Why the Pokemon Go phenomenon teaches the technology industry two vital lessons

Unless you have been living under a rock, you can't but help notice the gaming sensation sweeping the world that is Pokémon Go. It has overtaken Twitter and Tinder in downloads, and lead to armed robberies and personal injuries. If the Beatles were still around, it would probably be bigger than them too. Now it's just about to hit Europe and you have been warned. But even for non-gamers, this success teaches (or more precisely re-teaches) us two important lessons.

If you don't know your Jigglypuff from your Wigglytuff, this whole phenomena is going to appear somewhat bizarre.

Put briefly: Pokémon Go is an 'augmented reality' game in which you have to hunt down and capture Pokémon characters. The clever twist is that they are in 'real life', created through though the camera and location tracker on your smartphone. You actually have to go to physical locations in the real world to find them. Fair play to the game maker Niantic who used every gamification trick in the book — social interaction, points, levels, scarcity, rewards — alongside some impressive technology to build a winner.

And a winner it is. Alongside the millions of downloads, the surging share price (adding $9 billion to the value of Nintendo) and the rising value of your childhood card collection in your parents' attic, has come a tsunami of Pokémon-related punditry about how this is the future of gaming, or the superiority of augmented vs virtual reality, or any other number of things. Maybe, maybe not. Pokémon Go doesn't really tell us anything we didn't already know, but there are two important lessons to be re-learned.

The first is emotion will always trump technology.

Take Nintendo's iconic 2006 Wii gaming console. The console came out around the same time as Sony's PlayStation 3 and Microsoft's Xbox 360. While the latter two had (for the time) impressive, realistic(ish) graphics and immersive game play — all the Wii had was blocky, cartoony graphics and plinky-plonky music. From a technical point of view, it wasn't even a contest.

Yet depending on who you ask, the Wii is reckoned to have sold probably 25% more consoles than either of its two competitors. The reason? The Wii was fun and social. The PS3 was played in a bedroom on your own; the Wii was played in your living room with your mates, or even your mum. Nobody cared that the graphics weren't that great, in fact they were part of its charm.

The second lesson: Pokémon Go tells us is that competition has a way of not looking like competition until it is too late. If you are Tinder or Twitter, both of which are on course to be eclipsed by the game, the last thing you expected to knock you off your perch was a 20-year-old, somewhat niche, card-trading game.

History is littered with examples of companies being attacked from an unprotected flank. In 2007, the suits at Nokia, then the largest phone maker in the world, dismissed the iPhone because it was expensive and at its launch only worked on second-generation networks unlike Nokia's 3G technology. Today Apple's market cap is $533 billion. Nokia was sold to Microsoft for $7.5 billion in 2014 and written off 18 months later.

It was a lesson that Dutch telco KPN learned to its cost. In 2011 the company was forced to issue a profit warning and announce plans to slash 5,000 jobs. KPN's Dutch mobile service revenue dropped by 8.1% in the first quarter of that year, a large chunk of that loss due to the collapse in revenue from its previously highly profitable SMS service.

The reason was not because of something that Vodafone or T-Mobile had done (KPN's traditional competitors). What the outgoing CEO Ad Scheepbouwer had failed to track was the growth of a two-year-old start-up run by a Ukrainian ex-pat and a Facebook rejectee. That start-up was WhatsApp, sold to Facebook for $22 billion (KPN's market cap today is about $15 billion) in 2014. Today Facebook's own Messenger service and WhatsApp process 60 billion messages a day, three times more than all of the SMS messages sent around the world.

Some people have argued that Pokémon's brand has been part of the game's huge success, thus suggesting that other without such brand recognition will struggle to follow on. The evidence is patchy. Nokia's brand (in some parts of the world Nokia was a synonym for mobile phone) proved to be a tissue-paper thin defence.

Whether Pokémon Go proves to be a flash in the pan (likely) or a long-term winner (doubtful) we will have to see. However what it has re-taught enterprisers is to look outwards, not in. Think about your users, not your technology — and don't worry about your traditional competitors you know what they are doing. Instead worry about those two people in a start-up that just launched a laughably bad early version of whatever it is that you do. You won't be laughing for long.