Back in 1992, after the Berlin Wall fell and communist states were toppled one after another, Francis Fukuyama authored and published a book entitled The End of History and The Last Man.  It received much press at the time for its bold and seemingly definitive statement (specifically that whole ‘end of history’ thing with the thesis that capitalist liberal democracy is that endpoint). The result was much press, discussion, discourse and theorizing and presumably a higher sales volume for a book that likely still graces many a bookshelf, binding still uncracked.  Now it’s my turn to be bold.

Here it is:

With the advent and popularization of the smartphone, we are now at the end of custom personal consumer hardware.

That’s it.  THE END OF HARDWARE.  Sure there will be form factor changes and maybe a few additional new hardware features but all of these changes will be incorporated in smartphone handsets as that platform.

Maybe I’m exaggerating – but only a little.  Really, there’s not much more room for hardware innovation in the smartphone platform and as it is currently deployed, it contains the building blocks of any custom personal consumer device. Efforts are clearly being directed at gadgets to replace those cell phones.  That might be smart watches, wearable computers, tablets or even phablets. But these are really just changes in form not function.  Much like the evolution of the PC, it appears that mobile hardware has reached the point where the added value of hardware has become incremental and less valuable.  The true innovation is in the manner in which software can be used to connect resources and increase the actual or perceived power that platform.

In the PC world, faster and faster microprocessors were of marginal utility to the great majority of end-users who merely used their PCs for reading email or doing PowerPoint.  Bloated applications (of the sort that the folks at Microsoft seem so pleased to develop and distribute) didn’t even benefit from faster processors as much as they did from cheaper memory and faster internet connections.  And now, we may be approaching that same place for mobile applications.  The value of some of these applications is becoming limited more by the availability of on-device resources like memory and faster internet connections through the cell provider rather than the actual hardware features of the handset.  Newer applications are more and more dependent on big data and other cloud-based resources.  The handset is merely a window into those data sets.  A presentation layer, if you will.  Other applications use the information collected locally from the device’s sensors and hardware peripherals (geographical location, speed, direction, scanned images, sounds, etc.) in concert with cloud-based big data to provide services, entertainment and utilities.

In addition, and more significantly, we are seeing developing smartphone applications that use the phone’s peripherals to directly interface to other local hardware (like PCs, projectors, RC toys,  headsets, etc.) to extend the functionality of those products.  Why buy a presentation remote when you get an app? Why buy a remote for your TV when you can get an app? Why buy a camera when you already have one on your phone? A compass? A flashlight? A GPS? An exercise monitor?

Any consumer-targeted handheld device need no longer develop an independent hardware platform.  You just develop an app to use the features of the handset that you need and deploy the app.  Perhaps additional special purpose sensor packs might be needed to augment the capabilities of the smartphone for specialized uses but any mass-market application can be fully realized using the handset as the existing base and few hours of coding.

And if you doubt that handset hardware development has plateaued  then consider the evolution of the Samsung Galaxy S3 to the Samsung Galaxy S4.  The key difference between the two devices is the processor capabilities and the camera resolution.  The bulk of the innovations are pure software related and could have been implemented as part of the Samsung Galaxy S3 itself without really modifying the hardware.  The differences between the iPhone 4s and the iPhone 5s were a faster processor, a better camera and a fingerprint sensor.  Judging from a completely unscientific survey of end-users that I know, the fingerprint sensor remains unused by most owners. An innovation that has no perceived value.

The economics of this thesis is clear.  If a consumer has already spent $600 or so on a smartphone and lives most of their life on it anyway and carries it with them everywhere, are you going to have better luck selling them a new gadget for $50-$250 (that they have to order, wait for learn how to use, get comfortable with and then carry around) or an app that they can buy for $2 and download and use in seconds – when they need it?

Everyone who is anyone loves bandying about the name of Clayton Christensen, the famed Professor of Business Administration at the Harvard Business School, who is regarded as one of the world’s top experts on innovation and growth and who is most famous for coining the term “disruptive innovation“. Briefly, the classical meaning of the term is as follows. A company, usually a large one, focuses on serving the high end, high margin part of their business and in doing so they provide an opening at the low end, low margin market segment.  This allows for small nimble, hungry innovators to get a foothold in the market by providing cheap but good enough products to the low end who are otherwise forsaken by the large company who is only willing to provide high priced, over-featured products.  These small innovators use their foothold to innovate further upmarket providing products of increasingly better functionality at lower cost that the Big Boys at the high end.  The Big Boys are happy with this because those lower margin products are a lot of effort for little payback and “The Market” rewards them handsomely for doing incremental innovation at the high end and maintaining high margins.  In the fullness of time, the little scrappy innovators disrupt the market with cheaper, better and more innovative solutions and products that catch up to and eclipse the offerings of the Big Boys, catching them off guard and the once large corporations, with their fat margins, become small meaningless boutique firms.  Thus the market is disrupted and the once regal and large companies, even though they followed all the appropriate rules dictated by “The Market”, falter and die.

Examples of this sort of evolution are many.  The Japanese automobile manufacturers used this sort of approach to disrupt the large American manufacturers in the 70s and 80s; the same with Minicomputers versus Mainframes and then PCs versus Minicomputers; to name but a few.  But when you think about it, sometimes disruption comes “from above”.  Consider the iPod.  Remember when Apple introduced their first music player?  They weren’t the first-to-market as there were literally tens of MP3 players available.  They certainly weren’t the cheapest as about 80% of the portable players had a price point well-below Apple’s $499 MSRP.  The iPod did have more features than most other players available and was in many ways more sophisticated – but $499?   This iPod was more expensive, more featured, higher priced, had more space on it for storage than anyone could ever imagine needing and had bigger margins than any other similar device on the market. And it was a huge hit.  (I personally think that the disruptive part was iTunes that made downloading music safe, legal and cheap at a time when the RIAA was making headlines by suing ordinary folks for thousands of dollars for illegal music downloads – but enough about me.)  From the iPod, Apple went on to innovate a few iPod variants, the iPhone and the iPad as well as incorporating some of the acquired knowledge into the Mac.

