Value Creation at its best.

Great article at The Next Web about how Apple’s long term strategy will likely dominate the tablet market.

They project a ten year dominance, similar to the experience of the iPod. In the article they provide, what I believe, are 7 compelling reasons for their dominance.

1. They are outselling (not just out shipping) by a factor of 10 to 1.
2. Tablets are not smartphones.  So competitors have to compete with Apple on device profitability alone.  In the tablet market there are no data plan subsidies to back them up.
3. Apple’s 336+ stores provide a high touch environment to learn whether to buy an iPad.  Moms and grandparents will be converted more by that experience than a tethered tablet at a Best Buy or WalMart.
4. Apple has the profit and cash reserves to invest heavily in the latest technology (solid aluminum skins) that make their designs more elegant and user friendly commanding higher prices and better experiences.
5. Apple, based on the above, has altered the relationships with suppliers, obtaining agreements that lock in their margins and lower cost advantage on the new technologies they fund.
6. Apple’s ecosystem.  Mac, iPod, iPhone, iPad.  Once they pull you into the fold it’s hard to leave as the devices work so well together.  This phenomenon is sure to accelerate with the advent of the iCloud in the fall.
7. It works better.  Technically the user experience is smoother with the iPad.  They give reasons why the touch interface works better based on the underlying technologies and iOS software.  Watch for improvements in the next iPad.

It’s a compelling read on value creation at its best and the execution of a business model strategy.  A must read for all executives about how to pull all the pieces together into a cogent sustainable differentiation strategy.

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There has been a lot of  negative press about Apple’s launch of the iPad.  Some commentators have focused on the name choice.  Others have lamented the lack of features: no multitasking, no video, no touch keyboard, to name just a few.

Missing the point

They’re missing the point about creating new market spaces.  Creating a new market space occurs when you enable new behaviors to emerge in a target population.  Specifically, if your offering (the disruptor) allows people to do something they couldn’t do previously, and many people want to do that, then it takes off.  The new behavior disrupts the norm of how people interact with each other and with space and in so doing, creates new value.

The power of new behavior space

For example, the Blackberry brought us push email.  That allowed us to stay connected everywhere.  New behaviors emerged, not all of them desirable mind you (emailing during a meeting).  This new behavior enabled by the Blackberry disrupted other phones and organizers (the Palm).

iPhone utilized the programmable touch screen.  That allowed more intuitive interfaces and a whole slew of new behaviors to emerge.  Face-Book, Twitter, Traffic alerts, conversion calculators, games, games and more games, etc.  Over 100,000 apps have been created in all sorts of areas with a corresponding increase in new mobile behaviors.

What they, and others (the telephone, steam engines to name a few oldies) did was create new behavior space.  As new behavior space grows, so too new market space grows.

(Behavior space = the number of people x the frequency at which they demonstrate a behavior.)

The iPad’s new behavior space

So what new behavior will the iPad allow to emerge?  When you inspect the core functionality of the iPad through the lens of behavior space you see that it was built primarily for two purposes, both of which do not currently have large “mobile” behavior spaces.

1. Playing games
2. Viewing media content (books, movies, magazines, newspapers, etc.)

Let’s just explore the latter.

Yes, the Kindle and Sony Reader already exist.  However, their adoption rates are small.  They haven’t swept the market.  I suggest two reasons for this lack of explosive growth.

1. Their offering is mostly one dimensional.  They only offer reading.  More critically, there is no obvious path for a potential consumer for new behavior growth. Consequently, potential buyers only have one reason to buy.  Do I want to be able to read in a mobile environment?  If yes they buy.  If no they don’t.  They’ve hung their hat (mostly) on one behavior.
2. Their business model does not include the potential for rapid evolution of content experience.  You can buy a book from Amazon, or you can download it.  In either case the book is largely the same.  Where is the capability to change the nature of the book, or magazine to take advantage of the new technology (disruptor)?

Look at how the iPad value-disrupts

1. iPad offers room for growth.  It has both games and media content (including movies) so it is multi-purposed to begin with.  Combine that with iphone apps and the device has more room to grow.  People will buy the iPad because there is more behavior capability there, and there is an expectation that those capabilities will grow even further.  This is especially true given Apple’s reputation.
2. With the app capabilities expect to see all kinds of new media content.
   • Self book-publishers will now publish their books through the iPad.  I worked with a self-publisher (Dr. Alex Osterwalder) on his recent book Business Model Generation.  Now he can publish on the iPad and make the experience far more interactive and rich.
   • Apps will allow successful bloggers to monetize their blogs.
   • The newspaper industry, which is in death throes, will do what the music industry did – migrate their offering to the iPad.  Some have calculated that printing The NYT costs twice as much as sending every subscriber a free Kindle.  With a multipurpose iPad it will make sense for them to build their own apps for their newspaper.
   • Creative magazines and newspapers will use color, 3G connections, GPS locators, video-play and gaming capabilities to develop an incredibly rich multi-media, multi-connected, location-specific experience to the user.  Think about that for a moment from a behavioral perspective.  What will the world be like when you can be at the corner of Main and Water street in your home town and point to a building and be presented with a multi-media array of games, news, background information, promotions, etc. all relevant to the entities you are pointing at?  Or, imagine what a “NYT experience” could be.  Even better, imagine what a small town paper could do (the Saskatoon Phoenix experience).  How exactly does Kindle compete against that?

