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The new version of Amazon’s Kindle e-book reader has been attracting quite a lot of press (including within this blog), and generally the coverage so far seems to be positive: its screen is easier to read and displays more shades of gray, it’s thinner, its keyboard is easier to use, and it doesn’t look quite as much like a medical device. One improvement, however, has been strongly criticized and may threaten an existing business model.

This new feature is the Kindle’s ability to “read” text out loud; text-to-speech technology has been improving rapidly in recent years, and supposedly the Kindle’s computer-generated voice – named “Tom” – is reasonably pleasant to listen to, at least for a little while. Surprisingly, this has stirred up some controversy.

In this New York Times op-ed, Roy Blount, the President of the Authors Guild, argues that the Kindle’s new ability is essentially stealing value from authors and publishers because it offers each title as “an e-book and an audio book rolled into one” but doesn’t pay anyone for audio rights and may threaten the market for audio books. Although one writer responds that the Kindle’s speech synthesis just isn’t good enough to compete with audio books, it seems inevitable that the technology will reach that point in the not-too-distant future.

This is a terrific example of an entrenched business model threatened by (and fighting against) a new technology that undermines it. From Baldwin Locomotive to VCRs to Better Place, this kind of tension is ubiquitous, and overcoming it can require businesses to transform their business models to adapt – because, litigation aside, new technologies are tough to stop. Baldwin Locomotive may not have seen diesel coming early enough, but the entertainment industry adapted to VCRs after failing to stop them in court by using them as a new channel to sell their content. Through sites like Hulu, it’s now adapting to the Internet as well. Whether Better Place’s nascent business model will be undermined by better batteries remains to be seen, as my colleague Luke Langford explains.

So how will book publishers adapt? The audio book industry may well be in for some tough times, but the Kindle could enable some fascinating (and potentially lucrative) new business models that weren’t possible within the paper-and-ink paradigm. This blog post suggests just a few good ideas, from dynamic pricing to social networking to self-publishing. Making money through the Kindle might look different from making money through Barnes & Noble, but the faster the authors and publishers of the world recognize that business model innovation will be necessary and doesn’t have to be zero- or negative-sum, the brighter the industry’s future will be.

Update: Amazon appears to be taking this argument seriously, at least for now.  On February 27th, Amazon announced it would be allowing publishers to decide whether to allow text-to-speech to be made available for their content.

At Innosight, we talk about understanding both jobs-to-be-done and compensating behaviors to spot, shape, and scale innovations. But what methods do you use to get these insights? Here’s one you may not have thought about: deprivation research.

The premise of deprivation research is: the best way to understand what people want in a product is a deprive them of it. Consumers don’t know how they truly feel about a product or the role it plays in their lives until they find themselves without it.

The technique has been used by Pizza Hut, MTV, and Burger King. It is designed to surface actionable insights that can be used to customize marketing campaign and design product feature sets that delight consumers and improve their lives.

For example, MTV wanted to understand the role that MTV and MTV.com play in the role of their heavy users. The market research firm U30 conducted a deprivation study, in which they deprived heavy users of all things MTV for a month. They asked them to track how they felt and what they turned to instead and how satisfied or unsatisfied they were alternatives. They learned that when these users were deprived from MTV they felt less connected to conversations with their friends and felt out of the loop. The data they collected was used to develop better programming, web sites and advertisements.

This technique has also been used by Burger King in advertisements testing just how loyal consumers are to the Whopper (aka “Whopper Freakout”). JanSport also deprived students of their back packs for a week to see what they used instead and what they missed most. This lead to product upgrades including a rubber piece on the bottom of the bag to prevent contents from getting wet and extra compartments for keys, music players, etc.

The implementation is fairly straight forward. In a nutshell, the process is to recruit heavy users of your product and ask them to live without it for one week (this is best suited for non-essential products that are part of a person’s daily routine, like beverages, cosmetics or consumer electronics). Ask participants to keep track of their experiences in a daily journal with pictures and videos of compensating products, services, or behaviors they are using. Ask them to answer:

• How do you feel?
• What do you miss most?
• What products, services, and behaviors are you turning to as replacements? When do you use these? What about these alternatives is disappointing? What is delightful? Why?

