Når visjonæren blir en byrde…kan kulturen fortsatt være en asset?

Uber har fått en ny toppleder. Han kommer fra et selskap der innovasjon ikke nødvendigvis er så viktig som vekst gjennom oppkjøp. Kan de positive delene av kulturen som visjonæren Travis Kalanick etterlater fortsatt være en asset fremover? Hva kan norske innovasjonsmiljøene lære av Ubers maktskifte?

Den store nyheten i Unicorn-verden de siste dagene har vært ansettelsen av en ny CEO i Uber. Dara Khosrowshahi sitter nå i den stolen som Travis Kalanick en gang brukte for å styre Uber som den visjonæren han var.

Dara er, etter min mening, en bra ansettelse. I hvert fall på papiret. Han har erfaring fra en plattform (reisetjenesten Experia) når Uber begynner å utvikle seg til sin egen, som samarbeid med Yelp indikerer. Han har erfaring med å styre store selskaper og kan kunsten med å vokse både organisk og gjennom oppkjøp. I transportnettverk. en industri med syltynne marginer – og massive tap- , og der skalafordelene derfor er unngåelige for overlevelse, erfaring med M&A kan være kritisk for fremtiden.

Likevel er den store asset som Dara tar meg seg inn i selskapet kunnskapen og disiplinen han kommer til å tilføre med tanke på børsnoteringen. Jeg skrev allerede i en tidligere post at beslutningen om å fjerne Kalanick var basert på at investorene ville børsnotere selskapet snart (og i prosessen dumpe de store tapene over til småsparere, som mange unicorns har gjort før). Skandalene som Uber måtte tåle under Kalanick var ikke kompatible med en snarlig børsnotering. En visjon basert på evig sult etter vekst for eget ego og tap på hundrede av millioner dollar hvert kvartal var heller ikke optimalt lenger. Ubers børsnotering blir sannsynligvis så stor at den antakeligvis vil trenge en stabil masse av store institusjonelle fond for å kunne støtte IPOen. Evige tap vil dg disse ikke ha. De vil derimot ha utbytte til deres aksjonærer.

Uber er ikke et unntak. I de fleste tilfellene kommer det en tid der visjonæren må gå fordi eierne rett og slett krever det.  For de fleste selskapene kommer det et tidspunkt der operasjonene må finjusteres for å optimisere produksjonen og gi avkasting til aksjonærene. Visjonæren er ikke lenger en asset. Han/hun blir derimot en byrde. Det skjedde med Apple. Det skjedde med Twitter. Det skjedde med General Electric. Det skjedde også med norske REC. Det skjedde også delvis med Google. Det kritiske tidspunktet pleier å være børsnoteringen av selskapet, akkurat som Kalanick måtte oppleve selv.

Men kan en innovativ kultur overleve overgangen fra visjonær gründerbedrift til en spisset profittmaskin? Kan selskapet fortsatt skape verdi for aksjonærene med et flyt av nye produkter og tjenester som i det lange løp øker avkastningen for dem? I de fleste tilfellene blir det veldig vanskelig, men vi finner noen unntak. Amazon og IBM er sånne eksempel. Norske Tomra er også et vellykket eksempel på det samme.

For å oppbevare en innovasjonskultur i et selskap i overgangsfasen etter visjonæren er fjernet er det viktig å ta vare på to elementer: Insentiver og kommunikasjon.

Som jeg har kommentert tidligere, insentiver er ikke bare penger, mer lønn, bonus eller opsjoner. For å ta vare på en innovasjonskultur er det essensielt at de nøkkelansatte blir også belønt for å bryte ned siloer når det blir nødvendig, uansett hvilken del av selskapet de hører til. Deres kompensasjon eller annen form for belønning bør derfor være knyttet til hvordan andre avdelinger i selskapet lykkes i prosjektet som skal lansere de nye innovative produktene sammen med dem.

Endelig, dersom selskapet vil fortsette å innovere i en relevant nok grad må de nye produktene og tjenestene levere på KPIer som (den nye) aksjonærbasen (og CFOen) forstår. Spesielt er det viktig dersom det bare er en konkret avdeling i selskapet som får lov til å opprettholde innovasjonstakten. Avdelingen må være insentivert for at disse KPIene leveres også gjennom dem. Ellers kommer enheten til å miste dens relevans og eventuelt bli nedskalert eller stengt.

