Urlocker On Disruption

Flip Video Kills the Camcorder

by Zack Urlocker

Zack Urlocker, a regular contributor to this blog and half of the creative team at the Disruption Brothers, offers his insights on the world of technology marketing and disruptive innovation.

 If you're into photography or high-end camcorders, you probably haven't heard of the Flip Video from Pure Digital Technologies.  But for consumers who can't be bothered with complex camcorders and mind-numbing jargon, the family of Flip Video devices has become a major disruption in the photography business. 

What Flip Video does, is go back to the basics with a low-end easy-to-use point and shoot pocket-sized video recorder that gives up on all the non-essential bells & whistles to enable consumers to do two things really easily: shoot video and post it on the web.  Pure Digital's business model is a classic example of serving the underserved.  They've focused on providing basic functionality and ease of use to appeal to consumers who want to get results without the complexity or expense of a full blown camcorder.  In fact, 50% of Flip Video owners already have a camcorder, presumably in a closet gathering dust.

Since Pure Digital stripped their Flip Video down to the basics, it's also a heckuva lot cheaper than traditional camcorders which can cost close to $1000.  You can get a basic model Flip Video for $100 on Amazon, an Ultra model with slightly better video and sound for under $130 and a smaller, lighter Mino for a street price of around $150.  All models have software built-in to the device, so when you connect it to a computer with the built-in USB plug, you can quickly view, edit or post videos on the web. 

Flip Video has become the second best-selling camcorder on the market after the Sony DVD610.  Pure Digital has racked up sales of more than 1 million Flip Ultra, making it the best selling camcorder in America with approximately 20% market share. Now that Pure Digital's Flip Video has disrupted the market, it will be interesting to see how long they can hold their lead before the incumbents turn their attention to this rapidly growing market.

To really understand the Flip Video, it's better to think of it as evolving from a cell phone's built-in camera rather than from a traditional camcorder.  But unlike cell phones, it's got 60 minutes of recording capabilities at 640x480 resolution and the audio and video quality are better. While the quality is not world class, it's perfect for YouTube and it's better than not having any recording, which is exactly the point.  If you're looking for HD quality video, image stabilization, a 6x zoom lens, look elsewhere.  But for recording something quickly and easily, the Flip Video does a good job.

As the New York Times columnist David Pogue wrote:

The lesson is one that the electronics industry seems to miss over and over again: that creeping feature-itis often impairs your product instead of improving it. In the Flip's case, the size, shape, ruggedness, low price and one-button simplicity take it places where no real camcorder would go. Purses, coat pockets, beach bags. Skiing, playgrounds, house walk-throughs, museums, casual interviews, YouTube stunts, classrooms, airplanes -- and, with the $50 acrylic sealed case, even underwater.

I've posted a couple of samples below from a conference keynote and an outdoor rock concert to give you a feel for how the Flip Video does in the real world.  In fact, you can find hundreds of videos on YouTube and similar sites created with the Flip Video --proof that for many users, convenience and low price trumps complexity and even quality.

Zack Urlocker is a Silicon Valley software executive and regular blogger on open source technology at TheOpenForce and InfoWorld and about music at GuitarVibe.

Best of OnDisruption

Guest post by Zack Urlocker

As you may have noticed, my onDisruption blog posts have become less frequent lately as I'm busy with other projects.  I will continue to post the occasional article and provide updates to past stories, but these will be less frequent than before.  For newcomers to the site, here's a list of some of the most popular postings on the site. 

If you're new to disruption this is a good way to start thinking about your own disruptive strategy.  And note that while some of these are classic technology disruptions, many leverage other forms of disruption, whether in distribution, packaging etc. 

So don't fall into the classic Silicon Valley view that disruption is only about new, faster, more complex technology.  Sometimes it's just the opposite. And while disruption is a good model, it's not the only strategy for success.  Apple's iPhone is only marginally disruptive, but its still a huge hit for the comapny.  But when disruption works, the gains can be impressive.  And the benefits accrue not only to the company, but to the careers of the individuals who make it happen and to investors who spot the trend early.

