The Innovator's Acquisition Solution

Last month I polished off Clayton Christensen's The Innovator's Dilemma, blown away by its simple-yet-paradigm-shifting message: Great companies led by great managers fail when faced with disruptive innovation, not because they lack the necessary management skills to be successful, but precisely because they have the necessary management skills to be successful.  Great managers listen to their best customers and their best investors, and each demands ever-higher quality and ever-higher margins, respectively.  Naturally, great managers thus ignore lower-quality and lower-margin product innovations.  But with continuous improvement, when lower-quality becomes good-enough-quality (coupled with other desirable features) for the worst customers, those customers flock to the new innovation, and the great manager decides to move upmarket to solve for only the best customers.  Then the innovation becomes good-enough-quality for better customers, and they flock to the new innovation, forcing the great manager further upmarket.  This cycle continues until the great manager is left with no customers.

At each step in the cycle, the manager has the same choice: Solve for better customers with a higher-margin product, or solve for worse customers with a lower-margin product?  The correct choice is obvious.  But after so many cycles, the manager ends up with no market.  This is the innovator's dilemma.

In my Strategic Management of Technology and Innovation class, we recently discussed the subject of this very innovator's dilemma.  After class, I approached the professor (Dr. Jeffrey Covin) about writing a term paper on the topic.  He suggested I read Christensen's follow-up book, The Innovator's Solution, which I'm now about halfway through.

The Innovator's Solution recaps a lot of the material from its predecessor, but it begins to add a bit more detail about how to address the dilemma as a corporate innovator.  The crux of the strategy is to treat a disruptive innovation (which can be defined as a product that is not competitive with the category standard (e.g. iPod) on the main dimension of performance (song capacity), but which brings other potential advantages (superior portability), AND which can be improved on the main dimension of performance (song capacity) faster than the demands of the market) as a new and separate potential venture.  When evaluating such an opportunity, a manager should approach it as a seed investor would, not as a manager of an established company would.  If he evaluates the opportunity against other established-business opportunities (i.e. sustaining innovations on established products), he will inevitably choose to not pursue it vis-a-vi the innovator's dilemma.  What's more, the manager needs to pursue the opportunity by spinning off an (relatively) autonomous venture to isolate it from the demands of the larger business.  For example, an established business may have a policy to not pursue accounts worth less than $1 million, but a disruptively innovative product may have to start out with small accounts to gain traction.

And that is the point that interests me the most: How does a corporate innovator effectively create a new venture and isolate it from the main business to allow it to blossom?  In my own experience at Intuit, I was able to watch such a new venture form via acquisition, when the company acquired Mint.com.  I witnessed management first try to integrate Mint into Intuit's existing personal finance business, then subsequently back off and try to isolate it.  I plan to use this situation as a case study to further explore disruptive innovation.

Startup Weekend

This past weekend I was inaugurated into the club that few know about, but that every innovator- or entrepreneur-to-be should want to join.  I experienced a Startup Weekend.

This experience taught me volumes about generating an idea, getting people excited about it, leading a venture team, and communicating value, not to mention practical skills like programming PHP.  Here I recount the weekend as I look back on it.

Friday
On Friday evening, about 70 of us filed into a room in the Purdue Technology Center in Indianapolis.  Hands were shook, introductions were made: About 40% of the room were software developers, 30% marketing manager-types, 20% general manager-types, and a handful were artistically-inclined designers.

Each of us with an idea for a company had 60 seconds to pitch to the masses to attract team members.  I pitched an idea that had struck me two weeks earlier in my Marketing Research class: An SMS-based market research service that would recruit subjects by paying them $0.10 per SMS question that they responded to, and organizations (companies, political campaigns, other market research firms) would pay something like $0.30 per respondent for the service.  The client would get an auto-generated report with the results of their mini-survey within hours, since respondents would generally reply to the SMS immediately, and would get the results for pennies on the dollar compared to other market research methods (Internet, direct mail, phone, etc.).

My idea turned out to be quite popular, and as such there was no trouble forming a team.  The four of us claimed a table in a hallway and set to work figuring out how to get this business started.  It would be hard to find a more diversely-experienced team: a marketing expert with years of experience, a college freshman with self-taught coding skills, an athlete with no technical or management experience per se, but who was excited to be involved in a startup, and me, a trained software developer currently learning this business stuff.

One of our first tasks was the all-important naming of our company.  After recruiting some help in coming up with a tagline ("Text. Earn. Learn." describing the three core components of the idea), we did a massive domain-name-availability search and eventually settled on txtern.com, giving us the name Txtern.  By the end of Friday night we had our domain, a Twitter handle, a Facebook page, and a technical design.  It was smooth sailing!

