Of smoke,clouds and innovations

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


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!