Paul asked me to write about the Flip Camera. And as his last article stated, I have been a big fan of the Flip Camera for a very long time now. Here I present my case for why I believe the Flip Camera (and the type of product it represents) is more than a blip on the radar.
Q: How is the Flip camera "good enough" to cause unexpected market disruption?
The first thing I look at is what you CAN'T do with a device. If the list is long or "critical" enough, the odds are that the rest of the industry won't see it as a competitor and will be blind to the disruption that it represents.
You can't plug in a professional external microphone
You can't change the aperture or adjust the levels in any way (video or audio)
The zoom is too feeble to enable any filming from any real distance. You basically have to be in their face
You can't add in new lenses or later expand the camera
You can't take "professional" quality footage with it
Looking at the list above, I realize why so many dismissed the camera. But then I think of YouTube. Watched anything on there lately? Most of the videos on there are shot with a WebCam that has WORSE quality, no controls and mediocre audio at best. Hmmm.
Let's look at what this device CAN do.
The pricepoint has driven the entire market lower ($135).
Size is critical. It fits in a pocket or a purse and doesn't add much weight. You can ALWAYS have it on hand (not quite as easy as if it was on your cellphone)
Ease of use is critical. Turn it on and you are ready to record
in less than 2 seconds. Just press one button and the same button to
stop.
Quality is NOT critical, but must be "good enough" and I believe the Flip is just that. Good enough. Limited zoom and full frame rate, 640 by 480 video with decent audio.
The software that comes with the camera is anything but the greatest editor. But the fact that you can edit clips together and upload right to YouTube is quite neat for many users.
Q: Where is the Flip driving new innovation and creating new value/opportunities?
More and more cameras record to a chip nowadays. And just about
every manufacturer is working to make getting the photos or footage
into your computer easier. Cables are generally included with the
camera. Some cameras offer accessories for you to remove the chip,
plug it into a device and then plug the device into your USB port.
Flick a switch on the Flip and the USB connector emerges. You plug the camera directly into your computer. Done.
But this is not the innovation I want to speak of. This is a cool feature, but the real innovation is that the Flip Camera comes with the software to edit your videos embedded on the camera itself. There's no CD to install. You connect the camera and everything you need is on it. You launch the application off the camera.
What the Flip does represent is a rather significant potential to revolutionize how we think about products in the electronics category - (I took a stab at this on my blog). To date, electronic products have been either a piece of software or a piece of hardware. Many pieces of hardware came with software or drivers to enable us to interact with them, but the feeling was that we were purchasing the hardware and the software was often not a required component.
The Flip offers a glimpse of a future where software is seen to be an integral part of a device because it is fully contained within the product. I can easily see a future where we start interacting with products and not the other way around. The day when our PC's capabilities are actually ENHANCED by owning a piece of electronics. My new Bravia Entertainment Platinum TV now allows me to access live streams of new shows a day early off any computer in my house. Or the fact that I bought a new scanner means I have access to enhanced faxing and photo editing from any machine on my network, without having to install any software. The software just appears because the purchased device is on my network. Electronic devices become a gateway into enhanced functionality that is related to the device but operable on other platforms and tasks.
We talk about the blogosphere as being a conversation, and when it approaches that, it gets really interesting because there's something about the interaction of ideas and differing opinions that makes us learn more than listening to the master speak. But, truth be told, most blogging is more like listening to the master than it is engaging in conversation.
I think part of that is because it always starts with the author's ideas, and we don't know and trust and relate to the person on the other side of the conversation so much, so even when you get commenters actively participating, it's still more like a teacher and a classroom, with the original blogger owning the discussion. Except in the classroom, flamers and haters and fanboys and lurkers aren't tolerated. But that's another story.
Meet Sean
So, on a completely unrelated thought, I had been talking with a blogger friend Mr. Craphammer Sean Howard several months ago about the Flip Video camera and why it was pretty cool and why he thought it was probably a disruptive innovation.
Sean is a marketing/branding/digital and social media maven who has started to grok disruption, and he gets pretty passionate about stuff that interests him, so we've had some very interesting discussions about what enables disruption, when and how it happens, whether a company or product is or isn't, etc. I've often thought that it would be pretty cool to capture us sitting over a couple of beers shooting a disruptive breeze because there's a lot of creative energy and interesting ideas that come out. Or, it could also just be that after a few of those 8% beers from Quebec, everything seems more interesting. It's hard to tell.
So, Sean was pretty excited about the Flip and was using it for a project he was working on, and intellectually I could see it, but it wasn't my cup of tea. I'm a guy who likes full control, hi-def and all the knobs and dials of a full-featured video camera, so the stunning simplicity of Flip was interesting in the abstract, in the way you say "That's interesting" to someone when you want to change the subject. But then I got thinking -- why not ask Sean to talk about the Flip on my blog. He knows what's cool about it, and understands disruption well enough to offer an interesting perspective.
But, when I asked him, he said "No dude. You frame it. You know this stuff and write it so well. How about I just provide quotes and insights as a user?". Hmmm. Well maybe, but that didn't seem nearly as compelling as having the guy who gets it write about it.
Then a Conversation Started
So he sent me a bunch of stuff by email, and I responded with some "yeah, buts..." and we went back and forth and then spoke some (yup, a real live telephone chat for those who can barely remember when we actually used to speak to people and call that a conversation), and then I thought -- hey, this is pretty neat. Why don't we do this online and open it up for others to listen in and participate with comments and questions.
So that's what we decided to do. I made Sean a guest author, and he's going to post the original notes he sent me, and then I'll post what I said back in a day or so, and we'll try to carry on the conversation through comments and back and forth posts.
I'm looking forward to seeing what kinds of thoughts and questions get raised, and wondering whether there will be disagreements or other ideas thrown in the pot.
decided that he wanted to use his marketing talents on 'do good' and public works types of projects, which is what he does exclusively now as a free agent
Over time, The Anti-Marketer has evolved from being a catch-all for anything about marketing to being more about disruption, disruptive business strategy and analysis of disruptors. While related to what I want to cover here, that was never supposed to become the main focus. This is supposed to be about disruptive marketing strategy and what not. On the other hand, I have an increasing amount I want to cover on identifying and scoring disruptive potential. So, we had to do something about that.
If you've noticed the bigger spaces between recent posts, part of that has been because I've been working on a solution to the above problem and launching some new projects at the same time. Now I'm officially announcing the first outcome of that thinking and work. A new blog, Disrupt This, was begun about a week and a half ago. It seems to be stable, with the moving parts connected, so I want to let everyone know and encourage you to have a look.
More focus
The biggest reason for starting Disrupt This was to increase focus. Basically I felt that the subject of marketing strategy for disruption was getting short shrift, because to tell the whole story, I needed to go into expansive detail about the connection to business strategy, and I wanted to give a "disruptive or not" assessment, which required a lot of explanation, and often very long articles when covering something holistically.
But the business side wasn't getting full coverage either. For example, I wasn't spending any time discussing why disruption is important -- what does it mean to entrepreneurs, investors, companies whose industries are being disrupted, shareholders and employees. I needed a place to talk about the value created by disruption, and how business strategy creates that value. And, I wanted to provide more of a framework for assessing and scoring disruptors objectively.
So, Disrupt This will be that place for objective business analysis: scoring, investment opportunities, connection to business strategy, disruptive or not assessments, and how disruption works.
And The Anti-Marketer?
The Anti-Marketer is still going to talk about disruption, but increasingly the marketing side: how marketing strategy drives disruption, techniques and handy tools, and examples of companies doing it right and wrong. From time-to-time, it will stray off subject into the broader world context, but mostly it will be about disruptive marketing.
There's more about it over at Disrupt This. In fact, there's already a couple of posts there to catch up on. I hope you'll like it as well as you've enjoyed reading The Anti-Marketer, but I'm guessing some will prefer the content here and others will move to the new blog and bookmark it as your favorite source for disruptive content. And, if it works out, you should start enjoying some shorter, more focused articles.
