Escaping the Internet Commodity Trap

by Rowan Gibson

The Internet is like a black hole that relentlessly sucks in, digitizes and democratizes content of every kind. While that may be generally good news for consumers (hey, look at all the great stuff we can now get for free), it has turned out to be unbelievably bad news for the content providers. Ask anyone in the print media business, or the music business, or the movie business. For at least the last decade, industries that primarily produce content have been struggling hard to find a viable new financial model in a world where internet users (particularly the young generation) don't expect to pay for anything they read, listen to, or watch. As one popular mantra puts it: "Content is no longer king". The fact is, content distribution is now king. Power has shifted to the content aggregators - think Google, YouTube, Digg.com or iTunes - and to new media platforms like Amazon's Kindle reader or the Apple iPad. So how exactly are content providers supposed to make money in an era of rampant digital commoditization? The only option they have left is to innovate like never before; to reinvent their industry business models before they become obsolete.

I remember talking to Kevin Kelly, co-founder of Wired magazine, back in 1995 about the future of the Web. He told me he viewed the Internet as a "planetary-sized copying machine" and added that "trying to stop copying on the Net is impossible." Indeed, within a week of my latest book "Innovation to the Core" being published in Chinese, there were at least two websites in China offering a digital version of the book for illegal download. Consumers clearly win - why buy the physical book when you can get the digital file for free? But in terms of book sales and royalties, the author (i.e. me!) and the publishers lose out entirely.

That's why the book publishing industry is feverishly exploring a variety of new business models. One option is to sell eBooks direct to customers, cutting out middlemen like distributors and retailers, and building a community around the books and authors. Since eBooks have a relatively low price tag, the hope is that consumers will be willing to pay for the genuine article (a la iTunes) rather than download an illegal copy, especially if it comes with social-media-enabled tools that help them discuss and share the book with others. Another option is to make the eBook itself a richer multimedia experience (with audio, video, hyperlinks and so forth) rather than just a text-based medium. Instead of embedding all of these media in a single digital file (which would still be relatively easy to copy and distribute illegally), publishers could give consumers a code when they purchase the book that offers exclusive access to a dynamic, integrated online application environment.

A similar challenge faces today's music business. Over the last decade, music labels, retailers, and the artists themselves have seen their revenues fall off a cliff in an era when teenagers can - and do - get all the music they want for free. Last year, 95% of music downloads were still from illegal file-sharing sites. And although Apple is now the world's biggest music retailer, its iTunes store has never been a massive revenue producer. Instead, it simply serves as a provider of low-cost content for the iPod, helping to drive sales of Apple's premium-priced music player. So far, the latest trend - cloud-based, streaming music sites like Spotify, Rhapsody and Pandora - has not been very helpful to the music industry either. Until now, these sites have employed a free-to-users, ad-supported model which doesn't generate much money for the labels or the artists. As an example, it's estimated that a million plays of Lady Gaga's popular song "Poker Face" on Spotify only earned her a paltry $167.

Frankly, I'm not too worried about the artists because most of them make their money these days on concert revenue and merchandising, not on the sale of recordings. And since people go to live concerts to hear artists performing songs they already know, it's actually in the artists' interests to have their music distributed as widely as possible, even if it's for free, in order to generate a lot of fans. Yet what about the music labels? How can they possibly compete against free downloads? Only by finding innovative new ways to add value. That's what MusicDNA is all about. It's a new digital file format that contains not just music but additional content such as lyrics, images and interesting info like interviews, tour schedules, or updates to the artists' social network pages. Anyone who downloads the file illegally would miss out on all these extras. So MusicDNA offers hope that the industry can open up new revenue streams. It may also point the way forward for Hollywood studios as they look for ways to battle illegal movie downloads.

Another victim of the Internet commodity trap has been the traditional news media industry. According to a new survey by the Pew Internet and American Life Project, more Americans now get their news from the Internet than from newspapers, and three-fourths say they primarily learn of news via updates on social media sites like Twitter. So as readers (closely followed by advertisers) make a mass exodus from print to digital media, 'The Press' as we know it seems to be going the way of the dinosaur. In the face of mounting bankruptcies, mass layoffs and plunging advertising sales, some publishers have already thrown in the towel. As an example, McGraw-Hill recently signaled their despair by selling off BusinessWeek at the bargain basement price of less than $5 million.

