Posts Tagged ‘en-cycling a game’

Raw War: Google ∧ Apple = 1

Google and Apple are like chess players in a smart game – their war is raw. They are as thran as a pair of cloth galluses. Both players attack: they have developed a cognitive awareness of each other as competitors and like[1] Radar O’Reilly they always know the rival strategy before the rival does. Players ought to know their weakness in a game[2]. Their weakness, paradoxically, is their rivalry. It is rational now for Apple (White) to defend iOS with selected roll-out of iNext smart pawns supporting iCloud to Apple Pay to e-SIM to iCloud Voicemail to MVNO in 2016 and beyond. But with Google (Black) in attack allowing its King’s Knight (Android) to be positioned across the chess board so as to weaken White’s centre pawns both players could be worse-off. Maybe Pushkin[3] had a point in preferring a bad peace to a good quarrel.

In this essay we try to argue that they should lose the competition and collaborate together in a partnership. Both players would be better off. Their individual success lies in the creative technologies and innovations they have created unilaterally. From the recent iPad Pro launch to Google’s voyage into wireless. Their future success, however, in the evolving complex market of artificial intelligence, cyber-genetics and autonomous devices, is mutually interdependent. Maybe Apple will buy Tesla. Maybe Google will navigate successfully the unchartered technical land of the wireless Sirens. Who cares?

Google throws the gauntlet down at every opportunity but Apple remains secretive, playing a Fabian[4] strategy of delay. Apple products can fail: who remembers Newton, Apple’s personal digital assistant? Or who remembers the Pippin game console system? Or the befuddled roll-out of its mapping service? Or that Apple TV does not support 4K? Or that Apple lags behind in the evolving complex market of artificial intelligence, cyber-genetics and autonomous devices. Covertly, Apple may have the upper-hand. Even if Apple does not have the latest device or innovation once it decides to enter a market, any market, competitors find themselves[5] in Apple’s line of fire. Who cares?

Chess Analogy

Apart from investors, twenty-first century consumers, and businesses, care. As the ipso-centric generation[6], we, as our own[7] ‘photographers, broadcasters, cinematographers, chanteuse, matchmaker and funeral director’ do care because of the impact the new innovations and technologies will have on our daily lives and in the creation of new services.

Integrating the narrative of Fred Vogelstein’s book[8] with chess strategy provides an interesting canvass on which to paint the competitive rivalry between Apple and Google. Guided by the brush strokes of non-cooperative game theory we discuss the strategy choices as moves on a chess board, Apple (White) v Google (Black) with Google (Black) as a player on the counterattack since the launch of the first iPhone in 2007. A game where it will be challenging for Apple (White) to hold on to the centre as Google attacks its Queen (iOS) quickly and swiftly, faster than any counterattack from Apple. In the discussion of a best reply for Apple (White) to counteract any perceived weakness in the game we have argued before[9] that Apple as a player should stop defending its pawn line of iPhone-iPad. The recommendation then for Apple in 2013 was to reshape strategy by playing not to lose rather than playing to win – simply, launch a[10] nano-iPhone for $100-150.

Google (Black) is intent on attacking the pawn line. So, what is Apple’s best reply today? The recommendation for Apple playing not to lose today is to acquire or develop wireless. Google (Black) has already moved into wireless, launching ‘Project Fi’ an alliance with Sprint and T-Mobile. Google’s entry into the mobile virtual network space (MVNO) has changed the game dynamics to the very core of the rivalry, the ecosystem iOS v Android.

Alekhine’s defense

The ecosystem is a zero-sum game. It is a game of attack in the style of Alekhine’s defense where Google (Black) attacks Apple’s broad pawn base with Google (Black) allowing its King’s Knight (Android) to be positioned across the chess board so as to weaken White’s centre pawns as Black continues to play vigorously.  It is a game of uncertain technical standards and software development that facilitates the arrival of spherical competitors[11] from anywhere at any time in the game.

