INNOBLOG

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

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

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

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

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

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

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

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

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

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

The “most exciting phone in the history of phones” was just released on Tuesday, September 23. The HTC G1 will be available through T-Mobile in October, and it will wield Google’s relentlessly hyped Android operating system. So is this the next “Jesus Phone”? I think that while the phone may be successful, it’s nothing groundbreaking. The operating system at its core, however, has the potential to lead to truly trailblazing advances in mobile computing.

I recently argued in this space that Google’s new Chrome Internet browser doesn’t pose much of a threat to Microsoft’s Internet Explorer on its own, but that when Chrome is viewed as a small piece of Google’s larger strategy to make it easier for us to do more of our computing jobs online in the “cloud,” the disruptive possibilities begin to take shape.  I see Android as something very similar: a product that, in its current incarnation, may not do much to the dominant incumbents, but has the potential to function as part of a broader disruptive strategy.

The G1 phone is not yet available to consumers, so hard facts about the Android’s quality are difficult to come by. That said, Android does not appear to be superior to the iPhone or significantly better than other incumbents and may need to fill in a number of gaps in its features (for example, it offers connectivity to Amazon’s MP3 store but unbelievably lacks a headphone jack).

The G1 enters an extremely crowded, competitive, and continually evolving market. I have no doubt that Google’s ability to deliver high-quality software will enable it to improve Android and add to its features, but right now Android is not a game-changer, and it does not offer any especially compelling or novel sustaining innovations in the mobile phone/Internet device space.

Nevertheless, I think Android is an exciting new development. As a mobile operating system (an open source one that allows software and hardware developers access to its innards), Android may very well find its way into the broader mobile computing space. If that happens, Android may (finally!) bring some standardization to the rapidly growing variety of devices that connect to the Internet, including set-top boxes and potentially cars, computers in televisions, and other products (as this blog post explains).

If Android appears in other devices it could target Internet nonconsumption. Many devices that could be usefully connected to the Internet aren’t yet (or are, but have mediocre operating systems and/or very limited functionality), so there could be a great disruptive opportunity for Google to make Android available in them.

Of course, one might reasonably wonder how Google plans to generate revenue from Android, since it’s being given away and is open source. I would imagine that, given Google’s dominance of search and the plethora of advertising revenue-generating applications it offers, the more people it can connect to the Internet more of the time, the happier (and more profitable) it will be.

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?

Read the rest on Scott's Harvard Management blog, Innovation Insights.

Well, one commenter wrote that my sentence-long analysis of Nokia's acquisition of Symbian in this post was too simplistic. I agree. Innosight Senior Partner Steve Wunker, who worked at Psion in the 1990s, had the following thoughts:

Ten years ago, a bevy of companies shocked the communications industry when they announced the formation of Symbian—a for-profit consortium that would transform the PDA software of Britain’s Psion PLC into a platform powering high-end smartphones.

Back then, these smartphones were gleams in engineers’ eyes (the first—Ericsson’s Project Pamela—was the size of a small book and never commercially produced). But, almost unanimously, industry analysts foresaw them taking over the premium tiers of the mobile market and requiring a common software platform for the third party developers who would create the applications that users would demand. At its peak in August 2000, equity markets valued Symbian at nearly $10 billion.

This week, Nokia bought out the remaining shareholders of Symbian for about $410 million, and immediately declared it would give away the software code to a non-profit Symbian Foundation.

Was this tumble because Symbian produced a bad product? Not at all. By most measures—system reliability, power consumption, etc.—Symbian’s mobile operating system is the best on the market.

Rather, the world changed in ways very few industry analysts expected. A decade ago, intelligent people reasoned that the processing power of the mobile would start catching up to PCs, and so people would start to demand PC-like functionality on their phones. Moreover, the mobility of the phone would lead to many unique applications being developed for this platform.

Read the rest on Scott's Harvard Business blog, Innovation Insights.

A Wall Street Journal article yesterday described how Android—a mobile phone operating system pushed by Google and more than 30 partners—is encountering some unforeseen difficulties.

These struggles aren’t actually that surprising. Chapters 5 and 6 of The Innovator’s Solution describe how pushing performance boundaries almost always requires that a single company control critical interfaces.

Google its partners are betting they can create a modular mobile phone operating system that anyone can pick up and use. They hope that Android makes it simple and cheap for third-party developers to encourage the use of the Internet on mobile devices, which will result in more advertising revenue for Google.

However, the Android team is still fine-tuning the operating system. Developers report being frustrated because they no sooner optimize an application for Android than the operating system changes. Getting a single Android-powered phone out the door for T-Mobile USA is sucking up almost all of Google’s Android-related resources.

Imagine how different it would be if Google was aggressively pushing its own phone forward (which it very well might be doing behind the scenes).

Read the rest on Scott's Harvard Business blog, Innovation Insights.

Lillian Zhao

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.