INNOBLOG

Innovation is tough in the best of times. What do you do when times are tough and your industry's very survival is in question?

A newspaper executive asked me that question during a discussion this past Monday. While just about every organization is feeling some economic pinch these days, few have it as tough as newspaper companies. Print circulation continues to slide. Advertisers are fleeing to the Internet, where newspapers continue to lose ground to Google, Yahoo!, and countless others.

Newspaper companies are experimenting with new approaches to disseminating content, but those ventures aren't getting big enough quickly enough to offset declines in the core business.

To their credit, most newspaper executives with whom I've spoken recognize that they have to keep pushing. They know they have little hope of maintaining their relevance if they don't innovate. Yet, the pressure to staunch the bleeding in the core business makes it incredibly difficult to do things differently, to commit to innovating.

It's a tough challenge, and it highlights for other businesses that maybe aren't in the dire situation that newspapers are just how important it is to start innovation efforts when times are good, when you have the time and resources to allow your efforts to reach escape velocity. Had the newspaper industry really pushed the innovation agenda in the mid 1990s, we would be having a very different conversation today.

Read the rest on Scott's Harvard Management blog.

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.

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?

 

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.

My last post argued that disruption in online video was likely to come from someone outside the industry. Yet, consummate industry insiders NBC Universal and Fox seem to be on the right track with their online video offering Hulu. How could that be? The companies have structured in a way that has helped them "forget enough of the core television model to position their new venture for success.

Fox (like FX a part of the News Corp family) and NBC (who also owns the Bravo, USA, and Telemundo networks) formed the joint venture last year. The strategic aim? Help ensure that the companies avoid the fate suffered by their cousins in the music industry, who let Apple capture the lions share of the value in the digitization of music.

When NBC and Fox formed their venture, most industry watchers were appropriately skeptical. Incumbents struggle enough on their own to formulate winning disruptive businesses; asking two incumbents to work together to create a disruptive business seemed like a recipe for disaster. Even the ventures name earned ridicule.

Yet, after a few twists and turns, Hulu appears to be on a path that might yet promise success

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Read the rest at Innovation Insights

If you blinked, you missed NBC Universals hotly hyped new show "Quarterlife. After airing a single episode on NBC, the media titan decided to move the program to its Bravo cable network. NBCand the creators of "Quarterlifefell into a classic trap of trying to "cram disruption into an existing model.

No one has yet figured out how to create a sustainable video success on the Web. It is clear, though, that viewing habits are different on the Web. Users, especially those lacking high-speed Internet connections, will tolerate lower production quality. Comedy works well. Anything longer than six or seven minutes seems to sputter.

"Quarterlifes creators Marshall Herskovitz and Edward Zwick sought to bring television production qualities to the Internet. The two certainly have an impressive resume. They created landmarks television series "thirtysomething and "My So-Called Life.

The duo followed the television playbook: hire a set of attractive actors and actresses (including one with online credibility: Bitsie Tulloch of lonelygirl15 fame), use polished scripts, and create professional-grade content. They did embrace at least some of the more distinct aspects of Internet videos, with short episodes and a heavy dose of interactive content.

The show did reasonably well on MySpace, with some episodes drawing several hundred thousand viewers.

By and large, though, the shows creators fell into a classic trap....

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More over at HBSP's Innovation Insights

How the movie rental business disrupted traditional cinema is a well-known story. Over the years, studios have adapted to the trend by earning revenues from video rentals and later DVD sales of major productions, while never fully embracing direct-to-DVD films.

Recently, Warner Brothers created a new unit called Warner Premiere to fully embrace home video and create quality original movies for direct release on DVD. Warner Premiere is making headlines this summer with "Get Smart and its direct-to-DVD sequel to be released just ten days apart. With such a short release window, "Get Smart advertising can promote both the main attraction and its sequel simultaneously. With this strategy, Warner can innovate its business model by generating greater payoffs from one-time use resources like production assets and marketing budgets.

The core consumer Job to be Done is to be entertained. By now, the home viewing public is conditioned to wait for a films DVD release or seek illegal alternatives like street vendors and P2P networks. This summer, how many parents would love to treat their kids to the Shrek 3 DVD after watching it in cinemas? Unfortunately, studios are not capable of creating such an offering and disrupting themselves, as they are hampered by constraining contracts with industry players accustomed to the traditional business model. Mark Cuban is notable for accomplishing "simultaneous release, where a movie is released in theaters, on demand and on DVD concurrently. Warners new unit is a step in the right direction in giving viewers more options for entertainment and we look forward to others like Warner Bros. and Mark Cuban challenging Hollywoods business model.

See "Studios Have New Respect For Direct-to-DVD Films. WSJ. April 20, 2007.
"Warner Bros. Gambles on Direct-to-Video Sequels that Come Out Days After Their Theatrical Originals. Wired.com. May 7, 2007.

