INNOBLOG

On October 14, Walmart sent shivers down some spines and a bolt of excitement up others when it announced plans to offer nationwide cellphone and mobile data service. Developed in cooperation with TracFone Wireless, the service (called Straight Talk) will offer two wireless plans, one providing unlimited voice, data, and texts at $45/month and another allowing 1,000 minutes, 1,000 texts, and 30MB of data at $30/month. Some quarters quickly labeled this development disruptive. But is it so?

For an offering to be disruptive, it has to provide superior performance along new dimensions (and, likely, worse performance along some existing dimensions) when compared with existing innovations. Disruptive innovations either create new markets by bringing novel features to nonconsumers or offer more convenience, better access, and lower prices to customers at the low end of an existing market. Let’s see if Straight Talk fits the bill.

At $30 and $45 a month, the service will send many smiling all the way to the bank. According to Nielsen Mobile Bill Panel Data, the average U.S. adult spends $78 per month for 1,000 minutes. The $30 Walmart plan would save that customer $576 per year and the $45 plan would save them $396. There is no doubt that the plans offer cell phone service at a substantially discounted price relative to existing mobile calling packages. Available exclusively at more than 3,200 Walmart stores, the service is accessible to many nationwide. Given that the service is offered without a contract, Straight Talk is certainly convenient for those tired of the conventional two-year agreement.

These elements seem to suggest that Walmart’s offering is disruptive. But the ultimate disruptive effect is contingent on a number of additional factors.

One of those is how incumbents will react to Straight Talk. Historically, many incumbents have, to their detriment, ignored offerings that cannibalize the low end of the market, instead opting to concentrate on the high-end where the margins are more attractive (think Sony PlayStation’s initial response to Nintendo’s Wii gaming console). One may assume that the incumbents in this case would be companies such as Verizon and AT&T, but the story is more complicated.

Here, it becomes prudent to mention that there’s some very interesting complexity behind Walmart’s offering. Through TracFone, Walmart is acting as a Mobile Virtual Network Operator, or an MVNO, which uses an existing carrier’s network instead of building its own – in this case, it’s Verizon’s. This isn’t a new strategy. In fact, many mobile companies failed because they struggled to nail down a winning MVNO strategy. For example, in spite of having pretty cool phones, Amp’d Mobile failed because its young, hip subscribers were massive credit risks who failed to pay their bills. XE Mobile also bit the dust after facing stiff competition from Virgin Mobile USA, which had the targeted college-going market firmly under its control.

That said, I think MVNOs that offer cheap plans with cheap phones can succeed. Specifically, a successful company would need to have a clear target customer, address key customer jobs-to-be-done through a compelling product/service offering, and develop a viable way to make money while doing so. One good example is Sprint’s own in-house brand, Boost Mobile. Launched in 2002, Boost Mobile has done relatively well by offering a wide range of quite slick handset options, dependable roaming capabilities and availability in more than 17,500 cities nationwide. Therefore, it would appear that unlike the previously unsuccessful MVNOs, Boost made some incredible headway in addressing the issues critical to success.

For these reasons, the disruptive potential of Walmart’s offering will continue to hinge on how the company works to address a number of issues: 

• JOBS to-be-done: some MVNOs struggled partly because they offered inferior handsets that failed to address the social and emotional jobs of crafting a hip identity for their customers (imagine a hefty 4.6 ounce, 1-inch thick flip phone fighting to win the hearts of consumers fiercely attached to the iPhone or the Blackberry). While Straight Talk seems to have addressed the “I don’t want to pay a lot for my wireless service” functional job through low prices, will it have a line-up of phones trendy enough to attract a huge customer base?
• Target customer: the current offering will largely attract those in the low-margin, low-end of the market – many likely plagued by high debts and high risks of default. Will it be the Amp'd story all over again? Will Walmart’s prepaid model help where Amp’d tried to go without a contract? What strategy does Walmart have to move up-market where margins are more attractive?
• Business model: unlike Boost Mobile, Straight Talk is dependent on another carrier for its network making it very vulnerable, just like many fallen MVNOs. How will Straight Talk create value for itself? Will its business model be unattractive to market leaders? How will its distribution channel fit into the model? Will market leaders such as Boost Mobile flee or will they fight?

The management at Straight Talk must flawlessly execute its strategy in dealing with these issues. Then, and only then, will Walmart’s powerful distribution channel prove to be a disruptive spoiler for many incumbents.

