Dartmouth College graduates are generally big supporters of our most famous alumni — Theodor Geisel (Class of 1925) known better as Dr. Seuss. On Sunday evening, my son pleasantly surprised me by picking one of my favorite Dr. Seuss stories, The Sneetches, from the shelf for his bed time reading. Reading the story helped me visualize why a company I recently visited was approaching innovation the wrong way.
For those of you who don't remember the story, the sneetches (yellow characters that vaguely resemble ostriches) start the book as a divided crowd. One group of sneetches has stars on their stomachs. They consider themselves superior to the sneetches without "stars upon thars." Then Sylvester McMonkey McBean arrives with a machine that can put a star on a sneetch's chest. Much to the star-bellied sneetches dismay, the non-starred sneetches go through the procedure. Then, of course, the star isn't special anymore, so McBean unveils a star removal machine. Hilarity ensues.
By the end of the book, the sneetches have all lost their money but can no longer remember who had a star and who didn't. The story carries obvious lessons about the dangers of conformity, and upon basing social status on silly, superficial things.
But what the heck does this have to do with innovation?
First, when you are setting up innovation groups, you have to avoid simply putting "stars upon thars." Sometimes members of these groups begin preening, thinking they are the chosen ones within the organization. As Vijay Govindarajan and Chris Trimble point out their new book The Other Side of Innovation, the resentment that typically follows is dangerous because innovation success almost always requires support from the base business (who of course provides the money to make innovation happen).
Back in 2006 and 2007 my colleague Scott Anthony argued that Nintendo’s Wii would be a disruptive innovation that could catch Sony and Microsoft off-guard. And it did: Wii sales figures soared in the following years. In 2008 and 2009, for instance, Nintendo sold more consoles in North America than Microsoft and Sony did with their respective consoles combined.
The core of the argument was that Nintendo’s strategy of “competing against non-consumption” would allow it to fly under the radar of Microsoft and Sony, which were engaging in an arms race to provide ever better-looking games to their most-demanding consumers at premium prices. And that is exactly what happened.
But now that Nintendo’s innovation appears to have passed the peak of its life cycle and the media is turning its attention to the next generation of consoles, one might wonder about what comes next.
Interestingly, Nintendo’s recipe for short- to mid-term success might play out in a way that also helps its competitors in the long run.
Nintendo made the use of consoles and interaction with video games simple and intuitive. That enabled millions of individuals worldwide to overcome a key barrier to consumption, thus dramatically broadening the market. But the Wii’s high-profile success made Nintendo’s strategy impossible to ignore, and Microsoft and Sony responded by replicating some of its key elements, such as the intuitive motion-sensing game controller (Microsoft Kinect, Sony PlayStation Move).
Legions of Nintendo consumers, having overcome the skill-based barrier to consumption, are now conceivably in the market for products with even more intuitive controls, improved graphics, better online experience, and so on. Leaving brand effects aside, the next generation of consoles from all three companies might thus be much better substitutes for one another than the current generation is. So while Nintendo has made a fortune with its disruptive innovation, it also essentially did significant market development work that all players could profit from in the future.
What can Nintendo do to navigate this market development trap? Principal options include moving up the sustaining curve to fight more fiercely against Sony and Microsoft or continuing to compete against non-consumption.
For a successful march up-market Nintendo would need to improve the performance of its next-generation offering along the performance dimensions it introduced – intuitive control and equally intuitive gameplay. That might not be enough to combat Microsoft and Sony. Microsoft, for instance, has established a partnership with Netflix to boost the attractiveness of its current offering that it will likely carry on to its next-generation console, since it already helps keeping Xbox 360 sales numbers up. Without systemic changes to the traditional business model of the industry by the disruptor, there is considerable room for its high-end competitors to attack.
Continuing to compete against non-consumption, on the other hand, could be a very attractive strategy for Nintendo. The company already has brought simple gaming to new contexts in developed world with its DS handset (which is following its own improvement trajectory, adding on 3-D functionality and other advantages).
Addressing non-consumers with simpler solutions creates competitive advantage that can be sustainable for a considerable period. The Wii had caught its competitors by surprise: It took three full years in the fast-paced world of consumer electronics for Microsoft and Sony to adapt their game controllers to make their games more intuitive, something which had at first glance seemed straightforward.
What’s more, targeting non-consumers typically expands the market base. By continuing to “democratize” the video gaming market, Nintendo might be able to repeatedly create new growth markets. Wii Fit was already a good follow-up move to attract young women (historically video-gaming non-consumers). Where could Nintendo look next? How about the billions of people worldwide who cannot afford a Wii, its games, or TV sets, or do not have access to a continuous electric power supply? Framed in the right way, that is, by continuing to make distinct cost/performance tradeoffs and rethinking interactivity – both capabilities that Nintendo has already shown it can master – there could be lots of great growth opportunities here.
Three insights Nintendo’s story might offer:
• Simplicity can be a really powerful means of disruption when targeting non-consumers. It is typically unattractive for market incumbents to lower the performance of their offering along traditional dimensions to compete for non-consumers right away because this would not meet the demands of existing consumers. So it can take a while for the incumbents to realize and incorporate the newly introduced performance dimensions in a way that does not alienate their core consumer base. In the meantime, the disruptive innovation can outsell its competition.
• It’s crucial to keep thinking about what comes next. The best disruptors are also the best sustainers. Imagine what would have happened if Apple, for instance, had stopped with its first-generation iPod! Companies that disrupt sustaining players by overcoming skill-based barriers to consumption need to recognize that the converted consumers will be amenable to sustaining offerings by competitors in the future – the market development trap. If a disruptor is not able to induce incumbents to exit the market, it will need to explore its ability to either engage head-on in a sustaining competition or disrupt the market anew since its impressive returns will attract competition. It’s crucial to keep thinking about what the source of sustainable competitive advantage is that will allow the disruptor to fend off the inevitable competitive counterattack.
• The market development trap is not so much a threat as it is an opportunity. Competing against non-consumption can become a self-renewing cycle that a company can commit itself to over the long term. To get – and stay – ahead of the competition, the trick is master the tin challenges of continually improving and expanding the disruptive “base” while also tackling new circumstances of non-consumption.
Nobody said that being a disruptor would be easy. Nintendo shows how a disruptive strategy can pay off handsomely, but also illustrates that in highly competitive markets competitive advantage is a transient notion.
I read with interest David Simms' recent post about the power of positive failure. I of course agree with the general perspective — given the probabilistic nature of innovation, failure isn't always a bad thing, and all things being equal, you'd support someone who has tried, failed, and learned over someone who has never tried.
The interesting thing to me is that this isn't a particularly new perspective. Failure has long been a badge of honor in Silicon Valley; thought leaders like Henry Mitnzberg, Rita McGrath, and Tim Brown note how failure is an essential part of successful innovation. Yet, in most organizations a fear of failure persists.
I've argued that part of this is an incentives problem. Too frequently people reward (or punish) outcomes when they should reward (or punish) behaviors. I suspect another part of the problem is that we just don't have a good way to categorize "failure."
In reality, there are three types of failures that bother me:
When someone knowingly does the wrong thing. For example, intentionally hiding negative market research data to get senior management approval for a pet project. This is more common than you might know.
When someone could have easily discovered that they were doing the wrong thing. I see this happen in corporations all too frequently, particularly those that are trying to create new revenue streams or use unique go-to-market approaches. The right phone call or the right research could have quickly highlighted a flaw in a plan. But an internal bias led to action without investigation. I remember a couple of years ago counseling a team that had built a seemingly solid plan to sell to academic universities. My guidance was pretty simple — pick up the phone and call some people who had sold to those universities. That simple activity highlighted how the team had a flawed assumption about the speed of the sales cycle. Had the team executed without that simple research it would be a punishable mistake.
The “Sally Centrifuge” is a great example of the power of innovation. This salad-spinner-turned-diagnostic-lab, invented by Rice University undergrads Lila Kerr and Lauren Theis, optimizes two very important variables that traditional blood centrifuges don’t – cost and the need for electricity. The device, which is made from an ordinary salad spinner, can generate an accurate screen for anemia at a rate of 30 samples every 20 minutes. By using a low-cost procurement process also known as “going to Walmart,” the team has managed to keep the cost under 30 bucks. The potential for use in areas with little or no access to electricity is exciting: It takes a difficult problem -- how to make a sophisticated blood-based diagnosis in the developing world -- and finds a creative solution.
This device has all the best traits of a disruptive innovation.
First, it makes performance trade-offs appropriate for the specific circumstances for which it was designed. In this case, the fact that it works without electricity and is incredibly cheap more than makes up for any shortcomings in diagnostic accuracy or ease of use.
Second, it targets nonconsumers – my guess would be most developing country medical clinics have no centrifuge at all. With this in mind it is easy to see why any centrifuge, made of a salad spinner or not, would be very much appreciated.
Third, it flies below the radar of most major competitors in the market. Chances are any diagnostic-company executives who’ve heard about the Sally Centrifuge have had a nice chuckle, but not one will have felt the pangs of anxiety that arise when a fierce new competitor enters the market.
Last, it holds the potential for an “upmarket march” that could eventually allow this fledgling company to enter the mainstream market as it slowly innovates in its out-of-the way foothold market, far from the attention of incumbents. Here we will have to wait and see. It sometimes can take decades, but I can imagine a scenario that would be typical for such a disruptive innovation, which might go something like this:
Kerr and Theis test their product in a few clinics this summer. One of the doctors they work with has a brother who owns a factory in China that makes plastic products. They work with him to create a prototype and get Doctors Without Borders to buy fifty and distribute them to clinics all over the world. They get great feedback. When the donated products eventually break, the pair start receiving orders for replacements, which they price at $40 (earning a 75% profit margin due to low-cost Chinese manufacturing).
They use the money for some R&D, and over time they improve the inner workings of the device dramatically so it now is far more accurate and, by hooking it up to a bicycle, can run a batch of samples in only three minutes. The orders expand dramatically as the Gates Foundation takes notice. They decide to raise their price to $50 (now with 80% margins).
Wider distribution spurs more feedback: It would be great, one of their customers suggests, if you could ride the bike to charge a battery and then use the energy at a later time. Kerr and Theis work with some Rice electrical-engineering graduate students to design this alternative power system and charge $100 per unit for this optional upgrade (at 50% margins). It doesn’t matter that the battery is big and heavy because those are not the dimensions their customers (still those far from reliable energy sources) care about.
After having a few conversations with a friend from college who works at a solar energy company, the two decide to charge their battery through a solar panel – and of course they get a cut of each panel sold through their school chum’s company, which they plow into more R&D. The solar panel option dramatically expands the market, and they sell more than ever. They decide to design a high-capacity model… and so on and so forth.
Over time, it would not be surprising to see our two intrepid inventors offering a plug-in model that’s half the price of their competition and capturing a big chunk of the mainstream market That’s about the time when the diagnostic company execs would wish they had taken the Sally Centrifuge seriously from the start.
A few weeks ago, electric vehicle manufacturer Tesla Motors issued stock to the public. Its charismatic CEO Elon Musk was once touted by Wired as a "triple threat" disruptor based on his previous experience with PayPal and Space Exploration Technologies. A successful stock market introduction led to Musk being worth millions, on paper at least.
Last week, a company called QlikTech issued stock to the public. The company is more than a decade old. Most people wouldn't recognize CEO Lars Bjork if they ran into him on the street. A Google News search found 2,180 articles about Tesla, and 68 about QlikTech.
Tesla's the sexier company, but is it better positioned for success?
I flagged QlikTech last year in The Silver Lining as one to watch during today's tough economic climate, noting that "Companies seeking to find prudent ways to manage in tough economic times are going to be hungry for easy, affordable ways to analyze data. QlikTech is in a great position to be the software vendor of choice to these companies." QlikTech is following a textbook disruptive approach. The company's solutions make it simple and easy for companies to run analyses to better understand their business. It has a solid business model. The company's revenues have grown from $24 million in 2005 to $157 million in 2009. It has been profitable since 2008.
Meanwhile, Tesla is undoubtedly following a novel approach, but it isn't adhering to the disruptive pattern. Rather, it's attempting to be performance competitive with existing solutions. Its first car — the Tesla Roadster — is sexy, and a powerful showcase of the potential of Tesla's technology. But its $100,000-plus selling price has relegated it to a niche product. The company did rack up more than $100 million in sales in 2009, but losses for the year exceeded $50 million.
Analysts generally expect Tesla's fortunes to come down to a car it hopes to introduce in 2012 — the "Model S" sedan targeting the mass market. That puts it in direct competition with traditional manufactures such as General Motors, whose all-electric Volt product is due to arrive later this year, and emerging players such as BYD, a Chinese company that already has an electric vehicle on the market and recently announced a joint venture with German giant Daimler.
Tesla believes it has several sources of competitive differentiation. It hopes to revolutionize the car buying experience by bringing in outside talent with experience working with The Gap and Apple. The company claims that its Silicon Valley roots provide a different perspective from traditional car companies. One example?
When Innosight speaks about jobs-to-be-done we frequently focus on finding important and unsatisfied jobs that represent market opportunities for a company savvy enough to spot them and develop compelling value propositions and business models to capitalize on them. But a thorough understanding of the jobs-to-be-done of your target consumers can also help companies identify competitive threats that may emerge from far outside their traditional market landscape.
In this article posted today at Forbes.com we see how apparel retailers are no longer fighting each other for the shrinking back-to-school budget, but find themselves competing on a much broader front against big box electronics stores and specialty producers like Apple. Traditionally, research methods in the fashion industry have consisted of trend analysis, looking at the leading edge epicenters of trend makers and fashionistas in Paris, NYC, and Los Angeles, and trying to predict which of these avant garde styles would catch on with the mainstream consumers. This works if you are focused on solving the job of “have a relevant wardrobe” but in the schema of a teen's life, wardrobe is but one dimension of projecting who they are. A higher-order job for them might be “be seen as current,” with sub-jobs under that of “know current events/movies/bands/catchphrases” and “use latest technology” and “have a relevant wardrobe”.
Over time, the importance of each of these sub-jobs has shifted. Peer pressure determines which will spike most for a teen in terms of contribution to the higher-order job and thereby claim the lion’s share of the back-to- school budget. In the hyper-consumptive 80s, fashion was seen as the way to project currency, with Madonna and Don Johnson-like celebrities leading multiple fashion movements through the decade (neon leg warmers anyone?), while those sporting an Apple IIe in their living room were seen as odd at best. In the 90s, with the explosion of the neo-punk/grunge scene and new online tools enabling global awareness of diverse forms of music and entertainment, fashion took a turn towards flannel and in terms of making a statement, took a back seat to Nirvana, anime, and grassroots music festivals. This past decade has finally seen the rise of machines, where the belt wasn’t nearly as important as what was clipped to it. Smartphones, MP3/media players and handheld video game consoles have become the symbols of “connectedness” and with them, the means to project how current you are, with the Motorola RAZR and the iPhone being icons.
As technology performance becomes more homogenous (who doesn’t have a 3G/4G web-browsing, texting, 5mp video camera-enabled phone that works globally?) and every possible taste in entertainment becomes available on demand, are we once again poised for a resurgence of fashion as the means to project currency? Designers and retailers who recognize this potential will put their marketing dollars into promoting the wardrobe and their brand in particular as the only true way to be current. Without this shift in job importance among teens, an updated line of brighter colors and patterns simply can’t compete with today’s rechargeable bling.
It was September, 2005. I was fresh off of a workshop with a media company where the company's CEO noted, "Trees don't grow to the sky forever." The company's core business was strong, but the CEO told the group it had to innovate to sustain success in an increasingly turbulent environment.
A couple of days later, I was talking to my colleague Matt Eyring. He said, "So Scott, you've been a big supporter of Apple over the past few years. What do you think about buying some stock?"
"Trees don't grow to the sky forever," I told Matt.
Whoops.
Since late 2005, Apple's stock has quintupled. With a market capitalization of close to $250 billion, Apple is (at least today) the third most valuable company in the world, behind ExxonMobil and Microsoft.
It's a stunning story that's been dissected to death, but still remarkable enough to warrant reflection. Ten years ago — three years after Chairman and CEO Steve Jobs had returned to "rescue" Apple — the company was still largely treading water, with a relatively meager $3 billion market capitalization. Its personal computer products had a loyal following in niche markets, but that was about it.
Over the past decade, Apple has launched five legitimately game-changing innovations...
Like many of my friends, I fancy myself an amateur interior designer. But, aside from spontaneously rearranging the furniture and accessories in my home and decorating my sister’s first apartment (including pulling together design boards for our “design consultation”), nothing formal has come of our efforts.
Not so for friends Andrea, Casey, and Ashley who, in 2009, pooled their collective design experiences and opened luxury interior design firm Avenue Interior Design. I’ll be honest, I don’t know much about Avenue but I’m willing to bet that, like most companies that operate at the premium price tier of their industries, their business was a bit slow due to the Great Recession. But, unlike most premium companies, these intrepid designers did something different. They did something disruptive. They created I Heart Design.
I Heart Design is an online interior design website that offers consumers the expertise of trained designers and the benefit of custom designs for a fraction of the cost and time.Here’s how it works:
Pick your design style from nine options (everything from Wall Street to Rue Claudel to Surfside Ave)
Answer questions about the room you want to make over and upload its measurements and some photos along with any specific instructions (for example, “My husband loves this photo of the soaring eagle. I hate it but it needs to be in the room. Can we hide it somehow?”)
(NOTE: this is the disruptive genius part) Review your estimate which is based on the square footage of the room
Relax
In three weeks, you receive a box with two floor plans, recommended paint colors and window treatments, decorating tools (tape measure, tape, etc), and the password to your private interior design store
Visit your design store to buy as much or as little of the furniture and accessories from your design
That’s it! No time-consuming appointments. No wasted effort trying to tell the difference (let alone choose) between eggshell white and cumulus cloud white. No judgmental stares when you flip out about the price tag on the purple shag sofa that the designer insists you simply must have.No paying the equivalent of a month’s rent to decorate a room the size of a closet.Just a few minutes answering an online questionnaire and taking some photos and measurements gets you two personalized designs and your own virtual store, all for a price that is (literally) proportionate to your room size.
I Heart Design is a perfect example of how “good enough” can be great and how an existing company can use their understanding of consumers’ jobs-to-be-done and a new business model to attract nonconsumers and build an entirely new revenue stream.
I heart disruptive innovation and that’s one of the reasons I heart I Heart Design.
The Edison Best New Products Awards recently bestowed a Gold medal in the Consumer Packaged Goods, Consumer Drug Segment to "Align Probiotic Food Supplement" from Procter & Gamble. This gives me the opportunity repeat a story that has important lessons for innovators everywhere.
I first met the Align team in 2004. The team was developing a probiotic pill whose daily use could alleviate the symptoms of irritable bowel syndrome. More than 30 million people in the United States alone are reported to have this condition. The best that most can do is to modify their lives to account for the condition.
The idea was brimming with disruptive potential. A pressing problem with no adequate solutions. A potentially category-creating way to get the job done. The product had unique intellectual property, and consumers who tried it reported that their lives were changed.
And, of course, it was about to get shut down.
Why the disconnect? The original market forecast said that the opportunity would be relatively small. Launching a new brand is expensive, and the team hadn't yet worked out all the technological kinks. Big investment, high risk, small return is not a recipe for corporate approval.
Yet, the team, under the guidance of Nancy McCarthy, persevered. We helped the team conduct scenario analysis to identify the assumptions that would have to prove true to justify a full-scale launch. Management agreed to provide a small amount of money to learn more about these assumptions. The team quietly launched the product over the Internet. It didn't spend tens of millions in advertising; rather it used its existing pharmaceutical sales force to push the product in a few cities.
P&G then moved to sell the product online through websites like Walgreens.com. Finally, the product launched nationally early last year.
The April 15 issue of The Economist published a simple chart that gave me chills. Look at it for a minute. What looks scary to you?
The chart displayed the number of pieces of mail sent by year over the last decade. When you look at the chart, the first thing you probably noticed was the precipitous decline in mail volume over the past few years. Indeed, mail volume has sagged 17 percent since 2006. Even though the postal service has furiously cut staff over that time period, it's still pleading with regulators to allow it to consider additional strategic responses to address the disruption clearly affecting its business.
That's not what scared me though. I found the years from 2000 to 2006 to be particularly frightening, when nothing much was happening in mail volume.
How could a relatively flat line be scary?
It just looked so eerily familiar. Go back and look at what happened to CD sales from 1996 to 2001. Or check out newspaper company revenues from 1996 to 2005. Or Kodak's film sales during the 1990s. Or Blockbuster's revenues in the early part of the 2000s. Or Digital Equipment Corporation's revenues in the 1980s. And on and on and on.
In the early days of transformation, market leaders tend not to feel deep pain. The transformation takes root away from the mainstream, or in a seemingly non-connected market. It's not yet good enough for mainstream markets. Or, the overall increase in consumption acts as a "rising tide" that lifts the boats in the mainstream market. This makes it easy for executives to say, "I get what you are talking about. But my business is healthy! It's all overblown."It's only after the not-good-enough transformation gets better that a "Big Switch" begins. And when that magic tipping point hits, the switch accelerates rapidly.It's only after the not-good-enough transformation gets better that a "Big Switch" begins. And when that magic tipping point hits, the switch accelerates rapidly.
It's only after the not-good-enough transformation gets better that a "Big Switch" begins. And when that magic tipping point hits, the switch accelerates rapidly.
It is easy to grab the attention of students of disruptive innovation: just put the words “cheap” and “portable” in large type. Low price points and the convenience and new opportunities inherent in portability are signifiers of potential paradigm-busting leaps downward. So it is with a recent Technology Review article on a very serious subject: disaster wound care.
The piece describes how an MIT graduate student’s simple, $3 suction cup does a good enough job of creating negative pressure over a wound site. The pressure seems to increase blood flow to speed healing, reduce infection rates, and require less time-intensive and painful bandage changing. It can be manually powered, in contrast to the $100 battery-powered devices used in disaster areas and hospitals today to treat things like burns, ulcers, and open wounds.
The student, Danielle Zurovcik, was planning to conduct field tests of the device in Rwanda when disaster struck in Haiti and she was called into action. Early results showed immediate benefits. The device still needs to go through rigorous clinical testing, and Zurovcik is working on improvements. But the very real impact it has already had is significant, as is the innovation principle it embodies: design to meet a need where no good alternative exists today at a price point that nonconsumers can bear. Find success in a remote foothold application, and then from that perch move on to overturn existing markets.
I couldn't help but notice the recent unveiling of the "Bloom Box," and the claims from its financial backers that it represents a "disruptive" play in the energy space. I asked the member of our team who knows the most about cleantech — manager Josh Suskewicz — to give his view on Bloom. Over to Josh...
Bloom Energy finally revealed its Bloom Box to the public last week to great fanfare. The much-hyped product is a fuel cell that produces electricity from any fuel source and can also store it like a battery. None other than Internet investor extraordinaire John Doerr, a Bloom board member, said the company was the next Google — and he would know, since he was behind the first Google. John Donahoe, the CEO of eBay, called it "disruptive."
Detractors, on the other hand, are quick to point out that the Bloom Box is just the latest fuel cell to get the public all excited. Fuel cells have been around for a long time but have yet to find mainstream applications (as the stock performances of former tech darlings Fuel Cell Energy and Ballard Power attest.) What makes Bloom different? Is it truly disruptive?
First of all, whether or not Bloom, or any company, is disruptive is more than just semantics; it matters because disruptive strategies unfold in particular ways: they start at the low end of an existing market or in an entirely new one; they find a way to make money that existing companies can't or choose not to match; and from that perch proceed to upend suddenly obsolete incumbents. Entrants who find themselves in conditions ripe for disruption and stick to the disruptive path have a great chance of success.
A disruptive approach contrasts to what we call a sustaining strategy, which is essentially trying to leapfrog existing competitors with an improved offering. The best hope for an entrant embarking on this path is to "build to flip" — to create a business that looks like an attractive acquisition target to market leaders.