So is there any hope for this ailing industry? Some think it might still be possible to go back to the old 'paid content' model. Rupert Murdoch, illustrious media mogul of News Corporation, has been making headlines over the last year with his plans to erect a pay wall around his media. And, if it works, others will almost certainly follow. An analogy could be the advent of cable TV in the 1960s and 1970s. At first, very few believed that anyone would be willing to actually pay for TV shows and movies after spending decades watching them for free. But today the average household in North America pays about $50 a month for Pay-TV, so why shouldn't the same principle work for the Internet? There is also new hope on the horizon in the form of emerging digital media platforms like Kindle and Apple iPad, that promise to bring fresh revenues to the news industry by charging readers to access publications in an exciting new way.

Gordon Crovitz, former publisher of the Wall Street Journal, has co-founded a company called Journalism Online to help newspapers find new payment models. These range from micropayments - where readers pay for individual stories - to "freemium" models like the one used by the Financial Times, where readers can view 10 free pages every 30 days.

One of Rupert Murdoch's properties, The Wall Street Journal already charges readers US$119 a year for an online subscription. The WSJ is also experimenting with a new kind of media mix that takes it beyond the written word. Last September, its Digital Group rolled out News Hub, a twice-daily video news series. In January The Wall Street Journal Network delivered a record 5.5 million streams, with about a million or so views being generated by News Hub. This February the group launched Digits, a video series focused on technology which streams live each weekday, and plans are now in the works for several other original live series.

As whole industries see their traditional business models sucked into the Internet commodity trap, their only hope of escape has become radical innovation. For content providers of every stripe, success and survival in the future will be based on the ability to fundamentally rethink, re-imagine and reinvent themselves by innovating around who they serve, what they provide, how they provide it, how they make money, and how they differentiate from the rest. Stewart Brand's maxim may have famously stated that "information wants to be free", which is at the heart of utopian Internet democracy, but the cold reality is that every business has to make money. That means that whether you produce books, newspapers, magazines, music, movies or TV shows, somebody somewhere has to pay somehow. Figuring out who that could be - and how the financial model would work - is one the greatest business battles of our age.


Related Articles - "Content is No Longer King" - Part 1 - Part 2 - by Stephen Shapiro


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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Alice.com Proves Not Making Money Can Be a Winning Strategy

by Ric Merrifield

It doesn't happen very often, but sometimes I hear about a new company or a new innovation and slap my forehead wondering why I didn't think of it first. Netflix was a little bit like that, but I heard about alice.com today and that one in particular bugs me because I have been writing about the basic idea behind Alice for nearly three years, I just hadn't thought to turn it into an actual Web storefront.

So what is Alice and why is it such an a great idea? Well, Alice (named for the Brady Bunch character - good move), is a site that sells consumer goods over the internet. Things like soap, toilet paper, laundry detergent, and so on. The clever part about their model is that they don't make any money selling the products that they offer. They make their money selling advertising on the site, and selling purchase data back to the manufacturers (which the manufacturers have wanted, but lacked forever). Data is king in the world of sales, and Alice is positioning itself to be the impartial third party that sits between the customer and the manufacturer. As long as Alice doesn't compromise the identities of their customers, I don't see how they can lose. Customers value price and manufacturers value richer customer data (what they buy and what causes them to buy), and everyone wins.

This model is in some respects like Costco in the sense that they also don't try to make any money selling the products in their stores. It's no secret that Costco's profits come from their membership dues and that model has served them (and their shareholders) very well for a long, long time. Counter intuitive, but brilliant in retrospect.

I love the spin that Alice is putting on this, and with such a great name, the only way they can fail is in execution, and with two seasoned leaders, that seems pretty unlikely.

This is the kind of rethinking other organizations need to be doing right now. Instead of just optimizing business models that are based on the old fashioned brick and mortar models (like narrow margins on markup), there are so many opportunities to solve age old problems (like manufacturers not getting good data on who is buying their products - and what advertising actually causes customers to buy their products). People need to figure them out like Alice.

I am half tempted to start a site that sells meat at cost and call it Sam (after Alice's boyfriend, the butcher), but meat's a very different animal, if you will.


