In the early 1980s, American telecommunications company AT&T commissioned management consultancy McKinsey to conduct some research into the newly invented mobile phone. How large was the market for these new devices likely to be? In a report that now makes hilariously funny reading, McKinsey predicted that there would be a world market for about 900,000 of these devices*. This led to AT&T initially not investing in the new technology. In 1994 they entered the business by buying the mobile phone business created by Craig McCaw, and after an assortment of forwards, reverse, and sideways takeovers this business lives on as AT&T Mobility today.
It is possible to compare this number with the actual size of the world market for mobile phones – there are now around three billion active mobile phones in the world. That is straight and to the point. However, other kinds of comparison perhaps better illustrate just how wrong the prediction was. For instance the number of phones that McKinsey predicted would make up the world market is almost exactly the same number of phones that Britons accidentally dropped in the toilet in 2006
(* For the sake of honesty, I do have to point out that McKinsey actually did make that prediction of 900,000 as the size of the market “for the year 2000”. Yes, they did pretty much choose a year randomly and they were predicting 900,000 on a “that’s pretty much everyone who will want one” basis, but it must none the less be mentioned. In any event, there were about half a billion mobile phones in the world by 2000, so they were still out by a touch)
That scenario plays out fairly often. IBM missed the boat on PC’s, GM couldn’t believe anyone wanted front wheel drive or high compression, overhead cam 4 cylinder engines, and the list goes on and on.
Small companies innovate, experiment, take chances that established, bureaucratic oragnizations can’t keep up with.
Once in a while, a maverick with a larger company can follow an innovative idea and hit it, like Ipods from Jobs at Apple, but that’s few and far between.
Once the market demonstrates itself, then the big boys jump in, buying the smaller companies or coming out with their own version. Then the deep pockets and brand names come into play.
The lesson is clear, and usually pointedly ignored by those who long for central planning and planned economies—the future is created through the innovations of dreamers, and their five start up employees, working 20 hour days to do something no one else ever did.
Progress, innovation, advancement are not derivative.
The future burns like fire in the minds and hearts of men and women no one has even heard of—yet.
I find it interesting that there are 3 billion mobile phones world wide…this means that the market penetration is 50% of the world’s populace (sort of…some people have more than 1).
I’ve had this quote on my blog since day one in the headline, partially because my Mom used to work for Digital Equipment Corp. (DEC) in the 70’s and 80’s-
“There is no reason anyone would want a computer in their home.” … –Ken Olson, president, chairman and founder of DEC 1977
I’ve had this quote on my blog since day one in the headline, partially because my Mom used to work for Digital Equipment Corp. (DEC) in the 70’s and 80’s-
“There is no reason anyone would want a computer in their home.” … –Ken Olson, president, chairman and founder of DEC 1977
I’ve always found this a little glib. The process of miniaturisation of hi tech electronics was not well understood or predictable at that point in time. In addition, a computer was barely more than a machine capable of processing very complex and tediously entered input in a mathematical fashion very quickly.
It hardly makes sense to criticise people for not foreseeing that once computers had word processing, connectivity to the internet, games and so on and were small and cheap enough to conveniently purchase and install in one’s home that they would become very popular.
Likewise with the AT&T comments – how big and heavy was a ‘mobile’ phone in the mid 1980s? How was its battery life? What were call costs like?
God, I envy people who lived in a world without ubiquitous mobiles and affiliated fools droning away on them 24-7…
Er yeah Patrick.
I think the point was that the guy was hoplessly, insanely wrong, not just a little ‘glib’.
Um,
Patrick,
The MITS Altair 8800 computer kit was released in 1975, young Billy Gates wrote an 8K BASIC for it, dropped out of University, and set up his speculative and chancy software company the same year.
Sorry chum, but your description of a computer and the industry is out by about fifteen years. Hell, even a LEO III was a bit more advanced than that.
Olsen’s comment was a clear failure of vision, an inability to see where clearly perceptible trends were heading. All the more surprising because his company was at that time one of the worlds leading beneficiaries of those trends, his minis having done to mainframes what micros were about to do to minis.
Andy: not only that, but there are also many children that have one. On the other hand, in NK (pop. 23,301,725), there are 980,000 telephone lines, and god knows if it includes any mobiles at all.
That’s par for the course, as far as predictions go.