• Dealing with Information Overload
• iPhone a Hit, But Not Disruptive
• Disruption Investing: Picking the Next Apple, Not Vonage
• Who Killed the Record Industry?
• Microsoft Dismisses Google Apps as Inferior
• Are You A Sitting Duck?
• Management Lessons From Rock Guitar Wars
• XBox Guitar Hero Melts Face Off Old School Rockers
• Nintendo Wii Smacks Microsoft, Sony
• Heinken Disrupting the Beer Industry

As you formulate your own disruption strategy focus on the basics:

• What problem are you solving?
• How can you do it better than existing solutions?
• Who is underserved by the incumbents and what are the unmet needs?
• How can you deliver a "good enough" solution to a narrow but growing audience?

Let me know your thoughts on these and other articles.  I hope they will inspire to you let a thousand disruptive flowers bloom.

Zack Urlocker is a software executive and regular blogger on open source technology at TheOpenForce and InfoWorld and about music at GuitarVibe.

Classic Disruption: Why Wal-Mart's Movie Plan Will Fail

Update Dec. 29, 2007:

Wal-Mart shut down its video download service.

Original Post Nov. 29, 2006:

Wal-Mart joins the battle for online videos in a disturbingly familiar way.

In the worst kind of compromise, Wal-Mart is cramming the new thing, movie dowloads, into the old business model, retail store purchases. To download a movie at home, you have to buy a movie at the store, at least to start, according to the Wall Street Journal:

The service represents a sort of halfway solution: The giant retailer will require customers to buy a DVD before providing them a "feature sticker" with instructions on how to buy downloads.

As Wal-Mart explained in the NY Times, it wants to maintain the old:

“We feel like it is really important that the DVD business stays healthy and stays quite central to consumers’ lives,” said Kevin Swint, a divisional merchandising manager at Wal-Mart.

Cramming seldom works for disruptive innovation because it compromises on what consumers want and it restricts the growth potential of the new innovation. Whenever you see an incumbent supplier adopt a new innovation but in a way that severely restrict or impairs its use in order to preserve the old and expensive cost structure, you've got cramming. Look for words like 'hybrid', or 'best of both world's' as warning signs.

Microsoft's early efforts in WebTV and portable devices would be examples of cramming the PC operating system business model in places where it did not fit. Note the absence of success despite years of effort and huge expenditures.

In the case of video downloads, Wal-Mart's new competitors that are not in the business of operating  retail stores would see no reason to restrict themselves with such compromises.

BitTorrent, a pirate download site which today announced legit content deals with Fox, Paramount and several other studios, and Apple Computer, which dominates the download music business, for example, won't worry about maintaining sales at retail outlets the way Wal-Mart does.

For examples of cramming, consider these:

• No record company created a simple buck-a-song download service because they could not see a way to do this without hurting their retail sales. (Apple, free of this worry, succeeded despite the fact that its biggest competitors were free pirate sites like Napster.)
• Nokia crammed wireless email, web, fax relay, phone, SMS and applications into the doomed Nokia 9000 Communicator, a brick of a phone that did nothing well and sold poorly in the early days of wireless e-mail;
• Every major newspaper publisher created online websites that replicated their old business onto the web. Very few have achieved any success.

**Other Views**
Harvard Prof. Clayton Christensen is the pioneer on disruptive innovation and he outlines why  cramming fails in this Working Knowledge paper.

The Disruption Group's site lists the benefits of disruptive strategy including higher-value to customers, new revenue streams and sustainable high return on equity. 

Mathew Ingram says the BitTorrent deal is not important because there is no BitTorrent network to speak of.

GoodMorningSiliconValley says the transition from pirate site to legit business is a difficult one.

TechCrunch says BitTorrent raised $25M bringing its total capital to $34M. The company's big challenge is to stay on the right side of copyright owners.

SeekingAlpha says Apple will eclipse BitTorrent and Wal-Mart's efforts.

Don't bet on BitTorrent, says Andrew Chen. After nine months of trying to commercialize a download service based on BitTorrent, he says it's too complicated for mainstream consumers and it doesn't provide the instant gratification they want.

Heineken: Disrupting a Commodity Business

This week, guest columnist Zack Urlocker combines two of our favorite topics: disruption and beer! 

Most of the time when people talk about disruption they focus on  high-tech companies: Google, RIM and others.  Certainly these companies have used technology innovation to disrupt their markets and solve new problems.  But sometimes disruption is about improving the experience, accessibility or convenience of a product through distribution or delivery, such as NetFlix did in the DVD rental business.

