INNOBLOG

Only 25% of all new products that established companies introduce in their markets succeed. The seventy-five percent that fail often do so after multi-million dollar investments and very visible branding and public relations efforts.

So how can companies innovate without wasting resources and risking the company brand? To address this dilemma, Innosight recommends that companies run small, cheap experiments to test assumptions early in what we call an emergent strategy. We recommend that companies "invest a little to learn a lot. A recent Wall Street Journal article provides a great example of this with the experiments that search engine companies run to test their new products.

In the last year, Yahoo has introduced AlltheWeb.com, Google has launched searchmash.com and Microsofts Windows Live unit recently brought MsDewey.com live. These sites were all launched under a separate brand from their parent to test new features and gather consumer feedback.

The site MsDewey.com is a search engine where users pose their query to prerecoreded video clips of a sassy actress.



It is definitely a novel way to search and we can assume that Microsoft has launched this site without the Microsoft brand to answer some of the following questions

- Should we do this?
- Do consumers want this?
- How can we strategically beat competitors?

We like what these companies are doing because these types of experiments

- Can be executed quickly
- Can be executed with relatively minimal investment
- Provide high return on learning investment by providing knowledge around key assumptions
- Present minimal "blowback risk to established brands

The key thing to remember is new products have a high failure rate and one way to minimize the risks involved in launching new products is to run small experiments.

See:"In Search ofBetter Ways to Search: Google, Microsoft, Ask.Com Quietly Use Spinoff Sites To Test New Features, Solicit Feedback,; Pulling Up Videos. The Wall Street Journal. January 17, 2007; Page DI

Yesterday Steve Case (of AOL fame) announced the launch of a new healthcare web portal, revolutionhealth.com, that will, in his words, "transform a broken industry by putting health care back into the hands of the consumer.

The offering aims to bring web 2.0 features to healthcare ratings, smart search, discussion boards, social networking, shopping tools for health insurance and health products, and so on. "Isn't it crazy that we have ratings to help us pick movies, restaurants and hotels, Case wrote in an introductory letter quoted by CNN.com, "but no comparable tools to help evaluate doctors, hospitals and treatments?

The main site will be free and ad supported, primed to take advantage of lucrative targeted advertising opportunities in the health and wellness vertical (initial front page content on the site references new kinds of sunscreen, yoga, links to product-laden tips and advice, and a free e-newsletter that will essentially be a targeted direct-to-consumer lead generation vehicle).

Unsurprisingly, WebMD, the leading online health info portal, is hot on its heels. It immediately announced a site revamp that will incorporate many of the same web 2.0 features as Revolution. The Wall Street Journal sums it up like this: "Mr. Case faces not only the challenge of changing an industry that is both highly fragmented and deeply entrenched, but he also faces heightened competition right off the bat from the most-successful health site on the Internet.

Sound like fun?

Luckily for Mr. Case and his backers who in this venture include Colin Powell, Carly Fiorina (HP), and Jim Barksdale (Netscape) the success of the site will not rest on web 2.0 healthcare content alone, but on a much bigger and more interesting bet. In addition to its health info portal, Revolution plans to offer a remote, subscription-based, quasi-concierge service for healthcare needs. For under $100 a year, subscribers will be able to access customer service agents to help unsnarl health insurance claims, get doctor and treatment recommendations from healthcare consultants, and store and manage electronic medical records online (these premium services will be offered free for one year in an initial promotion).

Messaging on the site emphasizes the value proposition "When youre sickthe last thing you need is another healthcare hassle. What with the rise of consumer driven healthcare and spiraling costs throughout the system, many Americans are finding it increasingly difficult to navigate more and more complex relationships in the quest for affordable and effective healthcare. There is certainly a very large, very important, and frequently frustrated Job to be Done in simplifying healthcare for the average consumer, and Case is betting that a concierge service combined with web 2.0 ratings, reviews, and networking will be the way to do it.

The Journal points out that web-based subscription efforts have rarely worked in the past, since consumers dont seem to like to fork over cash for content when they can find similar stuff elsewhere on the net for free. But this critique may be missing the point: if positioned correctly, this service will not be competing against free online information, but rather against the frustrating experience of attempting to self-manage labyrinthine records, infuriating customer service calls to insurance companies, and devastatingly important treatment decisions. Private Banks tend to provide such concierge services to their ultra high net worth clients; for $100 a year Revolution is offering a similar low-end service to the masses.