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Ric Merrifield is known at the "Business Scientist" at Microsoft Corporation in Redmond, WA and is the author of "Rethink". He blogs about ways to rethink through getting out of what he calls "the 'how' trap".

Dear Cable TV Executives,

by Steve McKee

I don't want 300 channels. I only want 18 channels. OK, the average person wants 18 channels. I really only want six. Why can't I have just six?

I know, I know, it's the economics of the industry. But industries change, don't they? I mean, look what has happened to the music industry. I used to have to purchase an entire CD just to get the one or two songs I want, but now I can buy and build my own playlists song by song. It's funny, but I'm sure I spend more on music now than I used to.

You should know I just bought an Apple TV box. That's not your fault - since the Blockbuster Video stores near me closed (and RedBox, while cool, doesn't exactly offer a huge selection) I didn't really have a good option for renting movies. So I thought it was worth a try. Now I can select from a huge selection of movies and TV shows, and when I'm not in a buying mood I can use it to watch YouTube on my HDTV. I'm beginning to think of YouTube as the ultimate TV network - there's so much on-demand entertainment there. (Hmm. You might want to make a note of that.)

Speaking of entertainment, I've held off on getting a Kindle because I knew Apple was coming out with a similar device. I'm excited to get my iPad, not only to check my email and surf the web but to download books. I guess Apple is shaking up the book publishing industry just like it did the music industry. "Saving it" is probably a more accurate description; I'm sure my book purchasing behavior will mirror my new music buying habits. I wonder if they're thinking along the same lines when it comes to TV. I guess time will tell.

So if you don't mind, I'd like to subscribe to individual cable channels. For that matter, I wouldn't mind subscribing to individual programs. I know you won't get as hefty of a monthly fee from me, but I'd be willing to pay more per network than you're getting now. And I suspect other people would be too.

Anyway, it's something to think about. But no pressure. If you don't do it, I'm sure I can find other things to do with my time and money.


Editors Note: I'm with you Steve. I've got limited cable because I don't have much time to watch television. When I really want to watch something specific I can get it online. Cable TV is going to face much the same problem that fixed line phone service faces now (declining subscriber #'s). And, if more and more networks develop their own 'apps' for a variety of mobile or IP platforms (Apple TV, iPhone, Blackberry, iPad FloTV, etc.), it's only going to accelerate.


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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

eBay France Tackles Challenger Head-on

by Yann Cramer

Visit eBay.fr and next to the traditional eBay homepage building blocks you will see a map of France that you can browse regionally to find local ads from sellers close to your home. If you fancy something, you can then contact and meet the seller face-to-face to see the item and agree a price. This looks completely at odds with eBay's core values of driving price transparency through online auctions and virtually connecting buyers and sellers across the global village. Are eBay prototyping a new offering? Not quite. Actually, they are merely reacting to an unexpectedly powerful local threat.


What happened?

Three years ago leboncoin.fr was created after observing that, while enjoying the online access to the dozens of offers that eBay can display for any given item search, a large number of customers would prefer to physically see and try the item before buying. The start-up made the bold assumption that there is enough truly local just-round-the-corner offer to continue meet the customer's appetite for choice while addressing the need to see the item and meet the seller. In some respect it was an old idea: local free-ad newspapers have existed for decades. Leboncoin used the associating skill of making old with new to connect that old idea with the power of online technology.

Today it boasts 9 million free ads on its website and over 2 million daily visits. Google Trends rank them above eBay.fr who have felt compelled to react by copying what they see as a potentially disruptive innovation in a field they themselves disrupted more than 10 years ago to become the dominant player.

Of course the threat is only local at this time and eBay as a global coorporation remains immensely more powerful. But leboncoin.fr business model could be replicated in any country to become a major headache for eBay.


What next then?

eBay may well end up buying leboncoin.fr but it cannot kill a business model that others could then easily resurrect to meet what appears to be a genuine customer need for proximity.

So, it may turn out that - even if they did not come up with the idea - eBay.fr copying of leboncoin.fr is some sort of rapid prototyping of a business model that we will see eBay roll out globally in the months to come.