The secret to market space is in creating new behavior space through a value disruptor.  The iPad, like the iPhone before it, and the iPod before that, is their next value-disruptor.

Watch the publishing industry be value-disrupted

So, no the iPad is not a replacement for the laptop.  No, it doesn’t do multitasking, or have video, nor phone capabilities.  It doesn’t need to.  It’s going after a much larger market.

100′s of thousands of  iPhone app developers combined with a mobile multi-media device creates the potential for a massive increase in behavior space in the publishing industry.  Apple will do to the publishing industry what they did to the music industry.  They will value-disrupt it.

What new behaviors can you imagine emerging?  In gaming?  In publishing?  How will the business models of publishers change?

You can learn more about value-disruption from the following posts.

1. How to differentiate - a story about a small janitorial firm
2. How LinkedIn is disrupting the recruiting industry
3. Pepsi uses crowdsourcing. Commoditizes Superbowl advertising
4. Will Google’s Nexus disrupt the smart phone industry.  Not yet
5. Companies value-disrupting their markets; a dialogue

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Google’s Nexus is hot.  The question is. . . .  is this a game changing device?  Will it disrupt the Smart Phone industry by bringing in new capabilities that sweep away the incumbents?

Background – Current Share

Research In Motion (39%) continues to be the smart phone market share leader, down 1-pt since our previous survey in September. At the same time, number two Apple (AAPL; 31%) has edged up 1-pt since September. We note that Apple has experienced continuous market share growth every quarter since the iPhone launch two-and-a-half years ago.  Palm (6%), after holding steady in the previous survey, has slid 1-pt since September. (From Cellular news)

Maybe yes?

Google has a loyal following who love everything Google.  So there will definitely be a movement towards them.  Cellular News says  21% of those planning to buy a smart phone in the next 90 days say they’d prefer to have the Android OS on their new phone – a monstrous 15-pt jump in just three months.

To put this in context, three months ago Android OS was tied for last place in consumer preference among the major mobile operating systems. But since then it has surged into second place ahead of all competitors except the iPhone OS X (28%).

But

Buying intentions is one thing.  However, translating intentions into sustainable purchases based on significant differences is a horse of a different color.

DAVID POGUE of the New York Times did a good review of the features and capabilities of the Nexus.  When you read through his article you’re left with the impression that with the exception of “everywhere” voice recognition most all else is a little better or the same as the other features, with the exception of apps where Apple holds the lead.

Why Not Yet.

To disrupt an existing industry you have to create sustainable buzz, as opposed to just marketing buzz.  And sustainable buzz is generated when a latent behavior emerges – when the use of a technology affords the user the possibility of doing something they couldn’t do before that is meaningful, reliable, and accessible.  (Previous posts on disruption  here and here.)

For example, the Blackberry brought us push email.  That allowed us to stay connected everywhere.  New behaviors emerged, not all of them desirable mind you (emailing during a meeting).  This new behavior enabled by the Blackberry disrupted other phones and organizers (the Palm).

iPhone utilized the programmable screen with no keys.  That allowed more intuitive interfaces and a whole slew of new behaviors to emerge.  Face-Book, Twitter, Traffic alerts, conversion calculators, games, games and more games, etc.  Over 100,000 apps have been created in all sorts of areas with a corresponding increase in new behaviors.

Now Nexus has arrived.  Its new capability is voice recognition across all applications.  That means that where users are limited in their ability to type, or interact with the screen they can now use voice commands.  That’s good in the car for example.  So we can expect new behaviors to emerge in hands-free environments, subject to increasing legal restrictions for phone use in the car.

Is that enough to create the buzz?  To see massive movement from iPhone and Blackberry over to Nexus.  It doesn’t seem that there is enough new behavioral capability that would warrant such a move.  Especially when voice recognition reliability is not 100%.  Less than perfection is okay when you ask an app to open.  Not okay when you dictate a letter to a client and it contains errors.

Then Again

But. . . . the big BUT.   Google does have presence.  People will buy the Nexus.  They will become a direct player in the Smart phone industry.

AND, their operating system is open source.  Blackberry and iPhone are not.  With smart-phones only holding about 3% of worldwide market-share (17% North America)  it is entirely possible, (likely?) that from this base their open source developers will develop new disruptive capabilities that Apple and RIM cannot compete with.

So, the battle has begun.  Goggle won’t disrupt with this first addition, but don’t count them out.

Tips for business owners and executives

What can we learn from this story:

1. Not all disruptors have the power to value-disrupt a market.  Nexus everywhere voice recognition by itself is not enough.
2. Sometimes you first need to be playing in a market before you can disrupt it.  So adding a disruptor to your offering let’s you gain fast share and establish your credentials as a player.
3. You need to have a follow-on strategy for how you will ultimately value-disrupt.  Google’s open source operating system, with its faster speed to market for new disruptors, is the play with the potential to give them the leadership in the market.