Saturday
In the morning, after a PR update, we hit the ground running on the technical side.  But it turned out that we ran into a swamp, which led to a wall, which led to a precarious cliffside.  The technology gods were angry with our promising idea, apparently, as we battled with recurring server issues (we changed servers four times), database access issues, and this-is-harder-than-I-thought-it-would-be coding issues.  By 4pm, I was ready to declare this product vaporware and just pitch a PowerPoint on Sunday, and I was irritated when we were all shepherded outside for a forced rock-paper-scissors tournament when I really needed to get that damned Apache Tomcat server installed.

That's right: We were forced into a rock-paper-scissors tournament.  Believe it or not, it turned out to be the saving grace of our day-old company, as it gave us a much-needed break from the grind of constant roadblocks and allowed us to think of a new technology strategy.  It was the best-spent 15 minutes of the entire weekend.

Our new strategy was to build the whole backend in PHP, which, as it happened, neither of us programmers knew.  But since Twilio (our chosen SMS service provider) provided great documentation on usage in PHP, we decided we'd learn it along the way by buddy-programming our way to success.  And it worked: Within an hour, we were adding phone numbers to our database.  Within another hour, we were sending text messages.  And by the end of the night, we could type in a survey question, have it texted to everyone in our database, and record their responses.  Success!

All of this was accompanied by another round of success: An experienced designer and entrepreneur for 30 years decided he wanted to join and help us out.  He provided fabulous ideas, logo designs, and the little "extras" that go a long way in a new business.  I now fully appreciate the value of graphic design in making a new business appear 1) professional, 2) real, and 3) bigger than it actually is.

Sunday
The final day was largely smooth sailing as we integrated the backend technology with the front-end website and designed the visual part of our pitch.  I was so hyped up for the pitch that evening that I found myself pacing around the room and with zero appetite.  But rather than feel nervous, I felt more like I was in a zone, where the business really could provide incredible value to clients, consumers, and investors alike.  I just needed to explain that to the judges.

The pitches began in the early evening, with prospective entrepreneurs condensing their weekend of incredible work into just 3 minutes.  All of the presenters enthusiastically showed off their products, and did it with an essence of fun; there were no overly awkward moments or failed efforts, only head-nods, applause, and laughs.  (Check out all of the businesses here)

We were slotted as the twelfth and final presentation of the evening.  I delivered the pitch and fielded the questions, and I was quite happy with the performance: the website looked great (rather than PowerPoint, we had set up the visuals on our site to display during the pitch) and the judges easily understood the concept and the value to each party.

When the judge's scores rolled in, we found out that we were not going to win Startup Weekend.  Our score was in the middle, which I think was a testament to the great work that teams put together over the intense weekend.  I hope and believe that several of those teams will continue to work on their businesses, and maybe some will ultimately be successful (each Startup Weekend tends to produce at least one or two living businesses).  But the four of us at Txtern decided to chalk this up as a wonderful learning experience, and head back to our jobs and educations.

ANZ: Ideally Suited for Prototypes

Last month I spent two weeks on the other side of the world - one in New Zealand (Auckland) and the other in Australia (Sydney).  The purpose of the trip was a class: KIP (Kelley International Perspectives), which has the mission of teaching students about perspectives on business in other parts of the world.  Of course we had time to explore and be tourists, but we spent a fair amount of time visiting firms (10 in all) in addition to once-a-week sessions on campus back in January and February.

The main take-away for me from the experience stems from these countries' unique situations: They are both very geographically isolated - from every other nation, but especially from developed ones - and they both have very small populations (there are roughly 22 million Aussies and 4 million Kiwis).  They are also somewhat wealthy, developed, and American-like, stemming from their British origins.  In fact, Australia is often considered to be more like the US than the UK, and my own experience of Sydney was very much like visiting an American city, only the people had different accents.

All of these traits make Australia and New Zealand (ANZ) a perfect proving ground for new products destined for the US.  This is especially true for companies with established brands that they do not want to risk damaging for the sake of a new product.  And as it happens, many American companies are already leveraging ANZ in this way: We visited Kimberly-Clark in Sydney, who uses Australia quite often as a test market for its Huggies and Kotex brands.  They find that Australians react very similarly to Americans when it comes to marketing and products, so the level of success of a new campaign or new product there is a strong predictor for the same in the US.

