Excerpt from book Communities Dominate Brands, by Ahonen ....docDocument Transcript
Excerpt from book Communities Dominate Brands, by Ahonen & Moore, 270 pages
hardcover, March 2005, published by futuretext Ltd.
CHAPTER 4 - SERVICES AND PRODUCTS
A street brawl without any rules
Digitalisation allows services and goods to designed, packaged and delivered in new
ways. An ever increasing proportion of the global economy is based on digital goods
and services. Digitalisation harmonises the competitive world, and allows copycats
that appear with alarming speed to capture your customers. Even if digitalisation is
not affecting your market directly, it is certainly affecting how you go to market and
what route you might take. So how do CEOs of existing companies, trained and
familiar with their traditional business value systems, embrace the disruptive new
environment of the digital universe? This chapter will look at how digitalisation alters
the competitive environment for services and products.
A SPEED OF CHANGE
Kodak has finally succumbed to the meteoric rise of the digital camera and the camera
enabled mobile phone and getting out of the business of traditional film for consumer
cameras. Lufthansa has sold its stake holding in the airline ticket booking system
Amadeus, as it no longer sees the value in a technology that has been disintermediated
by the Internet and the low-cost airline business model. IBM has shifted focus from
making computers to selling computer servics. The history of business is an ever
faster substitution of goods and services by ever better technologies. Transistors gave
Sony the chance to eclipse that valve based giant RCA, wireless meant that
Vodaphone became the new British Telecom, and ironically in MP3, Apple’s i-pod is
the new Sony Walkman.
Clayton Christiansen, the Harvard Business School Professor discussed the idea of
"disruptive technologies" in his book The Innovator's Dilemma. Christiansen studied
the pattern of well-managed companies, considered very innovative within their
industries, that surprisingly stumbled with technological change. After studying a
number of examples, he identified a leading reason why great companies fail. He
summarized it as follows:
Disruptive technologies bring to a market a very different value proposition than had
been available previously. Generally, disruptive technologies underperform
established products in mainstream markets. But they have other features that a few
fringe (and generally new) customers value. Products based on disruptive
technologies are typically cheaper, simpler, smaller, and, frequently, more convenient
Clayton Christiansen The Innovators Dilemma 2003
We can see this thinking everywhere around us. Skype the internet telephony service,
iTunes on iPod, Freeview digital TV service in the UK, etc. One recent innovation is
instore TV - where 80% of all purchases are made within 10 feet of the item to be
purchased, These all represent the falling cost of broadcast technology. Not to
mention the dramatic shift of retailing on-line. This all can be termed "creative
Is creative destruction an opportunity or a threat? This depends on how one decides to
look at the world. Embrace it or ignore it until it is too late. A significant thought to
hold is that if the future will cannibalise your product or industry anyway, then is it
not best for it to be you who cannibalises your business, rather than your competition.
In addition to digitalisation, we are seeing simultaneous convergence of many
technologies, delivery platforms and industries. Converging content and delivery, the
internet with gaming and broadcasting, of voice and data in telecoms, etc.
Convergence of these technologies means that businesses are beginning to cannibalize
each others' industries. Sony Electronics Chief Operating Officer Hideki Komiyama
puts it plainly, “Five or six years ago home electronics was a peaceful market. Now
people from the outside are coming in like hunting tribes.”
Sudden success of cameraphones
On the surface of it, trying to patch together a voice telephone and an optical camera
seems like trying to combine an airplane with a submarine. But as mobile phones
converted from analogue to digital systems in the early 1990s and as cameras entered
the digital age about the same time, it became technically possible to create digitally
converged devices combining both. Even so, there was little practical areas of synergy
during the 1990s as both technologies were relatively bulky and there was no excess
capacity in processors, storage units, battery capacity, etc.
