Identifying a company, which looks promising today is one thing. Assessing whether this business will be successful in the future, however is another thing.

Many businesses look attractive today. Pundits, media outlets as well as other prophets of investing are not shy to praise them. Yet, are you sure that five years from now the company will still look attractive? Stakes can change quickly in an industry, and even for people who have first-hand knowledge of an industry it is not always easy to foresee change. In 2000, a Blockbuster Video executive laughed at the offer to buy Netflix at $ 50 million. In 1997 Apple stock traded at $ 17 a share. Back then, Michael Dell was asked what he would do with Apple. He said that he would shut the company down and give the money back to the shareholders. Industries and businesses change over time.

“So that means I should only invest in companies, which are protected through a wide economic moat?”, you ask. Great question, which brings us to the next and crucial point. Investors like to point out economic moats. Yet there is a problem with economic moats. At a certain point of time they may appear to offer long-term protection for a company. In the long run though, even they may be subject to change. Some past moats don’t sustain, and new ones emerge. Many kinds of competitive advantages have become more and more temporary over the past years and barriers to entry have declined, as we will discuss in more detail later. Such developments lead to a constant transformation of industries, which in turn makes predicting change even more important.

Yet, predicting change is among the investor’s toughest challenges. The development of a business depends on many factors and we don’t have crystal balls. 

While we may not be able to develop visionary powers, there are a few ways in which we can enhance our investor’s tool belt and our ability to foresee change.

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One thing that helps us foresee change is to really deeply understand both the operations of a business, as well its customers. Why is this? When we are close to the operating business, we are able to understand which factors will have a biggest impact on its future development. We will also be able to spot early indications of change in those factors. How do we do that? Quoting gross profit figures from the annual report won’t do the job. We need to dig down into the operating business. This can’t be done on the go. To understand a business we need to stop, look and listen. Feel free to read this previous post in which we have explored in more detail how to do this.

What also helps foresee change – and that will be the focus of this post – is an investors’ ability to think outside the box. To think outside the box, experience is important. The more companies and industries we have seen, the less we are confined by existing structures and the better our sense of how markets and businesses can evolve into new structures. I value the experience of having seen different industries and companies above all. It offers free lessons in what can happen.

As an investment professional I was fortunate to have analyzed various different industries. More important I was fortunate to work with portfolio companies over the lifespan of an investment. Both, the exposure to many different industries as well as the journey with portfolio companies, enabled me to draw important lessons of how companies can change. I am not able to share specific examples for confidentiality reasons. Instead we will instead look into various well-known companies and industries throughout this blog. We will see how they changed over time and what lessons we can draw from this change.

This post will be about an industry, which has been and will continue to be a roller coaster ride in terms of change. We are talking about consumer electronics. In this post, we will compare a very old company with a new company. Both have brought change to an industry in a similar fashion. Most importantly, both companies have managed to stay undefeated in their markets for a long time.

Polaroid reloaded?

Remember Polaroid, the company, which gave us many of those colorful pictures from the 60’s to 80’s? This Polaroid, was founded in 1937 by genius inventor Edwin Land, who amongst other things developed an instant film camera, which he initially called the Land Camera. The camera would later become known as the legendary Polaroid camera. Polaroid is also called the “Apple of the 1960’s and 1970’s”. It is compared to Apple Computer because both companies were driven by a visionary founder and inventor. Both were obsessive about fine-tuning their technologies, and both were design oriented. And finally, both managed to create an impressive pull demand for their products. Similar, as customers got in line for the new iPhones, some Polaroid dealers managed to charge $ 300,- for the SX-70 camera despite its list price of only $ 180. Therefore it will not come as a surprise to hear that Edwin Land, Polaroid’s charismatic founder also served as an role model for Steve Jobs.

Polaroid’s exciting story is described in much detail in the book “Instant, The Story of Polaroid”, by Christopher Bonanos. Further detail about its story can be found in the patent lawsuit of Polaroid vs Kodak

Polaroid grew from $ 23m revenue in 1950 to $ 1,3 bn in 1983 and $ 3bn in 1991. Total annual sales of instant camera units climbed to 14.3 million in 1978. However, as instant photography declined following its incredible run, Polaroid had to file for bankruptcy protection in 2001. The reasons for the decline were a reduction of processing times of 35mm analog photography and the emergence of digital photography. Polaroid failed to compensate this decline through innovation and launch of new revenue generating products.

