It is not often that one is responsible for cloud [and Big Data and IoT] strategy in a company of 600 people and you get told by the OpenStack foundation that your solution went from 55% market share to 64% while competitors like RedHat, HP, VMWare, etc. are spending hundreds [or more] of times more on marketing and engineering than you. Now I would love to claim responsibility for it but I would be lying. My mentors, Mark Shuttleworth and Simon Wardley, have laid the foundations years before I joined the company. But Ubuntu and Canonical, the company behind it, are the poster child example of why promoting chief financial officers into strategic roles in the last ten years was a terrible idea. Bean counters are about to inflict potentially irreparable damage onto iconic hardware and legacy software vendors. The reason is really easy: disruptive innovation. The innovator’s dilemma explained it years ago already. When some initial inferior technology comes along like Cloud Computing and OpenStack, then existing vendors will not get any demand from existing customers. Only when technology matures will customers start defecting en masse. But then already other companies have years of a head-start. Add to it that Ubuntu OpenStack is not only the most innovative solutions but also wants to be the most flexible [see our Autopilot, OIL, MAAS and Juju for more details] and the cheapest. So if you are on a quarter-based projected revenue track and you find out that your competitor is doing those three things extremely well, then it might be time to brush up those skills and experiences on your CV. Regarding the future, let me just tell you that the best is still to come 🙂
70% of the Top 1000 companies are expected to no longer be around in the next decade. Big companies are not adapting to change. Digital Darwinism does the rest.
What is the reason behind Digital Darwinism?
Why can’t companies adapt to change? The ideal sector to see disruptive innovation at work is the technology sector. Many billions are spend on bringing products to market that fail. Many giants of yesterday are no more. Five smart guys and a dotcom name can make a multi-billion empire tremble.
Often the disrupted are very well managed companies. Companies that have put into place top quality processes. Listened to their customers. They continuously cut costs to offer a compelling quality product. Still along comes a new technology and what looked so great yesterday is called legacy today. Cloud is killing X86 servers, X86 servers killed mainframes, etc.
You can go and read the books about disruptive innovation. However there is a more substantial reason why innovation can kill companies so quickly. In most companies there are three categories of people: the weird, the cost centres and the cool. The weird guys are the techies, the geeks, the nerds, etc. You need them but please don’t let them come out of their cubicle. Every one that is not directly bringing in new revenues goes in the cost centre category, e.g. finance, legal, HR, etc. Some CFOs tried to make the cool group but ended up in jail. The cool gang are all the sales, pre-sales and marketing folks. They do the really hot and difficult stuff. Project managers and solution architects are not doing their job well when projects can not be delivered that have been sold by the cool gang.
If this is the reality in your company then you are likely to have to search for another company in the future. The reason is very simple. If your company does not value technical talent; HR is seen as a cost centre; sales and this quarter are the only things that matters; then there will be nobody to tell top management that the right technical guys are not being hired and that the current solutions are fast becoming legacy.
Disruptive innovations kill old business models. Many sales forces are good at selling established products. Most do a poor job at selling innovative new ideas. Expect every 2 to 10 years to have an innovation that kills your old business model. The technical experts often are the first to see those changes coming. The sales people are the last. The technical expert will tell you Mongo is cool. The salesperson will tell you that Oracle is best bought as an appliance and not through the cloud because of performance reasons. The salesperson can not understand that there are other companies that use Open Source or SaaS to gain marketshare. It looks very bad on your quarterly results if you give your software away or only charge a small bit per month instead of an upfront license.
How can you survive Digital Darwinism?
The main step is to stop organising companies around job functions and to see the value in each job function. Yes you need a sales force that manages the customer relationships and can sell many products. However you don’t need pre-sales, business development and marketing to be part of it. It is much better if you organise the rest of the organisation around product offerings with pre-sales, business development, marketing, finance, operations, delivery, R&D and support all forming part of the same product team. In order to make the best products you need to be able to understand what customers want, how to reach them, how to develop the product, how to price, how to segment and how to support customers. This is the reason early startups are so successful. They don’t have to queue to ask for a project manager to be assigned to their project. Modern organisations are full of queues and buffers. This creates slowness. It is a lot better to make people responsible for a product and combine different people from different groups. As soon as the group reaches 100 people then you have to split. Otherwise they become slow again. But you can split by customer segment, not by job function. Like this it is possible to combine different products that compete against one another in one organisation. Sales will be challenged continuously to learn new things.
Another important point is to hire generalists and people that both understand technology and business. The world moves so fast that any expert will become obsolete in some years. It is better to have generalists that are quick learners.