Only 25% of all new products that established companies introduce in their markets succeed. The seventy-five percent that fail often do so after multi-million dollar investments and very visible branding and public relations efforts.

So how can companies innovate without wasting resources and risking the company brand? To address this dilemma, Innosight recommends that companies run small, cheap experiments to test assumptions early in what we call an emergent strategy. We recommend that companies "invest a little to learn a lot. A recent Wall Street Journal article provides a great example of this with the experiments that search engine companies run to test their new products.

In the last year, Yahoo has introduced AlltheWeb.com, Google has launched searchmash.com and Microsofts Windows Live unit recently brought MsDewey.com live. These sites were all launched under a separate brand from their parent to test new features and gather consumer feedback.

The site MsDewey.com is a search engine where users pose their query to prerecoreded video clips of a sassy actress.



It is definitely a novel way to search and we can assume that Microsoft has launched this site without the Microsoft brand to answer some of the following questions

- Should we do this?
- Do consumers want this?
- How can we strategically beat competitors?

We like what these companies are doing because these types of experiments

- Can be executed quickly
- Can be executed with relatively minimal investment
- Provide high return on learning investment by providing knowledge around key assumptions
- Present minimal "blowback risk to established brands

The key thing to remember is new products have a high failure rate and one way to minimize the risks involved in launching new products is to run small experiments.

See:"In Search ofBetter Ways to Search: Google, Microsoft, Ask.Com Quietly Use Spinoff Sites To Test New Features, Solicit Feedback,; Pulling Up Videos. The Wall Street Journal. January 17, 2007; Page DI

Warner Music has taken a step away from the pack of other music companies to ink a deal with the video sharing web site YouTube. This comes just one week after the CEO of Universal Music Group called out YouTube claiming that they violate copyright regulations by hosting content on their site that is uploaded without the proper approval of its owners.

Here's an overview of the how the partnership will work...

"YouTube will allow users to legitimately incorporate Warner content into their own video creations, while ensuring that Warner continues to receive a proportion of the advertising revenue generated."

...and here a few things that we like about Warner Music's approach

• Innovating the business model - Warner will receive non-traditional revenue from ads placed next to Warner's content or user-generated content that features Warner music or videos. This differs substantially from how music companies traditionally make money by producing and selling albums
  
  
• Understanding Jobs - YouTube has proven that there is an important Job to be done of "give me a place to create and/or post cool video content". It has also shown that there is an audience for this user-generated content. YouTube was reported to have more than 100 million videos viewed on a daily basis
  
  
• Experimentation - Warner Music does not appear to view this deal as the "silver bullet" solution but as an experiment where they can invest a little, earn a little and learn a lot
  

This definitely is a hot topic and we'd love to hear your thoughts!

Few industries have felt the disruptive impact of the last decades biggest innovation, the Internet, more than the media. Newspaper circulation has dropped; billions of advertising dollars have swung from broadcast and print outlets to the web; and music and movie companies have seen their intellectual property high-jacked via peer-to-peer technology.

From 2000 to 2002 alone, sales for the worldwide recording industry shrank close to 20 percent, from $39 billion to $32 billion, according to the Recording Industry Association of America.

Whats more, lately online competitors have even begun to muscle their way into the print world. Last fall, for example, Google announced it had begun reselling ad space in ink-and-paper journals. In January, it purchased dMarc Broadcasting, a radio advertising firm; company executives also publicly discussed a possible move into TV ads.

The news is not as odd as it may seem. Google realizes that the more ways it can reuse and resell content"whether in cyberspace, in print magazines, or over the airwaves"the more money it can make. And thats a lesson that could benefit all traditional media companies.

To succeed in this new environment, traditional media players need to imitate the strategies of their biggest new threat: free-content providers employing a variety of reuse and re-run tactics. Today, free blogs give content more reincarnations than Houdini. They compress initial release and re-run cycles"sometimes to an instant"and they link their content to others, creating powerful, self-reinforcing networks.

Cornerstone blogging technology Really Simple Syndication (RSS) allows bloggers to transmit content around the Internet to be repackaged into email or personalized Internet homepages. Rather than being tied to a conventional re-release schedule, RSS allows near instantaneous repurposing. By offering as-good-as-new content, bloggers grab wider audiences without making additional investments. In this Strategy & Innovation article, which you can read by subscribing here, three partners of the consulting firm Bain & Company, offer valuable lessons for incumbents and describe how some big media companies have started to co-opt the logic of bloggers.