Today’s Polaroid, which emerged from the bankruptcy, and subsequently went through several owners is a different company from the original Polaroid. At its core the company has turned into a licensing organization. Unlike the old Polaroid it doesn’t innovate, but instead it focuses on marketing licensed technologies under the Polaroid brand.

Just recently, however the new Polaroid launched the “Cube”, a HD video action camera. Now there is something interesting about the cube. It is launched into a market, which was created by a company, which shares a number of similarities with the early Polaroid.

Enter GoPro! As Polaroid had created the market for instant photography, GoPro has created the market for video action cameras. After they invented their field, both companies faced limited competition for many years.

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Two Companies, similar Drivers

Both companies operate in the imaging market selling photographic tools. They both invented their niche by segmenting the broader market and by targeting specific users through offering them a better functionality.

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  • Polaroid invented its niche of instant photography, within the broader photographic market, which then consisted of 35mm photography. It helped users by providing the benefit of having a picture develop instantly after the shooting. At that time, no iphones and digital cameras were available. People had to wait for two weeks until they could look at their pictures. Now imagine how amazing it was to be able to immediately share a picture with your friends at a party.

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  • GoPro invented the action camera. It competes with conventional digital cameras as well as the iphone coma era. It helps users capture their experiences in challenging environments. It helps them focus on the activity and not worry about operating a camera.

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Simultaneously the success of both cameras was built on community.

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  • Polaroid had the power to draw people together. If you took pictures at a party, you could immediately look at them and chat about them, quite similar to how we show our iphone pictures today. People suddenly were able to share their selfies with their friends.

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  • Now let’s fast forward to the present day. GoPro’s videos might not only be shared on a party but more important, they are shared with the bigger communities at YouTube and Facebook. People are now able to share their selfies with the world.

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As a result of this strong community effect, both companies benefited from strong word of mouth and a resulting pull demand created in retail channels.

But the similarities continue. The products of both companies helped creatives and professionals create content and further develop their business. The resulting endorsements from these multipliers in turn drove the camera manufacturer’s businesses.

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  • In Polaroid’s glory years, Ansel Adams, as well as other artists such as Walker Evans, Andy Warhol, David Hockney, and Robert Mapplethorpe used Polaroid cameras to develop their art.  Before Polaroid, artists would have to wait weeks, until they could see their creations. The instant development helped them immediately see the results of their work. In return, the endorsements of those artists were a major contributor to Polaroid’s growth.

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  • Likewise, GoPro offers surfers, bikers and other athletes a tool by which they can convey their performances to a broader audience. GoPro turns the adventure athlete into a filmmaker. This helps him record his breathtaking adventures and thus build his personal brand. Before GoPro, athletes would need a professional film team with cameras coming along for the ride to capture and share their experiences.

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Both companies simplify the capturing and sharing of experiences.

 

As a regular consumer of modern media you will not have escaped the fact that the marketing strategy of both companies is built on endorsements from these multipliers.

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  • GoPro’s YouTube channel provides evidence of this. The list of athletes, which endorse GoPro is endless, and it includes well-known skiers such as Lindsey Vonn and Julia Mancusa, well known mountain bikers, skateboarders, musicians and pole jumpers.

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  • If you look at old Polaroid ads, you will see the faces of Salvador Dali, Ansel Adams, David Hockney, Andy Warhol and Walker Evans amongst others.

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At their core, both companies offer simple capturing devices. The value they create however goes beyond the physical camera. The content that is produced with that physical device is as important, as the device itself. Both companies made it easier to communicate through pictures.

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  • Polaroid benefited from a Razorblade business model as a result of this. It sold the camera, and in addition it generated loads of money from selling film, which users needed to create the content.

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  • Similarly GoPro is selling the camera, and then is aggregating content on its Youtube channel. While it is harder to monetize this content, as it was to sell film, GoPro plans to generate additional revenue from advertising.

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Now all of this shows how both companies created value for their customers and what drove their impressive growth. The more puzzling question, however is, why both companies faced only limited competition for a long period of time.

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  • Polaroid was without competition for three decades. According to the book “Instant” it was able to sell a package of film at a margin of around 60 percent.

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  • Similarly, when you think about action cameras, you first think about GoPro but not necessarily about Sony or anybody else.

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Yet both markets are dominated by large players. While GoPro faces numerous competitors such as Sony or Canon, also Polaroid was a tiny player compared to Kodak, which was almost 10x Polaroid’s size in terms of workforce. Kodak could build on a significantly larger marketing and distribution power.

In their markets, both companies managed to stay undefeated for a long time. This makes it particularly interesting to compare them.