Changes in distribution or delivery can in turn can unlock new uses and expand the market; especially if the changes are difficult or expensive for competitors to copy.  Part of NetFlix's success is no doubt because they got a very long lead ahead of rival Blockbuster which did not recognize the convenience introduced by using the post office as a delivery channel and did not want to undermine its core business.

In this example, we'll look at one of my favorite products: beer.  Heineken competes in one of the most commoditized and conservative markets around.  But instead of trying to innovate based on a new flavor or new style of brewing, Heineken focused on creating a packaging system that provides a better customer experience and likely increases consumption.

What is the Heineken DraughtKeg?  From the consumer perspective, it's 1.33 gal (5 liters) of premium draft imported beer at a cost per serving that's just slightly more than a typical twelve-pack.  That gets you around 14 12 oz servings, depending on how much foam you like. The price is just under $20.

What makes the DraughtKeg unique is that, as its name implies, it's real draft beer from a keg, only scaled down for convenience.  Testers report that it tastes fresher than bottled beer, which is due to the way it is dispensed via CO2 cartridge --just like draft beer in bars.  But unlike a normal 70 pound keg, you can get it at your local store without a pickup truck and a team of guys.  The mini-keg weighs around 12 pounds (5.5 kg) and is fresh for 30 days after it's opened.  So the Heineken DraughtKeg provide a  keg taste experience without all the hassle and without the need to consume the entire keg in one sitting. (Though you can if you want.)   No doubt the DraughtKeg will be featured at many home parties in the fall.  It's perfect for watching a game on TV, an office party, or any other social occasion.  The DraughtKeg has some novelty, which in itself add to the fun. 

Development of the DraughtKeg took Heineken nearly 10 years and it cost them more than $15 million dollars to build a new production line.  Because Heineken is selling a premium beer, the added fixed costs can be ammortized over the price of the beer at about a penny an ounce compared to bottled beer.  This 8-9% the cost increase is not negligeable to consumers, but it is well within the reach of the premium beer drinkers Heineken is targeting.  This turns out to be an important part of Heineken's strategy: it's not competing at the low-end of the market.  As a result, Heineken is unlikely to be challenged by a low-end Budweiser Keg.  The margins at the low-end are too thin to support this type of a delivery system. 

Features or Convenience?  If you're in a business that is increasingly being commoditized you might be tempted to try to come up with new features (or in this case, flavors) to stand out.  But in a commodity market, that may be the wrong strategy, especially if the product has already surpassed the quality expectations of most customers.

The DraughtKeg is not a new trendy style or flavor of beer.  In fact, it's the same Heineken beer they've been brewing for more than 100 years.  What's new here is the packaging and the delivery system.  In other words, they improved the experience in how their commodity is delivered to the consumer. 

And since they did not change the proven Heineken recipe they reduced one of the key risks in consumer marketing that customers would not like the change.  Of course, there is still risk in any consumer product changes, but not as much as, say, introducing a New Coke recipe or launching the Zima malt beverage.  Both those moves cost their companies many millions of dollars in losses.

According to Forbes, the Heineken DraughtKeg provides the company not only with added revenues (estimated $300 million) but also better shelf space from retailers due to the higher margins.  So it looks like this move will payoff for Heineken and help them stand out in a crowded market.

Questions to consider:

• Are there barriers your customers have in accessing or using your product?
• Can you improve the convenience and accessibility in such a way that customers will use more of it?
• Are there new uses for your product beyond the mainstream that can provide opportunities for growth?
• Are there ways you can stand out in the market without changing the product itself?

The Heineken commercial below clearly illustrates some of the perils of home-kegging before the DraughtKeg.

Zack Urlocker is a software executive and regular blogger on open source technology at TheOpenForce and InfoWorld and about music at GuitarVibe. 

** Other Sources **

Forbes has a good article "The Keg That Scored" on the development of the DraughtKeg and the engineers behind it.

WSJ: Wal-Mart Disrupted?

The Wall Street Journal ran an eye-opening front page that explored the demise of Walmart (full story).  It's a great read and the major points are:

• Consumers are changing: Price may matter less
• Quality may matter more
• Big consumer goods suppliers are turning away from Wal-Mart
• Growth at competing stores is outpacing Wal-Mart

And from an investor's point of view, two clear warning signs:

• The stock has collapsed in the past five years
• There's more downside

Is Wal-Mart being disrupted? Clearly the company has continued to play the same game in a changing environment. And the results have not come through. Here are a few questions for retailers to consider:

• Is it time for a "Buy USA" retailer that supports domestic suppliers over cheaper, usually Chinese-made goods?
• Are there signs that consumers are ready to move in that direction?
• DId your view change following the Chinese-made recalls this year?