Wal-Mart?s recently announced foray into social networking, ?The Hub,? or ?School Your Way,? seems so incredibly clumsy, forced, and blunt that its success is nearly unimaginable. The site exists in order to sell the uber-retailer?s cool clothes to cool kids. Wal-Mart-loving fashion conscious teens can create profiles that express some personal information, show off hot pics flashing smart ?Mart threads, and even submit video clips that may be made into actual Wal-Mart commercials. The idea is to build brand loyalty and defray the baseless conception that Wal-Mart?s clothes are bland and dasshile promoting select advertisers? products and, perhaps, mining some cool data from kids? profiles. Sounds too good to be true, right? Get this, there?s a catch: all content posted by users to the site will be scrubbed by censors to insure that it meets Wal-Mart?s standards of decency. This seems like a classic example of a large, powerful, and well-funded company attempting to cram into a disruptive space. Often, such efforts are frustrated by the need for different resources, processes, or values in an emerging market. Wal-Mart famously promotes conservative lifestyles, censors media sold in its stores, and forbids alcohol at corporate events -- governing values that seem antithetical to the freewheeling ?hey dude check out these clips of me drinking? world of teenage social networking. Can Wal-Mart?s values (and blatant attempts at self-promotion) fly on the Internet? In order to understand what social networking is all about ? and, consequently, how success can be achieved ? it is essential to understand users? ?Jobs to be Done.? Common wisdom is that teens flock to MySpace and its ilk to express, establish, and play with their identities in a relatively undefined space free of adult influence or meddling. The success of Wal-Mart?s venture rests on this question: how essential is that ?free of adult influence or meddling? bit to the ultimate social networking Job? To many American parents, familiar, ubiquitous and socially conservative Wal-Mart is a whole lot more wholesome and acceptable than MySpace, so, to their kids, The Hub may be to social networking what Christian Rock is to MTV ? an attainable, safe, and ?good enough? alternative. Can ease of access outweigh restrictions on expression on the Internet? In China, certainly, the young are willing to put up with censorship in exchange for access; perhaps getting online is ?good enough,? and freedom of expression is overshot. Assuming Wal-Mart can work out the heavy-handed kinks in its initial design and limit the intrusiveness of its attempts to monetize the site (big assumptions), The Hub figures to be a good barometer for the red state/blue state dynamic among the young and the development of Internet culture in America. Get a load of the fashions at schoolyourway.walmart.com

VS.


Back when I was young, AOL was all the rage. Everyone wanted to get online, get an email address, and most importantly, instant message their friends. IM became a massive success among young people because it made teenage communication easier and, consequently, less awkward. Compared to the telephone, IM required less effort to stay in touch with buddies (and certainly less guts to flirt with potential love interests). It created a new form of communication that then expanded into limited text-only user profiles and away messages. A witty one-liner about how much homework you had or a pithy quote in your profile signaled serious schoolyard status.

The strange power of these features became apparent to me when I got to college, where I used IM to stay in touch with my now-dispersed high school friends and my roommate used it to obsessively check his friends and acquaintances away messages and profiles. Frequently online, often insecure, and always looking to procrastinate, college kids spent a lot of time fine tuning their digital images and keeping track of everyone elses.

If only AOL had paid attention to what their consumers were actually consuming.

The misuse of a product is often a good sign of an unfulfilled need and, therefore, a disruptive opportunity. When MySpace, Friendster, and Facebook stepped in with good-enough functionality that allowed users more control over their profiles, more features to customize, and more ways to interact with their social networks, young people fled AOL en masse. In the 33 months since its launch, MySpace has amassed 77 million users and generates 19 billion page views per month.

Now, years too late, AOL is finally getting into the social networking game with the impending launch of AIM Pages, a service that allows users of AIM to create profile web pages where they can post pictures, blog, and communicate with a network of friends. Meanwhile, MySpace has just announced its official entry into IM. Existing features like in-site messages, comments and bulletin boards have already begun to replace conventional email accounts and instant messaging services for many MySpacers; the deployment of a formal IM interface is likely to draw more and more of its massive base further inside its web-within-the-web.

Unsurprisingly, MySpace has a clear advantage in this virtual turf war: not only is MySpace perceived to be cooler than so-five-years-ago AOL, it is far easier for a consumer to migrate from one IM service to another (thanks, especially, to IM integrators like Trillian) than it is to migrate an entire byzantine network of friends, photos, and blog posts to a new social networking site. Perhaps AIM pages will help AOL stop the bleeding, but IM will advance MySpace's efforts to tap into its massive and entrenched user base to grow page views, continuing its disruptive march.

In January we wrote about an online product that we felt had the makings of a disruptive product. The product is Spot Runner ? an online site and engine that enables businesses to customize stock video ads and run them on cable TV for a cost as low as $500.

