Former Apple and Pepsi top cat John Scully explains on CNBC-TV18's The Forbes India Show that commiditisation and co-ordination are the key challenges to the IT world.
Welcome to this edition of CNBC-TV18's The Forbes India Show. Our guest today has a corporate career that is enviable. After leading Pepsi for several years, he decided to join Steve Jobs and change the world. Since then he has decided to turn entrepreneur and mentor other young entrepreneurs- Meet John Sculley.
Below is an edited transcript of the show on CNBC-TV18
Q: What has life been like over the last few years? You have decided to play mentor. What is life like for you?
A: I left Apple 20 years ago in 1993. This is 2013 and I have actually been doing this with my brothers for all the time since I left Apple. We have helped to build quite a large number of very successful companies mostly in North America, some in Europe. We started the first Credit Default Swap (CDS) exchange in London which we sold to ICE Clear Credit. We have built a number of BEC companies in the US, but my role now is not running companies, but is mentoring the next generation of entrepreneurs.
Q: The gap between technology and product differentiation is narrowing significantly and this trend is playing out in Apple and Samsung currently. Will the technology business now have to cope with the metrics that govern the FMCG sector? Are we now living in the world of fast moving consumer durables and not just fast moving consumer goods?
A: I think you are absolutely right. I think what observers have missed, especially in companies like Apple and Apple, is that when companies of such scale go from a once-a-year-product-refresh cycle to a twice-a-year-product-refresh cycle, the shift has a significant impact on the entire industry.
Apple now is dealing with the fact that while smart phones are pretty well-developed in western markets, in India the smart-phones penetration is about 4 percent as compared to over-50 percent in North America. So the foray into developing markets entails different price points. So companies like Apple and Samsung have to seriously contemplate and formulate strategies to adapt to a world where technology is commoditising so rapidly that what is sold for USD 500 today may well be sold for USD 100 by a competitor.
Q: Do you think Apple has failed at adapting as quickly as required?
A: I think any CEO who is leading an innovative company has to be thinking about how to rapidly adapt. Big organisations have a tough time adapting rapidly. I think that Apple’s biggest challenge is dealing at the scale at which the post PC-era devices are evolving, because it just isn’t a device, it all the end-to-end systems of cloud, app stores and iTunes stores and things of this sort, that have to be coordinated.
So it is very complex and Apple is lucky to have Tim Cook leading it because there is probably no one in the world who has more experience and success running in supply chain than Tim Cook does. The tricky thing for a product company is that it should be led by product leadership. At Apple, I think they made a really important decision by choosing Jonathan Ive as product leader.
Jony has tremendous reputation and I think Apple is in a very good stead. While he is not the CEO, as the product leader he clearly has been given the credentials by the board and by the CEO to be able to make the product call. So, I think Apple is in much better position in terms of being able to deal with the future than people are giving it credit for.
Q: It is well-known that Apple is Steve Jobs and Steve Jobs is Apple. But how does a company grow and evolve out of such as powerful legacy?
A: I do not think you necessarily want to grow out of that legacy. I think one of the most important things that Steve left was creating the Apple University and bringing in top educators to make sure that the next generation of Apple employees would understand the cultural values of Apple.
He was more interested in the survival of the institution including the culture, as he was about the sustainability of the individual products. The thing that probably will not happen again at Apple is that an iPhone is a once-in-a- lifetime event.
Q: The trend of creating new categories which Apple has done phenomenally well happens once every decade or 15 years. Where do we go from here?
A: Steve was brilliant at creating categories. He did it whenever it was possible. But after he left Apple, he created NeXT and it was not a success. It wasn’t his fault. There are moments when technology is not ready to take you to the next level. He couldn’t have built an iPhone five years earlier because the technology wasn't ready.
So it didn’t make any difference how good Steve's vision might have been five years earlier because it wouldn't have happened till the time it did happen. May be Apple will reinvent television but television is a very small market compared to smart-phones. So I don’t know whether Apple will have that big opportunity to reinvent an entire industry as before. So now Apple has to cope in a world of making adjustments and Samsung has got it going pretty good.
Q: What's your own take on the patent war that is on between Apple and Samsung?