This strategy may also work for a startup, but of course this strategy comes with the trade-off of needing to wait at least several months to get feedback from the ANZ market.  Also, I haven't dug much into the subject for the tech industry, but it would be great to see the results of companies opting to launch tech products in ANZ before the US and finding whether or not there was a correlation with success in the US.

Analysis of the Droid Landing Campaign

Note: For a marketing class project, we were to analyze a marketing campaign that involved social media.  Two classmates and I teamed up to produce the following.

Analysis of the Droid Landing Campaign

Ayushman Dutta, Jason Fletchall, Nirmalya Ray

Background

In November 2009, Motorola and Verizon Wireless entered the US smartphone arena in a big way by launching the Droid, the first phone carrying Google’s highly-acclaimed Éclair version of its Android operating system.  Arguably more notable than the phone itself was Motorola’s and Verizon’s marketing campaign, personifying the phone as a type of super-intelligent machine hooked into the “ever-expanding Android Market.”  The campaign spoke strongly to its target demographic (males aged roughly 18-30), as it fit in well with the enormously popular sci-fi thriller category of entertainment.  The campaign was widely considered to be a success, with sales of the Droid phone quickly eclipsing those of any previous Android phone.

Late the following Spring, rumors and leaks starting pointing to a new phone in the Droid line due out sometime in the Summer.

Enter the Droid Landing Campaign

On June 21, 2010, tech blogs lit up with the news that the YouTube account VerizonWireless had uploaded a short video featuring a human eye transforming into a Droid eye.  The video finished by naming its subject, Droid X, and a date, “07.2010.”

Within minutes, viewers had analyzed the video frame-by-frame and caught a mirror-image of text in a reflection in the eye, “@DroidLanding.”  A short journey over to Twitter revealed an account named “DroidLanding,” which had recently been opened and had tweeted, “REPORT: Droid X units have escaped! Get the stats on them at http://www.droiddoes.com . Forewarned is forearmed.”  Clicking on the link sent users to a Flash website featuring the phone with specifications listed and a “Coming Soon” note.

The DroidLanding account continued to tweet with increasing frequency over the following days.  The theme of the tweets was consistently one of a security organization warning citizens of a group of escaped Droid Xs spreading throughout the US, while at the same time injecting information about phone specifications.  The tweets often identified specific machines, such as “Droid X designate #3,” and began to give information about specific locations of the Droids, such as “Droid X designate #1 has been sighted in Nevada. Witnesses call it the greatest source of power next to the Hoover Dam.”

This led to speculation that Motorola and Verizon were organizing a scavenger hunt for Droid X phones.  And indeed, after two weeks of speculative discussion across tech blogs and forums, this was confirmed when on July 7 the droiddoes.com website posted official rules for a hunt.  The rules specified that the DroidLanding handle would sporadically tweet GPS coordinates over the next two weeks.  Each set of GPS coordinates would identify a location where a Droid X “designate” had landed, and where one determined and witty hunter could collect a free phone.

Sure enough, on July 8 DroidLanding tweeted coordinates that specified a location in New York City.  Within 30 minutes, the handle tweeted that the phone had been found, and later followed-up with a link to a picture of the successful Droid hunter.  This same pattern continued with 20 other phones being given away over the following 12 days in cities across the country.

Towards the end of the campaign, on July 15, the Droid X was officially launched, quickly sold out, and continued to sell out with each stock replenishment for months.

The Campaign’s Information Pathway

The campaign involved a fairly complex set of steps for consumers to follow, though the tech community as a whole helped individuals take shortcuts.  This figure shows the actual information pathway experienced by consumers.

The first step in the pathway was the discovery of the “Droid eye” video on YouTube.  A relatively small number of consumers needed to find it, as the path to the next step (1 on the diagram) was to post the video on tech-themed blogs and discussion forums.  Once in the blogosphere, the video received quite a bit of attention.  The path to the next step (2) was to analyze the video frame-by-frame to find the reflection in the eye.  Again, this could be done by a small number of consumers, since the path to the next step (3) was to simply post the reflection on blogs and forums.

The path to the next step (4) was intended for all consumers to take – it was the discovery and followership of the @DroidLanding Twitter handle.  At this point we believe the intended pathway and the actual pathway differ: The intended next path (5) was to find droiddoes.com via DroidLanding’s tweet to see images and specifications of the phone, but many consumers skipped that step and simply tried to decipher DroidLanding’s tweets for the locations of phones, then proceeded directly to discussion of the tweets on blogs and forums (6).  Likewise, some consumers checked out droiddoes.com but didn’t bother with the scavenger hunt.  In other words:

            Intended: All consumers 5 – 5.5 – 6

            Actual: Some consumers 5 – 6 and some consumers 5 – 5.5 – 6

Discussion of the phone and its associated scavenger hunt on blogs and forums (6) led to consideration of purchase by the consumers engaged in the campaign and also by those otherwise following tech blogs and forums.  Ultimately, the aspiration of the campaign was to have consumers go to a Verizon store (either in-person or online) (7) to purchase the phone on or near launch day, July 15.