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Yann Cramer is an innovation learner, practitioner, sharer, teacher. He's lived in France, Belgium and the UK, he's travelled six continents to create development opportunities with customers or suppliers, and run workshops on R&D and Marketing. He writes on www.innovToday.com and on twitter @innovToday.

Will Apple Introduce the Innovation Expected from Google?

by Braden Kelley

Some great conversations have sprung up around my previous articles on the rumored Apple Tablet (iSlate). In the past I focused on what innovation Apple's potential tablet device might offer and whether or not Apple is likely to make the rumored first year sales projection of 10 million units.

A recent comment from "Marketing Department" brought up the topic of subsidies and whether or not Apple might be on the verge of introducing another business model innovation. So, in this article we'll dig a little deeper into that possibility.

When Apple launched the iPod, they introduced the iTunes business model innovation which turned the music industry on ear, quickly followed by the television and movie industries. Then Apple launched the iPhone and introduced the App Store business model innovation and introduced a new way for people to purchase software that the competition quickly rushed to copy. Now, what could Apple create with a Tablet device?

Well, obviously the App Store and iTunes will be present on this new device, and the iTunes Store will likely be extended to cover books, newspapers, and magazines. An extension of the iTunes Store is more of an incremental innovation. So what disruptive business model innovation could Apple do that would catch the competition off-balance?

Well, in my mind, Apple could very well launch the business model innovation that I expected to come with Google's Nexus One smartphone (but didn't) - shifting the subsidy model.

Currently, when a customer buys the Google Nexus One or the Apple iPhone, the mobile service provider subsidizes the cost of the device by about $325 in exchange for a 2-year contract from the customer. This ties the customer to the carrier for two years (and usually longer). I was expecting the Nexus One launch to include an unlocked phone that Google themselves subsidized in one way or another. One way could have been to pay the customer to use the phone on whatever carrier they wished by depositing money every month in a Google Checkout account based on ad views. This did not happen.

But Apple could take this idea one step further. Not only are they moving into the advertising game with some of their recent acquisitions, but they already have the incredible reach and product offerings provided by the iTunes Store and the App Store. While several people expect any Apple Tablet (iSlate) to have a retail price of $800-$1,000, a mobile carrier subsidy might bring it down into the $500-700 range. Might not Apple then be willing to subsidize it even further based on expected future media and content sales to push the price down into the $300-500 range and make it cost competitive with netbooks and the Amazon Kindle?

After all, Apple makes money (or could make money) in a number of different ways after the device purchase:

1. Applications (Downloads, In-App Advertising, In-App Purchases)
2. Media (Music, Movies, Television)
3. Books and Textbooks
4. Subscriptions (Music Streaming, Movie Downloads, Newspapers, Magazines, TV)
5. Advertising (TBD)
6. MobileMe

You could look at this very much like HP and their ink cartridge business. But how much of a subsidy could Apple offer?

Well, some limited data I found indicates that from this particular data set that the average iTunes transaction is $7 and an average of three transactions per month are made. That would equate to about $21 per month or $250 per year. So, what if you add in games, applications, and other content?

To keep the calculations easy let's say that the $250 becomes $500 when other kinds of content are added in, and using Apple's 30% revenue share, that would give an estimate of $150 per year per user. Yes, I know this is highly simplified, and from a small dataset, but we're just imagining possibilities not doing financial forecasts.

From this point, you could go two ways, look at this as a customer lock-in possibility for Apple and a potential perpetuity, or look at a fixed device life. Again, because this is only illustrative let's simplify and say that over four years Apple might expect (using this data) to earn $600 in revenue per device (excluding advertising revenue) and if Apple decided to dedicate 25% of this revenue to a subsidy, they could allocate $150 to bring down the cost of the device and the rest to go towards costs and profits. Throw in some advertising revenue for good measure, and maybe it makes sense for Apple to subsidize this new device by the $200 that might be necessary to bring the price to customer down into the $300-$500 sweet spot.

But how much of this revenue is incremental revenue? Will the device be an incremental purchase (an additional device people buy), or will it replace a Macbook, iMac, iPhone, or iPod purchase? Would it really make sense to do this?

Hopefully these quick and crude calculations have helped you to see why Apple might consider launching their own subsidy with their rumored tablet device (iSlate, iPad, iCanvas, iTablet, Macbook Slate, etc.) and why they might not. It will be rather interesting to see what they do...


