The crowd, as it always is at TIE events, was a mix. The usual Indian serial entrepreneurs, who have been in the game longer than you’ve been alive, hard-core fat-fingered desi supercapitalists who start a new company every year and could eat you for breakfast, were in attendance. White dudes from Sand Hill Road cruise the heavy hitters, looking for a fast, mutually beneficial transaction. Caught in the middle of this mating dance, herds of newbies trying to start their first company (or just trying to network their way into a better job) circle nervously, clutching their drinks and trying to make small-talk. Everyone has an agenda, something they want to sell or buy, a rumor they want to spread, something. Did I mention there was free booze and good Thai food? My kind of party.
Moore stepped to the mic at 19:00 sharp and proceeded to break it down for us. He painted a dismal picture: the maturing of the technology industry, combined with the addition of India and China to the global knowledge economy, means that the party is basically over for product innovation. There are fewer new categories, and open source commoditizes them faster than new ones can be created. The result: the “innovation premium” that the valley has grown fat on has been all but eliminated: companies like HP innovate furiously just to keep up with the Jones, and watch companies like dell commoditize the innovation before it has payed for itself. The ROI of raw, undirected innovation has decreased drastically.
To start the discussion, Moore listed what your innovation dollars buy you:
Differentiation: (what makes customers say “I want a $product_name, and I don’t care that it costs $innovation_premium more”).
Catch-up: where you have to innovate just to match the functionality of your competitors. No upside here, just protection from downside.
Productivity: you can innovate to reduce your own costs, which is obviously a good thing.
Waste: innovation that your customers notice but won’t pay a premium for: as much as 50% of product innovation falls in this category.
The problem is basically that the “waste” category of innovation is growing, making product innovation unattractive to good capitalists.
The solution is focus: innovating willy-nilly no longer works: you have to pick which type of innovation you’re going to bet on, and bet the farm on that. The goal is to achieve “escape velocity”, to punch through the marketing noise and build a product that excels at one thing so spectacularly that your customers pay a premium to buy from you and your competitors give up. Shades of the “purple cow” concept here, though from a more respected source. ;->
Moore describes products as evolving over time, as value is continually extracted from the core of the product (as it gets commoditized) and layered on to the surface into specialized, customized products for ever-smaller, ever-more specialized markets. He calls this “fractal evolution”. The best example of this was the progression from: land line phones to cell phones to weird things like ring tone markets and VOIP video-phones.
The rest of the talk was a guided tour of Moore’s new innovation model. You basically pick which of the 16 types of innovation will allow you to achieve escape velocity, and bet the farm on that. This “over-invest in one idea”, “pick the battlefield and you’ve already won the battle” approach is an echo of his original “Crossing the Chasm” thesis.
Product Leadership:(Silicon Valley’s specialty, less juice here than there used to be)
Disruptive Innovation: “The new new thing”, the “game-changer”. Examples: Cisco / Netscape
Application Innovation: “Wow this really solves my problem”: Examples: Amazon.
Product Innovation: “This is an awesome product!” Examples: iPod, BEA
Platform Innovation: “We’re going to play in your ecosystem”: Oracle, Sony
Marketing Leadership (a good strategy for maturing markets)
Line Extension Innovation: Build so many versions of your product the competition gives up. (e.g.: Symantec) //note I’m suspicious as to whether this works: -jb
Enhancement Innovation: Add so many features to your product the competition gives up. (e.g.: Autodesk)
Marketing Innovation: Own the conversation with the customer. (e,g,: Intuit blog-marketing)
Experiential Innovation: Kick ass usability and branding. (e.g.: AOL (“you’ve got mail”)
Mature Market Leadership (good strategy for mature markets)
Value Engineering: Extract value from the “core” and pass it on to your customers: (e.g.: emachines)
Process Innovation: Run your business so it costs you less than the competition: (e.g. Walmart)
Integration Innovation: Bundle your products so your competition get’s squeezed out. (e.g. MS Office Suite)
Business Model Innovation: Run your business using a radically innovative business model. (e.g Red Hat, eBay).
Renewal Innovation (when your product category starts to die)
Organic Renewal: get into a new business (eg: IBM: hardware->services)
Structural Renewal: buy or be bought: (eg: BEA buys weblogic)
Harvest and Exit: smoke the last of the cigar butt (eg: ATT long distance)
In the question and answer session, I asked Moore about where usability fits into his model. He gave a little smile and said “it helps keep your customers loyal, but it’s not so good at getting new customers onboard”. Finding the payoff for usability in a world where innovation is at a reduced premium is going to be a struggle.
I’m not sure I buy Moore’s whole model. Some stuff just doesn’t fit (business model innovation is for mature industries? Ebay wasn’t in a mature industry in 1999, and neither was RedHat). On the other hand, I may not have a choice. Moore has a history of defining the vocabulary with which we talk about Silicon Valley business. Overall this is good stuff, and I’m sure I’ll end up buying the book when it comes out ;->. The tech business is definitely maturing, and we need a model describes what happens in a more “Main Street” world.