The Fallacy of the First-Mover Advantage 0

In a recent article in strategy + business entitled “the Value of Being Second,” Oded Shenkar, author of “Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge,” introduces an excerpt on the wisdom of entering markets after first movers from “The Art of Being Unreasonable: Lessons in Unconventional Thinking,” by Eli Broad.

The myth of a first-move advantage is something I’ve been thinking a lot about lately.  The tech industry is especially ripe with examples of innovation which was more successfully brought to market by second (or even third) entrants. In the excerpt quoted, Eli makes mention of how Netscape introduced the first Internet browser in 1994, but that it was Microsoft who ultimately capitalized on the innovation.  A few examples I think of: TIVO introduced the first plug-and-play DVRs system, but it was ultimately the telcos and cable operators whom successful brought these to market.  Apple didn’t invent (or even introduce) the first MP3 player, but it was the iPod that made the category.

I think there several reasons why the first movers don’t always have the advantage – especially in the tech sector. As Shenkar points out, imitators, “get a free ride, avoid dead ends, capitalize on the shortcomings of early offerings or tweak the originals to better fit shifting consumer tastes.” I think there are additional reasons why innovators lose out to second movers.

First, second movers are often incumbents.  So while they might have initially missed that their clients wanted a given innovation they don’t miss it for long.  Because of the existing (and at times extensive) relationship they have with their clients they are able to more readily deploy a new offering and capture the benefits of  a new innovation.  I think that has certainly been the case with DVRs.  Cable operators recognized the opportunity and seized it.  They deployed the technology successfully by including it as an option within their existing markets in a way that was consistent and familiar with what their clients knew. Innovators are often small relative to their incumbent counterparts. They don’t have the reach of incumbents and so incumbents are able to more quickly deploy a new technology or offering.

Secondly, second movers often bundle a new innovation with existing technology or offerings and in so doing offer the end-user a more seamless experience.  Sticking with the DVR example, cable operators were able to integrate the DVRs with the set-top box and IPGs familiar to their consumers.  They were able to offer the innovation without adding another piece (ie a set-top box) that needed to be integrated into the customer experience.  In other words, one of the key value-adds of second movers is that they take on (and hence remove) the burden of integration.

Third, when innovators bring forth a truly revolutionary idea they are often confronting existing thinking head-on.  This confrontation is often responded to by legal action. Because first movers are often smaller and have less capital, these legal responses can be extremely burdensome.  First movers might not have the expertise, bandwidth, corporate depth, or financial resources to successfully mitigate these legal responses.

There are first-movers out there still holding onto a lead within their respective markets. NetFlix helped define the OTT market and still has an influential position. Netflix ended the third quarter with 25.1 million U.S. streaming subscribers – roughly one-in-five U.S. households. Twitter is still dominate within their corner of social broadcasting.  Square created a solution to enable individual users and organizations in accepting physical credit cards payments. Time will tell if these and other first-movers can overcome the hurdles that lie before those how first define new markets.

 

An Apple Effect Worth Watching 0

Most technology companies are cognizant of how network effects influence adoption, but fail to adequately stimulate these network effects.  However, a few recent service launches by Apple recognize the influence network effects can have on the uptake of Apple devices.  AirPlay and AirPrint both illustrate Apple’s understanding that the greater the sphere of influence iOS devices can have, the stronger the network effects and therefore the greater the consumer adoption.  For example, Canon recently announced they would add AirPrint support to their PIXMA printers. This simple adjustment allows these printers to become more relevant to the iOS ecosystem, but also strengthens the relative position of iOS devices within the broader device ecosystem. Being able to sent content – either audio in the case of AirPlay or print in the case of AirPrint – to adjacent devices like speakers and printers directly from iOS devices strengthens the network effects surrounding iOS devices and will only strengthen the consumer appetite for these devices.

When eReaders grow-up to be Tablets 0

What happens when eReaders grow up to be tablets? This morphing is already well underway. Barnes & Noble has always referred to the Color Nook as a tablet eReader – with tablet being the operative word. At their event this week. B&N claimed the Color Nook is the top selling android tablet in the market. Amazon – the current king in e-ink eReaders – is getting set to launch potentially two new tablet-oriented devices.  E-ink is actively working to bring to market color e-ink screens and other eReader players are treading towards tablet-like devices.  But this evolution has important implications.

First, network economics for text are very different than they are for video and more data-intensive applications. One of Kindle’s opening hallmark features was the ability of the user to download books via the cellular connection without having to independently contract with the service provider.  In fact, at one point Amazon switched Kindle cellular service from Sprint to ATT and users never took notice.

This won’t be the case as users gain access to more data-intensive offerings. These services are more bandwidth intensive (and therefore costly) than delivering text over the network.  Even though our research has constantly shown most tablet users primarily connect via Wi-Fi, the existing service contracts can’t work when devices are more than books. This will be a key element in the new tablets being launched by Amazon.