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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Value Networks and Innovation

by Tim Kastelle

Today I will tell you why it is so hard for you to get your innovative new idea to spread quickly. Well, one of the reasons, at least. It's because the economy is so interconnected. This is a bit counterintuitive - after all, I was just telling you how we can use networks to spread ideas. The good side of networks is that they can make it easier for ideas to spread. The problem with networks is that to get people to actually adopt your new idea, you often have to get them to break links within their existing network, and this can be very difficult. That is why it is important to understand how to build a position within the value network.

Value networks show up in most of the various business model frameworks. The idea is that when you have an innovation, you have to understand what products, services and routines are related to your new idea. Once you understand this, you can then figure out how much of the value network you need to control yourself. Anders Sundelin just wrote a terrific post on his Business Model Database blog describing how you can map the value network for your innovation, anlyse your position within it, and take steps to improve your position. He does a great job of explaining the mechanics of value network analysis. I would like to show you why it's important.

As an illustration, here is a model of the value network for mobile phones, adapted from the book Invisible Engines by Evans, Hagiu & Schmalensee. It shows the postion within the value network that Apple has taken with the iPhone:



Apple has chosen to control everything within the circle - in other words, everything! Even the application developers don’t have full autonomy, since every new app has to be approved before it shows up on iTunes. The advantage to taking a position like this in the value network is that it is easier to coordinate the system. Because Apple controls nearly everything, every time they have a new idea, it is relatively easy to decouple the existing value network, insert the innovation, and move along. The disadvantage is that having such tight control over the value network limits the scope of the innovations that can emerge.

In contrast, look at the position within the value network that Google has taken with Android:



They have taken almost the exact opposite approach, controlling only the operating system directly. This greatly increases the the range and number of innovation opportunities within the value network. There are two big downsides though. The first is that they are at the mercy of the other players within the value network. One of the reasons that there are very few Android phones here in Australia is that all of the handsets using it so far have been lousy. The second problem is that with less control over the network, all of the innovations within this network take longer to diffuse as there is no central coordination.

Google has the market pull to take a position within the mobile phone value network that is similar to Apple's if they choose to. So we have to assume that this is a strategic decision, and that their bet is that the increased innovation scope provided by their more open value network will outweigh both Apple's first move advantage, and also their relatively slow increase in market share.

And this illustrates the problem that most of us face with our value network - we can usually only control a small piece of it - as Google does with Android. This means that not only do our end users have to prefer our idea, but we also have to get others within the value network to stop using our competitors. This process is slow, difficult, and frustrating - and it adds an extra delay to the spread of our great new idea. Innovations require many players within the value network to unconnect from competitors before they can reconnect with us. This unconnect-reconnect process is often independent from the process of customers adopting our innovation, and it adds another delay to the spread of our new ideas.

There are many different models of business models available for you to use. I don't care which one you use, but you have to use one of them. They all include an element like the value network as one of the key things that you have to understand and manage when you try to get your innovative ideas to spread. The better your understanding of this network, the more effective you'll be at innovating.

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Tim Kastelle is a Lecturer in Innovation Management in the University of Queensland Business School. He blogs about innovation at the Innovation Leadership Network.

Where's the Innovation Google?

by Braden Kelley

In the same way that there has been a lot of buzz around what innovation an Apple Tablet might bring, I've been seeing a lot of hype around how great the Google Phone is going to be.

The first Google Phone was an HTC-branded phone carried by T-Mobile USA, and the second is promised to be a Google-branded phone made by HTC and also carried by T-Mobile USA. The new phone is expected to sport an updated version of Android (Google's mobile operating system) and to be sleeker and better designed.

But after seeing some of the information about the phone and how it will be sold, that is slowly leaking out of T-Mobile USA and other places, I have to ask "Where's the Beef?"

You may remember the line popularized by a series of Wendy's spots a few decades back, and if not, here is one for nostalgia's sake or your general amusement:





Now don't get me wrong, the Nexus One looks like it will be a very capable phone, but where's the innovation?

While an FM transmitter, faster silicon, and an improved OS might be nice features, they're not innovations, and that's what people expect when they hear that Google is going to put their name on something.