Then at the turn of the decade smartphones introduced colour screens for internet
surfing, and digital cameras started to abandon the optical viewfinder for the digital
colour displays to be used as viewfinder. Now suddenly part of the digital camera was
in existence on the advanced mobile phones, and thus it was no longer a prohibitively
bulky converged product to add the camera functionality to the mobile phone.
Japanese mobile phone operator J-phone (since renamed Vodafone KK) was the first
to take the strategic step into cameraphones and had 60% of its 12 million subscribers
adopted to cameraphones by 2002.
The growth of the sales of cameraphones has been nothing less than breathtaking. In
2001 the global sales numbered less than 2 million units. The traditional digital
camera market felt very safe as its sales were well over ten times that amount.
Cameraphones were ridiculed as being of very poor picture quality, having limited
storage ability, poor graphics of the displays, poor optics, etc. During 2002 the sales
of cameraphones climbed to18 million units worldwide. Suddenly the traditional
digital camera market took notice but as traditional digital camera sales kept growing,
the industry was not particularly concerned. They were introducing multi-megapixel
cameras and ever more advanced systems and most in the industry felt assured that
their technical dominance over the cameraphones would keep them safe.
In 2003 the sales of traditional digital camera did again increase, to 48 million units.
But cameraphones rocketed past those numbers selling a whopping 84 million units in
2003. Already by 2003 the world's bestselling brand name on digital camera devices
was not a leading camera brand like Minolta or Canon or Nikon, it was phone maker
Nokia. In just three years mobile phones had invaded the digital camera market and
totally crushed the established competition within it. In 2004 the mobile telecoms
industry shipped so many cameraphones that they now four years from launch,
amount to more than all digital cameras ever shipped.
Wedding photos on cameraphone?
It is important to note that for specialist and professional use there will always be a
"real camera" market. A professional wedding photographer will not show up at the
wedding with a cameraphone. A sports photographer will use a real Canon or Nikon
with the massive 300 mm telephoto lens. Professionals such as fashion photograhers,
news photographers, nature photographers, etc will buy professional photography
tools. These may be digital, or they may even be film-based, by photographer
preference. These kinds of specialist markets will remain, and high-end specialist
cameras will be made for these markets.
Our point is that the mainstream digital market, the mass market, will inevitably
converge to the predominant digital device. At the moment the clear champion is the
mobile phone. Thus in the contest for any function that can be added to the mobile
phone, the phone will hold a near-insurmountable lead in its attractiveness. We saw it
already before the cameraphones with the brief battle between the stand-alone PDAs
(Personal Digital Assistants) and the smartphones, which the smartphone won easily.
Next for 2005 we are preparing for the next battle, between the stand-alone music
player like the iPod and the music-phone. We expect this battle to be as easily won by
the mobile phone as it did with the PDA and the digital camera.
Music and new media
The music industry is one of those on the leading edge of the disruptive effects of
digitalisation. With the ever increasiing capacity of mobile phone memory storage and
battery life, it seems music companies are indeed looking to embrace the digital age.
Will it be enough? Will enough people want all their content on their phone?
A special case is the new type of "3G" phone, that have been on sale in Japan and
Korea for three years and now appearing in most Western markets. Most 3G phones
have storage ability for at least a modest library of music files, and the ability to
"stream" music ie play music from live feeds much like a radio. Significantly 3G
phones are better than the current crop of iPods in that all 3G phones can play music
videos. Again the mobile phone trumps the existing contenders and pretenders. The
pop culture clearly proved how much more appealing a music video is to young
generations rather than simply listening to the same music on radio, fulfilling the
theme of the Bugles hit "Video killed the radio star" - the song that famously
launched MTV in 1981. To put the numbers in context, both technologies are about
three years old, but while iPods number about 10 million globally at the end of 2004,
there are already 32 million 3G phones worldwide.
Will these new super phones be an iPod killer? The answer is yes and no. For the die-
hard music fans, especially those with sophisticated digital music... (continued)
To see more about the book Communities Dominate Brands or to order it, please