Of course, as Scott Anthony noted a few posts back in this space, the question of whether or not something is disruptive most often masks the real question, which is, Are we dealing with a game-changing opportunity? That question aside, understanding the implications of disruptive innovation helps companies map out how to achieve game-changing success — and helps us assess the potential of an innovation like the Bloom Box.
So, back to the question: is Bloom truly disruptive? It might be too early to tell, though Bloom certainly has disruptive potential. Let's examine some of its claims.
Last Friday, I was having a conversation with one of my colleagues over a delicious Indian meal in Mumbai. He was describing a novel tourism strategy he had recently read about.
"These places brand themselves 'eco-tourism'," he said as he chowed down on his channa masala. "Then they can shove you in a basic room with no air conditioning, TV, or room service and charge you $300. Bitten by mosquitoes? That's just part of the back-to-nature experience!"
The eco tourism hotels turned a set of flaws — rugged rooms and mosquitoes — into features that could command price premiums.
"Only in India," my colleague said with a smile.
Actually, turning a flaw into a feature is a time honored tradition in the software industry. The software industry saw, "It's not a bug, it's a feature" dates back at least to the mid-'80s. Turning bugs into features is also a critical skill of the would-be disruptive innovator.
The heart of disruptive innovation is the intentional trade-off — sacrificing raw performance in the name of simplicity, convenience, or affordability. The trick is finding the customer who embraces this trade-off because they consider existing solutions to be too expensive or too complicated.
In other words, disruption is almost always a strategic choice. Companies with a would-be disruption on their hands have to carefully consider their target customer.
Consider, for example, what would have happened if Procter & Gamble had tried to sell its Swiffer line of quick cleaning products to people obsessed with deep cleaning. Those consumers would have looked at a product designed to clean without sweating as inferior. In fact, Swiffer initially struggled in markets like Italy where consumers considered sweating an integral part of the cleaning process!
Instead, P&G sought customers who embraced simplicity, because often their choice wasn't a deep clean or a quick clean, it was a quick clean or no clean at all. The "flaw" of light cleaning was a "feature" to the simplicity seekers.
My wife was ecstatic when we got our first Swiffer, in 2000. The Swiffer was easy enough that she could entice her reluctant cleaning partner (that's me!) to help out. After we had children, we noticed how P&G cleverly designed the Swiffer so that children could participate in cleaning as well. Our two-year-old is a little too enthusiastic with her Swiffer.
Featuring the flaw often requires looking at markets in new ways and finding seemingly invisible customers. Some simple questions I use to guide my thinking include:
•What are the competitive alternatives to your idea?
•Where are you better?
•Where are you worse?
•Are there people who consider existing alternatives out of reach?
•Are there circumstances where using existing alternatives problematic?
The next time someone tells you to a fix a potential flaw in your idea, flip the problem on its head by seeking a customer that would consider the flaw a feature.
The other week, two of my colleagues were engaged in a fierce debate about whether a particular business was or not in fact "disruptive." When they asked my opinion, I surprised them by answering, "I don't really care."
"But we're all about disruptive innovation aren't we?" one of them asked.
"Well yes," I replied, "but we're all even more about building successful, sustainable, scalable businesses."
It's natural to think that our sole raison d'etre is disruption. Innosight's co-founder Clayton Christensen coined the term "disruptive technology," and we've built a business around putting Christensen's and related academics' work into practice.
But the academic research and our applied field work really isn't about disruptive innovation, business model innovation — or even innovation. Disruption is a means to an end. The goal is to build a sizable business with defensible competitive advantage that earns attractive returns. It just so happens that the disruptive innovation models and tools provide a great means to foster the creation of businesses that transform companies and markets, unlocking substantial value for shareholders, employees, and customers.
Adapting a disruptive mindset allows you to see opportunities that would otherwise be hidden. The suite of business model tools that my colleague Mark Johnson describes in his book, Seizing the White Space, allows you to blueprint and build a sustainable model to seize that opportunity.
These models and approaches don't change the fundamentals of business.
Near the end of December, I created a survey with a single question: "Which companies do you think have done the best job of driving growth through disruption — transforming what exists or creating what doesn't through simplicity, convenience, affordability or accessibility — between 2000-2009?"
More than 3,000 individuals nominated close to 300 different organizations or individuals (a few may have been less serious, such as the three nominating my mother).
I sifted through the nominations, and identified the most frequent nominations in three categories: established high-technology companies, established non technology companies, and emerging companies (at least as of 2000). I then turned to a handful of disruptive experts to get their perspectives. Without further ado, the results:
While I'm busy tallying the results from the Disruptor of the Decade contest — more than 3,000 people nominated close to 300 different organizations — I thought it would be a good opportunity to highlight an emerging disruption in India.
My colleague Vijay Raju went on a vacation in the last week of December that took him to the jungle areas on the border of the states of Kerala and Karnataka in India. He noticed a new advertising approach from many mobile operators that that made their advertisements even more ubiquitous than soft drink companies.
If a picture is worth 1,000 words, Vijay's excellent photo essay (which you can download either as a PowerPoint or a PDF) is worth a Stephen King novel (in length at least).
It's an interesting hidden disruption. Companies can use the approach to drive brand awareness in areas with low literacy and television penetration. Villagers can benefit by accessing an affordable way to upgrade their houses.
As my feet get more firmly settled in Asia (we're moving in the next couple of months), I hope to send more of these kinds of postcards. Thanks to Vijay for sharing his story!
While Time magazine dubbed the first decade of the 21st century the "decade from hell," it has been a great time of innovation. The continued growth of the Internet powered new models, such as Google's contextual advertising and Facebook's social networking platform. Old line companies like IBM, Dow Corning, and Procter & Gamble showed that old dogs can learn new tricks. Companies from markets like India and China entered the world stage. And a computer company with a piddling $3 billion market capitalization at the start of the decade (Apple) has undergone a remarkable transformation.
In the face of all of this change, one question I have been pondering is: Who is the "Disruptor of the Decade"?
So I've decided to enlist your help. We have set up a very short survey to get user nominations for companies that did the best job of driving growth through disruption —: transforming what exists or creating what doesn't through simplicity, convenience, affordability, and accessibility. I'll short list the most popular nominations and turn to the community and a select group of experts to crown a winner.
Last Wednesday my wife and I were picking up a drink in Starbucks before boarding our plane to Washington D.C. to visit my parents. "Your parents always have such bad coffee," my wife said. "Why don't you buy some Via?"
For those who don't know, Via is Starbucks' recently launched brand of instant coffee. A three-pack of Via costs about $3, and a 12-pack costs $10. Via is available at Starbucks stores and online.
The company allegedly spent more than two decades developing Via, focusing on creating instant coffee with a taste profile that at least reasonably approximates in-store coffee. CEO Howard Shultz said, "We took a lot of time with it because we knew it could undermine the company if we didn't do it right."
The product's name pays homage to researcher Don Valencia who began the Via quest but passed away before its completion.
I wouldn't say that Via was as good as a cup of coffee brewed at Starbucks (and truth be told, I prefer Dunkin' Donuts coffee anyway). But in classic disruptive fashion, Via delighted me by substantially out-performing the other options available in my parents' house. It is a great example of a company finding a powerful way to "love the low end."
There are three specific things to like about Starbucks' approach:
Starbucks consciously built an affordable solution. Via is substantially cheaper than buying a cup of coffee brewed in Starbucks (though it is more expensive than other instant coffees).
Via enables Starbucks to bring consumption to new contexts. I am now going to buy Via to stick in my briefcase so I can enjoy it in hotel rooms or other contexts where good coffee isn't available.
By offering Via within its stores, the company isn't shying away from the potential conflicts that low-end loving approaches can encounter. While there is some risk that Via will cannibalize higher-margin items, it is more likely that by attracting nonconsumers ̬ Starbucks fans who don't regularly buy instant coffee — will lead to consumers spending more money in aggregate on Starbucks products.
Loving the low end isn't easy. A recent article in BusinessWeek highlighted how some baristas are balking at pushing Via. You see, Starbucks has such high hopes for Via — instant coffee is a $21 billion market after all — that it is pushing aggressive sales tactics that some feel run counter to the Starbucks "vibe."
Last week I was riding through the bustling streets of Bangalore when my colleague made a provocative statement: "I think the Tata Nano is going to be a flop."
It was a strong statement coming from an Innosighter. After all, we have been talking about the disruptive potential of the "people's car" — priced as low as $2,000 — for years.
"But look around," I said. "That family will surely flock to an affordable car that projects social status and provides a safe, comfortable ride."
I pointed to the husband, wife, and two children who were precariously perched on a scooter zooming in between cars to make my point. Even as I did so, though, I could begin to sense where my colleague was heading.
Anyone who has driven in India knows there is a remarkable efficiency on her chaotic streets. Every square inch of road gets used as scooters sneak in between gaps between cars. Dangerous? Sure. But it maximizes people per square mile in a way that boxy automobiles never could. Turning all of those scooters into Nanos would create a traffic nightmare.
"Here's the thing," my colleague said. "These consumers could already get a reasonable used car for the price of a Nano. And they choose not to."
He went on to detail how in the late 1990s he bought a used Maruti 800 for about Rs 1,05,000 (about $2,250). The car had features the base Nano lacks like a cassette player and air conditioning. He sold it in 2001 for Rs. 95,000 (or about $2,000).
"Most of the Nanos are being purchased as second cars or by the upwardly mobile that want to show off, "my colleague said. "People aren't buying the basic version .They are buying an upgraded version with air con and power windows. The Nano might do ok, but that's no 'people's car'."
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.
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.
A central argument of this blog is that every company must grapple with the reality that their current business model has a finite life, which means seeking reinvention and transformation.
Leaders, too, need to constantly think about how they can reinvent and transform themselves.
My own transformation begins this month as I transition from running Innosight's consulting operations to head up Innosight Ventures, Innosight's incubation and investing arm, in Singapore. This is a wonderful opportunity for me to move from advising companies on issues of disruptive innovation to the true front line of disruption.
Innosight Ventures has proven the most promising of Innosight's experiments. We set Innosight Ventures up a few years ago as a separate entity to incubate and invest in disruptive growth ventures. We very intentionally kept the business separate because of its distinct business model.
Innosight Ventures' mission is to use the principles and patterns of disruptive innovation to foster the creation of booming growth businesses that improve the lives of unserved and underserved customers around the world. We do so by incubating and investing in the disruptive business models that venture capitalists ignore and corporations fumble.
There's a heavy emerging market focus to the business, with small offices in Singapore and India. The focus is consistent with a perception that the odds are very high that the West's innovation leadership will decrease, if not disappear in coming years. I plan to spend substantial time in Asia throughout the remainder of this year and move to Singapore in early 2010.
This kind of transition of course carries substantial risks. I will face new challenges that are completely different from what I have encountered on the consulting side of our business. On the flip side, using our tools in different ways will drive new learning that will increase our overall ability to make innovation more predictable.
There is something about travel writer and TV host Rick Steves’ earnest dorkiness that makes him endlessly endearing. His Europe through the Back Door travel philosophy mixed with cringe-inducing puns and awkward asides disguised as humor are the reason his guidebooks are my go-to source for planning and enjoying trips to Europe.
Recently, he added podcast tours of various sites in Rome, Florence, and Venice to his product line, and the chance to have Rick in my pocket was enough to motivate me to buy a new iPod hours before leaving for a 2-week trip through Italy.
As my husband and I sat in the Sistine Chapel, staring up at the ceiling and gladly accepting the neck cramps that are inevitable when listening to a 45-minute “tour” of Michelangelo’s work, I couldn’t help but think about all of the products and services I was in the midst of disrupting:
Organized tours – I was saving money (the podcasts are free), free to move at my own speed, and never had to jockey for position to hear my tour guide. I was giving up the opportunity to ask questions, but 45 minutes on any topic is usually enough to satisfy my curiosity and, if I want to know more about something, I can always look it up.
“Free” tours – It’s not uncommon for “tour guides” (college students, professors, locals) to linger outside of major tourist sites and offer “free” tours (tips are expected at the end, but not required). These tours are usually quite good but have all the drawbacks of organized tours.
Travel books – Again, the podcast saved me money – the iPod is a lot lighter than a book (this is very important when you spend 12 hours walking around a city), and I didn’t have to worry about bumping into people, falling down steps, or getting pick-pocketed because I had my nose in a book.
I basked in the joys of this disruptive solution – good enough on information, delightful on price – for several days. Until we went to the Roman Forum. That’s when the Disrupted (i.e. a “free” tour guide) struck back.
As we were navigating our way from the Temple of Remus to the site where Julius Caesar was assassinated, we were confronted by a woman. “On a leash!” she screamed at us, “I never saw anyone wander around with earphones in until 2009!! I have lived in Rome for 30 years and I don’t understand why people would want to visit and be on a leash!!!”
History suggests that those being disrupted are usually unhappy with their plight, but this was the first time I’ve had a face-to-face confrontation with one of the Disrupted. I wanted to explain the theory of Disruptive Innovation to her, teach her about gives-and-gets and “good enough,” and help her figure out how to join the Disruptors or even disrupt them.
But it was safer to back away slowly and mentally log another give-and-get: get a crazy tour guide screaming at you for 15 seconds, give up the risk of spending 90 minutes with her on a tour.
As the daughter of a clinical social worker and a social psychologist, I read with interest the findings of a recent study assessing the effectiveness of Internet-based psychotherapy. While the approach will likely overcome barriers for some patients, the potential impact on non-consumers seems limited.
The authors conducted a randomized trial of online, real-time cognitive-behavioral therapy in which each patient was assigned to a single therapist and communication took place via typed free text. At eight months, 42 percent of the intervention group had recovered from depression compared with 26 percent in the control group.
That online therapy can be effective is good news, as this approach can overcome barriers of convenience and access for the patient. Web-based counseling might also minimize the stigma of going to a public setting for mental health care and could cut down on a provider’s overhead costs. But a disruptive innovation? Not so fast. Unless online therapy is offered by a less-skilled provider at a lower cost, I’d wager that some current consumers of care will transition to this new channel but few non-consumers of therapy will be swayed to partake. My assumption is that cost and stigma are the biggest barriers to consumption, and that the largest portion of care costs derives from the compensation required by highly-educated providers. In the online model, these provider costs remain high. Additionally, the stigma of therapy that comes from simply participating in mental health care, regardless of the location, is not addressed by the online approach.
A truly disruptive offering might look more like the model employed by Cogito Health (full disclosure: the founder is a classmate and friend of mine … but that doesn’t make the business any less wicked cool). Using voice-recognition technology to identify and monitor the progress of people who could benefit from behavioral health support, the company improves diagnosis while cutting out the cost of a psychologist in screening people for depression. Lower-cost, decentralized care without the involvement of an expensive expert? Now we’re talkin’.
Innosight's Scott Anthony served on the judging panel for this year's awards, which looked at business that were "truly groundbreaking and whether their application would be particularly useful in a time of economic hardship."
Critic wonders whether new Jay Leno show is the first instance of a legacy network retooling to be as nimble as a cable network: "What if NBC's fall to rock bottom allowed management to see things more clearly than its more successful competitors? What if 'The Jay Leno Show' isn't a desperation move, but the wave of the future?"
Microsoft’s recently launched OneApp software has the developing world talking. The application ‘smartens’ standard, basic phones — technically known as ‘feature’ phones — by allowing users one-stop access to applications like Windows Live Messenger, Twitter, and Facebook. Given that billions of people in the developing world do not own computers or smart phones, the feature phone is their only computing device. By allowing feature phones to tap into apps, Microsoft is bringing both convenience and access to the developing world. The addition of applications to phones is stale news for smart phone users. Yet, for those with cheap, crummy phones, OneApp has exciting disruptive potential.
For a number of reasons, OneApp is quite special. The product is as easily downloadable as a ringtone, which drastically reduces unnecessary installation time while enabling processing within meager memory capacity. Unlike apps on ‘smart phones’ like the iPhone that are accessed through app stores, OneApp software is offered through network operators who pre-determine the bundled set of offered apps. Such a configuration allows operators to centrally store and update the apps, increasing convenience for users. Under such an arrangement, users would have no concern for the local storage of their apps and would not have to comb through a store in search for an appropriate app. Also conveniently included is cloud service, a feature that improves overall performance and assists by offloading processing and storage to the Internet.
Equally intriguing is OneApp’s potential to “trickle-up.” Traditionally, sophisticated products are created in rich countries and later de-featured and repackaged for the emerging markets. Recently, a few products have reversed this process. One example is GE’s $2,500 echocardiograph machine. Initially designed for Indian and Chinese doctors who typically travel long distances to see their remote patients, the device is now making inroads in developed countries due to its effectiveness, compact size, energy efficiency and very low retail price. With similarly profound market potential, OneApp could be a major coup for Microsoft.
Although Microsoft eventually intends to unveil OneApp to the rest of the developing world, the application is currently only available in South Africa. Microsoft offers OneApp through a partnership with Blue Label Telecoms, a “mobile wallet” offerings company that is already revolutionizing the South African payments space. In a country where carrying cash is very dangerous because of high crime rates, mobile wallet allows customers to access and transfer money using their handsets. With this application, and the help of BLT, Microsoft has taken a step towards turning every phone in the developing world into a sophisticated, cost effective and user friendly device.
Microsoft’s OneApp software is highly attractive to markets in the developing world by virtue of being simple, convenient, affordable and accessible. By sacrificing raw performance in order to give customers something that is more accessible and more affordable, OneApp holds true disruptive potential. Of course, the ultimate success of the product depends on Microsoft’s execution, and competitor’s reactions. But for now, courtesy of OneApp, that $20 phone just got a lot smarter.
Description of a new "flourishing ecosystem of startups that are experimenting with new ways of communicating research, some radically different to conventional journals" and the "gradual rise of science blogs as a serious medium for research."
A look back at 1949, at the start of the television era, in which TV disrupted other forms of media and entertainment. Author notes that CBS and NBC, which had been big radio players, also came out on top in TV by the 1950s: "The old media of today have a similar chance to prosper tomorrow if they can survive the heavy financial losses that they're incurring while they develop workable new-media business models."
With its budget eroding and virtually certain not to keep pace with stated space exploration goals, NASA is increasingly turning to outsource portions of its programs that have never before been outsourced. Smaller firms and "scrappy entrepreneurs" are expected to win contracts.
Description of the top-down innovation culture at Tata, including the Tata Group Innovation Forum (TGIF), a 12-member panel of senior Tata Group executives and some CEOs of the independently run companies.
Innosight analyst Curtis Chan recently co-authored the blog post, "Swiffer Solutions for Health Care," with Eva Luo, a regular contributor to the IHI Open School for Health Professions blog. The post recounts the observational research Procter & Gamble did in developing Swiffer and offers up one health-care "Swiffer story": Project HEALTH, a nonprofit organization located in Boston that through observational research uncovers links between specific poverty conditions and poor health outcomes, then seeks to break those links.
According to the post: "This is the logic: The hospital is the site where health care is delivered — and with just a minor stretch is also a convenient site where psychosocial interventions can be introduced to better and more comprehensively improve the health of kids and their families. The systems redesign answer is a crew of motivated college students stationed in the hospital. If doctors feel their patients need assistance obtaining housing, have food insecurities, or can benefit from utilities bills discount programs, doctors can now refer patients to Project HEALTH volunteers who work with patients to obtain those resources right there in the hospital.
How could health care improve if observational research was more commonly used? Are there Swiffer-like solutions for every health care problem? Following the model of observational research itself: Let’s look and see."
Japan has a well-deserved reputation as a country full of gadget lovers. The Japanese consumer electronics market consistently produces devices in some combination of useful, highly advanced, and downright cute, from Hello Kitty SMS devices to disturbingly detailed squid-shaped USB drives to the toilet in that Simpsons episode that gave Homer restaurant recommendations. Japan’s cell phone market is probably the most technologically advanced in the world – so why, as the New York Times asked on Sunday, haven’t their eye-popping innovations reached the rest of us yet?
Japan’s cell phone market is flooded with incredibly sophisticated devices – Wiredcharacterized it as five years ahead of our own (3G networks, for instance, which have only recently begun unreliably spreading across the United States, showed up in Japan in 2001), and more than twice as many people use so-called smartphones in Japan than in the United States, despite a population less than half as large. While these characteristics make many in the U.S. envious, however, they put both Japanese manufacturers seeking to expand abroad and foreign manufacturers (like Nokia and Apple) seeking to penetrate Japan’s market at a disadvantage, and have led Japanese observers to coin the phrase “Galápagos syndrome” to characterize their woes: their market is just too different.
One useful way to think about these fascinating market dynamics is through the lens of disruption. One might expect that a market so saturated with high-end devices filled to bursting with features like TV tuners and videoconference-capable cameras would be ripe for disruption, but one high-profile device that would arguably look disruptive in Japan while being sustaining almost everywhere else – Apple’s iPhone – has had tremendous difficulty finding eager consumers. Compared to many other devices on the market in Japan, the iPhone has few features, an extremely low-resolution camera, a conservative design, and a low price, but its reception has been lukewarm at best. This appears to be because Japan’s consumers aren’t ready for disruption at all: they aren’t being overshot! The devices they can choose from may be fiendishly complicated (one Japanese engineer even mused that pushing buttons on his phone and discovering new features is “good for killing time”), but for the most part they demand and make use of those features – so much so that many Japanese citizens rely entirely on their phones and eschew PCs entirely.
The rapid technological evolution in this Galápagos of cell phones provides an excellent case study in disruption (or lack thereof) and serves as a reminder that disruptive innovations can only succeed when they’re “good enough” against what consumers consider to be important performance metrics. Perhaps over time Japan’s evolution will converge with some of the rest of the world’s, but then again, in consumer electronics a five-year gap is an evolutionary eternity.
New airline just for pets. Will be interesting to watch, as its success will depend on whether there's really a sizable group of people who have the unfulfilled job of high-quality, safe pet transportation.
Great article about the neurological and emotional affects of music, such as: "Recent data show, for example, that music reliably conveys certain sentiments: what we feel when we hear a piece of music is remarkably similar to what everybody else in the room is experiencing."
"If you want to launch disruptive innovations, learn to do it quickly, outside the normal development life cycle, or make sure the ideas are exceptionally disruptive, since the time lag from concept to product or service may be long enough that others address the opportunity before you do."
One of the key arguments in The Silver Lining is that companies have to find ways to "love the low end" to connect with budget conscious customers and fend off attacks from sharp elbowed, low-cost competitors.
A recent Wall Street Journal story shows how one company has found another benefit of loving the low end — keeping skilled workers gainfully employed as its high-end business shrivels up.
The story describes how legendary guitar maker C.F Martin & Co. has introduced a solid wood product line called the "1 Series" that sells for less than $1,000 — more than 50 percent cheaper than its traditional all-wood guitars (the company also sells cheaper guitars that use laminated plywood).
Customers have, not surprisingly, reacted positively to Martin's innovation. The company's high-end guitars are luxury items that are typically early victims of consumer cost-cutting in economic downturns. Edging below $1,000 made luxury affordable enough that the company's first production run of 8,000 1 Series guitars sold out in April.
As one distributor told the Journal, "It was really smart of Martin to come out with these in the current economy. They seem to be filling the niche quite well."
Finding a creative way to boost sales has another important benefit for the company. Manual labor plays a vital role in the production of the company's high-end guitars. Cutting costs to match declining revenues would have resulted in a loss of accumulated capabilities. Instead, the company quickly re-tooled its processes, and kept expert woodmakers working.
First, let's be clear that the Chrome OS is not a disruption in and of itself. However, the Chrome OS is built to take advantage of a clear disruption taking place -- the rise of netbooks as an alternative to much more expensive laptop and desktop computers, which were overshooting customers even before the recession hit. Now netbooks are the one bright spot in an otherwise-slupmping consumer electronics industry. Netbook makers Acer and Asus have been disrupting HP, Toshiba, Sony, et al, some of which have released competing products.