App usage on apps-enabled devices will crowd out book usage.  This has ramifications for device pricing.  In the early days of Kindle, Amazon subsidized the content instead of the hardware. This changed as Apple moved into the book business and subsequently eReader OEMs began selling ebooks at the publisher price and subsidized the hardware prices (or atleast began selling them at very low margin).  If the margin is made on the ebooks and their are less ebooks sold as a result of changing use-case scenarios – OEMs will be in search of a new business model to driven margin. 

Yes, believe the hype about the National Debt 0

Sally Kohn’s recent prose in USA Today was right in spirit, but nowhere else.  Yes, we should worry about innovation.  Yes, the future of the US economy is innovation.  And yes, we should be making strategic investments into innovation.   But it is ludicrous to suggest the national debt discussion is some “ideological attack.”

Kohn inaccurately compares a company’s income to the US economy’s GDP. The analogy fails on the surface. GDP measures national production, not the US government’s revenues – which are the ultimate source of repayment for debts issued. The US government collects net receipts of $2.16T – giving the US government a ratio of over 6-to-1.

Some Math Behind Electric Vehicles 0

The following was original published in CE Vision Magazine. You can download the full issue here.

The presence of electric vehicles at CES continues to grow with 2011 setting records on multiple fronts. As gas prices rise and show little sign of retreating any time soon, interest in electric vehicles will continue to peak in the years ahead. Here is some math to consider.

First, electric vehicles are good for domestic economic growth. Remember, economic growth in the U.S. is measured by GDP which consists of consumption + investment + government spending + exports – imports. Every dollar we import counts against domestic growth as we measure it under GDP. This includes things like lumber from Canada, consumer electronics from Asia or oil from the Middle East. If we replace vehicles that use traditional combustion engines with electric vehicles we presumably need to import less oil. We replace that oil demand with electricity demand that is created (and consumed) here in the U.S.

Adding an electric vehicle to a household should reduce the gasoline consumption of that household significantly, but it will conversely increase the electricity consumption. A single electric vehicle will increase electricity consumption by a third to one-half and two electric vehicles will consequently increase the electricity use for that household from 60 percent to possibly double the electricity use of that household.

Technology diffusion has a geographic component. A neighbor buys a new technology— be it a computer or an electric vehicle—and some of the first to notice are those most intimately associated with that individual. These are frequently neighbors, family, coworkers or other individuals in overlapping social circles. They likely live in relatively close proximity to one another, creating a geographic factor as technology diffuses from one party to the next. In the case of electric vehicles, this geographic component might be exacerbated in the earlier years because some of the vehicle manufacturers are restricting the markets where the vehicles can initially be purchased. Driving Demand Where might we see high electric vehicle adoption in the future? Basic accounting suggests electric vehicles are most financially lucrative in areas with the lowest electricity prices. The average retail price for electricity in the U.S. is roughly 12 cents per kilowatt/hour. Many of the states with the lowest electricity rates are in the western U.S. Another factor likely to influence electric vehicle demand is average miles driven. The fewer daily miles driven, the more cost advantageous an electric vehicle becomes. According to somewhat dated information from the U.S. Energy Information Agency (EIA) that has presumably not changed in relative terms, individuals in the western U.S. travel the least during the year. While we don’t have daily miles driven, these figures likely provide a good proxy and highlight another positive attribute to western states when it comes to identifying future electric vehicle demand.

Because electric vehicles can be expensive, household income also will play a role in diffusion. As you might surmise, above average household incomes are typically correlated with higher electricity costs. Only nine states have above average household incomes and below average electricity prices. Many of these states are in the West where miles traveled are relatively low. These include Colorado, Nebraska, Oregon, Utah, Washington and Wyoming. The other states not in the western U.S. are Iowa, Minnesota and Virginia. There are a variety of intangible characteristics that will influence electric vehicle demand and the subsequent impact and timing they have on the U.S. economy. If I was making the call today, I’d watch the nine states listed above.

On Privacy 0

I’ve written about Xobni for Outlook in the past, but a recent experience illustrated the role data will play in the future and ultimate implications for privacy. 

When it first launched I tried freecycle and several months ago I signed-up again to see how the service had evolved and was progressing.  Because I knew this would be accompanied by a slew of emails and I didn’t want the frequent emails to hit my Inbox, I filtered them to a separate folder.  I recently perused the folder and noted my xobni window began to update. As you know, Xobni pulls information in from sites like LinkedIn and Facebook.  After matching emails, Xobni will retrieve all available information. When a matched LinkedIn profile exists Xobni pulls in all available including location, title, and current employer.  With 100M+ users now, it is becoming more common to see LinkedIn profiles populated. For unconnected “friends” on Facebook where emails are matched it will pull in what information is allowed by the user – which typically consists of at least the profile photo.   

