Category: Management

WSJ writes about how Jobs is the one person who could bring about the much-touted convergence between the worlds of computing and entertainment.

Mr. Jobs is today increasingly fashioning himself as a digital-entertainment impresario. Over the past two years, he has turned Apple into a producer of entertainment technology for digital photos, movies and music, culminating in next week’s unveiling of the online-music service.

Mr. Jobs hopes to create a new model for online music, a business that so far has only been able to draw large numbers of customers seeking free tunes on Napster and other renegade file-swapping services. Napster grew quickly and peaked with about 60 million users but shut down in 2001 after losing a legal battle with the recording industry.

According to people who have met with Mr. Jobs, the new service is integrated with Apple’s iTunes software. Only Apple customers can use it, but that may change. The service requires a mouse click to buy songs and additional simple steps to move them to a CD or an iPod. Apple will charge 99 cents per song and sell albums for around $10, they say. Users will get to keep the songs permanently.

Jobs also owns Pixar, which is releasing “Finding Nemo”, its latest animation film, soon.

Continue reading Steve Jobs and Digital Entertainment

HBS Working Knowledge has an article on Clay Christensen’s ideas on creating sustainable new-growth businesses.

The third model Christensen termed new-market disruption, whereby you create a product for a customer who hasn’t been able to participate because of low skill level or low wealth. The initial product for this new market usually isn’t very good; in fact, it’s usually “crummy,” Christensen said.

But it’s good enough. When Sony developed the first transistor radio in the 1950s, the sound was awful. But Sony sold them to teenagers, a group that couldn’t afford the nice-sounding, floor-standing radios their parents enjoyed. For them, a transistor would do just fine.

Once the initial crummy product has kick-started a market, follow-on products become better and better, eventually drawing in customers from above. As transistor radios evolved into the Walkman, parents bought them, too.

Another key in identifying potential markets is to never compete against the customer’s manifest priorities. Instead, he said, facilitate them.

The titel of this Business 2.0 story – How to make Money on the Net – caught my attention. It was the subject of a seminar we had conducted in Mumbai in August 1995! The article discusses the strategies of 6 companies:

The Cross Selling Machine: Wells Fargo
The Deal Monger: Restaurant.com
The Opinion Catcher: Harris Interactive
The Entertainer: Skyworks Technologies
The Minimart: E-Trade
The Low-Cost Alternative: United Online

Successful Internet companies, Yankee Group analyst Robert Lancaster says, exploit the Web’s unique ability to attract and engage. “They’re building profiles of their customers, understanding what they like to do, and delivering a service.”

Yesterday, I received William Gurley’s latest newsletter about dotcoms that are working. His reasoning:

1. They werent bad ideas. In fact many were good ideas. Were there too many consumer startups? Yes! But there were also too many software companies, semiconductor companies, telecom equipment companies, and the list goes on and on. As we later learned, over-funding (i.e., too many startups with too much capital) was the key issue, not the particular investment category. Low-cost, high-scale marketplaces do in fact exhibit increasing returns. And these marketplaces have incredible “moats” (to borrow a Buffetism), that represent unprecedented barriers to entry.

2. Rationality set in first. As the first to fall, consumer Internet companies were the first that were forced to recognize that money is not in fact cheap, but expensive, and that profitability is the real goal to the game. As such, these companies adjusted and learned lessons earlier than most. The results are apparent.

3. Quick capacity reduction. Unlike many other sectors, capacity adjustments come quite quickly in the consumer Internet space. There is no such thing as a web site that is selling ads at a discount just to help offset fixed costs. There is also no heavy “infrastructure” that negatively affects the industry dynamics.

4. Internet growth is systematic, not cyclical. Consumer spending may be down 5%, but online spending is still such a small percentage of overall consumer spending that growth results from the continued increase in online usage. With IT expenditures already at 50% of corporate capital expenditures, the opposite is true for traditional information technology spending.

Gurley’s last line says it all: “Perhaps being a dot-com isnt so bad after all.”

From the Harrow Report come a nice thought:

In my opinion, the real magic [of innovation] will indeed come from these intersections,” as scientists and engineers from formally disparate fields come together and develop new questions and totally new ideas, sometimes getting “ah ha!” insights into how to do today’s things better, and how to do new things that were only yesterday firmly in the realms of our imagination. This mixing and mining of previously stovepiped ideas and knowledge will be the catalyst that opens our collective eyes to fascinating new visions.

I very much agree with what Jeffrey Harrow says. That is why reading and interacting with people who can help provide “short-cuts” to different worlds is so important.

Continue reading Innovations via Intersections

Rich Karlgaard writes in Forbes about how the world is moving in the direction of the cheap revolution, and Christensen’s suggestions on how to escape it:

Improve your product offering faster than anybody else can. This tactic works, generally, only for market leaders with a good brand name, a greased distribution channel and financial might. (Think Intel.) And it works only as long as the market wants the added functionality and is willing to pay for it.

Sell fast custom solutions that answer a customer’s needs. Xilinx, with its programmable logic chips, does this. So does IBM, despite its size. IBM’s trick has been to go modular and bring into its Big Blue tent an army of third-party solutions providers. The old, highly integrated IBM would never have been able to react quickly enough to customers’ needs.

Find an unserved market and serve it cheaply. This is the way of the disrupter, says Christensen. The product or service should be so cheap, in fact, that the industry’s old guard thinks there’s no money to be made and walks away.

