Urlocker On Disruption

Updated: How to Solve Information Overload

The New York Times has an interesting article today about a strange phenomena related to information overload and phone tag. People are using new anonymous telephone number services like Jangl  and PrivatePhone.com to retain privacy on their cell phones.

It’s a funny story that explores dating trends in New York, but it also demonstrates that people are using these services because they are trying to solve a growing problem of filtering out unwanted callers.  Clearly to these people, this is:

• A frequent problem
• An important problem
• A problem they can't solve adequately today with current tools, including these new services

Those are the classic identifiers of a potentially great disruptive business opportunity.

The problem these consumers are addressing is related to information overload and phone-tag.  Simply put: 'How do I receive the calls I want and filter out the calls I don't want in an easy way?'

I think this is similar to an important business problem that is growing.  Notice how some business people hand out their cell number to top clients or VIPs.

Or how voice-mail (and in some cases e-mail) have become ineffective ways to communicate because of too many low-priority messages and spam. The problem remains for business people: How do I filter out unwanted communications while retaining the important calls, emails and IMs? 

Is there a solution to this problem?

I think Iotum comes the closest to solving this important problem with their relevance engine, which hooks into customers' contact lists and calendars (such as MS Outlook) to determine the priority and handling of calls. 

Is this a big market opportunity? Typically in disruptive innovations, it is hard to be accurate. And often the opportunities look small or uncertain in the early days.

While we can't prove the size of the market, the FCC tells us that 44% of residential phone customers in California have unlisted numbers: a clear signal that people are trying to solve the problem themselves, but inadequately (no prioritization and filters out too much). And we can all attest to the rise in unwanted calls and emails.

**Update: Spam expands**

The New York Times reports on how spam has doubled recently and explores the seemingly losing battle against spam.

Freedom to Tinker reports that spam is invading other formats including blog comments, with up to 800 fake comments sent daily to that blog.

Nicholas Carr says he's given up on the battle, but he admits spam is an interesting example of the new economics of abundance.

Amit Agarwal at Digital Inspiration says a simple filter rule in Gmail will win back your freedom from spam.

**Other Sources **
Iotum was named one of the 'fierce 15' innovative telecom companies. Iotum's CEO, Alec Saunders also has a blog on telecom issues.

VoIP expert Jeff Pulver says this problem is well-handled by VoIP technology and that more 'disposable phone number' services should come out in 2007. At the bottom of the comments section there are some details on how VoIP technology could reduce spam calls as well.

Paul Kedrosky has staggering stats on the rise of spam emails from Russian scam artists.

 

Stripped-Down Laptop Disrupts

NY Times' John Markoff reports on the progress and controversy of the $150-laptop. It's a stripped-down, simple PC with no hard drive aimed at an underserved market, students in developing countries. Backers include some ex-Intel people and MIT Media  Labs' Nicholas Negroponte.

(In a guest column earlier this week, Zack Urlocker hinted at this approach as a way to disrupt the PC business, based on the success of Nintendo's new Wii game console.)

IP& Democracy says the $150-laptop could become the world's best-seller.

Does this meet the definition of disruptive innovation?

• Simpler
• Cheaper
• Targets marginalized market segment initially
• Offers 'inferior' product initially
• Technology improving
• New customers are delighted by it because their alternative is no computer

Here's the reaction of the mainstream PC suppliers, according to the NY Times:

The detractors include two computer industry giants, Intel and Microsoft, pushing alternative approaches. Intel has developed a $400 laptop aimed at schools as well as an education program that focuses on teachers instead of students.

**Other Views**

Teleread looks at the gaming angle and controversy.

Judo Strategy: Nintendo Wii Smacks Microsoft, Sony

 

Update Sept. 2007: Nintendo vs Sony and EA chart (Nov 2006-Sept 2007)

Original Post by Zack Urlocker: Nov. 2007

Every few years it seems there's a new gaming console with better graphics, more complicated controls and higher prices launched just in time for the holiday season. By this point, you're probably growing bored with the televised reports of kids waiting in line at the local Best Buy as Microsoft and Sony battle for market share in living rooms around the world. 

But what's different this year is that the newest entry from Nintendo is not trying to beat competitors with better more advanced processors and the more complicated games that hardcore gamers crave. Instead Nintendo's new console is a stripped-down product that aims to widen the market by pulling in non-gamers. How? With a technically inferior product that gets the job done for regular people and occasional gamers.

Nintendo's management realized there's no way they could outspend Microsoft and Sony when it comes to advanced hardware design. So why even bother? Instead the new Nintendo Wii (pronounced: "weee!") gaming console takes a disruptive approach: focus on fun and expand the market by appealing to non-gamers.

The Nintendo Wii is the runt of the litter when it comes to hardware specifications. It doesn't have the HD graphics, surround sound or DVD drives of its more expensive competitors. But it's outfoxed both Microsoft and Sony by packing more fun for a fraction of the price. Nintendo Wii sells for $250 compared to $500 for the Sony Playstation and around $400 for the Microsoft Xbox 360. Nintendo also throws in a set of five simple but addictive games dubbed Wii Sports with every console, making the Wii a much better value and a more complete offering out of the box. More importantly, Nintendo has parlayed their lower cost hardware into two further competitive advantages: games are cheaper to develop and they make money on every console sold. While it sounds like basic common sense, for the gaming industry this goes against all of the conventional rules.

The computer gaming industry, which now generates more revenue than Hollywood box-office ticket sales, suffers from the same "blockbuster" mentality as the film industry. Studios bank on expensive stars and big-budget productions. Sometimes they win big and sometimes the Ishtar hits the fans costing the studios tens or even hundreds of millions in losses. Today's popular games can routinely cost $12 million - $20 million to develop by an army of hundreds of programmers and graphic artists at game developers like Electronic Arts. Nintendo's approach is more like the latest James Bond Casino Royale movie that focuses on the characters rather than special effects. Games on the Wii cost about half as much to develop as those on Xbox and Playstation, enabling them to recoup their development costs at much lower volumes. And as with Hollywood movies, there's no clear evidence that big-budget special effects make for a more satisfied consumer.

While it might seem like an obviously good strategy to make money rather than lose money on hardware sales, this has never been the thinking from Sony or Microsoft. Instead, they've followed the classic razorblade strategy, selling consoles at a loss to hardcore gamers (despite the expensive price tags) in an attempt to make up for the losses by selling games with hefty licensing royalties. Microsoft lost, er, invested, more than $4 billion with the launch of the original Xbox. Sources estimate that Sony loses over $200 per console with the Playstation 3. Both companies have to sell a heckuva lot of games at $50 a pop in order to break even. In Nintendo's case, they're ahead of the game from day one.

Beyond the fact that Nintendo's got a better business model than either Sony or Microsoft, they've also delivered an innovative approach to gaming. With the Wii, Nintendo has introduced a motion-sensor based wireless remote. So instead of trying to master the complex sequences of controller buttons to play games, you can control, say a tennis game, by swatting the Wii remote in the air. The Wii remote recognizes physical gestures in 3D space making games more interactive and more fun than competitors. Even hardcore gamers will be drawn to the novelty of the Wii remote.

The combination of lower price and more fun enables Nintendo to appeal to a broader market than Sony or Microsoft. While it's too early to predict the outcome of this year's raging console battle, Nintendo is playing a disruptive game and playing it profitably. Nintendo sold 600,000 units in the first 8 days generating $190 million in sales in North America alone.  Nintendo announce that they would sell an estimated 4 million units by end of year, compared to Sony's projected 1 million units. Microsoft has shipped an estimated 6 million Xbox 360 units since it's launch a year ago.

Let's take Nintendo's lessons in entrepreneurial judo one step further. Are there other crowded, ultra-competitive markets where simpler, stripped down functionality could be used to enlarge the market? 

Signs to look for would be complex or expensive products or services that appear to be overshooting customer needs. How about:

• Office software?
• Hollywood movies?
• Automobiles?
• PCs?
• Telecommunications services?
• MBA or executive MBA programs (pdf)?

Zack Urlocker is a software executive and author of The Open Force blog.
Interested in writing a guest-column on disruption? Contact The Disruption Group here.

**Other Views/Update**

NY Times' John Markoff reports on the progress and controversy of the $150-laptop.  Thoughts on how this is disruptive to the PC industry.

The Disruption Group's site includes a CEO Guide to the Benefits of Disruption (pdf) and other tools for managing disruption.

The New Yorker's financial columnist James Surowiecki describes the Nintendo Wii strategy in his column "In Praise of Third Place".

Ed Sim at BeyondVC says startups can learn from Nintendo's strategy. In a related post, he says special care must be used by startups competing against large incumbent suppliers: "As a startup you have to get away from a feature/function battle because you will always lose against a big boy."

BusinessWeek interviews Nintendo's designers in "The Big Ideas Behind Nintendo's Wii".

For background, check out the Dartmouth University Tuck School of Business case study "Microsoft's Xbox Gamble" which describes Microsoft's entry into the gaming industry a few years back.

WSJ and others have reported on aches, pains and strains from the Wii's emphasis on gestures.

Sony PS3 game titles must exceed 500,000 copies for Sony to breakeven, says gaming software president.

Not So Fast CBS: Web Cuts TV Viewing

The BBC reports that people who use online video services like YouTube are watching less broadcast TV:

• 43% of Britons who watched TV on the web or cellphone said they watched less regular TV;
• 20% said they watched a lot less TV;
• 9% of people regularly watched TV on the web;
• 13% said they do it occasionally.

The survey results follow recent reports that CBS has won back audiences by promoting its shows on YouTube.

At the unofficial UTube blog, law prof. Edward Lee of Ohio State asks, "Will YouTube replace TV?" Because of YouTube's popularity among teens, "One should hardly doubt that there’s a business to be made in online videos," he writes.

There may well be a business to be made in online videos, but it is still early days and it is not clear what the right format is or how a business can make money from video on the web. So, far YouTube and other online video services have not proven their validity by generating sustainable profits, let alone substantial revenue. These sites do attract a lot of viewers who want to watch someone else's copywritten content free. 

Perhaps YouTube may change the TV industry, but it serves little business purpose to destroy an industry without actually creating a valid business that earns revenue and profits.

To see how badly these things can go, look at Vonage's continued losses and a host of dead VoIP companies. These are examples of what management guru Michael Porter calls destructive competition. Consumers win, but suppliers die.

Perhaps a more broad question is whether the Web is disrupting the broadcast business. For some advertisers, the question has already been answered.

But there is an important issue to consider and that is consumer behavior. People like watching TV in a passive way with less interaction than the web demands. Not everybody wants to hunt and surf for three-minute video snacks at all times. Look at the trends for large screen TVs and gear related to HDTV and home theater systems.

There is a great opportunity to deliver web-based content and mega-choice to living-room viewers in simple, easy ways. My betting is that Apple's new iTV iPod video system fits the bill. It changes how people select and pay for their shows (using iTunes), but it doesn't change how they watch them (big-screen living room experience).

**Other Views **

Mark Cuban warns that the economics of web-based video will change:  "Right now the new money and easier money is on the web. CPMs can be comparable to network. For now. But that will change as a glut of video comes online and CPMs fall like a rock in the next 18 months."

Author Shelly Palmer looks at how the broadcast industry is being disrupted in his book "Televison Disrupted"

NewsWeek reported hints that Google would supply video to Apple's iTV. Excerpts were carried on MacRumors.

Michael Porter article and podcast on Destructive Competition.

Music producers are experimenting with YouTube as a promotional channel for music sales. U2 seems to think this is a good way to sell new albums, as shown from their official posts to YouTube.

Classic Disruption: Microsoft Dismisses New Google Apps as Inferior

Microsoft says it has no fear about losing sales of its office applications to Google because they aren't up to corporate standards.

"The simple argument that 'this is good enough for 90 percent of what we do' has fallen on its face over and over and over again," Microsoft's Antoine Leblond told Reuters in an interview on Tuesday. "When it comes to mission critical things and key pieces of how people run their businesses, the threshold is higher."

Microsoft is right.

But being right could take Microsoft Office to a point of future irrelevance. Disruptive innovations typically are inferior to incumbent products on mainstream attributes. And disruptive innovations typically appeal to marginal customers initially.

Think about how the entire minicomputer industry dismissed early PCs as inferior. Or how the cellular phone industry dismissed the BlackBerry and the wireless email market as insignificant in 1999. Or how once-dominant department stores like Sears crumbled by dismissing low-end discount stores for 40 years.

What was BlockBuster's reaction in 1998 when Netflix launched a snail-mail based video rental service?

I recently studied a handful of young employees at a high-end global consulting firm and -- surprise -- they were using Google applications like docs and spreadsheets to get their jobs done instead of MS Office. Why is that?

• Inferior by old measures: These employees suffered through the occasional bug in Google apps. They missed a few unimportant features. They couldn't always bold the text the way they wanted etc.
• Superior by important new attributes: Using Google apps, the employees said they were better able to collaborate with remote colleagues around the world and they were able to maintain better version control of documents.

We can readily dismiss these observations of the young employees as a one-shot anecdote. But we should ask three important questions:

• Are collaboration and version control becoming more important to a rising group of workers? 
• Are twenty-something young professionals getting more experience and familiarity with Google apps early in their careers?
• Are most customers overshot with complexity and functionality in current office applications that they never use?

My view is, yes, yes, and yes, which suggests that nobody should dismiss the new Google apps, despite their apparent inferiority. 

MS Office accounted for about $3.0B in revenue in the latest quarter, or about 28.5% of Microsoft's total revenue, according to Microsoft Monitor.

**Other Views **

CEO Guide to the Benefits of Disruption (pdf) and other tools for managing disruption at The Disruption Group's site.

BusinessWeek reports on the Soul of the New Microsoft, saying J. Allard's success with Xbox and his new effort on Zune show the company is open to new ways of thinking, beyond just the next version of Windows, Vista. "The point is that Microsoft needs to find its un-Vista. Several of them, in fact... For investors to care about the company, it needs to find new growth markets."

Google CEO Eric Schmidt lays out his vision in a column in The Economist: "Disruption is only going to intensify...Today's desktop software will be overtaken by internet-based services."

Nicholas Carr says say Google's Schmidt had been playing coy with his real ambitions.  But now the lines are drawn between Old School and New School on software.

Adobe is next in Google's target, says Amit Agarwal at Digital Inspiration.

Dare Obasanjo says Microsoft's new Office Live strategy is interesting but its unclear if it solves a real problem: "It is clear there is a pent up demand to bring office applications in the Web era, however it is unclear whether the simplistic division of desktop versus web applications is the right way to view this evolution."

Larry King: What's the Web? -- Net-Gen: Who's Larry King?

CNN host Larry King says he's never done Internet.

And that's Ok, because most of the Net Generation does not pay attention to CNN nor do they know who Larry King is.

Nothing better illustrates the gap between mainstream media and new disruptive information services like YouTube than this. This is not a mere generation gap as much as a it is a  canyon into which incumbents media companies will fall unless they re-invent their service offerings and business models to create a new relevancy to their audiences.

This chart from Francis McInerney at North River Ventures tracks the collapse of network TV caused by the dramatic fall in the price of computing power and bandwidth. As McInerney writes in his blog: "The network TV model broke over 10 years ago when the MIPS barrier was crossed and with Google rapidly realigning advertising efficiencies, network cash flows are starting to hurt." 

So how can mainstream media make itself useful again? Some defining questions emerge:

• What elements of information are already good enough for most consumers? (stop innovating here: commoditized news, opinions, columnists)
• What elements are not good enough? (focus here)
• What are the jobs to be done that consumers and businesses are using media and information sources for?
• What are the attributes of media and information that people value and pay for today? (immediacy, relevance, business intelligence...)

**Other Views **

Peter Cashmore reports new statistics showing that CBS's deal with YouTube is drawing viewers back to TV shows like Late Night with David Letterman, suggesting that potential disruptors like YouTube could be co-opted to support mainstream broadcasters. It is unclear whether this is a sustainable trend or a way to deny the inevitable. Give the people what they want says a CBS exec, summarized on TechDirt.

Michael Arrington at TechCrunch says there's a bigger battle behind the scenes between YouTube and copyright holders: "Content owners are trying to figure out what to do and how to do it before offline television dies. YouTube, in the meantime, divides and conquers."

Tony Hung at DeepJive says broadcasters will try to disintermediate YouTube into irrelevance through their own broadband services. Look for further balkanization.

Software Suicide and Other Ways to Kill Disruptive Ideas

Software entrepreneur Dharmesh Shah posts five ways to kill your startup:

• Death by perfection: Killing good ideas because they aren't 'The One True Idea'
• Death by Stealth: Remaining in isolated, stealth mode without market feedback
• Founder dissension:  The only thing worse than disagreeing about some things is not disagreeing about these things because you haven’t even talked about them
• Zero value-add:  Putting all the logistics ahead of solving an important customer problem
• Death by stubbornness: "Most successful startups end up doing something that is different from their original idea.  Dogged determinedness will likely keep you from building the business that you could have built."

Several of these are classic traps for would-be disruptors, especially the elements that prevent or ignore valid market feedback. While feedback from peers and committees can be helpful, the most legitimate feedback is from paying customers. It's not what they say that is so important, it is what they are doing and paying for that will steer a company to success.

On this same theme, game developer Phil Newton at Sodaware.net offer a dozen tips on how to kill a project, before, during and after implementation. It's written for software, but many of the fatal flaws listed apply across the board for management. For example, post-implementation killers: Don't promote the project, don't support it, don't improve it.

**Other Sources**

Landmines for  Disruptors (PDF)

Disruption In Action: Q&A With Innosight's Mark Johnson

Mark Johnson, president of Innosight, offers some thoughts on disruptive innovation in an interview at the Fortune Business Innovation Insider site.

Highlights from Johnson, who co-founded Innosight with Harvard Prof. Clayton Christensen:

• Who should be responsible for innovation? For incremental innovations in a core business, general manager of the unit can lead it; For disruptive innovations that create new markets, the responsibility should be distinct from current operations, through an autonomous unit.
• Most important precursor to succesful innovation? Establishing a common language and framework for analyzing innovation;
• Biggest successes for Innosight? Consumer packaged goods sector;
• Most admired companies?  Procter & Gamble, Johnson & Johnson, Cisco, Toyota
• Can innovation be done on the cheap?

"Yes, the disruptive approach is all about this kind of innovation approach. It’s about spending a little to learn a lot in the marketplace before pouring too much money into a venture. The key is to manage risk in going into new growth areas and this is best done by keeping the 'experiment' well bounded with a niche, foothold market and then trying to prove a viable business model through proving profitability. By keeping the investment low clarity remains on whether the business is structured right to turn a profit."

**Other information**
Fortune's Innovation Forum conference is in New York Nov. 29-30. Johnson is among the speakers.

Check out Innosight's blog and its Disrupt-O-Meter as a tool to assess projects.

More tools for managing disruption from The Disruption Group's site.

Recent excerpt from Clayton Christensen & Innosight's newsletter, Strategy & Innovation, looking at four other industries facing disruption.

Archive of The Disruption Group in the news.

Cranky Middle Manager: How to Get Disruptive Without Getting Canned

Wayne Turmel, host of the Cranky Middle Manager show, interviews Michael Urlocker on disruption for middle managers.

Turmel draws on lessons from history, including the epic battle of Agincourt, to set up the discussion on disruptive innovation and how managers can use this methodology today. Highlights from the 31-minute podcast:

• Disruptive innovation is a repeatable management method to produce new growth and to help fight commoditization;
• Typical characteristics of disruptive innovations: Initial inferiority, initial marginal market segment; new attributes that are highly valued in a marginal segment;
• Not just for CEOs: Middle managers can create and manage disruptive innovations, if they avoid the common pitfalls of would-be disruptors;
• Typical (self-defeating) reactions of succesful companies as they are being disrupted;
• A discussion of tools and resources for managers to learn about disruption.

** Resources for Managers**

From The Disruption Group 's set of tools for managing disruption:

1. Getting started: Download a CEO Guide to the Benefits of Disruption (pdf).
2. Communicating: Download a presentation on achieving the benefits (pdf) on disruption strategies.
3. Developing disruptive ideas: Download the Disruption Brainstorm Tool (pdf).
4. Scoring: Download the Disruption ScoreCard (xls) to rate your idea or business.

Porter On Destructive Competition: The Bermuda Triangle of Management

Michael Porter, the man who led a generation of MBAs and execs on competition theory, asks why so many managers go so wrong on strategy.

In some ways, it seems that Porter has changed his views on competition to a  more disruptive approach.

"Most strategic errors come from within. Companies do it to themselves." Other points:

• Destructive Competition: The worst error is to compete with your  competition on the same things," which leads to escalation and price wars
• There is no best approach for a company or its processes
• Strategy (what makes a company unique) should not be confused with goals (market share, tech leadership, industry consolidation, share price,  etc.)
• Strategy should not be confused with actions (mergers, outsourcing, cost-cutting etc)
• Missions statements are no substitute for strategy
• Flakey metrics of profitability, often served up to please Wall Street, end up confusing managers on their own strategy and tasks.

Porter says this last point is the most important and he calls it The Bermuda Triangle of corporate strategy.  Many corporation suffer from failing to distinguish that a high share price is a result of a well-run business, but is not a valid goal or strategy itself. The only path to a good business is actually serving unique customers with unique products to achieve superior financial results.

**Other Views**

FastCompany has an interview with Porter from 2001 when he challenged some precepts of the tech era.

New Paradigm CEO and author Don Tapscott said Michael Porter was wrong about the Internet in this article from Strategy + Business magazine back in 2001. (See Don Tapscott's new book Wikinomics and reviews.)

Financial Post: Vonage More Destructive than Disruptive (pdf)

CEO Guide to the Benefits of Disruption (pdf) and other tools for managing disruption at The Disruption Group's site.