Innovation : Open and Closed Models

What are some of the key characteristics of open and closed business models?

Open

1.) Speed to market
2.) Iterative design (constantly being virtual and scrumming)
3.) Release smallest subset of functionality - test for consumer /customer demand and build on learnings vs assumptions
4.) Strong in monitoring competitors
5.) Absorb ideas in real time - so agility is typically in founder DNA
6.) Use contract labor vs FTEs
7.) More aggressive in orientation
8.) Focus on Customer Traction and Sales traction vs IP (tail that wags the dog)
9.) Value is placed on financial performance vs projected
10.) Tend to be B2C vs B2B

Closed

1.) Slower to market: focus on perfecting working protoypes before hitting the market
2.) Brand sensitive and protectionistic
3.) Tend to be B2B vs B2C
4.) Dragged down by legacy infrastructure and processes that require customization
5.) Scale and Size matters so tight scrutiny on approach
6.) IP Matters and often complexities lose out on innovation as arrive too late to market
7.) Can be great if the recognition in the market is early enough ahead of the curve to continue to refine models

In the prior blog I wrote on open or closed business models, I indicated that knowing which approach to take is highly predicated on the type of innovation and the type of company you are in.

I always recommend if large global companies are trying to innovate emergence they do so outside the core, and have separate practices and processes from the core, and use the channel/sales capability of the core, but not ingest NEWCO.

I also question the needs for IP protection when in technology web centric models these are nearly impossible to protect and energy I believe is best spent on securing real paying customers.

Companies such as Apple, Google (Android) typify the new world of more open business models. The ecoystems they are building to allow others to take advantage of are simply mind boggling..... abundance rules and scarcity is for dinosaurs.

New Rules of Thinking

Today consumers are changing companies continually. Overall attrition rates are seeing attrition rates as high as 40-65%. While this trend is growing, companies are searching for increasing bonding stickiness.

We all know that it costs 3-5 times more to acquire a new customer than it does to keep one. What this means is that every company, big or small must have a customer growth plan to keep in touch with its strongest and most loyal customers.

We also have to increase our innovation knowledge on disruption. The old adage if it ain't broke, don't fix it needs to be destroyed.

Reed Hastings of Netflix did not reinvent the movie rental business. Rather he capitalized on a weakness. People hate late fees, he simply created a simple model deployed over the web with subscription fees instead of unit sales.

Learn from other's mistakes

I love to shop at Pottery Barn, Crate and Barrel as their furniture and products are beautifully styled and appeal to the home maker in me. However, look at Home Decorator's Collection (HDC) -- a no frills, discount offer that look the same as the beautiful ones in the expensive furniture catalogues and everyone loves a bargain.... so finding market holes is an important scanning skill to cultivate in your organizations. Every company has weaknesses - just need to look for them.

A few questions to ask:

1.) Would the Founder of Netflix been successful if he had followed the traditional video distribution model?
2.) Would Amazon continue to be be successful if they had stayed focused on pure bookselling strategy only?
3.) Would Apple be successful if they had not thought ecosystem vs product - ie: iPhone , iPAD, etc?
4.) Would Android be successful it had not been open?

The Cluetrain Manifesto is now an old book, but one thesis still holds true: Markets are conversations.

What Cluetrain failed to discuss is that human nature remains the same. For any conversation to continue their needs to be trust and reciprocity. You can expand your reach, but if the consistency in the experience, expansion of customer connectedness, people simply drift.

My partner, Alex Blom has the approach right to his over 40,000 twitterer followings, and now as one of the top digital media influencers in NA, he takes pride in responding to each of his followers, and returning their tweets, or building on their tweets, yes and he does not sleep very much.

There is a point where he and I both know he cannot sustain this personally and he is now at the tipping point, but he knows that the conversation is valuable and needs to continue and needs to be genuine.

In summary, as executives concerned about innovation and creating cultures that flourish on new ways of working, we need to develop practices that reward talent for thinking outside the box, giving them opportunities to break practices/processes as reinvention keeps you on the edge and agile.

To survive in an increasingly interconnected and web smart world - companies need to embrace change. It is the only constant fuel for growth and sustainability.

RIM Growth Challenges

RIM is a world-class Canadian company that is now a world-class Global company. We have a hard time as Canadian's praising our children.

Once you get to be the size of RIM, you have the priviledge of being attached on all fronts. Who could not be losing ground to the likes of Apple. Their iPhone is brilliant and has set the soncumer standard for smartphone innovation. The Google's Android platform is also gaining share as its powerful operating system, and zero cost to channel partners, makes it an attractive solution to sell.