Well, I guess Olsen wasn’t alone, he did build DEC and he is otherwise in good company –
“Who the hell wants to hear actors talk?” — H. M. Warner (One of the brothers)
“The energy produced by the breaking down of the atom is a very poor kind of thing. Anyone who expects a source of power from the transformation of these atoms is talking moonshine.” — Ernest Rutherford
“Caterpillar landships are idiotic and useless. Those officers and men are wasting their time and are not pulling their proper weight in the war.” — Fourth Lord of the British Admiralty, 1915
“How, sir, would you make a ship sail against the wind and currents by lighting a bonfire under her deck? I pray you, excuse me, I have not the time to listen to such nonsense.” — Napoleon Bonaparte
“Fooling around with alternating current is just a waste of time. Nobody will use it, ever.” — Thomas Edison
“[Television] won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” — Darryl Zanuck
“We will never make a 32 bit operating system.” — Bill Gates
“There is practically no chance communications space satellites will be used to provide better telephone, telegraph, television, or radio service inside the United States.” — T. Craven, FCC Commissioner, 1961
“That Professor Goddard with his ‘chair’ in Clark College and the countenancing of the Smithsonian Institution does not know the relation of action to reaction, and of the need to have something better than a vacuum against which to react — to say that would be absurd. Of course, he only seems to lack the knowledge ladled out daily in high schools.” — 1921 New York Times editorial
“Heavier-than-air flying machines are impossible.” — Lord Kelvin
“Airplanes are interesting toys but of no military value.” — Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre,
“Atomic energy might be as good as our present-day explosives, but it is unlikely to produce anything very much more dangerous.” — Winston Churchill
I think the topic also introduces another interesting point. The value of management consultants. Nearly everyone who has been in industry a few years has their own management consultant anecdote showing just how clueless they usually are.
In the main, most companies and people in them know their own business better than any management consultant could. A colleague of mine has a classic example when he worked at SAAB in sweden. McKinsey (again) were brought in and after their reasearch into cost cutting measures glibly said that a particular flight test program should “cut every third test” without really realising that a flight test program has to cover all of a set of particular requirements to get an aircraft certified so you cannot just not do some of them. The main reason a managment consultant company is ever brought in is so that the managment does not have to take the fall for the next round of decisions taken. This is naturally when the managment themselves have run into an impasse that they themselves cannot see a way around (or often they can but its politically expedient for someone else to suggest it first).
Surely this is about elasticity of demand and price points?
If there were a market of 900,000 phones, each device might cost $1000, the cost per minute to call might be $1 per minute, and marginal additional demand might indeed be small.
And if the report predated market liberalisation, then the effect of liberalisation couldn’t really be predicted. If ATT, BT, Deusch Telecom etc hadn’t been broken up and/or exposed to competition, I’d imagine that the prediction wouldn’t look nearly so silly.
“There is no future for groups of young men playing guitars” – Record company exec explaining his decision not to sign the Beatles.
“The head, the chest and abdomen will never be operated upon by surgeons who care for their patients well-being” – C19th surgeon.
“The USA may require up to 5 computers” – IBM study, 1950s.
“No aeroplane will ever achieve 500 miles per hour” – RAF brass telling Frank Whittle to bugger off.
They’re all from memory so don’t quote me verbatim on them.
People miss the future very often.
But then, sometimes… Well, Leo Szilard (I think) got to meet Roosevelt and explain why the US ought to build nukes. Apparently FDR heard him out and basically said that the scheme seemed just nuts enough to be plausible. He then sent a servant down to the White House cellar. Szilard and FDR toasted the idea with brandy. FDR then explained. He said that during the Napoleonic War a young American engineer had offered his services to Napoleon to provide him with steam ships to attack England. He was re-buffed with the line quoted by Chris Harper above. FDR said he wasn’t about to make the same mistake Napoleon had made.
It wasn’t just any old brandy. The bottle had been bought by a Roosevelt while Napoleon was on the throne of France.
Similarly, it wasn’t just any bomb that exploded over Hiroshima.
“Who the hell wants to hear actors talk?” — H. M. Warner That’s what I keep saying…
Lots of people have anecdotes about useless management consultants.
Whereas, of course, employees of our clients are all selfless visionaries who don’t really need any meddling help to run their companies with smooth competence.
Hmmmm….