Det finnes dog et siste element for å kunne lykkes med å ta vare på innovasjonskulturen: Kommunikasjon. Den nye topplederen må forstå sine aksjonærer godt nok. Han eller hun må designe insentiver som både tilfredsstiller aksjonærenes legitimt ønske om avkasting og ta vare på innovasjonstakten.

Toppledelsen må kunne kommunisere både målene og insentiver  uten nyanser til både de ansatte, eierne og andre stakeholders. Jeff Bezos i Amazon har gjort dette til en kunst. Hans historie om vekst fremfor alt og insentiver som knytter en stor del av de ansattes lønn til aksjekursen har gitt ekstraordinære resultater og er i ferd med å endre flere industrier for alltid.


Hør gjerne Lucas Weldeghebriel og meg diskutere avgangen til Travis Kalanick og våre ulike perspektiver om bedriftskultur i vår siste podcast om corporate innovation på Shifter.no.

Her-knapp -2

Interessant? del gjerne!

What Porter has to say about your platform strategy

A guest post by Håkon Tiller, internet economy expert.
The emergence of platforms promise to fundamentally change how we do business. Porter’s Value chain is still partially applicable to the business model we refer to as platform.

A platform, in essence, is the efficient execution of the support activities of a value chain. The implications are several, but one in particular is easy to acknowledge: When your business is run by means of a technical platform, it means that the platform is the implementation of your current strategy and vision. To change your strategy, you need to change the platform. Not your organization.

The value chain, competitive advantage and platforms
Competitive advantage stems for the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its offerings.

porter

What we are looking for is how activities are divided between the company and the platform participants. That way we can assess the whole activity system. Where the platform differs from conventional business, is that the primary activities are not directly owned or managed by the firm.

A successful offering is determined by how well it meets the customer’s needs. When you need to hire a room, the appearance of AirBnB and Hilton hotels – at the surface,- is not that different. You search for accommodation and find it, combined with information about what comes bundled in the offering. The difference lays in how the needs of the customer is met, that is, what activities are performed and what resources are used to meet them.

Primary activities In any firm, primary activities can be divided into five generic categories; Inbound logistics, operations, outbound logistics, marketing and sales and service.

Primary activities in the hospitality business include coordination with suppliers of food and beverage, and various partners providing laundry and outsourced services that provide value to the customer not produced by the hotel itself. Most of the activities in a hotel belong to the Service activity group, they are performed to increase the value of the bed rented by the customer. These are all activities that AirBnB chooses not to produce within their current setup.

Marketing and sales include activities that are performed by Holiday Inn and AirBnB both. In addition, platforms will invest in activities related to after sales service to improve recurring business, strenghten commynity and data gathering as these are important elements in the Platform stack. Using the lens of platforms as an implementation of support activities, AirBnB does not perform inbound logistics, operations or outbound logistics in any meaningful sense. In addition, it only produces a small subset of the service activities, those of after sales service.

Support activities Support activities support the primary activities and each other by providing purchased inputs, technology, human resources and various firmwide functions.

A platform facilitates effective coordination between supply and demand of a given service. Given the competitive market for attracting both suppliers and consumers to the platform, any activity that reduces friction for an individual service provider or consumer will act as a value added differentiator in the platforms’ market for each type..

Purchased inputs
AirBnB does not provide purchased inputs to its hosts, most likely because it does not give the platform any competitive advantage. This could change, and it does not necessarily apply to all markets served by platforms.

Technology
Technology is what we usually think about when we think about platforms. Technology provided by AirBnB includes the booking system for the available resources and includes various helpful features that reduces friction and increases perceived value for both buyer and seller. In this way, the platform acts as infrastructure and support for many of the “Operations activities” related to providing a customer with a place to stay.

Human resources
The employees providing the product to the customer are not employed by the platform, but rather free agents connected to it. The main mechanism for ensuring high quality is left to the marketplace via various forms of ratings. These go both ways, which contributes to block customers and suppliers that do not adhere to the policies of the platform out of the system, thereby reducing risk for the counterpart. Ratings are also a central part of what is defined as the “community layer”* in the platform stack – aggregated ratings is an extremely efficient way of reducing uncertainty for the participants and by that a major obstacle to the execution of a value creating transaction.