Failure is the best option for future success. As soon as an organisation realises that they can not win each battle, they substantially increase their chance of winning the war. Failure should be part of all processes.
Finally you need to have the discipline to sell market leading products to others. This is the only way to get overpaid and it guarantees that the rest of the organisation does not fall asleep. People love to become millionaires when their company sells out. Why should only startups have this privilege. Take away the reason why people want to suffer in a 5 people company and you will attract top talent independent of your size.
An online bookstore did not only redefine retail, content distribution and gave the postal services a second chance, it also is becoming the world’s data centre. The best way, to find out if the hot school girl is open for a new relationship, is now showing IT companies how to build servers & routers and telecom giants how people like to communicate. An online search and advertisement company has revolutionised how you find anything from text, images, location, etc. It redefined mobile computing together with a fruit-like branded company. It has global networks that even the biggest telecom incumbents can only dream off. It has cars that drive alone. Body accessories that puts science fiction authors next to historians.
At the same time stamps, travel agents, maps, telephone books, book publishers, bill boards, broadcasters, movie theatres, journalists, photo film, media storage, video cameras, taxi services, estate agents, high street shops, etc. have changed and not always for better.
If you work for a “traditional” company are you sure that in five years your company still is in business or can it be that some unknown small company launched a product that makes your company’s best products look like they belong in the history museum? Remember Nokia phones!!! Five years ago they had record sales…
If software disruptors have so much power, why aren’t companies hiring chief disruption officers. Senior executives whose goal it is to setup disruptive new product families that are owned by traditional players but are allowed to question any industry rules and launch cannibalising offerings often as independent companies.
It is a lot better that a big bank owns a bit coin exchange, a peer to peer lender, a crowd funded venture capitalist, a mobile payment provider, a micro payment cloud broker, a mobile app currency exchange, a machine learning financial adviser, etc. then being put out of business by any disruptive challenger.
Of course you can always copy the telecom model. Have everybody in your company look for potential cost reductions in the form of virtualized networks, squeezing (and killing) suppliers, etc. while your (mobile) broadband network is 12-36 months away from a data tsunami in the form of 4k streaming video, free mobile video calls, fitbits telling the cloud every minute (or second) your average heart beat and twenty other vital signs, free frequency crowd sourced mobile networks, etc. At a time where your business model has not seen a margin improvement in 10 years, your costs are exploding and your revenue will melt faster than ice in the Sahara.
Why don’t you think about hiring a chief disruption officer before you need to hire a chief miracle officer…
For the last year and a half Telruptive focused on trying to save operators from becoming bit pipes and with it trying to save employment in the telecom industry. This has been a major limitation for the type of blog posts that could be published. Starting today Telruptive’s focus has been extended. Any innovation, disruptive technology or business practice that has to do with communication between people as well as machines is valid. Communication is not seen as pure telecommunication but is seen in its widest interpretation, moving information between one or more parties.
Why is saving operators no longer a priority?
There has been no proof in the last year and a half that most operators will not become bit pipes. Most operators will either become bit pipes, consolidate or worse. Telecom solution providers will either shrink, consolidate or worse. Only real innovative operators will have a chance to be active outside of communication infrastructure. Unfortunately there are very few of those. LTE will seriously disrupt the operator’s monopoly on voice calls. iMessage, Whatsapp and similar services already crossed the tipping point and are disrupting the SMS business. Operators ‘ answer has been nothing or too-few-too-late. The telecom industry resembles the titanic more each day. It was once the most luxurious cruise ship of its time. But disruptive icebergs are making it sink. Instead of building lifeboats with material found on board, the operators seems to have taken the decision to play music and await what will happen.
Telruptive wants to inform innovators about new ways of communicating, new disruptive technologies they should use, new disruptive business models they should implement, etc. Innovators can be operators, telecom solution providers but can also be dotcoms or people not linked to the telecom industry. This is what Telruptive will be focusing on in the future.
When you ask a company about innovation, they talk about how their product manager asks customers what they want and how their R&D delivers new features or new products. Lots of companies are following the pain points to solution approach and engage in evolutionary innovation. Although evolutionary innovation is the best way to grow revenue from an existing customer base in the short run, there are several disadvantages that most underestimate.
Evolution means assuming the status quo will never change
Evolving products based on customer feedback assumes that the current solution is the best possible solution for the customer and only some features are missing. Showing status-quo-breaking innovations, a.k.a. disruptive innovation, to customers will often yield a negative response.
Whoever went to the postal service to try to sell email servers as the next generation letter [letter 2.0], will have had a very negative reply. The postal service would not understand why they would want to offer free-of-charge instant delivery to their customers because it canabilizes their existing business. Instead if you would offer a sorting machine that can sort double the amount of letters in half the time for half the cost, you are a lot closer to a sale.
