Trapped ASUS: Is its decline an accident or a destiny?

Another company that was once a global leader has fallen into the dilemma of declining traditional businesses and lack of improvement in its transformation businesses.

As one of the three largest technology companies in Taiwan, China, ASUS was once a well-known overlord in the motherboard market and a top five PC giant in the world in terms of shipments. But now, it is struggling like a trapped beast. Not only has its computer business declined, but its transformation to mobile phones has not improved. In the first quarter of this year, it recorded the lowest net profit in six years.

Founded in 1989, ASUS was once a representative of Taiwan's IT companies and a pioneering entrepreneur. In 2006, ASUS officially entered the Fortune Global 500 with a revenue of more than 120 billion yuan. However, like many traditional companies that have fallen into crisis over the past decade, ASUS's crisis also came unexpectedly.

Is the decline of this traditional giant a coincidence or a destiny?

Asus's dilemma

Asus is undergoing a round of restructuring in its personal computer business, including exiting the personal desktop business, focusing on the corporate commercial desktop market, and strengthening its gaming PC products.

Behind the company's restructuring is the reality of ASUS's poor product business development. On the surface, as a leading manufacturer in the PC market, ASUS does not seem to be facing a big crisis, but according to the disclosed data, ASUS is now on a downward trend.

According to statistics from the authoritative market research company Gartner, global computer shipments shrank slightly by 2.4% in the first quarter, with Asus plummeting by 14%, ranking first in the decline among the top six manufacturers.

Asus, which started out as a motherboard business and rose through the notebook business, has not failed to see the downturn in the computer market and the rise of smartphones. Asus chairman Jonney Shih once talked about his views on the smartphone market: "Smartphones have become an absolutely important gateway for users to access the Internet, and are also a battleground for all Internet-related manufacturers. We must win this market."

However, in the past two years, the first impression of Asus smartphones in the industry is the crazy stacking of materials and various eye-catching gimmicks. Asus recently stated that India will be its largest mobile phone market, and 70% of all the company's mobile phones will be manufactured in India in the future. However, the Indian market is Samsung's inherent territory, and the rest of the space has been divided up by the strong attack of "Internet cost-effective mobile phones" represented by Xiaomi, which makes Asus miserable.

Obviously, ASUS responded too slowly to market changes and failed to seize the precious opportunity of the hot sales of Android phones, and there was almost no improvement in its mobile phone transformation.

In the third quarter financial report for fiscal year 2017 released by ASUS in May this year, ASUS' total revenue for the quarter was NT$98.206 billion and its net profit was NT$3.651 billion, with the net profit reaching the lowest point since the third quarter of 2011.

The decline of former industry giants

In fact, ASUS is just a microcosm of the decline of traditional enterprises in the tide of digitalization and the Internet in recent years.

On April 1, 1989, the founders of ASUS placed their initial breakthrough in the design and manufacture of computer motherboards, which were not favored by most people. In 1990, ASUS and IBM simultaneously launched the 486 motherboard, which was the first 486 motherboard independently developed and produced in Taiwan, and was more than half a year ahead of its peers in Taiwan at the time.

Since the end of 1996, motherboard OEM orders from international first-tier manufacturers have been pouring in to ASUS. In a short period of time, ASUS's development pace is like a wild horse running away, with product sales all over the world, and it quickly became the world's largest motherboard manufacturer.

Nokia, once the dominant player in mobile phones, has held the top market share for 14 consecutive years since 1996. Faced with the rise of smartphones with new operating systems, Nokia's position as the world's top mobile phone sales was surpassed by Apple and Samsung in the second quarter of 2011. On September 3, 2013, Microsoft announced that it would acquire Nokia's Devices and Services Division (Nokia's mobile phone business) for approximately 5.44 billion euros and obtain the authorization of related patents and brands.

BlackBerry, created by RIM, was once the leading brand in the smartphone market. In 2006, BlackBerry had a market share of 48% in the United States, which was half of the market. However, in the competition with Apple's iPhone series and Google's Android series, BlackBerry became a loser, and its brand value has depreciated significantly since 2012.

On October 28, 2016, BlackBerry announced that it would stop developing smartphones internally and shift its focus to software partnerships, highlighting the company's predicament in turning around its mobile phone business.

Taiwan's mobile phone and tablet manufacturer HTC was once the world's largest Windows Mobile smartphone manufacturer and the world's largest smartphone OEM and manufacturer. The world's first Android phone, HTC G1, was launched by HTC in September 2008, and the Touch series of phones were launched one after another. They are fashionable and advanced in appearance and are considered to be a strong rival to Apple's iPhone.

On April 6, 2011, the market value of Taiwan's HTC surged to more than $33.5 billion, surpassing Nokia and RIM at the time, becoming the world's second largest mobile phone company after Apple. In 2011, HTC's global smartphone market share was 9.1%; however, by October 2013, it had fallen to 2.6%.

The innovator's dilemma: The bigger the company, the harder it is to innovate

Why do these companies seem powerful but decline so quickly? In his book The Innovator's Dilemma, Harvard Business School professor Clayton Christensen explains why large companies go bankrupt and concludes that no company's market position is unshakable.