The emails sitting in my freecycle folder also contain information.  For example, A. W———- is giving away “10 baby pacifiers in excellent/like new condition. 4 of them are girl colors, the other 6 are gender neutral. Nuk and Playskool brands.”  This offer seems logical, her Facebook photo – delivered into my inbox via Xobni – presumably shows her son (age 2.5) and daughter (7 months).

Clearly it isn’t a stretch to presume someone giving away pacifiers has children who recently grew out of pacifier use. But what about Nikki C—– who offered a “potty time elmo doll, need batteries. Also comes with potty, potty time elmo book (interactive sound book-works) small book for elmo. I’m also including a cookie monster and cabbage patch doll.” Sounds like the mother of a young, recently potty-trained child.  In fact, Nikki is a 21 year-old college student and “Independent Childcare Provider” in the DC region. She probably cares for a child that is approaching 3 years-old.   

I could go on, but the point in all of this is information is created (or perhaps relinquished is the more appropriate term) for use in a specific setting. Users relinquish information to specific services to extract value from that service. I doubt Nikki realized I would know what she does and where she goes to school when she sent me an email and A. W—- didn’t know she was telling me the gender and approximate ages of her children or Holly who emailed me her mobile phone number and presumably has children in Hayfield Secondary since she belongs to the Hayfield Secondary network on Facebook. 

None of them likely internalized the fact they were actually emailing ME when they hit send and surely didn’t recognize that computing power would in seconds provide layers of potentially rich information on their personal lives. With the simple addition of their email address to my description of the personas listed above, I could have added to those layers. 

Xobni is first and foremost an email management tool.  LinkedIn and Facebook integration are designed to facilitate that management.  But in a very simple way Xobni shows how information is rapidly aggregated and shared. I’m not a privacy hawk, but the simple example above highlights potential externalities of information sharing.

More, we are just seeing the beginning of an approaching wave of innovation around data aggregation. Data creation – of which we are doing more than ever before – begets organization. With inexpensive computing power data creation also begets more data. Algorithms can identify previously unrecognized information.  In this way, computers take a mosaic approach to information organization – and ultimately reveal thing that hadn’t been explicitly released.  Over the next 36 months we are going to see a plethora of services intent on rearranging information and squeezing out hidden value.  

I’ll write more about it in another post, but I believe one of the key elements behind wildly successful ideas or companies – and especially in the digital realm – are the ability to organize dispersed data and create meaning. This will be a major influence on the companies sprouting in the next few years.     

Users (and especially American users) give their information away and that won’t change.  Many cry foul when this information is misused but we quickly forgive when offered something in exchange. The foundation of (potentially intrusive) mobile coupons/discounts is built on this premise. 

So what do we learn about privacy from all of this? Managing your online identity is no longer solely about controlling what lands on the top results of a search engine query of your name.  Managing your digital identity is about (1) recognizing what information you disseminate where, (2) what information will leak from that sharing, and (3) what the sum of these information tell about you.

Rethinking the Context of Connectivity 0

Last week I spoke at that the Digital Media Conference where I shared some of the following thoughts on connectivity and Internet accessible devices.

The number of devices connecting to the Web via cellular, wireless, or wired connections continues to proliferate. But many of these devices frame the value of connection within a historical context. More connection in an ambiguous sense means more data. Adding connectivity to these devices is intended to drive more data to the device. Or at least the option of more. But more needs meaning. Tomorrow’s connectivity needs to be more than just greater options and greater flexibility for the end-user. Connectivity needs to be about choice with meaning and context.

Take for example the mobile phone. When we originally brought the Web to the mobile phone it was largely about browsing the Web from the phone. This was the historical context of the time. At this time we largely understood Internet access from the context of a computer browser. The focus at the time was on a better browser experience. A mobile Web experience needed to make it easier for users to get to and between the websites they were most interested in visiting. Websites even got involved by building sites optimized for mobile viewing. During these early years of Internet access on the phone the primary story was still about the phone. Browsing the Web on the phone was secondary to using the phone as a phone….

Long-run implications of the Death of Kin: Why Blockbusters must be Blockbusters Quicker 0

Much has been written about the “death” of Microsoft’s Kin (see: here, here, and here). The focus of these analyses has centered on what might have gone wrong. I’d like to focus on something slightly different. In the death of the Kin phone I think we see something that has greater implications for technology innovation. Namely, the rate of innovation is accelerating and this puts increasing pressure on products at the intersection of success and time.

Let’s first step back in time a few years. The year is 2004. In the fourth quarter of that year, Motorola introduces the RAZR. By July 2006 it will sell over 50 million units. The Motorola RAZR would go on to sell over 110 million units before things where said and done four years after the initial launch. This record makes the RAZR one of the most successful consumer electronics products of all times and the most sold mobile phone ever (a record it still holds)….