**Other sources**
Not everyone agrees that Wal-Mart is so easily undone.

SeekingAlpha has a good take with commentary.

Rolling Stone Asks Who Killed The Record Industry?

Rolling Stone has a great article on the decline and pending death of the record industry.

It's the first in a two-part look at the record industry including numerous candid inside comments from industry players:

"The record companies have created this situation themselves," says Simon Wright, CEO of Virgin Entertainment Group, which operates Virgin Megastores.

"They left billions and billions of dollars on the table by suing Napster -- that was the moment that the labels killed themselves," says Jeff Kwatinetz, CEO of management company the Firm.

"The record companies needed to jump off a cliff, and they couldn't bring themselves to jump," says Hilary Rosen, who was then CEO of the Recording Industry Association of America. "

"A lot of people say, 'The labels were dinosaurs and idiots, and what was the matter with them?' But they had retailers telling them, 'You better not sell anything online cheaper than in a store,' and they had artists saying, 'Don't screw up my Wal-Mart sales.' " Adds Jim Guerinot, who manages Nine Inch Nails and Gwen Stefani, "Innovation meant cannibalizing their core business."

This is a classic case of disruption in six easy steps:

• Early download technology initially looked inferior
• Industry can't see a way to embrace the new thing without hurting its current business partners and destroying its business
• Industry barricades itself with high-margin products and new proprietary technologies
• Apple iTunes has an entirely different business model  without support initially from major record labels
• Eventually the bottom drops out on the old market
• The new market is hugely profitable and large for the disruptor.

The Rolling Stone analysis is correctly framed as a post-mortem because the disruption actually occurred several years ago.  Are other industries facing similar disruptions also in denial?

• Newspaper mergers would not seem to cure the 40-year decline of readership or relevance of newspapers
• Advertisers are increasingly turning away from television because its audience is shrinking
• WiMax technology is deemed too low quality to replace cell phones and landlines so most telcos ignore it

**Other Information**

Ain't nobody at Apple complaining these days. Wikipedia has a great chart to track iPod sales.

Shelly Palmer says look for TV stations to reformat and automate the way radio did in the past 20 years. Fox's plan to sell 9 of its 35 profitable local stations may be the early warning sign. "One can easily imagine a vast network of fully automated television stations across America with most of their revenue coming from the use of their new government granted digital spectrum."

Forrester Research has a good take on the shrinking of network television: "The top of the pyramid is getting narrower -- fewer big audience hits. And the bottom is getting broader -- more videos on YouTube and its brethren. The real problem happens next -- in this big morass, how do you find what you're looking for?"

A reader emailed in this comment: Remember when the Vinyl album industry was fighting off the dreaded eight-track menace of the 1970s? Look at this...

 

Spend 3 Minutes To Become More Competitive Than Sony

This post is a crash course in competition, as illustrated by Sony and Nintendo in the electronic game console market. 

Six lessons in Disruption are posted at the end. But here's the market context first:

• Sony's PlayStation has been in the dominant position in the game console market, but is losing money.
  
• Nintendo's Gamecube system was the small fry of the market, with a third-ranked spot below Microsoft's Xbox.
• The game console market is hyper-competitive and the winning position has tended to be won based on technology leadership. Console makers have engaged in oneupmanship based on incremental technology improvements: better resolution graphics, more realistic games, increased ability to play online. 

But late last year, this changed as Nintendo gave up on that approach and instead created something disruptive, as described in detail in this guest column last November.  Instead of making more realistic more expensive consoles with better graphics, Nintendo's new Wii console is lower-tech and is lower-priced. Wii has been dubbed a gaming system for non-gamers. Nintendo also has a dramatically different business model than Sony or Microsoft: By stripping out a lot of the advanced functionality, it actually makes money on hardware sales despite a lower retail price.

But most importantly, Wii has an important new attribute that is winning a new set of fans, a more interactive, more physical set of controls. This video illustrates that attribute:

 

Net results:

Sony profit slips
Nintendo profits surge, with Nintendo consoles outselling Sony PS3 by 60%.

