The Rise and Fall of Silicon Graphics

I remember Clayton Christensen mentioned that Andy Grove invited him to Intel to talk about how to deal with the dilemma, and interrupted Christensen while he was talking and said something like "I know the problem, and I need you to tell me the solution". Similarly, Peter Drucker repeatedly mentioned one of the biggest challenges in business is "killing the cash cow". Along that line, Netflix's Reed Hasting is really amazing. He somehow managed to kill the DVD business and used it to milk the streaming business, when almost everyone in the industry and some of his lieutenants in Netflix didn't believe him.

For a while you could view Netflix online and rent DVDs from them.

Oh dang, I thought you still could. Looks like they shut down the DVD rentals about 6 months ago.

Yes and:

These years later, while the innovator's dilemma thesis describes what, there's still little treatment of why and how.

I keep wanting someone to account for the roles of investment and finance.

Amazon's innovation was lower cost of capital. They convinced investors to wait for returns. And they got a massive tax holiday. (How could they not succeed?)

Ditto Tesla, with its saavy moves like govt loans, prepurchases, tax incentives, and selling direct.

That cheap capital was necessary, but not sufficient. Both still had to create products customers wanted.

I keep coming back to Apple. How'd Apple avoid the trap? Despite their terrible position. My guess is better financial strategy (if that's the right phrase). Apple focused on margins (and monosophony) instead of market share. And then leveraged their war chest to implement monosphony.

There are now a couple of smaller disc-by-mail startups who aim to serve that market. I've signed up with DVDInBox out of Florida and they've done a good job thus far.

From what I've seen their biggest current challenge is their mailer. Netflix spent a lot of time designing their signature red envelopes, working with the USPS on ensuring they would survive a trip through the postal sorting machines. DVDInBox has yet to reproduce it - their envelopes sometimes arrive fairly mangled, or have not arrived at all (lost to the bowels of the machines).

Apple also did not hesitate to kill their cash cow, supplanting the iPod with the iPhone (an observation made, I think, by Horace Dediu).

Apple also recognized one of its big problems was marketing to the end user, in particular in big box stores where not many people knew and appreciated what Macs could do. Creating their own stores created innovation and an experience, rather than less than knowledgeable staff and price tag comparisons against the latest Dell PC. That meant letting go of some of the traditional stores and the chain of legacy Mac resellers. Of course, now, you can get Macs at Costco.

Investors only 'wait' if you can show revenue growth and large market.

Tesla was very capital efficient compared to how hard the task was, only just enough to get the next product out. By the time they were making big loses, you could see the Model 3 was gone turn around once they reached scale. There was always a clear story of if we do X next, that means Y.

> I keep coming back to Apple. How'd Apple avoid the trap?

I think by changing CEO radically at the right time. Whatever was gone work for Apple, it wasn't any of the typical things you would think off. I'm not at all a Jobs fan, but I don't think many people could have turned it around.

Jobs had the ability to come back and radically shift the company. They also had the benefit of 20 years of loyal costumers, maybe the biggest asset Apple had was their loyal costumer base (or captured market). Personally I can say my dad was a complete Apple fan, he would just buy Apple. He simply didn't care the higher performance or any of the other things.

Apple’s limited SKUs let them maximize their economies of scale. When Jobs took over, despite teeny market share, products like iMac and iBook were #1 in shipments, compared to Dell and their 300 models.

iPod was killed quite late into iPhone era, when the sales have plummeted to unsustainable levels.

By “killed” GP means “cannibalised” not “cancelled”. They out-competed the iPod while it was still hot.