Fast Company profiled the company in their April issue. The article reminded us of some of the reasons why we like Spot Runner's solution

1) It competes against nonconsumption: the local dog groomer was previously restricted from advertising on TV because it was too expensive, complicated and time consuming and is delighted to have the ability to do so now

2) It is "good enough": the canned stock video does not match the quality standards of a consumer packaged goods company but it is "good enough" for small businesses including IT repair shops and flower shops

3) It targets a customer, market, and technology that competitors in this case traditional ad agencies are happy to ignore: This is best represented in a quote in the Fast Company article from a VP of Media Planning saying "I'm a million times smarter than that that - computer! You can't replace gut instinct. That comes from experience."

People sweeping the idea of Spot Runner under the rug may do well to look at the dollars Google has made with their... their... computers!

Spot Runner, a new firm in the press lately, caught our attention as a disruption to traditional advertising agencies. They have a do-it-yourself model that enables local advertisers who otherwise couldn't afford to advertise on TV to do so. The idea is quite simple -

"advertisers can choose from a comprehensive library of professionally produced ads that can be viewed, purchased and personalized in a simple process online...with its proprietary media planning engine, Spot Runner also creates customized media plans by using some basic information entered by the advertiser, such as their industry and budget. The entire process, which can traditionally take months and hundreds of thousands of dollars, now takes just days and a fraction of the cost."

The company says its basic solution can cost as little as $500. While traditional advertisers would not find this solution anywhere near meeting their creative and media planning standards it is definitely "good enough" for local businesses like doggie day cares, hair salons and flower shops who otherwise couldn't advertise on TV because it has tradtionally been too complicated and too expensive.

A recent article in Business Week was titled Managing Google's Idea Factory. The article listed specific steps that Google is taking to encourage innovations, which are crucial for Google to be able to compete with giants like Microsoft and Yahoo! as well as newcomers like Technorati.

What do we like about their approach?

Rigor and discipline It is nice that Google mentions that not only creativity is key to their success, but so are the rigor and discipline behind their approach. The company has eight brainstorming sessions each year with 100 engineers. Six concepts are pitched and discussed for ten minutes each. The stated goal is to build on the initial idea with at least one complementary idea per minute.

Lead from the top Google recognizes that it is not enough to allow anyone at the firm to post thoughts for new technologies and businesses to mailing lists. They have instituted supporting processes that are led by management. Marissa Mayer, the Director of Web Products at Google, has open office hours much like a college professor where employees can talk through ideas. Google's personalized home page came out of this process. Also, all engineers have one day a week to develop their own pet projects, no matter how far from the company?s central mission. Google News came out of this process.

Act like a venture capitalist Google is willing to look for great ideas not only inside the company but outside as well. In 2004, the company bought Keyhole, which allowed them to develop Google Maps with sophisticated satellite imagery and maps

A key question is whether Google can sustain and continue to nurture this "innovation culture" as they grow. We'd love to hear your thoughts.

Want to learn about hog-cooking? A Boston Globe article describes how In June you can pay a mere $1.99 to download a 45 minute video about how to "find, select, prepare and serve a whole hog." The download will be available on a service called DaveTV, which intends to offer thousands of niche programs such as the hog-cooking video. In fact, that video will be one of more than 1,000 barbecue-related programs offered by the service. Of course, the downside is the video will only be available on the Web, so you have to watch it on your computer, not your television.

Telephone companies are all trying to figure out how to respond to the incursion of the cable companies into their core telephony business using Voice over Internet Protocol. The natural response is to spend huge amounts of money trying to go directly after cable operator's core business. The more disruptive play is to follow the DaveTV approach, offering a differntiated, dare I say, disruptive, offering. Ultimately, this differentiated approach has a greater chance of creating positive growth for the phone companies. Mimicking the cable operators will lead to a zero-sum game where the "winner" will be left with a rotten business.

A great interview over on Investor's Business Daily with Michael Miron, a digital media consultant and former CEO of ContentGuard (registration required). Miron is discussing the general fear that media companies have about the disruptive threats facing their industry. The threats are quite obvious. The democratizing power of the Internet allows anyone to create their own content; the digitization of media facilitates the seemingly profit-free sharing of previously hard-to-access content. What Miron points out is that disruptive change almost always creates net growth. He reflects on his experience at IBM:

"I was at IBM in 1981 the day the personal computer was announced. We had raging debates about mainframes vs. PCs. It turns out that PCs weren't a substitute for mainframes. It was a massive, radical expansion of the market for computing power. Today, it's 10,000 times bigger than anyone would have credibly said in 1981."

Sometimes that growth is in different spaces, but it almost always occurs. For example, in the MP3 space recording companies certainly have lost out as CD sales have plummeted. But new, attractive profit streams have emerged in the form of ring tones, MP3 players and subscription-based audio services. Existing companies can seize these profit streams, if they recognize the potential early and view the development as an opportunity, not a threat.