While it may not be fair given that Apple already pushed smartphones up the steep part of the S-curve with the innovations they introduced, there were still some great innovation opportunities left open for Google that they haven't delivered.

Google more than anyone else has the organizational assets and capabilities to introduce some disruptive business model innovations, but it doesn't look like they are going to.



Instead it looks like Google's Nexus One will be sold just like every other phone - unlocked for $529.99 or at a $350 discount with a two year T-Mobile contract ($79.99 per month for unlimited voice/text/data). Despite what some people are saying about the $79.99 per month service price tag, you have to keep in mind that unlimited voice/text/data for an iPhone would cost you $149.99 per month on AT&T (nearly TWICE as much).

If Google truly wants to make a strong branded play in the mobile phone market, they need to leverage their organizational assets and capabilities and sell an unlocked phone that pays you to use it on the carrier of your choice. The longer you keep and use the phone, the cheaper it gets. Google could do this, but they are not, which leaves me the same question as at the start:


Where's the Innovation Google?


Image Credit: Gizmodo

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Are you in denial?

by Rowan Gibson

Sometime over the next decade (if it hasn't happened already), your company will be challenged to change in a way for which it has no historical precedent.

Look around the world today and we see entire industries whose business models have gone belly up. The pharmaceutical industry has a fundamentally broken business model. The global grocery business has an imperiled business model. The traditional airline industry is struggling with an out-of-date business model. The insurance industry, the travel agent industry, the music industry and the movie industry have anachronistic business models. This is a situation that most companies have never faced before.

Whilst some firms may have become adept at reinventing their products and services over the years, very few organizations have any experience in completely reinventing who they are, who they are serving, how they are serving and what their industry is. They simply have no history of that kind of fundamental innovation. That's why - almost in a heartbeat - a lot of companies come unstuck. When the need for deep, fundamental change arises, most industry incumbents are simply not ready for it.

For example, was Detroit ready for the Japanese back in the 80s? Was Xerox ready for Canon? Was Coke ready for Red Bull or Starbucks? Was the BBC ready for CNN? Was Kodak ready for the digital camera - and the camera-phone? Was Microsoft ready for Linux, or Google? Was Barnes & Noble ready for Amazon? Were the world's telecom companies ready for Skype?

The burning question you therefore need to be asking yourself right now is, Will our company be ready? Will we be able to make a radical shift from where we are to where we could or should be? Have we developed a slew of promising new strategic options from which we can choose? Are we already experimenting with alternative sources of profit on which to build our company's future? Do we have the kind of people in our top management and throughout our organization who are open to these new possibilities?

In other words, are we already committing enough of our energies to deep innovation and strategic renewal? Or are we going to sit there in denial for a decade and go through some "Valley of the shadow of death" experience before we wake up and say, "Okay, maybe we have to change here?"

Don't wait till your industry has been turned on its head, your business model has been undermined, and powerful competitors - either aggressive newcomers or innovative incumbents - are already eating your lunch. Instead, you need to be thinking seriously, right now, about developing a deep capability for radical innovation and ongoing strategic renewal. It's the only way to guarantee any hope of surviving - and winning - in the new Innovation Economy.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Beyond Product Innovation

One of the problems with innovation is that, in any given industry, it can get harder and harder over time to come up with the kind of ideas that totally reinvent things in a fundamental and significant way.

Take any vector of innovation and you get to some point where you may have just exhausted the possibilities. Look at today's automobile. It's essentially based on the same architecture we've been using for a hundred years - a wheel at each corner, a steering wheel on one side, an engine at the front or back, a gearbox, and so forth. So innovation in the automobile industry has got to the point where the car is a little bit better here, a little bit better there, but it's the kind of stuff you hardly even notice. Apart, maybe, from the new hybrid motors which have been quite a breakthrough. But, again, if you look at the car as whole, the change is quite cosmetic.

The same has happened in mobile phones. Back in the nineties, companies like Nokia were producing some very distinctive phones. At the time, they were the most stylish, the easiest to use and so on. But over time, with so many companies joining the fray, and so much being outsourced to the same suppliers, almost every mobile phone you pick up is just a variation on the same theme.

