Urlocker On Disruption

Disruption Investing: Picking the Next Apple, Not Next Vonage

I have been experimenting with a new approach to stock picking for much of the past two years and I thought I would share the results.

Using the Disruption ScoreCard (.xls file), which grades companies or projects according to how disruptive they are, I have been ranking companies.  Sometimes I publish the results here on this blog and sometimes in the Financial Post.  Results:

• Companies with high Disruptions Scores were great stocks to own: Apple (A- Disruption Score (pdf), stock up 140% in the past year) and electric car maker Zenn Motor Co. (B+ Disruption Score, stock up 250%)

• Companies with middling to low Disruption Scores were awful stocks to own: Vonage (C Disruption Score (pdf), stock down 80% since its hyped-up IPO last year, JumpTV (B- Disruption Score (pdf), down 58% from a share issue in February this year), for example

• In the rare circumstances where I could identify one company that was disrupting another, the pair-trade (long the disruptor, short the disrupted) paid off both ways, although sometimes you need to apply careful timing to maximize results. Examples include Nintendo vs. Sony, and Apple vs. satellite radio broadcasters (pdf).

To me it is quite startling that nobody else has used Clayton Christensen's principles of disruptive innovation and applied them to investing.

Read the complete column on the Disruption Score and its stock picks in the Financial Post.

Other tools to manage disruption.

Cellphone Video Works, But Does it Get the Job Done?

Today's Wall Street Journal has a story about how new services offer video on cellphones such as MyWaves, CellFish Media and 3Guppies.

These services are typically ad-supported and allow consumers to watch short clips such as music videos on their cellphones. Some allow you to upload your own videos onto your cellphone or to store videos from YouTube and other sources as well.

I have also experimented in the past week with a few other technologies to load video on my BlackBerry, including from Mobiola as well as BlackBerry video converters from Seabyrd Technologies and MediaCell.

And yes indeed, I loaded and watched a handful of videos on my BlackBerry, including a conference speech on disruption, a few music videos and (allegedly a techie's holy grail) full-length TV shows.  In some cases there were some problems with file-format errors or screen-resolution, but generally video on cellphones works.

But does it do a job?

Or put another way, does adding video to cellphones create any real business value or is it just a technology exercise in search of a customer need? Is this just another random splatter-campaign to create new (smaller) advertising venues to replace larger failing advertising venues such as broadcast TV?

Glancing at the websites for the various suppliers of these services and technologies, it doesn't appear that anyone has figured out a market for whom this works. For video on cellphones to be valuable, it must solve a customer problem that is:

• An important problem
• A frequent problem
• A problem that customers are trying to solve today but can't

In tech-land when new technologies struggle without a valid market, observers sometimes bemoan the absence of a 'killer-app." They are highlighting the same issue. Remember the video phone of 1964... or in 1992...or in 2002 or again from Vonage in 2005?

Nobody wanted it.

To find real economic need for cellular video --where people will actually value and pay for the service -- requires a re-think. 

I don't have answers on this, but I do have some questions that can help. Rather than chasing the mass market, video suppliers should ask questions along these lines to identify where the initial needs for this technology are strongest:

• Are there places where people can't afford full sized TVs but a lower-cost cellphone video service makes sense?
• Are there occasions when a video on a cellphone is 'good enough' because it is not convenient  or appropriate to fire up a DVD or TV, but a cellphone is ok?
• Is it possible to use a cellphone to give people access to important programming that they can't get through any other source?

**Other Sources**
This blog from Japan refers to "consumer confusion" about mobile video...Always a dark warning sign.

Monte Silver at Podcast Alley refers to the billions spent on mobile TV to no success, and concludes that podcasts --not commercial video-- will be telephone companies' salvation.

The Anti-Marketer's Summer Reading List

My anti-marketing colleague Paul Paetz compiled this list of books worth reading on disruption and marketing, including:

• The Innovator's Dilemma: The original work on disruptive innovation by Clayton Christensen
• The Innovator's Solution: Clayton Christensen's follow-up and the one book every manager should consistently refer back to for insight into their business and their customers
• Positioning: The classic marketing opus by Al Ries and Jack Trout
• Pour Your Heart Into It: The story of Starbucks CEO Howard Schultz
• Hidden in Plain Sight: Strategy thinking by Erich Joachimsthaler... on my 'to-do' list.

Here's a list compiled last summer by the Montreal Business Book Club... which has no July meetings... and here is Mitch Joel's new list for 2007.

The Work Research Foundation (WRF) has a very thoughtful list of business books recommended for students, with the strong endorsement of master investor Warren Buffet, who says: " I have known no wise person over a broad subject matter area who didn't read all the time—none, zero."

Last summer I compiled a reading list that ranged from Drucker to Dilbert...