Monthly Archives: May 2009
Innovation on the way we communicate in the Internet
How can you change the way we use the emails, IM or exchange documents? The concepts of email communication, instant messaging, and document sharing have not evolved much from their inception. But apparently, much can still be done.
Here Google Wave, a new way to conceive communication, and it is all about mash-ups. It is not a surprise that this idea came from the same people that created Google Maps. Google Wave was created to answer a set of questions:
- Why do we have to live with divides between different types of communication — email versus chat, or conversations versus documents?
- Could a single communications model span all or most of the systems in use on the web today, in one smooth continuum? How simple could we make it?
- What if we tried designing a communications system that took advantage of computers’ current abilities, rather than imitating non-electronic forms?
Below the video:
Monetization in the Internet, excellent survey on the most popular business models
Dan Zambonini on Box UK, has made an excellent survey on different business models used in the Internet.
Chris Anderson, in his blog reports the news and notices that most of them are variations of ad-supported Free and Freemium. In the chart below, the largest segment (ITA) is ad-supported, the second largest (ISV) is Freemium. After that is referral (ITR) and then the sale of virtual goods (IPV), such as the gifts in Facebook.
Dan writes “We spent a few hours going through the Webware 100 Top Web Apps for 2008, analysing the business model(s) used by each. The chart below shows the results of this survey: 34% use Advertising, 12% a Variable Subscription model, and 8% each for Virtual Products (typically digital downloads), Related Products (typically a large software company offering a free product to attract you to their platform) and Pay-Per-Use.”
|I||Immediate Revenue||Models for generating regular income, cash-flow (‘Self-Sufficient’ models)|
|I.S||Subscription||Charge the end-user a regular, recurring fee. Consider:
|I.S.F||Fixed||A single, fixed subscription cost (e.g. to access an online magazine or a specific service).|
|I.S.V||Variable||A number of fixed-price subscriptions are available to the end-user; fee dictates feature/usage limitations, etc. This includes the ‘Freemium’ model; a (usually limited) ‘free’ option alongside one or more paid options.|
|I.T||Third-Party Supported||The end-user receives the service for free; a third-party pays the fee for a returned service.|
|I.T.A||Advertising||One or more third-parties place clearly defined adverts within the website/application. Variations of adverts include graphical banners, text, inline, pop-over, interstitial, etc. Normally charged by cost per click, cost per action, or cost per thousand impressions.|
|I.T.S||Sponsorship||One or more third parties become the ‘official’ sponsor(s) of the website. This could include fixed (non-rotating, typically prominent) adverts, integration of third-party branding (colours, slogans) and/or licensing agreements.|
|I.T.C||Paid Content||Advertorials: third-parties pay to include marketing-led content on the website.|
|I.T.P||Paid Placement||Third-parties pay to be included in lists or in the application (e.g. comparisons, reviews, entertainment listings).|
|I.T.R||Referrer||End-users are directed to third-party sites, which pay a fee to the website owner for any referred transactions (e.g. comparison sites).|
|I.T.L||License Content||Third-Parties are given access to re-use the content from the web-site for their own purposes.|
|I.P||Payments||The end-user makes individual, ad-hoc transactional purchases.|
|I.P.U||Pay-per-use||Micropayments: the end-user is charged a fee to use an online service (one-off, or for a limited time). This includes the ‘brokerage’ model, where user(s) are charged a fixed-price or percentage per transaction (e.g. ebay). This also includes the purchase of ‘credits’ e.g. 10 uses of the service for a fixed cost. Discounts can be offered for bulk purchases.|
|I.P.P||Physical Products||The typical e-commerce model; includes books, CDs, holidays, tickets, etc. Typically each ‘physical product’ has a non-arbitrary cost associated with its production.|
|I.P.V||Virtual Products||The end-user purchases a ‘digital’ product that typically has a negligible cost of replication. This includes virtual gifts (e.g. Facebook), in-game items (e.g. World of Warcraft), and other virtual assets (e.g. land in Second Life).|
|I.P.R||Related Products||The end-user has free access to the main product/service. An additional, optional charge is made for related ‘added value’ products/services, e.g. documentation, support, commercial versions, related iPhone or Android application, etc.|
|I.P.D||Donations||The website relies on voluntary end-user donations (e.g. a ‘Tip Jar’).|
|L||Long-Term Revenue||Strategic, ‘Invest and Reward’ models where costs are incurred initially for a longer-term ‘pay off’.|
|L.E||Establish and Exploit||Attract a substantial audience before monetizing.|
|L.E.R||Re-use/Re-sell||Re-sell/re-use the data/content, usually from User Generated Content websites e.g. create books, posters or other purchasable products from data/content created on site.|
|L.E.P||Platform||Establish a platform, then charge for third parties to participate once an audience has been established e.g. iPhone. See also Facebook.|
|L.E.B||Branding||Build a ‘personal brand’ for yourself/your company. Once awareness is raised, go on Conference/Workshop/‘Expert’ circuit, or release a book, etc.|
|L.S||Sell/Exit||Create a popular application/website, then make it someone else’s problem to monetize e.g. YouTube|
The following business models can be applied in addition to most of the basic revenue models described above.