So, in any given industry, you may get to a stage where you have to think about shifting the basis of differentiation away from the physical. That's why Lexus puts so much effort into innovating around the dealer experience. A lot of people couldn't honestly tell a Lexus from a Mercedes, so the company has decided to made the dealer a huge part of the differentiation. Because, when everything else is the same, you have to innovate around whatever you have left.

Take Rexam, the world's leader supplier of beverage cans. They've spent years looking at tin cans and trying to figure out where they can be innovative.

And, of course, there are still one or two possibilities to do interesting things (i.e. resealable cans, different formats and sizes etc.), and every company needs to avoid getting blinded by its own orthodoxies. But, essentially, the beverage can hasn't changed its basic form for decades. So rather than it being the physical can itself, Rexam's basis for differentiation tends to come from all the stuff around the can - the parts of their business model that give them their unique advantage, particularly in terms of their global capability and the depth of their customer relationships.

Instead of thinking about innovation merely in terms of what you provide (i.e. your products and services), you should be looking at ways to innovate across the entire business model in an effort to meet important customer needs in unconventional ways.

For example, think about customer groups that you and your competitors may have been ignoring. Think about delivering what you provide in ways that would reinvent the customer experience - i.e. by making it easier or more enjoyable. Think about how you might break the dominant pricing paradigm in your industry. Ask yourself whether there any dimensions of differentiation which you and your competitors have not yet explored.

In other words, think about how you might be able to design your whole business model from the customer backward, looking at each and every component as an opportunity for innovation and competitive advantage. When you start to unpack your business model in this way, you will invariably discover lots of ways to dramatically redesign what you do - and how you do it - in order to create new value for the customer.

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Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation.

Time for a Disruptive Business Model?

How disruptive is your business model? While much has been written about corporate vision, mission, process, leadership, strategy, branding and a variety of other business practices, it is the engineering of these practices to be disruptive that maximizes opportunities. Without a disruptive focus you are merely building your business model on a "me too" platform of mediocrity. As we move into the second half of 2009, nothing will be more critical to your efforts in increasing your revenue growth and corporate sustainability than understanding the value of disruptive innovation. So, in today's post I'll examine the power of disruption as a key business driver...

Disruptive business models focus on creating, disintermediating, refining, reengineering or optimizing a product/service, role/function/practice, category, market, sector, or industry. The most successful companies incorporate disruptive thinking into all of their business and management practices to gain distinctive competitive value propositions. "Me Too" companies fight to eek out market share in an attempt to survive, while disruptive companies become category dominant brands insuring sustainability.

So why do so many established and often well managed companies struggle with disruptive innovation? Many times it is simply because companies have been doing the same things, in the same ways, and for the same reasons for so long, that they struggle with the concept of change. My engagements with CEOs often focus on helping them to embrace change through disruptive innovation. As a CEO, I would strongly suggest you conduct a gut check during your next executive meeting by counting the number of times you hear your CXOs say things like: "That will never work," "We can't do that," "That's not my problem," or my personal favorite, "We've always done it that way." Don't allow your enterprise to adopt an attitude of complacency, because the simple truth is that complacency kills companies.

Let's just take a moment and look at what happens to companies that become complacent and fail to embrace disruptive innovation... Why didn't the railroads innovate? Why didn't Folgers recognize the retail consumer demand for coffee and develop a Starbucks-type business model? Why didn't IBM see Dell and Gateway coming? Why wasn't Microsoft able to keep Google at bay? Why have American auto-makers been relegated to inferior brands when contrasted to their European and Asian counterparts? How did the brick and mortar book stores let Amazon get the jump on them? I could go on-and-on with more examples, but the answer to these questions are quite simple... The established companies become focused on making incremental gains through process improvements and were satisfied with their business models and didn't even see the innovators coming until it was too late. Their focus shifted from managing opportunities to managing risk, which in turn allowed them to manage themselves into brand decline...