Deprivation research complements other research methods (like surveys and focus groups) to give you new insights into customer’s jobs and compensatory behaviors, which can then be used to spot, shape and scale new innovations. We’ll continue to post novel, low-cost ways to gather consumer insights and jobs-to-be-done in upcoming blog posts.

• How to Keep Innovating - BusinessWeek

  Microsoft Research Principal Scientist Bill Buxton outlines some tips to keep innovating, including "Always be bad at something that you are passionate about...always be a beginner at something, and always be in love with what you are beginning. [And] when you get good at one skill, drop another in which you have achieved competence in order to make room for a new passion at which you are — yet again — bad."

• A World Transformed: What Are the Top 30 Innovations of the Last 30 Years? - Knowledge@Wharton

  Audience members of the PBS business program Nightly Business Report  from around the country were asked to suggest innovations they think have shaped the world in the last three decades and a a panel of eight judges from Wharton reviewed and selected the top 30 of these innovations. Results include GPS systems and online shopping/ecommerce/auctions (e.g., eBay) as well as Internet, broadband, WWW (browser and html), PC/laptop computers and mobile phones.

• How to Leverage Technology and New Media to Grow Your Business, The Coolest College Start-Ups Article - Inc. Article

  Profiles 16 entrepreneurs following the Michael Dell "business start-up in a dorm room" model.

• JetBlue to refund airfares to laid off workers - News- msnbc.com

  Like Hyundai, JetBlue is tweaking its value proposition to match the reality of its recession-spooked customers' lives.

Several weeks ago I wrote about Twitter's disruptive potential. This is quite a popular subject right now, so I'll update with some of the more pertinent recent articles that have come out speculating on Twitter's potential:

AP technology writer Michael Liedtke wonders how Twitter, like other Web 2.0 applications  before it, will manage to "build on their great audiences and keep them engaged, without alienating them with a bunch of crap?"

In UK's TimesOnline, James Harkin surmises that Twitter is changing the very way we think, as "the delivery of a continuous stream of messages might well be slowly stretching our brains, turning us into creatures who are better at doing many different things at once" and positing that if Marshall McLuhan were alive today, he would Tweet his message about media.

Tim Beyers from Motley Fool believes Twitter could be a "billion-dollar business," based partly on an evaluation of Twitter's evolving potential as a source for breaking news, and partly on a valuation of individual Twitter users as equivalent to the going rate for focus group respondents: "marketers want instant pitches presented at the moment when they most matter to you. Twitter supplies the thought stream to enable that." Beyers followed up with a post describing how Twitter could monetize: " 'TwitterSense' or selling conversational intelligence to companies that would benefit from microtargeting."

Here are some thoughts about how three pieces of the $787 billion stimulus package could affect healthcare companies:

1. $17B for roll-out of Electronic Medical Records (EMR) over the next 5 years - EMR has the potential to vastly increase payor (e.g. Aetna, UnitedHealth) power over physicians, mandating the use of standardized protocols and evidence-based medicine. This is more bad news for the traditional high-touch sales and marketing model of device and pharmaceutical companies, and means that the days of me-too competition in a therapeutic class will be short in number.

Suppliers to the industry will need to focus and differentiate, partly through offering total solutions vs. pill or device widgets. Many of these solutions may require partnerships with firms whose identity as long-term friend or foe remains uncertain (e.g. Microsoft, Medco). Pharmacy Benefit Managers will try to leverage EMR and their own databases to be high-value repositories of information. Vendors of decision algorithm software will grow rapidly in number.

The stimulus included privacy and opt-in provisions around health records; the impact of those rules is unclear, but likely it creates benefit for those who own the patient relationship and who therefore can get the opt-in most easily. ...