|M.R||Revenue Share||End-users are offered a cash incentive to make the website/application generate revenue, by sharing a percentage of revenue with them (usually based on their personal referrals or popularity of their content).|
|M.R||Re-Seller||The end-user can re-sell the online service.|
|M.R.A||Affiliate||The end-user is paid to direct customers to the website, typically by listing/selling the products/services elsewhere.|
|M.R.W||White Label||The end-user can brand/tailor the online service and re-sell it as their own (typically taking a percentage of the generated revenue, or paying a fixed subscription cost to the original service).|
Creativity is not enough, ideation and innovation are not synonyms
Creativity is not enough is an excellent article of Theodore Levitt, professor emeritus at Harvard Business School.
Suppose you know two artists. One tells you an idea for a great painting, but he does not paint it. The other has the same idea and paints it. You could easily say the second man is a great creative artist. But could you say the same thing of the first man? Obviously not. He is a talker, not a painter.
That is precisely the problem with so much of today’s pithy praise of creativity in business—with the unending flow of speeches, books, articles, and “creativity workshops” whose purpose is to produce more imaginative and creative managers and companies. My observations of these activities over a number of years lead me firmly to this conclusion. They mistake an idea for a great painting with the great painting itself. They mistake brilliant talk for constructive action.
The fact that you can put a dozen inexperienced people into a room and conduct a brainstorming session that produces exciting new ideas shows how little relative importance ideas themselves actually have.
Whatever the goals of a business may be, it must make money. To do that, it must get things done. But having ideas is seldom equivalent to getting things done in the business or organizational sense. Ideas do not implement themselves—neither in business nor in art, science, philosophy, politics, love, war. People implement ideas.
Different Types of Innovation and their Alignment with the Product Life Cycle
Innovation can be of several types, Geoffrey A. Moore writes a taxonomy in his article Darwin and the Demon: Innovating Within Established Enterprises (see below).
In the article, he then matches the different kinds of innovations with the classical product life cycle diagram. In the initial phases, according to Moore, we have disruptive innovation, application innovation, product innovation. As the product mature, process innovation, experential innovation and marketing innovation are important. In the declining phase, business model innovation and structural innovation can be used.
Disruptive Innovation. Gets a great deal of attention, particularly in the press, because markets appear as if from nowhere, creating massive new sources of wealth. It tends to have its roots in technological discontinuities, such as the one that enabled Motorola’s rise to prominence with the first generation of cell phones, or in fast-spreading fads like the collector card game Pokémon.
Application Innovation. Takes existing technologies into new markets to serve new purposes, as when Tandem applied its fault-tolerant computers to the banking market to create ATMs and when OnStar took Global Positioning Systems into the automobile market for roadside assistance.
Product Innovation. Takes established offers in established markets to the next level, as when Intel releases a new processor or Toyota a new car. The focus can be on performance increase (Titleist Pro V1 golf balls), cost reduction (HP inkjet printers), usability improvement (Palm handhelds), or any other product enhancement.
Process Innovation. Makes processes for established offers in established markets more effective or efficient. Examples include Dell’s streamlining of its PC supply chain and order fulfillment systems, Charles Schwab’s migration to online trading, and Wal-Mart’s refinement of vendor-managed inventory processes.
Experiential Innovation. Makes surface modifications that improve customers’ experience of established products or processes. These can take the form of delighters (“You’ve got mail!”), satisfiers (superior line management at Disneyland), or reassurers (package tracking from FedEx).
Marketing Innovation. Improves customer-touching processes, be they marketing communications (use of the Web and trailers for viral marketing of The Lord of the Rings movie trilogy) or consumer transactions (Amazon’s e-commerce mechanisms and eBay’s online auctions).
Business Model Innovation. Reframes an established value proposition to the customer or a company’s established role in the value chain or both. Examples include chestnuts like Gillette’s move from razors to razor blades, IBM’s shift to on-demand computing, and Apple’s expansion into consumer retailing.
Structural Innovation. Capitalizes on disruption to restructure industry relationships. Innovators like Fidelity and Citigroup, for example, have used the deregulation of financial services to offer broader arrays of products and services to consumers under one umbrella. Nearly overnight, those companies became sophisticated competitors to old-guard banks and insurance companies.