Every traditional industry giant we mentioned above, including many traditional enterprises, has actually fallen into the innovator's dilemma: the bigger the enterprise, the harder it is to innovate. Specifically:

1. The linear thinking of traditional enterprises hinders the development of innovative business

In the 1980s, when mobile phones first appeared and were bulky and expensive, the famous McKinsey & Company advised AT&T not to enter the mobile phone industry and predicted that the number of mobile phones in use would not exceed 1 million before the year 2000. In fact, by the year 2000, the number of mobile phones reached 100 million. This prediction, which was more than 99% wrong, directly led to AT&T missing one of the biggest opportunities in modern business.

For the same reason, Motorola also believed that mobile phones would not become popular quickly, and the cost of building each signal tower was as high as $100,000, so it proposed the "Iridium" plan to achieve global coverage by satellites - launching 77 satellites to cover the world. This plan eventually failed after spending $5 billion. As a result, the popularity of mobile phones gradually increased and the construction cost of signal towers gradually decreased, making the investment in signal towers very cost-effective. The failure of the "Iridium" plan, a huge investment plan spanning 12 years, directly led to the decline of Motorola.

2. Traditional enterprises are affected by their existing businesses and are unwilling to give up their original mature markets.

Compared with new enterprises, traditional large enterprises have stronger financial power and invest more in R&D, so they are also the main force of social innovation. However, the success of an enterprise has also become a burden on its development. It is very difficult for enterprises to make choices about existing well-developed businesses, and it is even more difficult for them to make heroic efforts to cut off their arms. This is human nature.

Kodak invented the digital camera, but was afraid that digital cameras would affect the company's booming film business, so it chose to reject the digital camera business. Ironically, when it went bankrupt in 2012, Kodak still retained the copyright to digital photography.

3. Traditional enterprises are facing the big trend of the Internet and cannot change their investment model, which leads to short life

Many traditional large companies have also seen the general trend of the Internet and have taken necessary measures, but their investment models cannot adapt to the trend of digitalization, which ultimately hinders the company's development. In July 2007, Nokia spent $8.1 billion to acquire Navteq (a navigation company) because of its physical assets. The company has used physical sensors to cover about 400,000 kilometers of roads in 13 countries and 35 large cities in Europe alone.

In June 2013, Google bought the small Israeli company Wave for $1.1 billion, focusing on its 50 million users and the information shared by these users. Wave did not lay its own sensors, but the number of traffic movement signals it has is 100 times the number of signals obtained by Navteq through physical sensors.

Richard Foster of Yale University estimates that the average lifespan of the 500 companies listed in the S&P index has dropped from 67 years in the 1920s to 15 years today. Not only are traditional companies forced to compete head-on with a new generation of companies leveraging exponential technologies such as the Internet, big data, biology, and robotics, they are almost always thwarted overnight.

4. Traditional companies underestimated the rapid cost reduction brought about by technological progress, allowing new companies to catch up

The development of digital technology is in line with Moore's Law, and the cost is also decreasing exponentially. In 2007, a 3D printer cost $40,000, but now it costs less than $100. In 2007, gene sequencing cost $10 million, but now it costs less than $100...

The rapid decline in costs brought about by technological progress has made the previously high-end technologies ubiquitous, and has also led to many new companies innovating based on these technologies and developing rapidly, while traditional companies are slow to act and unable to compete with new companies. BGI (gene sequencing) and DJI (drones) are rising stars in their fields.

5. The matrix decision-making process of traditional enterprises hinders the speed of innovation and misses opportunities

Most large organizations have adopted a matrix structure after a long period of operation. Product management, sales management, and marketing management are vertical, while legal, human resources and other support departments are horizontal. Although this model is very conducive to command and control, it is not enough in terms of responsibility, speed and risk tolerance. Every position needs to report to both vertical and horizontal, and over time, power will shift horizontally.

Yahoo itself is a mainstream Internet company, but its operating model follows the classic linear matrix organizational structure. Whenever a new product is released or an old product is improved, the team behind it must overcome several levels, such as brand, legal, privacy and public relations, and each level takes days or even weeks. By the time the product reaches consumers, it is too late because there are always new entrants who have taken the lead. Even the powerful Google can't escape this. It took two years for Google+ to be finally released. Although its production level is excellent, by the time it was released, Facebook had already become the dominant player, missing a great opportunity for a social platform.

Conclusion

BlackBerry's proud full keyboard became a stumbling block to its touch screen innovation, Kodak's lucrative film business hindered its transformation to digital business, and Microsoft constantly adjusted its strategy according to environmental changes, and eventually became an evergreen company that keeps up with the times; similarly, Alibaba and Tencent can achieve today's results by constantly innovating according to changes in the business environment and user needs, while Baidu has not been able to break out of the search business of the PC era.

Just as a person goes through birth, aging, illness and death, every enterprise goes through the process of creation, growth, decline and death. In a sense, death is inevitable.

The good news is that "innovation" is the best exercise for enterprises to strengthen their bodies. Enterprises that can always stay alert, keenly perceive changes in the external environment, and take positive innovative measures can delay aging and even rejuvenate.

The bad news is that for those giants that cannot change with the times, decline is not accidental but their destiny.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.