Continue reading Cheap Revolution

Business 2.0 writes about research by David W. Galenson “to explain how people innovate.

Examining the relationship between age and earning power for 125 famous artists, Galenson identified two archetypes: Picassos are bold, conceptual thinkers who peak early and innovate in dramatic leaps, while Czannes are patient experimentalists who gradually improve with age. “All intellectual activity breaks in these two ways,” says Galenson, who has since found similar divisions in poets, economists, and, yes, corporate executives. The trick is to balance the two types of talent: A youthful flash of innovation can make your company hot, while steady, mature management can help build lasting greatness.

– Picassos: Marc Andressen, Steve Jobs, Shawan Fawning Bill Gates.
– Czannes: Craig Barrett, Meg Whitman, Reuben Mark, Richard Wagoner

IdeaFlow (Renee Hopkins on Corante) has an interview with Henry Chesbrough, the author of “Open Innovation” [1 2 3], whose thesis is that “the traditional model for innovation–which has been largely internally focused, closed off from outside ideas and technologies–is becoming obsolete. Emerging in its place is a new paradigm, ‘open innovation,’ which strategically leverages internal and external sources of ideas and takes them to market through multiple paths.”

He has this to say about better innovation, as opposed to more innovation:

I think of “more” as a quantity. I think of “better” as a quality of something. In this case, better innovation enables people to solve problems that are important to them. In business terms, these solutions are worth more to the consumer than they cost to provide, so the consumer is willing to pay what it costs for the solution, and gets more value than they pay in return. Better innovation not only enables people to do their tasks faster or easier, at its best it can enable people to do new tasks.

Quotes from an interview with HBS Working Knowledge:

That framework is changing now. The Internet is redefining software. The Internet is redefining the role of computing and communication and their interaction with each other. I still dont understand the new framework. I dont think any of us really do. But some aspects of it are pretty clear. Its proven to be not computing based but communications based. In it computing is going to be subordinated to the communication task. It is going to be very heavily dominated by the increasing portion of all intellectual property being created in digital form, stored in this platform, and therefore ready to be transported in digital form.

None of us have a real understanding of where we are heading. I dont. I have senses about it. But decisions dont wait; investment decisions or personal decisions dont wait for that picture to be clarified. You have to make them when you have to make them. And try not to get too depressed in the journey, because theres a professional responsibility. If you are depressed, you cant motivate your staff to extraordinary measures. So you have to keep your own spirits up even though you well understand that you dont know what youre doing.

You can promote intuition. You can recognize the innate aptitude of people to grasp what cannot be spelled out and cannot be shown by data, to be in tune with those vague attributes on the other side of that vague valley. And put them in positions where they can act on their intuition. But having said that, this presumes that the person making the promotion has a grasp of the situation. Which goes right back to where you started with your question. The senior leader has to have the understanding and the confidence in his conviction.

Fortune writes about the entry of Starbucks into its top 500 at No. 465:

The Starbucks story epitomizes “imagine that” in every sense. When the company went public 11 years ago, it had just 165 stores clustered around Seattle and in neighboring states. At the time coffee was a 50-cent morning habit, and your local diner was the pusher of choice. Skeptics ridiculed the idea of $3 coffee as a West Coast yuppie fad.

Today the company, which does not franchise, has over 6,000 stores in more than 30 countries, with three new stores opening every day. Critics on Wall Street give Starbucks two more years before the market here at home is saturated. Schultz, sitting impatiently in his office with its unscenic views of the Port of Seattle train tracks, scoffs at that interpretation. “Those who talk about saturation obviously don’t understand our business strategy,” he says.

The strategy is simple: Blanket an area completely, even if the stores cannibalize one another’s business. A new store will often capture about 30% of the sales of a nearby Starbucks, but the company considers that a good thing: The Starbucks-everywhere approach cuts down on delivery and management costs, shortens customer lines at individual stores, and increases foot traffic for all the stores in an area. Last week 20 million people bought a cup of coffee at a Starbucks. A typical customer stops by 18 times a month; no American retailer has a higher frequency of customer visits. Sales have climbed an average of 20% a year since the company went public. Even in a down economy, when other retailers have taken a beating, Starbucks store traffic has risen between 6% and 8% a year. Perhaps even more notable is the fact that Starbucks has managed to generate those kinds of numbers with virtually no marketing, spending just 1% of its annual revenues on advertising. (Retailers usually spend 10% or so of revenues on ads.)

Starbucks is aiming to have 10,000 stores worldwide by 2005.

The Starbucks story is remarkable because (a) it as happened in front of us (b) tey have done it with a commodity product (c) they have spent almost nothing on advertising.

WSJ talks to Oracle’s Larry Ellison who gives his thoughts on how to survive the coming tech shakeout:

Recognize that simpler is better. He hopes to switch Oracle’s operations, which span 160 countries, from 1,500 servers to just 24 Dell Linux boxes.

Don’t reinvent the wheel. To fly to California, you shouldn’t have to design your own plane, build your own airport and learn to fly. But that’s how much of the tech industry operates.

Take advantage of proven technology. “Every child’s unique. Every computer doesn’t have to be.”

Remember specialization of labor and economies of scale. “Companies will start doing less of their own computer operations and outsourcing more.”

Take cues from the customer. “We became the largest industry in the world by selling things that people didn’t want to buy.” That has to stop, he says.