Firm Infrastructure
Firm infrastructure consists of a number of activities including general management, planning, finance, accounting, legal, government affairs, and quality management.

This class of activities embodies the vision and the complete offering of the company. We should note that the management process only works directly with the development of the technical infrastructure – it does not get directly involved in the management of the primary activities. It can only facilitate these indirectly through the platform.

Implications, in particular for strategy
The management of any company needs to keep tabs on the business and foresee when their current strategy will run into trouble. This is true for an established multinational and a community startup both. The only difference is that for the startup, the strategy is still a theory, whereas for an established company it represents the current competitive advantage.

Usually when a strategy is in trouble, a management who is able to react, will craft a new strategy and implement it – most likely by reorganising, innovate a bit and run some change projects.

When your business is run by means of a technical platform, it means that the platform is the implementation of your current strategy and vision. To change your strategy, you need to change the platform. This means that you do not need to reorganize, you only need to create something different.

Do we need to remodel the Value Chain for this? It doesn’t seem like it. It could be useful to highlight that the firm does not control most of the primary activities directly and also emphasize the platform as part of the infrastructure.

One important aspect of Porter’s model that is not visualized well in the value chain and that we have not touched specifically here, is linkages. They are obviously important to the platform model, so we’ll need to get back to those later.

haakontHåkon Tiller holds an MBA with 2 decades of experience from the “internet economy”, including media, retail, startups and technology. Currently focusing on the application of lean principles to strategy and product management and looking into the blockchain space for opportunities.

Three mistakes that will ruin your projects from the very beginning – and how to fix them

Purpose, people and governance are three critical issues that can make or break a project from the beginning. This is how your company can take control of them.

In the course of my career I have been involved in many projects, both big and small. I have filled in several roles, both as a project team member, as a project manager and as a project owner, for big corporations, small companies and startups. Over time I have learned to understand the risks that a few bad decisions may imply for the outcome of such projects and even companies, maybe to the point of breaking them.

1.  The project has no purpose

It is astonishing how many projects get started without having any logical connection neither to the innovation strategy of the company nor to a real market need. These projects may start small, but soon enough they may grow out of control requiring an increasing amount of resources. Worse, as the lack of strategic alignment becomes increasingly evident, more and more layers in the organization will get trapped in endless rounds of discussions about what to do with such a mess. Eventually these projects may become a white elephant. These are projects that everybody in private recognizes they never should have started, but that have engulfed so many resources and put so many careers on the line that nobody dares to kill them. At the end, the project will be terminated or the whole mess will be spun off into a new company and sold or buried in silence.

CEOs at big or small companies alike shall be very clear about which kind of projects that can be started and which ones that can’t. When ideas for projects get presented, they should pass the value proposition test. If they don’t, the project shouldn’t get neither resources nor budget to proceed further. It is also highly advisable that upper management undertakes a project portfolio review at least two times a year. Its aim is to reassess the purpose of the ongoing projects and their business case or strategic profile. The management will then have to choose which of them that will go on as planned, which  ones that should get less or more resources  and which ones that shall be terminated.

2.  The project team is not fit for the task, nor are the decision makers

A source of project failure that can be easily avoided is the composition of the project team and the amount of time the members of the team are allowed to work there. Specially when it comes to innovation or transformation projects, essential issues like the quality of the team members and their allocated time can be grossly overlooked. This happens when a project must start, but the resources or budget are neither assigned nor available yet. In a rush, people assigned to the project may lack the necessary skills or experience. In addition, it is also typical that not everyone in the team is allowed by their bosses to work full time at it. Time allocations as low as 20 percent are common. The combination of these two factors can make it almost impossible for the team to keep up with the dynamics of the project.

This applies also to the governance structure of the project. I have witnessed decision makers at steering committee level that have come to GO / NO GO decision points without having taken the time to read the underlying material. In some occasions they even lacked enough background or experience in the field to understand the complexities of the problems to be discussed. The result are long discussions, endless explanations on obvious issues, several additional rounds of meetings and severe project delays.

CEOs and executives should not tolerate  any project, or even company startups, to initiate activities without having the right team and governance structure on place. In addition, team resources should dedicate at least 60% of their time to the project to ensure their loyalty to the project and to the project manager. Ideally, their bonus should be linked to their performance as a team member.