Six Disruption lessons from Nintendo's Wii:

• Nintendo's market disruption is not about better technology;
• Disruption is not about incremental improvements;
• Disruption is about understanding where the customer experience is not good enough;
• Disruption is about making a product more accessible;
• Disruption is about changing the basis of competition;
• Disruption is about a new business model.

Why Disrupt?

• New revenue growth
• New high-value customers
  
• Sustainable, high return on equity
• More cohesive strategy and management teams
   

Download the CEO Guide to the Benefits of Disruption (pdf) from The Disruption Group

**Other Sources**

Nintendo CEO Satoru Iwata gave a keynote speech in 2006 highlighting his company's strategy to return to the top spot in the game industry. Interestingly, at the time some industry pundits said the speech was anti-climactic because it offered few details of the company's next console (codenamed Revolution) then in development, although Iwata said it had a new controller, would emphasize game play, would target non-gamers and would require a new business model. "Good luck to Nintendo, they are going to need it," concluded one report.

Apple's iPhone Likely a Hit, But Not Disruptive

Apple's new iPhone has high appeal to a segment of the market and looks like it will be successful.

Early reports show several indicators of pent-up demand and cult-like followings even before the product is released in June.
Why?

• Apple is the master of design in creating simple, powerful devices with high appeal
• Apple markets better than any tech consumer company
• Apple has no entrenched base of cell-phone customers or channels to worry about offending, marginalizing or competing against

But is the iPhone a disruptive force in the industry? By disruptive I mean, will it displace current suppliers like Nokia, Motorola or even a niche-player like RIM's BlackBerry? Will it win in the market by changing the basis of competition?  Will iPhone change the game for cell-phone users? 

Or is adding a phone to an iPod an incremental function for a disruptive product? By that, I mean is it just a brand extension that enhances the value and helps take a product mainstream, similar to the addition of an mp3 player and a phone on recent BlackBerry models?

Using the Disruption ScoreCard (located on The Disruption Group's  tools page) here are some of the assumptions I used for the iPhone:

• New customers: C
• Product inferior to mainstream: C (ie iPhone is not perceived as inferior)
• Product superior to early adoptor needs: A
• New business model: A+ (I assume that iTunes makes this a new cell phone business model)
• Investment required large: C (Apple has invested two years R&D and mega-bucks)

I don't know if the Disruption ScoreCard is the best framework for analyzing the iPhone or other high-end products because it has a clear bias towards new markets and low-cost entries.  (Afterthought: Maybe there is room to consider the iPhone as inferior relative to conventional phones in that it lacks a keyboard, which would be a sore point with mobile email-junkies, as some readers have pointed out.)

However, a key issue comes through: The iPhone has a different user interface; It is sleek; It is cool; It is well integrated; But it does not appear to do something new for a new set of customers. And doing something new, (especially something new that mainstream suppliers consider unimportant or wrong) is a key ingredient of many successful market disruptors. 

My personal experience (or bias) sees little value in Swiss Army knife kind of multifunction products that do many things adequately but do not specialize in doing one thing extremely well. That razor-like focus, at the expense of ignoring other functions, is what helped make the iPod and the BlackBerry very successful, high-margin products with long-lasting competitive advantage.

The net result of the Disruption ScoreCard was a "B-" rating for iPhone: Some work ahead to get disruptive.  Download the iPhone Disruption ScoreCard and test your own assumptions in the spreadsheet.

This lack of full-on disruption doesn't suggest that iPhone won't make inroads in the market. And it clearly adds some value to people who are considering buying an iPod or a cellphone. But it suggests a limited lifespan and a product that is less likely to be a disruptive breakthrough than say, the Apple Mac or the iPod.

My take is that the iPhone caters to a segment that wants status and high-design and is willing to trade up for it, to use the language of Michael Silverstein of Boston Consulting Group.  While the $500-price point seems impossible to current cell-phone suppliers, ultra high-end pricing of other so-called commoditized products (coffee, beer, laundry machines) shows that historic price-demand assumptions can be dead wrong.

**Forecast Confession**

Six years ago, I mistakenly thought the iPod would flop: Too expensive; Incompatible with PCs; Me-too product.  My mistake was in undervaluing two important iPod attributes 1)The mega-size of the iPod allowed it to solve a new problem for customers (How do I carry ALL my music with me?) and 2) I underestimated the capabilities of iTunes in that it made it easy and convenient for people to legitimately download music.  Those two attributes far outweighed the shortcomings of the early iPods.