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Unpacking stories to find the truth that lies underneath is always fun.  Here’s a story about a janitorial firm in Cincinnati Ohio that is both inspiring and, reveals how to escape commoditization by differentiating.

First the story.  The basic facts are these.

• They are a janitorial firm (since 1972) that service office buildings over 100,000 sq. ft.
• Like companies in the industry, their employees were largely immigrants looking for a first job that could lead them somewhere else.  After all, who wakes up thinking of cleaning toilets as a career?
• They like everyone else suffered from massive turnover – 400% a year (Yes, that’s 100% every 90 days.)
• You can imagine the turmoil and the low, low margins this level of turnover would create.
• So they implemented a bold idea.  They provided a Dream manager for their employees (all of them).   The dream manager met monthly with the employees and helped them articulate their dreams, plan for it, and because a financial component was usually involved, helped them save for it.

Think about the boldness of this idea for just a moment.  How crazy is that?  A dream manager?  Who has ever heard of such a thing.  A company that spends money helping you achieve your dreams?

Back to the story.

• The Dream Manager Program worked. It slowly gained momentum as employees started achieving their dreams.
• It really took off when Rita bought a house.  Then everyone saw that they too, could realize their dreams. (A car, a good education for their kids, a proper Christmas, a vacation back home, simple things many of us take for granted.)
• The results were (are) incredible.  In five years, 2,785 significant dreams were realized, turnover fell to 4%, gross revenue tripled, profits rose every quarter.
• Their costs are lower. Their client satisfaction tops everyone else (As you can imagine, their employees are very loyal and willingly work very, very hard). No competitor can match them.  They are differentiated.
• BTW, there are now 11 full time dream managers on staff.

What does this all mean?  Should we all hire dream managers as part of our business model?

No, not necessarily, but it does teach us an valuable lesson about how to differentiate.  It starts with a new phrase - value-disrupt.

A rose disrupts the moment. To differentiate, disrupt behaviour

Greatness has always disrupted the norm.  From fire to electricity; from writing to the iPod; different objects, different models, different ideas all inspire latent behaviours to willingly emerge that create new value.  (That’s they key!!)

Let’s unpack the story and discover the formula for differentiation.  As we go through the story we underline the elements.

1. Jancoa recognized a human motivation that existed in their target group.  In their case – the motivation of their employees to dream, to hope for a better future.  (While this motivation is universal for most of these immigrant employees they had long since stopped dreaming.  After all, life taught them they would never reach their dreams.)
2. To enable that motivation to express itself they created a disruptor – (The combination of a resource and associated interface)  = the dream manager with the monthly meetings.
3. The value-disruptor provoked a latent behaviour to willingly emerge.  Employees articulated their dream, planned for them and with the help of the dream manager, monitored progress a monthly basis until the dream was realized.  They did so without being coerced.  They wanted to do this.  A latent behaviour willingly emerging is the KEY.  It’s a new behaviour that a target group willingly adopts that causes a disruption to occur.
4. It disrupted the relationship between the employees and the company.  Duh Yeah!  I don’t just clean toilets here.  I make my dreams come alive.
5. That value-disrupted their markets.

So there you have it, the formula for differentiation.  I’ll return to this value-disruption concept in future posts.

Tips on disrupting

1. Focus on the new behaviour you wish to emerge.  As a result of changing your offer will they do different than they did before?
2. Test it for willingness.  Why will the target do it willingly?  To answer this question think about how easy it will be and how strong the motivation is.
3. Finally, remember that technology by itself is useless.  What is the work process that surrounds it that makes it useful?  Fire by itself just burns.  When you have a work process to control fire you have something useful that will value-disrupt.

Many thanks to Alex Manu who introduced me to this concept.

Thank-you for visiting www.ennova.ca.

You can buy their book about their experience here.  It’s a great holiday gift.

Michael E.Porter asked and answered this question in an HBR article in November 1996. To paraphrase him today using Twitter his response would now read something as follows “Strategy is be different. Be different is unique value. Unique value is doing different activities, doing activities differently, or both.”

Much has changed in the work since he wrote those words. However the fundamental truth of them has not changed.

The growth of the web has changed much, not the least of which is its impact on business models. We are now witnessing an explosion in the number and types of business models. Here are but five examples.

1. Skype
2. Cell phone usage in rural communities in Bangladesh
3. iTunes Store
4. Innocentive
5. Tata Motors

A wise man once said “the future arrives every minute”. And our future in business is going to increasingly revolve around business model innovation. So back to Porter. If strategy is about the unique ability to perform activities that differentiate yourself in a market, then as Alex Osterwalder so adeptly lays out in his Business Model Canvas, what Porter was really talking about was business models.

Your business model on one page

Strategy and Business Models are virtually one in the same. And in the world we now inhabit, we all need to learn to get much better at imagining compelling new business models AND. . . .

. . . . learning how to implement them.

I will return to those topics in subsequent posts.

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