3.  The governance structure is too simple or too complicated

The governance structure of the project should be adapted to the importance, time frame and resources assigned to it. Some projects are so strategical for the future of the company that have to be strongly supervised at the highest corporate level. Other projects should be reviewed just at critical decision points. One size doesn’t fit all and the company governance policy should be shaped accordingly. Otherwise long cues at decision points will mount for all projects, irrespectively of their size and importance, and delays will rapidly grow.

Finally, it is worth mentioning that more governance doesn’t necessarily mean better governance. Often, complex projects don’t develop as planned and decision makers don’t know exactly what to do. It is tempting then to include a new layer of governance, for example an «operative steering group» in addition to the existing one. That is usually a big mistake because new layers of bureaucracy exponentially increase the number of meetings, conversations and consultations in every decision making process of the project, dramatically slowing down its pace. CEOs and executives shall bear this risk in mind and ensure that the project gets assigned an operative governance from the start. Otherwise, the question arises on whether the project should indeed start at all.

You may also like: Google is discovering the pain of being an innovator

Interesting? You may want to share it.

Are your owners secretly killing your innovation strategy?

To succeed with new products and services, innovation managers must know who their shareholders are and how they think.

Every Innovation Manager wants to succeed with his or her innovation strategy. However, too many among them experience that the outcome has a too strong component of random and that projects that logically could bring enormous benefits to their employer get shut down by the CEO. Why is that and how can one increase the odds of success within the organization when it comes to developing innovative products and services?

One key, and often ignored element, is to take into account the composition of the shareholder base. You may think that the owners of a mature corporation with low organic growth rates would cheer any innovation effort that is aimed to spur new growth on top or bottom line.

Not so fast.

One of the hardest things to accept for innovation teams is the fact that innovation isn’t a goal in itself. Innovation is just one of many tools that the management can use in order to increase shareholder value. As such a tool, it has to compete with other methods that, at least on paper, seem much safer and in many cases much faster too. The company can for example increase its leverage in the balance sheet and thus increase dividend payment almost overnight. It can outsource many of its processes. It can acquire or get acquired. It can even increase prices. (Apple is doing exactly that these days in the UK after Brexit has dragged the GBP down).

As a result, it is understandable that some owners don’t immediately share the joy when new innovative bets are launched.
These shareholders will allow some deviation of resources from the core business and into other areas for a while, even if they don’t really understand the new business model or the KPIs attached to them. However, innovative activities will eventually start becoming relevant in the financial numbers. They will visibly be eating up resources, but probably won’t be able of matching the expected profitability or other key parameters , just because it is too soon. Shareholder insatisfaction will in many cases be the result. This insatisfaction may then promptly be reflected in the share price, specially if the shares have good liquidity as it is the case of public listed companies.

Suddenly, your owners have become your worst enemy. After a while, a realistic CEO with bonus linked to share price may naturally give up and shut down any innovation outside the core business. This is exactly what has happened with telecom operators every single time they have tried to compete head-on with global internet companies Remember Comoyo, the Norwegian alternative to Netflix?

Two elements are therefore key for Innovation Managers in order to avoid such a situation and eventually get the approval from the CEO when launching new products and services.

First of all, an Innovation Manager has to understand the shareholder base of the company and its expectations. If your shareholders are basically pension funds with focus on stable free cash flows and predictable dividends, your innovation strategy has to be consistent with these expectations. In this case, organic innovation and product extensions will probably be a sensible strategy.

On the other hand, your owners may be mostly cash-rich private equity funds with risk appetite and focused on jockey stick growth and exit within few years. In such case your innovation strategy should probably be aggressive and based on disruption. You will by the way have to deliver on this quickly. Otherwise your owners will rather embark in a furious string of acquisitions and leave no funds left to innovation. Your department will risk being shut down shortly after.
If your shareholder base are retail investors, almost anything goes. Just get your story straight.

The second crucial element is to study which operational and financial KPIs shareholders have got used to follow and expect from the management. Unless their name is Jeff Bezos, CEOs have a tough time trying to introduce new KPIs that shareholders accept without getting suspicious. Even Google has been forced to create Alphabet, and thus separate the Google KPIs that shareholders understand (Cost per Click, Customer Acquisition Cost etc.) from the more unknown ones that the so called moonshots deliver.

