A Better Way to Innovate: Think Markets, Not Products
by Aseem Chandra
posted on 03-21-2016
For most of us in the tech world, the word “innovation” evokes the idea of the latest “it” device, app or online service. People often perceive success by how many novel and attention-grabbing products a company has created. While I don’t mean to diminish the tremendous influence of the Samsungs and Sonys of the world, churning out new gadgets that we subsequently can’t live without, the definition of innovation shouldn’t be limited to inventing a new product. In reality, innovation extends much further.
In 1997, Clayton Christensen, author of The Innovator’s Dilemma, introduced the idea of “disruptive innovation,” innovations that replace earlier ideas or technologies to ultimately create new markets and value networks. Many of these innovations have been so successful because of their unique use of technology to affect change, enabling them to impact industries relatively quickly and on a much broader scale. Let’s examine some real-world market disruptions driven by technology within the software, media and entertainment, energy, and education industries that have challenged the existing norms to uncover new market opportunities and achieve true innovation.
Historically, enterprise software had been deployed and managed on-premises, requiring ample financial investment. The idea of “utility computing” had already existed for many decades, but in the early 2000s several software pioneers saw a commercial opportunity to offer business applications nearly instantaneously on a subscription or rental basis. Vendors subsequently benefited from a regularly recurring and more predictable revenue stream, compared with the financial uncertainty of the past. The Software-as-a-Service (SaaS) distribution model became mainstream, forever upending the traditional enterprise software industry marred by costly and lengthy installations and infrequent software updates.
Within the marketing optimization software world, technology advances are driving massive changes to marketing spend. Foundation Capital’s Ashu Garg wrote in a recent white paper about how the latest marketing technologies are making true marketing ROI, a previously elusive figure, entirely possible. As marketing morphs into a more technical discipline, budgets are dramatically shifting to more measurable channels and digital campaigns. Garg expects technology spend by CMOs to increase 10x in 10 years, stating that “marketing technology companies are looking at an opportunity well north of $120 billion per year,” illustrating the tremendous potential for any willing go-getters.
As marketing continues its migration away from the analog to the digital world, the media and entertainment industry has similarly experienced massive upheaval thanks to the proliferation of online channels.
Media and Entertainment, Disrupted
Video consumption is currently on the rise, yet cable and satellite pay TV providers are losing subscribers. Viewership declines are attributed to the popularity of Internet TV subscription services and the increased use of smartphones and tablets for viewing video online.
Driving much of this consumption and content creation shift is Netflix. From its early days as a DVD rental provider, it has evolved into a video content streaming service and subsequently into a TV and movie studio creating and delivering original on-demand content. The byproduct is a virtuous loop where increased subscriber rates result from its high-quality material, giving it more capital to produce new programming. By continuously moving upstream in the content lifecycle and cutting out third-party content owners, Netflix has been able to more fully monetize its service by playing an integral role as part of the content value chain.
As traditional studios as well as pay TV providers struggle to remain relevant in this new reality, traditional energy markets are also feeling the pinch from technological advances in energy efficiency.
When the Toyota Prius first came on the American car scene in 2000, it was a welcome respite for early-adopters amidst the then record-high prices at the pump. As the cost of oil continued to rise, so did hybrid vehicle sales. However, no longer are hybrid and electric vehicles just for the frugal environmentalists. Car manufacturers continue to invest in electric vehicles despite today’s affordable gas prices, largely because their superior execution is increasingly appealing to consumers. In fact, Consumer Reports found that Tesla outperformed every other automobile ever reviewed. Add to that, the fact that they require little to no maintenance, and this class of cars will continue to drive traditional vehicles into the ground.
Tesla’s foray from electric cars and car batteries to electric home and industrial battery packs has the potential to further upset the energy market as we know it by saving customers money and reducing the revenue stream to local utilities. What outsiders initially considered as a battery “side project,” could eventually reduce consumers’ reliance on the electrical grid, bringing with it a multitude of economical implications for electrical utilities as battery technology continues to improve at breakneck speed.
This growing profusion of energy is in stark contrast to the continued dearth of affordable education to people worldwide, a problem which technology also has an answer for.
While often declared a fundamental human right, access to a free and quality public education still remains a global problem. Continents like Africa are impacted by incredibly lopsided student-teacher ratios and alarmingly low primary school completion rates.
Stateside, the average cost of a four-year college education continues to increase, posing huge challenges to the lower- and middle-class. It is no longer clear whether the value of a post-secondary education is actually worth today’s steeper price tags.
Consider The Khan Academy, an online education hub offering free video-based micro lectures, which has helped redefine and democratize the education market through technology. Leveraging software to deliver learning content enables highly targeted and personalized material, much like instant feedback from one-on-one tutoring in the physical world. The Khan Academy and similar Massive Open Online Course (MOOC) platforms help address the high cost and barriers to a quality education that exist across the world today. The accessibility and interactivity of these materials result in learners that are more motivated, accountable and invested in their own success.
What many of today’s disruptive innovators have in common is their willingness and ability to leverage technology as the driver of change. Instead of using technology to just create new products, they have instead employed technology to address market inefficiencies, to rethink business models and reconsider the way things have always been done.
Similarly, we all need to ask ourselves what the future looks like for our industries in five, 10 or 20 years? Rather than waiting to find out, explore the widely held beliefs within your organization and your market today and discuss with your teams how to challenge the conventional wisdom. How can you invest in the right technology to create more efficiency and expand your business opportunities?
Take the long view with a willingness to not only disrupt and innovate, but to actually reimagine and invent the future. The best way to get to that future? Build it yourself.
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