Meanwhile, here’s Sir William Preece, student of Faraday, Fellow of the Royal Society and chief engineer of the Post Office, on rejecting Bell’s telephone invention:
“England has plenty of small boys to run messages”
Here’s Preece again, this time on the light bulb:
“A completely idiotic idea”
[Mexican accent] Management consultants? We don’t need no steenkin management consultants [Mexican accent]”
The most boring lecture I ever sat through was by a McKinsey Consultant during my MSc. He had a stack of over a hundred overheads and discussed each and every one of them at length, in a flat monotone, for hour after hour.
By the time it finished every person in the room was ready to scream.
This has coloured my opinion of McKinsey ever since.
I think it is more than elasticity, it is uses and adaptability. People could not see the USE of a computer in the home and people could not see the masses making USE of mobile phones.
GPS is another duh!
One day people are going to realise the use of Rotodynes/tip-jetted gyroplanes and possibly motorbikes (again) in warfare. I’ll take mine with an M107 mount.
p.s. Churchill was a great supporter of “catapillar tracked landships”. The Mk1 was a great thing indeed…especially with its unrepeatable “detrenching post”.
people could not see the masses making USE of mobile phones
Oh come on. Both these and home data processing of some sort had been science fiction staples for decades. These were failures, pure and simple.
Every person involved in the McKinsey report had heard of Dick Tracy.
It tends to be a bad sign when an individual or an organization calls in management consultants.
Either the people in the business (or whatever) are clueless – in that they do not know what to do. Or they are gutless – in that they will not do anything without having outsiders telling them that it is O.K. (and charging a fat fee for doing so).
It is not good for an organization to be run by people who are clueless and/or gutless.
Paul,
There is a third possibility, quite common:
The manager has a cousin or a friend in management consultnacy who needs a job.
That’s especially common in public enterprises.
(The olympic commitee was a recently mentioned example).
The Chief Scientist, Sir David King, has claimed that Antarctica will probably be the only habitable place on earth by 2100.
Perhaps in 93 years time the grandchildren of Samizdata readers will look back at these archives and laugh at yet another foolish prediction.
Basically, any large organisation who knows their business should never need management consultants.
Smaller organisations who simply don’t know how to manage change or growth, maybe, but larger? If AT&T didn’t have the internal expertise to examine this issue then really, what organisation on the planet would have?
The existence of this report, regardless of contents, is an absurdity in itself.
It tends to be a bad sign when an individual or an organization calls in management consultants.
Well, perhaps.
On the other hand, I’d argue that hiring a permanent person to fill a gap requiring a particular skill for a limited period is equally retarded, especially in the EU.
I think we’re talking about different types of consulting though. The McKinsey powerpoint jockey stuff – I generally have as much contempt for as you. However, these days I see that more from MBAs employed full-time by companies than from consultants.
“in that they will not do anything without having outsiders telling them that it is O.K. (and charging a fat fee for doing so).”
Paul, your comment is spot on. My spouse was actually an analyst at AT&T for several years on the Consumer end of the business. The only time she ever came close to quiting was because they had called in McKinsey to do consulting regarding revenue forecasts (this was what my wife’s group did). They charged several million dollars and were generally obnoxious. But the kicker is that, after several months of disrupting work, all they did in the end was take all the forecasts that my spouse and the other people in the group had done and repackaged them into a report.
When everyone complained, the answer was that they needed to stamp the work that had already been done with a name that would engender confidence in the board.
“It’s tough to make predictions, especially about the future.” -Yogi Berra
Hmmm 900,000. Considering my son must have at least half that quantity, are you sure they didn’t get their calculations wrong?
The problem is the same yahoos frequently then go the other way with studies and produce data which convinces people that they’re all going to be mega-rich.
I sat through a presentation the other day which was showing how Ring Tone sales growth had worked, but ignored the current downward trend.
In fact, it no longer does officially. There was mobile phone service in Pyongyang for a couple of years from 2002 to 2004 or so, but they were ultimately banned.
However, I understand that there is a thriving black market for cellphones – the Chinese have put up a bunch of cellphone towers along the border, so you can call out of NK that way. There are several articles online about it – some I just turned up in a Google search are here and here. I’ve also heard reports of tourists being able to call out of North Korea through South Korean towers near the DMZ – but I couldn’t find anything about it anywhere.
The cracks are starting to show, though. The current regime can’t survive too much longer.