Of course, Revolution will have to deliver. Its customer service agents, consultants, and medical records software will have to make things markedly easier and less stressful for consumers. If it does work, revolutionhealth.com figures to join Cases burgeoning retail health venture, RediClinic, as an effective compensatory solution targeted at easing the frustrations of the healthcare system.

See:

"AOL co-founder unveils Web health service. CNNMoney.com; January 23, 2007.
"The Doctor's Office Gets Crowded on the Web. The Wall Street Journal. January 22, 2007; Page B1

This month, Toyota opened the largest corporate clinic in the United States, a $9 million facility at a new assembly plant in Texas. Toyotas facility is an outlier in terms of its sheer size, but it is illustrative of how providing healthcare at the workplace is growing rapidly. This kind of benefit used to be reasonably commonplace in the 1950s and 1960s, as people joined large employers for long careers, and then they fell out of favor in recent decades due to cost cutting. Why the resurgence? First, technology has enabled relatively less skilled providers to deliver adequate quality care for an increasingly large range of conditions. Diagnosing strep throat or flu, for instance, takes a swab and an easy-to-read test, not a complex analysis of symptoms. In tandem with advancing technology, the supply of nurse practitioners has grown rapidly, at around 10% annually since 1990. Nurse practitioners can deliver these services for significantly less cost than a Medical Doctor. This combination of circumstances has enabled the creation of walk-in clinics in retail stores, such as MinuteClinic, and has the same impact in the corporate setting. Second, employers are motivated to provide on-site care to reduce usage of expensive emergency rooms and specialist providers. Health insurance premiums continue their rapid increase, and keeping simple conditions in a low-cost, primary care setting allows the employer real savings. Indeed, a health benefits manager at Florida Power and Light recently estimated that his company saved $1.50 for every $1 spent on its three company clinics. Third, employees time can be very valuable. Wall Street firms, for instance, provide on-site care to avoid having employees take time off for doctors visits. As the incomes of rich and poor continue to bifurcate, it will make even more sense for firms to save the time of their highly compensated employees. Last, company clinics can stress preventative care in a way that many primary care physicians simply are not incented to do. Insurers are notoriously stingy in reimbursing doctors for the time they spend counseling patients on issues such as diet and exercise. Given that the average employee in a health plan stays with the insurer for only eight years, it just doesnt pay to invest heavily in prevention. However, some employers have longer timeframes in mind, and many will also see the financial impacts of prevention materialize before the health costs do (e.g., fewer days off sick, more productivity, etc.). It is curious that some physician groups see company clinics as a threat. In reality, they present an outstanding growth opportunity, albeit one that requires a significant change in business practices vs. operating the sort of doctors office to which they are accustomed. Predictably, rather than seeing local doctors seize the opportunity, we are witnessing new specialists such as CHD Meridian and Whole Health Management ride the disruptive wave. Source material for this posting was taken from "Company Clinics Cut Health Costs, New York Times, January 14, 2007

Yesterday, Apple unveiled its long-awaited iPhone. Just before the announcement, we noted in an Innovators Insight that, as a late entrant in a category teeming with deep pocketed incumbents, Apples best chances of success came from taking a highly disruptive approach (read the Insight here). While theres a lot to like about the iPhone, the failure to move in a truly disruptive direction might inhibit Apples long-term success.

What we like about the iPhone
On Tuesday, we wrote that Apple needed to improve its cellphone offering along a dimension of performance that is not-yet-good-enough for some significant group of consumers. The iPhone clearly attempts to do so. Apple has set out to use its design wizardry to re-imagine how people can access both the Internet and a variety of entertainment content while on the go. Pundits predict that the stunningly clear, large iPhone screen and its unique sensor-based interface will provide a truly distinctive user experience.

CEO Steve Jobs said that Applewhich also yesterday dropped the word "Computer from its name to reflect the companys growing focus of a range of consumer electronicshopes to sell roughly 10 million cellphones by the end of 2008. Those expectations are high, but not unreasonable, demonstrating that Apple recognizes some of the challenges it is facing.

Finally, the iPhone is unquestionably cool. The thin design, novel screen interface, and cutting-edge touch-sensing technologies drew wide praise. The iPhone is positioned to be a highly aspirational product for the digerati.