Whoever read “the innovator’s dilemma“, will understand that disruptive innovation is often rejected by the current customers because it either canabilizes their business or is not resolving their specific pain points.
World-leading companies focus at most 90% on evolution and at least 10% on disruptive innovation. Some like Amazon and Apple seem to invert the equation.
Companies that do not focus on disruptive innovation will sooner then later run into problems. Disruptive innovations are becoming more common place and occur more frequently. Whole industries are being transformed as we speak. Existing players can disappear in a few years:
- Books versus Kindle and eBooks
- CD, DVD and Blu-ray versus P2P, mp3 and DIVX
- Harddisks versus memory cards
- Data center per company versus Cloud IaaS
- PC with Windows versus Tablet with Android
- Physical PBX versus Cloud-based PBX
- Roaming versus VoIP
- Nokia feature phone versus iPhone and Android
- Circuit networks with pay per minute versus flat fee data traffic
- Physical routers, firewalls, loadbalancers versus virtual networks and Openflow
- High priced spectrum licensed versus white spaces
Towards a world of demand creation
Companies that want to innovate disruptively should focus on demand creation. Demand creation is about understanding customers hassles. Customers hassles are different from their pain points in the sense that customers do not always understand their own hassles, and even less tell you.
People never told Nokia that their phones were such a hassle to navigate the internet and to install applications on. Customers will not tell you that you need to build a touchscreen phone and app store to solve the hassles.
Disruptive innovators find those activities that customers waste a lot of time with, think are ackward, cost a lot but deliver few value, etc. by questioning, observating, networking and experimenting.
Disruptive innovators at the same time focus on developing technology capabilities in innovations that have a potential to change industries, e.g. VoIP, cloud computing, big data, collective intelligence, etc.
Disruptive innovators work together with early adopters to map out their hassles into hassle maps. To understand if solutions for these hassles are like painkillers [big market] or just vitamines [no or small market]. They propose the simplest solutions possible. Those that do not require a user manual. First on paper and only when everything is validated [technical solution, business model, distribution, purchasing stakeholders, marketing] do they build a real prototype. Ideally customers can personalize the new solution towards their individual needs. Listening to customers is key. Being able to add features frequently and validating in a statistical manner which one contribute to the bottom line, allows innovators to rapidly go from an early beta to a ground-breaking product.
Disruptive innovations do not need to cost millions to launch. Good books on the matter are: Nail it then scale it, Demand: creating what people love before they know they want it, the lean startup, etc.
Innovation used to be something related to an R&D department that would experiment with new technologies and a marketing department or product management that would ask customers what new features they required. The business team would be killing any innovation that did not present a business case which complied with company rules: e.g. x% margin, €yM revenue in two years, etc.
Why is traditional innovation no longer good enough?
The cost of launching a disruptive innovation that changes a complete industry has come down dramatically. There are many examples: Skype and roaming, Amazon’s Kindle and paper books, P2P and network bandwidth / media revenue, Salesforce and shrink-wrapped software, iPad and Windows PC, iPhone and Nokia, etc.
Disruptive innovations are more frequent than ever and enablers like Cloud Computing, Open Source, Off-shoring, 3D Printing, etc. allow innovators to launch big solutions on a modest budget.
Most traditional innovation is about evolving a current product by adding new features and improving current functionality. Traditional innovation focuses on prototyping new features and products and showing them to potential customers. However process innovations (e.g. Toyota Production System), business innovations (e.g. freemium), marketing innovations (e.g. Intel Inside), disruptive innovation, etc. are often overlooked.
Every one should innovate
More and more companies are convinced that every one in the organization should innovate and not only R&D and product marketing. By putting special innovation processes in place in which employees can share innovation ideas and use collective knowledge to improve them and get funding, innovation becomes more democratic and often more successful. Companies like Google allow employees to focus one day a week on innovation that can be totally unrelated to their day jobs. People vote with their time which project is worth it. Ideas are shared hence collectively the services get better.
Also upper management is no longer looking from above but should innovate by example. Name all big innovative companies and you see that founders are a big part of innovation and participate in it every week: Google (Larry Page and Sergey Brin), Amazon (Jeff Bezos), Apple (former Steve Jobs), Facebook (Mark Zuckerberg), Salesforce (Marc Benoiff), etc.
Daily Innovations instead of Product Releases
The large dotcoms (Google, Facebook, Amazon, etc.) no longer do market research in the traditional way to find out if users like a feature or not. They also no longer focus on major product releases. Instead they focus on incremental innovations on a daily basis. Users request new features via social CRMs and the most voted features get implemented. Often a feature can have multiple implementations. Users are divided into different groups and new features get enabled for subgroups. If a new feature has a positive effect then it survives and gets rolled out to the rest, if not it gets killed or adjusted.