At one end of the spectrum take a look at the companies receiving investment from venture capital and private equity firms, and on the other end of the spectrum observe virtually any category dominant brand and you'll find companies with a disruptive focus putting the proverbial squeeze on the "me too" firms occupying space in the middle of the spectrum. With the continued rapid development of technology taking the concept of globalization and turning it into hard reality facing businesses of all sizes, it is time for executives and entrepreneurs to examine their current business models from a disruptive perspective. Ask yourself the following questions:

1. Why should anyone be led by you?


2. When was the last time your business embraced change and did something innovative?


3. When was the last time you rolled-out a new product?


4. Are your management and executive ranks void of youth?


5. Do people in your organization laugh at new ideas?


6. When was the last time you entered a new market?


7. Are any of your executives thought leaders?


8. When was the last time you sought out a strategic partner to exploit a market opportunity?


9. Does your organization focus more on process than success?


10. Are employees who point out problems looked down upon?


11. Do you settle for just managing your employees or do you inspire them to become innovators?


12. Has your business embraced social media?


13. When was the last time your executive team brought in some new blood by recruiting a rock star?


14. Does anyone on your executive team have a coach or mentor?


15. Has anyone on your executive team attended a conference on strategy, innovation or disruption in the last year?

If you're an executive or entrepreneur and you can't put forth solid answers to the majority of the questions referenced above, then your company is likely a market lager as opposed to a market leader. If you continue to do the same things that you have always done in today's current market environment you will see your market share erode, your brand go into decline, your talent and customers jump ship, and your potential never be realized.

Albert Einstein said it best when he noted "the definition of insanity is doing the same thing over and over again and expecting a different result each time." Bottom line... don't be the CEO who causes your management team to continually say "the boss won't go for that one." If you lead from the front by inspiring change, innovation, and disruption your business will surely prosper in 2009.

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Mike Myatt, is a Top CEO Coach, author of "Leadership Matters...The CEO Survival Manual", and Managing Director of N2Growth.

Building a Better Innovation Business Model

Whether you're a professional innovator or someone driving innovation to grow your business, chances are you need more support to get projects delivered to market.

Question: Does your innovation business model catalyze your goals or crush them?

When You Have To Deliver, You Learn To Deliver

In 1999, Jim Collins wrote a brilliant piece in the Harvard Business Review, "Turning Goals Into Results: The Power Of Catalytic Mechanisms." In it he addressed the problem that many managers face within their organization: they have a big goal but lack the organizational focus and courage to achieve it. Collins offered catalytic mechanisms as a potential solution.

By his definition, a Catalytic Mechanism is "the crucial link between objectives and performance, [the] galvanizing devices that translate lofty aspirations into concrete reality."

His article provided some poignant examples that span a wide range of industries. For this discussion, I'll break his thesis down into a simple analogy: If you're standing next to a lake and you have to catch a fish to eat, you will catch a fish.

Collins posits that this same philosophy can be applied to business problems simply by framing a firm's most ambitious goals in this type of scenario:

• Step One: Translate your objective (I would like to catch a fish) into an imperative (I will catch a fish)


• Step Two: Give it real teeth (or I will die)


• Step Three: Get to work (start fishing… with dynamite)

Our company translated this into a performance-based compensation model that provides us with a powerful catalytic mechanism - we needed to figure out how to generate true innovations quickly, consistently and across a wide range of categories.

And in so doing, it gave us a much better understanding of the core tenets of effective innovation.

Making the Leap from Idea to Marketable Innovation

There's a reason the number of ideas far exceeds the number of true innovations: The lightning strike is just the beginning.

Sure the blinding inspiration of a "eureka moment" is thrilling; but in reality, it's just the first step.

As any entrepreneur will tell you, the journey from conceptualization to commercialization is often when the real breakthrough thinking happens.

As a result, it's critical to have a well-defined understanding of what needs to be true for an innovation to get to market. Once you've defined "the how", the champion should surround herself with lateral-thinking people who can react quickly to new challenges without ever losing sight of the true vision.

Skin In The Game

The power of performance-based compensation is directly transferable to any innovation initiative. Giving people a material stake in an outcome will significantly increase your chances of succeeding.

Because when people need to eat, they will come up with brilliant ways to catch a fish.

Sometimes even without the dynamite.

For More

This video outlines benefits we've experienced with performance-based compensation:

http://www.youtube.com/watch?v=XO6NMOXoZf8&feature=channel_page

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Pete Maulik is Chief Operating Officer at innovation consultancy Fahrenheit 212 in New York. Fahrenheit 212 delivers bigger ideas, faster to market.