Involved Technographics

The campaign necessitated involvement from almost all of the technographics:

• Creators: Found the messages in the eye and posted them.  Also the owners of the blogs who reported developments in the campaign.
• Critics: Main drivers of the discussions to find the answers to the clues in DroidLanding’s tweets.  Also drove the discussions of the specs of the phone itself (one forum alone reports over 250,000 posts)
• Collectors: Shared links to blog articles, droiddoes.com, and @DroidLanding with friends on Facebook and Twitter, thereby increasing awareness of the campaign.
• Joiners: Large chunk of the followers of @DroidLanding.
• Spectators: Large chunk of the readers of the tech blogs.

The Success of the Campaign

The main goal of this campaign was to generate buzz about the product, the Droid X phone, amongst the tech-loving community.  While the ultimate goal was of course increased sales of the phone, we believe that the intention was to generate buzz amongst this relatively small but influential community, which would then recommend the phone to friends and family members outside of the community.  And this was anecdotally true at least: One of us purchased the phone on launch day and subsequently had three decidedly non-tech-community-member relatives purchase the phone within two months.  In terms of hard numbers describing the buzz surrounding the product:

• The number of people who viewed the “Droid eye” video on YouTube was more than half a million. Combined with views of other commercials for Droid X on YouTube, the number was more than a million.
• The @DroidLanding Twitter handle gathered more than 30,000 followers.
• The forum droidxforums.com counted more than 250,000 posts.
• Other success metrics on this dimension would include “mentions” on Twitter, “shares” on Facebook, posts on tech blogs, and comments on tech blogs, though those measures were not readily available to us.

A sub-goal of the campaign was to create awareness of the technical specs of the phone to help move consumers to the consideration step.  On this dimension, the campaign did fairly well, as measured by traffic to droiddoes.com:  The Internet traffic rank of the website went from more than 100,000 to 5,000 in a single day and stayed in the high 20,000s for months in a tech industry where technology quickly goes obsolete.  At its height, this accounted for 0.04% of the total traffic on the Internet (see Traffic Stats here).

In terms of speaking to the targeted demographic, the campaign also did well: The audience for droiddoes.com was skewed towards males aged 18-24 with college educations (see Audience here).

The ultimate goal of the campaign, increasing sales of the device, could be measured in part by sales data.  While this information is not accessible to us, we can guess that sales were excellent as the phone was consistently sold out for months (as noted earlier).  However, it would be difficult to attribute sales numbers directly to this campaign because there was no built-in mechanism for tracking sales through it.  How would Verizon know that what caused a person to walk into their store and buy a Droid X was that they followed @DroidLanding, or that they read about it on tech blogs?  The great sales numbers could have been caused by the rash of Droid X TV advertisements playing at the same time as this campaign.

Recommendations for Campaign Designers

With the intended information pathway leading from followership of @DroidLanding and subsequent viewership of droiddoes.com not actually playing out for many consumers, we considered recommendations for increasing the promotion of the Droid X device’s technical specifications.  While @DroidLanding did tweet tech specs regularly, we found these tweets to have rung false with the main theme of the Twitter handle as an organization warning citizens of escaped machines.  For example, “Droid X shoots in 720p. Which means you can really see the look on your face when you find one” does not convey the same sense of urgency or danger as the other tweets.  Alternatively, @DroidLanding could have tweeted links to videos describing the specs of the device, along with text conveying the videos as “reconnaissance” or “briefing” information.

We also considered other ways of reaching the target demographic of the campaign (males aged 18-30).  The campaign spoke very well to those in the demographic who enjoy sci-fi thriller movies and games and are also tech fanatics, but they comprise only a part of the demographic.  Many of the ads that accompanied the campaign (like this one) attempted to bridge that gap by showing office workers interacting with the phone, but they did not resonate with the younger end of the demographic, whose members are in high school and college.  Instead, the supplemental ads could have included college-age men and featured the phone’s tight integration with Facebook, or the customizability of its live wallpapers.  This could have turned this younger side of the demographic into trend-setters for the Droid X.