Netbooks need operating systems too, and their introduction has offered a blank tablet for someone to come in and compete with Miicrosoft. Linux brings with it a host of compatibility issues, and Microsoft Vista has proven to be unsuitable for netbook use. Microsoft has made available a lighter version of XP and has Windows 7 coming out this fall, which is meant to be compatible with netbooks. Google poked its toe into the OS world with Android, its mobile OS, but Android does not play well with the x86 chip architecture of netbooks and isn't meant for them.
So enter the Google Chrome OS. Google and Microsoft are both giants -- neither is a come-from-nowhere upstart (sorry, Google fans -- those days are long past). So far there is no disruptor here, just two incumbents duking it out. If Microsoft wins, it gets a toehold in the never-ending fight to evolve and adapt with the technological times. It gets to keep playing as the PC evolves from desktop machine stuffed with standalone software and storage to netbooks and phones using the World Wide Web as a de facto OS, running applications and storing data in the cloud. If Google wins, it gets to build on and evolve from its search roots, gaining a platform from which it can grow its increasing apps-based business -- think Google Apps, Docs, and even Google Wave.
Disruptions that bubble up from seemingly out of nowhere can happen quickly. Witness the way netbooks suddenly exploded onto the scene. Chrome vs Windows is about evolution, though, and like any evolution, this one isn't going to happen quickly. It will only be in years to come that we'll know how this story ends.
UPDATE: Innosight President Scott Anthony has weighed in on this news over at his Harvard Business Publishing blog. His view: There is in fact real disruptive potential in Google's approach, with two substantial hurdles standing in the way of success. First, Google has to demonstrate that it can go from merely flinging "good enough" products into emerging categories to actually building viable businesses. Second, Microsoft must move from the defensive netbook strategy it appears to be taking today (designed to insulate its core business) to a more offensive approach. Click here to read Scott's post.
The following is a guest post by Juan Pablo Vázquez Sampere.
"Your innovation strategy is great, kid, but is it going to give me growth in the next quarter?” Chances are your CEO has responded this way to your innovation initiatives. Here’s a way to answer this question affirmatively. As Scott Anthony points out in his new book The Silver Lining, low-end disruption can bring growth.
Our research in Europe has shown that a strategic cost-reduction initiative coupled with a low-end disruption helps meet two corporate goals with just one initiative. Low-end disruption and cost reduction are two sides of the same coin. They are two extremes of the same continuum, just as the same enzyme is used in the body to balance two biological processes.
When it comes to cost reduction, European managers try to apply one of these alternatives:
Rank the Income Statement cost and expenses account by size and determine a percentage of reduction for each.
Negotiate a layoff with the government (a step that would be unnecessary in the United States).
Kill the product features managers think the customer won’t notice.
Instead of relying so much on your gut, we propose this methodology to deliver a high-growth product along with a significant cost reduction.
Step 1: Understand that company insiders can almost never truly understand what features the customer actually values. The reason is that companies analyze the market in from the point of view of the way they make money. They never see the actual shape of the market. It is next to impossible for a company to understand the job its customers are hiring it for, let alone try to improve its products based on that job. This is a well-proven reason to seek outside help in understanding the rugged landscape of customer jobs your company is making money from.
Step 2: Create a Base of Competition/Product Matrix: Pick one of your products and create a spreadsheet for it. Insert a column for each and every one of its features. Also, insert five rows in the matrix with the following entries: “Functionality 1”, “Reliability 1”, “Convenience 1”, “Adaptation 1”, “Personalization 1”.
Step 3: For each row, classify the features listed in each column as follows: If the feature listed describes a Functionality, then insert a mark in that row. Then create an additional row beneath “Functionality 1” with the name “Functionality 2”. Continue doing this with the rest of features and bases of competition until you have them all assigned.
Step 4: Prepare a mini-survey with the content of the matrix. Interview no more than 25 customers. Using customer-friendly terms, ask them, essentially, “by what percentage is this feature overserved?” Tell them that if they answer 100 it will mean the feature is just good enough. If they answer less than 100 that will mean the feature is underserved, and if they answer more than 100 it will mean they are overserved. The amount over or under 100 will be the percentage by which customers are over- or under-served. Please don’t make this survey statistically significant — the sample very small deliberately, so the sample error can prevent you from reducing reinvestment in features that might still be slightly underserved.
Step 5: Calculate the mean of the percentages from all rows exceeding 100 that refer to a functionality or a reliability. Then subtract to that mean 100. Now subtract the mean from all the percentages. Convert to a dollar amount using your current cost-allocation budget. Chances are this is a significant cost reduction.
Step 6: The number in dollars you calculated from the previous step is your total cost reduction. Decide how much of that you want to keep, and use the rest to launch a low-end Disruption.
Step 7: You have now a great starting point to launch a low-end disruption. Just pick the matrix of the product you just prepared and reinvest the desired amount of money in the rows that contain the words “convenience”, “adaptation” or “personalization.”
The next time your CEO asks you how to use innovation to deliver short-term growth, show your new low-end disruptive product concept and explain the rationale used. Our experience in Europe with this has been very positive. Results obtained with this methodology are usually counterintuitive for senior managers, and they normally consider that refreshing. We have used this methodology several times now during the current economic crisis and still haven’t found a CEO unwilling to give it a try.
In times of crisis, the objectives of cost reduction, growth for the next quarter, and making a successful, more convenient, and affordable product are not inversely related. They are actually regulated through the same enzyme — your company’s values. You can’t change them, and values are put to the test in times of crisis. If you can build a solid argument to launch a simplified, more personalized product to a customer who is now much less willing to pay, you will create a precedent that will prove really helpful for your company’s future strategic positioning.
Over the past decade, Google has inspired envy in trench-dwelling managers around the world. It's not just the unparalleled benefits. It's the way Google approaches innovation. Engineers are encouraged to dream up pet projects in their spare time. Teams self form around the best ideas. Market-based principles ensure that the best ideas receive funding.
It sounds chaotic, democratic...and intoxicating.
"Why can't we do that?" countless managers wonder. "Instead, we have to deal with crushing bureaucracy that favors our leaders' personal whims over the most game-changing ideas."
Management guru Gary Hamel praised Google in his book The Future of Management, positing that more and more companies would adopt the company's market-based system.
There is indeed much to admire about Google's approach, and much to learn from it. The system ensures that interesting ideas — even those that aren't obvious fits for Google's capabilities or core business model — receive some degree of attention.
However, Google's approach hasn't demonstrated that it can actually, you know, create successful businesses. Despite the hype, more than 95 percent of Google's revenues trace back to Web-based search advertising. Further, as the company's explosive growth has slowed, innovative employees have left to form new ventures. For example, Twitter was formed by former Google employees.
In a blog post last year, I said this recession would be Google's "moment of truth." Either it figured out how to bring appropriate discipline to innovation process to realize its latent potential, or it ended up looking like every other company.
Last week, I attended the Games for Health conference here in Boston, an ambitious gathering with a very broad scope that brought together game developers, researchers, physicians, and academics (as well as the occasional consultant) to discuss the many ways games could contribute to better health. Topics ranged from cognitive fitness (think Brain Age) to “exergames” (like Wii Fit) to the use of games to educate and empower patients to simulations that could help train physicians – I even saw a game designed as a metaphor for addiction. Although it’s clear that the games-for-health space is still in its infancy, I was struck by the disruptive potential of many products and concepts.
Gyms and personal trainers, for instance, are already facing disruption from games: A personal trainer may push you harder and help you lose more weight than your grinning, non-sentient Mii, but a Wii Fit is less expensive (especially over time), much more convenient, and arguably more fun (not to mention the fact that Miis don’t complain when you miss a session). Typical disruptive patterns are already apparent in this industry as games get better and approach “good enough” for more applications; Electronic Arts’ new EA Sports Active title for the Wii, for example, is explicitly designed to deliver difficult workouts that make players sweat.
Medical education is another space facing disruption. Dr. Jeff Taekman, an anesthesiologist at Duke, discussed the development and applications of a software-based simulation of an operating theater, in which physicians can virtually come together and collaboratively practice on a simulated patient. We know all too well that disruption (and innovation in general) in the healthcare industry can be painfully difficult because the bar for “good enough” is fairly high. However, the developers of this simulation are doing exactly what they should to surmount that obstacle: finding appropriate foothold customers and circumstances (in this case, focusing on training teamwork and communication rather than specific skills and on continuing education rather than on medical schools), then testing and learning.
Although I left the conference excited by the many disruptive possibilities in the games-for-health space, it was abundantly clear that there is much R&D yet to be done to make these games even better. Popular games that seem healthy (like Brain Age) may sell well and be fun to play, but researchers don’t fully understand how (or whether) they really help people make lasting changes to their mental or physical health. As researchers and developers learn more about how games can help us get healthier and apply that knowledge to new and innovative games, more and more disruptive possibilities will undoubtedly emerge.
The modernization of our electricity infrastructure – the so called Smart Grid revolution – is underway, and not a moment too soon. As an interesting overview in a recent Wired made clear, the grid was cobbled together in ad hoc fashion over the last century, and is largely one-way, mechanical, and dumb. That’s why a storm in Ohio can plunge New York City into darkness; why, as energy guru Amory Lovins preaches, every electron saved at the point of use offsets the production of three to four times that many electrons at the source (e.g. a coal fired power plant); and why the Department of Homeland Security is so concerned about terrorists targeting our power infrastructure. In short, our archaic patchwork of a grid is vulnerable, inefficient and unreliable. It is quite damaging economically and environmentally.
Smart Grid – the application of computing and two way control to the electric infrastructure – is the solution, but it is a massive undertaking (the Obama administration has pledged upwards of $40 billion as part of the stimulus package alone). History has demonstrated that infrastructural shifts of this sort tend to be massively inefficient. Our research suggests that a great deal of this inefficiency stems from the widespread inability of incumbents and start-ups alike to create the new business models required by new markets.
In short, grid modernization will yield immediate gains in control, efficiency, and security – at a considerable cost. We’d like to see that cost offset by the advent of new business models that open up new avenues of growth.
Indeed, Smart Grid promises to enable a number of new business model opportunities. It is widely considered the missing link that will make renewable energy work: the promise of decentralized renewables is blunted by our current grid, as it does little good to have solar panels on your roof if you can’t sell excess energy back to the system. Someone has to design a scalable system that enables widespread deployment.
Another Smart Grid development we’ve been monitoring is demand response. Companies like EnerNOC optimize energy use throughout an opt-in network of office parks and industrial plants. It turns out that as much as 10 percent of the overall cost of electricity – and a similarly outsize proportion of the pollution – comes from just 1 percent of electricity generation. This is because our grid functions in an incremental, as-needed fashion; we operate at just enough capacity at all times. The grid strains and sometimes breaks on hot summer days when everyone turns on their air conditioners at the same time. To meet the excess demand, power companies have to rev up old, dirty, and expensive backup generators. EnerNOC and its peers practice “peak shaving”; they reduce systemic load at critical times by coordinating lower energy usage across their network, which in turn enables power companies to avoid using their most expensive generators. Everyone shares the savings that result.
We’ve been excited about demand response for some time because it uses an innovative business model to solve a pressing problem. Rather than simply extending the old and expensive model by building a new power plant, we can now manage the grid in a more intelligent and much more cost-effective way.
The utilities analyst at a leading green mutual fund recently pointed me towards an innovation that makes demand response even more exciting. A company called Ice Energy is adding a relatively low-tech piece of capital equipment to the equation (pictured above); they attach a chiller to conventional air conditioning systems in the buildings they manage that freezes water at night when electricity is cheap (and relatively clean). They then use the ice to moderate temperatures during the day, when electricity is expensive. The company claims that air conditioning accounts for 40 to 50 percent of a building’s peak energy use, and that their system can cut air conditioning electricity requirements by 95 percent.
We like this approach because it wraps an innovative business model around existing technology to get a job done. This is akin to Netflix making DVD-by-mail work, rather than focusing on Blu-Ray or digital delivery, or, in another cleantech example, Better Place building a recharging and battery swapping infrastructure that enables electric mobility with today’s limited batteries. Innovative business models that make proven technologies work better are not at the whim of unpredictable technology development and uptake. They are, in other words, the most predictably efficient way to achieve transformation.
Innosight president Scott Anthony and NPR president and CEO VIvian Schiller will discuss Innovating through the Storm: Insights on the Disruption in the Media Industry in a free webinar from 11 to 12 EST this Thursday, May 14. I will be moderating the event, during which Scott and Vivian discuss the challenges faced by media companies and the possibilities for how they can navigate through truly disruptive times.
Scott is, of course, president of Innosight and author of the forthcoming book The Silver Lining: An Innovation Playbook for Uncertain Times. Vivian was previously the senior vice president and general manager of NYTimes.com and was recently tapped to head NPR.
Among the topics Vivian and Scott will address:
The dynamics of the media industry and the reality of the disruption it faces
The expectations of empowered consumers about how they derive, and increasingly drive, value from their interactions and experience with media
How technology is helping media companies engage their customers and connect them to the content and community they care about
Where the media is headed, citing interesting experiments and innovative models that are emerging
C.K. Prahalad talked to us about innovating in volatile times. The global economic crisis, he said, will cause everything to be restructured. Volatility is everywhere: governments, financial markets, politics, consumer sentiment, global trade, environment. Companies dealing with this kind of volatility often seek a "zone of comfort,” such as relying continuously on cost-cutting, that won’t work. The key is to be able to scale your business up or down in very short amounts of time. Scaling up and down rapidly conserves cash and reduces capital intensity, reducing enterprise risk. This is also key to being able to change business models quickly.
Prahalad offered some advice on how to choose innovation initiatives that included one thing he said not to do: Don't start from where you are, because you’ll only get an extrapolation of the present, not true innovation. The way to avoid this is to always have a point of view of what your industry will look like in the future. Industries are re-setting globally right now, so this may not be easy to do. But, said Prahalad, “Strategy is about folding the future in, not extrapolating the past. Position yourself in 2015, then work backward from there.”
Prahalad’s other innovation suggestions: start with a customer experience. For example, what if you were a tire company that charged not for tires themselves, but had more of a leasing model where you charged usage fees instead? You could also set up systems where you gather information about the performance of the tires and the way the customers use them — information that can be used to sell more things to people. This places the basis of the business on the relationship, not the transaction.
Again, the key is flexibility. According to Prahalad, the main impediment to innovation is legacy business processes and IT systems that aren't flexible. You can't innovate to take advantage of customers' value shifts unless you have flexible business processes and analytics.
And you can’t get there by analyzing. You have to imagine this world first, then be flexible enough to get there. Every person has the right to make a choice for their own experience and companies must help them create it.
Vijay Govindarajan’s talk also touched on flexibility as well, as he made the point that only non-linear thinking can result in breakthrough innovation. He discussed the three “boxes” that represent ways of mananging: 1) manage the present; 2) selectively forget the past; 3) create the future. Box two and box three are where non-linear thinking happens.
Linear thinking, improving on what you already have, is about incremental, continuous improvement — changing shape and size, building on the past to create the future. In order to create fundamental, breakthrough innovation, you have to jump away from the past. His example: the “Fosbury flop,” the high-jump approach in which the jumper twists over the bar so that the head clears first, rather than the feet. The reason why this approach worked so well is that it addressed the limiting factor that kept jumpers from going higher — the effect of gravity when jumpers used the more traditional scissors-roll position.
Govindarajan’s advice for breakthrough innovation: find the limiting factor and address it. This requires nonlinear change — which requires flexible thinking.
Amazon.com took the next step in its disruptive journey when it announced its larger format Kindle DX yesterday.The blogosphere lit up with mixed views of the device's potential. While I found the Kindle 2 to be blase, I think the DX has significant growth potential.
The device is significantly bigger than Amazon's previous devices. It also has new features, like an accelerometer that rotates the screen when users turn the device 90 degrees and the ability to read PDFs.
Amazon is clearly targeting three user groups:
College students who pay exorbitant fees to lug around heavy textbooks. While highlighting and making notes near text in a Kindle is a hassle, I am willing to wager that many students do fast skims - at best. They'll happily gravitate towards a simpler model, and colleges could subsidize the price tag of the device.
Newspaper and magazine readers. The larger format makes browsing and discovery much easier than previous e-readers, making it an increasingly viable option for consumers who continue to enjoy those aspects of traditional media.
Corporate consumers. The Kindle DX supports PDF and Word documents, making it easy for road warriors to review documents on the go.
Despite the hefty price tag (the DX costs close to $500), the move into these three spaces feels like an important step for Amazon.
As an aside, one thing that I love about the Kindle's development is that Amazon is learning in market. Other emerging e-reader providers, like the FirstPaper reader (backed by Hearst) and PlasticLogic's reader could be phenomenal devices, but by the time they hit the market, Amazon will have the benefit of all the knowledge it has gleaned from being in market for a couple of years.
We've all heard companies give lip service to the idea that failures — course corrections — must be tolerated in order for innovation to happen. Our feature story this issue highlights the work of Rita Gunther McGrath, co-author of the newly released Discovery-Driven Growth, who asserts that failure must be more than tolerated — it must be welcomed and planned for. McGrath cites Procter & Gamble's A.G. Lafley, who famously has said that unless P&G experiences a certain failure rate from innovation efforts, not enough of innovation is happening, as an example of a good approach to failure. McGrath talks more about how to plan for and manage course corrections in this issue's feature story. Here's an excerpt (full story is here; book excerpt is here):
Q. My understanding from having read the book is that we seem to be synched up in this area of what we're calling “emergent strategy.” We've covered this in Chapter 6 of The Innovator's Guide to Growth, among other places, yet we don't often go into as much detail about how this works as you do. You've taken that one concept and detailed it.
A. Yes, I call that “strategy dynamics” — this idea that when the data doesn't exist, you need to be taking action before you can begin to understand what's going on. The whole strategic planning idea, where you're going to sit there and project out five years — in a lot of today's markets, it's not practical and it's not really going to get you anywhere. So it's the whole concept of you just realizing the right strategy as you go. We call it “discovery-driven” mainly to get the idea across quickly that this isn't about planning, it's about discovering.
Q. Can you give me the capsule description of what discovery-driven growth is?
A. Sure. Discovery-driven growth had its genesis in the recognition that existing planning systems make a lot of assumptions that are just not borne out in highly uncertain situations. So the book is really about ways that you can take strategic action, minimize your risk, and move forward, even without all the data that conventional planning systems assume you have.
Also in this issue is our monthly Disrupt-O-Meter, this one a look at the new OnLive gaming service (full story is here):
The brand-new gaming service OnLive has been surprising and delighting consumers and pundits since it was announced about a month ago. The service proposes a very different and novel way of delivering games — users stream the games over the Internet instead of running them on physically local hardware. In so doing, OnLive challenges the conventional wisdom that the Internet just isn't good enough to stream content like graphically intensive games at high resolutions without perceptible lag. If OnLive can deliver against this ambitious goal it may have substantial disruptive potential.
As always, thanks for reading Strategy & Innovation! Archives are free with registration here.
As the launch of Microsoft's next operating system draws near, the company is facing an interesting dilemma regarding how it approaches the exploding netbook market. Signs currently suggest that Microsoft will shift to an overly defensive strategy that runs the risk of unintentionally aiding competitors.
Along many dimensions, netbooks have been a wonderful success story for Microsoft. When the small, simple, low-priced computers entered the market a couple of years ago, they almost universally used Linux-based operating systems to keep costs down.
Microsoft fought back by offering hardware manufacturers low-priced versions of its operating system. It wisely recognized that losing the low end today could mean trouble in the mainstream tomorrow. Consumers welcomed the ability to affordably access Microsoft-compatible software.
Today, some estimates suggest that close to 95 percent of sub-$500 priced computers use a Microsoft operating system.
There's one small problem, however. Most netbooks run Windows XP, not Microsoft's newer (and pricier) Vista operating system. XP lacks many of the features of Microsoft's latest system, but it is smaller, faster and cheaper.
The low price point is good for consumers but less good for Microsoft — analysts suggest that Microsoft would have made up to $50 more for each netbook using Vista instead of XP. As analysts project 2009 netbook shipments will exceed 20 million, that price discrepancy adds up quickly.
However, as one Microsoft manager told BusinessWeek, "Although we make less per unit, we're making very decent money."
And that's Microsoft's dilemma. The company is gearing up to introduce its new operating system, called "Windows 7," later this year. Early reviews suggest that Windows 7 is a marked improvement to the disappointing Vista. Of course, Microsoft hopes the improved performance translates into premium prices. But how will the quest for price premiums jibe with low-priced netbooks?
Over the weekend I stopped off at the local Bank of America Automated Teller Machine to deposit a few checks. The company had recently upgraded the ATM to an advanced machine it began rolling out nationwide in 2007. A sign proudly touted how the machines' optical scanning technology enabled consumers to deposit cash and checks without using envelopes.
I dutifully put in my stack of six checks, and the machine started whirring. The machine easily recognized five of the checks (including a handwritten one). But it just wouldn't take that sixth check (which looked indistinguishable from three other machine-printed checks). I tried three times, and gave up. Either I would have to go to the bank branch to deposit the check or I would have to get a new check.
As I walked home, I grumbled to myself, "This is new and improved?"
Of course, I can easily imagine how this kind of service is better to Bank of America, because it cuts costly data entry errors. And there are some clear consumer benefits. You can get a receipt with images of the deposited checks, which can help those of us who still obsessively manage our finances in Quicken. And of course, most of the time I'm sure the system works absolutely flawlessly and saves consumers the hassle of adding up checks at home.
Rightly or wrongly, my check-deposit struggles left me with an image: Bank of America is innovating to help itself, not me.
The proliferation of "good enough" alternatives has been a main driver of the current disruption of the media business. Good-enough is, of course, quite relative — citizen journalists offer a product that's good enough on some dimensions, but for some audiences often is vastly superior to professional journalism on dimensions such as immediacy and depth of local knowledge.
"Do-it-yourself" media got another shot in the arm last week when HP announced its MagCloud service, which would allow anyone to create a glossy magazine: "Charging 20 cents a page, paid only when a customer orders a copy, H.P. dreams of turning MagCloud into vanity publishing's equivalent of YouTube. The company, a leading maker of computers and printers, envisions people using their PCs to develop quick magazines commemorating their daughter's volleyball season or chronicling the intricacies of the Arizona cactus business."
John Boddie, formerly of Innosight Ventures, sent me an email commenting on this development:
"Print on demand has been around for a while and there may have been other companies that have tried to offer many of these features. One of the difficult things about disruption is watching the churning mass of contenders for a given disruptive play and figuring out which will finally arrive at the right combination of jobs-to-be-done and respect the right set of restrictions so that consumers on the other end can finally adopt. In this case, the choice of PDF for submission (rather than mucking around with a custom magazine generator) is key. Almost everyone now has some means of converting most document formats to PowerPoint. Almost everyone now has some means of converting most document formats to PDF. Eventually they might want to allow uploads from other content creation/distribution engines such as Slideshare and Blogger, but this is a great start."
The New York Times story also offers a couple of other clues as to the innovative potential of this idea, one in the very lead: "For anyone who has dreamed of creating his own glossy color magazine dedicated to a hobby like photography or travel, the high cost and hassle of printing has loomed as a big barrier." People who are intent on communicating around an interest about which they are passionate offers an attractive niche market to get the service off the ground and growing. Once that happens, there could be the up-market move that would potentially displace some existing print magazines.
Also, at the end of the story, HP offers a clue that they're going about this right: "For H.P., MagCloud is also a way to provide customized service at low risk. And if the niche does not thrive, the company will simply move on. “We are trying to experiment with these new types of business models,” said Andrew Bolwell, head of the MagCloud effort. This kind of emergent-strategy approach of setting up a business unit to experiment with a new model is what we would recommend any existing company like HP. In order to grow, they will have to find new markets. Setting up this kind of low-risk test is exactly the way to go about it.
Since The Wall Street Journalreported this week that PC makers are testing the Google Android operating system as a replacement for Microsoft Windows in netbooks, the blogosphere has been abuzz and the debate is on. The big question amongst tech bloggers is whether Android will be able to replace Windows, or in Innosight-speak, if Android will be able to disrupt Windows.