Any innovative initiative will rise its chances to thrive if the new products and services share KPIs with the current ones. Alternatively the new KPIs should be clearly related to them. If shareholders are used to pay attention to CAPEX/ Sales and your new product’s cost base is mostly OPEX based, could you show how the overall CAPEX becomes lower and therefore the CAPEX / Sales  ratio improves?

Innovation Managers that want to succeed should pay attention to the shareholder environment and put together their product portfolio accordingly. Instead of fearing and even criticizing the CFO, Innovation Managers should seek his or her help and try to aling own interests and visions with the expectations of the shareholders.

Indeed, maximizing shareholder value should be the common language for anyone in the company and the base of its innovation strategy.

Interesting? You may want to share it!

Lessons for intrapreneurs -How 7 companies changed the internet economy, and what we can learn about it (III and final)

In this third post about companies that changed the internet economy by challenging existing business models we will reflect on the lessons that we can extract from them.

Remember that common for all these cases is that they just needed to change one single element of the Osterwalder Business Model canvas to destroy their competition. In part 1 we studied how four companies – Apple, Facebook, Finn.no and Netflix – built entire new industries from the customer side. In part 2 we revealed how three other companies did the same from the partner side. One case, Nokia, revealed how important it is to excel in execution in order not to disappoint your partners. Such a mistake may reveal your game to a new and powerful rival that may succeed where the first mover failed. (Hello App Store)

What can we learn from all these cases then?

  • First of all, a new business model doesn’t need to be neither very complicated nor extensive. Just changing one element of the canvas can destroy your competitors and secure a lasting leadership position.
  • To develop and to rightly communicate a compelling value proposition is essential in the developing of any new product or service. Without it, the result will always be a «me too product», pressing the company one step further into declining revenues and eventually unbearably slim margins. The success of the iPod made it very clear.
  • Focus on what you have from before in order to build a new business model. Do you have great relationships with your partners or customers? Do you excel at R&D? AWS, Finn.no and Opera changed the internet economy focusing on what they could do best or had an unparalleled quality at.
  • Alternatively you may look into what your competitors rely heavily on in order to execute their business model. Is there a general and pervasive business model in the industry that could be challenged? Which part of the dominant business model would make virtually all competitors cripple if it could be changed? Netflix understood this possibility first and achieved the leading position within video streaming while simultaneously annihilating its old competitors, the video renting stores.
  • Start with a niche or concrete segment you really know in depth – target customer, technology, application, product… then roll out into new segments as the concept becomes proven and the organization tuned. Two reasons for this: First, the less you have to analyze and/ or guess about a new business model possibility, the more resources you can dedicate to execute it and proof the concept. Second, virtually no company has resources to attack all segments simultaneously without risking fatal failures or putting the company in serious financial danger.
  • Never, ever, let your partners down and remember to execute your promises. Otherwise you may be inviting a new powerful competitor that may win their loyalty and shatter your dreams of a first mover advantage. You may think that your company is too important. You may repeat a self-delusional mantra to yourself. You may even consider yourself too big to be ignored. You are not. Ask IBM. Ask Nokia. Ask any cable TV operator.

It is not impossible to develop a new industry or to command a leading position in an existing market. However, it demands laser-sharp focus from top management, hard analytical job in order to find an unique positioning, a will to execute, a realistic approach to resource allocation, and a respectful and fair game towards partners. The reward can be a long lasting competitive advantage and a voluntarily captive market that keep pouring profits into the pockets of your shareholders for many years.

A serious exercise around the Osterwalder Business Model canvas at top management level is in this sense an excellent point to start with. Good luck!

Read part I and II of this series on business models here.

Interesting? You may want to share with your peers. 

Part II – How 7 companies changed the internet economy, and what we can learn about it

Thursday 22.9 I published the first part of these posts about Business models that changed the internet. I used the Osterwalder Business Model Canvas as the tool to disclose how four companies (Apple, Finn.no, Netflix and Facebook) destroyed the competition by changing just one element of the canvas.

In this post I will go on to describe how three other companies changed the internet economy by, again, changing just one element of the canvas. Instead of doing it from the customer side, these players did it from the partner side. We will also see how poor execution can make a powerful company lose its first mover advantage and its throne to a second but better player.