Sorry chum, but I know exactly what I’m talking about. Yes, there were early ‘home’ computers back then, but they were clunky pieces of junk and primarily of interest to hobbyists and nerds like Gates. Older geeks remember them fondly today, but they were pretty horrible to use. You sound like you have experience with them, so you can attest to how user friendly an Altair or similar is.
From Wikipedia:
My point was that at that stage computers couldn’t actually do terribly much that was useful to the average household, so why the hell would you predict that there would be hundreds of millions of the things all around the world in 25 years time? You wouldn’t.
Sorry chum, but I know exactly what I’m talking about. Yes, there were early ‘home’ computers back then, but they were clunky pieces of junk and primarily of interest to hobbyists and nerds like Gates. Older geeks remember them fondly today, but they were pretty horrible to use. You sound like you have experience with them, so you can attest to how user friendly an Altair or similar is.
From Wikipedia:
My point was that at that stage computers couldn’t actually do terribly much that was useful to the average household, so why the hell would you predict that there would be hundreds of millions of the things all around the world in 25 years time? You wouldn’t.
Patrick,
That was all true for about the first ten minutes after their release, but by 1977 Intel had been through the 4004, the 8008, the 8080 and Zilog had released the Z80; the progression was obvious to a blind beggar. There were boxes with floppy disk drives, standard rs232 and ieee ports, disk operating systems, high level languages and the rest, all for under $US2,000. As well as the 8086 being on the horizon by then.
DEC itself had put the PDP 11 on to a four chip set using LSI technology, releasing their own microcomputer as the PDP 11/03. Olsen’s view was a complete failure of vision, any number of people were predicting the future at that point. God knows, I found it exciting.
Hell, the Apple II was released in 1977. The archetypal home computer.
Chris, I said the masses, not Dick Tracy and Mr Spock. Who would have said that 80 year old Chinese women would text their stock trades from a mobile? Even in 1998 when it was happening, the US market was still in denial and the stone age in regard to mobile USE.
I think the point Chris is making is that the rapid improvements in user-friendliness and general computing power should have been obvious to industry experts even then. He’s not asking anyone to look at an IMSAI and think it had mass-market potential, but rather to look at the progression of things that came soon after the IMSAI and realize that massive selling potential wasn’t more than a few years down the road – i.e. that R&D investment dollars would be well spent here. The toys weren’t made yet, but the trend (or at least the potential) was there and reasonably clear to anyone paying attention (like Gates). And of course it’s the advertisers’ job to sell “the masses” on these things, not “the masses” job to figure out what they want for themselves.
Whether anyone could have seen the rapid advent of the internet is, of course, another matter. But that there were huge profits to be made by selling glorified calculators for home use – there was plenty of evidence for that in 1977 lying around for people to piece together, I think.
In the early 1980s, American telecommunications company AT&T commissioned management consultancy McKinsey to conduct some research into the newly invented mobile phone….This led to AT&T initially not investing in the new technology.
Yes, not as much as they could have. OTOH, “newly invented” is a bit of a stretch. It’s also a bit of a stretch to say that AT&T did not invest in the new technology at all, considering how much of it they had invented at Bell Labs– 1947 the proposal of cellular technology, 1960s inventing the first cellular based mobile phone system, 1970 Amos Joel inventing the call handoff system so that phones could travel between multiple cells without dropping the call.
AT&T originally submitted the proposal for AMPS in 1971; it may not have been approved until 1982, and AT&T certainly thought that the market was going to be smaller than it was, but it’s not entirely that they didn’t invest and that they weren’t involved until 1996. In 1978 AT&T launched a commercial trial of AMPS in Chicago, for example.
Rather, it was not until 1996 that AT&T truly tried to be a major service provider in cellular service, rather than working on inventing and licensing the technology to other companies. AMPS dominated the 1G age in North America, and variants existed in Europe and Japan.
I still find the term “mobile phone” to be horrendously imprecise. Trunk radio systems (Professional/Private/Land Mobile Radio et al.), radio phones, satellite phones (Iridium), and even cordless phones (especially newer ones) are all phones which are mobile. Especially in the case of satellite Iridium phones it’s useful to have a term that distinguishes the other mobile system from cell-based phones.
Iridium is another interesting case of how it’s hard to forecast the market. Motorola was sure that Iridium would survive because cellular phone growth always beat forecasts by several multiples. Therefore, the company was convinced that Iridium would similarly beat forecasts.
