INNOBLOG

There’s a popular adage that “imitation is the sincerest of flattery.” Well, it amazes me how often I hear “it’s like Netflix for…” as a new company is being touted as innovative because it has borrowed (what it thinks is) the Netflix model. Generally speaking, it’s a great idea to consider borrowing a successful business model from one industry to apply to another, but there needs to be thoughtful consideration as to what the core of that business model is, so that it is not misapplied.

The Netflix model is a great example of business model innovation, which disrupted the entire movie rental market by providing customers with convenient, inexpensive entertainment. The model has resulted in numerous imitators, renting children’s toys, audio books, dresses, magazines, and beyond.

One of the big risks that many “it’s like Netflix for…” companies take is that they have borrowed some of the processes (e.g. creating rental queues online and home delivery of products) without thinking of the business model as a whole. The success of the business model depends on the integration of the customer value proposition (CVP), profit formula, and key resources and processes (see the Four-Box Business Model Framework). At the heart of the Netflix model is the customer value proposition: convenience and cost savings. Careful consideration should be given to what the benefit to the customer really is, in terms of what important and unsatisfied jobs are being addressed. For instance, if not convenience or cost-saving, is the value in time-saving or variety?

A big red flag that a model is being misapplied is if there is a weak customer value proposition, because the tradeoffs for the target customer are too high. Think for a moment about something that you own that you would hate to rent, or about something that you would want to select in store, not select over the Internet. Chances are the things that first come to mind are likely not a good fit for the Netflix model. When it comes to borrowing business models, it simply is not enough to think that because it worked in one industry it will work in another.

Could these interpretations of the Netflix model work for some of these companies? Sure. It’s too early to say whether these businesses will individually or collectively succeed, but here are a few questions that entrepreneurs looking to borrow a business model should think about:

1. Is whatever you are borrowing going to help fulfill your target customer’s important and unsatisfied jobs-to-be-done?
2. Will this model be unique to your industry? If not, are you at risk for becoming just another “me-too”?
3. What are you really competing against? Will your would-be-customers be willing to accept the tradeoffs your model presents?

If done properly, drawing from business model analogies in different industries can be a way to spur business model innovation. Consider which aspects of a business model you are borrowing and whether those fit with your vision and the customers for whom you are trying to create value.

A friend in the industry sent along word of an interesting business model innovation from electric car pioneer Tesla. The company is now offering to send roving mechanics, or “service rangers,” to its customers on house calls as needed for diagnosis, maintenance, and repair work at the rate of a buck per mile traveled. This "geek squad" for cars makes the experience of owning a (still extremely pricey) Tesla more convenient and more secure, and it keeps Tesla from having to build out a nationwide network of service centers. 

Tesla’s cars are pretty wired – a central computer monitors all systems and produces diagnostic reports – which should make on-the-spot service easier. Furthermore, electric cars are much simpler machines than their gas-powered brethren; the powertrain is much cleaner and more streamlined. There is no need for oil, spark plugs, hoses, pistons, etc, so there is less that can go wrong and less need for a full-on garage for many repairs. Finally, unlike the established automotive companies, Tesla is not encumbered by a pre-existing dealer / servicer network and therefore has the ability to innovate its maintenance model in interesting ways like this one.

Taking a step back, this is another in a series of intriguing moves by Tesla to go beyond simply providing a very cool but very expensive electric car to focusing on the customer’s entire experience of use. In addition to this servicing concept, the company has also started providing charging stations to its customers. We have long touted the comprehensive system of electric mobility that Better Place is constructing (most recently in the Harvard Business Review, here) as a key step towards enabling the electric vehicle revolution, and we have issued warnings about Tesla’s strategy of targeting the high end of the market out of the gate. But if Tesla can continue moving towards a Better Place-lite comprehensive value proposition, and if it can successfully launch lower-priced models as it promises, Tesla may find itself making an awful lot of house calls in the years ahead.

Green business ranges from sustainability to renewable energies to clean technologies and more. It's a big topic with huge implications for the world's future. Last spring Andrew Shapiro of Green Order, Lewis Perkins of Mohawk, and Innosight Chairman Mark Johnson participated in a panel discussion on “Green Business” as part of Forbes' Business Visionary series. This issue features a group interview of this panel in a further exploration of their thoughts on innovation in the green space. Here is an excerpt:

Strategy & Innovation: The current cultural change has begun to shape innovation efforts, new businesses, and so forth, which goes along with Innosight’s theory that constraints drive innovation by defining the box within which you need to innovate. The green mandates – sustainability, using clean energy, and trying to keep as small a footprint as possible, environmentally – how are those things driving innovation?