Consumer polls that are measuring product desirability consistently favor the iPhone and the Android is now squeezing Rim as well.

What should Rim do and is doing?

1.) Remember the line - Focus on your Core.

RIM has a powerful enterprise niche and must retain its high margin and loyal customers. To do this, enterprise services must always be ahead of the Apples, and Androids (whose dominance is more consumer)

2.) Expand footprint into the consumer garden but not at the expense of preserving the core.

It is easy to have Apple envy, however, my belief is it is better to have a strong foothold and preserve /fight to keep the core strong, as dilution will only erode the foundation on all sides.

Perhaps the biggest disappointment I had was RIM went to market too early on its new iPAD like product (The Torch), it did not deliver product superiority and shipping has had its challenges.

In summary, RIM may have its unique challenges, what it needs to do is not compare itself to Apple or the Android and look beyond these otherwise they are caught in a cat and mouse, function feature game, here are some ideas:

1.) Bring together the brightest engineers (top engineer from each university around the world (say 20) and offer them a $ prize to invent a new product to extent the Torch to levels unimagined (4 month co-op assignment)

See what unfolds - great PR and recruiting benefits, new ideas will emerge as with diversity comes more wisdom.

RIM is highly concentrating with R&D based in Waterloo and increasingly in the valley. It is now a global company, yet when one tests for harmony of culture and vision alignment of what the future holds, there is a worrisome level of concern by RIM employees (the enemy is now us is in RIM's tent), and their practices for engagement (doing business) is well understood to be plagued with difficulties.

All this aside, RIM will find a smart pathway forward, but it has to start with its internal engineers believing they can solve the challenge. This confidence is critical to evolution, feeling like you are in a shadow will breed mediocrity and erode confidence.

If Jim andMike spent one week each working side by side with their most brilliant engineers - some new energy would be unleashed, sometimes as executives we caught up in internal or external meetings and what is really important is ensuring our talent believe in the dream and know they are making a real difference.

Reflections on the Internet on a Monday Morning

For many of us the internet was something we were introduced to in the mid to late 1990's, when AOL became prevalent, giving us services to the web and content that we never knew was even possible.

Then if you recall we had the early search engines like Alta Vista, Yahoo and eventually Google appeared and the internet's vast content and possibilities became more real.

I remember when I was a VC in the late 1990's we still had people questionning the feasibility of buying goods on the internet, despite the early and evident success of eBay. Although when I look back and appreciate we were in our early content days, there really was a limited amount of good quality content back then, even Wikipedia did not exist.

Today there are literally billions approaching trillions of pages and we have literally too many options to choose from, exacerbating a new problem of drowning in possibilities - making search and profile intelligence even more important.

However is the Web dead? - if we can spend an entire day making use of the internet but never in the browser on the web via applications, IM, streaming services, then one needs to think of the evolution - with smart tablet applications with access to only the content the want - we need to be reminded that the power still lies in aps and servicing my needs.

Will we start to have a new generation of curator guides like in museums that are experts on searching for your needs and being your search coach and keep finding us the best content possible. We have crawlers that source content based on our needs, but still the context is often missing let alone the filter of a human mind, and also the coaching back on content value.

Facebook is rapidly shifting their strategy to integrate technology through its site, as you can now use Facebook to log into sites such as CNN, New York Time, recommend stories you have read to your friends, making the environment more porous.

Apple with the iPAD is pursuing a similar strategy with its IOS Platform.

Let's not all forget the internet is not even two decades only .... and it is the environment we rely on daily to do our work, support our personal lives, and stay connected.

What the future holds we can start to see with the increasing consumer electronic companies like Sony, LG integrating the internet with smarter appliances, media and entertainment, cell phones - striving to keep us in their ecosystem.

No one has done this as well yet as the Apple experience. We are in the process of upgrading our office equipment, and my team has finally convinced me the Apple is the only way to go.

What do you think is next?

Twitter Growth Highlights

Developments in social networking and internet applications continue to advance rapidly. The growth in Twitter is a social pheonomena that is one of the most interesting developments as it allows humans to increasingly connect their DNA (love to tell stories) in real time and continue the story telling. We are all connected.

This blog will give you current facts on what is really happening in Twitter land. Reinforce this tool is used by a highly inflencial audience that's voice is growing. Average age is 31 unlike Facebook is 26 on average.