Be sure to join in the conversation and let me know what you think.
A little over a year ago, Howard Schultz, then chairman of Starbucks wrote an internal memo lamenting the loss of Starbucks' distinctiveness and wondering whether in the mad rush to expand and grow ever more operationally efficient (as measured by speed and same-store sales increases, rather than quality of experience), the company had lost a bit of its soul. This memo was reported in all the major business papers and spurred a flood of blog postings from Starbucks critics and fans as Schultz seemed to have captured what was on everyone's minds, although still at that time, a largely unspoken feeling.
I too wrote an article taking a very different slant and documenting how and why Starbucks had allowed itself to evolve from being the market disruptor to the disruptee as a number of major foodservice chains began to compete on many of the now commoditized (and watered-down) features of the Starbucks experience -- better quality coffee, much lower price, more inviting workspaces to stay the afternoon and work or lounge, free WiFi, faster service and so on.
Through the remainder of 2007, it became increasingly clear that the days of heady growth, at least in North America, were indeed over, and that Starbucks competitors were taking direct aim at the weaknesses in Starbucks' business model armor that had crept into their operations over the preceding 10 years. The company still looked healthy on paper, with year-over-year revenues in 2007 22% ahead of 2006 and record net income (profit), but trouble signs included dramatically slowing same-store sales growth which had clearly reached a limit, and a large number of customers opting for the improved, more widely available and cheaper coffee solutions of the competition as I predicted in last year's article.
Additionally, by the end of 2007, long-time Starbucks loyalists were increasingly grumbling about what was wrong with the company and voting for change by going less frequently, or going elsewhere entirely.
Hello. My name is Howard. Remember me?
As if sensing that the tide of success was turning against his prodigy, Schultz moved back into the driver's seat at the company he built in January 2008, reassuming the CEO role and announcing a return to the basics of Starbucks vision and identity. While acknowledging that the competitive landscape was different, Schultz asserted that the problems at Starbucks were internally generated for the most part, and that the solution lay in self-examination, putting the primacy of the customer experience first again, and getting back to the core mission that had made Starbucks successful in the first place.
Since January, Schultz has been busy righting the ship with a number of dramatic changes, many of which were easy to predict and well-designed to rally the faithful. Last week, the most significant (economic) announcement was made, with 600 store closings and up to 12,000 layoffs coming, and it caught the attention of the business media, partly as a bellwether indicator of the down economy. Certainly that's the way Starbucks spun it, but is it the whole story (or even the right story)?
Slow train coming
In last year's article I identified several signs of disruption and difficult decisions for Starbucks to avert or at least parry with the competition disruption that Starbucks own mistakes had enabled (although in their defense and viewed from an internal "operations" perspective, these would have been perfectly logical innovations to improve efficiency, profitability and leverage the brand through extensions). These included:
pre-bagging coffee beans to preserve freshness (in the process, killing the distinctive coffee smell of an authentic neighborhood coffee bar, and the sensuality of sounds and sights such as scooping of beans, weighing and pouring them into custom bags, etc.)
expansion of chain to be almost as ubiquitous as McDonalds (turning them into a "true chain" experience, common but still expensive)
conversion from manual expresso machines to automatic to improve speed, efficiency and consistency of coffee making (at the expense of smells, theatre and "hand-made" quality)
dilution of brand experience due to rapid expansion, higher staff turnover and lower training standards, resulting in surly and uncaring baristas
introduction of warmed breakfast sandwiches and other foodservice items as a further brand extension (more brand and customer experience dilution)
expansion of music retailing operations (more brand and experience dilution)
expansion of branded non-food and non-music retail operations (more brand and experience dilution)
new "low end" competitors entering market serving "good enough" coffee options (upgraded coffee roasts, espresso and capuccino, "third place" alternatives) at significantly lower prices
Our recommendations included:
undoing the conversion of coffee bars into retail emporiums, restoring the "third place" ambiance and experience
improving training
getting rid of automatic espresso machines that made Starbucks just equal (in perception) to the lower-priced competitive options for many consumers
acknowledging that new "low-end" disruptors (McDonalds, Dunkin Donuts, local gas stations) selling fresh-brewed espresso at 25% of Starbucks price changed the game and required a specific competitive response
closing stores because the "coffee aficionado" market was already over-served (in the US market) given "good enough" competition at much lower price points
It's important to note that a few of these are counter-intuitive (at least to most by-the-book MBAs), and options that most businesses wouldn't consider. For example, when I discussed the installation of automatic espresso machines last year, it was noted that the original decision to do this had cost millions of dollars, and replacing them would potentially both slow down service and retire perfectly good equipment before it was fully depreciated and had reached its natural end of life (although the equipment was a "sunk cost", most businesses that had made such a decision in the first place would not easily reverse it and incur additional expenses to restore an "experience" and recreate the lost competitive differentiation.)
The Clover Coffee Machine will elevate the quality and freshness of regular brewed coffee to the premium level that coffee enthusiasts expect, but not so for Starbucks espresso coffees, which will be even more automated than before with the Mastrena, reducing baristas to button pushers. Click on the image to read how the Clover system works.
get rid of breakfast sandwiches by end of 2008 (announced Jan 30), to eliminate strong smells that compete with coffee
slow pace of new openings and close 100 underperforming stores in US (announced Jan 30)
stop reporting on year over year same-store sales growth (announced Jan 30), which could only be achieved in long term by continued dilution of brand experience through increased retailing options
upgrade "partner" (i.e. barista, counter clerks, store management) training to re-focus on exceeding customer expectations and improve the overall experience (announced Jan 30)
acquisition of The Coffee Equipment Company for its Clover brewing system -- a method which creates a vacuum to suck the steeping coffee through a filter to create an individually brewed cup similar to French press (which pushes the filter through the steeping coffee) to create a superior flavored cup of "traditionally" brewed coffee, with enhanced richness and body (announced Mar 19)
introduce Mastrena espresso makers to replace current generation of automatic machines. (Although Schultz announced this, development of this machine, exclusive to Starbucks, was underway for 5 years.) Billed as enhancing the theater (because you can once again see the barista over its lower profile, and offering more control, it is still an automatic machine whose exclusivity doesn't address the quality and theatre lost with the old manual machines. (announced Mar 19)
Close 600 under-performing stores (up from only 100 under-performing stores in January). 12,000 employees will lose their jobs. (announced July 01)
Overall, the emphasis of these changes is essentially the same as the recommendations I made last year, with the exception of two key points, which I'll discuss below. The stated purpose has been to bring back the sense of theater, enhance the Starbucks experience consistent with brand expectations, put the emphasis back on coffee and hopefully undilute the brand identity. Unquestionably for drinkers of traditionally brewed coffee, the use of Clover machines to individually brew whatever you want from fresh ground beans (rather than chose from one of the three pre-selected coffees of the day) is a large improvement. Closing stores was expected because Starbucks was overbuilt, although Starbucks is blaming closures on the economy.
Is it the economy stupid, or is it really disruption?
For the first time ever, Starbucks has experienced a year-over-year decline in same store sales. The economy explanation has been picked up and widely reported in the media (because it fits the story that they want to report), but we have a hard time believing that Starbucks drinkers are consuming less coffee because of the price of gas. More likely the economy is providing an incentive to the most price sensitive of Starbucks customers to switch to cheaper McDonalds or Dunkin Donuts alternatives, accelerating a trend that would have inevitably have happened anyway, due to the increasing availability of good enough low-end alternatives. Starbucks claims to have done research that disproves this, but we think they'd be wise to ignore the research, which is harder to prove than this more rational explanation. Once people make peace with the mental switch from a high-end to low-end disruptive product rationalizing that the low-end low cost alternative is good enough, they rarely go back.
The two things in the list of strategic changes that Schultz has implemented that are still at odds with "undisrupting" Starbucks are the switch to Mastrena ultra-automatic machines and not fully addressing the low-end threat for what it is.
