There has been lots of focus recently on the issue of innovation in the tech world. In fact, the Federal Communications Commission just issued a Notice of Inquiry to probe innovation in the wireless market.
So what is innovation in the tech space? Experts like Clayton Christensen and Pip Coburn have done lots of research on how innovation evolves and how consumers adapt to new and innovative technology. To me, innovation is any advances or improvements in technology products or services that provides a significant benefit to society or consumers - or performs better than previous alternatives. As Christensen would say it is something that does the job better than what was there before. And significantly, from my standpoint, it does not have to mean an improvement in the technology itself. It can mean a change in the pricing or marketing of the product that is innovative and provides a significant and different improvement that was not available previously.
One of the issues surrounding the innovation discussion is the question of what promotes innovation, particularly what types of business models or approaches do so. A lot of the discussion has gotten caught up in buzzwords like “open” versus “closed” models. Unfortunately, these words are not neutral but have emotional connections with one often considered to be “good” and the other “bad”. There are even those who would argue “open” means innovative and “closed” does not. That is simply wrong as I have argued in previous posts.
To me, these models are more about “customized” or “bundled” approaches versus “non-differentiated” offerings. A “customized” offering would include the manner in which mobile phones have traditionally be marketed in the retail world where a device (mobile phone, PDA), with specific features, often including various services and priced at a special rate is bundled into a package. Sometimes a service may include a device that while bundled with the service still allows for largely unrestricted access to and use of the Internet. So a “customized” service package also includes elements of an “open” service as well.
One of the reasons I believe that the focus on “customized” versus “non-differentiated” models in terms of innovation is wrong is that it misreads how markets evolve.
Historically, if you look at competitive markets, they do not sit still, especially in the technology world. They always evolve and change and the business models associated with them do as well. As competitive markets evolve, several things tend to happen.
For one thing, prices usually moderate and differentiate over time so people have many more choices in how to pay for new services. This can mean various players in the market offer more value in terms of what is bundled in with a product or “free” add-ons. As markets evolve and competition grows, companies tend to have to try to find new and better ways to differentiate their offerings. And in this sense, they become more “open” with a wider range of offerings, some highly customized and some not.
Markets also expand in terms of who is involved, what services are available and how new offerings come to be. They become less rigid over time as companies strive to keep up with an ever evolving market and ever changing and more sophisticated consumers. It is also true that in the early phases of tech markets, companies try to more carefully define the way their products work and the revenue streams they can generate, in part because they want to maximize the return on heavy new investments but also because it is far from clear in the early stages of markets what appeals to consumers.
A few examples of how tech markets evolve over time towards more variety and more "consumer choice" focused models and offerings are worth considering. The video player market is one such case. In the early days of video player machines, the earliest entries – MCA offered a player that was disc based (Laserdisc) and the early VCRs - only allowed consumers to play the video through to the end. The videos could not be replayed or rewound or even stopped in early models. Not only that, early versions of the Beta VCR and Laserdisc players could only play one hour of material on each tape or disc. If you wanted to watch a two-hour movie, you had to play two tapes or discs.
Obviously a lot changed in those markets. Why? Largely due to technology advances and consumer demand. Beta machines were arguably better technologically but VHS technologies allowed for two-hour tapes to be played. As a result, this factor drove a lot of early consumer demand away from Beta machines. The fact that early video machines did not allow for rewinding, stopping or recording of tapes or discs met with lots of consumer resistance and frustration. In most technology markets, it is critical to get the early adopters and tech lovers (around two percent of the market) before a technology can take off and this never happened with the Laserdisc in particular. Companies found consumers wanted more choice and control and wanted the devices to fit the needs of their viewing habits (i.e., movie watching, being able to stop a movie for a snack break and so on). They also wanted to record material on their own and time shift. Over time, the technology improved and the shift towards more consumer controlled occurred.
Markets allow for testing and creativity to occur in how products are offered and they encourage evolution and adaption to consumer tastes. Different business models allow for this to occur. In the technology world, a key part of this process is often movement with a technology over time towards more consumer control, more choice and more options. In a word, towards a variety of models but with a an expanded emphasis on more “open”, less “customized” models.
Or consider the mobile market. It used to be that many if not most of the applications and features on cell phones cost extra. Pricing was on a per minute basis in the early days for voice calls and you had to pay for incoming calls. In short, very little was bundled in with the phone for free and there were per minute charges or extra charges for many services or features available on phones.
Things have really changed in the market today. A partial list of services that are available on mobile phones free includes Basic Voice, Call Waiting, Call Forwarding, Caller ID, Caller ID Blocking, No Answer/Busy Transfer, 3-Way Calling, Content Filters, Talk hands-free, Voice Dialing, Speed and Spam Controls. A more extensive list is included in this press release from Verizon Wireless.
And this is just a partial list. For example, it used to be that in most cases you had to pay to upload all photos from your phone to “Pics Place” on Verizon’s servers before you could share them. Now, not only do some phones have Bluetooth, which allows them to connect directly to a PC to download photos, many have an SD memory chip that can be removed and can be inserted in a reader on a PC or a USB connected device and loaded right on to the PC. All of this is “free” too and that was not the case just a few years ago.
Or look at the various more “open” models that exist today in the mobile and video markets for Verizon products and services. On our FiOS TV platform, we offer a “Widget Bazaar,” including Facebook and Twitter widgets (soon to come: NFL stats, Kodak photo sharing, Home Shopping Network). We are currently developing new Widget apps with third-party preferred partners; inviting feedback and comment from developers. In the next few months Verizon will publish a Software Development Kit with API’s (application programming interfaces) based on a widely used open programming language called Lua. This will enable third-party developers to write programs for the FiOS TV system.
Or take our wireless network. Verizon Wireless is the first in the industry to open our wireless broadband platform to third-party development. In 2007, we announced the Open Development Program allowing third-party devices to connect to the current 3G network and the soon-to-be-deployed 4G / LTE broadband network. In 2008, we held an open development conference, developed an efficient review process and released specifications for mobile device manufacturers and certified two independent labs for testing 4G devices. This year, we held a Verizon Developer Community Conference in Silicon Valley for developers of mobile applications and announced a very efficient (14 day) review program for the approval of new applications. So far, nearly 50 devices have been certified for our 3G network including an inventory management device that lets suppliers know when materials get low, smart grid technology for utilities to read meters and manage energy usage and a wireless medical chart for health care professionals to access patient records.
I think it is important to understand how technology evolves and what the market really looks like today, in all its forms. As the technology improves, it is generally true over time in competitive markets that business models and offerings become less rigid. Consumers get more value and there are more choices and options for consumers that are either added in “free” or are offered in a more open manner.
Having a range of business models and offerings gives consumers more options. Some consumers want the ability and flexibility to actively create content or use a wide array of applications on the Internet. They may face the dangers of attacks and malware, and the difficulties that sometimes come with using new applications on the Web. But it is a tradeoff they are willing to make. Others may want more simplicity and may feel more secure with services that are built into their devices or provide controls to restrict access by teens, for example, to the Internet. To me, this is all good and helpful to the consumer. No one way always works best for everyone. And it is the way competitive, high tech markets evolve. It has been true in markets like video players, as noted above, but it is even more true of the mobile market today.