Read the rest at Scott Anthony's Harvard Management blog.

A few people have asked for my thoughts about the second version of Amazon.com's Kindle e-reading device. The short answer (as I told a reporter from Advertising Age): a nice evolutionary move, but one that is unlikely to drive a step change in the product's adoption.

I've long admired the Kindle, particularly the simplicity of Amazon's integrated business model. It literally takes seconds to download content and begin reading. Some analysts suggest that simplicity has led Kindle users to triple their book purchases.

The original Kindle wasn't the most beautiful of devices. It was all too easy to accidentally press a button and advance a page. The second version of the device looks more attractive. It is significantly thinner and more ergonomic. It also has additional features, such as the ability to translate text into speech. The price is the same as the original Kindle.

The upgraded device should appeal to customers who liked the Kindle's premise, but didn't like its clunkiness.

Read the rest at Scott's Harvard Management blog.

Last week Harvard Business Publishing hosted an audio conference on my forthcoming book, The Silver Lining. The 90-minute discussion included some great dialogue with moderator Angelia Herrin and the audience. There were a handful of questions that I didn't get a chance to answer during the course of the discussion that I thought would be generally interesting to readers here.

Q: Why are "defined processes" considered "innovation killers"?

This question refers to a slide that made the case that many of the perceived advantages of big companies are actually quiet innovation killers. As such, a silver linings of today's tough ties is it scarcity will force companies to do what they should have been doing already.

The basic problem is that sharply defined processes can stymie innovation. ...

Read the rest at Scott's Harvard Management blog.

• Who Transforms in Transformation? « Design Dialogues

  Thoughtful post that's part of an ongoing "innovation vs transformation" debate.

• live|work: Service Thinking

  First design thinking -- now "service thinking," an interesting approach to innovating around customer needs, this time around their needs for service.
  

• Harnessing Your Customers to Drive Innovation | CustomerThink -- CRM, CEM and Social Media

  Graham Hill says “Nobody seriously argues that we should create new products that don't meet customers’ needs … Unfortunately, that hasn't stopped countless companies from doing exactly that.” Hill’s post ties together the jobs methodology that we work with at Innosight, as well as Eric von Hippel’s lead user innovation and Henry Chesbrough’s open innovation, describing the value of each in helping companies innovate around customer needs.

• Where Real Innovation Happens - Forbes.com

  Passionate "alpha-geeks" create many innovations, says O'Reilly publishing founder Tim O'Reilly.

Last week's post described my negative experiences with companies that appeared to be cutting down on customer service. I empathize with these companies. They face the tough challenge of figuring out what to cut as demand dwindles.

And after decades of continuous improvement programs, most companies don't have much fat to trim.

It's the "more with less" problem. It's easy to say that tough times demand doing more with less, but hard to figure out exactly what that means. Far too often doing more with less involves slashing the biggest line item on a budget, or spreading cuts across the board (so-called "peanut butter" cuts).

The third chapter of my forthcoming book The Silver Lining provides more direct guidance on this point. The chapter's critical message is that you can't do more with less until you figure out exactly what "more" means. This means any cost-cutting effort must start with a deep understanding of the customer, the job they are trying to get done, and the metrics by which they measure performance.

This knowledge can help spot opportunities to spend less and deliver more value. ..

Read more at Scott's Harvard Management blog, Innovation Insights.

Note: This article first appeared in the Jan. 28 issue of Strategy & Innovation.

Distributing software free or making a web application for free as a means of building an audience that can then be monetized has its roots in the time-honored tradition of freely distributed print publications that make their money from ad sales. Google, MySpace, and Facebook all make money in this way. Twitter, the micro-blogging service that looks like a standalone version of Facebook’s “status update,” is another such company. Started in 2006, Twitter has managed to gather around 6 million users (a smaller percentage of them regular “twitterers”) to its free service.