**Other Thoughts**
Apple's iPhone has 50% gross margins and a great business model says Alex at EightySevenFour.

RoughlyDrafted says Apple will disrupt the entire wireless industry just as it did the music industry.

More juice from Apple: Apple TV rated an 'A' on our Disruption ScoreCard posted last September when the first details of the product, then known as iTV, were released. Why? It's a low-cost device that fits with how consumers already behave.

Bruce Tognazzini, a 14-year Apple veteran, has a detailed analysis of the iPhone's user interface: Not exactly new and revolutionary, but advanced enough to put the rest of the cell phone industry to shame.

Bloomberg news columnist Matthew Lynn says iPhone will be a flop: Apple is late, Apple is not a team-player with telcos, and the product is a defensive attempt to protect iPod, he says. "Consumers are interested in new things, not reheated versions of old things."

Eager to get an iPhone right away and without dropping $500? Try printing off this fold-and-clip paper version.  And this one with full-color fish screensaver (pdf).

The Wall Street Journal reported on the online debate of whether iPhone will be a hit, including reference to a list of seven iPhone shortcomings compiled on her blog by Motorola Chief Technology Officer Padmasree Warrior.

Arik Hasseldahl at Sci-Tech Today says he learned his lesson from overstating the shortcomings of the iPod back in 2001, when it suffered a long list of complaints (incompatitble with PCs, poor battery life, expensive, etc.) "We now know that the first iPod was just that: the first. Apple learned from what worked and what didn't and made adjustments." 

Stock view: Needham's Charlie Wolfe says buy Apple based on a forecast 7% cellphone market share by 2016. But Eric Savitz at Barron's shows the risk side as well from Bernstein.

 

New XBox Guitar Hero Melts Face Off Old School Rockers

Guest Post by Zack Urlocker

Update: At CES this week, Microsoft announced it is working with Activision to add exclusive features for the XBox 360 version of Guitar Hero: downloadable songs, more online interaction and Deep Purple.  Remember what downloadable content did for iTunes?  This is disruptive.

If you thought all the gaming action this holiday season was on the XBox 360 or the Nintendo Wii, you might have missed that one of the hottest games was Guitar Hero II on the Sony Playstation 2 console.  Despite the fact that Sony shipped its new and long awaited PlayStation 3 in November, the six year old PlayStation 2 remains a cash cow and is currently the best-selling game console on the market. 

While you might be tempted to dismiss Guitar Hero as just another amusing diversion (which it certainly is), its impact on the industry is potentially significant.  After all, even rockers like Korn's Jonathan Davis and Incubus are seriously into the game. Guitar Hero could cause gaming to become more mainstream and also impacts other industries around it.

Since the gaming industry is enormously derivative, my guess is that dozens of execs are banging their fist on the table this week at  the Consumer Electronics Show in Las Vegas asking what its going to take to ship their own Guitar Hero clone in 2007.  Violence is out and guitars are in!  But unless there's some new innovation, Guitar Hero has won the first round. 

Duelling heros: Two guitar-hero dudes perform Black Sabbath's Iron Man.

So what is Guitar Hero?  Basically, it's playing "air guitar" to classic rock songs to earn points.  What makes Guitar Hero unique (and fun) is that instead of using a traditional game controller or joystick you use a 3/4 scale Gibson SG guitar replica with color-coded buttons instead of strings. Don't worry, you don't need much musical ability; but you need rhythm to be sufficiently coordinated pressing the fret buttons on the neck of the guitar with one hand while hitting a strum bar with the other.  Hit the right notes and you'll hear a great guitar solo and cheers from the audience; if not a chorus of boos. 

The original Guitar Hero included 47 songs ranging from everyone's first guitar riff "Smoke on the Water" to more challenging songs such as David Bowie's "Ziggy Stardust" and Edgar Winter's face-melting difficult "Frankenstein."  Guitar Hero II adds better multi-player challenges, bass riffs and more than 50 new songs including classic rock oldies as well as more recent songs by bands that old-fogey parents have never heard of.

Other than being another wannabe guitar player, I wouldn't have taken much interest in Guitar Hero, until I saw a couple of kids playing in a local Fry's electronics. They were rocking out to Boston's "More than a Feeling" (a song that was written before they were born) and hitting every note.  "We played all summer," they told me.  So I bought Guitar Hero II for my pre-teen nephews for Christmas and they were jamming to Cheap Trick's "Surrender."  That is, once they could wrest control from the adults.  So what exactly is disruptive about all of this?