Let's catch up on what this buzz is really about.

As humans, we always been socialized to tell stories.. but only recently has the sentences been like Once up a time, I invented a snow board (author one)... picked up by (author two) and I won the gold at the Olympics using the new new story board invented by (author two).

We are no longer in the Knowledge Era we are in the Human Era as there is no longer any competitive edge other than the stories perhaps we share to invent our futures. Motivating people to share their stories and the distinctive cultural attributes that need rebalancing in Fortune 500 companies are critical to continue to evolve ( I will spend more time on this on my next blog)..

Back to Twitter updates:

• As of December 2008, 11% of online American adults used a service like Twitter or another service that allowed them to share updates about themselves or to see the updates of others.
• Just a few weeks earlier, in November 2008, 9% of internet users used Twitter or updated their status online and in May of 2008, 6% of internet users responded yes to a slightly different question, where users were asked if they used “Twitter or another ‘microblogging’ service to share updates about themselves or to see updates about others.”
• Of the standalone applications that enable short messaging to a network of friends, Twitter is the most well known. First made available to those online in August 2006

So What is Twitter?

• Twitter allows users to send messages, known as “tweets” from a computer or a mobile device like a mobile phone, RIM Blackberry or Apple iPhone. Users of the service are asked to post messages of no more than 140 characters and those messages are delivered to others who have signed up to receive them such as family, friends or colleagues. Twitter’s open development platform allows outside developers to build add-on applications to expand the service’s functionality. Twitter users can select from a variety of third-party Twitter interfaces, browser plug-ins, photo- and video-sharing applications that enhance mobile and computer-based use of the basic application. Users have themselves expanded the information carried in a twitter message through the development of in-tweet shorthand and symbols3 that allow for the sharing, replicating and searching of tweets.

Research Highlights hot off the press.