Twitter hasn’t developed any revenue streams or a business model to date, though that is reportedly going to change this year. Twitter’s founders have so far been running the company on $22 million in venture capital. Despite co-founder Evan Williams’ comments last November that he did not want to take more funding in 2009 in the face of an economy that has venture firms requesting larger amounts of equity in response to declining start-up values, the company made a deal for another $20 million in funding last week, which brings its total valuation to $250 billion.

So, we wonder, is Twitter well-positioned to drive disruptive success?

Likely Outcome: Potentially disruptive, though if Twitter doesn’t develop revenue streams soon, may simply be purchased by another company

One thing Twitter cannot do is maintain its status quo. There are no large direct competitors for Twitter, and it seems unlikely that another large company would build a Twitter competitor rather than just buy Twitter. However, Twitter now has a host of me-too imitators, and first-mover status isn’t always an advantage. For example, neither Google nor Facebook nor LinkedIn was first in its respective space, nor was the iPod the first MP3 player. The first Twitter-like company – Yammer, for instance, which charges companies for closed employee networks – to actually figure out what service they could offer that customers would value enough to pay for could potentially kill Twitter.

So Twitter essentially has two potential outcomes: be acquired as a sustaining application for another company looking to build engagement, or develop a compelling, possibly disruptive business model on its own.

Considering the first outcome, potential suitors might include Google, Yahoo, or Facebook. A Facebook/Twitter merger has been discussed, and makes sense, since Twitter is essentially Facebook’s “status updates” feature, untethered from Facebook and available by SMS text message (there is a free Facebook application that allows Facebook users to populate their Facebook status updates with their Twitter “stream”). Last fall Twitter reportedly turned down a purchase offer from Facebook for $500 million, although the sticking point wasn’t necessarily the idea itself but the valuation of the Facebook stock that was being offered in return.

The second outcome offers much more interesting possibilities. Just two weeks ago, Twitter filled its first-ever business development position. Where should that person begin in developing revenue streams?

The most obvious answer for a Twitter revenue stream is Google AdWords-like ad sales on Twitter users’ profile pages and against search results. However, founder Evan Williams has said he’s averse to an advertising model.

If non-advertising-based revenue streams are indeed desired, the place to begin is with an understanding of the value Twitter holds for its customers. In other words, what jobs is Twitter fulfilling for its users? Back in December, I conducted a highly unofficial online poll of just over 100 Twitter users to ask them what Twitter was displacing for them. Facebook, isolation, email, and news media were all among the top results, although “Other” also ranked high. Reading into the open-ended comments, “Other” included “Craigslist, real conversation, sleep, PR, media gatekeepers, eating, and writing my dissertation.” Twitter could create a pay-for-service offering that specifically solves any of these.

Twitter could explore ways of charging companies to reach its users or use the site to gather feedback on their products. Twitter could also charge companies that use Twitter as a channel to advertise deals via “tweets” – Dell has said it made $1 million in revenue in 2008 through its Twitter channel.

Twitter is just now beginning a process of integrating search on the home pages of some of its users, a move that could lead directly into an advertising model.

There has been some speculation as to why Google and Yahoo have not attempted to set up a specific Twitter search (currently the only way to search Twitter is at search.twitter.com).

Conceptually, Twitter search amounts to a real-time news search, which is quite powerful and would be attractive for advertisers. It’s hard to imagine that Google would not want the opportunity to add Twitter searches to its AdSense network. It’s also hard to imagine how, if you had a web property with valuable content not already indexed by Google, you would not want to sell advertising there.

Meanwhile, the number of things my informal survey suggests that twitter might potentially displace, and the very breadth of revenue ideas being kicked around in the blogosphere and on Twitter itself, indicates real disruptive opportunities to develop a compelling business model. The discussion includes a large variety of features and analytics that Twitter could add and charge for, and two different “come up with a business plan for Twitter” contests. In fact, the most disruptive ideas may be somewhere down in the comments on one of those blog posts.