Guitar Hero meets several of the criteria of a disruptive innovation by creating a new market:

• Defies traditional gaming software category
• Provides a new way to interact with music
• Adds new life to older music titles
• Builds on something people already do (play air-guitar)
• Appears initially inferior to real guitar technology
• Improving technology

Consider this: When was the last time parents and kids both had fun playing a video game together (without violence)?  And when was the last time both groups thought the same music was cool?   I've never heard so much Cheap Trick in more than twenty-five years!  Surrender last charted in 1978, but I bet it was number one for a lot of families over the holidays.  (You can find the iTunes iMix of all the Guitar Hero songs on Apple's iTunes store.) 

You could argue that MySpace and YouTube have become new media for younger kids to get access to music, so why not Guitar Hero?  Unlike YouTube, Guitar Hero actually licenses the songs and pays royalties to the artists. 

Or consider this: If you're Robin Zander of Cheap Trick aren't you glad they picked your song instead of something by Eddie Money?  And how much would you pay for a Guitar Hero Now! bundle of a dozen favorite air guitar classics from the Stones, Santana or U2? (My guess, based on the level of interaction is probably more than you'd be willing to pay for a comparable set of songs on iTunes.)

Right now, Guitar Hero is only available on PlayStation 2, but the publisher says it will be available for all popular platforms in 2007.  No doubt seeing a lot of profit potenial in the Guitar Hero franchise, Activision snapped up the original publisher Red Octane last summer for a cool $100 million.

As the franchise expands, it raises some interesting questions for product development:

• What advantage can Nintendo carve out with a motion-sensitive guitar controller or drumsticks for the Wii? 
• How much money can be made by upselling instantly downloadable Guitar Hero songs from XBox Live?  What if you could jam with friends in different locations over the internet? 
• What kind of virtual world experience could be created with a combination of Guitar Hero and something like Second Life?  Is there a market place for add-ons like guitar effects, drum tracks and custom animated band videos? 
• What other industries or entertainment forms could be disrupted for these sorts of advanced simulation games?  Music training and theory? Military training? Medical training? Music Videos?
• What happens to MTV if kids decide that its more fun to create their own videos than to watch them on the tube?  (Note that MTV bought the original Guitar Hero development studio Harmonix for a whopping $175 million, their third gaming acquisition in the past year.)

It will be interesting to see what happens over the next five years as Guitar Hero's players start spending their own (or their parents') disposable income.  Guitar Hero features exclusively Gibson Guitars with nary a Fender Stratocaster in sight.  My nephews already think electric guitars are cool, but the only brand they're aware of is what they see in Guitar Hero.  Smart move by Gibson to lock out its competitors and influence the next generation of rockers. 

Zack Urlocker is a software industry executive. He writes about open source software at www.TheOpenForce.com. 

Interested in writing a guest-column on disruption? Contact The Disruption Group here.

**Other Information**

Wall Street Journal: Why Being a Fake Rockstar is Better Than the Reality

BusinessWeek: The PlayStation 2 Still Rocks and New medical training using games.

Military Training Technology: Army Games For Good; Gaming is becoming a disruptive training technology, according to this Whitepaper (pdf) by U.S. Army Chief Scientist for Training & Simulation, Roger Smith.

Books: Got Game by John Beck and Mitchell Wade and Growing up Digital by Don Tapscott look at how business is changing due to new technologies favored by youth.

**Videos We Couldn't Resist**

Child hero: Five-year old boy plays Surrender, as made famous by Cheap Trick

Real thing: Cheap Trick plays Surrender, live at the Budokan in Tokyo (1978). Tell your kids you were there.

** Other news at the Consumer Electronics Show **

Bill Gates is now talking about about the new Xbox Live features and surprising new IPTV service, reported by Engadget and Joystiq. Paid Content says the Xbox and IPTV service is a natural and we can expect HDTV on Xbox by next Christmas.  The Wall Street Journal says Microsoft's IPTV could undercut cable companies.

Live Digitally says Netgear scores at CES.

Robert Scoble says check out the small companies at CES for the real developments.

New York Times' new blog - Bits - has daily updates from the tradeshow, while media frenzy writer  Richard Siklos previews the Super Bowl of the gadget industry.

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.