This week the Innovator's Guide to Growth was featured on the Post2Post Virtual Book Tour. Five different bloggers reviewed the book and interviewed the lead authors, Scott Anthony and Mark Johnson. We'd like to thank all the bloggers as well as Paul Williams, the organizer of Post2Post, who blogs at Idea Sandbox.

Here's the wrap-up on who posted what when, with links:

Monday:  Gordon Graham of Broken Bulbs posted an interview with Scott Anthony about the book's potential application in a broad range of circumstances including small business, business schools, and in what industries Scott expects to see disruptive innovation in the future.

Tuesday:  Greg Daines of Ideanomics posted a review of the book and promises to post video of his interview with Mark Johnson soon. Meanwhile, he called Innovator's Guide to Growth "the best business book of 2008."

Wednesday:  Josh Kutticherry of FutureThinkTank posted Part One of an interview Scott Anthony (second part, including an audio interview, coming next Wednesday), in which he asks Scott about ideation and inspiration, and poses the $100 million question: "What would you do with your copmany if someone gave you $100 million to grow it?"

Thursday:  Idris Mouttee of Innovation Playground posted an interview with Scott Anthony about special corporate innovation teams, overshooting, targeting nonconsumers, and innovation metrics.

Friday: Gregg Fraley at Gregg Fraley Creativity & Innovation posted a review calling the book "the new bible for innovation managers and leaders" and praising its "it’s womb-to-tomb" approach to innovation management and process.

And, the book tour lives on past its allotted week, as well — next Wednesday, Oct. 1, Josh Kutticherry will post the second part of his Scott Anthony interview and Doug Stevenson (Fraley's partner in "The Innovise Guys" blog and podcast series) will post a review on The Innovise Guys blog. We'll also be watching for Greg Daines' video of his Mark Johnson interview, and will link to that when it's up.

We were pleased to note that InnoBlog is included in the new Innovation site of the new news-aggregator Alltop, and even more pleased when we learned that getting listed there is often the result of reader requests. Thank you to the people (or person!) who suggested us.

Alltop launched in January, with the stated goal is to "collect stories from 'all the top' sites on the web....At each Alltop site, we display the headlines of the latest stories from dozens of sites and blogs. You can think of an Alltop site as a 'digital magazine rack' of the Internet." In Innosight terms, AllTop is trying to satisfy the customer job "help me find relevant information on the Internet," a job that many sites are trying to satisfy in a variety of ways. It's too early to tell how well Alltop will do, but it's a good sign that the site was launched by Nononina, the company owned by uber-enterpreneur Guy Kawasaki. Nononia's last start-up, Truemors, was just sold a few weeks ago to Vancouver-based "crowd-powered media" platform NowPublic.

Wall Street Journal reporter Wendy Bounds wrote about Alltop here. And just for fun, this link goes to a drawing of how Alltop works compared to how Google works, by Dan Roam, author of Back of the Napkin: Solving Problems with Pictures.

I have to give credit to the folks at advertising agency Modernista! for dismantling the company’s existing website in favor a “site-less” approach. In this disruptive move they’ve done much more than simply save on site design.

By foregoing the breadth of information available on a traditional site, they focus viewer attention on the company’s art and creativity. It’s a big win (and just plain cool).

The company’s new homepage consists only of a small menu that floats over the viewer’s referring site or over the Modernista! entry on Wikipedia. Click on the “Print work” menu tab and you’re directed to the company’s work as presented on Flickr; click on “TV work” and up pops a You Tube page with videos of Modernista!-created ads.

This new approach is different, budget and very simple. To many, it would be a leap down in terms of the traditional metrics that define good website design. The company’s “conventional” website was a resource-intensive, complex site that resembled a kooky (yes, I said it) haunted house. It was impressive yet overwhelming, flexing the firm’s creative muscle with more animation than most viewers could handle. The new site is perhaps less user-friendly for those expecting a traditional website structure, and offers less context for the depicted company work. The new format could also yield negative user-generated critiques of Modernista!’s work on the social media pages that serve as its website.

The trade-off for these drawbacks? A cleaner site that demonstrates the firm’s creativity, confidence in letting its ads speak for themselves and comfort incorporating Web 2.0 platforms in its work. The site has generated more blog traffic and buzz in a wider range of forums than a traditional website with fancier features would have done, with this blog post as a case in point. Isn't that the goal of a website as a marketing tool? And the move isn’t one that other leading advertising agencies are likely motivated to follow. Voila! Disruption.

But that’s just the web site. The real disruption will be if Modernista! applies a similar leap-down approach in developing client advertising campaigns that have worse performance on some traditional dimensions but are, perhaps, simpler and more affordable relative to conventional advertising.