Android is an open source platform that has recently been incorporated into several devices, notably the T-Mobile G1. Google does not charge manufacturers per copy of Android, which is fundamentally a different business model than Microsoft has taken with Windows, and provides some financial incentive for device manufacturers to adopt.
The question is whether the financial benefits of using Android outweigh the potential technical limitations and user interface issues. Most PC users are used to a Windows operating system (OS) and Microsoft products, and as a result, it may be difficult for users to switch to a different interface and set of software products. Similarly, because the software is not designed for compatibility with Windows, work that is done on one OS may not be transferable to another.You can get a taste of this debate on popular technology websites, from PC World to CNET.
So, what would it take for Android be able to disrupt Windows? Android could disrupt Windows by finding those circumstances for which consumers are willing to trade-off familiarity for other benefits.
Android is unlikely to disrupt Windows from the traditional PC market in the near or medium term. Windows has a death-grip around the PC market and transitioning users to a new interface and programs is highly unlikely. With two newer device classes, netbooks and smartphones, Android stands a better chance of being successful.
We recently posted to the Innoblog about netbooks as disruptors. By going after the low-end of the computer market and solving simple jobs (e.g., send email and browse the Web), learning the new interface for a couple interactions in exchange for a low price point can be a reasonable trade-off. Smartphones are often used to accomplish similar jobs and because they need not support, for instance, word processing software, there are few barriers to Android adoption there as well. A disruptive play for Android today in low-end computing devices like smartphones and netbooks could also potentially move up-market over time to disrupt Windows on PCs as consumers get more familiar with the Android environment.
Will Android disrupt Windows? We’ll keep you posted as this story develops further.
I had an interesting dialogue with an innovation practitioner in a large corporation the other day. We were talking about how the high rate of innovation failure can hamstring innovation.
"The failure rate is actually irrelevant," he said. "It's the risk associated with those failures that gets you into trouble."
In other words, failure would be fine, if it wasn't so darn expensive. Because failures cost money (and time), high failure rates can cause corporations to become very gun shy about innovation.
Of course, one way out of this problem is to increase the innovation success rate. A noble aspiration for sure. But be careful. Following that seemingly sensible path can lead to some perverse behavior.
For example, a company can almost always "succeed" by introducing "new and improved" products that cannibalize what they already sell. A company can confidently state that all of its revenue comes from products launched within the past two years, feel good about its innovation efforts, and actually be falling further behind competitors.
The real answer is to dramatically decrease the cost of failure. A leadership team seeking to achieve this aim has three levers at its disposal:
Lower the costs of experiments. Running experiments need not be expensive. There are tons of low cost ways to test critical assumptions (chapter 5 of The Innovator's Guide to Growth describes about 30 such approaches).
Change the order of experiments. Many companies spend a lot of money answering the wrong questions. They'll seek to perfect a technology without understanding whether there's a market need. Assess strategic risks first, because they are often what sink an idea.
Increase the pace of decision making. Entrepreneurs with clearly bad ideas typically don't have the luxury of spending money on those ideas for too long. Companies, however, can let bad ideas linger for inordinate amounts of time because of slow decision-making processes. Shutting down flawed projects early avoids needless spending — and focuses resources on the best ideas.
Pulling these levers requires embracing the notion of "good enough." Experiments are often expensive because companies seek perfection in their own eyes before they run any sort of test. Remember, the less you've spent, the more freedom you have to change your approach. ...
The Internet has laid the foundation for a tremendous variety of disruptive innovations, enabling serious threats to everything from newspapers to brick-and-mortar stores to desktop word processors, but one segment has seemed to enjoy built-in protection from online disruption. Video games require relatively powerful hardware (in the form of fast computers or consoles), so games generally must be run on machines sitting next to the players. Sure, casual games can be hosted online, and games can even be purchased online, but the Internet just isn't good enough to stream the kinds of games that the Xbox 360 and PS3 can handle. Right?
Wrong: OnLive, a new company making its debut this week, is planning to offer streaming games that can be played by anyone on virtually any computer. This is a remarkable technical achievement, and it could usher in a powerful new business model that affects different incumbents in different ways.
On the one hand, game publishers like EA and Ubisoft are probably ecstatic. Owning the latest and greatest hardware necessary to play the latest and greatest games can be very expensive, and the high prices of gaming-oriented PCs prevent many people from even considering games with demanding system requirements. Making high-end games available to people with even low-end netbooks (as long as they have reasonably speedy Internet connections, which most people do) could greatly expand the market for their products. Unsurprisingly, quite a few of the big names in game development and publishing have already signed on.
On the other hand, hardware manufacturers are probably sweating bullets. OnLive could be hugely threatening to console manufacturers like Microsoft, Sony, and Nintendo, and high-end PC manufacturers like Dell and HP (which acquired Alienware and Voodoo, respectively, just a few years ago to gain a stronger presence in this lucrative segment). Why buy a $3,000 computer when OnLive promises almost exactly the same experience with a $300 computer and a cable modem? Even that's more than you'll need to spend: OnLive plans to sell a "MicroConsole" for less than $250.
"Good enough" technologies on the Internet have gotten better and better, from those prehistoric "newspapers by computer" to movie rentals and streaming video. As technology continues to improve and broadband becomes available to more and more people, who knows what will be disrupted next?
The most recent issue of Wired featured a great article dissecting the ascendancy of small, simple portable computers called netbooks. Everything about the story feels disruptive ... except for the fact that market incumbents seem to have caught the trend.
The netbook revolution started a couple years ago when MIT Media Lab visionary Nicholas Negroponte started the "One Laptop Per Child" project. The notion was to use open source software and off-the-shelf technologies to make laptops affordable enough for children in developing nations.
While the OLPC project itself hit some roadblocks, the concept of simple, cheap laptops surged. A Taiwanese company called Asustek, which had done outsourced design for many leading personal computer manufacturers, introduced a $300 computer called the "Eee" a couple of years ago.
The company designed the device to be "good enough" to perform simple tasks like email and surfing the Web, hence the name "netbook." It sacrificed speed and the ability to run more complicated software to hit the radically low price point.
Netbook usage has surged, particularly in Europe. Consumers have found the devices more than adequate for the tasks most people do on their computer — e-mail and basic word processing.
Willy Shih, a Harvard Business School Professor who teaches a section of Innosight co-founder Clayton Christensen's "Building a Sustainably Successful Enterprise," told Wired, "netbooks are a classic Christensenian disruptive innovation for the PC industry."
Yet ... there's one strange part to the story. Usually when a wave of disruption hits an industry, the market leaders get caught flat-footed. Either they wait too long to respond, or they bungle their response. But in this case, Dell, Hewlett-Packard, Acer, Lenovo, and other laptop leaders seem to have successfully "caught" the disruption. ...
Any time a barrier prevents consumers from satisfying an important job, the market is ripe for disruption. Consider the significant barriers keeping physicians from adopting electronic medical record (EMR) systems, or expanding on those systems they do have. In a study published in the New England Journal of Medicine, 88 percent of physicians without electronic medical record (EMR) systems and 80 percent of physicians who already have EMR systems cite “cost of capital” as a barrier to adoption or expansion.
Who can blame them? Widely published estimates cite the costs of electronic medical record (EMR) systems as ranging from $15,000 - $50,000. However, this does not take into account the costs of hardware, implementation, training, and ongoing support, which can easily take the full costs of an EMR system to $250,000 - $300,000 for the first year.
So who will enable the disruption for which this market is ripe? Enter WalMart. Long known as a purveyor of cheap toothpaste, toilet paper, and televisions, WalMart announced this week that it has partnered with Dell and EClinicalWorks to offer physicians a package of hardware, software, installation, maintenance, and training for the everyday low price of $25,000 for the first physician and $10,000 for each additional physician in the first year. While WalMart’s announcement is significant (especially to incumbents in the healthcare IT space), it is also significant, and important, to note that they are entering healthcare IT in a classically disruptive manner:
Understand the important and unsatisfied jobs of key stakeholders: Physicians today are not just caregivers, they are businesspeople forced to deal with the bureaucracy of managed care and the headaches of managing an office. Any solution that enables them to spend more time with clients and less time on paperwork without a significant impact on the bottom line will be quickly embraced.
Create an innovative business model: With its understanding of physicians’ important and unsatisfied jobs, it was likely easy for WalMart to create a solution with an appealing value proposition. However, they likely realized that additional resources would be needed (or at least helpful) to execute the strategy. Enter Dell and EClinicalWorks. Each brings its unique experience and reputation to the solution creating something greater than the sum of its parts:
WalMart claims that its role is one of an integrator. While this is true, largely because of their purchasing scale, it does offer three other key resources: widely recognized expertise in logistics and coordination, an existing physician customer base of approximately 200,000 physicians, and an existing distribution network through its 600 Sam’s Club stores.
Dell supplies the hardware – either a desktop or tablet PC – and the installation services. While WalMart could likely have partnered with another hardware vendor, Dell’s experience in supply chain management and reputation for good customer service likely gave it an edge over cheaper but less well-known hardware companies.
EClinicalWorks supplies the Internet-based electronic medical record and practice management software, training, and maintenance. Already used by 25,000 physicians, EClinicalWork brings credibility in the healthcare IT space.
Use an emergent strategy: This is neither the beginning nor likely the end of WalMart’s foray into healthcare. In 2007, it partnered with the University of Arkansas and Blue Cross Blue Shield to conduct research on how to improve healthcare IT in the US. In February 2008, it opened co-branded clinics with a common EMR platform operated by EClinicalWorks (surprised? You shouldn’t be), and in September it promised to provide all employees with access to electronic health records. It’s reasonable to assume that each of these activities were small steps to resolve assumptions related to IF and HOW WalMart should enter the EMR space.
Supported by the Obama administration’s $19 billion investment in healthcare IT via the Recovery Act, WalMart’s foray into EMR is likely to be yet another successful step in its journey into the healthcare space. In the short term, WalMart is likely to benefit from sales of the system and the ability to influence patients and physicians to fill their prescriptions at WalMart’s pharmacies or to buy medical supplies and durable medical equipment at Sam’s Club. In the long term, its savvy use of the principles of disruptive innovation positions it well to successfully disrupt incumbents.
Harvard Business Publishing, in cooperation with Chief Learning Officer magazine, will present a free virtual seminar this Thursday, March 5, from 2 to 3 pm EST.featuring Scott Anthony speaking on Leading Innovation in the Great Disruption: Keeping Organizations Moving in a Downturn.
As Innoblog readers know, Scott is president of Innosight. He is also author of the forthcoming book The Silver Lining: An Innovation Playbook for Uncertain Times(Harvard Business Press, June 2009), in which he counsels that leaders need to be challenged to consider not only new products and services, but also novel ways to look at business processes, organizational structure, and innovative management – especially during an economic downturn. In this Thursday's free virtual seminar, Scott will share examples of how organizations can increase their chances for creating growth through the right tools and actions.
Now where have we heard that before? Oh yes - in the theories of disruptive innovation. However, the Journal article isn't talking about a new start-up disrupting an incumbent company -- it's talking about newer, younger employees disrupting experienced managers. As Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, is quoted: "Companies overestimate the value of experience. Experience becomes a liability in times of change."
All is not lost for the experienced managers, however. Some companies are using computer simulations to train managers how to be more flexible. And although the article doesn't come right out and say it, the implication is that the recession will force that learning on those who have not already been laid off. One manager said, " 'I try to force myself to be nervous. Whenever I find myself falling back on what I did last time, or think I'm doing well, I try to unsettle myself.' " Reading the business news pretty much does that for me these days. It's good to know there's some value to that!
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."
First design thinking -- now "service thinking," an interesting approach to innovating around customer needs, this time around their needs for service.
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.
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?
CUSTOMER
People who desire an easy means of one-to-many communication
SOLUTION
Web interface that allows for 140-character messages, plus replies, private direct messages, and search
BUSINESS MODEL
Currently free so as to build up audience (now just under 6 million); plans to develop revenue streams in 2009
COMPETITIVE LANDSCAPE
Facebook, blogging, plus me-too services like Yammer cropping up
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-upbuildings 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.
I came across a delightful YouTube clip from the early 1980s about newspapers doing experiments with “newspapers by computer.” It is a must-see for anyone who enjoys comparing our world today with the future foreseen or predicted by experts of yesteryear.
What I found most interesting was a remark at the end that compared the relative costs of online news with print editions:
“It takes over two hours to receive the entire text of the newspaper over the phone. And with an hourly use charge of five dollars, the new telepaper won’t be much competition for the twenty-cent street edition.”
Online news was over 50 times as expensive then.How times have changed…
Today's Wall Street Journal has a fascinating front-page story of how Microsoft had ample opportunity to build a strong search advertising business, and blew it, leaving the market largely to Google.
The article describes how Microsoft started working on paid search, where companies bid to have small advertisements tied to search keywords, in the late 1990s. The company ran a paid search trial on the MSN site in 2000. MSN managers placed restrictions on the trial, such as having $15 as a minimum price, to minimize cannibalization. The trial brought in less than $1 million in revenue, and was shut down in 2000.
Microsoft re-focused on the market in 2002 after Google's AdWords program began to take off. In 2003, it passed on buying Overture, a company whose technology facilitated paid search. Microsoft launched its organically created system in 2006. By that time Google had established a dominant market lead.
It is a classic story of the traps to watch out for if you are an incumbent seeking to pioneer new markets. ...
In the January 14 issue of Strategy & Innovation, we offer up our annual Year in Preview story (free reg. reqd.) by Scott D. Anthony. This year we've added a new feature to this feature — we asked Innosight partners to write short industry specific predictions of the industries in which they have expertise.
Some overall themes:
The darkening economic climate is good news for innovation — after all, abundance is at the root of many corporate struggles with innovation.
It has never been easier to develop and scale an idea. Innovators can draw on high-quality, low-cost tools to develop, test, and begin to commercialize ideas without tens of millions of dollars of investment.
Innovation has never been more important. Success in what we are calling the Great Disruption requires mastering perpetual transformation.
Companies that are partially disrupted (such as print media) and those that are innovation novices will have a tougher go of it, as the current economic climate isn't favorable for their challenges.
On-the-brink disruptive attackers and companies that have progressed in their efforts to make innovation systematic will be more likely to find their efforts paying off.
Companies that demonstrate an ability to love the low end will find that strategy effective if they are able to master business model innovation and gain a deep understanding of how the low-end consumer measures value and develop unique offerings tailored to key value drivers.
Those industries for which uncertainty in the markets and uncertainty regarding potential governmental policy and regulations changes will struggle this year until the economy settles down and the policies of the new U.S. presidential administration begin to take shape. Finance and healthcare are two such industries.
Here are some of our partners' industry-specific predictions:
Media: A strong likelihood of continued bankruptcies among media companies.
Defense: A push toward decentralization and away from aircraft- and ship-specific platforms.
Manufacturing: A shift toward innovation and away from strict reliance upon Six Sigma and cost-cutting.
Automotive: No automakers will fold, but we will see consolidation of vehicle models in the saturated marketplace as a better linkage develops between customer requirements and available models.
Retail: Growth among retailers targeting the low-end as well as those that can add high-level services that high-end consumers will pay for.
Consumer products: CPG companies that do well will be those that strive to push the boundaries of their innovations, looking beyond just new products to new categories, new business models, and new channels.
Finance: Reduced scope and size among financial global financial services firms, and an opportunity for low-cost tools and data providers.
Healthcare: Widespread implementation of Electronic Medical Records, as proposed in the forthcoming economic stimulus package, could radically shift the balance of power between physicians, healthcare provider organizations, and insurers.
Our own Scott D. Anthony will lead an online "virtual seminar" on The Silver Lining Project: How Innovators Lead in a Downturn from 12 to 1:30 pm (EST) on February 11. The webinar is sponsored by Harvard Business Press, and here's how their site describes the event:
For companies passionate about growth and innovation, the unprecedented market events of the past months seem to contain nothing but dark clouds. Financial titans fail, Wall Street trembles, Main Street freezes and everyone seems to hesitate while waiting for stability to return. The notion that innovation must enter a period of dormancy might seem inevitable.
Yet, the fundamentals of creating compelling growth businesses haven't changed. It's hard to argue that it is not going to get tougher and that the bar for success is going to get higher. But there remain ample opportunities to be seized by those who don't freeze.
This webinar will provide practical steps to guide innovators through today's tough economic climate. Innosight President Scott Anthony, author of Seeing What's Next, The Innovator's Guide to Growth, and the forthcoming book, The Silver Lining, will draw on field work and research to describe how innovators can:
Do more with less through intelligent re-featuring and smart risk sharing
Prudently prune the innovation portfolio
Increase innovation productivity by taking a more systematic approach
Learn to love the low end to deflect disruptive threats and seize previously unreachable opportunities
Dramatically reduce investment in individual initiative through the smart use of strategic experiments
Drive the personal reinvention required to deal with the new reality of constant change
Scott will draw on in-depth case studies from companies like P&G, Time Warner, Scripps, and General Electric and provide tools to make the concepts actionable — and help innovators find new ways to prosper.
Scott has written about this subject both on his Havard Management blog and in Strategy & Innovation. Anyone who is interested in why it's necessary to innovate through the recession, and how you can do it, should consider this webinar.
A couple of years ago I first heard the story of Markus Frind, the founder of dating website PlentyofFish.com who, it was said, worked about an hour a day on his site and was making $10,000 a month. That was annoying enough. Now, a recent profile of Frind in Inc. magazine says Frind works an hour a day and brings in $10 million a year.
I bring this up not to annoy you, but to point out that Frind has built his fortune mainly by following the disruptive playbook. His “blueprint,” as he described it to Inc.: “Pick a market in which the competition charges money for its service, build a lean operation with a "dead simple" free website, and pay for it using Google AdSense.”
We would add, find a market with significant amounts of nonconsumption. PlentyofFish.com is aimed at nonconsumers of sophisticated dating sites – people who people who want to browse profiles but are not ready to purchase. The unintended side effect of this was that PlentyofFish.com also turned out to be the “perfect place for paid dating sites to spend their huge advertising budgets.”
Frind is a master of resource constraints. He uses many fewer servers than most database-driven sites with his traffic, only has three employees, and resists adding features. He has even profited by *not* making what would to others be obvious improvements to PlentyofFish.com: “On a site this big and this complex, it is impossible to predict how even the smallest changes might affect the bottom line. Fixing the wonky images, for instance, might actually hurt Plenty of Fish. Right now, users are compelled to click on people's profiles in order to get to the next screen and view proper headshots. That causes people to view more profiles and allows Frind, who gets paid by the page view, to serve more ads.”
Finally, Frind has written code that tracks what users do and serves them profiles based on the preferences their search patterns suggest, not on what they say they want. Expressing a preference in your profile for blondes but spending your time searching for brunettes would get you more profiles for brunettes. In this way Frind indirectly listens to his customers. He doesn’t believe in directly listening to them. He told Inc., "I don't listen to the users," he says. "The people who suggest things are the vocal minority who have stupid ideas that only apply to their little niches."
The disruptive playbook doesn’t account for all of Markus Frind’s success – the Inc. article makes him sound like the rare person who’s managed to make his personality quirks work for him and not against him. But PlentyofFish.com is a great example of how one person can master disruption and benefit handsomely.
While the global economy began slowing down in late 2007, forces transforming the face of business trace back more than a decade. Over that time period, technological improvements have made it ever easier to start and scale a business. Convergence went from being a cliché to a reality. Companies from countries like China, India, and Brazil burst onto the world stage. The global slowdown coupled with the credit crunch in late 2008 accelerated these forces.
If sagging employment and dwindling economic prospects led historians to term the 1930s the Great Depression, perhaps it is appropriate to tab today's hyper-competitive market where competitive advantage dissipates in a heartbeat the "Great Disruption."
In 2009, managers will realize that they are no longer dealing with a crisis; they are dealing with a condition. In the Great Disruption, companies simply can't anticipate that today's competitive advantage to last for more than a few years. Former Intel Chairman Andy Grove anticipated this more than a decade ago when he wrote, "Only the paranoid survive."
While companies might want to return to the corporate equivalent of comfort food--cost-cutting and a focus on the core business--the Great Disruption won't allow it.
Online microblogging and social networking service Twitter started in March 2006 but didn’t really hit its stride until the past few months ago. September 2008’s 5.57 million visitors represented a fivefold increase within a month’s time. This usage curve has dovetailed with my own Twitter experience. I signed up for Twitter as @ReneeCallahan in the spring of 2007, when a number of my blogging friends were signing up. I couldn’t figure out what to do with it until this past October, when I joined a group of people “tweeting” snippets from the Business Innovation Factory’s BIF-4 conference.
Since then I’ve stepped into the Twitter conversation stream several times each day and have come to value the camaraderie and knowledge-sharing I find there. It's truly amazing how much information can be put into a 140-character post.
I’ve begun to wonder whether Twitter has in it the seeds of disruption. First thing I'd need to know is, if Twitter is in fact disruptive, what is it disrupting? Social media consultant Laura Fitton of Pistachio Consulting (@Pistachio) helped me gather information on this by putting up a quick survey using Google Docs and publicizing it to her 12,500 twitter followers. Here's what 128 respondents felt Twitter disrupted when they were allowed to choose all applicable answers:
When the respondents were forced to choose only one answer from the list, the results looked like this:
Open-end answers to the question included: Craigslist, real conversation, sleep, PR, media gatekeepers, eating, and writing my dissertation. There was also a fair amount of comment in the open-end answers as to whether Twitter is truly disruptive.
In order for Twitter to disrupt, it would need to display the characteristics of disruptive innovation: it would need to be a good-enough, low-cost solution to a job that anough people were trying to get done that it would create a new market at the low end of an established market.
What do you think? Is Twitter potentially disruptive? If so, what might it be disrupting?
A recent New York Times article mentioned how the media still hasn't found a compelling way to describe today's economic climate. Everyone agrees that something important is going on, but no one has found a simple, memorable phrase that captures that importance.
A Thursday Times blog calling for nominations has generated more than 150 comments. My suggestion: the Great Disruption.
Why the Great Disruption? In the Great Depression, demand, output and wages declined across the board. Today's times are different. It isn't just that demand is sagging. It's that change is ripping through markets at unprecedented pace. Competitive advantage that took decades to build disappears seemingly overnight.
The Great Disruption didn't start in 2008. Over the past decade, technological improvements have made starting and scaling businesses easier than ever. The rise of China, India, Brazil, and Russia mean market leaders have to deal with more sharp-elbowed competitors than ever before. And industries are frantically converging and colliding.
Certainly the pace of change has accelerated over the past few months, but leaders in media, retail, defense, health care, automotive, and high-tech can attest that they have been grappling with the Great Disruption for some time.
The Great Disruption creates real challenges for managers who have made a career out of focused execution.
The following is a guest post by Juan Pablo Vázquez Sampere.
To be a CEO these days is an especially difficult task. The economic crisis can unexpectedly shorten your legacy and your tenure. Your competitive advantage might be eroding and you are constantly worried your top talented individuals might feel disappointed or want to leave. While CEOs are asking everyone and anyone where they see the next wave of growth, they pray their competitors won’t detect it first.
The disruptive innovation model can help CEOs find the next wave of growth. Our research, using disruptive innovation, has isolated the impact the crisis will have on almost any industry. This research has been distilled from the last six months of data we have from our clients in Europe that, overall, operate in 16 industries.
Here’s what the current landscape looks like when viewed through the lenses of disruptive innovation:
Upsurge in overserved consumer demand: More and more consumers are migrating to products that deliver less for less. Their willingness to pay for almost any product has decreased. They have finally realized they are just as well satisfied with a good-enough solution that is more simple, convenient and affordable. In a way this is a massive upsurge in demand that has been left unattended. It is also a demand that is not going to return to where it was before the crisis emerged. We have found that the best recipe to tackle this opportunity (before your competition does) is picking from your portfolio a cadre of your worst-performing products and making them more simple and foolproof. They must be carefully adapted to a very specific moment of consumption and the features your corporation values the most must be dramatically reduced. How do you know you are doing this assignment well? If you and your organization think the product is getting unacceptably worse… then you are on the right track!