Innovation Management, an oxymoron?
Peter F. Drucker writes in The Discipline of Innovation:
There are, of course, innovations that spring from a flash of genius. Most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities, which are found only in a few situations. Four such areas of opportunity exist within a company or industry: unexpected occurrences, incongruities, process needs, and industry and market changes.
Three additional sources of opportunity exist outside a company in its social and intellectual environment: demographic changes, changes in perception, and new knowledge.
True, these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one area at a time. But together, they account for the great majority of all innovation opportunities.
The next step
when everything is free, differentiation must come from something else. As Seth Godin puts it, Free by itself is no longer enough to guarantee much of anything.
Now, the same can be said for smartphone, when every phone becomes smart, how do you differentiate? A nice recent report is The “Smartphone” Is Dead: Long Live Smart Phones And Smart Gadgets.
The executive summary:
Apple’s and Google’s arrival in the mobile market is causing knock-on effects throughout the market and is opening up opportunities. All mobile handsets are becoming smarter and Internet-capable. Yesterday’s smart high-end phone is today’s midrange phone and tomorrow’s entry-level phone. The “smartphone” category is no longer useful as all phones become smart. Instead, we propose three new frameworks to segment the smart mobile device market: openness and extensibility; consumption and creation; utility and entertainment. All mobile strategies must adapt now: Consumer electronics makers must decide on their response to widely available smarter phones and the mobile Internet; handset makers must leverage software to play the mobile Internet game and differentiate long term; media, finance, retail, and other Internet companies’ strategies must exploit mobile opportunities now or lose ground to faster rivals. But the mobile market will remain fragmented with no single platform — no Windows PC equivalent — anytime soon on mobile devices. Therefore, mobile strategists must analyze their target consumers carefully before embarking on large mobile investments.
Software differentiation and Internet applications that complement the device seem to be the next battleground. Read NokiaWorld: Distracted by the N97 Flagship, Mobile App Stores Represent the new Battleground and Nokia: “Irresistible” solutions combining devices and services will be a key to future success.
Seth Godin: Why tribes, not money or factories, will change the world
The Infinite Possibilities of Innovation in Internet Services
- The computing power of the cloud (Google App Engine , Amazon Elastic Compute Cloud EC2 and Simple Storage Service S3)
- Creation of location/context aware applications that use maps (Google maps) and GPS or cell-ids information (iPhone, Android, Symbian)
- Creation of social applications with the ability to connect with other social networks in the net (Google Friend Connect, Google OpenSocial, Twitter API, Facebook Connect)
Since the barrier to entry (and exit) is quite low, the competition abound, but if it is fun it is worth trying.
The Psychology of Persuasion
Robert Cialdini has written the interesting book, Influence: The Psychology of Persuasion.
Cialdini explains, with several examples, the techniques of persuasion that make people conform or act in a certain way. As the author states, we are overhelmed by information and by the fast pace of modern times. When making a decision, we will less frequently enjoy the luxury of a full analysis and we revert increasingly on shortcuts. There is nothing wrong with the shortcut approach, the problem comes when the normally trustworthy cues are created to lead us to erroneous actions. Therefore, it is important to recognize exploiters and avoid their attemps to make profits on our shortcuts.
Also Guy Kawasaki is a fan of Cialdini and he suggests other theories as well such as power, friendships, and emotion. Read more at his blog: http://blog.guykawasaki.com/2008/07/how-to-change-s.html
Cialdini six “weapons of influence”:
- Reciprocation – People tend to return a favor. Thus, the pervasiveness of free samples in marketing.
- Commitment and Consistency – If people commit, orally or in writing, to an idea or goal, they are more likely to honor that commitment. Even if the original incentive or motivation is removed after they have already agreed, they will continue to honor the agreement. For example, in car sales, suddenly raising the price at the last moment works because the buyer has already decided to buy.
- Social Proof – People will do things that they see other people are doing. For example, in one experiment, one or more confederates would look up into the sky; bystanders would then look up into the sky to see what they were seeing. At one point this experiment aborted, as so many people were looking up that they stopped traffic.
- Authority – People will tend to obey authority figures, even if they are asked to perform objectionable acts. Cialdini cites incidents, such as the Milgram experiments in the early 1960s.
- Liking – People are easily persuaded by other people that they like. Cialdini cites the marketing of Tupperware in what might now be called viral marketing. People were more likely to buy if they liked the person selling it to them. Some of the many biases favoring more attractive people are discussed.
- Scarcity – Perceived scarcity will generate demand. For example, saying offers are available for a “limited time only” encourages sales.