As soon as you get to a single physical piece you have inventory risk and also almost everything is contract manufacturing and that means a trip to China. Finding a partner there is just so difficult.

It was interesting to see how many folks are around that can help like lowvoltagelabs.com and of course maker faire. Just shows that there is lots of interest in low cost manufacturing and this cross over between hardware and software.

There isn’t as they say an review site for factories which is is what makes it hard.

Makes me want to do anything that minimizes risk like the $10m contributed to the pebble watch. Quite a few have broken a million dollars. Watches have been hot.

Quirky also takes ideas and tries to manufacture and promote it.

Others are Oya which is a local game console company. The Form1 which is a 3D printer.

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One of us (you can guess which!) even ran a consulting business for a while. We had a chance to interview some consultants and what we basically learned is that there a couple of key ways to turn a massive drag race into a stealth play. A niche where you can win. We learned there are three parts

The first and most important. Figure out the megatrend. It is much easier to consult into a growing market than one that is falling. So look around your industry and ask that gets you to a classic gap analysis.

I. What is everyone talking about and what is the big idea that they are staying. Big data. Cloud. 4g.

II. What do people think is just impossible and can’t be done easily. That’s the gap.

III. It is actually hard to just go from a small $5k assignments to a really big firm. You might never go there but somehow people who believe they are following a big dream have that passion and it is a test of big markets we talked about above.

Here is what we learned is the key is finding a relatively small gap in the market and then building:

1. Specific Tools. It is important to be good at something that is a specific deliverable. Something simple like a 24-hour assessment of the state. Or a specific methodology that gets to a good presentation. Having this vs general tools. That’s what later becomes books and slides and other things.

2. Specific Expertise. Build your street credibility as a general pundit. That means being able to be seen in the industry broadly as someone with expertise on a specific topic. These days that is about being at the right conferences and also about good work in the blogosphere. It is far more valuable to be an expert on mobile payments schemes for retail than a general IT expert.

3. Specific Clients. One fellow said it very well. It helps to start close to home. That is the best way to find gaps in tools and expertise is to engage in specific clients. If the area is super open that may mean there a million potential customers but most consulting is referral based so that means that you have to build the first client and get a good referral. The people who are leaders in a trend don’t you. The laggards won’t know what you are talking about. So you have to find the middles.

So how do you get from here (reading this at a Starbucks) to being Stephen Covey. Well first is a big topic that someone cares about. Something that is obvious to a top level CEO type that someone needs. Here are some of the tricks we’ve learned

A. Start with a taste test. On day one. Your value is zero so you really want to be useful first and then have people want more. And this is needed to start the referral pipeline. They need a small thing with one concrete result.

B. Start in your wheelhouse and extend to a big trend. If you’ve spend 20 years writing oracle software, don’t become a strategy consultant. Be a “bring oracle traditional ops to big data” is a good example.

C. Go to trade shows and meeting and get on the current pundit blogs bid they are bemoaning something figure out how you fill out. And finally this is where the referral network starts.

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The digital camera business is clearly one of these. For decades mechanical cameras were similar and dominated by a high end duopoly of Canon and Nikon with Minolta as the dark horse.

They were standards built on the great platform of their lenses. In razor and razor blade fashion, you could spend $30k on lenses and then be trapped forever more as a Canon or a Nikon person. A lense would last literally for decades.

Then came the digital revolution. It meant that the initial digital models looked just like their mechanical film brethren. I had a Nikon f80. (I need to find it again) bought incredible Nikon glass like their incomparable 70-200. And it was painful to switch to Canon.

With these digital cameras came TSE who realized that they didn’t have to follow the dimensions of the big cameras. In particular the so called mirror-less cameras came out.

In the beginning these were point and shoots with very small sensors that couldn’t hope to match the quality of a 35mm film. But silicon moves ahead and with digital came the replacement of optical viewfinders with touchscreen a and displays ripped out of high volume mobile phones. The first players were stealthy. They were adjuncts to the prosumer cameras. Like my first canon point and shoot. It was 3 megapixels and no match for a film camera.

The platform leaders responded with their strengths and built a whole digital line around their lenses. But the upstarts kept coming with higher quality and more important none of the size limitations of having to be optical.

