3rd and 1

I played tennis with my shoe selling buddy Jack the other day. He's an in the trenches fighter (in a good way) who regularly sends me to a head sagging defeat. But in doing so, he shares some street wisdom garnered from growing up in the Bronx and earning a living each and every day, totally dependent upon his personal results.

On the court, he missed an easy shot to a wide open court and, in great frustration, yelled 'Jack, it's 3rd and 1, why did you go for such a showboat shot, all you needed to do was get the ball into the court'!! That got me thinking, this is business.

Business Insider had a great chart showing the market share of computing devices (including smart phones), in year 2000, today and projected for 2011. It vividly shows the way smart phones have paved the way for a platform software shift away from MSFT and towards Apple/Google/RIM. In my mind, this chart is the result of strategic, and product thinking that contrasts a 3rd and 1 mentality from a go for the long gain.

For most of the decade '00 MSFT product planning has been around an incremental extension of the Windows platform to other devices. The thinking was wherever there's a processor, there's a need for a double tapping invoked Windows operating system for your Tablet, phone, set top box,automobile, etc. For many reasons, the device was made to fit Windows and not optimized for the market's potential. The environment of the day, exerted absolutely no pressure or reason to invest in, or to undertake a task, that required thinking about a new metaphor. The market share numbers in any of these markets did not justify the risk to earnings, 'forking' of development, or mission clouding that go with taking a long shot. After all, phones were not like the existential risk Netscape posed to the desktop franchise. No need to turn the ship and embark on an 'embrace and extend' product driven strategy. For devices, extend was good enough. For Microsoft, it was 3rd and 1 thinking.

On the other hand, post IBM PC, Apple (until the later half of the decade) has been forced to think out of the box and to go for the long gain/game changing play. A 5% market share is just not a sustainable business. They have built this franchise by fundamentally disrupting existing markets (e.g. the moribund mobile arena), or by creating a new market (iTunes). With the impending announcement of the next generation iPhone, it's appropriate to look at its success being as much attributable to its initial ground breaking design, as well as the drive to continually improve the device by offering enhanced value for the customer.

As an investor in many young software/internet companies, I often look at ideas and try to focus on whether the prospects real value represents a fundamental new way of doing things (a market), or does it represent a nice enhancement to an existing market (a feature). If the later, then it's greatly exposed to being rapidly subsumed by larger players and the potential/mindset for a near term exit is critical. As an example, I think the market will shortly determine if Foursquare's location based implementation represents something fundamentally differentiated, or is it really a '3rd and 1' feature that will be subsumed by Yelp, Facebook, and a host of others. Time will tell.