Friday, May 30, 2008

Motorola's Innovation Problem

Clayton Christensen

Jack Gold, J. Gold Associates 02.01.08, 5:15 PM ET

Schaumburg, Ill.-based Motorola just announced that it is exploring options to renew its financial health, including possibly selling its mobile-handset business. Despite Moto's many problems, I don't think this makes much sense for a number of reasons.

Motorola is having some significant problems in the cellphone market, and has been for some time. Moto seems to have lost its motivation to innovate. The introduction of the RAZR line of handsets took the market by storm with its unique form factor and ergonomics. It was a come-from-behind product when Moto was down in the market. But that was several years ago. What has Motorola done since that has caught on in the market?

Meanwhile, Nokia, LG, Samsung, etc. have all moved on, competing with Moto and offering new enticing products that have built market share. Even Research in Motion's BlackBerry has gained market share at the expense of Moto. Motorola is now seen as the boxy car company while Nokia is seen as building sleeker sports cars (along with LG and Samsung).

And that is Moto's biggest problem. The company needs to come up with a winner to follow the RAZR, and it hasn't. Further, Motorola has a disjointed product line at this point, with hundreds of different phones, different styles, different operating systems (OS) and even different user interfaces, and most of them not very competitive. It needs to consolidate around a few efforts and take them forward in a concentrated matter, rather than trying to be everything to everyone and not doing it very well.

As for competitors and general strategy, Moto has a real problem, and not just from Google's new Android consortium (of which it is a member) or from the sleek iPhone from Apple. It just has too many platforms! Motorola currently has or is working on Symbian, Linux, Windows Mobile, Moto proprietary, Linux and soon Android operating systems. That's way too many to manage and creates a dilution of precious resources. No wonder it has so much trouble building a compelling product!

However, Motorola does need to play in the Linux space, as open source will be a major component of the emerging markets. But users could not care less what the OS is (do you know what the OS on your phone is?). What they want is functionality and ease of use. No one really cares what the OS of their car is, or of their DVD player or HDTV. It's about usability and functionality. That is why the iPod did so well--no one asked about its OS, but loved its functionality and the way it fit into their lifestyles. That is the puzzle piece Moto is currently missing.

But splitting off its cellphone business seems pretty drastic, like cutting off all your arms and legs. What would Moto be without the phone business, which represents the majority of its revenues? I could see potential spin-offs of some of the other businesses the company has acquired recently (like Symbol or Good Technology, which are actually making money and could generate significant cash). It was a good move to make when Moto was in better shape, but investing management time to make sure those and other businesses succeed when its core business needs so much attention may not be a good idea.

Regarding the speculation about its phone business spin-out, I suspect the statement was really made more to relieve pressure in the system than anything else. I would be shocked to see Motorola do it, but saying it is thinking about it allows the company to stifle some stockholder criticism. And I can't see anyone wanting to buy the business. Many companies are exiting the cellphone business, saying it has become too competitive and too hard to make a profit. The majors (Nokia, Samsung) probably wouldn't want the Moto business, and the smaller players (Kyocera, Huwai, etc.) probably couldn't afford it.

So I think the long-term effect is that Moto will have to rebuild its business and get its act together. In the short term, it may help Nokia somewhat. Bottom line, I don't see anyone coming along to pick up Moto's handset business in its current state.



Planet Earth is in the hot seat. Know more.

No comments: