Urlocker On Disruption

Learning from Apple's Flops

NewLaunches.com lists Apple's top 10 product flops and there is plenty to be learned from it.

Apple rates highly as an innovator in my view, but the company has been inconsistent in its long history.

Two disruptive innovations were big hits: the Mac and the iPod because

• they changed the basis of competition by fulfilling new customer needs 
• they initially appealed in marginal markets
• they appeared inferior in some ways so that competitors ignored the products and their early success.

I think the new Apple TV system also will be a successful product and it rates a high Disruption Score for many of the same reasons.

Apple's top 10 Flops
10. Cyberdog: alternative browser and set of open web applications
9. Taligent: new operating system JV with IBM
8. EWorld: online ecosystem thingee JV with America Online
7. Pippin: game console
6. 20th Anniversary Mac
5. Motorola ROKR: phone + iPod sort of
4. Macintosh TV: Mac + TV sort of
3. Macintosh portable: 16lb of joy for $6,500
2. Lisa: $10k not sure why it flopped
1. Newton: Still the number one cult product of 1993

Looking at the list, some of the products were ahead of their time. Many of Apple's product flops seem to suffer from classic traps of would-be disruptors: 

• Apple sometimes bet the farm on new technology and features ahead of clear market feedback from users (Newton)
• it tried to cram a new disruptive idea into a known business (Motorola ROKR phone, Eworld)
• it tried to create an incrementally better product in a crowded market (Cyberdog web browser, Pippin game console.

**Other Views**
ArsTechnica says not-so-fast with some of the nominations.

Harvard Business School says Apple's new strategy is being second to market.

Tech writer John Dvorak says Apple's iPhone is a pending flop that should be cancelled ASAP: The cellphone market is consolidating and mature so that margins are slim and new entrants can't compete without losing money, he says. Many commenters on Engadget disagree.

VIDEO: Apple TV System Rates A- Disruption Score

Update II: March 22, 2007: Apple TV now in stores at $300. Gizmodo has a video review by Walt Mossberg of the Wall Street Journal. Walt doesn't do a great job as a video presenter, but his published reviews in the WSJ have great influence: "Part of the secret of Apple TV is that, like most of Apple's products, it doesn't try to do everything and thus become a mess of complexity."

Update I: Jan 9, 2007: Apple announced details on its Apple TV system, previously known as iTV, today at MacWorld: To sell for $299 starting in Feb., featuring a 40Gb hard drive. This is disruptive to mainstream broadcast and cable-TV companies. The iPhone is interesting as a swiss-army knife style device, but the Apple TV seems more disruptive  in our analysis because it does the simple job of showing movies on your TV in a convenient way.

We ran Apple TV through our Disruption ScoreCard, generating an A- rating, which is exceptional.

You can use the Disruption ScoreCard to rate your own projects. (More tools for managing disruption at The Disruption Group's tools page.)

These sorts of evaluations are subjective. Feel free to challenge my input assumptions to come up with your own Disruption ScoreCard.

The following were among the high-scoring inputs:

• Low-end product at $300

• Product superior to early-adopter needs (This score was a leap of faith, based on current iPod users and the fact that they have downloaded 45 million TV shows on iTunes in the past 11 months)
• Customer behavior: Fits with how people watch TV and use their iPods
• Off-shelf standard technology
• New business model relative to TV: Apple earns on hardware and downloads

The following were lower-score inputs:

• Public company: Most public companies are severely challenged to disrupt
• New channel: Unclear whether Apple will create a new channel or piggyback on existing Apple and home electronics channels
  
• Not an independent corporate structure for iTV

Download the full Apple iTV Disruption ScoreCard plus some charts showing iPod and TV trends.

** Other Views **
NY Times' David Pogue says Apple TV is a winner and that because of its simple design, it stands out vs Netgear's device and Microsoft's Xbox 360. "It’s a computer-to-TV bridge for the rest of us."

O'Reilly Mac Dev Center's Chuck Toporek says he won't buy the iTV device because it won't record shows.

Disruption ScoreCards and related columns on Apple (A), Vonage (C), JumpTV (B-) as published in the Financial Post.

Archive of On Disruption columns from The Financial Post.

**Other Views**

Inventor and author Shelly Palmer looks at how the broadcast industry is being disrupted in his book "Televison Disrupted" Palmer also writes a blog and a hosts a series of online videos on new media.

VIDEO: Ignore What Customers Say; Watch What They Do

CNBC has a great video on innovation that struck a chord with me.

It is among a five-part Business of Innovation series hosted by Maria Bartiromo.

Roger Schank, the former head of Yale's computer science department, forcefully tells viewers that:

• Market research is the worst way to learn what customers want
• Surveys can't determine the real demand for products or services that don't yet exist
• Observation is everything

A central aspect of disruptive innovation is that listening to your best customers will never allow your organization to create game-changing innovations.

A few weeks ago, I was invited to deliver a lecture to a group of managers in an executive MBA class.  In the class, a former telephone company executive echoed this very same point: Back in the early 1980s, landline telephone companies dramatically underestimated the size of the cellular market (a few thousand subscribers, perhaps) because they could not perceive how mobile phones would evolve or how consumer needs would change.

This is not to brand telcos as foolish as much as it is to understand how people deal with the unknown.

Great new growth businesses almost always look smaller and less attractive to incumbent suppliers than their current business. Smart startups pursue these opportunities because they have small cost structures and they are not locked into what mainstream customers say they want.

The key to successful disruptive innovation is to allow an organization to selectively adopt some of the processes and priorities that work so well for startups. (Here are some management tools to help do this: RPV Competitive Analysis tool (pdf) and Disruption Brainstorm Tool (pdf).)

Although disruptive innovation is considered by many to be synonymous with technology breakthroughs, Schank warns against this narrow approach. Customers ask a different question, he says. "The answer is not the technology. The answer is did I get what I wanted?"

  Epsiodes available online include guest Howard Putnam, former CEO of Southwest Airlines and Larry Huston, former VP of Procter & Gamble. Upcoming episodes include interviews with Andrea Illy, CEO of Illy Coffee, and skateboard king Tony Hawk.

**Other Sources**

Endless Innovation looks at the  third episode.

Retired investor Joey Ramone on Maria Bartiromo:

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**Newsletter archive**

March 2007 - Focus on Growth: Avoid This M&A Mistake; Starbucks Disrupted; New Competitive Analysis Tool and more.

May 2007 - Avoid the Fatal Trap of Being 'Better': Why Vonage Self-Destructed; Whats' Your Disruption Score; Video: Capitalizing on Disruption

Disruptive Marketing: Starbucks - Too Little Too Latte?

Update Sept. 2007: MCD vs SBUX six-month chart

Original Post: March 2007

My colleague Paul Paetz, the anti-marketer, examines Starbucks through the lense of competitive disruption.

Despite the firm's tremendous success, it looks like time for Starbucks to disrupt itself, he says.

"Starbucks was a disruptive innovator. It brought flavor, a friendly social setting, quality, plus the consistency that only a chain can do. They brought back the smells, the sensuality, and introduced to Americans a "European experience" -- and, what CEO Howard Schultz has described as the sense of theater...

...More importantly, they've overshot the needs of their customers, and are ripe for disruption.

Premium coffee has become mainstream. It's easy to add a pretty good cup of coffee to the menu. Especially for companies like McDonalds and Dunkin Donuts who already served coffee. They excel at speed and efficiency, and are optimized to process customers in seconds, whereas Starbucks will never get that fast without redesigning every store and adding a lot more baristas. Moreover, they are value-oriented -- i.e. cheap. For McDonalds, $1.25 for coffee is an improvement in margin, but for Starbucks, it's impossible to go that low. So, if I can get something almost as good for 1/3 the price, is that 'good enough'? 

More than commoditization, Starbucks' real problem now is that the competition is 'good enough' to be disruptive and undermine their business. That's the real conundrum Starbucks faces. It will be almost impossible to go back."

Read the full post here.

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