New products no longer get productized from an idea and afterwards customers are searched for it. Instead customer’s pain points result in paper prototypes that get validated and redrawn until they solve the problem. Afterwards real prototypes are made that get launched in beta or even alpha shape towards real users. Beta can already mean that users are paying for it.
Discovering New Innovations
Discovering new innovations is done by combining groups of people with different expertise (marketing, psychology, arts, technical, business, etc.), to understand a new domain and to question a status quo. Most of the time the best innovations are those that remove a status quo and make a painful activity into a joyful activity, e.g. LinkedIn: networking with people and keeping up to date your business network.
After questioning experts and novice users, innovative companies also observe how users use their products. Often heavy users or first-time users are unsatisfied with current products. New ideas are shared inside but also outside of the company with a network of experts as well as people with completely different skills. Afterwards solutions are built based on experimentation. A very important aspect is also being able to transport solutions from other industries. Making associations between unrelated topics and understanding how things are done in a completely different environment can bring new inside…
It is very important that different departments (business, marketing, operations, maintenance, etc.) all work towards launching new innovations and removing obstacles because killing innovation is very easy, making it succeed is not.
I want to take the opportunity to make some suggestions that would make Fon a really disruptive player.
Fon has some really nice residential WiFi routers. A basic version, the Fonera Simpl with an optional antenna, Fontenna, to reach more distance. Additionally there is the Fonera 2.0 N which allows a community of developers to extend the product with new functionality. Finally they can embed their software into operator’s existing WiFi routers.
Fon’s routers are based on OpenWrt, an open source Linux firmware distribution for embedded devices. Developers can create extra plugins / packages that can be deployed on the router.
How to make Fon more disruptive?
For many technical people having access to a global set of WiFi points all over the globe is a really good reason to buy a Fon WiFi. Unfortunately non-technical people might be lost in the technical details about how you can access somebody’s else Internet and might be scared of other people using their Internet. So for most people the Fon offering is like a vitamine and not really a painkiller.
By changing the value proposition of Fon towards becoming a painkiller for more people, Fon would be able to get more active demand for its products from consumers and also via telecom operators.
Fon painkiller example: Parental Control
Most parents would not care less which router is used to access the Internet. The only thing they know is that their offspring knows a hundred times more about Internet then they do. Additionally they know that Internet is full of dangers for kids and teenagers. Children always tell their parents they need Internet to do their home work. But reality is that most surfing is not done for homework 😉
So what if Fon would have an OpenFlow compatible WiFi router with FlowVisor combined with a Cloud solution. To spare the technical details, the summary is that parents would be able to partition their Internet access based on who is accessing. What would this bring?
Kids Internet – 3-8 year olds would only have access to a strict whitelist of Internet pages. Parents would not have to find this white page themselves. Instead people and companies could make white lists and parents could subscribe to them. Examples could be a Disney white list, a SuperNanny [the television show] whitelist. Parents would know that their young children could never go to pages that are unsuitable. Young children would have a start page with icons like the iPad in which they can click on the page and immediately go their favourite games or watch cartoons. Children could be limited in the time they can spend on Internet and special bonus points for good behaviour could buy them more time or bad behaviour could be punished with less time. Parents would need an “Apple” friendly interface to pick whitelists and set-up and manage Internet access times.
Pre-teens / Teens Internet – 9-17 years od – restrictions apply. Parents could define studying time slots in which only certain Internet content can be accessed, e.g. Wikipedia. Also here external entities could define whitelists. Time-based filters for open Internet access could also be set. Additionally special purpose filters are set-up, e.g. Facebook, Twitter, MSN, Skype, eMule, Google+ etc. This would allow teens to access Facebook and other sites but to have their behaviour screened. Teens could be prohibited to upload pictures of persons, share email/telephone or physical addresses, use F* words, access adult content, etc. There would be a dynamic firewall for each service. Parents could have a high-level reporting interface to see what their kids are doing.
Parental control is just one example of how a generic router that is connected to a niche Cloud application could be a painkiller for parents. Operators could have other pain points, e.g. reduce botnets, spam, P2P content optimization, etc. Shop owners could have other pain points, e.g. social games for bars, etc.
A lot of possibilities are opening up if routers could be externally managed and very specific easy to use interfaces and solutions are build towards which communities and external companies can contribute and generate new revenue with.
The fact that every Fon router will give you access to a global free broadband network will be a nice add-on for most…