And now, I think, another similarly modeled innovation is upon us.  Consider Tesla Motors.  Starting with the now-discontinued Roadster – a super high end luxury 2 seater sport vehicle that was wholly impractical and basically a plaything for the 1%.  But it was a great platform to collect data and learn about batteries, charging, performance, efficiency, design, use and utility.  Then the Model S that, while still quite expensive, brought that price within reach of perhaps the 2% or even the 3%.   In Northern California, for instance, Tesla S cars populate the roadways seemingly with the regularity of VW Beetles.  Of course, part of what makes them seem so common is that their generic luxury car styling makes them nearly indistinguishable, at first glace, from a Lexus, Jaguar, Infiniti, Maserati, Mercedes Benz, BMW and the like. The choice of styling is perhaps yet another avenue of innovation.  Unlike, the Toyota Prius whose iconic design became a “vector” sending a message to even the casual observer about the driver and perhaps the driver’s social and environmental concerns.  The message of the Tesla’s generic luxury car design to the casual observer merely seems to be “I’m rich – but if you want to learn more about me – you better take a closer look”. Yet even attracting this small market segment, Tesla was able to announce profitability for the first time.

With their third generation vehicle, Tesla promises to reduce their selling price by 40% over the current Model S .  This would bring the base price to about $30,000 which is within the average selling price of new cars in the United States.  Even without the lower priced vehicle available, Tesla is being richly rewarded by The Market thanks to a good product (some might say great), some profitability, excellent and savvy PR and lots and lots of promise of a bright future.

But it is the iPod model all over again. Tesla is serving the high end and selling top-of-the-line technology.  They are developing their technology within a framework that is bound mostly by innovation and their ability to innovate and not by cost or selling price.  They are also acting in a segment of the market that is not really well-contested (high-end luxury electric cars).  This gives them freedom from the pressures of competition and schedules – which gives them an opportunity to get things right rather than rushing out ‘something’ to appease the market.  And with their success in that market, they are turning around and using what they have learned to figure out how to build the same thing (or a similar thing) cheaper and more efficiently to bring the experience to the masses (think: iPod to Nano to Shuffle).  They will also be able thusly to ease their way into competing at the lower end with the Nissan Leaf, Chevy Volt, the Fiat 500e and the like.

Maybe the pathway to innovation really is from the high-end down to mass production?

In a previous post, I admitted to the fact that I was ignorant of or perhaps merely immune to the magic of the iPad.  Since that time, through a series of discussions with people who do get it I have come to understand the magic of the iPad and also why it holds no such power over me.  

Essentially, the iPad is a media consumption device.  It is for those who consume movies, videos, music, games, puzzles, newpapers, facebook, MySpace, magazines, You Tube and all of that stuff available on the web but do not have a requirement for lots of input (typing or otherwise).  You can tap out a few emails, register for a web site but, really, it’s not a platform for writing documents, developing presentations, writing code or working out problems and doing analysis.  That is unless you buy a few pricey accessories.

The pervasive (well, at least around here) iPad billboards really say it best.  They typically feature casually attired torsos reclining, with legs raised, bent at the knees to support the iPad.  These smartly but simply dressed users are lounging and passively consuming media.  They are not working.  They are not developing.  They are not even necessarily thinking.  They are simply happy (we think – even though no faces are visible) and drinking in the experience.  You are expected to (lightly) toss the iPad about after quickly reading an article, keep it on your night stand for those late night web-based fact checks, leave it on your coffee table to watch that old episode of Star Trek at your leisure or pack it in your folio to help while away the hours in waiting rooms and airports.

But this isn’t me. I am more of a developer.  Certainly of software, sometimes of content.  I like a full-sized (or near full-sized) real keyboard for typing.  If I need to check something late at night, my cell phone browser seems to do the trick just fine.  I can triage my email just fine on my cell phone, too.  So, I am not an iPad.  At least not yet.  But if it really is only a consumption platform then not ever.  But one never quite knows what those wizards in Cupertino might be conjuring up next, does one?

My world is about to change but I fully admit that I don’t get how. That’s right…everything changes this Saturday, April 3rd when the Apple iPad is released. Am I the only one who looks at it and thinks of those big button phones that one purchases for their aging parent? Yes, I know Steve Jobs found the English language lacking sufficiently meaningful superlatives to describe it. And, yes, I know there will be hundreds of pre-programmed Apple zombies lining the streets to collect their own personal iPad probably starting Friday evening. But, I don’t understand why I would want an oversized iPhone without the phone or the camera or application software or a keyboard and why and how this gadget will change civilization. Don’t get me wrong, I know it will. But I don’t see how the iPad will revolutionize, say, magazine sales. Why would I buy Esquire for $2.99 when I get the print version for less than $1 and throw it out after reading it for 30 minutes (full disclosure: I am a subscriber – I admit that freely)? I also know I can’t take the iPad to the beach to read a book because it will get wet, clotted with sand and the screen will be unreadable in sunlight. But, I’m sure the iPad will be a huge hit. And I’m sure my life will change. Just tell me how. Someone…..please….?