While the Mastrena may be an improvement in visibility of the barista and enabling them to participate in the experience for the customer, it is still an automatic machine. In fact, it automates more of the process, not less. The supposed expertise of the barista is therefore non-evident -- they can't do any more to improve the espresso shot than can the cashier at McDonalds. The emphasis of the Mastrena is on higher volume (operating efficiency), and any qualitative difference in the cup of coffee between it and the Verisimo machine is so minimal, it is unlikely to be noticed by the majority of caffeine addicts patronizing Starbucks.
This is a key element, because in no way does the replacement of old machines with the Mastrenas differentiate the end product or in the consumers' mind justify the higher price for Starbucks versus their competition. Proprietary is not equal to different, and this is a sustaining innovation that reinforces that Starbucks has overshot the needs of their customers, but yet still underperforms on a key dimension -- the expectation of a quality hand-crafted coffee. An expectation that Starbucks created, but has now walked away from.
Secondly, Starbucks gives the appearance of continuing to be in denial that speed and price are performance criteria that a large percentage of their customers deem important, and that many will sacrifice the brand image of Starbucks to get a good enough cup at McDonalds. Admittedly, this is a very tough line to hold, since through its chain-store ubiquity, Starbucks has ceased to be a unique neighborhood place, becoming instead the middle-of-the-road McDonalds of premium coffee. The only problem is, McDonalds is better suited and better able to be the McDonalds of premium coffee.
How then can Starbucks respond? Can it be different enough to continue commanding a huge price premium over its competition? If not, will business continue to siphoned off by low-end disruptors? Is there a counter-disruptive response that allows Starbucks to not concede the low-end to McDonalds and Dunkin Donuts while maintaining its higher end niche for hard-core loyalists? Will Starbucks realize that the Mastrena is masking the real problem and that by positioning it as an improvement to the coffee experience, may actually lose more customers as it rolls out (if there is no taste difference, has Starbucks reached the limits of innovation in the core experience). Will they recognize that purists want a manual shot pulled, or minimally a semi-automatic (because the barista has more control than with a fully automatic)? Can all these needs co-exist?
While we must praise Schultz for the aggressive return to Starbucks origins and a stronger vision, the question now is has he gone far enough, or is the past year a harbinger of much greater disruption to come? Or, has he recognized that disruption is the problem, and there are more surprising announcements to come as a result?
More importantly for investors, is this the end of Starbucks as a growth stock (SBUX - click to see performance over past year compared with Dow Jone and S+P 500), or at about 1/2 the valuation of a year ago, and still dropping, is it a buying opportunity? Wall Street has been betting against a return to the days of heady growth, but does it have to be that way? I don't think so, but it requires disruptive imagination to see a way out. Perhaps Schultz sees it too.
I have to say, once you miss a couple of post times, it's really easy to let blogging slip as a 3rd tier priority. Now, here I am, 7 months later, needing to thank my loyal readers again for their patience and sticking with me. I guess I should just acknowledge that my efforts will be intermittent, and then make a best effort to not be.
This time, the habit got broken when I started an intense contract that within a few weeks, quickly crowded everything else out. At the same time, I was taking Vicodin to help ignore my broken foot, which both made it harder to concentrate on work, let alone a blog, and made me fall asleep much too readily. I know -- excuses, excuses. To get back in practice, I've been posting some comments on other people's blogs, but now the juices are flowing and it's time to get back at my own.
Hint: Vicodin Can be Very Disrupting
Lot's has happened since my last post, as you might imagine, and I'll be trying to bridge the gap as I go along. I have some important news to share as well, but that will have to wait a few more weeks, so just know that something exciting is happening soon.
Since I've been out of touch a while, these first few posts back are going to be lighter than usual, and round the circle on some old things before I move onto weightier material.
American Idol Redux -- How did we do with the analysis and predictions?
My old guilty pleasure, American Idol, ended a few weeks ago, and I got to reflecting on the dynamics of the show itself and whether an article I wrote just before last year's finale would prove to be prophetic on review. I talked about how AI was being disrupted, and the producers were either ignoring the problem, or didn't get it. In my analysis of why, I offered some prescriptive changes that they needed to undertake to avoid an otherwise inevitable fate. So, how did I do?
American Idol rules the roost; as #1 rated show, it has become complacent and resistant to necessary change and highly susceptible to disruption
Any changes have become largely cosmetic (incremental "sustaining" innovations), and they've "overshot" the audience needs on the "slickness dimension" and no longer approximate an "authentic" experience
The reality that creates ratings for Fox is that only a couple of the top 12 are actually good enough to have a chance at winning. The rest are there to become the train wrecks we want to vote off, to sass back at Simon, to sing gloriously out of tune and make us laugh, to impress with their self-absorption or self-delusion or just plain wacky personalities, to do whatever they do with Paula, and most of all, to give the audience time to get to know the eventual winner and build a following to buy their records.
The ruse being perpetrated is that the show is really a singing competition, when in reality the producers have constructed a promotional stage which sells lots of advertising (because of the entertainment value in seeing train wrecks get voted off the island) and a vehicle for selling pop records, crafted in the form of a quasi-reality show
A large minority of the audience has seen the wizard behind the curtains and tired of the deception, and using the power of the web, started to turn the tables on the show's producers, exposing the sham and actively working as a block to "Vote for the Worst", keeping the train wrecks going as long as possible at the expense of singers that the judges and producers actually wanted to "win". Last year, this resulted in the best singer (by any objective measure) being voted off early and two mediocre performers making it to the finale. The resulting winner's album was awful, and sold miserably (opening week sales for Jordyn Sparks first AI record were less than 1/2 same stat for Fantasia, the previous worst-selling AI winner, and only about 40% of the same stat for Taylor Hicks, who was generally considered a bomb and was dropped by his label).
The voting system that Idol uses is suspect to begin with. By asking the audience to vote for their favorites, and as many times as they want, they have created a system which generates revenue but can't reliably identify either the best singer or the audience favorite(s). Even superior voting systems (audience votes for the worst and the person getting the most negatives is eliminated, one vote per person, one ballet with yays and nays for all contestants tabulated, it is open to manipulation, but the way it is, the best singers and performers are routinely voted off several weeks too early.
Because of the above, the grand prize of a recording contract has become meaningless, and even a bit of an albatross. The contestants voted off early routinely get recording contracts and outsell the winners, because they a) can sing better, b) have more control over their albums (AI doesn't dictate what they can sing or how it gets produced), and c) therefore better songs, or at least songs they are better suited to sing, get on their albums.
Note that to try to deal with the last point, the judges practically fell over themselves this season to tell the voting audience as bluntly as possible who they thought needed to go and who should stay in an apparent effort to ensure that one of their favored singers actually won this time. They became so transparent about it, that Paula got caught offering judgment about a song that hadn't yet been sung, casting the wizard's curtain wide open.
The above factors are causing audience disenchantment, and eating into viewership.
Are these predicted results actually happening? If so, how are they manifesting?
Viewership in 2008 was down an astounding 7% from 2007
In a year where the two stars were considered "hot" guys, the primary viewing audience of women aged 18 to 34 was down by 18%
The median age continues to skew ever upward, from mid 30s a few years ago, to 42 today. Hardly the prime music buying age group.
The over 50 age group has increased in viewership.
All this suggests increasing irrelevance to the trendsetting youth audience, boredom among core fans, and disenchantment and disenfranchisement from the process. Typically when this sort of thing begins, it is irreversible because by the time executives acknowledge it is a serious problem (whether the product is a tv show, a newpaper, or a me-too generic cell phone, it's too late to make the major changes necessary to right the ship.