These companies are: Opera, Amazon Web Services and Nokia

Nokia: A partnership and execution tragedy

You guessed right, the powerful company that gave up its throne to a newcomer by poorly executing a brilliant idea was Nokia. By all accounts, Nokia was a smashing company in the late 2000s. At its peak, in 2007, out of hundred mobile phones sold globally, 49 had the Nokia brand on it. European mobile carriers were terrified by the power a single brand had on their subscribers. It wasn’t enough. Still ambitious, the Finnish giant developed a weapon to control all content users would consume on the mobile phone. The weapon was named OVI (door in Finnish). It was an application hub for the masses, with content that could be paid, consumed and updated directly form the Nokia mobile phone, without the need for a PC. Focus was on music and entertainment. OVI was the last piece Nokia needed to achieve world domination and sweep the remaining competition away.

But that was on paper. In reality, OVI was a usability nightmare. It was cumbersome, and the content took ages to download… when it did. For the most part, the only thing I remember from OVI is a big fat «X» on the screen without any further understandable explanation. I still loved my Nokia N95, but OVI remained a forgotten icon on the screen. The promise of massive and easy content distribution made to partners was broken.

Then, in 2007,  the iPhone came. In 2008, the Appstore came along. It worked wonderfully. In addition, the partnership with developers had clear and accepted rules for both sides. Android/ Google too came with its own Android Market shortly after. Five years later, the market share of  Nokia was an irrelevant 2,8 percent. However, it was the original idea of Nokia OVI the one that changed the concept of internet economy. Apple, as in may other occasions, just made it work. Execution became the key to success.

Opera: R&D – the capability that brought telcos to the table

The Norwegian Opera also changed the internet economy, this time  by focusing on their internal activities in connection with their partners, the telecom operators. The company created a new browser based on internal know-how and rapidly enjoyed commanding market shares, specially in developing countries. The differentiating factor was the capability the Opera browser had to compress the published content on the web with proprietary software.This saved bandwidth, which not only was beneficial for the subscriber, but also for mobile operators.  This internal R&D product, a key activity at Opera, allowed the browser to be distributed for free to end users, but at the same time operators payed Opera for the benefit of including the technology in their networks.

Amazon Web Services: Probably the most notable example of diversification ever

Amazon Web Services – AWS – invented the cloud for all practical matters. It is now the leading cloud services  provider and enjoys over 30% market share. However, the most remarkable fact about AWS is that its immediate competitors, Google, Microsoft and IBM, only have 22% market share combined. It is an amazing leading position. How did an e-commerce company did it?

The fact is that Amazon took a page from the business development strategy book and executed it wonderfully. Amazon took the key resource that made its gigantic operations possible – its vast installed base of servers – and opened it to anyone else. Until then, companies had to buy and operate their own servers and application. Alternatively, they outsourced the whole mess to IT partners, but the sources of dissatisfaction were still there. Before AWS, legacy IT plattforms made operations rigid and technical debt had become an accepted nightmare for CFOs. AWS solved those matters. Remarkably, Amazon executed in a smart way too.  First it focused on startups, who needed to use AWS based on its ability to scale fast on demand, than anyone else came along. The possibility of exchanging CAPEX with OPEX became too seductive to be resisted. Although the valuation of Amazon is still doubtful, the business as such has changed the economies of the internet forever.

Next Thursday, I will review these posts and extract conclusions for top managers and decision makers interested in breaking away from the traditional business models

Read part I and part III of this series on business models her.

Interesting? You may want to share this with your peers.

How 7 companies changed the internet economy, and what we can learn about it (I)

Many of you probably know about the Osterwalder Business Model Canvas. It is a powerful tool to describe how a present or a new company should interact with its environment in order to generate value and benefits. The purpose of this post is to highlight 7 companies that achieved dominant positions in the internat marketplace, sometimes creating totally new markets, just by changing one element of the canvas. Some of them destroyed their competition in the process. These companies are:

On the market side: Apple, Finn.no, Netflix and Facebook

On the partner side: Opera, Amazon Web Services and Nokia (yes, Nokia)

This post will focus on the companies on the market side. The second part exploring the partner side can be found here. Later, I will also extract some conclusions and recommendations for decision makers with accountability on innovation and business development.

You can find the book explaining the business model canvas, «Business Model Generation»  in the section: «Anbefalte bøker» of this blog.