Mark Johnson: In Innosight’s language, we’d say that these constraints have the effect of creating new jobs-to-be-done related to sustainability: “Make my environmental footprint smaller,” for instance, or “Let me run my business profitably using clean energy.” Innovative technologies will be developed and adopted to fulfill those jobs, but only through equally innovative new business models.

In this issue, we also feature another article in our experimentation series, “Through the Looking Glass: Experimenting with the Future of IT,” by Kevin Bolen, who explores why technology companies should experiment as part of their innovation processes. Here is an excerpt:

“Please review the document in detail and sign if you are comfortable with the terms. Those who do not sign will not be permitted on the tour.” I received this greeting back in 2005 as I embarked on two separate visits to the future. At every pre-determined stop on our tours – one of Microsoft’s Home of the Future and the other at Deutsche Telekom’s Future Center – we were given a chance to hear a well-rehearsed description of an engineering marvel, and see and experience these wonders for ourselves. And not clunky prototypes scattered around a lab, either – we were interacting with products and form factors that looked ready to ship, all collocated in high-gloss environments designed to show us mere mortals what the engineering gods at these two technology powerhouses were preparing to bestow on us. Because I know those confidentiality agreements had no expiration date, I will not divulge in detail what I saw those days. Rather, I will share what I didn’t see, as I feel there are far greater lessons there.What I didn’t see on either tour was any type of experimentation.

From the Innoblog, Renee Hopkins reveals new advances in implantable device technology, silicon-silk electronics, in this issue’s emerging technology watch. Also, Andrew Laing analyzes Eventbrite’s potential for disruption in the online ticketing industry and Allen Stoddard discusses Google’s new, free navigation services and its effect on the industry.
 

Ticket sales and event promotion are sets of jobs-to-be-done that the Internet enables very well. Individuals can send waves of spam event-promoting notices over Facebook, and of course the 800-pound gorilla of "high-end" ticket sales is Ticketmaster. One startup, however, believes there's space in between: Eventbrite, backed by $6.5 million from Sequoia Capital, is seeking to provide a lower-end, less-expensive Internet-based ticketing and event promotion solution for the masses. But can they successfully disrupt Ticketmaster and find space in a crowded market?

One potential hurdle Eventbrite faces is what one might call "ease of imitation." An event-promotion website isn't terribly difficult to set up, and a model that targets less-demanding customers would in theory be very easy for Ticketmaster to replicate. Of course, Eventbrite's willingness to charge much less than Ticketmaster does, and its focus on less-enormous events (Ticketmaster's home page promotes everything from U2 to the NFL to Cirque Du Soleil) may protect it if Ticketmaster sees that segment as too unattractive and unprofitable to bother with. But the catch-22 is that if Eventbrite succeeds, Ticketmaster will strike.

Eventbrite faces significant less-sophisticated competitors as well: simple solutions individuals organizing small events might turn to, from handwritten notes to Excel to Craigslist. A statement from one of Eventbrite's backers, Roelof Botha, is telling: "Most of the people who use Eventbrite didn't switch from anything else. These are people who organized events using spreadsheets, pen and paper. They never had a solution before." Of course, spreadsheets and pen and paper are solutions, and if many of Eventbrite's target customers are happy with them, what will motivate them to go online and pay a third party a fee?

Again, the Internet can be a terrific tool, and sites and applications built on it can do an ever-expanding array of jobs, but it's a mistake to assert that something people aren't doing on the Internet is something people aren't doing well. Using something as low-tech as a notebook to track ticket sales for your garage band or your small company's annual forum doesn't mean you need something electronic and "better." Eventbrite will only thrive if a niche truly exists between people for whom low-tech is "good enough" and higher-end customers for whom Ticketmaster will aggressively compete.

MIT Technology Review reports on new advances in implantable device technology -- thin, flexible silicon electronics built on silk substrates, resulting in electronics that almost completely dissolve inside the body. Says the report, "These electronics don't need protection [from the body], and the silk means the electronics conform to biological tissue. The silk melts away over time and the thin silicon circuits left behind don't cause irritation because they are just nanometers thick." The research that has made this possible took place on several fronts, including the development of flexible, stretchable silicon circuits that perform as well as more traditional rigid circuits, and making such circuits bio-compatible. 