Will American Idol will take my advice? There's no doubt they have to do something and we're highly likely to see some changes next year, but the question is, how will they diagnose what's going on, and therefore come up with appropriate solutions. (It's at this point that I should helpfully point out that if they want to get the skinny on how to counter this disruption before it kills the show, I'm available as a consultant.) Here's a little free advice:
The dynamics are old, and some highly visible changes are necessary. First to get the shake up should be the judging crew. Only Simon is core to the program -- it's time for Paula and Randy to go. Besides, the show needs more authenticity, and you can always count on Simon to say what he thinks in an entertaining way.
Sacrifice some of revenue stream from voting to create a system that isn't as vulnerable to manipulation (people need to believe that their votes are meaningful if they're going to keep paying attention and spending money to vote).
Recognize that music trends don't stay the same forever. There was a minor nod in this direction this year as David Cook got more kudos and promotion from the judging crew as the show progressed. The interesting thing about him was that he already sounded like a lot of what's on the radio, and his looks and personality didn't hurt either, so it was easy to imagine him as the winner.
Jason -- CATS is sung by Cats?! -- Castro
Most of the material that gets sung on the show is from a time before these kids were born (was it such a big surprise that Jason didn't know that CATS showstopping Memory was sung by an old dying female cat?), so it isn't that surprising that it's more popular with people older than 50 than with teenagers and 20 somethings. It would help the producers to look at this from a "jobs to be done" perspective, rather than a "what we want to sell" perspective. The job to be done is to engage the youth audience (primary music buyers), identify a new "star" that they relate to, and create records that are current and interesting to that audience. Like Chris Daughtry did (but then, he had the advantage of being voted off and picking his own band and music -- hmmmm.)
Understand that superstar singers and bands sing hit songs. After spending most of the season telling contestants that song selection is critical, how much sense does it make to give your winner songs which don't fit their style (make a blues guy sing a sugary pop song, for example), or which are simply crap (letting amateur song writers write stuff that is total trash musically and lyrically) and then asking a newly minted winner to make it a hit song is absolutely nuts.
One possible voting system that could work better would be to count song downloads from iTunes in the 24 hours following the performance show. Even if it cost the same as texting in a vote, the fact that you get the song with it would be a big discouragement to VFTW, and iTunes doesn't let you buy the same song twice (at least not easily).
These are some easy big things that would make things more authentic, freshen things up, and introduce some sustaining innovations to counter the disruption to American Idol's artful guise. There are several smaller things as well, but the above would be a healthy start. If not, watch for even bigger declines next year, and a franchise that may not recover from disruption.
Up to now, the Wall Street Journal has been one of the very few media outlets able to sustain a paying audience for its electronic version. They were able to do so because a) it was priced reasonably as an add-on to a paid newspaper subscription, and b) because of their unparalleled authority and quality of writing and research. Basically, the WSJ brand was what enabled them to charge for it when no one else could.
But, long term, that was a losing battle. Traditional journals have been slow to react to the changes wrought by blogging and social media, and even TV, cable and other media before that, and have been on a steady downhill decline for decades. It is very uncommon to see someone in their 20s or 30s reading a "real" newspaper, and the trust gap has been rapidly closing with the younger generation now considering newspapers and blogs on par.
In a very real sense, the print journal readership is dieing off, and as those in their 60s, 70s and even 80s take their subscriptions to the grave, they aren't being replaced with new readers. Holding out even this long to make basic changes to their business model has put at risk the very foundations of their business, namely the relevance and brand recognition that could sustain a future.
My partner at The Disruption Group, Mike Urlocker, has written extensively about disruption of traditional print media, so I will simply refer you to the lengthy list of analysis of this phenomenon that we've already done on the subject below:
It has been inconvenient for me, as a blogger, precisely because the WSJ stories often offer better information than other sources and a different take on the news, and so although I've referenced them, links to their articles have only been available to those who already had a paid subscription or who were willing to pony up to read that article. But yesterday, that all changed in a brilliant stroke of business strategy between an old titan and a new one.
Digg Makes Wall Street Journal Online Edition Free
As of yesterday, the Wall Street Journal now adds a Digg widget to the end of all their online articles. And, any article that gets 'dugg' will be available to read for free if you go through Digg's site to get there. The online journal is still a pay-to-read site, but this loophole ensures that anything I want to reference will be available to my readers, because all I have to do is Digg it. Ultimately, that means the online WSJ is now free, as long as every article gets dugg at least once. But, it also means that Digg gets a huge wallop of credibility and traffic thanks to the Wall Street Journal, and a whole new business audience. And, the Wall Street Journal maintains some vestiges of its walled garden, but will have sudden street cred and accessibility with bloggers because of Digg. Wow. I wonder if this deal has anything to do with Murdoch's pending takeover of Dow Jones -- it certainly is one of the smarter and more aggressive plays for a traditional media player to finally enter the new world.
This is a classic example of what Christensen labels "cramming" in his discussion of disruption theory. Basically, incumbents often ignore disruptions until it is too late to do anything about it, and then make valiant attempts to "cram" the disruptive innovations into their existing offering to try to forestall or block the disruption. This can be accomplished through a purchase or merger (e.g. when Time Warner and AOL conjoined), or as in this case, by incorporating the new thing into the old in a way that is a bit kludgey, but offers a strong mutual benefit and breaking down of the walls.
Most crams eventually fail. The disruption either still wins because the business models are incompatible, or they eventually subsume the old business into the new and the vestiges of the old simply die off. AT&T, for example tried various crams (buying NCR, buying cable networks, starting and then selling a mobile phone business, etc.) before selling each off and destroying hundreds of billions of dollars of shareholder value. AT&T very nearly died in the process, and it was only the merger back into its former spin-off baby bell that saved the AT&T brand from extinction. And, it still may not survive.
This cram, however, makes big sense for both sides, especially as an important signal by the Wall Street Journal that it will be a significant social media player. Still, it will depend on what they do next. Print, and the capital that is tied up in buildings, printing presses, distribution networks, and massive staffs (most of whom aren't necessary in the new blogging world) is an albatross that makes all newspapers unable to effectively compete against the low-end disruption of blogs. Even the venerable Wall Street Journal with its quality, brand and history can't survive forever if its subscribership continues to decline and advertisers either go elsewhere or demand lower rates or both. They still need to fundamentally rethink their business model and make much more significant changes in the very near term, or this could also be a signal of the beginning of the end.
But I think Murdoch is smarter than that, and I look for more exciting and surprising changes to come.
Significantly, there is no mention of this deal to be found in the Wall Street Journal itself (strange that they said nothing, but let every other major news outlet report it), or I would have dugg the article so I could insert it here to show you, however, the folks at Digg didn't ignore the news.
That's a rhetorical question. But, in a sense, the answer is yes. At least for me.
A few weeks ago I managed to break my foot by doing nothing more extraordinary than walking on it. I wish the story was more exciting, but I can't imagine a more dull and uninteresting way to break a foot.
There I was, packing for a business trip to Toronto when I stepped towards my suitcase and heard a loud, sharp crack, like a good-sized branch breaking, and next I knew I was on the floor in a lot of pain.
So, we went to emergency, spent about 4 or 5 hours to have a nurse practitioner confirm after looking at x-rays -- "Yup. You broke it", and then bring me a pair of crutches and a goofy looking styrofoam shoe, with instructions to see a foot doctor in the next two days. And, for all their trouble, they sent me a bill for over $2,000. Now, don't you wish your product or service had demand that was so inelastic that you could charge virtually anything for doing almost nothing? That is a business in serious need of disruption!
On to Toronto
So, I got home around 2:30am, and still had to finish packing to get to the airport first thing in the morning. You see, it wasn't just that it was too late to call anyone and postpone the trip, but it was an important strategy meeting, and people were coming from Ireland, so it would have been very costly and aggravating for everyone to cancel. Anyway, it gave me an excuse to do what I thought was the right thing.