What would a playbook look like as Apple (White) defends pawn line of iPhone-iPad against a Google inspired Android alliance with Black allowing its King’s Knight (Android) to weaken White’s centre pawns.  In the ‘I-think-You-think-I-think’ reasoning of non-cooperative game theory we could translate the Apple (White) v Google (Black) game into a payoff matrix with strategy sets S1, S2, S3 and S4. The Google payoffs (S3, S4) are in italics so best to read Table 1 as if you were an Apple executive with (S1, S2) and Google is your near-rival[12] competitor.

Attack is a Dominant Strategy

In the classic game theory of Prisoners’ dilemma both players prefer the outcome (3, 3). However attack is a dominant strategy and if both players behave rationally they will end up at the equilibrium payoff (2, 2). This is happening now in an action-reaction sequence of product launches and software updates toggling towards a point of balance in the game where both players independently of each other decide whether a new product is too geeky for it to be commoditised for the mass-market.

Payoffs (iOS, Android)

Table 1[13]: Attack Strategy for Apple (White) & Google (Black)

  S3: Defend  Android

 

S4: Attack

Smart-products

S1: Defend iOS

 

3,3 1,4
S2: Attack with Pawns –

iPhone./iPad

iNext?

 

4,1 2,2

 

The players’ secrecy, for example, in artificial intelligence may be hurting its software development. So we have to ask: are the strategies realistic for 2016? Yes. Apple (White) will (and does) continue to move pawns to centre stage, launching new smart products including the recent iPad Pro and Google (Black) will continue to engage with Nexus smartphones, AI, IoT and MVNO as re-shaping strategy set S4,.

Unbeatable Strategies

The technology game is changing. Early denials by Apple in 2010 on MVNO have changed to signals on trial and camouflage[14] allowing for a more realistic and nuanced interpretation of likely future strategies, so we include e-SIM and iCloud Voicemail in Apple’s S1 strategy set in Table 2 and ask: what if Google (Black) is looking at a payoff column in Table 2 with payoffs (2, 4) and (1, 2) with an S4 attack strategy? Why would Google think like this? Firstly, there have been plausible denials and camouflage from Apple. Also the facts speak for themselves: in the commoditised market like smartphones and tablets Apple is unique and a brand leader commanding 28% of industry profits.

Payoffs (iOS, Android)

Table 2[15] Attack Strategy for Google (Black)

  S3: Defend  Android S4:Attack

MVNO

S1:Defend iOS

With e-SIM

iCloud Voicemail

 

 

 

3,3

 

 

2,4

S2: Attack with pawns –

iPhone./iPad

iNext?

 

 

4,1

 

1,2

 

It would be rational for Google to believe that Apple would defend with iPhone-iPad pawns under a sustained attack from Google. Or does Apple have MVNO plans but delayed due to the early innovation cycle of MVNO? Probably – Apple filed patents for MVNO IN 2006.

Fabian Strategy

The Fabian delay in roll-out of MVNO would be equivalent to a Fabian strategy of avoiding a frontal attack with a sequence:

Step 1: observe the future of Sprint under Softbank management[16].

Step 2: orient strategy and then

Step 3: attack with a MVNO product offering.

This is a classic OODA feedback loop[17] in play here by Apple (White). This is a rational ‘hold-back’ play by Apple in an evolving smart innovation technology[18] game where its competitor Google (Black) castles queenside and attacks Apple (White) pawns. If Google believes that Apple believes that Google thinks like this then we recommend for Apple to play minimax[19]  strategy in order to minimise the maximum gain of Google in the zero-sum ecosystem game.

If Apple plays minimax it should continue the pawn attack because Google will play maximin in order to secure a second win[20] by forfeiting larger payoffs of 4 for a 2 in smartphones and smart products. Google will attack with S4, for example, a wireless strategy and (1, 2) is the likely outcome. Knowing this, it is rational for Apple (White) to prefer the payoff (3, 3) in Table 2. Apple (White) should not over-extend. It is rational for Apple (White) then to defend iOS now with selected roll-out from iCloud to Apple Pay to e-SIM to iCloud Voicemail to MVNO in 2016 and beyond.