• “Twitter user” refers to users of Twitter and internet users who have updated a status online on a social network or elsewhere. 22% of respondents did not give their income.
• Younger internet users lead the way in using Twitter and similar services.
• As with many technologies, enthusiastic users have used Twitter for more than just answering the question, “What are you doing?”
• Twitter has been used to help organize and disseminate information during major events like the 2008 California wildfires, the recent American elections, the Mumbai massacre and even the January 2009 crash of US Airways flight 1549 into the Hudson River. Janis Krum, a passenger on a ferry that rushed to the scene, took a photo of the plane with a cell phone and sent it out via his Twitter feed.
• Twitter and other status updates have also been used for many other purposes including the airing of complaints against companies, sharing ideas, forwarding interesting material, documenting events, conversing and flirting.
• Twitter and similar services have been most avidly embraced by young adults.5 Nearly one in five (19%) online adults ages 18 to 24 have ever used Twitter and its ilk, as have 20% of online adults 25 to 34. Use of these services drops off steadily after age 35 with 10% of 35 to 44 year olds and 5% of 45 to 54 year olds using Twitter. The decline is even more stark among older internet users; 4% of 55-64 year olds and 2% of those 65 and older use Twitter.
• Given the youth of most Twitter users, it is not surprising to find that online Americans who live in lower-income households are more likely to use Twitter than more affluent Americans. Some 17% of internet users in households earning less than $30,000 tweet and update their status, compared with 10% of those earning more than $75,000 annually.
• Younger adults generally earn less money than older adults.
• Wireless internet users are also more likely to be users of Twitter and other status updating services; 14% of users who access the internet wirelessly via a laptop, handheld or cell phone have used a service like Twitter, compared to 6% of users who go online but do not do so wirelessly.
• The use of Twitter is highly intertwined with the use of other social media; both blogging and social network use increase the likelihood that an individual also uses Twitter.
• Adults who use online social networks are much more likely to say that they have used Twitter or some other service to update their status and read the status updates of others. Nearly one quarter (23%) of social network users say they have ever Twittered or used a similar service. In comparison, just 4% of those who do not use social networks have ever used
• The correlation between status updates and social network use is less surprising given that many social network sites offer opportunities to post status updates and read the updates of others. Facebook offers a status update feature while other social networks offer taglines and mood updates, often rendered with an adjective and a smiley face indicating the corresponding emotion.
• Blogging shows a similar pattern; 27% of bloggers Twitter, compared with just 10% of those who do not keep a blog. Overall, 13% of internet users have created a blog.
  Portrait of a Twitter user
• A look at the demographic profile of Twitter users as a whole reveals some additional details about who uses Twitter and how they communicate and consume information.
• As noted above, Twitter users are overwhelmingly young. However, unlike the majority of other applications with a similarly large percentage of youth, Twitter use is not dominated by the youngest of young adults. Indeed, the median age of a Twitter user is 31. In comparison, the median age of a MySpace user is 27, Facebook user is 26 and LinkedIn user is 40.7
• Twitter users are slightly more racially and ethnically diverse than is the full U.S. population, most likely because they are younger – and younger Americans are a more ethnically and racially diverse group than is the full population.
• Twitter users are also slightly more likely to live in urban areas, with 35% of Twitter users living in urban areas (compared to 29% of all internet users) and just 9% of Twitterers and status updaters living in rural areas, compared to 17% of internet users.
• Twitter users are more mobile in their communication and consumption of information.
• Twitter users and status updaters are a mobile bunch; as a group they are much more likely to be using wireless technologies – laptops, handhelds and cell phones -- for internet access, or cell phones for text messaging.
• More than three-quarters (76%) of Twitter users use the internet wirelessly – either on a laptop with a wireless connection, or via PDA, handheld or cell phone. In comparison, 57% of those who go online but do not use Twitter, and 59% of internet users as a whole connect to the internet wirelessly.
• Overall, cell phone ownership among Twitter users is comparable to the online population as a whole, but Twitter users are more likely to use their cell phone to text and go online. More than four in five (82%) Twitter users have a cell phone and use it to send text messages, while 59% of those who go online but do not use Twitter (and 61% of the internet-using population at large) own a cell phone and use it to send text messages.
• Data on twitter users and going online via a cell phone is from Pew Internet’s November 2008 Post-Election Survey, fielded between November 20 and December 4, 2008.
• Twitter users are also more likely to use their cell phones to connect to the internet; fully two in five (40%) Twitterers with cell phones use the device to connect to the internet, while one quarter (24%) of those who go online but do not use Twitter do the same.8
  Along with communicating extensively via untethered mobile devices, Twitter users are more likely to consume news and information on these devices as well.
• For many Twitter users, learning about and sharing relevant and recent nuggets of information is a primary utility of the service. While Twitter users are just as likely as others to consume news on any given day, they are more likely to consume it on mobile devices and less likely to engage with news via more traditional outlets. Twitterers are less likely to read a printed copy of a newspaper, but more likely to read a newspaper online (76% vs. 60% of non-Twitter users), and more likely to read a news story on a cell phone (14% vs. 6%) or on a smart phone (17% vs. 7%).
• A similar pattern holds for video news consumption; on any given day, Twitter users are just as likely as others to watch news on a TV, and just as likely to watch video news on a computer, but more likely to watch a news video on a cell phone (6% vs. 1%) or on a smart phone (8% vs. 1%).
• Regardless of the platform, Twitter users are also significant consumers of blog content; 21% read someone else’s blog “yesterday” and 57% of Twitterers have ever read a blog.
• By comparison, 9% of those who go online but do not Twitter read someone else’s blog yesterday, and 29% have ever read a blog. Twitter users also keep blogs at a greater rate than the overall online population; 29% of Twitter users have ever created a blog, and 8% worked on a blog “yesterday.”
• In contrast, 11% of internet users have created a blog and 3% are working on their blog on any given day.

Conclusion

In conclusion, Twitter users engage with news and own technology at the same rates as other internet users, but the ways in which they use the technology – to communicate, gather and share information – reveals their affinity for mobile, untethered and social opportunities for interaction. Moreover, Twitter as an application allows for and enhances these opportunities, so it is not so surprising that users would engage in these kinds of activities and also be drawn to an online application that expands those opportunities.

Innovation Leadership Questions:

1.) Does your company have a policy to use effectively Twitter?

2.) Does your company have a strategy to harness Twitter to help employee engagement or innovation ideation practices?

Helix helps global companies ensure their Web 2.0 and collaboration strategies make business sense and demonstrate value. These tools work to solve many business challenges. They also can create havoc if not managed effectively. Want to learn more drop me a note and we can continue the dialogue.

Research Sample Size:

Princeton Survey Research Associates International
for the Pew Internet & American Life Project
Sample: n= 2,253 national adults, age 18 and older, including 502 cell phone interviews ;
Interviewing dates: 11.19.08 – 12.20.08
Margin of error is plus or minus 2 percentage points for results based on total national [n=2,253] Margin of error is plus or minus 3 percentage points for results based on National internet users [n=1,650]