Apple: «A thousand songs in your pocket»

There are few better examples of destroying the competition by excelling at value proposition than the Apple iPod. At the time it was launched, there were a lot of competitors with a portfolio of portable music devices in mp3 format. No other than Sony, the creator of the walkman, had its own products already on the market.

However, Apple worked hard on developing a product that could compete and win based on providing better value to the customers. It was a bold move, Apple was still in a bad financial shape, and not everyone was convinced it was a good idea. You can find the video of the iPod launch on YouTube here

Some people still say that Apple doesn’t rely on market research to develop their devices. The reality is very different. When you watch the video, you realize that Apple did a lot of research on competition in order to find the common vulnerabilities of all of them. The company attacked all of them, focused on the limited capacity of the devices available at the time. As a result, it condensed the promise of the iPod in just that one line: A thousand songs in your pocket. The rest is history.

Finn.no: Exploiting relationships

Finn.no, owned by the Schibsted media conglomerate, was launched in the form we know today in year 2000, even if it had existed in other forms before. Finn.no had competition from before. It was not the first player to enter the web-based classifieds market. However, after few years, it destroyed the early competitors. Today, Finn.no has a position that resembles a de facto monopoly for classifieds on the internet in Norway. How was it possible?

Finn.no exploited the one overwhelming strength the parent company Schibsted had vs. competitors – the established relationship with the companies interested in posting classifieds. Those relationships were indeed already very strong with the newspapers Schibsted owned, taking Aftenposten as a main example. In addition, Finn.no focused first on the verticals that were most profitable: Real estate, automobiles and jobs. The result has been a virtual monopoly so strong and powerful, that real estate agents are now trying to break it by establishing their own common competitive platform. They will have a hard time.

Netflix: Channels and timing

Netflix was launched in 1997 as a distributor of DVDs by mail order with focus on remote locations in suburban USA. In many ways, it was indeed a niche player. Today, Netflix and YouTube together account for over 55% of all data traffic in the lands these services are deployed.

The big change happened when Netflix CEO, Reed Hastings, became aware of the major inconveniences that the rental of physical DVDs meant for the users. From driving to the store, to browsing catalogues and physical covers to the interaction with assistants at the stores, it was all hassle. Netflix changed all that by distributing through a channel that bypassed all those inconveniences: Broadband internet.

However, Netflix was not the first one to try that new channel in order to  distribute movies. Many others, telecom operators and cable TV companies included, had tried it too, and some were having a relative success in doing that. The clue to Netflix success was a combination of two factors: Scale and timing on macroeconomic conditions. Netflix achieved scale by selling its service to all broadband subscribers, not only the subscribers to a specific telecom or cable TV player, like the latter where doing. That gave the company an immediate potential to grow fast beyond infrastructure constrictions and eventually reach a global audience. This is something other established broadband players at the time couldn’t do, because their current businesses were intimately attached to the cables and servers that defined their very communications  infrastructure. At the same rime, the «all you can eat» subscription revenue model at ultra low price points  was (and is) a low margin business. This is something operators and cable TV operators just couldn’t afford.

Timing had thus a lot to do with Netflix success. The ultra low interest rates and quantitative easing from the FED in the aftermath of the financial crisis in 2008 flooded capital markets with hot money desperately searching for growth stories to invest in. Without this phenomenon, the Netflix  «growth at any price» strategy and Unicorn culture would have been much harder to execute.

Facebook: From niche to niche to world domination

Facebook wasn’t always a tale about global presence. Like the previous major players on this list, also Facebook had competitors. Specially one of them, MySpace, was a powerful force at the time. A face-off battle for the users had been borderline suicidal for Facebook.

Facebook approached the market in the most intelligent way. Instead of trying to attack the whole potential customer base at the same time, the future social giant started humble in the very limited and closed circle of the Harvard University students. By testing and learning there, it rapidly moved to other Universities and even high schools. It was after users had been well studied and the service well proven and tested that the company went global. Backed by massive funding from financial giants like Accel Partners and Goldman Sachs, it grew exponentially.

 

These four companies changed the internet economy by changing and mastering primarily just one element of the business model on the customer side. Which box could your business change to destroy your competition? 

Read part II of these series about business models here.

Read part III her.

Interesting? You may want to share it!