Lose the Competition

Albeit, both players know that if Google (Black) MVNO strategy fails to take off or if Apple (White) is prepared to sacrifice its Queen with open source iOS the game could careen towards the Nash equilibrium. The war as described so vividly by Vogelstein might just result in significantly higher payoffs in the short term but lower long term benefits. When both Apple (White) and Google (Black) realise that[21] in this war ‘the sweetest wine, it’s a witches’ brew’ they should lose the competition and collaborate together in a partnership.

Apple ∨ Google = 0 → Google ∧ Apple = 1

Regulators will catch up  http://www.patrickmcnutt.com/blog/soft-law-google-the-coffice/ and their ‘soft law’ will not only satisfice the demands of the ipso-centric consumers but it will also facilitate the spherical competitors[22] arriving on the scene with new software developments and greater innovations – new businesses and new challenges.  A 2013 cover page[23] in Bloomberg Business Week, featuring Tim Cook, Jonathan Ive and Craig Ferderighi in a photograph had the tag ‘What, Us Worry?’ Yes, we say. Both players have developed a cognitive awareness of each other as competitors and like Radar O’Reilly they always know the rival strategy before the rival does. Know your weakness in a game. Their weakness, paradoxically, is their rivalry. Ultimately, a bad peace is[24] better than a good quarrel. So lose the competition and collaborate together in a partnership.

[1] Radar O’Reilly in the TV series M*A*S*H who always knew what his colonel wanted before the colonel did.

[2] From McNutt, P (2014): Decoding Strategy

[3] Extracted from Alexander Pushkin’s The Captain’s Daughter translated by Robert & Elizabeth Chandler.

[4] This is named after the Roman General Fabius Maximus who delayed decisions for tactical advantage.

[5] Think Roku and Spotify. Check Chanelle Besette’s article ‘Invaders from Cupertino’ in Fortune December 23 2013 Edition.

[6] Read 2012 Blog http://www.patrickmcnutt.com/blog/game-vision-you-are-your-own-irrepressible-opponent/

[7] Comment from Will Self great article ‘The Book of Jobs’ in Prospect January 2014 pp58-60.

[8] Fred Vogelstein (2013) Dogfight: How Apple and Google Went to War and Started a Revolution

[9] Check Memo to Ms Ahrendts 2013 http://www.patrickmcnutt.com/news/memo-to-ms-ahrendts/

[10] Think of ‘nano’ in the dimensions of the Moto Razr. Processor speed – think of XiaoMi’s phones in 2014 such as Hongmi IS powered by 1.6GHz quad-core Snapdragon 400 as good as and cheaper than the Samsung S3 1.4GHz quad-core Exynos 4412.  Check WIRED Magazine August 2015 article by Andrew Huang. The ‘sweet point’ on price in order to capture the 6.5b people who do not have smartphones is US $100 or less.

[11] Spherical competitors arrive at any time. Ironically, Apple in 2007 with the iPhone was a spherical competitor to both RIM and Nokia. In 2015, Chinese players like Xiaomi, TenCent, Lenovo, Huawei fit the criteria as does Amazon and Google. Check McNutt Decoding Strategy

[12] As defined in Decoding Strategy as that competitor from the sum of competitors whom you believe is more likely to react first to your move in a game. However, this does not imply that Google necessarily identifies Apple as its near-rival.

[13] For both players attack strictly dominates since 4 > 3 and 2 > 1 and 4 > 3 and 2 > 1.

[14] Check out Business Insider August 2015 on a possible Apple MVNO http://uk.businessinsider.com/apple-in-talks-to-launch-an-mvno-in-the-us-and-europe-2015-8.

[15] In Table 2 attack for Google (Black) strictly dominates since 4 > 3 and 2  > 1.

[16] Softbank is a key investor in Sprint and there may be regulatory hurdles in the US http://www.bloomberg.com/news/articles/2015-08-18/softbank-boosts-sprint-stake-again-with-73-million-share-buy.

[17] The OODA loop refers to the military strategy of observe, orient, decide and then act.