I'm going to skip the gory details of travelling with a broken foot that isn't in a proper cast yet, because I'm going to have another post just to talk about the incredibly miserable service I got from an assortment of airlines (not just to Toronto, but in a subsequent trip to Portugal as well), and how poorly people with a handicap are treated. It was a real eye-opener, and I'm quite fortunate that in a few weeks, I'll be back to normal -- for many this is a permanent way of life. I had no idea how frequently the needs of people with handicaps are either simply ignored, overlooked and disregarded, or, that there's a seamy underside that looks to take advantage of people who need help. More on that in a future post.
So, in Toronto I learned to use the crutches, and narrowly avoided a face-plant on freshly cleaned marble floors thanks to the strong arms of two guys that were walking with me. Strangely, although marble is one of the most deceptive and slippery surfaces when wet, the cleaning staff apparently didn't see the need to put out signs warning that the floors were wet. Hmmmm. Basically, Toronto was a dry run for what it would be like flying to Portugal the following week to do a keynote address at the International Marketing Congress. I survived with the sponge slipper for a couple of days, and didn't break anything else, so we'd have to say that was a successful trip. Oh yes, the meetings were good too.
And then Portugal
As soon as I got home from Toronto, we got to a doctor and had the foot looked at. Surprisingly, he too confirmed that the foot was broken and charged me an additional $360 for that information. He wanted to put me in a full cast right away, but when he heard that I needed to travel to Portugal, he shook his head (I think in disgust and disbelief -- obviously he thought it was a mistake and that I should simply accept my fate and be immobilized for 6 weeks right then and there) and offered a temporary Air-Cast, which for all the world looks like a Robocop appendage. See picture. Oh yes, and another $250 in the meter for that. Neat contraption, in that it allowed me to deflate the airbags inside and/or loosen the straps as my foot and leg swelled on the plane. They advised me that if I didn't do this, there was a good chance my leg would need amputation by the time I got to the other side, and that was the reason not to put a proper cast on at that time. When all was said and done, we'd spent another half an hour, and another approximately $800 for almost nothing. Who needs the mafia when we can simply visit a doctor?
The Air-Cast did make me a little more mobile, and certainly protected my foot better than the sponge slipper, but it was truly a hulking and inconvenient thing to have to wear.
Of course, the whole point of this story was to get to Portugal. It was my first trip there, and despite the foot, it was an immensely enjoyable visit. The people were great, the food was great, the wine even better, the seaside was great, my hotel was nice, the culture was very comfortable, my hosts were gracious and welcoming. In fact, the only downside was the whole airport experience. Another industry in serious need of disruption, although not so much on the cost-saving low end -- this is already a well-served space, and the corners being cut are apparent everywhere. Oh well, as I said, a future post.
Disruption Point
Appropriately enough, the conference title was The Disruption Point, and my keynote put forward the thought that Disruptive Innovation doesn't happen without Disruptive Marketing, using some case studies and graphed results from The Disruption Group's disruption scorecard tool. That's something I'll be exploring here in more detail in the coming months, so I won't dwell on that now, but I thought as I was delivering my talk how ironic/appropriate it was that I was delivering a talk about innovation, marketing and disruption while I was disrupted in a wheelchair. And, how unique. I don't recall ever seeing a keynote address done from a wheelchair before, although I'm certain someone has at some point, if only at a conference for those bound to them. I suspect many speakers would have cancelled, but I had put a great deal of thought and effort into this and wanted to see how the audience reacted. I also wanted to go to Portugal, so the location definitely benefited the organizers.
What was especially interesting for me was to get a European view of disruption and innovation. The growing strength and especially the single market opportunity for the EU seems to have spawned a new spirit, willingness to take chances, ambition to grow, recognition of opportunities at home and around the world. In short, European capitalism seems to have new life and there is some great energy over there, and desire to learn and try new things.
In contrast, the US seems to be a litte bit on the ropes in comparison. I think we are weary of the Iraq war, the falling dollar and rising prices, especially for oil, fighting terrorism, dealing with airport hassles, the hangover from all the corporate fraud and Sarbanes-Oxley compliance, the failing mortgage market and the toll it is taking on banks and homeowners, encroachment on freedoms that we have always taken for granted in the name of "enhanced security'" (an oxymoron if ever there was one). Basically, virtually everything is in the dumps at the same time. We need a good recession and some political and economic housecleaning to clear out the fog and get back on track.
But, I digress.
Again, in a near future post, I will give a review of some of the other interesting Disruption Point presentations at the International Marketing Congress. Suffice it to say that I was pleasantly surprised at the depth and quality overall. Although there were the obligatory sales pitch presentations from a few, overall this was a much more informative and well-assembled conference than I often see stateside. I really enjoyed meeting a number of the other speakers, and I think we will stay in touch and continue to share insights. It definitely helped build out my network some.
I especially enjoyed chatting with the president of the French National Marketing Association, Francois Laurent. He is a crusty guy with a train of thought at least equal to the controversy I cause, as you might discern from his blog and upcoming book title "Marketing is Dead". Here's what he had to say about the conference (automatic translation to English version here). I've been invited to write a guest post on his blog, and I'm hoping he will do the same for me. We'll let you know when that happens.
My presentation was well-received and despite the disruption, the trip to Portugal was very worthwhile.
Home of Disruption
So now I'm safely home, have a full cast on my foot, and am already chafing to get rid of it. It's certainly no fun trying to do anything from visiting the restroom, to going up and down stairs, to getting dressed, to bathing, to going out anywhere. As I said in a recent email, I can't believe that we can send miniature cameras inside someone's heart and do robotic surgery controlled by a doctor 1,000 miles away, yet when it comes to healing a broken bone, we still have this archaic and inconvenient 150 year old technology to fix things. I could have arthroscopic knee surgery, or laser eye surgery, and be back to 100% in a few days, but break a bone, and your life will be disrupted for at least 6-8 weeks.
Consider me broken and disrupted.
October 06, 2007
What I thought about on my summer holiday?! Of course, I'm way overdue for a post, even for a "what I did while I was away" post. As usual, thank you to my loyal readers for your patience. I have a backlog of ideas percolating, and hopefully I will have time to get to a few of them in the near future.
To get back into the swing, I thought I would recap some observations and thoughts from my time away, and direction I intend to be going over the next few months as a result.
It's funny, but when things slow down, and you simply observe and think for a while, some things become obvious that were always staring you in the face, and things you've previously observed and thought (and written) about either prove themselves true, or new insights percolate to the surface.
The Never-Ending Circle
In the category of "proving themselves true", predictions about the popularity of the iPhone and its likely success were pretty close to bang on, with Apple announcing 1 million sold just 74 days after the initial release. While many may have expected more sold, this is about the top end of what one would expect for a disruptive product. The usual pattern is to seep into the market relatively slowly and then really take off as subsequent versions add features and correct problems, becoming good enough for more and more people until they reach the tipping point and explode into mass market consciousness. With the unparalleled hype about the iPhone, it's not surprising that it was strong out of the gate, despite many noted complaints about all the ways it wasn't up to snuff (also very common for new disruptive products).
We also discussed the likelihood of a family of mobile handhelds using the iPhone platform, and already we have the next generation iPod, which not surprisingly is an iPhone without the phone. Along with that new product came a brilliant move of partnering with Starbucks to offer free Wi-fi access at any of their locations. It's actually pretty smart for both sides, because the days of charging for a Wi-Fi connection are almost over, and this is a way for Starbucks to be a bit ahead of the curve and benefit from the glow that surrounds the iPod and iPhone.
Watch for iPhone Sr. coming soon to an Apple store near you -- I expect it will be outfitted as a true business-oriented handheld, with connectivity to corporate systems, better security, more horsepower, a suite of office applications (note that Apple's iWork product was also upgraded over the summer to offer a spreadsheet tool for the first time and integration with Office 2007. With the "holy trinity" of word processing, presentations and spreadsheets now covered, the Mac becomes a lot more viable as a PC replacement, and will suddenly be "good enough" for many who've been waiting for a real Microsoft alternative, and the iPhone also gets closer to being a viable substitute for the notebook, especially for road warriors tired of airport security hassles. Don't know if we'll get it before Christmas, but I promise, the writing is on the wall.