A: I would not even want to venture a guess on where that turns out. I am much more focused on the fact that Samsung’s hardware is pretty outstanding and Samsung doesn’t have the depth of software. They are totally dependent on Android right now, but they have just opened up four campuses in Silicon Valley, so they have the resources. Both Apple and Samsung are rapidly integrating vertically.
So as the industry commoditises and as price points go down, they will still make money. The real question is will it be anything more than a two-horse race? It is not an all-clear, that there be a strong number three. May be there will be but right now it is just the two-horse race between Samsung and Apple.
Q: I want to talk to you about India. The widespread opinion in India is that it has been ignored by Apple while China forms a huge part of Apple’s global strategy. Why is that and do you share that opinion?
A: I don’t think Apple has ignored India. I think it is pretty obvious that it didn’t make much sense for Apple to launch its lead products- the iPhone and iPad- in a country that only had 2G. Well, now you have 3G and Apple is going to have an important presence here.
Q: But for R&D and manufacturing, China held centrestage for Apple while for the rest of the world the focus is on India?
A: I can't comment or add any insight. But I think Apple had said that China will be its most important market in the world and that makes sense. I think India is about where China was in 2005. But there isn’t any question in my mind that India is going to be outrageously successful with online services.
Mobile broadband has passed desktop Web, e-commerce is just starting to take off and half of the people who are using e-commerce now are under 25 years age. I co-founded a company in India called Change My Tyre. The first era of globalization was about exports. The second era of globalisation is about a developing market model middleclass and domestic markets.
So the opportunity to bring the kind of new middleclass-services - cars, two-wheelers, condos, electronics and furniture in the condos at different price points than in the West. So I am very interested in investing in developing markets, particularly India and the ASEAN countries, on exactly that thesis.
Q: The Internet is going to be the preferred choice for you in India when you are talking about investments?
A: Absolutely. We are actually buying companies now. My firm is called InflexionPoint has announced the acquisition of a company called Iris in Delhi and that deal will be closed in the next few months. We have also announced the acquisition of another company in Singapore called Dragon which will be concluded in the same period.
Q: Do you have any concerns about the regulatory environment in India because specifically when it comes to e-commerce, foreign direct investment is actually not been allowed yet and there are no plans to open it up? Is that a concern for you?
A: You have to structure differently. I have always maintained that one has to know the rules and adapt to them. So there are some things that can be done here and others we can't. So we set up a buying hub in Singapore.
We do our credit financing in different ways with much of it being offshore because we are not allowed to do certain things onshore in India. But we want to work closely with banking systems and business partners in India. So we have to adapt to fit in and we are comfortable doing that.
Q: Pepsi is strategiSing itself for the future which is this business of going from 'Fun-To-You' to 'Good-For-You'. Do you believe it is going to work for Pepsi in the long run?
A: I think Pepsi took its eye off the ball. The reality is that the business that it is in that generates the revenue is the ‘fun’ foods. I think it is a very admirable vision to start to move into more nutritious products. I completely support that as a vision.
On a pragmatic note, I would say it is good news to hear that Pepsi has decided to get back to being a marketing company, building big brands and bringing in stronger marketing talent. I think it has got some catch-up to do with Coca-Cola. This thing cycles every decade- one decade Pepsi is ahead, the next decade Coke is ahead. I think Pepsi has a little catching-up to do in brand marketing with Coke, but it has a lot of talent and I am sure it is going to be some real success.
Q: In India, especially within the Internet space which is a nascent business, there is a lot of commoditization taking place already. And though there is a lot of talk about differentiation, not enough is actually being implemented on the ground. What advice would you give Indian Internet entrepreneurs looking at starting their own ventures at this point in time?
A: I think that people get too caught up in technology and not enough with experience. There are some companies that spend a lot more money on advertising than Apple does and yet their campaigns are forgotten. Microsoft spends more money on advertising than Apple does. Can you remember any of Microsoft’s campaigns? It is not that Microsoft does not have strong leaders, it is just not what it thinks about. It is great at hiring highly intelligent and really smart people to build enterprise-type systems but building brands is about making experiences exciting for real people and more-often-than-not, consumers.