Today the world is again Balkanized. Nikon and Canon don’t have competitor systems because they need to defend their high end turf so instead the prosumer is switch en masse to a whole set of players.

Sony, never a player at the high end, acquired Minolta and then built a whole family of Mirrorless and digital cameras around their new E-mount. These cameras were light and small and had quality very close to their bigger brethren. Moreover they shared technology with dedicated video cameras.

Two smaller vendors Olympus and Panasonic joined forces to create a micro-4/3 mount which is much smaller but therefore much lighter. And image quality was very close because lenses could be designed with less cost and more importantly they out big processors in their cameras to do everything from image stabilization to correction of know lense defects. Fuji innovated on sensors and also created their own mount system.

In the end we now have a drag race for the next set of prosumer standards. Nikon and Canon still don’t complete while my four best camera buddies have evenly divided into a Olympus fan, a Fuji fan. A Samsung dabbler and me. I’m just dithering away looking for a market leader.

In the end the cycle has begun again but this time focused on lenses for these new mounts. Who will win, well that’s what a drag race means. It isn’t clear.

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This is a great example of how one market and intrude on another. A reverse kind of stealth play when something enters the market from a completely different direction.

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So for example, using an iPod nano as a watch is a good example. They needed $10k and raised more than $900K. But the bigger import is understanding that people want gadgets like this. 

The D16 is another example. It is a low cost camera in the tradition of 16mm cameras. Not every filmmaker can afford a $30K Canon C100 camera, so like the old days of 16mm, they have found a stealth play that undercuts the traditional and very expensive Sony, Canon and Red hegenomy.

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Another good sign for new entrants, do something simple that fits at a great price point and the internet will take over and sell it for you…

Canon recognised a need for large sensor cinema cameras but priced them for Hollywood and left DSLRs to rot. With Canon it seems they have tunnel vision. The announcement of the 4K DSLR with no 4K 25p, only 24p proves this. Nobody outside Hollywood or Japan exists! It is like building a car for a worldwide market and having it leave the factory with 3 wheels. Some, like Nikon, took 3 years to realise there was even a market! Some like Red aimed at the market but failed and went back to the Hollywood glitterati, their natural home. Blackmagic Design meanwhile could so easily have priced this raw camera at $10,000 and still sell out but the fact they didn’t is hugely significant.

The Blackmagic Cinema Camera may well clean up. DSLRs have a serious rival now.

 

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And it was great for end users. Not only because it drove system costs down, but it also created a rich market of add-on products — everyone could mix and match hardware to create their optimal system, whether they cared about cost or performance or maintainability or upgradability or whatever. Corporations could spec out and build standard low cost machines, enthusiasts could build super-tweaked machines, verticals could build out specialty machines, all on the same open hardware platform.

In the last 15 years, though, the market has shifted dramatically towards the laptop form factor. This shift has been a relative disaster for MSFT. The industry has moved away from an open hardware chassis with mix-and-match components, to closed tightly-engineered all-in-one machines. This shift has played to Apple’s strengths in design and integration and has negated many of the benefits of the PC ecosystem. The PC industry is still struggling to figure out how to regain design and profit momentum — Intel’s Ultrabook effort being the latest scheme. But the Ultrabook is just a direct response to the MacBook, it does nothing to recapture the open hardware experience of the 90s.

The open hardware community still exists in various forms, but is no longer focused on the PC platform and is not much of an asset for MSFT. Enthusiasts still build PCs, mostly for gaming — Maximum PC for instance has a good guide to components, Newegg is the place to buy. But this isn’t mainstream any more. The “maker” community is vibrant but is focused on other platforms largely — Arduino, the Kickstarter community, etc. The vibe and energy around open hardware is great, but it is no longer tied to the PC experience and is no longer an asset for MSFT.

MSFT has always been great at chasing taillights and is hard at work supporting the Ultrabook, competing with the Apple stores at retail, pushing Windows Phone, etc. But chasing Apple’s taillights results in products that are more and more like Apple’s — fully integrated hardware/software/services, a captive retail experience. MSFT has to do all this, the mainstream of the market is here, but there is nothing distinctive about the resultant products and experience. The Ultrabook/Windows/Microsoft Store products may equal the Apple experience, and may offer users a few more choices of hardware brands (does anyone care?), but the experience won’t stand out. Necessary work but not sufficient to recapture thought leadership in the market — at the end of the day, MSFT will be able to claim parity but no more than that.