Microsoft is probably wondering about some of the horrible mistakes made in Office 2007, such as imposing the "Ribbon" interface on power users who not only don't need it, but find that it slows them down. Personally I don't like it because it is a big keystroke waster, makes it hard to find all the things you knew, and it wastes a ton of screen real estate. Not offering an option to use the old menus or the keyboard interface was a really bad idea.
Microsoft's Office 2007 "ribbon". Seriously, someone thought this inelegant, productivity-sucking mess was an improvement! Click for a larger version if your stomach can handle it.
Although the XML underpinning was a great idea, it also makes it easy for someone like Apple who is better at tools to eat Microsoft's lunch, and with such a huge change in the interface, there's plenty of incentive, and what has anyone got to lose by giving Apple's products a try? It's a classic case of overshooting the users' needs on the one hand, and not fulfilling them on the other. And, it's the kind of arrogant decision that could only come from going so long without real competition. Ripe for disruption indeed!
It's also been noted that Apple's first OS upgrade for the iPhone turned some people's hacked toys into iBricks. I will be addressing that in a future post.
Relationships
For many, summer is a time to re-connect with family and think about relationships. Of course, we did that too, and got to attend that rarest of events -- my parents' 50th wedding anniversary. Even more amazing, my wife's parents celebrated their 50th a couple of years ago. How many people can say that their parents and in-laws are not only still all alive, but have both managed to stay together for 50 years? There must be a pot of gold at the end of a rainbow somewhere.
And, check out the picture. Gotta love the skinny people and skinny ties. They just don't make them that way any more.
In the category of "growing realization of the obvious", there's another sort of relationship that comes to my mind. Namely, the relationship between marketing and disruptive innovation. With a couple of decades of technology marketing experience behind me, and a current focus on disruption, you'd think I would have spent more time considering the connection. It's a relationship that's lived in my head without expression.
Strangely, Christensen comes close to alluding to it a few times in his books, but never really addresses it. In fact, it's almost as if all those innovations that he describes were so obviously fantastic products that they grew to dominate markets without anyone making the smallest effort to target the right niches and make them appealing to customers.
I've been developing a theory about that relationship, and looking for the evidence to test it. It's a simple but profound notion. Namely, that disruptive marketing is the secret sauce that takes the potential of a disruptive innovation and turns it into a reality. Yes, there are accidents along the way, and occasionally disruption happens without intent, but it's become increasingly clear to me, both by looking at missed opportunities for disruption, and at products that succeeded in turning the tables, even against the odds, that disruptive marketing is a necessary component.
I will be delving into this idea in more detail over the next several months with case studies, examples, definitions, and description of how disruptive marketing works. I hope to elicit a healthy discussion around this idea and get "war stories" from marketers about how they did it, and what disrupts versus what is plain vanilla.
Upcoming Presentation
Carrying on with this idea, I will be making a keynote address to the International Marketing Congress in Lisbon in a few weeks. The conference theme is The Disruption Point, and I will be addressing the connection between Disruptive Innovation and Disruptive Marketing. This will be the first public forum where I will be presenting my theories and observations, and I'm looking forward to a great discussion and debate.
More Books
Several books crossed my desk this summer, and I know that I fell asleep reading at least three of them. Lot's of good stuff to talk about there too, but, for now, here's a list -- click on any of them to find your own copy at Amazon.
iPhone Debut Rivals Harry Potter Mania, But Will It Last and Why?
Two days before the official launch of the iPhone, the pitch of media, pundit and public anxiety over perhaps the most anticipated new product since Windows 95 has reached a level only Steve Jobs could properly describe -- Insanely Great! And here I am, contributing to the noise, raising it even a decibel louder if that's possible.
How loud is it? As I finish writing this post, Technorati says that there are nearly 189,000 blog postings (in English -- there are nearly 305,000 in all languages) that talk about the iPhone. Compare that with 39,170 that mention Motorola's RAZR, a phone that was the previous biggest smash hit and which literally put Motorola back in the cell phone business after years of decline. Nearly 6 times the level of mention of a phone which has been exceedingly popular, a design hit, has been in the market since 2004 and which exceeded all other flip phone sales within one year of its release. And, the number of postings that include mention of the iPhone has been rising by over 1,000 every 4 hours today, and you can count on it growing even faster until the pent up hysteria is released at 6pm on Friday. And, the chatter certainly won't stop then.
Every major media outlet has weighed in. The Wall Street Journal, New York Times, USA Today, every computer or telecom related industry trade journal has reviewed it. Virtually everyone who's been privileged to receive one of the media samples for review has said it's cool -- so cool it almost lives up to its hype. Like the mania for video game consoles or Harry Potter books, prospective customers started waiting in line outside flagship stores in New York Tuesday morning. Unprecedented for a phone.
Think about it -- the entire country seems locked in a heat wave, with most major cities experiencing temperatures in the mid 90s or higher. Yet, people are so lustful of being one of the first to own an iPhone, that they will camp outside a store for 4 days in the sweltering heat to lock in to a 2-year service commitment from AT&T, the worst service provider in the business (more on that later).
So, does all this mean runaway success -- the game is already won? Or, will there be an equal and opposite reaction when possibility and excitement about the future gives way to reality, and inevitable issues with service, availability, bugs in functionality and unfulfilled expectations?
Apple fanatics say it will be successful because it is ultra-cool, easy-to-use, a breakthrough in design elegance and software sophistication. Naysayers say nothing could live up to this level of hype, and that when things die down, sales will appear lackluster no matter how good they are. Virtually everyone notes the stupidity of getting into an exclusive deal with AT&T and warns that this could be the albatross around the iPhone's neck. Almost all of the speculation and predictions are based on visceral and emotional reactions, and influenced heavily by the reality dispersion bubble that surrounds Steve Jobs, and by the majority belief that "better" wins.
But if we run with that notion reductio ad absurdum, what exactly does 'winning' mean? Assuming that the consensus is that the iPhone is a better phone, does it have to achieve market dominance as a late entrant the way the iPod has in the MP3 player space? Surely it doesn't have to match iPod's 80% market share within 5 years! There are over a billion mobile phones already in use around the world. Is a 10 or 20% market share strong enough to be considered successful? (The RAZR's share is only around 5%.) Is this even the right yardstick to use?
The iPhone Will Be a Disruptive Winner
iPhone will be successful regardless of the metrics used. It will be successful beyond the expectations of the most enthusiastic pundits. It will be successful beyond what Steve Jobs thinks. It will be successful in spite of the apparent deficiencies that have already been noted in the reviews. It will be successful despite partnering exclusively with a single carrier, and the one most despised in the industry -- although this will be the biggest road bump the iPhone faces. It will be successful because it will change the game -- actually, it will change many games, and therein lies the secret of its success. It will do all this because it will be disruptive.
But, predictions are dangerous. And, mine disagree with those of many people whose opinions I respect and whose theories I borrow from. Even though I'm siding with the majority who believe the iPhone will be a big winner, how do I arrive at that conclusion and what exactly makes it disruptive?
Who Disagrees With Me
Before explaining what the highly respected experts are missing, let me first say who some of them are and try to summarize their positions.
Innosight
Innosight is the consulting company formed by Clayton Christensen to sell management services around disruptive innovation. Clay developed the original ideas and theoretical framework that underlies disruptive innovation in his series of books - The Innovator's Dilemma, The Innovator's Solution and Seeing What's Next. Saying he (or his minions) have it wrong is like saying that the pope isn't Catholic.