… similar Drivers but different Challenges

“With all the similarities of these two companies it doesn’t come as a surprise that both were undefeated”, you may be thinking. Well, in a way it does come as a surprise. Because each of the companies has generated its supreme market position from distinctly separate sources. This is what makes the comparison of both companies in particularly interesting. And we will be able to develop some patterns, based on those differences later in this post. These patterns will then help us better understand how markets change.

Ready to dive into the details?

At its core, Polaroid was a research lab, “a scientific think tank”, as the book “Instant” states. Land had filed more than 500 US patents. That’s close to 10 patents per year. For a one-product company. It was thanks to these patents and their underlying technology that the company didn’t face any competition for almost three decades. When Kodak finally managed to launch a competing product in 1976, the giant still didn’t manage to break Polaroid’s technology advantage. The resulting Kodak camera still lacked the usability and design of the Polaroid model. And, most importantly, it had been launched under violation of Polaroid’s patents.

Developing the product and technology was no walk in the park. When Polaroid launched the instant camera, the company was already familiar with the underlying technology, with polarizing filters. It had been developing and using polarizing filters for a number of different applications such as sunglasses and goggles for pilots. Yet, when Land developed the first prototype of the camera, he had to master additional challenges. They included the geometry of the camera as well the chemical composition of the film and paper. Many details had to be set right to make it work. Then turning the prototype into a consumer product posed many more challenges at the time, such as camera assembly, tool manufacturing, parts procurement. In particular procurement wasn’t trivial. Building the camera required the assembly of around 125 different parts, supplied by more than fifty different outside vendors, which were spread around the world. Sub-assembly and final assembly was done by hand, as the Polaroid – Kodak patent lawsuit documents (LINK) reveal. The book Instant describes how Land had difficulty finding a contractor who was able to manufacture a camera shutter with the required accuracy of timing. And, of course these were just the challenges of developing the camera, not to speak of the production of the film. According to the documents from the patent lawsuit, Polaroid had invested $ 600 million in developing and improving its famous SX-70 camera models.

Now let’s compare this to GoPro. Without doubt, GoPro introduced an outstanding and so far undefeated new product. Yet if compare Polaroid’s product development with an early Mount Everest accent, then GoPro’s journey was a guided expedition, supported through sherpas and oxygen bottles. Compared to the technology leap, which Polaroid meant, GoPro is built on readily available semiconductor and optical components. GoPro’s founder built on existing technologies when he invented the GoPro. He was able to track down a Chinese company that already manufactured a camera, on which he could base his first prototype. He modeled his first prototype by hand, using a Dremel tool, and had his first camera produced in China by wiring $ 5.000,- to a camera producer. If you go to an electronics store, you will find that a number of cameras are available which appear to be similar at a first glance.

“But GoPro not only offers the camera, but also the editing software”, you may wonder. Yet, today amateurs as well as experts can get hold of software such as iMovie, Premiere Pro or Final Cut Pro. As a result differentiating through a groundbreaking post processing movie software has become difficult.

What is GoPro’s Success built on?

Is it the Hardware?

Let’s dig a bit deeper into why GoPro’s success is so exceptional. We can safely assume that a GoPro camera offers a superior value for customers, compared to a competitor’s camera. We can also assume that this is the main driver for the camera’s success.

Yet, this doesn’t explain why no one else is able to replicate this offering. We know that Polaroid developed some groundbreaking innovation. But today’s consumer electronics space in which GoPro operates looks different. Its technological development is at an advanced stage. Most competitors are in a position to manufacture equal products. It is like the Formula 1 auto racing. You may be leading one season, but all of the key teams have the resources to catch up and beat you the next season. In GoPro’s case the names of those teams are Sony, Canon or Nikon. Those three as well as other consumer electronics companies have the technical as well as distribution and marketing resources to launch a possible GoPro Killer. Even smart phones today are able to record video in HD quality.

In the league of markets, which offer only little room for differentiation, but cut throat competition, consumer electronics certainly makes the top of the list. Not without reason, we haven’t seen many IPO’s in this jungle. It is dominated by large and powerful players.

In its IPO, GoPro raised $427 million at a valuation of $2.96 billion. There is something in particular remarkable about this. The company not only raised the money in the consumer electronics sector, where large IPO’s have become rare. It also raised it based on a single product.

So we are talking about a company, which managed to build an edge in a mature market. And so far GoPro seems to be successful in keeping competitors at bay. I fully realized the extent of this advantage at the 2014 ISPO, the biggest trade fair for sports equipment. A small number of GoPro copycats exhibited at the fair. They offered products, which were similar to GoPro. While the booths of the copycats seemed to be almost invisible, GoPro land was packed with enthusiastic fans that celebrated the brand, like it had just won the Formula 1 championship.