[18] SIT games are like games of attrition and fall under combat competition requiring constant defence as in McNutt’s Decoding Strategy

[19] Maximin is more commonly used in non-zero-sum games to describe the strategy which maximises one’s own minimum payoff

[20] The winning move is at the point of second win where the best reply in a zero-sum game to a minimax is the maximin strategy play.

[21] Extracted from the lyrics of Ladybird by Natalie Merchant.

[22] Competitors from anywhere in Decoding Strategy book and also : http://www.patrickmcnutt.com/blog/byte-me-on-my-app-and-the-brontosaurus-paradox/.

[23] Bloomberg Business Week Edition 23-29 September 2013.

[24] Extracted from Alexander Pushkin’s The Captain’s Daughter translated by Robert & Elizabeth Chandler.

Memo to Ms Ahrendts

MEMO

Re: Apple Inc: Play not to lose: Minimax strategy

Dear Ms Ahrendts

Congratulations on your recent appointment. We have been commenting on Apple for a number of years in this Blog, and from the perspective of game theory. You should challenge everything about the data – market share figures, consumer loyalty and the source of the competitive threat. Apple does need to refocus, to reshape its strategy in order to compete in an evolving game that exhibits both convergent technologies and rapidly changing set of consumer preferences. Are you a brand? Are you a design company or an innovator? Analysts look at Apple in terms of profit margins and a company trading on earnings estimates and revision of the estimates. With new product launches across the i-suite of products, coupled with an underlying iOS ecosystem, they look forward to new product launches, and endless queues by early adopters and loyal fans at different cities across the world. But from our perspective, observing Apple as a player in a game, we would adjudge that you are not winning the game.

Confused consumers

First of all, your product offerings are in danger of becoming nodoids: in other words, they come to represent nothing more than a roll-out across a common platform of a suite of not dissimilar products absent any innovation. Consumers are either underwhelmed or disappointed. Once they ask the nodoid question: ‘is an iPhone an iPad or is the iPad an iPhone?’ the game dynamic switches from a game of playing to win to a game of playing not to lose. This is happening. Secondly, the analysts expect the i-Watch – so what? Analysts continue to debate the next big thing. So what? Could it be IPTV or cloud solutions?  So what? You know that you are not in search, you know that you are not in digital mobile advertising, you are a late entrant into cloud services, you failed to acquire Twitter, SIRI failed, Newton failed in the 1990s and in 2013 you allow us to believe that you are not a player in IPTV.

We have argued this before #tuncnunc discussing a range of game solutions to consider: launch a nano iPhone or engage in a telecom alliance with 4G LTE providers such as China Mobile. The 5C launch is about maximising profit margins; a nano offensive play, however, would ignite a $99 ‘sweet price’ competition for full functionality smartphone devices. Forward guidance on the stock estimate above $500 may adjust for these events in 2014-15 but these events may now be too late from a game perspective to play to win the long game. In other words, no longer is it about how Apple is performing in 2013, it should be about Apple’s likely performance in 2023.

 

 

Second mover advantage: SMA & Minimax

So an alternative for you to consider in your new role is to secure the second mover advantage [SMA] by playing not to lose. First, recognise that your market shares are increasing at a decreasing rate. Correct that trend. The iPhone 5 delay, for example, created a zero-sum switch to rivals, notably Samsung, in the UK and possibly across the EU. Your smartphone market share is under threat in Asia as the convergent smartphone and tablet game evolves to become Apple’s game to lose. Start thinking like your competitors – reason like this: ‘I think-you think-I-think’: Apple thinks that Samsung expects it to defend the iPhone, so Samsung will attack the iPad. But Samsung believes that Apple will reason this way, and so assuming that Apple will defend the iPad, Samsung will attack the iPhone. But Samsung also knows that Apple will reason this way.