Cingular (now merged into AT&T) is incapable of providing the same high quality, seamless user experience that Apple customers expect
iPhone won't work on 3G high speed data networks -- only EDGE or Wi-Fi is supported -- so there won't be anything unique or distinctive about the wireless service
the deficiencies plus high price point will prevent iPhone from finding a market sweet spot
the approach of Apple is a "sustaining strategy" (i.e. incremental innovation of the cell phone), not a disruptive one, positioned against deep pocketed, long time industry incumbents who have a lot to lose if Apple wins and will fight fiercely for share
He reaches his "not disruptive" conclusion while still finding many things to like, such as lack of keyboard, design beauty, novel interface, thinness and coolness factor.
Mike Urlocker
My colleague, and the CEO of The Disruption Group, has a stronger technology, industry and investment background when it comes to the iPhone, having been the original analyst at UBS to identify the RIM Blackberry as a disruptive product and the first to recommend RIM as a strong buy. Mike has worked for and advised software companies on marketing strategy, and at UBS he was executive director and member of the global technology and telecom teams.
In his Disruption Scorecard evaluation of the iPhone, again shortly after the original announcement in January, Mike rates it a B-, and labels it likely a hit, but not very disruptive. He reasons that the product appeals to people who want status and high design (the coolness factor) and are willing to pay for it, but that it doesn't have much potential to change the game like Blackberry did, or upset incumbent rivals such as Nokia, Motorola or Samsung.
Laura and Al Ries
Branding and positioning experts Laura and Al Ries (Al Ries and Jack Trout wrote the original book that defined the concept of positioning) take a different tack, identifying the iPhone as a "convergence" product, and the iPod as a "divergence" product. The concepts of divergence and convergence come from Evolution Theory -- basically, the idea is that there is a common origin to all species, but that over time the "tree of life" diverges as natural selection creates specializations to adapt to the environment.
Similarly, Al and Laura (and other pundits too) argue that the natural trend for all products is towards divergence and specialization to better suit consumer needs. They claim the iPod was successful because it was a divergence product. Moreover, they argue that most "convergence" products fail -- convergence being when multiple feature categories are combined in a single product (in iPhone's case, an iPod, cell phone and PDA).
Their position is that consumers prefer products that are optimized to do one task well, rather than a lot of tasks poorly, and they further claim that the iPhone has been over hyped and most over hyped products fail to live up to expectations, therefore the iPhone will be a failure.
Hmmmmm.
Most of the others who claim the iPhone will be a failure base it on their own personal biases rather than what the market as a whole is likely to do and why -- "I'm not going to get one because . . .". Name your complaint here. Price, lack of keyboard, slow data network, AT&T as carrier, touch screen keys too small to hit accurately, it will have bugs in version 1.0, etc.
So, what are they all missing, and more to the point, what is Steve Jobs really up to?
The Label Problem
One of the problems with evaluating anything analytically is that we get hung up on labels rather than thinking about what the labels mean and why the rules of thumb associated with them usually work. In the case of the iPhone, there are many labels and definitions being applied that are throwing people off the scent of what's really happening and my belief is that this is deliberate. Yes, Steve is trying to fool the experts and fly below the analytical radar, ironically while mounting one of the most pervasive and successful hype build ups of all time.
To start with, the name iPhone is a mislabeling. While iPhone does indeed have phone capability in it, it is not a phone. Suspend disbelief for a second, walk with me a little, and it will all make sense soon.
Is your laptop PC a phone because you can make GoogleTalk or Skype calls using it? If not, why not? Does it matter that it isn't the only thing you do with it? What if that was the most important thing you did with your PC, because you make a lot of calls to India, and free long distance service is worth a lot to you? Still not a phone? Well, if your PC isn't a phone, is it a typewriter? I know that the primary purpose for my PC is typing documents, blog posts and html. I print a lot of those on paper. Mine is definitely an evolved typewriter. Or maybe your PC is really a gaming console, or a mobile email device because you use it at home, at work, at Starbucks and at hotels and other wi-fi hotspots around the world to send and receive emails. Or, maybe it's just another example of a highly unsuccessful convergence device? Or, do you still think your PC is something else?
The iPhone is Definitely Not a Phone
So, if you were willing to suspend disbelief and suppose that the iPhone might not be a phone, what is it then? Let's start with why it's called an iPhone. iPhone is both sales positioning and a ruse. iPhone is positioned as a phone because Apple knows that in that niche, the market is sorely lacking for a stylish, easy to use, fun, visual, well-designed and well integrated device. It is a first if only because of its elegance. Don't believe me? Then why isn't it really an evolved iPod? One with a really big screen, beautiful graphics and music navigation, and by the way, it includes the ability to make phone calls?
The reason is because Apple believes this is the purpose that you will understand out of the starting gate, and for which it can convince people to shell out $500 or $600 to get the most stylish and coolest gadget on the block. Therefore it is positioned as a phone, and that's the basis on which everyone is analyzing it, and writing glowing reviews, but it isn't a phone. It's also a ruse, because Mr. Jobs has a much higher goal in mind than selling the world's coolest phone. But this is an effective way to divert attention from the real disruption that is happening until it's too late.
Why This Makes Perfect Sense
Let's get a historical perspective to make a little more sense of this. When Alexander Graham Bell invented the telephone and tried to sell his patents to Western Union in the late 1870s, how do you think he described what it was? No one had a framework to describe how revolutionary the phone would be as a communications tool. If you wanted to talk to someone, you went across the street, knocked on their door, and if they were at home or in their office, you could talk. Initially, outside of the securities industry, people couldn't even understand why they would want a phone. Especially since the first version could only work over short distances due to signal loss on the wires. There was no network, there wasn't any need for communications to be sped up that much and nobody else had one, so how much use was it?
Bell considered the telephone to be a way to transmit voice over the telegraph, and that's why he thought Western Union would buy his patents. Bell viewed the telephone, perhaps one of the most disruptive technologies of all time, as an incremental ("sustaining") innovation over telegraphy. (Western Union viewed it as being worth less than $100,000 since they rejected the offer to buy the patents for that much, although they later tried to buy them for $25 million.) Do you consider your telephone today to be a highly evolved telegraph? If you can imagine that, what about your cell phone, or is it different because it's mobile? What then of the iPhone? Just a space age telegraphy device with no keys or dials?
The important thing to note here is that in the early days, it is difficult to imagine the application and importance of disruptive innovations if they really are, because no one has a framework to understand its value. That's why the car was positioned as a horseless carriage. That's why TV was radio with pictures. That's why the first computer was called ENIAC -- or the Electronic Numerical Integrator and Calculator. That's right, it was a calculator that cost 200,000 man hours to build, $486,804 in 1946, and used $650/hr worth of electricity to sit idle. Some times the original naming belies the importance of an innovation. If not for the need to calculate missile trajectories more quickly and accurately during the war, the first computer might never have been built.
And what of convergence versus divergence? Most consultants and branding experts will tell you that convergence as a strategy almost always fails, because the more things you combine into one, the more compromises you have to make in design, and each individual function is sub optimized at the expense of the whole. In disruption theory, a parallel idea says that as companies continually add sustaining innovations to better meet the needs of mainstream consumers and/or differentiate their products, they eventually overshoot the needs of most of their customers. Convergent products usually exceed the needs of all but a small minority of any prospective customer base. After all, who needs every tool on a Swiss Army knife?
That's the theory, but the reality is that when you try to apply simplistic labels to categories or products and then assign attributes or success factors based on those labels, you can miss the forest for the trees. In the case of convergence versus divergence, this is especially true, since which bucket you assign a product to varies based on whether the combined elements are truly synthesized in such a way that they cannot be separated and provide the same benefit, or whether they are just bolted together and not really integrated to optimize overall performance. Ask yourself whether the combination of radio technology, speakers and a cathode ray tube to make a TV represents convergence or divergence? Is it the evolution of radio, or are the elements synthesized in such a way that they create something truly new? If I turn on the TV, but listen to it from another room, is it still a TV, or is it a radio? Did the TV fail because several technologies converged? What about personal computers?
So what is the iPhone, and what is Steve really up to?