Thanks John. Probably “chose not to build a cellular network” would have been a batter thing to say. The other thing which is worth noting is that this was not actually an expensive mistake. The $11.4 billion they paid to acquire McCaw cellular was a lot of money, but was was relatively small compared to the prices these sorts of companies were selling for in 2000, and compared to the $41bn that AT&T Wireless sold for in 2004. Staying out of cellular until 1994 and then buying an existing network might not have been a terrible decision, ultimately, although the McKinsey report remains a wonderful example of people getting things wrong.
In truth I think the failure of Iridium was probably a consequence of the success of cellular. Iridium was for people who wanted a phone that would work anywhere in the world. By the time this was in service, cellular networks had grown so widespread that we just about had that already, and handsets were smaller, cheaper, and were what people were carrying around already. The cashed up globe trotting businessman demographic was already well served. Iridium phones were useful for the sorts of people who visit Antarctica or the Amazon jungle, but these people aren’t often rich enough for what the service cost.
It might have been that if cellular did not exist or was less advanced, the affluent business traveller would have found it useful.
Iridium, and the other constellation based sat networks, were pretty much sunk by Global GSM and wide spread roaming. As Michael says, the businessman might want to make a call in Paris, New York and London but is less likely to need to from the mid-atlantic or the amazon basin.
The other issue here, which is interesting from a government regulation perspective, is the impact that having a single universal mandated standard had on the development of those roaming agreements versus the approach the US did take where there were smaller competing local networks.
Its interesting you mention the idea of staying out of the market and then buying an incumbant. I was of the opinion the clever thing for a UK network to do when the 3G licenses came up was for one of the incumbants to not bid and then pick up a competitor for a song later. Of course, the short term stock price impact would have been a nightmare.
I wonder how many of those phones are *really* dropped in the toilet, as opposed to things that seem less of an accident. Is dropping the toilet covered by warranty, where, say, going through the wash would not be?
The Apple ][ was indeed out by this time in 1977, so there is a good chance that Ken Olsen’s pronouncement was made after that. It was obvious even at the time that it was qualitively a different beast to the TRS-80 or Pet, let alone the MITS.
The missing secret sauce can I think be explained by an anecdote that Steve Jobs told at All Things Digital last week. he mentioned that one of the early Apple ][ ads showed a woman storing recipes on her personal computer while her husband looks on approvingly.
That had very little added value (maybe even negative) over just using a handwritten recipe book. But today I can go to the toolbar in Safari, type “banana cake”, and in an instant have dozens if not hundreds of banana cake recipes at my fingertips.
OK, google (and the web) is fairly new, but rec.food.cooking has been around on usenet since at least 1986, and was itself proceeded by net.cooks.
I wonder how many of those phones are *really* dropped in the toilet
Most of them, I think. I have not lost a phone that way, but I know people who have. Water damage to phones is common, and no it is not covered under warranty (and usually not by insurance, either). I have left phones in pubs and on trains, but have more than once got them back on such occasions by calling the phone and waiting for someone to answer.
I lost an almost new phone two weeks ago through a bizarre chain of circumstances that began in Rostock in Germany and ended in Szczecin in Poland. I probably should make a post out of it, but I am slightly embarassed.
It is fair to point out that Ken Olsen was visionary enough to realize there was a market for “departmental” (commonly called “mini computers” in their day). Just as somebody at IBM was visionary enough to realize there was a market for more than 5 computers in the US. And just as AT&T was visionary enough to invest billions in radio telephony over MANY years.
Olsen, however, tends to stand out from the pack when it comes to losing the ability to look out toward the technical and business horizons. Not only did he give us the famous quote above but he also gave us:
“Unix is snake oil” (1987) and “I wouldn’t put my company on the Internet” (1996).
There is, of course, the opposite. Those who look toward the horizon and fantasize. For example, I remember watching a Saturday morning show on PBS as a child and listening to some MIT professor telling us how voice recognition and generation by computers would be completely commonplace in “10 years” – this was late 60ish. Heck, IIRC it was Bernstein who said, circa ’70ish, something like “voice I/O will be in common use by 1978” or something very similar.
Yes, voice systems are in use and have become quite adequate, but the problems and acceptance have proven quite difficult. We’re 30 years late on something that very bright folks thought was a slam-dunk.