This line of reasoning suggests that some kind of a decision tree ‘what-if’ analysis will reveal which strategy is Apple’s optimal choice. But it is more complex than that – we argue in our new book Decoding Strategy that how either player does in the game depends on what each believes the other is likely to do. Apple has to choose to play a minimax strategy, that is, a strategy that minimizes the maximum amount Samsung can expect to get in the evolving smartphone and tablet game, and thus maximize the amount Apple can expect to win. It is for you to patch a minimax strategy into your strategic vision for 2014 and beyond. To quote T.S.Eliot: ‘What we call the beginning is often the end, and to make an end is to make a beginning, the end is what we start from’. With best wishes in t+1…..

Fiscal cliff and Kantian equilibrium

The fiscal cliff is the Nash Equilibrium [NE]..it is the best the Democrats can do given the reaction of the Republicans; they will debate big ticket items on spending asnd taxes but both know that neitherparty wants to go there  –  but it will happen if there is no compromise, according to game theory. The NE is often best understood as a ‘trap’ to avoid, but you can only avoid it, if there is compromise, and we can only compromise if I trust you and you trust me! The ethical dimension to this can be found in the answer to ‘who will compromise first’, that is, fulfil duty and take responsibility to find a Kantian equilibrium; the Kantian sequence could be observed….Move A:  I move first, then you follow: Move B: you move next and then I follow..Move C: we both observe each other as ‘taking responsibility’…How either party moves in the sequence and thus ‘fulfils duty’ depends on what each party believes the other will do…you might just be about to read these signals in the US.

Spin-0 for Apple in a French defence: from iPod to iNext or acquire a telco?

In our previous Blog entries, on the smartphone and tablet market, we referred to the market as a game, G. In G a new phenomenon has occurred, created by a convergence of technology coupled with rational consumers asking: is the iPhone5 = a mini iPad or is the new iPad mini = iPhone6? This line of questioning, we believe, translates the Apple products into a scalar (spin-0) with no strategic direction. A scalar product, if you recall from physics, only needs a numerical value, and is not attached to a direction. Where is Apple going? Earlier this year, IDC Research reported that Apple’s share of the global market for tablets fell sharply in 2012 from 65% to 50%.

Strategists therefore need to ask the entropy question: do gains necessarily accrue to Samsung, Amazon and Asus or are rational consumers simply waiting or delaying buying Apple devices? To find an answer, we posit that Apple products and non-Apple products may share common features and functionalities but they do not overlap, thus creating lines of adjacent vertices in an evolving market share game.  Furthermore, Apple may have the greatest App store in the game but as it continues to rotate through iPod, iPhone and iPad to iNext, spherical  competitors from anywhere at any time to will enter the game and win.  Rational consumers delaying a purchase and the convergence in rival technologies facilitate competition, and by Q4 2011 Google powered devices began to close in on Apple’s dominance. More recently, Microsoft’s Surface, the Google-Samsung Nexus 10 running on the latest Jelly Bean software, the Amazon Kindle Fire HD and the Asus-Google Nexus 7 have emerged as formidable competitors in the game.

What if the XBox music internet service has the potential to impact on iTunes? Investors are not clueless about the technology convergence nor are they aloof to the need for an optimal strategic response from Apple. With a cash balance that is equivalent to a quarter of its CAPM, investors will want more investment. They may ask: why not acquire a telco? The iPhone5 can indeed promise 4G technology, albeit not everyone, who has an iPhone 5, nor anyone anywhere in the world, who is thinking about buying an iPhone 5, will be able to avail of 4G. There is no point really in offering rational consumers a new fountain pen without the ink! As rival competitors continue to enter the game G, the family of competitors grows and new features and functionalities create entropy and adjacent vertices that will limit Apple’s progress unless they join the family.  For example, today in November 2012, Apple is not a key player in social media, digital mobile advertising, OLED Smart-TV, nor is it dominant in cloud computing, NFC and mobile e-wallet payments. They could be in time, many investors hope that they will – sometimes this is not how it works.