If I was in a leadership role at MSFT, I’d invest in strategies to recreate the open hardware platform dynamic around the Windows platform. It is not obvious how to do so with the laptop and tablet as the mainstream platform, but I would spend $100s of millions trying. MSFT clearly has the cash to spend on new frontiers and new adventures, a couple hundred million on an effort to change the basis of competition in the PC market seems like a wise bet, even if it fails.

How about putting a “maker’s corner” in every retail store with modified cases and modified machines, maybe even workshops? Get the energy of the PC gaming community into the store, let people see this energy. How can the laptop design be modified to support add on hardware — super high speed optical expansion busses, wireless high speed expansion busses, novel expansion chassis ideas? Sifteo cubes are kind of cool, can this idea be used to provide hardware extensions to laptops? Are there other ways to “snap on” hardware to extend the laptop or tablet, using bluetooth or induction or other mechanisms? Can MSFT seed the maker community with funds or tools? Can MSFT embrace Arduino somehow, or Kickstarter? Could the PC be the hub for thousands of Arduino-based sensors and actuators and gadgets? These ideas are all admittedly poorly thought out, and I am not sure any one idea is right, or if any will work. Rich astutely observes that the days of an open hardware platform may be behind us permanently, just as the glory days of car tuning and hotrodding are behind us.

But I would spend a lot of money chasing after any idea that would move away from closed all-in-one hardware designs, and I would experiment with many ways to reinject open hardware dynamics back into the PC/tablet market. Ultrabook is not this — it is a fine and adequate taillight chaser, but it won’t shift competitive balance back in MSFT’s favor.

This is not the only reason for MSFT’s stagnation in the last decade, there are many other aspects to consider, but the dwindling of the open hardware ecosystem has been a loss of MSFT. For another take on Apple’s success against MSFT in the last decade, check out Rich’s analysis — the observations about vertical vs horizontal integration ring true.

(This post replicated in part from John’s personal blog)

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Apple started out as just another PC company in the sense that there were dozens. It was distinctive in that it like the other systems back then ran in a drag race with its own hardware, processor, software and peripherals.

In the end apple lost to the weight of industry horizontal integration and scale. Intel could invest far more in processors then Motorola and then IBM. Tcp/ip networking had far more volume than AppleTalk. Same for FireWire vs USB. Mac OS vs all those Windows apps

The miracle was Steve took the company from a losing drag race to running a stealth add-on play. He ended up getting the economies of industry standard hardware and software by adopting pci bus, unix, USB, tcp/ip, etc. and most of all in allowing migration (eg rosetta to run old apps) but not being a slave to (eg discontinuing support in 3-5 years).

That let him win in important niches so converting to a stealth segment play. Notably education and graphics design.

But the real innovation at that point was the conversion back to a full drag race with the introduction of the iPod, MacBook, and iPhone. Each of these were best of breed products at rock bottom prices that won on innovation and vertical integration. From the retail stores to AppleCare to the iTunes store, the products were simply easier to use

And because they had manufacturing economies they were low cost leaders. So even at rock bottom prices, they generated enormous cash.

The amazing thing has been to see the companies with the money not invest their dollars but in a horiZontally integrated world, it is very hard to beat a vertically integrated company if it is nimble. There r simply too many organizational boundaries to be crossed. And most importantly the richest companies are hurt last so while they should be responding first, first their ecosystem dies and then they fight when they lose their most important allies, their partners.

So here we are with apple worth more than Microsoft, intel, Sony and Nokia combined. Wow.

What’s next? Well they have converted their drag race into a platform war. Now apple has development resources focused on iOS (underneath that is Unix) and they are converging OS X with iOS so they will have a single platform an software store as well as hundreds of millions of Apple store customers they touch directly.

And with their push into the home most likely following the iPhone model of close integration with wireline broadband providers and content, it looks like the horizontally integrated consumer electronics providers are next.

It is the ultimate model of one platform for phones, tablets, computers and soon televisions. Wow.

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