Apples radical designthe iPhone has no keyboardprobably wont appeal to demanding business users who are used to plunking out messages on raised keypads. And thats not necessarily a bad thing: Instead of targeting the most demanding market tier, Apple is trying to appeal to entertainment-seeking consumers who want a better way to access content on the go.

What we dont like about the iPhone
Cramming in as many advanced features as Apple did resulted in a relatively high price for the device. Given that Apples design choices might knock out demand from business users, a $500 or $600 price tag is quite steep (discounts from wireless provider Cingular might knock that price down). Jobs pointed out that the iPhone is cheaper than purchasing a high-end cellphone and a separate iPod nano, but the high price tag will undoubtedly scare off some consumers. Some analysts already have argued that Apple actually set an artificially high price tag to minimize cannibalization of its profitable iPod line.

Secondly, Apple decided to be an arms-length provider to Cingular, Americas leading mobile operator. This approach minimizes Apples risks and allows it to get to market quickly, but it also provides fewer degrees of freedom for Apple to offer a truly breakthrough offering. Cingular is far from a perfect operator. Consumers accustomed to a seamless experience with Apple products might find themselves disappointed with the bumps and bruises that come from interacting with Cingular.

Additionally, Apples device will not initially be compatible with so-called 3G wireless networks, which provide the fastest available download speeds. This means that, despite Apples snazzy interface, users will still have to put up with relatively slow access to the Internet, unless they happen to be in an area with public WiFi access. Pundits expect that the iPhone will eventually have higher-speed capabilities, but in the short term consumers wont really enjoy a truly distinct wireless Internet experience.

Apple deserves a lot of credit for bring its reliably fresh perspective to mobile phones and for really thinking about how to simplify the user experience. However, the iPhone is not a perfect device. As such, some of its technological tradeoffscombined with the high price pointmight inhibit it from finding a real market sweet spot.

More fundamentally, Apple is following a sustaining strategy against deep-pocketed incumbents that have a lot to lose if the iPhone truly takes off. History teaches us that the odds that Apple creates anything akin to the iPod in terms of profits and market dominance are as slim as its new phone.

A reasonable comparison is Microsofts xBox gaming console. Like Apple, Microsoft was a late entrant in a well developed category. Microsoft has created a strong position in the market, but only after losing billions of dollars for several years. Apples approach means that it will have to spend heavily to market and constantly improve its product if it hopes to successfully ward off competitors.

The iPhone will undoubtedly make a splash, but is unlikely to create a profit pool for Apple that is anywhere comparable to the one created by the iPod. Of course, that might be okay if Apples efforts to move into home entertainment succeed, but thats a topic for another day.

The disturbing disappearance of winter in the Northeastern United States has surely got the ski resort industry down. But resorts have plenty of other things to worry about as well.

Over the last twenty years large conglomerates such as Intrawest, The American Skiing Company, and Vail Resorts have gobbled up many of the marquee ski mountains and turned them into cookie cutter winter wonderland megaresorts. The mountains feature expanded terrain, impeccably groomed slopes, extensive snowmaking, heated gondolas, and high speed chairlifts. Off the slopes, theyve built "resort villages replete with condos, spas, boutiques, and amenities galore. The ski resort industry is in a classic pattern of sustaining innovation; the larger, more successful resorts are getting bigger and bigger, pouring in massive resources to keep pace in the race to add high-end features.

But where does this leave the smaller, often family run resorts that simply do not have the resources to compete? Winters like this one are devastating for a resort without extensive snowmaking and alternative activities. Many are stuck in the mud.

When caught in a bruising sustaining battle that gives clear advantage to powerful incumbents, other players ought to look for new business models that might enable them to beat the market in new ways by satisfying underappreciated dimensions of performance. In the world of winter sports, smaller resorts would do well to consider the disruptive new business model being developed by Echo Mountain Park in Colorado.

Echo is a new resort built exclusively for freestyle snowboarders and skiers. It is much smaller than traditional resorts, covering just 50 acres with a vertical drop of 600 feet, miniscule for Colorado. There are no groomed runs, no gondolas, no moguls; Echo is 100% terrain park, all jumps, rails, and half pipe. It is relatively cheap and easy to operate since there is much less need for snow coverage and maintenance and it can handle considerably higher utilization than its competitors (many more freestylers fit on a slope at a time since they tend to congregate around jumps, watching their friends and taking turns). It is more skate park on snow than downhill resort.