The fastest learning moment: This coming year 2009 will be one of the best years ever for entrepreneurs and new business ventures. The reason is that the crisis has shortened substantially the time you need to realize you made a mistake. If you launch initiatives based on “invest a little, learn a lot” this is the year when you will learn “the lot” very quickly. This is because when the economy is thriving consumption is incentivized and that generates an inverse-selection problem, that is, consumers you are not interested in are buying your product without realizing its full value. Unfortunately since they appear in the market research studies, they subsequently drive investment bias in the next sustaining innovation. This biased input makes the product less attractive to consumers who do find its true value. Paradoxically, the payoff for experimenting in a crisis scenario is tremendously high.
Main competitors will be frozen: Corporations focused on chasing the next high-margin consumer have frozen their initiatives because of uncertainty. The reason is that getting approval from the board is now very difficult. These days you might only get it if you are proposing a cost-reduction initiative. In my opinion this is a gift from your competitors. They are going to be paralyzed for the next couple of years! Next year their projects aren’t going to pass through the board scrutiny. The year after they will have to update their pitch and put the resources and team together, as you know, a very time consuming process. When was the last time you knew what your main competitors were going to do for the next couple of years?
Here is a winning formula for those planning to launch a new product or to start a venture in these crisis-imposed circumstances: Pick an industry that is very fragmented, that has three or more weak economic substitutes (same need served with different technologies), that has more than 80 percent of its demand overserved, and has demand that is underserved and has remained so for at least five years.
This should be the central point of your conversations. There are quite a few industries that meet these attributes. If you don’t start this initiative somebody else will. If so, solid research shows that will be the last mistake your company will make.
When Oklahoma and Florida line up against each other in the BCS Championship game on Jan. 8, it’ll be spread offense vs. spread offense. In fact, teams running the spread or a variation on it have ended up in every BCS Championship game since 2000.
A look at the spread offense’s rise in college football in the 40 or so years since Mouse Davis of Portland State first introduced it – and the subsequent reaction of the “incumbents” – illustrates some important concepts about disruptive innovation.
Disrupting the Playbook
The spread offense allows more players to be potential receivers – three-, four-, and sometimes five-receiver sets are spread horizontally across the field. The offense often lines up with wide splits between linemen, the better to open up multiple avenues of vertical space for both the running and passing games to exploit.
These gaps also force the defending team to spread itself thin horizontally and make it difficult for them to do their job effectively. Spread offenses are also no-huddle offenses that deny the defense time to substitute players and to communicate effectively.
Why does this work? Simply because running the spread gives offenses many more options to gain yardage per down – and therefore more first downs, and more scores.
Incumbents Initially Don’t Respond to a Good-Enough Innovation
Just as incumbents do when confronted with a disruption, the incumbents in this case – teams from historically strong college football programs and conferences – initially scoffed at the spread offense. As a University of Alabama alumna and SEC football fan, I heard many times the spread referred to as a set of trick plays more suited to run up the score than to win with consistently.
Plus, schools with more traditional programs often took the view that high-scoring pass offenses like the spread were potentially dangerous. After all, the more you pass the ball, the more likely you are to turn it over – or as an old adage goes, “When you pass the ball only three things can happen, and two of them are bad.”
In that sense, the spread offense was a “good enough” disruption. A team does not have to have top talent to win with a spread offense. Since you’re spreading the scoring opportunities around, you’re not relying on any one specific position player to be very good (although talent at the quarterback position helps immensely). The spread levels the playing field, so to speak. Offensive players don’t have to learn intricate skill positions. They simply have to be able to run, pass, receive, and block, diversifying their skills rather than necessarily being the best at any of those things.
The college football elite already had offensive systems in place to win that depended on their ability to recruit top talent from among high school players. These incumbents largely ignored the spread offense at first – until disruptors used it to:
Turn around a poorly performing program – Texas Tech University, the University of Missouri, the University of Hawaii, the University of Kansas, the University of Utah, and others have ridden the spread up the BCS standings, knocking out more established programs and in many cases showing up in the Top 25 for the first time ever
Start a program from scratch, as did the University of South Florida, which did not start a football program until 1997 and first became nationally ranked in Division I in 2007
Rise up from obscurity, even from Division II (something akin to the minor leagues of baseball) and hand an embarrassing defeat to a ranked Division I team, as Appalachian State University did to Michigan in 2007
Make stars out of players that no big program would ever have recruited, as Texas Tech coach Mike Leach has done repeatedly The last point is worth noting, because as disruptions often do, the rise of the spread has begun to change the business model of the game – specifically the recruiting game. First, more and more high schools are running spread offenses, so the player pool from which colleges recruit now includes many more players who are used to that offense and don’t always adjust well to the old-style run-based offense.
And second, even a school that had recruited top-rated high school talent could be beaten by a team with a spread offense and mid-level talent -- even junior-college transfers and walk-ons. Clearly this undercuts the competitive edge that the top schools have with their scholarships.
The Spread Marches Up-Market
So it was perhaps also inevitable that some incumbents that had held on to more traditional offenses would look to the spread as an innovation they needed to help them win. The spread offense has now made its inevitable up-market march, turning up in modified form in the playbooks of established winners such as USC, Texas, Oklahoma, Florida, and LSU (which has won the BCS title twice).
When faced with a new technology that threatens them with disruption, that they can’t or don’t want to ignore, incumbents can co-opt the new technology into their existing models or try to cram new technology into their existing models. Florida, Oklahoma, Ohio State, Texas, and USC are among the teams that have successfully co-opted aspects of the spread into their offenses. Auburn, Tennessee, and Michigan are among the teams guilty of cramming, which never works.
Auburn and Tennessee – teams from the Southeastern Conference, a notably tough conference where time to turn a program around is rarely granted – lost head coaches this year in the throes of transitioning to the spread. Michigan has had a bumpy season trying to implement a new spread offense with former West Virginia coach Rich Rodriguez. Michigan’s inconsistent season has had fans and analysts grumbling that the spread offense’s days are numbered.
However, it would be a mistake to call a timeout on the spread offense, because it offers true innovation on a number of levels. It allows a coach many more ways to get first downs and score, while at the same time confounding the defense. It has leveled the playing field for recruiting, bringing parity to Division I football for the first time.
Now, who has figured out an innovative new defense that can take reliably apart a spread offense?
A lot has been written about the “job swap” program taking place between consumer packaged goods leader Procter & Gamble and technology leader Google where “about two dozen staffers from the two companies have spent weeks dipping into each other's staff training programs and sitting in on meetings where business plans get hammered out.” The key benefit that has been highlighted is how it is helping the two companies develop innovative ways of working together, as P&G learns about consumer habits online and Google works to attract a higher share of the world’s largest advertiser.
If we ladder up we can see that this employee exchange program is also helping these two companies “look at the world in a very different way and do things differently”. If we frame the problem, or job-to-be-done this way, competing solutions would be sending senior executives to cross-industry conferences, reading business books and case studies of other companies, networking with business partners and friends, hiring employees away from firms you’d like to learn from, or working with consultants who have an extensive knowledge base from working with clients in a range of industries. Each of these solutions has merits, but also has disadvantages, namely:
Conferences give executives an opportunity to hear what’s top-of-mind to their peers, but are typically only attended by senior executives. Also, the conversations may lack authenticity and the messages may be watered down to a point that it would not be useful to the person executing the work.
Business books and case studies offer insightful perspectives from outsiders, but the stories are interpretations that may be distorted or summarized to the point of being useless and may not answer your specific question
Networking with old business partners, colleagues and friends is a great resource but it is limited to the people in your network
This “job swap” program appears to do a better job of really shifting mind-sets and inspiring people at the team level, who are really executing the work, to do things differently. At the team level, you wonder what does it mean to systemize the process? Think outside of the box? Look beyond the obvious? This program gives the employees an opportunity to really experience what it is like to work in another company. The program certainly has limitations; for example, companies in competing industries wouldn’t be motivated to do this, it’s unclear how you decide who gets to participate, and it requires some clear objectives so valuable work time is not wasted.
Obviously, there will always be a place for business books, conferences, networking, and consultants, but this job-swapping is a new solution that helps company solve an important problem. Following disruptive patterns, we bet traditional conference managers, consultants, and business publishers probably aren’t too worried right now but companies like business social networking site LinkedIn, which are still looking for a business model, are best positioned disrupt this market and develop a simple, convenient, accessible and affordable “job swap” program. We wonder how many other companies will team up to do this and if a more formal network and a business model will emerge to facilitate it.
In The Innovator's Dilemma, Clayton Christensen showed how entrants have overwhelming advantages over established companies in battles of disruptive innovation. Subsequently, Christensen and Innosight have argued that incumbents can tilt the odds in their favor by organizing and acting in the right ways.
It's a nice conceptual argument. Does the data support it?
Earlier this year, Innosight assembled a database of close to 300 disruptive developments over the past 100 years (other analyses based on the database can be found at Forbes.com and our own Strategy & Innovation electronic publication). The database includes published examples and developments we've picked up through our field work. Most of the examples are success stories, some are struggles, and some are works in progress.
The database isn't comprehensive, but it's a good starting point for this kind of analysis. The data suggests that it is increasingly common for an established company to launch disruptive innovations. ...
The issue leads off with an excerpt from the much-anticipated January 2009 book The Innovator’s Prescription by Clayton M. Christensen, Jason Hwang, M.D., and Jerome H. Grossman, M.D., which looks at our health care system through the lenses of disruptive innovation. Our excerpt, Disrupting the Hospital Business Model, argues that hospitals are burdened with multiple business models and jobs-to-be-done. Hospitals can heal — if they focus on one business model and stop trying to be all things to all patients. Specifically, according to the authors, “Hospitals providing much of today’s health care cannot and therefore ought not to be relied upon to transform the cost and accessibility of health care. Instead, hospitals need to be disrupted. We need them to cede market share to disruptive business models, patient by patient, disease by disease starting at the simplest end of the spectrum of disorders that they now serve.”
This issue’s Innovators’ Insight, by Scott D. Anthony and Tim Huse, asks How Do Disruptors Perform in Recessionary Times? Conventional wisdom would be that up-and-coming disruptive companies that have had some early success but haven’t broken through to the mainstream would certainly become casualties of today’s tough economic climate. Not so — Scott and Tim went back to look at how up-and-coming disruptors did in the face of the last three economic downturns in the U.S. In 1979 and found that 11 such companies, including Intel, Home Depot, Nucor, and Southwest, fit our criteria. Their compound annual growth over the recession between 1979 and 1982 was 22 percent. Between 1989 and 1991, the sample of 11 up-and-coming disruptors, which included Best Buy, Cisco, and Charles Schwab, grew revenues by 33 percent.
This issue wraps up with Voices of Disruption, featuring an interview with Ron Gonen, Co-Founder and CEO of RecycleBank, an interesting start-up that rewards households for recycling. Former Innosight Senior Associate Lillian Zhao did the interview, after exploring RecycleBank in this blog post.
Today's tough economic climate is surfacing an interesting debate: should emerging Web 2.0 disruptors prioritize financial results or audience growth?
Yes, this is a trick question.
Companies really should focus on a third variable: learning that helps them iterate towards a sustainable, scalable business model.
A pair of recent articles highlighted different approaches taken by emerging Web 2.0 leaders. One article, in the most recent BusinessWeek, focused on social networks. The article described how Facebook recently reduced its revenue targets to focus on growing its user base. One board member told BusinessWeek, "If we stopped growing, we could make money, but it makes no sense for us to stop growing."
On the other hand, leading rival MySpace, which is owned by the News Corp conglomerate, has more of a profit focus. It has a smaller overall audience than Facebook (and Facebook's lead is widening), but a stronger overseas presence and about twice Facebook's revenues.
The other article, in The New York Times, talked about emerging models in so-called microblogging, where users blast short updates to friends, family, and followers. Twitter has become an industry leader, with users raving about the transformational power of its no-more-than-140-character "tweets." More than three million people have tried Twitter, but the company lacks a clear business model.
"If we spent time monetizing early on," its Chief Executive told the Times, "it would have meant we weren't doing other things that made the product better for users."
The Wednesday-morning quarterbacking has begun in earnest as people pick apart the campaign strategies of the winners and losers. Jack and Suzy Welch chimed in at Business Week with their disappointment at McCain's loss as well as some high-level views on what business leaders can take away from the successes and failures of the two candidates:
Listening to the analysts during last night’s televised election results shows, I too was struck by what we can learn from the two efforts — more specifically how the principles of innovation were so cleary in evidence in this election. Let’s look at how a few of the key models we advocate to drive corporate growth were applied by the Obama camp to generate a significant win:
Target nonconsumers — when a company is able to connect with a segment of the population who are not buying a product or solution and convert them, growth follows. The Obama team embraced this, looked beyond the Democratic “base” and even the registered Independents and sought to engage first time voters. The result? The highest voter turnout (64.1%) since 1908 (65.7%) with 68% of first time voters going for Obama.
Look for opportunity at the bottom of the pyramid — instead of seeking big ticket donations and endorsements from key party pundits by aligning his message to their narrow needs, Obama sought support from a very broad base and raised a record amount of funding from first time donors through small, internet-based donations.
Rethink your business model — Obama used technology to reach and engage a younger voting community and encouraged others to do the same. Who can forget Obama-girl at the top of the YouTube charts?
By contrast, McCain did everything we would expect from one about to be disrupted:
Focus on your best customers — for this campaign McCain moved away from his popular bi-partisan approach and played to the conservative base. His selection of Sarah Palin as his running mate was widely regarded as a move to bring his ticket back to the “right” and appease long-time critics of his in the Republican party.
Ignore the threat — McCain secured the Republican nomination in March, but was largely quiet during the balance of the hotly contested Democratic primary through the summer. By not using this time to develop his own grass-roots support network in all 50 states, he yielded valuable ground to the Democrats who used the free news cycles to generate additional momentum for their eventual nominee.
Cramming — running a new solution through the traditional business model. McCain was not a typical Republican. This was a large part of his appeal and likely one of the reasons he did so well in spite of the economic climate and general distaste for his party at the moment. However, he took his non-traditional approach and crammed it into a very traditional campaign. He engaged the same leaders who had run Bush’s campaigns, he cut himself off from the media, and became the Republican candidate instead of John McCain. Utilizing traditional campaign tactics smothered his unique qualities instead of bolstering them.
Of course, there were a lot more forces at play that helped determine the outcome of the election but nevertheless, these contrasts were clear to me as I watched the map get filled in last night.
When a startup company sharply shifts its strategy, does that mean the company is in trouble? That's a natural question after Dash Navigation, a startup in the GPS space with a novel business model, announced a sharp shift this week. These shifts can actually be good news--if the shifter has the time and ability to iterate towards a successful business model.
Dash introduced its first product--the Dash Express--earlier this year. The device mimicked many of the features of devices sold by companies like Garmin and TomTom, with an interesting service model. Customers pay a modest monthly fee to have access to real-time traffic information. Even more interestingly, the real-time traffic information comes from aggregating data from Dash devices. Further, Dash created open protocols to allow developers to create "mash-ups," such as a way to find the cheapest gas near a driver at a particular time.
Clearly Dash's business model would have its greatest chances of success if Dash were able to get its device in the hands of tens of thousands of consumers in a particular market. Unfortunately, Dash has struggled.
User reviews suggest that Dash's device didn't do a good enough job with the basics. Of 161 reviewers on Amazon.com, 65 gave the product three stars or lower. A typical review contains language like, "It frequently thinks I'm exiting the freeway, even though I'm not. When driving down the street it will all of a sudden decide to reroute me around a block of houses, as if it believes I turned, when in fact I'm still going straight."
It's tough enough to be a late entrant into a field populated with big companies. If your device doesn't cross the "good enough" bar on critical dimensions, you are in real trouble. ...
In September, Renee Callahan wrote in Strategy & Innovation about the appealing GPS unit Dash Express, which distinguished itself in a very crowded field with its ability to aggregate data about users’ positions and speeds to generate real-time, accurate traffic information. However, Dash is now undergoing a complete overhaul of its business model: it will no longer sell its own branded devices and will focus instead on business-to-business sales of its software platform. If nothing else, this rapid death of a new device serves as a further warning of the dangers faced by new entrants with great ideas seeking to improve on existing offerings in sustaining ways.
This is a welcome change, and as Renee’s original article indicated, it was a foreseeable one. Dedicated GPS navigation devices from a few largeincumbents have continued to become more ubiquitous and more affordable, while at the same time GPS has rapidly become an increasingly common feature in phones. After the Dash Express was introduced, it quickly became clear that positioning it among other devices with extremely similar features would be an ineffective strategy, as demonstrated by series of price cuts evidently driven by weak demand that brought the price from $600 to $399 to $299, not counting a monthly service fee.
Essentially, the Dash Express was positioned as a device that does what other devices do, only a little better and more accurately. Unfortunately, viewed from this perspective the Express was a sustaining play, and market entrants tend to do very poorly when attempting to one-up established players.
Dash’s new strategy, however, is substantially more promising. As a restructured business-to-business software platform developer, Dash is entering fairly new territory: GPS device manufacturers use their own closed, proprietary operating systems, and generally speaking mobile devices like phones run on an enormous variety of proprietary software platforms that have only recently shown some potential for standardization. Within this new, less-cutthroat competitive landscape, Dash may flourish. Of course, it’s also worth noting that the piece of Dash’s software that makes it truly compelling – its use of users’ data to provide extremely accurate traffic data – will only work better as it is made available in and gathers data from a wider variety of devices.
At the end of the day, the demise of Dash as a device maker demonstrates the difficulty of penetrating a mature market with established incumbents and fierce competition. The “new” Dash may also run into trouble, but from our perspective Dash’s new business-to-business model seems to be a safer, faster-moving road to success.
MIT chemistry professor Daniel Nocera (pictured at lower right) and post-doc Matthew Kanan recently unveiled a discovery that may represent a major energy breakthrough: a new compound that promises to enable large-scale adoption of truly decentralized, at-home solar power. The researchers focused on harnessing solar energy, since it enables clean, carbon-free power generation and is abundantly available. In this video clip on the discovery, Nocera puts the promise of solar in context: “In around one hour, the amount of sun that hits the face of the earth is what we use in an entire year globally for our energy.” (See the MIT Technology Review cover story on Nocera's research here.)
Until now, however, solar has been constrained by its inherent intermittency; power is only generated when the sun is shining, and storing any excess power produced during the day has been prohibitively expensive for at-home use. Batteries are costly, and solutions such as compressed air storage do not represent feasible options in small-scale applications. In places where the energy infrastructure allows it, excess power can be sold back to the grid, but this stop-gap solution is still reliant on the relative inefficiencies of our 20th-century energy system.
In contrast, the catalyst Nocera and Kanan discovered represents the crucial new component of a simple, inexpensive, and reportedly highly efficient water electrolysis system with negligible maintenance and replacement costs.
How does it work? Excess solar energy is used to split water molecules into hydrogen and oxygen for separate storage and subsequent re-combination in fuel cells when energy is needed. As Nocera points out in the video linked above, the researchers are hoping that their discovery will lead to homes that capture solar energy themselves by using their efficient process to convert sunlight into chemical energy for use when the sun is not shining.
While the electrolysis of water is a well-known process, it has traditionally been expensive due to reliance on noble metals and the inefficiencies of oxygen extraction in non-benign environments. The new catalyst that extracts oxygen consists of cobalt and phosphate covering a conducting material such as glass or graphite. These materials are widely available and thus cheap. Placed in water, cobalt and phosphate ions form a thin film on the electrode when a positive potential is applied and produce oxygen gas.
The new catalyst works well in neutral water at room temperature and under normal atmospheric pressure – in contrast to the traditional industrial water electrolysis process. The solution looks to create precisely the benign, inexpensive, and easy-to-set-up environment preferable for at-home use.
Scientists have been able to extract hydrogen from water easily for a long time, but only the simultaneous extraction of oxygen avoids the production of undesired hydroxide. Hydrogen is typically produced using platinum-based electrodes, but Nocera also announced plans for a full system design that includes a replacement for the noble metal, which would decrease the price of the energy storage system further.
Two additional aspects make the technology even more elegant. First, the cobalt and phosphate ions on the cathode exhibit a “self-repair” interaction that allows for repeated use. Second, the inputs – energy and water – ultimately yield energy and water again. Since this water can then be reused, an entire closed-loop system might be within reach.
The impact of Nocera and Kanan’s discovery can only be forecasted at this point. James Barber, professor of biochemistry at Imperial College London, gushes: “This is a major discovery with enormous implications for the future prosperity of humankind. The importance of their discovery cannot be overstated since it opens up the door for developing new technologies for energy production thus reducing our dependence for fossil fuels and addressing the global climate change problem.”
Notwithstanding, as with any emerging technology, this energy storage enabler needs to be vetted in further research and prove its economic potential for scalability. Also, the storage of hydrogen and oxygen and their recombination in fuel cells needs to become safer for reliable at-home use.
Nocera, though, is convinced: “This is the nirvana of what we've been talking about for years. Solar power has always been a limited, far-off solution. Now we can seriously think about solar power as unlimited and soon.”
Indeed, this technology could be the final link in an emerging energy system that includes distributed photovoltaics and fuel cells, electric cars, and new regulation that favors at-home energy generation.Commercializing this system will be a challenge (though we have theories on the best way to do this – see this article and chapter 5 of The Innovator’s Solution), but true clean energy decentralization, which promises enormous efficiency and environmental benefits, could be closer than commonly assumed.
I feel guilty that I don’t recycle as much as I would like. The truth is, I’m lazy about sorting, and I don’t have room in my kitchen to have separate bins for cans, paper, glass, etc. And, I always wonder, does the stuff in the bins really get recycled? I know that at my office, rumor has it, only the cans and bottles really get recycled because the staff is paid for recycling cans. However, the paper in the paper bins gets thrown in with the regular trash because the staff isn’t incentivized to recycle that.I know I’m being lazy, but really, why does recycling need to feel like work? Why can’t we get incentivized for recycling all things recyclable?
I think I just found the company that solves all those jobs: RecycleBank. It is one of the coolest green companies I’ve come across. RecycleBank introduces financial incentives and convenience (no sorting needed, curbside drop off) to the recycling process, offering new dimensions of performance that motivates everyone to recycle more.
RecycleBank has a winning customer value proposition to every participant in the value chain:
RecycleBank provides financial incentives to households to recycle, which reduces the total tonnage of landfill-bound material
Municipal officials save disposal fees
Recycling companies make more money from processing
Retailers gain positive association with an environmentally beneficial activity
Partnering waste haulers can differentiate themselves in the competitive hauler market
How does this process work?
Households put unsorted recyclable materials into recycle bins for curbside pickup. The recyclables are weighed on the back of disposal trucks when they are picked up by the sanitation crew. Information is scanned and recorded through a computer chip embedded in the garbage bins and then is channeled from an on-board computer in the garbage trucks into a databank. Households collect points, which can used at more than 400 national retailers such as Starbucks, HomeDepot, neighborhood grocery stores, etc.
RecycleBank has formed partnership with diverse players in order to make its innovation process work. It has partnered with over 35 cities and municipalities, over 400 business sponsors, with technology providers, and with waste haulers.
How does RecycleBank make money?
RecycleBank has developed three diverse revenue streams. This first is from municipalities (or private haulers, depending on the agreement), who pay a fee per household involved. The second is from recycling plants, with the amount determined by how much it increases the amount of materials that are processed (see NYT's article). The third, and potentially the biggest, is advertising revenues from online website used by households to manage their “RecycleBank point” accounts. (Fortune, Sept 20, 2007)
What is RecycleBank’s disruptive impact…so far?