Apple can fail: who remembers the Newton in the 1990s? Or the more recent befuddled roll-out its mapping service?  The more we observe G the more convinced we are than it mirrors a game of chess. But is it a game of French defence where it will be challenging for Apple (White) to hold on to the centre as opponent’s attack its Queen (iOS) quickly and swiftly, faster than any counterattack from Apple.  Maybe Apple should stop defending its pawn line of iPod-iPhone-iPad? Acquire a telco. In chess language, Black is out to attack the pawn line. What is Apple’s optimal sequence of moves? Is the ecosystem a sub-game of Alekhine defence by Google (Black) or Android alliance (Black), allowing its King’s Knight (Android) to be positioned across the board so as to weaken White’s centre pawns? We will take up these issues in next Blog entry – our continued recommendation for Apple is to play not to lose rather than play to win.

i-Lag or Byte of the Apple

The smartphone has evolved from new gadget to just another gadget – it has become commoditized.  The Razr i will indeed allow you to switch quickly between the web, play games, send texts and take photos. Will iOS 6 disappoint as consumers realize that it begins to slow down your iPad2 and is backward incompatible with the new generation iPod touch?  A case of i-lag will emerge as random consumers begin to ask: why upgrade to iPhone5? Why queue? Why buy Apple product? The convergence of technology will trump the key players as spherical competitors from anywhere at any time enter the game. Google’s Motorola has now unveiled its first smartphone with Razr i, a social media and mobile advertising market game began without Apple, SmartTV technology resides with LG and Samsung, and the new spherical competitors in smartphones are likely to be the Chinese players, Huawei and ZTE. Forget the device; the game has evolved from a game of competing ecosystems, OS v Android and 4G technologies to one of consumer expectations. Rational consumers have no idea what they want, but whatever it is, they want it now.  So expectations are dangerously high, matching them with low prices may be an optimal response. Judicious pricing policies will facilitate a winning strategy. We have argued before in this Blog for a nano-iPhone – a strategy to compete on price against the impending challenge from Huawei in the US. Launching a nano is a dominant strategy for Apple Inc because its payoff in the smartphone game will be (i) always at least as much as that of iPhone5 [whatever Samsung or Huawei do] and, (ii) at least some of the time actually better in the evolving game of commoditized smartphones.

Refer back to Blog entry: Simon en-cycling to SMIN!

Refer back to early Blog entries: The  Brontosaurus paradox

Simon en-cycling to SMIN!

In less than 10 years the smartphone game has eclipsed its humble beginnings of combining a PDA with a phone. The App-ing Generation T who communicate and share across technologies can have an ice cream sandwich in their operating system or a mountain lion or faster graphics performance with ivy. Poorer consumers across the developing world simply want a phone to curve with messaging and FM radio and a 2 mega pixel camera. But do you remember where you were in 1992 when we witnessed the planting of the seed of the smartphone tree with the inaugural launch of the IBM Simon? Do you care? How many remember the first smartphone, the Ericsson GS88 with the open OS Symbian? That was 1997. By the time it had re-launched in 2000 as R380, the Palm Kyocera 6035 enabled you to phone a friend from your PDA contact list. So cool! How many remember the Palm Kyocera 6035? That was 2001. In 2012 Generation T eagerly await the global launch of Apple iPhone5 and the Samsung Galaxy S3. Analysts are reporting that Apple and Samsung could account for 30% of volume and 52% of sales in the global smartphone game. The game is less about the device or product – it is more about the ecosystem, the operating system in the game of smartphones. We are observing a battle of OS standards through the lens of a convergence in technology that will end the game because time available to the key players, young and old, from Apple to Samsung, from MS to Nokia, from HTC to Sony Ericsson to RIM, to make a decision is diminishing in time itself. In others words the game is en-cycling to an end point as spherical competitors from anywhere at any time are entering the game: the Nokia-MS alliance with Lumia platforms powered by Win8 and supported by Intel and AT&T, MS-Facebook alliance to challenge Google in social media and in search with a new search engine, a possible MS-Nokia-RIM-Dell alliance, emergence of Huawei and ZTE, of China Mobile and Data Wind. Who? The game started with Simon in 1992 and will end with the must-have small and thin, SMIN, the outcome that Generation T, the customer, wants rather than the device that produces it. Think on to 2022 and the Blog reader asks: who was Apple? But who is SMIN? Ref back to early Blog entries: The Brontosaurus paradox