This raises a puzzling question. We know that Polaroid had built its competitive advantage on its innovation and patents in the earlier stages of the imaging market. But how is GoPro able to keep its competitors at bay in this late and mature stage of the market?

… or is it Hardware meets Content meets UX?

This question has two answers.

First, the fans at GoPro’s ISPO booth were not celebrating a physical device. They were celebrating something intangible. GoPro is not only selling the physical device but the experience of capturing and sharing adventures. Users don’t capture videos and images just for themselves. They want to share them with their friends and family, fellow athletes or fans. The growth of the popularity of social media and in particular of YouTube makes this sharing much easier for them. GoPro managed to not only deliver the camera, which captures the experiences, but it built a community around the sharing of those experiences. The main residence of this community are GoPro’s YouTube channels. GoPro’s main YouTube Channel has close to 3 million subscribers. For comparison, Apple has 2,3 million subscribers. So is all of the content on this channel user-generated? As an accommodating landlord, GoPro goes beyond just hosting the videos, which are created by the community. The company has an in-house editorial staff, which curates and also produces content. Thus, what used to be a hardware company, a camera manufacturer, has implemented elements of a media company.

The community is only one reason why GoPro managed to keep competitors at bay. The second is the functionality of its product design. Unlike Polaroid, GoPro did not build its advantage through fundamental innovation. GoPro’s advantage is based on optimization of the usability and functionality of an existing technology. GoPro builds products that provide superior convenience to a specific customer group.

The quality of the cameras is, of course, excellent. These devices shoot in HD and offer wide angle shooting. Yet, this is rather an enabler than a differentiator. What differentiates the cameras is that GoPro’s are built very robust. Even extreme athletes don’t need to worry about breaking the camera during an accident. Using it is simple and they can be set up easily during sports adventures. The small form factor helps athletes carry the camera wherever the adventure takes them. In addition, lots of useful accessories and mounting options help users in filming whatever activity their adventure consists of. They can mount GoPro on their equipment, whatever they do. This usability is what makes customers go for GoPro.

Now why is it hard for competitors to match that usability? On a first glance it doesn’t sound too hard, does it? To develop such usability, an understanding of the specific customer groups and their needs is critical. And this is where GoPro shines. GoPro’s founder is a customer himself. He built the first camera for his own surfing activity. Conducting product development meetings doesn’t really help companies understand customer needs. Living the life of a customer however does. It’s not for nothing that consumer goods companies, such as Proctor & Gamble make the effort to send their product development teams to live with customers. When the Gillette brand launched a new product in India, the team spent two weeks living – and shaving – with local families, as A.G. Lafley describes in his book “Playing to Win”. If a deep understanding of customers helps to build a better razor blade, just think what it can mean for a video camera.

By being close to their specific target customers, GoPro managed to take an existing technology and both optimize its user experience and find new use cases for it.

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Lessons learned: Success Factors have changed

Let’s step back and take a look at what we can take away from this. The stories of Polaroid and GoPro exemplify two things

  • First, the change of markets and business environments also changes the sources of differentiation and protection for businesses.
  • Second, as a result of this the skill sets, that companies need to apply change. This means that also the metrics change that investors should pay attention to.

Let’s look at the first point, the change of businesses over time.

There are at least two key drivers of change for an industry. First, an industry changes as it matures. That’s due to a number of factors. Over time more competitors will enter a field. Technology tends to become more standardized, to name just a few. But second, also external changes such as new customer preferences or technological developments will have an extra influence on an industry.

Both of those factors will change the success factors of businesses. Both will have an impact on how companies can differentiate and build their edge.

Entry Barriers have declined

Getting a hardware product to the market at the time of Polaroid, used to be a huge undertaking. First, innovation was critical. As we discussed, Polaroid resembled a research lab. Then, once a company developed the prototype, it required significant resources to have the product manufactured. As a result, big players who could build on their massive R&D, manufacturing and distribution resources had a clear advantage.

In contrast, the situation looks different today. Across many industries, hardware is much further developed than it used to be back then. A number of developments make it much simpler to develop and produce a new physical product. To see the results, take a look at the fantastic new technology products, which are available on Kickstarter or Indiegogo, produced not by large corporations but by hobbyists in their living rooms.

What made this possible today and what does it mean for companies?