It's a handheld one of these
The iPhone is disruptive because it isn't really a phone, or for that matter, an iPod. If it was either of these, then as cool and elegant and nicely designed as it is, it would still just be an incremental or "sustaining" innovation.
Remember that the iPhone has a complete version of the Mac's OSX operating system embedded, plus it lacks a keyboard and has a truly novel interface with seamless integration between different functions. With all that, it can be considered as the first truly personal handheld entertainment and communications computer. It can also be considered the first handheld business computer powerful enough to replace a notebook for road warriors tied of lugging all their paraphernalia through airport security. In other words, it competes in a different class of products -- not as a phone, not as a smart phone, and not as a computer.
It serves the un- or underserved need for lightness, simplicity, ease of use, true integration and is simple enough that my mother could use all the features without thinking about each being a different application or device. Competing against laptops, it doesn't yet have all the applications my PC has, but it is "good enough" that many will be ready to give it a try. And, there are already numerous applications you can download to enhance the functionality for your needs, and many more business applications (especially things like bluetooth connectivity to a real keyboard, document editing, spreadsheets and presentation capability) which will run in Safari are likely to come. And, when compared to a laptop, it is disruptively inexpensive. Analogous statements are true if you evaluate it as a personal communications and entertainment computer.
This is, I think, what the huge excitement is about. People innately sense that this is much bigger than a phone, they just aren't yet able to articulate what is significant about it, and how we'll look back on Friday June 29, 2007 as one of those days when everything changed.
And, it looks really cool and I desperately want one.
Steve's End Game
The iPhone is a trojan horse. Steve lost the first battle between the PC and the Mac because he was less sophisticated as a business person in those days, and didn't fully appreciate how difficult it would be to convince the masses that they needed an expensive personal computer before they had even used one at work. In 1984, the Mac exceeded the needs of most potential customers, and looked like a toy to business (unless your business was about graphics or publishing). The DOS-based PC was the "good enough" disruptive innovation of its time because it catered to mainframe users used to buying computing equipment from IBM and used to looking at green-screen character-oriented terminals.
This time it's different. Almost all of us use PCs daily. And, most of us are tired of the now clunky-seeming interface which isn't much different or easier to use than the initial Mac interface of more than 20 years ago. And, we desperately need a single, small pocket-sized device that can handle all our business needs while on the road and enable us to leave our 10 pound paperweights at home. Something that's easy to get through airport security, and makes my life less complicated.
Moreover, at the price point of $500 or $600, this is something that every road warrior can afford today, if only as a style accessory. So, the decision won't be made or inhibited by corporate IT departments. Sure, they'll try to block connectivity to their servers on security grounds -- they always do, because they think computers are about them, not about the users' needs. Of course, the iPhone includes VPN connectivity, and most have already got their heads around that. But so many executives will have these that just like the Blackberry before it, corporate acceptance will be very fast. And, once you've adopted the iPhone as your traveling computer, how much of a jump will it be to make your next notebook/desktop for office use be a Mac?
My Prediction
As a phone, the iPhone will be exceedingly popular. If production can keep up with the demand, I believe that Apple will sell more than 2 million before year end 2007 -- if they can scale fast enough and have a new version out in time for Christmas, maybe as many as 5 million. Steve Job's stated target is 10 million sold by end of 2008. Given that there will probably be at least 2 more versions of this product before that, I believe 10 million is a very low estimate, set so that expectations can be smashed -- again, it will depend how fast production can gear up to handle demand and support several different models, but 20 million should be easily reachable.
As additional business applications start coming online, probably early to mid-2008, expect sales to really take off. We will no longer be judging the iPhone as a phone when that happens, but as a true micro-mini sized PC which revolutionizes the entire tech industry and rejuvenates innovation throughout Silicon Valley. At that point, the iPhone will disrupt Blackberry, Nokia, Motorola, Microsoft, Samsung, and maybe even Nintendo (to name a few).
And, what about AT&T? Well, that truly is the fly in the ointment and Steve's Achilles Heel. AT&T is brutish about customer service, slow to innovate and slow to reform. They will try to extort every possible advantage in pricing and contractual obligation that they can. AT&T knows nothing if not how to exercise a monopolistic advantage.
Moreover, AT&T lacks the broadest service coverage, and no single carrier (in the US, at least) is right for everyone. We all know that signal strength and dropped calls vary based on where you spend most of your time. So, if you live in an AT&T dead zone, tough luck. Their EDGE network is slow, and they don't have anywhere near complete enough coverage with their 3G services (which aren't built into this version of the iPhone anyway).
It's hard to understand why Job's wouldn't let the market decide if he wasn't going to lease his own service. With a single carrier that many will be unhappy with, Apple will take the brunt of service complaints -- if I could go anywhere, I'd blame the carrier, not Apple. Verizon has the best coverage and fewest dropped calls. T-Mobile has the best customer service, best rates, and happiest customers. Maybe AT&T (Cingular at the time) was the only one willing to play ball on the technology changes that Steve wanted.
Regardless, if service complaints and customer mistreatment stories start hitting the press, expect a negative backlash that could take a serious bite out of sales growth and long term success. On the other hand, wide scale Wi-Max is a technology whose time may well have come -- it would make perfect sense for independent Wi-Max providers to bathe cities in their signal, and then AT&T could become almost irrelevant in the equation (if Wi-Fi VOIP capability exists).
I've been asked by a few people who've sent me emails exactly what it is that The Disruption Group does, whether our services would be of benefit to their organization and how to engage with us. My posts to this point have mostly focused on the causes and effects of disruption -- case studies and analysis that people might find generally useful, instructive and interesting. Today, I'm going to take a time-out and actually do a bit of selling. I promise it won't hurt.
The reason that everyone wants to create disruptive innovation is that it catches competition off guard, and leaves them without adequate response. A quote which is famously attributed to Wayne Gretzky, the greatest hockey player ever, to explain why he intuitively was always in the right place at the right time (the quote was actually coaching advice his dad Walter gave him when he was a young boy on the backyard rink) is applicable here. "Skate to where the puck is going, not to where it is."
The trouble is, how do you know where the puck is going in your industry, or in your business? And, if everybody thinks they know where the puck is going and goes to the same place, how is that better than going to where the puck is now? Apart from the natural resistance that many have to stepping out of line and being different, this is what is so challenging about disruptive innovation. Regardless, to be disruptive, you have to hit the competition "where they ain't" (see "Wee Willie" Keeler), and do it in a way that isn't possible for market incumbents to match easily.
The principle benefits of applying disruptive concepts in your business that our clients have identified include:
creation of new revenue streams
faster time to market
much higher than average margins
And, if you achieve those things, you also create the positive perception of being a trendsetter, an industry leader, and a supplier who is better able to serve your customer's needs.
To give a little more insight into the first two questions posed at the beginning of this article, namely what we do and whether our services would be of benefit, I've inserted a YouTube clip below which is excerpted from a presentation that TDG's CEO, Mike Urlocker, gave at a recent Conference Board change management conference. In it, he discusses warning signs of disruption to look for in your business, and looks at the direct benefits that can be achieved by anticipating or creating disruption.
The 3rd question, how do you engage with us, is pretty straightforward. We've created primer workshops on disruption that we can deliver to your business. You'll find them of immediate value as you learn to understand innovation from your customer's perspective, and gain an appreciation of which innovations are valued and which aren't. And these are excellent ways to get started and evaluate whether a bigger custom services engagement would be of benefit. The two options are:
two day workshop (pdf 37.2K) which will boost your organization's competitiveness by identifying disruptive opportunities, creating new ways to get closer to customers and steering clear of fatal pitfalls
American Idol rules the roost; as #1 rated show, it has become complacent and resistant to necessary change and highly susceptible to disruption
Appropriately enough, the conference title was 
, 
and 
. Saying he (or his minions) have it wrong is like saying that the pope isn't Catholic.
) take a different tack, 
The reason that everyone wants to create 
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