Applications could include "silk-silicon LEDs that might act as photonic tattoos that can show blood-sugar readings, as well as arrays of conformable electrodes that might interface with the nervous system," according to the article. The same research group is currently designing electrodes built on silk as interfaces for the nervous system. Such electrodes could integrate much better with biological tissues than existing electrodes, which either pierce the tissue or sit on top of it. Electrodes built on silk could be wrapped around individual peripheral nerves to help control prostheses.

Google made big news last week when it announced that it will offer free navigation service for mobile phones as part of its new software, Android 2.0. The service will initially only be available on Motorola’s new Droid phone (on sale beginning Nov. 6), but will eventually be expanded to more phones in the near future.

Unsurprisingly, the day the announcement was made, shares plummeted for GPS giants Garmin and TomTom, with Garmin’s shares dropping by 16 percent and TomTom’s closing around 21 percent lower. This amounts to a combined loss of $1.7 billion for the companies, with Garmin losing a fifth, and TomTom a third of its market value. To be sure, stock prices for both companies have been nothing to gush over throughout the economic crisis, but before Google’s announcement there had been some positive momentum with TomTom’s GPS app created for the iPhone and Garmin’s GPS/smartphone (Nuvifone).

It is too early to know how Garmin and TomTom will recover from and respond to this announcement, but at present their future does not appear to be filled with sunshine and smiles. True, Motorola’s Droid is not necessarily the perfect solution for every customer, and some will still be more comfortable with a dedicated GPS device—it tends to display maps faster, has a bigger screen, doesn’t need to be in cellular range to function, doesn’t come with the annoying two-year commitment of a cell phone plan, and allows the driver to talk on his or her cell phone while simultaneously following a GPS course.

But for many consumers, Google’s offering will be more than good enough. While GPS units cost an average of about $177, customers who commit to a two-year contract can purchase a Motorola Droid for $199. For a $20 difference, customers get a sleek, supercharged smartphone whose navigation features—thank you Google—may even trump those of a standard GPS device. With response to simple voice commands, visual display of Google’s street photographs, point by point directions, and possibly even free traffic data, its navigation features alone make the Droid an attractive product.

So how did TomTom and Garmin fall behind? How did the mighty fall so fast? The answer may have less to do with technology than it does with business models. While the tech industry is obviously moving at a rapid rate, the pace of destruction and transformation of business models in the navigation business is blinding. Instead of making sustaining improvements to their existing products (i.e. Garmin now makes 82 different GPS units) perhaps the GPS giants should have been, and should now be, thinking about how they could transform their respective business models to reach new or existing customers in fundamentally different ways. It may not be too late.

A story last week about the Obama administration committing more than $3 billion to smart grid initiatives caught my eye. It wasn't really an unusual story. It seems like every day features a slew of stories where leaders commit billions to new geographies, technologies, or acquisitions to demonstrate how serious they are about innovation and growth.

Here's the thing — these kinds of commitments paradoxically can make it harder for organizations to achieve their aim. In other words, the very act of making a serious financial commitment to solve a problem can make it harder to solve the problem.

Why can large commitments hamstring innovation?

First, they lead people to chase the known rather than the unknown. After all, if you are going to spend a large chunk of change, you better be sure it is going to be going after a large market. Otherwise it is next to impossible to justify the investment. But most growth comes from creating what doesn't exist, not getting a piece of what already does. It's no better to rely on projections for tomorrow's growth markets, because they are notoriously flawed.

Big commitments also lead people to frame problems in technological terms. Innovators spend resources on path-breaking technologies that hold the tantalizing promise of transformation. But as my colleagues Mark Johnson and Josh Suskewicz have shown, the true path to transformation almost always comes from developing a distinct business model.

Finally, large investments lead innovators to shut off "emergent signals." When you spend a lot, you lock in fixed assets that make it hard to dramatically shift strategy. What, for example, could Motorola do after it invested billions to launch dozens of satellites to support its Iridium service only to learn there just wasn't a market for it? Painfully little. Early commitments predetermined the venture's path, and when it turned out the first strategy was wrong — as it almost always is — the big commitment acted as an anchor that inhibited iteration.

These ingredients are a recipe for sustaining thinking — trying to leap-frog over existing incumbents with cutting-edge technologies. Research shows that market leaders tend to beat back these kinds of attacks, resulting in a lot of squandered resources.

Read the rest at Scott's Havard Management blog, Innovation Insights.