The most successful companies always offer the best service, always put the customer on top, always think about the experience that the customer has and always try to project themselves into the role of the customers. The weakest companies in the long-term are the ones that ignore that and just focus on the profits, the technology or the products.
Q: What excites you when you look at Facebook or Groupon? Who excites you of the crop of young companies and business leaders?
A: I think probably the two people who are closest to the level of admiration of Steve Jobs would be Jeff Bezos at Amazon. He has done an incredible job over and over again. I love when he says, 'show me an industry that has high margins and let me add it'. He just enters the business, completely rethinks and disrupts convention.
The other person is Mark Zuckerberg. He has the right principles in mind. He is really thinking more about building a great company that is going to be sustainable and not about how much money he makes. I can tell you that surprises me in this generation that is so interested about money and being billionaires.
I sat with Bill Gates and Steve on many, many occasions. Never once, in any of those times when we were together, did either one of them ever talk about making money. It was always about changing the world. They fought all the time, because they had completely different ideas of how to do it. They had great admiration for each other, even though they disagreed a lot. But they never were in it for the money.
Q: We talked about success and failure and how companies are treading that fine line constantly and the need to adapt to new situations in the changing reality. But if you were a CEO today, what would you be most mindful of at this point in time?
A: First of all I feel lucky that I am not a CEO! But I would be most mindful that the speed at which things change is so unprecedented, not just in hi-tech but in financial services, in healthcare, in education and other big industries. I think the ability of any enterprise to be able to adapt, preparing the enterprise to adapt even if you do not know what it has to adapt to. I think organizations, as they get bigger have middle managements that are almost always empowered to say 'no'.
Very few people are empowered to say ‘yes’. So you can be pretty sure that any big corporation will take at least two years to do anything about any really good idea. It is just inevitable; it is like turning a large carrier-ship around. So, the ability to adapt is probably the greatest gift and so is clarity of vision. It is difficult for big enterprises to be disruptive innovators. That happens with smaller companies. So, you have to be aware of the disruptive innovator and then either acquire them or figure out how to incorporate their thinking. But it is important that big enterprises be able to learn how to adapt.
Q: Are the days of large, diverse conglomerates numbered?
A: They don't have any real advantage. On the other hand, you can see in a sector like smart phones where Apple and Samsung have real advantages because of their size. But each of these companies have incredible clarity on leadership. Contrast that with Sony or Nokia. But let us take Sony because Sony was the company that Steve Jobs admired more than any other. We used to go and visit Akio Morita and Steve would always come back and wanted to make Apple look like Sony.
And Sony had a handful of just incredibly great products like the Walkman and the Trinitron TV. And then Sony went through several lost decades where they started turning out tens of thousands of skews and had no clarity of what they were.
So now they are scrambling to try to recover the lead they had in television from Samsung and the lead they had with the Walkman which was lost to the iPod. So they are trying to make it on games and they are not the leader in games anymore. So it is a real challenge for the new leadership at Sony and I wish their new leader well. But imagine trying to turn Sony around, that is as hard as trying to turn Hewlett-Packard around. By the way, Hewlett-Packard was a great company when I was in Silicon Valley.
Q: Where do you think we are going to have our next Walkman or iPod moment? Do you think it is going to be in the mobiles’ space?
A: I think the thing to watch is sensors. When I joined the high-tech world it was the early days in microprocessors. They were not very powerful, but look what they can do today. Everything is wireless and everything is going mobile. By 2020, the Gartner Group says that by 2020 there will be 20 billion wirelessly connected devices while there are only 7 billion of humans on the planet.
So most of those wireless-connected devices are going to be machine-to-machine and going to be sensors connected to big data analytics. So I think the next really interesting stuff is going to involve sensors and big data analytics and it is going to be machine-to-machine. It is going to be a pretty amazing world. It is going to be many times bigger than the smartphones that we have today. We are just at the early days of digital life.
Q: How much money can we see you pump into India?
A: We are going to be quite aggressive. And I say this knowing that a lot of investors have been sitting on the sidelines and as you said, it is quite difficult to be a foreign investor in India. But I love Indian culture and people. I have many friends here. I have been coming here for social reasons for 16 years. I am pretty optimistic that there are going to be some good days ahead in India, not just for us but for people who want to build companies.