Over the past year, we’ve told banks that some of them would become custodians. We’ve told insurers that many of them would be forced to specialise. We’ve told wealth management firms that many would shrink. We’ve done this to show them how digital disruption could savage retail financial services, just as it has done with the music and publishing industries.
But we don’t want to be just the bearers of bad news: We want to help you deal with new players like peer-to-peer lending platforms and even Google entering retail financial services. And to be fair, it’s not all bad news. There are plenty of companies out there using digital innovation to meet their customers’ financial needs in new and better ways. Take for example BBVA which has brought its customers the virtual assistant Lola, video banking, and the crowdfunding platform called Suma. And BBVA hasn’t stopped here. The Bank is currently running the sixth edition of its Open Talent competition for start-ups most likely to affect financial services.
"When will Google launch a bank and what will it look like?" is a question I frequently hear from our banking clients. Google’s activities in digital wallets and payments, as well as its reputation as one of the most disruptive firms in the market, have obviously left many banking executives worried. Unfortunately, they’re asking the wrong question.
I’ll leave aside the issue of whether Google or perhaps Apple or Amazon should be the focus of this increased attention. Each of these players has its unique strengths and growth plans, and some of these correlate more or less closely with financial services. That’s not what makes the question so wrong. As I write in my new report, it’s the assumptions that are faulty here; assumptions that reveal precisely the type of legacy mindset that makes many retail banks so vulnerable to disruption.
Many retail financial firms still haven’t grasped the full potential of digital disruption. They think that new competitors will use their digital might to beat them at their own game, be that through more efficient processes, brilliant algorithms or better user experience. While these three things do matter, what matters most is the purpose which they serve. As I have written elsewhere, digital disruptors like Google are disruptive because they don’t play by the rules. Instead, they use digital technologies to deliver better or entirely new ways of meeting customer needs, often bypassing regulation and re-defining a given industry in the process.
Yesterday HP announced that it will be entering into a “non-equity joint venture” (think big strategic contract of some kind with a lot of details still in flight) to address the large-scale web services providers. Under the agreement, Foxcon will design and manufacture and HP will be the primary sales channel for new servers targeted at hyper scale web service providers. The new servers will be branded HP but will not be part of the current ProLiant line of enterprise servers, and HP will deliver additional services along with hardware sales.
The motivation is simple underneath all the rhetoric. HP has been hard-pressed to make decent margins selling high-volume low-cost and no-frills servers to web service providers, and has been increasingly pressured by low-cost providers. Add to that the issue of customization, which these high-volume customers can easily get from smaller and more agile Asian ODMs and you have a strategic problem. Having worked at HP for four years I can testify to the fact that HP, a company maniacal about quality but encumbered with an effective but rigid set of processes around bringing new products to market, has difficulty rapidly turning around a custom design, and has a cost structure that makes it difficult to profitably compete for deals with margins that are probably in the mid-teens.
Enter the Hon Hai Precision Industry Co, more commonly known as Foxcon. A longtime HP partner and widely acknowledged as one of the most efficient and agile manufacturing companies in the world, Foxcon brings to the table the complementary strengths to match HP – agile design, tightly integrated with its manufacturing capabilities.
It’s been an interesting few weeks for Microsoft. XP has gone off Support and left many clients exposed to security risks. At the same time, the US Government has just warned all users to avoid using Internet Explorer (IE) versions 6 to 11 as they say that there is a serious flaw that hackers are already apparently exploiting.
Against this backdrop, Satya Nadella, Microsoft’s newly minted CEO, joined Microsoft’s recent earnings call to talk about the ‘courage’ they will exhibit as they move forward. Let’s hope that courage includes supporting clients who find themselves in difficulty from product flaws.
Microsoft reported earnings were $6.97 billion on revenue of $20.4 billion; this is roughly flat with a year ago. But this third quarter fiscal 2014 earnings call might be more memorable for the fact that the company's CEO was on the call than for anything about the earnings report itself. Nadella spent an hour on the analyst call on April 24 talking Microsoft strategy and answering Wall Street analyst questions. That's something former CEO Steve Ballmer rarely did.
While Nadella didn't make any major announcements, he did drop a few hints that might tell us more about his plans and where Microsoft may be going.
"What you can expect of Microsoft is courage in the face of reality, we will approach our future with a challenger mind set," Nadella told analysts. Here are a few challenges that spring to my mind; cumbersome and sometimes conflicting contractual paperwork, product divisions working in isolation from each other, Google and IBM competing hard in the email/collaboration/cloud space, having to cut Azure prices to more closely align to Apple and Amazon, and a frustratingly slow start in the tablet space.
