1. Technology Tales & Tails Stories of Techno-evolution Steve Kiely Chairman, Cray, Inc. September 21, 2010

2. Does the best answer always win? VS. …If not, how do we pick the right horse to ride?

3. Technology Tails Late life cycle

4. Life cycle: early phases Innovators Dilemma

5. Innovators dilemma: Clayton Christensen Technology evolution Disruptions! Disruptions occur at low-end price points High-priced products managers wont react… Theyd lose margin! They dont feel threatened! Buyers moved by price for NEW USES If milk cost a penny per gallon, wed water our lawns with it…. Disrupt yourself before somebody else disrupts you!

6. Paradigm shift: low-cost replacement 1980s: Mainframe Model 1990s: Distributed Model DISRUPTION!

7. Tale: IBM vs. Intel & Microsoft 19822000 IBM IT PRODUCT MARKET SHARE INTEL & MICROSOFT IT PRODUCT MKT SHARE IBM exited PC business in 2005 PC business dominated by Intel & Microsoft

8. Tale of 1982: The Birth of The Industry Titans… IBM Funds Intels R&D for microprocessors Intel faced financial ruin from Japanese RAM dumping IBM chooses Microsoft to supply the OS for IBM PC Microsoft had no meaningful business at that time

9. TALE: iPad vs. PC: Disruptive Technology? iPad ParadigmPC Paradigm Simpler (touch vs. type) Killer graphics Task-focused Reading Playing Lower cost Getting better Smaller Faster Cheaper More portable KB/Mouse Large Storage (HD)

10. iPad and the Laptop, WSJ

11. Tale: Low Cost Replacements, Round 2 Apple vs. Microsoft, Round 2 Apples market value (stock) now exceeds Microsofts (!) Apple has attacked the low-price segment iPod, iPhone, iPad enjoy significant user simplicity advantage Microsoft has four failed entries in consumer segment Zune, Windows phones dont compete XBox: only hardware differentiation; uses software from game industry Intel vs. the world, Round 2 Intel has no answer for low cost hardware engines ARM, Snapdragon dominate smartphones, specialized devices like iPod and iPad DSPs (Digital Signal Processors) dominate mobile devices – no Intel answer

12. Life cycle: MID phases Crossing the Chasm

13. Crossing the Chasm: Geoffrey Moore Build the whole product Your product, plus… The Value Chain Hardware, software, network, distribution, service, etc. … Target early adopters Users who have NO CHOICE Users that DRIVE THE BUS As volumes peak, change your approach to the market shift investment to the next big thing change marketing (e.g., coupons vs. advertising)

14. TALE: Apple vs. Android Apple iPhone approach: Premium priced within its category Proprietary product design, even for applications Steve Jobs philosophy: design beauty via total control Side-effect: limited value chain (e.g., Flash Applications) Exclusive network (AT&T only) - #2 behind Verizon Google Android approach: Supply the key element = the mobile OS Let the industry provide hardware platforms & networks Result: lots of price points, hardware innovation & competition, broad network adoption 2010 Year-to-date: Android sales > iPhone sales Market prediction: Android dominates by 2014

15. SOME IMPLICATIONS for USERS… Pioneers have arrows in their chests…. Be an early adopter when you have no other choice If youre an early adopter, realize if its for the thrills… Laggards walk a tightrope… Theres a lot to be said for the stability of maturity Laggards put themselves at a competitive disadvantage Mainstream Majorities seldom stick out in a crowd…. Nobody gets fired for buying IBM… …But does your business require a technology advantage?

16. Life cycle: Late Phases Technology in decline?

17. Cost Wars: Hard Drives vs. DRAMs VS

18. Tale: Hard Drives vs. DRAMs LESSON: Competition technology improvements! Consumer hard drives priced below $0.01 per GB Consumer Flash RAM priced over $2.00 per GB LESSON: Competition technology differentiation! Hard drives – best capacity Flash RAM – best access times

19. Beware the Next Big Thing… …Consultants dont always get it right…

20. Closing Thoughts… Dont be the first to buy unless you see no choice (or you are a thrill-seeker) Dont sell an old technology short while its still delivering Dont make your organization a dinosaur by riding one Dont forget to look for the WHOLE product Dont forget to look for the shiny new toy at price points below the mainstream products

21. Technology Tales & Tails Stories of Techno-evolution Steve Kiely Chairman, Cray, Inc. September 21, 2010