Innovation & Business Models
DAY: Tuesday, 26 May 2009
SESSION:
PRESENTER: Dr Tim Kastelle

What is Innovation?

Who invented the computer?
US Army Photo
And when was it an innovation?

Leibniz – Binary Notation ~1670

Leibniz Step Reckoner 1694
Adds, subtracts, multiplies, divides

Charles Babbage
• Difference
Engine 1823
• Analytic Engine
1834
• Neither
successfully built
in his lifetime

Difference Engine No2 (built 2002!)
Adds, subtracts, multiplies, divides, calculates logarithms, includes a printer!

Ada Lovelace
• First computer
programmer
• Wrote programs from
Babbage’s Difference
Engine – 1890s

ENIAC 1948

ENIAC
• Electronic Numerical Integrator and
Computer
• Calculated logarithms
• Calculated missile trajectories
• Built by the US Army

Univac 1951

Univac I
• UNIVersal Automatic Computer
• Designed by J. Presper Eckert & John
Mauchly
• Manufactured by Remington Rand

Innovation – some definitions
• Creating something with economic value
• Bringing an idea to market (or putting it
actively into use)
• Converting an idea into revenue
• Configuring an idea so that it can be
replicated

A highly simplified & stylized model of evolutionary economics
The dynamic engine Variety
of capitalism
Growth
Innovation
Creative Selection
destruction Replication
Failure

Innovation is Evolutionary
• Invention is the creation of variety
• Innovation is a process that includes all
three steps:
– Variety: creating new ideas
– Selection: choosing the best ones
– Replication: getting them to spread

Innovation is More than Just New
Products
• “(Economic)
development in our
sense is then defined
by the carrying out of
new combinations”
– J.A. Schumpeter
(1912) The Theory of
Economic
Development

Schumpeter’s Forms of Innovation
1. The introduction of a new good, or a new
quality of good (or service)
2. Introduction of a new method of
production
3. The opening of a new market
4. Developing a new source of supply
5. Changing the structure of an industry

Business Model Innovation

Goldcorp
• 55,000 acre gold mine property in Ontario
• Returns stalled in 1999
• In March 2000, the company put all of the
information they had ever compiled about
the site online (over 400 mb of data)
• Asked for new sites to explore and
estimates of yield
• Offered $575,000 in prizes to the best
entries
Case from Wikinomics by Tapscott & Williams

Outcomes
• Over 1000 entries from around the world
• 110 new sites identified - 50% had never been
identified by Goldcorp before
• 80% of the new sites yielded substantial
amounts of gold
• Cut 2-3 years off of the exploration process
• Annual revenue has gone from $100m pa to $9b
• Share price increased by 3000% over 15 years

The Monty Python Experience

“For 3 years you YouTubers have been ripping us off, taking tens of
thousands of our videos and putting them on YouTube. Now the tables
are turned. It's time for us to take matters into our own hands.
We know who you are, we know where you live and we could come
after you in ways too horrible to tell. But being the extraordinarily nice
chaps we are, we've figured a better way to get our own back: We've
launched our own Monty Python channel on YouTube.
No more of those crap quality videos you've been posting. We're giving
you the real thing - HQ videos delivered straight from our vault.
What's more, we're taking our most viewed clips and uploading brand
new HQ versions. And what's even more, we're letting you see
absolutely everything for free. So there!
But we want something in return.
None of your driveling, mindless comments. Instead, we want you to
click on the links, buy our movies & TV shows and soften our pain and
disgust at being ripped off all these years. “

Results
• Monty Python dvds go immediately to #2
on Amazon’s tv & movie bestseller list
• Sales increase 23,000%

The Business Model translates
inputs into outputs
Source: Open Innovation by Henry Chesbrough

Revenue Generation
Mechanisms
• How will people pay? Sale, lease,
licensing, per use fee, razor and razor
blade model
• Where in the value chain does the value
originate?
• What margins should you target?
• How can you finance the innovation?

Revenue Generation Mechanisms
Traditional Record Label Model

Revenue Generation
• Model for an indie
band, selling 250,000
copies of their first
major label record
• Record sold through
traditional media –
radio, tv video clips,
iTunes (?), etc.
Source: Steve Albini, The Trouble with Music,
The Baffler, Issue 5

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Market Segment
• Traditional • Kristin Hersh
– Everyone! – Kevin Kelly’s 1000
– Or, at least, True Fans
300,000 people
Photo by Ben Garland

Value Proposition
• Traditional • Kristin Hersh
– Be like everyone – Be part of my tribe
– Join the broad cultural – Talk about things
conversation specifically interesting
to us
– Investment directly in
artist

Value Chain

Value Network for mobile phones
Source: Invisible Engines by Evans, Hagiu & Schmalensee

3 Models from Media Players

Value Network for Music
• Includes PR, music creation, artistic
development, music production, music
consumption, peripheral services
• Differences between traditional model &
Kristin Hersh’s?

Competitive Strategy
• Traditional • Kristin Hersh
– Filtering – Art
– Promotion – Community

Why didn’t the major labels do this?

Summary
• Kristin Hersh’s day to day activities are the
same as when she was working in the
traditional business model – writing songs,
recording them, & playing live
• The end product is vastly different
• Business model innovation is one of the
most powerful forms of innovation
available, and one of the most overlooked

UQBS Innovation Outreach

Public Talks

http://timkastelle.org/blog/

Contact Details
• Tim Kastelle
– 412 Colin Clark Bldg
– University of Queensland Business School
• Questions, issues and ongoing
communication:
t.kastelle@business.uq.edu.au
• Innovation Leadership Network blog:
http://timkastelle.org/blog/