When Clippy, Microsoft’s paper-clip assistant, disappeared in 1998, it was hardly missed; it was both annoying and offered little value to users. Zip forward 16 years: Microsoft has just introduced Cortana, a new personal digital assistant that the firm will launch on Windows Phone in the coming months. Powered by Bing, and about two years in the making, Cortana will be important if Microsoft gets it right. Here’s why it’s an exciting development:
Mobile-first is a growing enterprise strategy. The whole idea of creating a mobile-first enterprise strategy has taken root in many enterprises, as they recognize that users now expect any information or service they desire to be available to them, in context and at their moment of need. Users are cognitively and behaviorally ready to embrace wearable technology as an extension of mobility — and to weave it into their business processes. My colleague JP Gownder shares his views on wearables here.
Lenovo’s made three strategic moves in just one month: 1) Buying IBM’s x86 server business, 2) Reorging into four business units – most importantly including one called “ecosystem and cloud group”, and 3) Buying Motorola Mobility. The later two are driven by the mobile mind shift – the increasing expectation of individuals that they can access information and service, in context, in their moment of need. Smartphones are central to that – as are the ecosystem and cloud services that deliver value through the smartphones.
Lenovo has stated intentions to become a leading smartphone maker globally, building on their leading position in the China market. Buying Motorola Mobility is a much quicker way for Lenovo to access the premium smartphone market with a leading Google Android (not forked Android) offering - than trying to do it with their existing design teams and brand reach. Using Motorola, just as Lenovo used the IBM ThinkPad brand, to gain quick credibility and access to desirable markets, and built critical mass makes a lot of sense.
But Motorola has not been shooting the lights out with designs or sales volumes in smartphones. So the value is simply in brand recognition to achieve market recognition faster - and to dramatically expand the design and marketing team with talent experienced at US and Western markets.
Google, the online search superpower, has for years sought to maximize "eyeballs" -- in search marketing, a colloquial term for ad impressions viewed online.
Lately, though, Google's been going after a new kind of eyeballs. The literal kind.
Hot off of its announcement of a future product roadmap for smart contact lenses, Google today announced a partnership with VSP -- the largest optical health insurance provider in the United States -- for Google Glass. The New York Times quoted me saying, "the key business model of the year for wearables is becoming embedded into the health care system." By injecting wearables into health care:
The addressable market expands.VSP serves 59 million members with vision care insurance.
Costs go down. VSP will offer subsidized frames and prescription lenses tailored to Google Glass. Some VSP members save additional money on purchases with pre-tax payroll deductions for the money they spend on optical care.
Credibility goes up. By coordinating with opticians and opthamologists, Google Glass can be recognized as consistent with healthy optical practices.
This morning, as I was writing this blog post, I got an email from one of my colleagues, saying "Is it weird that since Google bought Nest, I no longer want one?" Her sentiment isn't that unusual because, as it turns out, plenty of people feel like Google + Nest = HAL. (It's hard to miss the resemblance)
My colleague Frank Gillett just published a post outlining a collection of ten key thoughts about the acquisition. As the privacy-identity-personal data wonk advising Forrester's marketing strategy clients, I thought I'd drill down on some of the more salient points for those issues.
Google’s acquisition of Nest has stirred a lot of interest and reaction, some of it misguided. After talking to lots of reporters, here are ten quick thoughts on why Google bought Nest and what it means:
1. Google bought Nest for talent and strategic perspective, not products or data. Nest is too small and not scaling fast enough to justify the acquisition. This is about getting a great team that can teach Google about a new market realm, how the Internet of Things comes into the Connected Home.
2. The price is ridiculously high – unless Google gets a huge head start on Connected Home. Google’s acquisition of Waze for $1 billion and Nest for $3.2 billion look pricey – but they are strategic bets for the long run, and can’t easily be compared.
3. Building the next generation of Google Now is the goal, not snooping on our temps, room locations and smoke alarms. The Nest Labs team will help fuel development of the next generation of Google Now as it shifts more toward proactive assistance and advice.
4. Google’s aim is to get an early start on identifying and adding software interfaces (APIs) to Gmail/Google Drive that connect it to smart products. This is not about Android in the home or about a battle for the device OS – it’s a battle for whose cloud service platform will coordinate an individual’s smart products – and their digital self.
5. Identity, privacy, and security will also crucial in building out the Connected Home. Blanket privacy policies won’t be enough. Fatemeh Khatibloo’s research on contextual privacy shows the new way that privacy and identity will have to be managed.
How much stuff do you own? The answer for most people ranges from a few changes of clothing to a large house full of possessions – your material self. It turns out that most of us also have a digital self – the information and items we create or that others collect about us. It is your footprint, your impact on the digital world. Without a digital self, you don’t exist in the world of computers and the Internet.
The era of Internet has spawned riotous new forms of business disruption as cheap tools and services combined with Internet reach and social media have empowered anyone on the planet to compete with the largest, most established businesses. James McQuivey’s reports and book on digital disruption highlight the fast rise of new hardware devices such as Microsoft’s Kinect and Apple’s iPad, and the fast mainstreaming of new Internet services such as Dropbox, Twitter, and Facebook. Companies in the business of retail, books, movies, and music have been toppled or transformed, with more to come.