In the 3.5 years since RecycleBank was founded, it expanded its services to more than 35 municipalities the Northeast and is planning a national US rollout and an expansion to the UK. In its first 3 years of operation, RecycleBank has diverted more than 36 million tons of recyclables from landfills (see Press Release and Green VC article)
Apple's iTunes has achieved tremendous success thanks to its wonderfully disruptive model of music sales – a model that has attracted its shareofimitators over the years.Rivals that have attacked iTunes head-on have been somewhat less successful, as iTunes’ market share has led it to the #1 spot on the music sales chart.Lala.com, though, is pursuing a remarkable (and very different) strategy that seems to have strong disruptive potential and might very well shake up the music industry just like the iTunes Store did only five years ago.
It’s worth noting that part of what Lala does is not at all unique: it sells individual tracks and albums without Digital Rights Management (DRM) protection, so they’ll play on virtually any software or digital audio player.At about 89 cents per song (just like Amazon MP3), this imitative service may not make much headway against established retailers like Amazon or even DRM-laden iTunes.
The truly innovative aspect of Lala’s business is its sales of “web songs,” which are tracks that can be “purchased” for 10 cents apiece and are then “owned” online.In other words, Lala aspires to bring iTunes into the Internet-based world: the “cloud.”As Geoff Ralston, Lala’s CEO and an ex-Yahoo! executive, puts it, “When I launched Yahoo! Mail, few thought hundreds of millions would depend on Web email.My music belongs online in the same way.Will there be anything without a browser in 5 years?”
I have written before that the movement of more and more of our computing jobs-to-be-done into the cloud opens up a variety of disruptive doors. For instance, Google, a pioneer in this space, is working hard to bring jobs like word processing into the cloud, and as it does so it may disrupt Microsoft Word by offering fewer features along traditional dimensions of performance but granting improved portability, accessibility, and convenience at an advertising-supported price of $0.
Lala’s strategy is similar – it compromises on traditional notions of ownership of music and the ability to move files around, but offers a lower price point and the ability to access your entire library from anything with an Internet connection. Generally I am optimistic, but I worry about a couple of potential roadblocks.
First, how long will Lala be able to sustain this unique position in the market?Other retailers could imitate its offering just as Amazon and Lala are imitating iTunes (and Amazon is catching up).And I wonder how long Lala will be able to sell music this way before record labels begin agitating for higher prices, just as they have (albeit unsuccessfully, perhaps thanks to Steve Jobs’ obstinacy) with iTunes.
The second, and potentially more problematic, obstacle I foresee is the way we listen to music.Google Docs is attractive in part because it doesn’t require us to change our word processing habits too substantially; we still type at our computers, only we do so within web browsers instead of desktop applications.Music, however, might not move so easily into the cloud.
Sure, we do some listening at our computers (The Killers are taking me to the end of this blog entry), but part of the reason iTunes has been so successful is its integration with iPods.We like – indeed, we demand – the ability to take music with us everywhere, and the cloud isn’t everywhere yet.The inability to listen to music in the car or walking down the street might be a deal-breaker – at least until higher-bandwidth mobile Internet connectivity becomes more widespread and available in more devices.
That said, the wonderful irony here is that the people for whom this will be least problematic are the ones who own an Apple product: Lala is preparing to launch an iPhone app.
One of the biggest challenges for marketers is to develop products that stand out from the pack (in a good way) and grab the attention of consumers when they are walking the aisles of Target or Wal-Mart.
Lots of products on the shelf today are vying for consumers’ attention, oftentimes touting superior “one-up benefits” from others in the category: “whiter whites”, “removes even the toughest stains”, “closest shave yet." It is getting tougher and tougher for companies to entice consumers to pay a premium for a product when consumers feel like their needs for laundry stain-removal or shaving are largely met.
I was intrigued when the Arm & Hammer Essentials product jumped off the shelf to me last time I was at Target. This cleaner does not include harsh chemicals and is shipped in an empty trigger bottle with a small refill pack; you just need to add water at home and voila, you have a cleaner.
Is this product disruptive? I would say yes. It reorders benefits in a non-obvious way; when consumers use this product they are giving up some cleaning power for a “good enough” level of performance while feeling like they are doing something good for the environment.
This product provides a three important lessons for disruptive innovation practitioners:
Borrow from other categories and industries It seems like the idea of taking a small packet of powder and adding water to create a solution has been around forever. Just think of powdered drinks like Kool-Aid or Jello gelatin. Borrowing from other categories is a basic building block of creativity and innovation. Look outside your company, category and industry to find someone who has solved similar problems to what you’re seeking to solve. A historical example is Henry Ford's revolutionary assembly line, which came from an unlikely blend of observations from Singer sewing machines, meatpacking, and Campbell's Soup. See Andrew Hargadon’s book How Breakthroughs Happen: The Surprising Truth About How Companies Innovate for more on this topic.
Target an important problem in consumers lives that isn’t yet solved adequately (vs. a problem that is already being solved by everyone else in the category) Consumers seem quite satisfied with the level of grime-fighting and cleanliness they are achieving with their existing products. As a consumer would you be willing to pay a premium for a multipurpose cleaner that enables you to clean your kitchen counter so you can see your reflection in it? Or would you prefer to use a cleaner that cleans adequately and is better for the environment because it uses less chemicals and was shipped using less energy? Arm & Hammer is hoping you’ll pay a premium for the latter with its Essentials product.
Make it as intuitive and clear as possible to consumers that you are helping them solve an important problem The neat thing about this product, beyond delivering a new benefit to the consumer, is how obviously Arm and Hammer presents the benefits. Companies can make lots of changes in the product formulation but it is really hard for the consumer to get this or to believe it. Making claims can be dangerous as well. Just look at a product Josh Susckewicz recently wrote about on the Innoblog, Clorox Green Works. Clorox was recently reprimanded by the National Advertising Division of the Council of Better Business Bureaus for making dubious claims about Clorox Green Works.
Arm & Hammer goes beyond making claims by helping the consumer draw their own conclusions with the package– it looks different, it feels different, it’s lighter, it looks like it is kind of fun to use. It stands out on the shelf almost as a completely new category or product. Because of this consumers won’t put it in direct competition in their minds with their Scrubbing Bubbles or Mr. Clean. They know they are making a trade-off to feel good about doing something better for the environment. This is a good thing for the folks at Arm & Hammer.
We’d love to hear your thoughts. Have you tried Arm & Hammer Essentials? Is it good enough to get the job done?
Even before the acute financial crisis, high food and gas prices left consumers struggling to cut costs in everyday life. For instance, higher gas prices lead to an increase in home cooking, along with increased sales of cookbooks and semi-prepared foods in supermarkets.
The financial pressure on consumers has an interesting upside for disruption.
Consider for example a recent commercial from Target, entitled “Brand New Day.” The commercial suggests turning to new lower-cost, do-it-yourself ways to get old jobs done. For instance, the “new” commute is biking ($59.99), the “new” gym is a gym ball ($11.88), and the “new barber shop” is hair clippers ($14.99).
Of course, making things easier, cheaper, and more self-sufficient are classic disruptive themes. So all this begs the question: What do tough times mean for disruptive innovation?
Financial pressure translates into lower tolerance for being overshot on the part of consumers. If a consumer didn’t really need a certain product feature before, they certainly are not willing to pay for it now. At first blush this might seem grim for retail, but in the light of a disruptive lens, it actually highlights new opportunity.
People still need jobs done in their lives, and the company that provides them with a product to hire for that job, in the context of the current financial reality, will benefit. In this sense, this new environment could potentially be a nurturing foothold for the birth of new disruptive technologies, or for potentially disruptive existing innovations that have been waiting in the wings for their chance to thrive (think scooters, or consumer technologies for corporate IT).
What does this mean for firms today? It suggests that it may be fruitful to re-think portfolios of offerings and to consider old products that may be lying in an R&D warehouse, or that are on the market but have been de-emphasized. Formally stalled innovations could thrive in the new environment where the definition of “good enough” has changed, and would be low-hanging fruit for success.
Something to think about — instead of the fluctuations of the Dow.
Healthcare companies and medical subject matter experts such as Mark V. Pauly of the Wharton School in his recent article often raise the question: is the concept of disruptive innovation applicable to healthcare, given that it holds that markets can be transformed or created by initially trading off quality for benefits such as convenience, access, and lower cost? After all, compromising on the quality of medical care is unacceptable, isn’t it?
The answer to this highly valid question emphasizes the interplay of two of our core beliefs: 1) having a common terminology is crucial for a focused discussion, and 2) a deep understanding of a concept is imperative to assess its applicability.
In healthcare, the term quality is widely used as a synonym for what is called performance in disruptive innovation research. While it is true that the concept of disruptive innovation suggests trading off overshooting (redundant) performance – or quality for that matter – for a different value proposition based on enabling technologies and innovative business models, this performance in fact is an aggregate of performance along multiple dimensions.Our definition of “quality” must account for context.
In the case of healthcare provision, performance dimensions broadly fall into two categories: diagnosis and delivery of care. While performance along diagnosis-related dimensions might include measurement accuracy, delivery of care-related dimensions might contain ability to treat any given disease for which a treatment is known. Now, trading off overall performance (quality) simply means reducing precisely the redundant performance that stakeholders do not value enough to pay premium prices for, or, put differently, that accounts for a significant part of the high cost of the US and other Western healthcare systems without yielding commensurate health benefits.
So what does disruption in healthcare look like?Consider at-home blood glucose monitors, which are used to diagnose and control diabetes.These are less accurate than the lab tests they disrupted, but they are good enough along the measurement accuracy dimension, as well as easier to use and fast enough for daily use, all at a significantly lower price.
Similarly, hospitals such as Shouldice in Canada and Coxa in Finland, examples of what Hwang and Christensen have termed “value-adding process businesses”, are highly specialized and do not cover the entire breadth of medical treatments as general hospitals do; respectively, they offer only hernia and joint replacement surgery. While offering less performance along the measurement accuracy and treat everything dimensions, these disruptive innovations cannot be thought of as offering lower quality of medical care per se. On the contrary, for the patients who utilize them, they are set-up to offer higher quality over time than the lab technology and general hospital business model they disrupt.
What makes healthcare nonetheless peculiar is that there are performance dimensions where overshooting is hardly imaginable, such as morbidity risk and mortality rate. Yet, taking those dimensions as fixed, there are typically other dimensions where a lower overall performance equals a more targeted solution, given a patient’s circumstance. To quote a European senior hospital chain executive I recently interviewed on the topic of indication-based healthcare: “We could never not offer a patient the best possible healthcare, yet we can very well offer the best possible care given his or her circumstances.”
Now, let us be clear: disruption is definitely not a cost-cutting game, compromising on medical outcomes that leaves patients worse off than before. Prescribing a cheaper medication that is less adequate than a current medication to successfully treat a patient is clearly not a disruptive innovation, and neither is dismissing a patient with insufficient recovery time after surgery to increase throughput – these are plain bad practices. However, given the ever-increasing financial burden the healthcare industry finds itself confronted with, really understanding and deploying disruptive innovation can actually provide lower-cost solutions in the short term while outlining the path to higher, more affordable quality in the medium and long term, and thus represents a strong building block for the future of healthcare.
When a company talks about trading off pure performance in the name of lower prices, disruptive alarm bells start ringing. After all, companies like Dell Computer, Southwest Airlines, Wal-Mart, Charles Schwab, and Nucor have prospered by following this kind of low-cost disruptive strategy.
A startup company called LifeSize Communications hopes to be next on the list. As described in a recent BusinessWeek article, the company offers reasonably high-quality videoconferencing over the Internet at prices that are sharply below emerging market leaders Cisco Systems and Hewlett-Packard. LifeSize's solutions range from $5,000 to $40,000, compared to as much as $300,000 for Cisco's solutions.
It's reasonable to predict that we'll see an increasing number of similar low-cost strategies as economic woes continue and start-up companies seek to find the opportunity in economic turmoil. Therefore, it's natural to ask: How can you tell if a low-cost disruptor is going to succeed?
Our analysis of companies that have successfully and unsuccessfully followed low-cost disruptive strategies suggest that for LifeSize to succeed, it must be able to answer yes to three key questions: ...
Rarely have I read a newspaper article peppered with as much clearly disruptive language as “The Tell-All Campus Tour,” by Jonathan Dee in the 9/21/08 New York Times Sunday Magazine’s annual College Issue. The story shines a spotlight on Unigo.com, a new college-search website that allows current students to review their school, posting videos and photos as well as extremely, um, candid opinions.
The site is so new, in fact, that last Friday when I clicked over to it midway through reading the article, I got an error page. But once I successfully accessed the site and poked a round a bit, I found a plethora of information — the kind of nitty-gritty details I would have killed for when I went through my own fraught college search.
About my alma mater, one of the 24 lengthy student reviews opened with: “The best thing about __ is that almost every single good thing you will read about in the recruiting materials is true. The one thing I would change is the level of outrageous unresponsiveness the administration often displays. The __ beurocracy [sic] is probably the one major reason why some people decide to transfer.” (I admit, it pained me to see the typo, but I felt a familiar twinge of Red Tape Angst.)
Unigo’s extremely entrepreneurial 26-year-old founder, Jordan Goldman, also co-founded one of the first college review books to include quotes from students, rather than being written exclusively by professional reviewers. But he still saw a huge gap between the needs of high school students and their families as they seek the perfect school, and the standard offerings from companies like Princeton Review and U.S. News and World Report.
“My whole family chipped in for me to go to college,” Goldman said in the Times. “They were saving from when I was 2 or 3 years old. That the best resource for a four-year, $200,000 decision are these books — with no photos, no videos, no interactivity, only three to five pages per school on average, fully updated usually once every several years — just doesn’t make the grade. This is the most important decision people that age have ever made, and the information is just not there.”
OK, so we have a clear unsatisfied need. What’s the disruptive angle? Let’s let some denial do the talking. The Times contacted Christopher Gruber, who heads admissions for Davidson College in North Carolina, one of the 268 colleges currently covered by Unigo. His reply when asked if he’d looked at the site (the company sent letters to the admissions offices of all the reviewed schools, granting them early access before Unigo went live): “I’ve got to be honest with you, I’m not spending a ton of time navigating those student-driven sites. My sense is that the traditional big players, like Princeton Review, are the major sources for online information too, in part because those are the names that parents still recognize... The ones that we supply information to are the ones that we spend the most time on.”
If the Unigo model works, it will likely disrupt the typical college guidebook business, giving free, ad-supported content in far greater detail than the average Princeton Review manual can provide. But it will also shake up how college PR and admissions teams have to do their jobs. Challenged by a well-organized, extremely comprehensive resource that gives students a warts-and-all view of the school, official viewbooks and campus tours won’t seem as convincing. (Dee, the writer of the Times story, mentions one video posted about Notre Dame, in which an official tour guide goes around the campus with a friend, giving the official spiel and then letting her friend tell the left-out bits.)
“You can review anything online,” Goldman said in the Times. “You can review the most trivial things, but you can’t review your college. There’s no platform for this incredibly important decision that costs so much money.”
In the year preceding its launch, Unigo developed a network of unpaid interns at the colleges it covers, who in turn got fellow students to write about their schools. 100 of the interns were sent Flip video cameras (another disruptive product!) and filmed typical scenes on campus or interviewed fellow students.
From the Times article:
“[Unigo] changes the game from an economic standpoint too: it costs a lot of money to travel far away from home to check out schools, and Unigo offers an unfiltered, detailed, often somewhat eccentric view of campuses all over the country. A 45-second video in which an unseen student pans around the courtyard at Sarah Lawrence on a sunny day and simply describes what she sees (including a student-run barbecue pit called PETA, which stands for “People Eating Tasty Animals”) is so evocative that it makes the one-page U.S. News summary — or the descriptions in Sarah Lawrence’s own admissions catalog, for that matter — read like junk mail.”
And one of the young editors for the site, Max Baumgarten, summed it up nicely in the article: “I don’t think [the colleges] know the numbers. The whole package is something they should be a bit scared of, but they’re not. They don’t really understand the immensity of it.”
As a loyal supporter of Amazon.com's Kindle e-reader, an email from a client titled "Throw that Kindle away!" was sure to catch my interest.
The email linked to a video demonstrating an electronic reader that a U.K. company called Plastic Logic plans to launch next year. The video is eye-catching. Plastic Logic's device — which is powered by the same E Ink technology behind readers offered by Amazon and Sony — is the size of a sheet of paper and has a stunning 13-inch screen.
As the company's name implies, the device is based on plastic technologies originally developed at Cambridge University. Plastic Logic is betting that lower capital costs and a simpler production process will provide it with a sustainable cost advantage over devices based on silicon.
A beautiful design and a sustainable cost advantage certainly sound troubling for Amazon. How worried should Amazon's CEO Jeff Bezos be?
Innosight's lenses suggest not too worried, unless Plastic Logic dramatically shifts its approach.
There are two problems with Plastic Logic's approach. First, the company appears to be targeting business users. Its demonstration showed how users can carry the device instead of bushels of documents.
What's wrong with that focus? After all, the business market is where the money is after all. And who likes being weighed down by thick stacks of paper?
With the launch of its banking-by-shoebox service, Amsterdam-based bank Insinger de Beaufort created an elegantly simple offering that overcomes the barriers of time and skill that limit consumption of financial services.While Insinger’s shoebox service targets high-end consumers, could the model be altered to create a low-end disruption?
Here’s how the service works: After meeting with a private banker to discuss financial planning goals, Insinger’s customers receive a shoebox by mail into which they can drop everything from tax return forms, speeding tickets, insurance-related forms, bills to be paid, investment statements, and bank statements.
On a monthly basis, Insinger collects the box via courier service, processes all the paperwork inside, and sends the clients a notice of the resulting transactions within three business days.Once every quarter, clients receive a full report outlining the status of their transactions, accounts, spending patterns, and overall financial position. This information serves as fodder for annual discussions between the client and his/her banker to assess changes in financial position and planning.
The shoebox service addresses functional jobs, such as “Pay my bills on time,” “Ensure I don’t miss any payments,” “Remove the hassle of handling my finances,” and “Have more time to do what I enjoy.” Just as critical are the emotional jobs addressed by the service, such as “Reassure me that my financial affairs are taken care of and nothing has slipped between the cracks,” and “Know that someone is keeping track of my spending and investments to help me make good financial decisions.”
In its current form, the shoebox service is a sustaining offering, given that it targets the most profitable, demanding banking customers with a high-cost service (rumored to run €415 to €850 per month, depending on service level).
However, many of the jobs and barriers addressed by the service are ones also found amongst low-end non-consumers of financial services.While the low end of the market may not have as many jobs related to investment management, these potential customers are also constrained by time and skill when trying to satisfy jobs related to bill payment and financial management.
Could a similar service have disruptive potential at the low end of the market by using a different business model? At Innosight, we would ask the following types of questions to assess the feasibility of such a model:
Which components of the service are critical for meeting the jobs most important to low-end customers and, therefore, need to be retained? Which components can be cut without diminishing the value to low-end customers? For example, could the personalized financial planning service be stripped out and replaced with templated trend reports of a customer’s spending and investments, along with automated recommendations based on those trends?
Could the service be offered through a low-cost business model relative to Insinger’s labor-intensive, personalized approach? For example, could the transfer of documents, bill payment, or trend analysis be automated to avoid the costs of couriers and manual processing?
Are there distinct jobs and barriers for low-end consumers that should be considered in designing the product? For example, is there an additional job of, “Make sure I don’t overdraft on my bank account” that is related to the cash-flow challenge faced by many low-end consumers and is important/unsatisfied for this market? Could this job drive development of a new feature to provide a credit cushion to customers or otherwise prevent overdrawing on accounts, or is the cash-flow challenge a big enough barrier to prevent such a service from taking hold with the masses?
Are there potential partners with capabilities that could minimize the investment required for an initial service offering and that would be motivated to support the model? For example, would Intuit (maker of TurboTax) be interested and able to provide automated report generation capabilities or input on selling the service as a subscription or as a software product?
If the questions above can be answered favorably, a viable opportunity may well exist for a disruptive product that could enter the low-end market and eventually develop into a good-enough alternative to more traditional, expensive financial services.
You want to surprise people in your office? Ask them to estimate the percent of U.S. mobile phone subscribers who use email on their phones. Depending on who's doing the estimating, the figure ranges from seven to 13 percent .
A startup company called Peek looked at those figures and saw disruptive opportunity. After all, one of the most powerful ways to create new growth is to expand markets by making consumption simpler, more affordable, or more convenient.
This week, Peek's first product appeared in Target stores. The simple device, designed by product design powerhouse IDEO, costs $99. It allows users to send and receive email using T-Mobile's wireless network for $20 a month. And that's it. No phone, no wireless Internet connectivity, no attachments. Just email.
Will Peek follow the Apple iPod or Pure Digital Flip video camera--both elegant devices that have grown markets through simplicity--on the road to disruptive success?
In need of legal advice, a man went into a lawyer's office. He knew how expensive lawyers could be, so he inquired, "Can you tell me how much you charge?"
"Of course," the lawyer replied, "I charge $500 to answer three questions."
"Don't you think that's an awful lot of money to answer three questions?"
"Yes it is," answered the lawyer, "What's your third question?"
To an average family or small business owner, legal advice feels expensive because you pay (a lot) and you pay by the advice. What you get is assurance that your interests are protected against generally unlikely events or liabilities. The majority of families, who rarely consult with lawyers and have not been on the losing end of a legal issue, are not accustomed to spending $200 per hour for advice. To those families, the benefits of legal advice don’t seem to outweigh the costs. Could the popularity of greedy lawyer jokes be the indicator of a disruptive innovation opportunity?
Yes! Even those of us who do not have frequent needs or resources to regularly seek legal advice still relate to the emotional satisfaction of having a lawyer in our corner to make us feel more protected. The question is, why can’t legal advice be more affordable, to satisfy this need for assurance amongst those who don’t have deep pockets?
Prepaid Legal (PPD) recognized this opportunity back in 1972, when its original founder began to offer legal expense reimbursement to motorists through a membership club after he suffered a collision and significant legal fees not covered by his car insurance. Prepaid Legal Services developed into a membership-driven organization that provides a range of specific legal services to any member for a flat monthly fee.
Here’s how it works: You pay Prepaid Legal a monthly fee ($16 per month in Massachusetts for a standard family plan). This membership provides you access to a lawyer at a local law firm who is a part of Prepaid Legal’s partner network. For that membership fee, you get access to an attorney for phone consultation at any time. If the lawyer believes it would be prudent to pursue a legal matter in more depth, you have access to a menu of services that are limited to a set number of specific activities per year, such as document review or drafting legal letters.
Prepaid Legal has proven it has a successful business model, with over 1,481,531 active memberships reported at the end of first-quarter 2008. What makes them an interesting example in the disruptive playbook?
Targeting constrained customers: By focusing on the question of “How can we make legal advice accessible to non-consumers?” Prepaid Legal discovered an innovative way to design the pricing and distribution model for legal services, making it accessible for those who were previously priced out of the market. Sixteen dollars a month for on-going basic legal service is much more feasible to these customers than paying $500 to hire a lawyer one time to review a document.
Offering “just good enough” service: Customers get an inferior product by traditional standards, sacrificing unlimited service for a cheaper price point. If you need a lawyer to review documents to purchase a home, a membership affords you up to two reviews of legal documents that are no more than 10 pages. If additional services are needed, you are entitled to a 25% discount on your lawyer’s regular fees. For the majority of infrequent advice seekers, this level of benefit is a good deal. Their legal matters tend to be straight forward and the reassurance of having a lawyer on call by phone provides a significant emotional and practical benefit.
Changing the business model: What makes the offering possible is the scale that Prepaid Legal can provide to the distribution channel (its partner law firms). This is done through multiple business model innovations that deliver the same old legal services from the same old law firms, but to new consumers:
Prepaid Legal changed the financial model to aggregate receivables before legal services are rendered. Their partner law firms benefit from a predictable revenue stream
Prepaid has created a marketing network of associates who are usually members and who receive commissions for referrals. This pyramid type of marketing approach has garnered criticism for its ability to drive sustainable growth. But it keeps marketing and sales expenses low and allows the company to remain profitable with its low cost positioning.
