BusinessWeek ran an interesting story on business model innovation this week called “Mistakes Made On The Road To Innovation“. The article focuses on Kodak which reinvented itself yet can’t get ahead in the new markets.
Among other things, the article talks about how the speed at which new models take over markets is getting harder to manage:
“At its peak, Kodak was an icon of American technology innovation. Now it’s fighting to recover from a tech revolution that is strangling its core business. Kodak was late to recognize the problem, slow to react, and then went down the wrong innovation path.
Over time, all innovation gets commoditized. In this regard, business models are not different than products and services. So business model innovation must be a perpetual quest for renewal.
Look at how Dell, (DELL ) long the PC industry’s heavyweight champ, has suddenly become wobbly in the knees. It revolutionized the PC business by assembling computers to order for customers while eliminating the middleman. Now competitors have caught up with Dell’s efficiencies and are even undercutting its prices.”
What struck me in particular is the notion that business models must iterate the way new technologies iterate. Creativity should not be isolated as a product development or an engineering problem. Creativity must be part of a company’s approach to winning in the market.
If you think about this in terms of online media, it seems rather obvious. The banner innovation enabled the page view model to take off. Content targeting enabled the search market to explode. The success of those business models put parameters around the types of engineering problems to solve and opened lots of product creativity.
But business models beget business models and new revenue streams will continue to replace old ones. It can be frightening when the model you invested in becomes a commodity down the line and the company then has to decide how to redistribute its resources if it wants to grow again.
In the Kodak example, they didn’t catch on to the commoditization of digital cameras fast enough and now sit in a market of margin wars, fighting for positioning on increasingly crowded shelves that provide weaker and weaker yields. Without a deeper relationship with the photographer, Kodak is almost meaningless and the technologies they sell are totally replaceable.
The article adds that Apple’s music business is instructive. In iPod-land the connection between the hardware, software, media and revenue are all intertwined. And the more time and money a consumer invests in any one of those pieces, the harder it is for that person to end their relationship with Apple and all the related services in that market.
Kodak’s focused approach on doing one thing well is actually failing them as more innovative business models squeeze them out of markets.
Similarly, page view inventory is losing its value in the online media market. Ad inventory on the home page at mymediaproperty.com used to command a nice premium because it was unique and captured a targetable demographic. Most advertisers are smart enough to recognize the value of independent media brands to lend credibility to their marketing messages and willingly spend lots of money to support those brands. But, at the same time, most online media brands are struggling to communicate their customers’ marketing messages in meaningful ways.
Many advertisers are instead creating their own online brands rather than waiting for media companies to figure out that page views are an aging marketing platform.
I don’t have the answer to the diminishing returns on page views, but I think I know what the market could look like eventually…
Take the AllCrazyStyle mashup example. This site can tell me where to see music performances in my area that I might like by combining my listening behavior at last.fm and my saved locations at upcoming.org.
Where is the link to purchase tickets to each performance? Where is the link to buy the most recent album for each artist? AllCrazyStyle should be able to pull ad content from an ad network that knows what I’m most likely to click on, just like they can pull my listening behavior and location data.
They should be able to display ad content in whatever way makes the most sense in the user experience. I want those links to be there so that I don’t have to go hunting for them, and I want them intergated into the experience.
And like Apple, the more time and attention I invest into either last.fm or upcoming.org, the harder it is for me to end my relationship with any of them and all of the ancillary businesses associated with them.
Regardless of whether or not this concept works or makes any sense, the idea that innovation is a technical problem is short-sighted. Bad business models (or no model at all) perpetuate incomplete approaches to innovation and weak ideas.
When you’re battling in a commoditized market, you need to step back and steer the ship in another direction. Otherwise, you’re going to get sucked deeper and deeper into protecting assets with weaker values against heavier and heavier competition.
Like Kodak, you’ll fall behind all the innovators taking advantage of all the time you spend in meetings trying to figure out how to be more innovative.