Amidst our recent national panic attack over the nauseating roller coaster gas prices are riding, a couple of emirates on the Persian Gulf are innovating furiously. Dubai and Abu Dhabi are receiving a great deal of attention for their efforts to use the money they pull out of the ground to radically transform themselves to prepare for the day when the pumps finally stop.

Dubai is by now well-known for its ability to make Las Vegas look like a Podunk, with its unbelievably scaled-up buildings and indoor ski slope; Abu Dhabi has been making fewer waves in the press, but arguably pursuing a more audacious innovation, with the construction of Masdar, a city being built from the ground up to epitomize clean energy and sustainability. Innovative technologies, from solar and geothermal power to recycled waste water, will minimize Masdar’s environmental footprint. Careful urban design will make Masdar livable without cars – with the help of a system called Personal Rapid Transit.

PRT is essentially a marriage of the privacy and convenience of point-to-point transportation in cars with the efficiency of public transit. The idea has been around for decades and a system has been in place in West Virginia since the 1970s, but it has never really taken off due to the expense of constructing the system and lengthy rights-of-way (usually grade-separated rails or roadways) and the complexity of orchestrating vehicles moving autonomously on intersecting tracks. Now, however, with growing interest from some cities and projects moving forward both in Masdar and at Heathrow airport, the potential of this system might begin to be tapped.

Of course, Masdar is able to avoid many of the problems typically associated with the implementation of new transit systems because it doesn’t exist yet; as one planner put it, “[S]omething like a conference center, which attracts a lot of people all at once, could become a local generator of congestion. So we said: let’s move it slightly to the side.”  The city is designed with the explicit goal of being functional without cars, and along those lines the PRT system will run on an extensive network of dedicated roadways at ground level (which will be beneath the city’s “street” level), thus avoiding the expense of a network of tracks.

Needless to say, PRT may not be ready for implementation in pre-existing cities with complex infrastructures (here in Boston we know all too well how hard it is just to maintain the transit systems we already have), but clearly such systems have potential. PRT systems may even be disruptive to cars if they offer low fares and “green”-ness while requiring only small sacrifices in convenience and privacy. As the technology improves and pressure to replace cars with a more efficient form of transportation mounts, PRT may move closer to the spotlight. 

• Innovate Like Chris Rock - Conversation Starter - HarvardBusiness.org

  Emergent strategy illustrated in Chris Rock's approach to comedy.
  

• Free Newspaper Venture Depends on Local Blogs - NYTimes.com

  More business model innovation in media.
  

• Cisco Plans Big Push Into Server Market - NYTimes.com

  Cisco plans to release a server equipped with virtualization software, a product that "threatens to shake up the technology industry and put the company on a collision course with traditional partners like Hewlett-Packard and I.B.M. ... [this] is a bold but risky move by Cisco into an unfamiliar, intensely competitive market that typically produces far lower profits than Cisco makes from network gear. ... Cisco’s push into the server market...could cause an all-out war among the tech titans for one another’s customers.
  

• Asleep at the Wheel of Creative Destruction - Umair Haque - HarvardBusiness.org

  Wall Street's moral hazard has a mirror image.. The perverse irony of the collapse of industrial-era capitalism isn't just that Wall St ended up being massively risk seeking, taking bets it never should have. It's also that venture capitalists ended up being risk averse - never making the bets they should have. ... Venture investors have been free to take hidden action that maximizes their own near-term returns - underinvesting in radical innovation.
  

• The New Reality: Constant Disruption - The Big Shift - HarvardBusiness.org

  John Hagel, John Seely Brown, and Lang Davison argue that "equilibrium is a thing of the past" because "Today's core technologies--computing, storage, and bandwidth--are not stabilizing. They continue to evolve at an exponential rate. And because the underlying technologies don't stabilize, the social and business practices that coalesce into our new digital infrastructure aren't stabilizing either. Businesses and, more broadly, social, educational, and economic institutions, are left racing to catch up with the steadily improving performance of the foundational technologies."