Finally, the company created a new value proposition in the marketplace that positions legal services much more like insurance. This was done by limiting the features and benefits of the service to the most scalable and frequent kind of legal advice, and by targeting that advice to traditional non-consumers.
Scott Anthony recently blogged about Google’s new Chrome browser, concluding that the offering has potential as a disruptive threat to Microsoft. I agree, but not because the browser itself is particularly remarkable; specifically, I see Chrome as a small part of a larger, Google-backed movement toward more Internet-based computing as opposed to Microsoft’s current desktop applications. I think that Chrome itself is a sustaining move in the browser space, but that it may help foster more disruptive change.
I’ve been using Chrome since its debut, and there’s no doubt that it’s clever. The frame the browser creates around the sites it displays (known to developers as its “chrome” – get it?) is impressively small: there’s no menu bar, tabs are all the way at the top, and the status bar at the bottom only pops up when it needs to, leaving extra space to view websites the rest of the time.Useful features and shortcuts abound, like the versatile, search-capable address bar known as the “omnibar”.
Chrome is also technically innovative: it’s speedy, of course, and there are many innovations under the hood. One of the cleverest enhancements is the way tabs work. Each tab is completely separated from all the others, so when an especially complex (or unfortunately buggy) website causes problems and a tab crashes, everything else keeps humming along smoothly.
Finally, it’s… well… cute. Its features are introduced in a comic. Chrome reminds you that browsing in its unique incognito mode (in which no history is kept and no cookies are saved) won’t protect you from “secret agents” or “people standing behind you.” When a tab crashes the error message is “Aw, Snap!” Typing "about:internets" into the address bar will take you to a Ted Stevens joke.
These innovations allow Chrome to do the things other browsers do (they all get at the same Internet) and to do them incrementally better. Through that lens, I’m not sure how successful Chrome will be; remember, as Scott mentions, Microsoft’s Internet Explorer maintains a 72.2% market share despite the existence of superior alternatives. All major web browsers out there are equally free, and many are also open source.
Viewed as part of a larger strategy, however, Chrome could be a small part of a truly disruptive change in computing. Google has been pushing hard in recent years to expand the range of jobs consumers are able to do online in the cloud, from word processing to working with spreadsheets to creating presentations, and Chrome is a speedier, more stable platform for those sorts of applications than other browsers. Furthermore, because Chrome is open source, Google is making it easy for other developers to adapt its features.
Chrome may not be disruptive to other browsers, but it will help enable the adoption of Internet-based computing which, as it provides enhanced portability at a low (or no) price in exchange for fewer features, fits the disruptive mold nicely.
On its own, Chrome is nothing earth-shattering, breathless pundits prophesying the gruesome demise of Microsoft notwithstanding. On the other hand, Chrome’s features do make Internet applications marginally easier to use and more reliable, and Google is working diligently to continue that trend. Relying entirely on the Internet to get our computing jobs done may seem difficult to imagine now, but viewed as part of a larger movement Chrome is certainly a small step toward a much "cloudier” future.
It didn't take long for the hype machine to gear up. Seemingly minutes after news began to appear about Google's new Web browser (called "Chrome"), pundits started talking about "browser wars" and Google's "Microsoft killer." In this case, the hype might be justified, if Chrome delivers on its disruptive potential.
Early descriptions sound ominous for Microsoft. Google's browser was built from the ground up to make it easier and faster to run Web-based applications. It is completely open source, meaning developers can modify the source code and easily design applications that work with the browser. And of course, it is free.
Google hopes the browser will lead more people to spend more time using its applications, browsing the Internet, and contributing to its advertising revenue. Further, it hopes to lessen the chances that Microsoft uses its browser dominance to subtly push people towards its own Web sites and applications.
Chrome presents an obvious threat to Microsoft's Internet Explorer software. But Chrome could do much more. ...
The recently christened “netbook” market has exploded over the past year as new entrants and established computer manufacturers have released a bevy of new, inexpensive products into the disruptive category.
Netbooks, relatively small and very inexpensive notebook computers designed primarily for mobile Internet connectivity and useful for little more than browsing, e-mail, and running productivity software, fit nicely in a niche for consumers who have been simultaneously overserved by traditional laptops and underserved by high-end smartphones.
If this niche seems familiar, it should. Manufacturers have struggled to shoehorn attractive products into this niche for years, but until recently they tended to be unwilling to aim low enough on features or on prices.
Some have sought to fill that gap by focusing primarily on size and producing ultra-slim laptops with feature sets (and price points) comparable to those of larger computers. Lenovo’s X Series and the $1799 MacBook Air, for instance, actually charge a hefty premium for providing features similar to those of a midsize laptop in a more portable package.
Microsoft, on the other hand, was more willing to limit features and provide a “good-enough” product when it developed its “Ultra-Mobile PC” platform (known as Origami), but Origami-powered devices failed to catch on as high prices (not to mention horrific usability problems) turned potential customers away.
Netbooks, however, seem more attractively positioned than these products, and they have great potential to disrupt the laptop industry. Consider, for example, Acer’s new Aspire One, now widely available for $379. It’s hopelessly outgunned by pricier laptops: its screen is small, it runs Linux instead of Windows, it comes with relatively little RAM, its processor is slow, and its solid state drive is Lilliputian.
But those shortcomings aren’t terribly important to consumers when their goals are simply portability, connectivity, and productivity at a low price; an ultra-portable that can run Crysis is ludicrously overwrought in comparison.
It seems very likely to me that there's much more expansion in store for this segment of the computing market as manufacturers introduce still more products, the cost of computing power continues to decline, and consumer awareness of these options grows. I'll be curiously watching as the low-end disruption develops.
Earlier this year on InnoBlog, Natalie Painchaud discussed the ASUS Eee Surf's potential to be used as a second computer for families.
One of the excellent editors at Harvard Business Publishing forwarded me a link to a BBC article in an email with the subject line: "Could Windows by Disrupted?" I didn't have to click on the link to know the answer is yes.
You see, everything could be disrupted. The important question is will disruption play out in a way that favors or kills the incumbent market leader? The real interesting question is "Will Microsoft disrupt Windows?"
The forces of disruption are at work in every industry. It can happen more quickly in some industries than others, but the potential is omnipresent. And as Clayton Christensen pointed out in his seminal book The Innovators' Dilemma, market leadership isn't just an insufficient buffer against disruption, in some cases it is the root cause of failure.
Consider the management classic In Search of Excellence. While some of the companies featured in the book continued to excel after it was published, companies like Amdahl, Atari, Data General, Digital Equipment Corporation, Eastman Kodak, and Kmart all encountered serious difficulties. In fact, an analysis by IMD Professor Phil Rosenzweig in his worthwhile read The Halo Effect found that the average "excellent" company from In Search of Excellence generally under-performed the stock market in the years after the book's release.
On Tuesday, Michael Arrington from TechCrunch.com had a fascinating post about his experience playing around with a startup called YouNoodle, which tries to do for start-up funding what credit scoring did for personal lending.
Before the 1950s, lending depended on the wisdom and judgment of loan officers. Then, a company called Fair Isaac developed a way to use four simple variables to develop a credit score that reliably predicted the risk of lending to an individual. Using the approach could allow any individual to meet, if not exceed, the accuracy of a loan officer, whose judgment might be clouded by extraneous factors.
Further refinements to the credit scoring methodology fueled disintegration and disruption in the banking industry, spurring the rise of credit cards and specialist providers of auto loans, home mortgage loans, and small business loans.
Likewise, YouNoodle has developed a database that it claims can predict the valuation of early-stage startup companies. It developed the database by assessing 3,000 startup companies. The model relies on four basic areas: the team, financial factors, the concept, and advisors. A startup comapny fills in a survey with detailed questions focused on these four areas, and out pops the valuation.
This article was co-authored by Michael Putz, a Business Development and Strategy Director at Cisco Systems. Putz was an integral contributor to the ideas presented in Seeing What’s Nextthrough collaboration between Cisco and Clayton Christensen on the future of the telecommunications industry. The post reflects the personal views of the authors, not of Cisco Systems.
New-search-kid-on-the-block Cuil Inc. has its work cut out for itself. First, it has to fix embarrassing bugs that plagued its hotly hyped launch this week. Then, it has to figure out how to break from the pattern showing that companies that try to leap over market leaders with a better-performing product typically fail.
Cuil could look to Apple for signs of hope. Apple was far from the first mover in the digital music space when it introduced its first-generation iPod in 2001. That player was superior, and more expensive, than devices offered by Rio, Cabo, Archos, and others. Apple’s iPhone was a late entrant to the smartphone industry. Research in Motion, Motorola, Nokia, and Samsung are still struggling to match Apple’s intuitive interface and powerful computing platform.
In both cases Apple entered an established market with products that were functionally superior to established products.
Harvard Business School Professor and Innosight founder Clayton Christensen’s research found this approach — which he termed a sustaining strategy — tends to not work because it entices devastating response from motivated incumbents who have the right skills to fight back.
In fact, in 2007 Christensen publicly predicted the iPhone’s failure, telling BusinessWeek: “The iPhone is a sustaining technology relative to Nokia ... History speaks pretty loudly on that, that the probability of success is going to be limited.”
Yet, Apple’s digital music strategy has been an unqualified success and its mobile phone strategy appears on its way to similarly rarefied heights. Why has Apple been able to buck the trend? In both cases it recognized that it had to create a completely different value system to disrupt an entrenched incumbent value system.
An article in the Wall Street Journal today described how a startup company called Cuil Inc. has assembled a “dream team” of engineers to try to dethrone Google Inc. Odds are that Cuil (pronounced "cool") ends up like the seemingly unbeatable team of NBA players that finished sixth in the 2002 FIBA world championships.
Cuil’s search engine launched today. It claims to cover three times the number of Web pages that Google covers (in trial runs this morning it ran very slowly and found nothing under my name!), and displays its results like a magazine. President and co-founder Anna Patterson, an engineer who helped build Google’s search index, told the Journal, "You can't be an alternative search engine and smaller. You have to be an alternative and bigger."
To top Google, Cuil built a top-flight team of engineers with search experience at eBay, IBM, AltaVista, and, of course, Google. It is backed with more than $30 million of venture capital.
Recently, I took a vacation to Europe with my little brother, a trip I was determined to keep inexpensive despite the weak dollar. This goal turned out to be particularly difficult in Stockholm, where a McDonald’s value meal will set you back $11. Because of the prices, I took a local friend’s suggestion and booked a private room in a youth hostel. Never having stayed in a hostel before, I was unsure about what this cheap alternative would be like.
Actually, it turned out to be a great experience. It was a comfortable, perfectly “good-enough” place to sleep. I began to reflect upon what one gets from staying in a hotel.
It occurred to me that I was perfectly happy without a maid’s “turn-down service” and a private bathroom, and that for a vacation like this, a traditional hotel overshot my needs. What’s more, I discovered that I valued the benefits along new dimensions of having access to a kitchen and being in a casual, friendly atmosphere.
I think the important lesson here is that until I became aware of and experienced a hostel as a potential “European trip lodging solution,” I didn’t realize that I was overshot by hotels, and I didn’t realize that I valued the new ancillary benefits offered by hostels.
I felt surprised and delighted to find a solution that was a better fit than I even knew existed, but I couldn’t have articulated this solution, or even the need for a new solution, beforehand. This is part of why it’s largely impossible to calculate the size of a market that doesn’t yet exist — it’s hard for an individual person to know, a priori, their precise requirements and desires when it comes to different aspects of performance.
And yet after finding that a particular solution is a perfect fit, a person can retrospectively see where in the market spectrum they fall. This is why the task of uncovering the fundamental jobs-to-be-done in a given market context tends to require sophistication and multiple research approaches.
Ultimately, my hostel experience makes me wonder what other, potentially disruptive solutions out there might be a better fit for me than the one I’m using, that I just haven’t experienced yet! Companies that are able to intuit what consumers value, but are unable to articulate, hold the keys to innovation success.
At some point during the past few years, Adobe’s Flash technology became one of the most often used formats to encode streaming video on the Internet. From its start as a niche animation tool in the mid-1990s to one of the top streaming video formats today, Flash has followed a decidedly disruptive path, taking market share away from all traditional streaming video format heavyweights.
In the late 1990s, as Internet connections became capable of carrying streaming video content, a format battle arose. RealVideo, a purpose-built platform designed to handle the challenges of Internet streaming, quickly captured dominant share. Windows Media, despite the inclusion of its player within all Windows-based PCs, lagged far behind, slowed initially by poor video quality and streaming capabilities. Finally, despite offering the highest video quality, Apple’s Quicktime format lagged Windows Media’s share, suffering from a lack of promotion, the need to download and install a player application, and niche ownership of Macintosh computers.
A few years prior to the format wars of 2000, San Francisco’s Macromedia acquired a vector-based animation package, FutureSplash, and rebranded it as its Flash product. Flash was easy for novice and experienced developers alike to use, and its applications and animations could also be easily compressed to a small, Internet-friendly file size. As Flash applications and animations began to pop up throughout an increasingly interactive Web, Microsoft agreed to bundle the Flash plug-in within Internet Explorer 5. By 2000, it was being distributed within all AOL, Netscape, and Microsoft web browsers. In 2002, it shipped within all releases of Windows XP for an installed base within 92 percent of all Internet-connected PCs.
Initially, Flash was a format perfect for interactive applications and animations, but could not be used for the encoding of video. Over time, however, as the Flash platform evolved, it became capable of supporting increasing content frame rates. Soon, the line began to blur between animation and video. In 2002, after the release of new capabilities within Macromedia Flash MX and Flash Player 6, Flash’s broad installed base compelled developers to begin to use Flash as a format for encoding video. While its video quality lagged that of incumbent formats, Flash was “good enough” for some web video content, particularly in light of the fact that the majority of users could consume such video without needing to download and install a separate player application — a big plus.
Over the last six years, and more recently under Adobe’s ownership, Flash adoption has grown dramatically. Today, television channels including CBS, NBC, CNN, and ESPN, along with user-generated content sites such as YouTube, MySpace, Google Video, and Yahoo Video, all encode their videos using Flash. CBS.com, for example, is also just one example of many sites streaming Flash video 720p HD. According to a report published in April 2008, Flash-powered online video websites are now responsible for substantially more than 91 percent of online video traffic. While RealNetworks' RealVideo, Microsoft Windows Media, and Apple Quicktime remain players in the world of online video, Flash has clearly taken the lead.
Since its acquisition and re-launch by Macromedia in 1996, Flash has followed a classic disruptive trajectory through the world of streaming video. Its initial foothold, the world of web-based animation, provided a perfect niche for Flash to incubate. Bundled within all major web browsers, Flash then hitched a ride on a dynamite distribution mechanism, finding a home within 98.45 percent of all Internet-enabled PCs as of June 2008. Improvements to Flash technology, combined with its installed base, next enabled it to move up-market, tackling increasingly complex content until the line between animation and video was gone, along with the lead that had been enjoyed by the streaming video format incumbents.
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.
The iPhone 3G hogged its share of the spotlight over the weekend. The “twice the speed, half the price” phone sold upwards 1 million units over the weekend. But while most of the spotlight was focused on the new phone itself (and the difficulties experienced during the launch), I believe time will show the iPhone App Store — a iTunes-integrated online store that allows consumers to easily install a seemingly endless variety of games, utilities and other applications — was the Apple release most deserving of the weekend spotlight.
The new features (3G antenna, standard headphone jack, etc.) are improvements, don’t get me wrong. But they are the sort of sustaining improvements that customers expect, and they don’t exactly break new ground. I doubt whether these features alone can propel the iPhone to the level of success that Apple’s other “i” product has achieved. (If they could, you’d see a lot more buzz about the LG Dare and the Samsung Instinct).
It is the App Store that adds features in a disruptive way that other phones can’t match. With it, the Apple finally gives consumers a way to conveniently add third-party programs to their phones. (I’ve used both Palm OS and Windows mobile devices and can testify that until now this has been neither a quick nor a convenient process). In the same way that the iTunes music store made the iPod much more than another digital music player by allowing the consumer to easily buy, organize, sync and play music, the App Store makes the iPhone more than another smartphone. It turns it into a computer in your pocket, ready to be customized with the applications that you want.
How significant will the effect of the App Store be? Well, if the history of the iPod before and after iTunes is any guide, the effect will be enormous.
Prior to the release of iTunes in April, 2004, no more than 1 million iPods has been sold during any quarter. After it was released for Windows in October of 2004 (it was a Mac only release for the first few months), at least 4 million iPods (and as many as 22 million!) have been sold every quarter.
Of course, there are differences. Consumers already had well-established habits relating to buying and listening to music that the iPod + iTunes could build on. Similar habits relating to the use of third-party applications on mobile devices may not be as prevalent. And this time, the competition isn’t as far behind. Google is hard at work pushing its own mobile platform, Android, with headset makers and application developers (and might even be developing a Google phone). Also, incumbents like Nokia, which acquired Symbian recently, aren’t sitting still either. Both may be able to offer consumers devices that are as flexible and application ready as the iPhone in the near term.
In the face of these challenges, it will be interesting to see whether Apple will be able to repeat the success of the iPod. It is doing plenty right. But will it be enough?
Stuttgart is “going green.” The German city recently signed a letter of intent with Ultra Motor to implement an infrastructure to support eco-friendly scooter-bikes. Launch is expected in 10 months and the idea is catching on; according to BusinessWeek, Ultra Motor is currently in negotiations with 12 other major European cities.
Driving this effort is Ultra Motor’s new A2B Light Electric Vehicle (LEV) — a scooter-bike with a conscience. The tagline even has an anthropomorphic ring to it: “The heart of a bicycle. The soul of a scooter.”
Experience LEV technology: Hop on a comfortable seat surrounded by a lightweight, aluminum frame. Enjoy as much exercise as you choose by pedaling or cruising at 20 mph. Want to ride further? The standard range of 20 miles can be extended to 40 with the addition of a lithium ion battery pack. New technology provides one-third more force than electric motors; helpful when ascending hills or darting through traffic. A dashboard indicator signals energy remaining. Dwindling charge? Simply plug in.
Current customers of the A2B vehicle include commuters, students, employers, fleets, and local authorities. However, through our lenses, jobs define the marketing strategy and are linked to attributes:
Social job: “Have a positive impact on the environment”
The A2B is a zero emissions mode of transportation, powered by a lithium ion battery. The vehicle efficiently functions at approximately one-tenth the running cost of a gas-powered scooter.
Emotional job: “Allow me to enjoy my commute”
The rider is able to enjoy the outdoors and a quiet ride. The extended driving range provides freedom and the vehicle is easier to handle than a gas-powered scooter. Modular storage options are also available.
Functional job: “Provide a way for me to reduce transportation costs”
Savings are self-evident — no gas required. The A2B model is currently available in 20 states across the U.S. for about $2,200. In Stuttgart, a monthly subscription will cost $23; a mass transit pass costs $84.
In the spirit of business model innovation, Ultra Motor is exploring new networks of transportation, one of which will be utilized in Stuttgart. The “LEV City Initiative” outlines this potentially disruptive system featuring charging stations; purchase a subscription, locate a station, swipe your card and enjoy the ride.
We applaud Ultra Motor for encouraging consumers to “go green” in new ways. Learn more from the source at www.ultramotor.com. You’ll notice as the website loads, the screen cleverly notes: “Charging up.”
The last couple of years haven’t been kind to former disruptive poster-child Sony. Yet the company has taken a series of actions that could position it to return to disruptive prominence.
What has Sony done? Is the company about to introduce new products or services that could be the building blocks of billion-dollar businesses? Not exactly. Sony has done something more prosaic—it got its core businesses under control.
It’s odd to suggest that this has anything to do with innovation, but in fact it's a vital part of the process. As we discuss in the first chapter of our new book The Innovator’s Guide to Growth, a core business that is in control is one of several necessary precursors to innovation.
Why? Well, when your core business isn’t in control, unexpected crises inevitably pop up. When those crises hit, managers necessarily and appropriately divert attention from growth initiatives toward making sure that the core business doesn’t go down the tubes.
That's what happened to Sony. From the mid 1950s to the early 1980s, Sony was an unstoppable innovation machine. It systematically launched about a dozen disruptive product lines, including the transistor radio and the Walkman.
But since the 80s, Sony’s innovation engine has suffered a long, gentle decline. It introduced innovative products like its Vaio line of notebook computers and its PlayStation line of video game consoles, but it rarely pioneered new markets.
In an Atlanta Journal Constitution article last week, Marty Nemko, an education consultant, career counselor, and author, argues that traditional colleges are over-promising and under-performing for a large group of students in the United States. The students he has in mind are those who graduate in the bottom 40% of their classes and then attend traditional 4-year colleges. After 8 ½ years, two-thirds of this group have not yet earned their diplomas.
Nemko argues that dropping out of college devastates self-esteem while generating burdensome debt, all just to land an income and a job the student would have been qualified to earn with a high school diploma. Even when these kids beat the odds to earn their degree, they are more likely to be among the bottom-performing college graduates competing for jobs upon graduation, a recipe for disappointment. Colleges are selling the promise of bigger salaries and fast-trajectory careers, but failing to deliver a better post-high-school career outlook to the bottom 40 percent.
Colleges should do a better job of preparing students to compete in the global economy for high-skill careers by investing less in research, campus beautification, or sports, and more in providing quality teaching and mentorship Nemko suggests. Another alternative -- why not encourage the least academically prepared high school graduates to set their sights more realistically and just avoid college? The service sector is the fastest-growing job segment in the US and there is absolutely no shame in pursuing a trade.
Nemko proposes a solution for colleges: Through government mandates, create standardized and transparent performance data on every accredited institution of higher learning. He cites several examples of the type of data that might colleges might be required to report. These include:
Standardized testing. Administer an exam that measures skills important for career success, such as the ability to draft a persuasive memo, analyze a financial report or use online research tools to develop content for a report. A school's results would be public information.
Retention data. Institutions should reveal the percentage of students returning for a second year, broken out by SAT score, race, and gender.
Graduation rates. The four-, five-, and six-year graduation rates, broken out by SAT score, race and gender.
Employment data. Show the percentage of graduates who, within six months of graduation, are in graduate school, unemployed or employed in a job requiring college-level skills, along with salary data.
However, this solution assumes that the primary goal of graduating high school students is to optimize their future financial position. Assuming that's correct, one way students could achieve this goal is to develop a high level of skill through an advanced degree. Another way is to simply avoid the high probability and high cost of failure and avoid college altogether.
Nemko’s recommendation for more data transparency addresses both options. Low-performing colleges would come under public and embarrassing scrutiny…the kind of pressure that might shame them into reforming their own business model so they can show better outcomes. Low-performing high school graduates would have compelling and dissuasive data on their true odds of acquiring an education and achieving their career goals.
Although Nemko makes a classic case for low-end disruptive innovation, his proposed solution would stifle innovation. Mandates would force all accredited institutions into a sustaining competitive battle on exactly the same career-oriented performance dimensions. While a few institutions might change their game, it seems more likely that this approach would simply thin the ranks of traditional colleges and college students in the US.
For example, what might such scrutiny do to disruptive business models like that of the University of Phoenix, which has removed barriers such as access and wealth to make education available conveniently at home to those who otherwise might be nonconsumers? Does it matter that the University of Phoenix's four-year graduation rate is below 10 percent? Not to its students, who happily make the trade off between a time-structured physical classroom curriculum and the opportunity to study at very low cost, on-demand through the Web.
In the US, there are more than 2 million students pursuing occupational curricula at career colleges that specialize in preparing students for careers ranging from culinary arts to automotive technology. Enrollment has grown by 17 percent in these programs over the last 2 years, in line with the 19 percent growth in jobs requiring two-year degrees. But these students number far fewer than the 17 million enrolled in four-year colleges estimated by the census in 2006. Why aren’t more of the “bottom 40” who go to college choosing these programs, which demonstrate very compelling graduation rates and career metrics?
