security” best practice rule tends to apply: AIO products have a high probability of success if the perceived side functions help to make the product more future-proof in terms of usage. The 3D function of TV sets, the photo and video functions of mobile phones and the capacity of computer technology to be upgraded are classic examples of this.

Some leopards have spots, others are completely black

On the basis of the Darwinian principle, digital evolution ensures that where two similar product types exist side-by-side, they are as different as possible in terms of usage in order to occupy separate market niches.

Black panthers are leopards that have adapted to their natural surroundings The fear that, in future, multifunctional all-in-one products alone will dominate the markets contradicts this principle. These products too will only succeed in occupying certain niches. Just as in nature there are some spotted leopards and some completely black panthers (because, unlike many other species of big cat, they live in both open grassland and dense vegetation), so digital products will adapt their shape, color, design and functionality to their usage scenarios.

In order to successfully occupy niche markets or "habitats”, manufacturers must always ask themselves: cui bono? For whose benefit? For instance, the age of the users, the need for simple handling, usage flexibility, the range of functions and even ecology can all be influencing factors that trigger new product developments. In this way, however, the digital world is completely different from the world of the leopards – because these creatures are now on the red list of endangered species.