As you may have noticed that Motorola stock and profits have started falling recently. This could be surprising to some as just last year its Razr phone was the cool phone everyone wanted and Motorola was riding the success wave. What happened? Wall Street Journal did a report on 4/27 where they analysed how Razr success could not be sustained. I’ll share the main points below and add my thoughts.

* Motorola focused too much on one product and failed to produce other products – for example they had No 3G phone. This especially matters for cellphones, where it can take two to three years to develop a new line.

* Even though Razr was successful there was nothing stopping competitors to copy and bring the price down. It is always difficult to sustain the captured value from a successful product.

* In the US market, tensions exist between handset makers and wireless carriers. The carriers have a lot of say in which phones they will carry. (In Pakistan we don’t have issue as all phones are imported and with GSM technology it is much easier to switch phones and SIMs).

WSJ writes:

Motorola and Apple announced the first of what was to be a series of phones created together, a music cellphone called the Rokr. But it was delayed when wireless carriers tussled with Apple over how to share revenue from song downloads. When it was finally available in September 2005, the Rokr drew negative reviews for its design and limited song storage. Although it was a disappointment, Mr. Zander viewed it as just the first in a line of Rokrs. But the name had been tarnished by the poor launch, underscoring that what might work in the computer-software world — where version 2.0 can be followed by version 3.0 — doesn’t necessarily apply to the cellphone business, according to former executives. Motorola says the product line didn’t die after the first version, pointing out a successor Rokr was sold in the U.S.

This reminds me of the classic “innovator’s dilemma” where the existing products are doing so well that companies fail to see what’s ahead. Kodak comes to mind as well.

I think Motorola still has a fighting chance. I like their efforts to produce a super cheap phone (Motofone) and the solar cell screen idea is promising as well. Sometimes the top leadership makes mistakes which prove costly. But often stories such as above tell more about the internal culture of a company than just the leadership style.

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