The plausible reason is that students have a whole slew of other jobs-to-be-done that have nothing to do with landing a high-paying career:
Mature as an adult in a relatively controlled environment for a few years before being released into the wild
Find out what they enjoy doing
Discover strengths and weaknesses
Have some fun for a few years before buckling down
Develop a new skill
Meet a new and diverse set of people who broaden their network and perspective on the world
We expect that the most innovative and disruptive approaches to preparing the “bottom 40” for the work world will come from outside the traditional university system, and even from outside the education sector. While the traditional four-year institutions are locked in a sustaining battle to compete for the best pool of applicants they can attract, disruptors like University of Phoenix and others can hone their business models on nonconsumers and the lowest-performing students.
Attendees of the Mobile World Congress in Barcelona earlier this year might have easily overlooked what could become a huge success. Modu, an ultracompact cell phone launched by the Israeli technology start-up modu mobile, might be the first truly modular phone – a technology with significant disruptive potential in the mobile communication devices category. However, highly relevant questions on consumers’ jobs-to-be-done and the business model need to be thoroughly considered for modu mobile to be successful in the marketplace.
The technology
In essence, the 1.41 oz., 2.8 x 1.4 x 0.3 inch device is a no-frills cell phone with a small screen and just a few buttons that can be wrapped in one of multiple “jackets” to become a more advanced cellphone (e.g. with a full QWERTY keyboard, a bigger screen, or individualized design). When merged with a “mate,” the modu becomes the core of an entirely different compound device with different performance dimensions such as a portable music player, a car radio, a GPS-system, a bike computer, a camera, or an alarm clock with a docking station that displays incoming text messages. The modularity of modu’s hardware and software allows its processor, memory, and wireless technology to run the compounded devices.
The job
The modu is set for success only if it precisely targets consumers’ jobs-to-be-done and does not get distracted by the technological possibilities. Instead it should focus on specific circumstances consumers face during their day where the modu could be a winning solution: “Help me enjoy my commute” when getting to work and back, “help me access my emails while on the go” during the work day, and “help me become available for communication” when going out at night might be examples. Now, each of these jobs is already addressed separately by illustrious products such as Apple iPod, RIM Blackberry, and small form-factor cell phones by Nokia, Motorola, Samsung and others.
At the moment, modu mobile’s answer to these competitors seems to be a lower price. The anticipated price of $200 for a modu bundled with two jackets that range in price from $20 to $60 each might differentiate modu from its respective nonmodular competitors. Yet, competitors could simply decide to sell for less, cutting their margins to outcompete modu.
The true power of modu’s technology lies in its modular architecture. Modu mobile can create a competitive edge by translating the device’s customizability into two distinct performance dimensions. First, modu's modularity can facilitate the individualization of consumer electronics -- a trend that predates its most common and unfortunately popular example, the personal ringtone. The second performance dimension follows the broad job “help me make my daily life easier.” This might sound more straightforward than it actually is, but figuring out how precisely to align communication technology with cross-architectural usefulness will be key for modu to challenge the iPods, Blackberrys and Nokias of this world. In this context, swapping the modu between multiple jackets and mates per day needs to be as quick and easy as its teaser suggests.
The business model
Modu mobile plans to launch its device with support from major cellphone carriers in Italy, Israel and Russia this October, followed by the U.S. and other European countries in 2009. Modu's business model focuses on selling the phone while licensing the technology to third-party manufacturers, who will build jackets and mates on their own. Manufacturers could profit from licensing modu’s technology by launching their products without a slow and relatively expensive licensing process with the Federal Communications Commission, because the modu is already a phone.
Modu mobile, in turn, keeps full control over the core component of what they hope will become as standard as flash data storage devices, the last undertaking of modu founder and CEO Dov Moran, who was formerly CEO of msystems inventor of flash data storage devices that was acquired by SanDisk Corp for $1.6 billion in late 2006). The two main advantages of licensing technology to other manufacturers for modu mobile are that with an increasing number of jacket and mate manufacturers the modu would be more and more cemented as a standard, and as other companies also strive for success, modu mobile hedges its risk of failure by potentially not getting the job quite done for consumers.
The future
Modu mobile has the potential to disrupt the mobile communication devices category. It can target overshot and/or nonconsumers (an interesting occurrence of a potential low-end and new market disruptive innovation), if it is able keep the low-price promise along with increased ease of use, or by introducing a new performance dimension around the device’s modularity and striving for increased customizability. The business model appears promising, if the self-reinforcing mechanism of initial success results in a large base of third-party manufacturers.
These are all big ifs, and I am really curious to see what the future will bring for modu.
Our own Scott Anthony was featured in the HBR IdeaCast podcast series, talking about Disruptive Innovation. We've just now added the link to our Innovation Resources section. Enjoy!
When I first was told that Mocospace was getting VC backing in early 2007, I skeptically thought: “Who’s going to use another social networking site?!”
Eighteen months later Mocospace has grown to become the leading mobile social networking site in North America. With more than one billion mobile page views per month, it’s holding its own against incumbents like Facebook (which has more than 300,000 mobile page views per month).How did Mocospace become so popular?
What I didn’t realize when I first heard about Mocospace was that it has a powerful, disruptive business model that has successfully targeted a new distribution channel (the mobile phone) and a new customer base (non-consumers of existing social networking sites). This disruptive business model has propelled it to a leadership position in mobile social networking.
New Channel
Mocospace was one of the first to create a social networking site specifically designed the mobile phone. There is a subtle though distinct difference in how people use social networks on the PC vs. the mobile phone that stems from the basic differences between the PC and the mobile phone –- the PC is a static, multi-function device, whereas the mobile phone is an always-on, always-connected, communication device.
Mocospace realized this early on, and optimized its features for the jobs-to-be-done of a mobile phone user: instant communication, quick entertainment, killing time, and staying socially connected. Mocospace offers every type of communication (chat, IM, mail, messaging, micro-blogging and even voice-messaging) in one place. Other entertainment options include games, rating other people’s photos, watching videos, contributing to forums (my personal favorite are the ‘yo mama jokes’ in the jokes forum). Mocospace’s “friend finder” application also serves members’ job-to-be-done of meeting new friends and staying connected with existing friends.
Mocospace’s strategy is different from the incumbents, Facebook and MySpace, which emphasize content rich user pages and graphic-intensive applications –- all awesome features that work great on a PC’s screen, but are too cumbersome to navigate on the phone. As such, they’ve naturally chosen to use the mobile to extend a subset of their online features. However, MySpace’s initial strategy was to charge users an annual monthly subscription, shared with the carriers, to use their mobile site. That strategy was not overly successful and has now been de-emphasized.
In contrast, Mocospace’s site is extremely mobile-phone user-friendly, as all functions have been optimized for the small screen and numeric keypad input. For example, it leverages icon-based navigation and limits the amount of words and excess visual distractions per page. The results are clean, easy-to-navigate pages.
Meeting the needs of nonconsumers
Mocospace’s functionality serves the jobs-to-be-done of a previously untapped market: nonconsumers of existing social networking sites designed to be accessed on the PC. A large portion of the US population doesn’t have constant, private access to a PC with a broadband connection, for a variety of reasons that could include on-the-go lifestyles, economic limitations, and/or remote locations. However, most of these users have a mobile phone. Some use unlimited data plans from carriers like Leap Wireless and MetroPCS, in lieu of a PC. This eclectic group of urban youth and mobile workers were the early adopters of Mocospace. They didn’t have PC access 24/7; but they had mobile access 24/7.
While Mocospace has clearly done extremely well to date as a mobile social networking site, I still wonder if it can sustain its leadership position. Despite impressive monthly growth, will it be able to continuously grow its user base to solidify its dominance in the mobile social networking sector? Or will incumbents Facebook and MySpace, or even a new start-up, take the mobile lead away from Mocospace? If so, how will Mocospace’s strategy’s change?
Time will tell. And, I am scheduling an interview with the founders of Mocospace soon, and I'll be sure to ask about these issues.
Watch for the “Voices of Disruption” interview with Mocospace co-founder, Justin Siegel, in the July/August edition of Strategy & Innovation.
Perform an Amazon search for INSEAD professor Philip M. Parker and you’ll see that he’s authored over 85,000 books. No, that isn’t a typo. The actual number, in fact, might even be higher (this New York Times story put him over 200,000). He hasn’t written each and every one in the traditional way, of course; to do so would take a person sixty years of writing nine books a day. Instead, he’s developed a system of computer algorithms that use publicly available information to author his works.
As this video demonstrates, many of his works are economic or market analyses and forecasts, but he also uses the technology to write about obscure medical topics – both genres that he’s able to succeed in because they are underserved by traditional authors.
Take the first Philip M. Parker work that comes up on an Amazon search: "The 2007-2012 Outlook for Lemon-Flavored Bottled Water in Japan". I can’t imagine that more than a few dozen people and/or firms on the planet are interested in this work (at most). No author or market research firm is going to write this book with such a low potential for sales and even if they did, the time and effort involved would make it expensive.
Mr. Parker, however, creates his books, on average, in half an hour and at a cost of about twelve cents (excluding printing). He can sell a single copy for $495 and make a handsome profit. If he doesn’t get any orders, he loses almost nothing. Multiply this opportunity by 80 to 200,000 books and it isn’t hard to see how he can be successful. It’s a great example of a technology facilitating a successful low-cost business model.
In her previous post, my colleague Kathleen considered the implications of disruptive innovation as it applies to the business of charity. In making her point, she mentioned CK Pralahad's 2004 book, The Fortune at the Bottom of the Pyramid, and one of the success stories cited within, that of the Hindustan Lever Limited (HLL).
HLL's success is a great story of a company creating a business model customized to the local market; it is also a great story of an incumbent reacting to a disruptive startup. However, HLL almost failed to spot the disruption until it was too late, and the story of their success partially obscures the achievements by the true innovator -- a company called Nirma.
Nirma was founded in 1969 by Dr. Karsanbhai Patel, a science graduate and government chemist. Patel had been experimenting with ingredients in his back yard to make a detergent. After discovering a simple recipe, he founded Nirma to sell his product door-to-door in the neighborhood. In interviews, Patel has discussed the company's origins saying, "It all started to earn a side income, and at that stage, I had never imagined this kind of success."
Nirma retailed at only a fraction of the price of competing products, costing only Rs.3 per kg instead of Rs.13 per kg charged by the competing brands. The product was a great success not only because of its low cost and high quality, but also due to the unique door-to-door distribution model pursued by Patel.
Initially, Patel had a great deal of difficulty in persuading the local shop owners to stock his product. It was only when he recruited local housewives to help sell and create demand for the Nirma product that he stumbled upon a compelling and scalable business model.
By the early 1970's Nirma had appeared on the radar screen of executives at Hindustan Lever Limited. HHL was the manufacturer of Surf, one of the best-selling detergents in the country. However, their reaction was dismissive, saying, "That is not our market”,and “We need not be concerned."
Their perspective was that Nirma was an inferior quality product being sold to people who weren't currently purchasing Surf, and that their sales would be unaffected by any growth in Nirma's popularity.
Luckily for HHL, they soon recognized the disruptive threat posed by Nirma, and were able to adapt their own strategy to compete, launching Wheel detergent to try and stem the (ahem...) tide of Nirma into the low end of the market.
In developing their strategy to fend off Nirma, HHL’s wheel product was created specifically for low-end consumers. HHL noted that the primary source of water for washing was river water, and so created Wheel with a high percentage of oil relative to water. HHL also created entirely new production, distribution and marketing capabilities in order to deliver and sell Wheel, investing heavily in creating entrepreneurial door-to-door programs aimed at driving sales at the village level by tapping into the networks of local rural women, just as Nirma had done.
So, what lessons can we draw from this case?
Target disruptive products at non-consumers: By targeting non-consumers of existing laundry detergents, Nirma was able to stay 'below the radar' of Hindustan Lever, giving them time to experiment with their sales strategy, refine their business model and then grow rapidly - all while avoiding competition.
Create a compelling solution by considering Gives and Gets relative to existing solutions: Nirma offered a compelling solution allowing consumers to make a simple trade-off relative to existing products. Get a far cheaper alternative to Surf, but Give up a fraction of the cleaning power, which was already more than sufficient for most laundry occasions.
Think expansively about how you define your market. Rather than categorizing it along traditional dimensions, consider definitions using a jobs-based segmentation. Had HHL thought of their market in this way, it would have been far clearer that Nirma was a disruptive threat at an earlier point in time.
I've spent some time recently exploring the blogosphere to find reviews of various online money management services, including Mint, Wesabe, Geezeo and others. The interest is personal - Ive been a Mint user for the past few months and though Im relatively satisfied with the experience, Ive been wondering how Mint stacks up against the competition. As someone who could never get into the habit of using Quicken or Microsoft Money (although one program came with my computer and I bought the other a couple of years back in order to fulfill a short-lived New Years resolution to keep better track of my finances), I was a bit surprised by some of the criticisms I read:
"You cant import data to Mint in any way other than through your financial institution, meaning that if youve got years worth of financial data [on your computer], dont count on importing it
"Mint doesnt export data
"Without double entry book-keeping, you will not detect bank errors! Theres no forced monthly reconciliation, and no way for you to notice, Hey, wait a minute, I didnt shop there, unless you scrutinize each item yourself
I wasnt surprised by these criticisms because they werent valid or true, or because I couldnt see a rationale for the features mentioned. What surprised me was that I didn't care about these features at all. I realized that feature-filled programs like Quicken and Microsoft Money overshot my needs. And if they overshot my needs, they likely overshot the needs of others (e.g., students or anybody with a relatively simple financial picture). This spurred a question: What, if anything are Microsoft and Intuit trying to do for the customers they are overshooting?
Turns out that the folks at Intuit are on top of their game (not too surprising, since they'd had previous success with low-end disruptive products like QuickBooks). They launched an web-based solution, Quicken Online, this past January. A stripped-down version of their stand-alone Quicken product, Quicken Online allows users to keep track of all of their accounts and transactions in one place that is easy to access and has a simple interface and auto-tagging features similar to would-be disruptors like Mint or Wesabe.
Of course, Quicken Online's success isnt guaranteed. This is a crowded space. Mint, Wesabe, Geezeo, Buxter, Expensr are all fighting to manage money online. And Quicken's biggest differentiator isn't a good one: while the other sites I've just listed are free after the 30-day trial, Quicken Online charges users $2.99 a month. Not a lot to today's stand-alone Quicken user (who pays at least $30 for the software, plus $5-10/month for automatic bank account transaction downloads), but a price that is perhaps infinitely higher to the young twenty-somethings with simple financial pictures, who only want to see snapshots of money in and money out.
Quicken Online's simplicity demonstrates that Intuit understands the disruptive threat posed by web-based money management solutions and is taking action to defend itself, but Im not sure it shows that they truly understand the jobs-to-be-done and objectives of their target customer. It is hard for me to see myself paying $2.99/month for Quicken Online when Mint can meet my needs for free.
But I guess I have a 30-day trial to find out. Look for an update in April.
Here at the Innoblog we often write about the concept of good-enough and how it is the most appropriate way for companies to go after low-end markets. In essence, good-enough is about crafting products or services that meet minimum thresholds of performance along traditional dimensions while delivering new performance along other dimensions. Recently were finding that some disruptive technologies designed for the developing world are making their way back to the United States. One in particular worth noting is the One Laptop Per Child XO laptop.
The non-profit One Laptop Per Child Foundation based in Cambridge, Massachusetts, is attempting to bring enhanced educational capabilities to children in the developing world (we previously wrote about it here). According to their website, "OLPC is a non-profit organization providing a means to an endan end that sees children in even the most remote regions of the globe being given the opportunity to tap into their own potential, to be exposed to a whole world of ideas, and to contribute to a more productive and saner world community. OLPCs means, the XO laptop, is inexpensive and optimized for conditions faced by those children, including the lack of electricity and network infrastructure. The XO has received rave reviews for its design and technological advancements, with the caveat that consumers in the developed world would likely find the machine lacking. This product, which is good enough (and even great) in the developing world, wont cut it in developed nations or will it?
Birmingham, Alabama, may soon be embracing the concept of good enough to better meet student's educational needs. The AP recently reported that the Birmingham City Council has approved $3.5 million to supply every child in grades 1 through 8 with the XO laptop and address technical issues. Although the school board still needs to agree to this venture, the City Councils actions spark interesting discussion.
Can a major city in a developed nation benefit from a technology designed for children who might be living in huts without electricity in the Sahara? At first glance, the technology doesnt seem to meet the threshold to be good enough. Computers are prevalent in homes, schools, and libraries across the United States, but there are still many areas that dont have the resources to give children consistent access to computing. Wealth and access barriers are certainly significant and in a society that is shifting towards reliance on computer literacy, this good enough solution may be better than nothing at all. For a school system in which the vast majority of students (~80%) qualify for free or reduced-price lunches, the XO laptop might be the right answer. While the XO laptop lacks hardware typical in most computers, like a hard drive and CD drive, and has been reported to be slow in startup, it lets students get familiar with keyboards and typing and allows them to access a world of possibilities through the internet. The XO laptop has the potential to enhance education for children here in the United States as well as the developing world.
On March 10, the Boston Globe carried the news that Greyhound Lines Inc.s and Peter Pan Bus Lines low-cost BoltBus service would commence carrying travelers between Boston and New York City in April. According to the article, BoltBus targets "students, commuters and travelers seeking express service between [Boston and New York][with] extra legroom by having 51 seats per vehiclecompared to the industry average of 54 seats, and will have WiFi access, [AC power outlets], and bathrooms.
Of particular interest, however, are BoltBus fares - tickets are advertised as being available for as low as $1 one-way. BoltBus will initially launch service between New York City and Washington D.C; a visit to BoltBus website revealed that
tickets for a few of the first trips between those two cities in late March are indeed available for $1. BoltBus cautions that availability of the $1 fare is contingent on demand with high demand expected to push fares as high as $25, according to the article.
This is a new chapter in a classic story of disruptive innovation and incumbent response. For years, Peter Pan and Greyhound dominated the Boston to New York bus transportation market, charging fares as high as $42 each-way. Then, in the mid-1990s, "Chinatown buses operated by entrants Fung Wah and Lucky Star began to offer discounted bus service on the same route for between $15 and $25 each way.
It was a story of gives and gets. In order to get such low prices, travelers had to be willing to give up: drivers fluent in English, ticket counters, bus stations, customer service, assured televisions and restrooms, a guarantee of spotless maintenance records, and according to some news reports, safety one report noted that the Fung Wah drivers, for example, "have a tendency to treat the New Jersey Turnpike like Germanys high-speed Autobahn and Fung Wah had checkered maintenance and incident histories.
But for many travelers, the low price get far outweighed the gives. In recent years, one-way ticket fares decreased to $10 before rising and settling at $15. Business was booming. Able to be profitable, or at least remain in business at this fare level, Fung Wah and Lucky Star fit the mode of classic low-end disruptors. Offering good enough travel to customers valuing price above virtually all else, these entrants forced Greyhound and Peter Pan to eventually drop their fares to $20 each way to be more competitive.
Now Greyhound and Peter Pan are introducing BoltBus, attempting to co-opt the disruptive low-cost business model introduced by Fung Wah and Lucky Star. By selling tickets online, rather than at ticket counters, BoltBus is able to markedly reduce its costs and thus maintain such low fares. With gas prices rising, BoltBus expects to compete aggressively with Fung Wah and Lucky Star for rising tides of students, business travelers, and tourists looking for low prices. MegaBus.com, a bus service similar to BoltBus operated out of Chicago (which we wrote about here), has enjoyed substantial success in recent years by offering some $1 fares and an online-only ticket sales strategy. MegaBus.com now offers 30 routes compared with only 7 when it launched in 2006.
The principles of disruptive innovation teach that entrants leveraging low-cost business models can successfully disrupt incumbents when those incumbents are unwilling or unable to respond directly. Similarly, these principles also teach incumbents to respond to entrant attacks by replicating or co-opting the entrants business model if possible. In the case of the Boston to New York bus market, Greyhound and Peter Pan have finally become motivated to respond to the low-cost attacks by Fung Wah and Lucky Star and may even be able to outpace the entrants with even lower prices and more frills. Also, consider the subject of this previous post - might BoltBus have a market research revenue stream on their hands?
Last week I attended a lecture by Boston Globe innovation columnist Scott Kirsner entitled "New Englands Innovation Economy: Understanding the Strengths and Challenges. Among the many recent innovative ventures mentioned throughout the lecture, Kirsner highlighted the enormous potential of Zipcar, the Cambridge, MA-based pioneer that is re-defining the concept of car rental. Drawing from disruptive innovation theories, he posed a question in passing:
Why have large car-rental companies not moved to replicate or acquire Zipcar?
It is easy to grab the attention of students of disruptive innovation: just put the words “cheap” and “portable” in large type. Low price points and the convenience and new opportunities inherent in portability are signifiers of potential paradigm-busting leaps downward. So it is with a recent 
On October 14, Walmart sent shivers down some spines and a bolt of excitement up others when it 
There is something about travel writer and TV host Rick Steves’ earnest dorkiness that makes him endlessly endearing. His 
Microsoft’s recently launched 
Comes news today that 
Last week, I attended the 
The modernization of our electricity infrastructure – the so called Smart Grid revolution – is underway, and not a moment too soon. As an interesting overview in a recent 
More from last week’s 
The Internet has laid the foundation for a tremendous variety of disruptive innovations, enabling serious threats to everything from newspapers to brick-and-mortar stores to desktop word processors, but one segment has seemed to enjoy built-in protection from online disruption. Video games require relatively powerful hardware (in the form of fast computers or consoles), so games generally must be run on machines sitting next to the players. Sure, casual games can be hosted online, and games can even be 
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. 
Amidst our recent national 
Open-end answers to the question included: Craigslist, real conversation, sleep, PR, media gatekeepers, eating, and writing my dissertation. There was also a fair amount of comment in the open-end answers as to whether Twitter is truly disruptive.
When Oklahoma and Florida line up against each other in the 
The Wednesday-morning quarterbacking has begun in earnest as people pick apart the campaign strategies of the winners and losers. 
In September, Renee Callahan 
One of the biggest challenges for marketers is to develop products that stand out from the pack (in a good way) and grab the attention of consumers when they are walking the aisles of Target or Wal-Mart.
Even before the acute financial crisis, high food and gas prices left consumers struggling to cut costs in everyday life. For instance, higher gas prices lead to an increase in home cooking, along with increased sales of cookbooks and semi-prepared foods in supermarkets.
Healthcare companies and medical subject matter experts such as Mark V. Pauly of the Wharton School 
Rarely have I read a newspaper article peppered with as much clearly disruptive language as 
Scott Anthony recently 
The recently christened “netbook” market has 
By Rebecca Waber
Attendees of the Mobile World Congress in Barcelona earlier this year might have easily overlooked what could become a huge success. 
Our own Scott Anthony was featured in the HBR IdeaCast podcast series, talking about 
When I first was told that 
Perform an Amazon search for INSEAD professor Philip M. Parker and you’ll see that he’s authored over 85,000 books. No, that isn’t a typo. The actual number, in fact, might even be higher (this 
In her 
I've spent some time recently exploring the blogosphere to find reviews of various online money management services, including Mint, Wesabe, Geezeo and others. The interest is personal - Ive been a Mint user for the past few months and though Im relatively satisfied with the experience, Ive been wondering how Mint stacks up against the competition. As someone who could never get into the habit of using Quicken or Microsoft Money (although one program came with my computer and I bought the other a couple of years back in order to fulfill a short-lived New Years resolution to keep better track of my finances), I was a bit surprised by some of the criticisms I read:
Turns out that the folks at Intuit are on top of their game (not too surprising, since they'd had previous success with low-end disruptive products like QuickBooks). They launched an web-based solution, 
Here at the Innoblog we often write about the concept of good-enough and how it is the most appropriate way for companies to go after low-end markets. In essence, good-enough is about crafting products or services that meet minimum thresholds of performance along traditional dimensions while delivering new performance along other dimensions. Recently were finding that some disruptive technologies designed for the developing world are making their way back to the United States. One in particular worth noting is the One Laptop Per Child XO laptop.
Last week I attended a lecture by Boston Globe innovation columnist