This approach is much more economically viable than, say, building another Vail, and it is also perfectly targeted at the fastest growing segment of the winter sports industry the youth market. Prices are low ($35 vs. $70-plus at competing resorts), the entire park is lighted so lifts run until 9pm daily, and the mountain is a quick 30 minute drive from Denver. The cafeteria sells microwavable burritos and red bull, and kids crowd around video game consoles while they eat. The resort operators field user requests and suggestions online, actively adding and subtracting features according to popularity. The dcor, music, and atmosphere targets the young.

Jerry Pettit, Echos owner, sums it up: "Its nothing against places like Aspen, but the young people we consulted early on told us they cant afford to pay $75 for a lift ticket or $14 for a buffalo burgerWhat kept coming back to us was: Keep it inexpensive. Make it for us.

This alternate approach is clearly inferior to the classic ski resort in many ways, but it is also much more attractive and accessible to a large and growing demographic because it is designed to satisfy a Job they want to get done. Due to Echos proximity to a major metro area, affordability, and targeted delivery of an experience, it is increasing consumption, drawing riders from competitors but also from improvised jumps on backyard hills and television screens in suburban bedrooms.

Finally, the path forward is relatively clear. Megaresorts are not organized to respond all of their capital-intensive investments mean that they could not possibly halve ticket prices. The Aspens of the world will also be tempted to shun this new model because they suffer from an asymmetry of motivation. They are focused on serving their high-end, condo-buying, boutique-shopping clientele, and in many cases would be happy to clear their impeccably groomed slopes of the troublesome, loud, and etiquette-less snowboarding riffraff.

Unsurprisingly, Echos owners are looking to export their disruptive model to new locations. Business Model Innovation is fueling their success in spite of adverse market conditions.

Note: "Steeze is snowboarder slang for "style

See:
New York Times, "Snowbound Neverland in Colorado 1/5/07
www.echomtnpark.com

Something funny in the air? Chances are it could be an air freshener you havent smelled before. The category is exploding, and disruptive innovation is largely responsible. In 2000, U.S. sales of air fresheners were about $900 million. In 2006, the figure is $1.7 billion. Shockingly for the consumer products industry, a substantial portion of the growth has come from a new entrant, Procter & Gambles Febreze. How did it happen? The category had been stuck catering to mothers and older consumers. Indeed, the first air fresheners, from S.C. Johnsons Glade, were introduced in 1956 to target cooking and tobacco smells. By contrast, much of the recent growth has come from younger consumers. College students are seeking to differentiate their scents, and snap up products that enable them to tailor the scent produced. Tweens are buying fresheners that combine scents with plug-in light shows. Other young adults are buying Scent Stories, a P&G product that "plays different scents like different albums; it is even looks like a CD player. Febreze targeted a major job consumers wanted to get done: they didnt necessarily want a new scent, but just wanted to eliminate an old one. Demand comes from three sources. The products themselves generate demand, as their uniqueness gets noticed. Ad spend in the category is also way up, from $67 million in 2003 to $147 million in 2007, according to Kline & Company and Nielsen. Finally, scents by their very nature get noticed, and social networking has played a major role in stimulating rapid take-up in the youth market. Some lessons are instructive: 1. Think expansively about jobs to be done, outside of your product category. Entertainment was unlikely to be a job that marketers in the category had targeted before, but it is squarely addressed by some of the newer entries 2. Think stepping stones. Had P&G introduced Scent Stories at the start, consumers might have viewed it like some alien from Mars. But the company build a lineage of products that made Scent Stories seem a much more logical extension 3. Look to untapped markets, not those already aggressively catered to. Had P&G targeted mothers and older consumers with its initial entry, it would have faced very stiff competition from S.C. Johnson. The company big as it is was still able to compete asymmetrically 4. Examine ways to leverage social networking. Usage by a friend can be a far more persuasive influencer than the most clever ad. Find ways to make product usage more obvious Perhaps these marketers have given us fresh air in more ways than one. Source material for this posting comes from The New York Times, "Sensing Opportunity in Dormitory Air, January 3, 2007