Innovation Business Models

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A talk I gave in an undergraduate software development class - cut down from the longer talk I did for the Brisbane CitySmart Innovation Festival.

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Innovation Business Models

  1. 1. Innovation & Business Models DAY: Tuesday, 26 May 2009 SESSION: PRESENTER: Dr Tim Kastelle
  2. 2. What is Innovation?
  3. 3. Who invented the computer? US Army Photo And when was it an innovation?
  4. 4. Leibniz – Binary Notation ~1670
  5. 5. Leibniz Step Reckoner 1694 Adds, subtracts, multiplies, divides
  6. 6. Charles Babbage • Difference Engine 1823 • Analytic Engine 1834 • Neither successfully built in his lifetime
  7. 7. Difference Engine No2 (built 2002!) Adds, subtracts, multiplies, divides, calculates logarithms, includes a printer!
  8. 8. Ada Lovelace • First computer programmer • Wrote programs from Babbage’s Difference Engine – 1890s
  9. 9. ENIAC 1948
  10. 10. ENIAC • Electronic Numerical Integrator and Computer • Calculated logarithms • Calculated missile trajectories • Built by the US Army
  11. 11. Univac 1951
  12. 12. Univac I • UNIVersal Automatic Computer • Designed by J. Presper Eckert & John Mauchly • Manufactured by Remington Rand
  13. 13. 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
  14. 14. A highly simplified & stylized model of evolutionary economics The dynamic engine Variety of capitalism Growth Innovation Creative Selection destruction Replication Failure
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. Business Model Innovation
  19. 19. 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
  20. 20. 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
  21. 21. The Monty Python Experience
  22. 22. “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. “
  23. 23. Results • Monty Python dvds go immediately to #2 on Amazon’s tv & movie bestseller list • Sales increase 23,000%
  24. 24. The Business Model translates inputs into outputs Source: Open Innovation by Henry Chesbrough
  25. 25. 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?
  26. 26. Revenue Generation Mechanisms Traditional Record Label Model
  27. 27. 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
  28. 28. Subscribe to the Music Music may grow on trees, but money doesn’t, so Kristin is asking for your financial support. Take the music and run with it — but please, consider supporting her work — with cash. Strange Angel Level: $30 per quarter - Buy In addition to the free music and media files, all subscribers in good standing will also receive: • 2 spots on the guest list to any Kristin, Throwing Muses or 50FOOTWAVE performances – no more buying tickets! • all new Kristin CDs, when they’re manufactured, ahead of the release date • access to a media-rich Subscriber’s Page featuring lots of cool “other stuff”. Live bootlegs, video links, and more. We also offer Special Opportunities to listeners who want to support Kristin’s work at a higher financial level. All special opportunities include all the benefits of a full 1 year Strange Angel Level subscripion. Studio Level Support: $500 - Buy • In addition to Strange Angel benefits, Studio Level supporters receive a visit to the recording studio to observe the recording process. (Please Note: This is offered on a limited basis, is first-come, first-served and subject to scheduling limitations. Every effort will be made to accommodate subscribers. Generally speaking, Kristin records in Portsmouth, RI, — and now New Orleans, LA though studio location is subject to change at any time.) Sponsor Level Support: $1000 - Buy • In addition to all the above, Sponsor Level supporters receive their name or the name of their business or organization on Kristin’s new CD package as a Featured Sponsor. Executive Producer Level Support: $5000 - Buy • In addition to all the above, Executive Producers receive an Executive Producer credit on Kristin’s next CD Kristin now has subscribers in each of the above categories, they come from 12 countries on 5 continents. Her work is entirely funded by these amazing and generous people, making her completely independent - and accountable only to her audience. We’ve had countless submissions of your work to Kristin’s RW page too, and look forward to many, many more. This has been truly humbling. Thank you sincerely.
  29. 29. Market Segment • Traditional • Kristin Hersh – Everyone! – Kevin Kelly’s 1000 – Or, at least, True Fans 300,000 people Photo by Ben Garland
  30. 30. 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
  31. 31. Value Chain
  32. 32. Value Network for mobile phones Source: Invisible Engines by Evans, Hagiu & Schmalensee
  33. 33. 3 Models from Media Players
  34. 34. Value Network for Music • Includes PR, music creation, artistic development, music production, music consumption, peripheral services • Differences between traditional model & Kristin Hersh’s?
  35. 35. Competitive Strategy • Traditional • Kristin Hersh – Filtering – Art – Promotion – Community
  36. 36. Why didn’t the major labels do this?
  37. 37. 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
  38. 38. UQBS Innovation Outreach
  39. 39. Public Talks
  40. 40. http://timkastelle.org/blog/
  41. 41. 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/

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