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Transformative innovations: timing the strokes
Roopen Roy
(Views expressed are personal)
Innovations are constantly happening around us. Some innovations are
taking place in scientific labs, others in businesses. Some
innovations are incremental, others transform the industry. Clayton
Christensen of Harvard Business School (HBS) calls them disruptive.
When radical innovations happen, some of the leaders in the industry
bite the dust. One way to survive when disruption is underway is to
ride the wave and not go under. The chances of survival often depend
on how fast and how ruthlessly you cannibalize your existing business.
But if the disruption is only incremental and you bet the farm on
the success the new technology, you may take the business down .
This a dilemma that each player faces in making the conviction call.
There are many examples of disruptive innovations in history. Digital
photography is a good one. Some players like Polaroid believed that
they were in the business of manufacturing cameras for instant
photographs. They soon realized that they were in the business of
instant imaging. If a competitor could also add quick portability to
instant imaging then it changed the game. Some players ignored the
potential, some understood it late and a few embraced with passion.In
the third category, Nikon, Canon and Leica not only survived but
emerged as leaders in the new paradigm.
But it is not easy to figure out at an early stage, which innovation
is incremental and which one is disruptive and create business
strategies to take advantage of it. I recently saw a friend smoking an
e-cigarette. He believes that it will completely disrupt the cigarette
industry as we know it. An electronic cigarette, or e-cigarette, is an
electrical nicotine delivery device. It simulates tobacco smoking by
producing an inhaled mist bearing the physical sensation, appearance,
and often the flavor and nicotine content of inhaled tobacco smoke.
The device vaporizes a propylene glycol or glycerin-based liquid
solution into an aerosol mist, similar to the way a nebulizer
vaporizes solutions for inhalation. My friend bought his e-cigarette
device from a website @ www.gamucci.com. Are we seeing a disruptive
technology which is a healthier option to smoking as the website
claims? If there is widespread adoption, it will. I personally believe
it will create a niche market and not replace conventional smoking.
But the cigarette companies must not take their eyes off the ball.
Out of curiosity I searched the internet and I found that the big boys
were hedging their bets. Philip Morris International Inc. (PM), the
maker of Marlboro and Benson & Hedges recently took a license to a
patent on a nicotine-delivery system intended to reduce the harm of
smoking.
Professor Jed Rose, who heads the Duke University’s Center for
Nicotine and Smoking Cessation Research, was among the inventors. The
technology licensed by Philip Morris “has the potential over time to
offer an attractive alternative to conventional cigarettes, thereby
reducing smokes’ exposure to carcinogens and other harmful smoke
constituents,” Rose said in the statement. I found the expression
“over time” to be pregnant with meaning.
Let us look at another disruptive innovation in music delivery
literally as it is happening. Apple has just announced i-cloud. It is
not the first player to offer music in the clouds. Amazon was offering
it already.
Question: what should a player like Gramophone Company of India (GCI)
do in the face of this disruption? Should it join hands with Apple,
Amazon or Google to sell and distribute its music titles? If they do,
they run the risk of losing the customer relationship. They may then
become, to coin a new term, a “royalty arbitrage” player. In this
model, they pay Shreya Ghosal Rs 2 per song and charge the cloud
distributor Rs 5 yielding a royalty arbitrage of Rs 3 per song.
The business model in real life is far more complex . The advantage of
a “royalty arbitrage” model is easy to see. You have no hassles of
creating or maintaining infrastructure. A player like Apple can handle
promotions and distributions well , through their i-tunes stores and
now i-Cloud. You do not require a collection infrastructure and you do
not even need an interactive portal. You focus on creating great music
albums, identifying the stars of the future, negotiate contracts with
artists that create the framework for continuous streams of “royalty
arbitrage” cash flows. That’s it.
It has another option though. It can keep the “ownership” of
customers and outsource to a cloud infrastructure provider –say Amazon
-without giving up its last mile rights to the customer. So if you
bought, in aggregate, ten albums you may get 10 GB space in a music
vault in the cloud for free to store your music there and play it on
any device- anytime anywhere. The notion is not as Utopian as it may
seem. Just look at China. Which is the largest search engine there?
Google or Bing? Wrong-it is Baidu –a homegrown search engine. Which is
the largest on-line trading site? E-Bay? Wrong again –it is Alibaba.
Using a combination of Bollywood and vernacular music and videos GCI
could create its own branded cloud store.are by far the largest
segment –so why not create an Indian digital music store in the cloud
not from scratch but by creating a framework with intelligent
outsourcing of infrasrtucture and promotion. How fast should HMV
embrace the cloud.
The speed of adoption will depend on access to internet and mobile
technology and which devices will consumers prefer to use to listen to
their music. If folks in India prefer to listen to music on their
mobile telephones then adoption may be faster than one thinks. But if,
by and large, many consumers do not wish to throw away their CD
players and do not wish to listen to music on their cell-phones or
laptops, then it would be highly risky to bet the farm on cloud. In
cricket stroke play is important but timing is critical. And what is critical is timing!
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