First, prototyping has become easier. While Nick Woodman decided to do the prototyping of his first GoPro camera by hand, today a lot of affordable CAD tools are available, which allow for simplified prototyping of new products.

Next, sourcing of components through manufacturing services is now as easy as pie compared to the olden Polaroid days. New products can be based on existing standardized components, which are readily available. As the building blocks of electric devices, Microprocessors are available for home electronics projects as well as for the new disruptive killer product. Desktop tools provide any company with the ability to develop products based on common digital file standards, which can then be shared and used by manufacturing services, wherever they are.  Furthermore, thanks to the advancement of manufacturing technology, manufacturers are increasingly able to manufacture small batches on demand. Book production is a simple but impressive example. Manufacturers such as Ingram are able to produce a product that costs no more than $ 10 in single-item fabrication. This is Henry Ford turned upside down. Book printing is just one example. Across sectors, on-demand production is available to any company who wants to turn its prototype into a product and bring it to market. If in doubt, just take a look at the offerings that are available through Alibaba.

As production has become less dependent on ownership of physical equipment, entry barriers have declined across many sectors.

Want to learn more about the decreasing sophistication of physical production? Then have a look at Erik Brynjolfsson’s “Second Machine Age” or Chris Anderson’s “Makers”.

…have they really?

Then again the life of a new market entrant didn’t become easier in every respect. In return for the simplification of production, new challenges arise. As more and more products try to reach customers, so do their corresponding marketing messages. Today, customers are overwhelmed with clutter. The number of marketing messages to which they are exposed has exploded over the years. According to ComScore, US consumers had to endure more than 5 trillion marketing messages in 2012.

How does the overwhelmed consumer react to this? With all these messages being thrown at us, our brains have learned to serve as a noise-shield. It helps us ignore the majority of messages. Or can you remember all the marketing messages you saw along your last internet journey or tv session?

While physically reaching customers has become easier, reaching the attention of customers has become today’s true challenge.

Also customers have become smarter and more demanding. They can detect when companies tell them bullshit. They base their purchase decisions on reviews of fellow consumers. If they are not happy with a product or service, they will let the community know through Twitter or Facebook.

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Hardware Companies become Media Companies

As a result, companies who earn customers’ trust by engaging them and by building a true dialogue with them succeed. As such, they supply customers not only with physical products but also with content or entertainment. The most successful ones implement elements of media business models. Which brings us back to GoPro. GoPro engages athletes through its YouTube channels like Walt Disney manages to capture kids imagination. But GoPro is not the only company who does this. Red Bull has done this before. Similarly, the YouTube Channels of BestBuy and of photo equipment company B&H, which offer numerous free tutorials illustrate the increasing importance of content.

GoPro has already built up a solid inventory of content. Here is what GoPro’s S1 says about its content inventory: “In 2013, our customers uploaded to YouTube approximately 2.8 years worth of video featuring “GoPro” in the title. Also on YouTube, in the first quarter of 2014, there was an average of 6,000 daily uploads and more than 1.0 billion views representing over 50.0 million watched hours of videos with “GoPro” in the title, filename, tags or description”. GoPro’s all time favorite 4-minute video has more than 20 million views. If we add this up, then all viewers spent a combined 23 years watching this video. We just mentioned how difficult it is to capture customers’ attention these days. Well, from those numbers, GoPro seems to be doing quite all right. YouTube ranked GoPro as the #1 most popular brand in its Brand Channel Leaderboard.

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Let’s take the comparison with media business models a bit further. A modern marketing department is a content production machine. And like a media company, it targets and distributes the content across a variety of different formats and channels for a variety of different viewers.  As a result, companies increasingly split up their advertising budgets for different formats. Of course they still produce million dollar tv campaigns. But they also do $ 25.000,- YouTube videos, as Casey Neistat did with his “Make it count” video which promoted Nike’s Fuelband. Audi developed a short YouTube comedy (LINK) with the Breaking Bad stars Cranston and Paul. What both videos have in common is that the products are placed only very subtly in the videos. These videos focus on entertaining viewers, not on promoting products in the first place.

The Role of UX

But the lesson from the GoPro school of business is not over yet. The company’s success exemplifies another development. As the development of technology products has become simpler and commoditized, there is less room for companies to differentiate on function or performance. Today many products are able to perform all the necessary functions that they are supposed to perform. Think about buying new running shoes, new HiFi equipment or a new computer. What are their performance differences? Can you really tell whether there are any at all? They may actually not be that big irrespective of what the fancy marketing driven names for new products try to suggest.

As performance differences diminish, usability of the product becomes more important. Next to basic performance, we want products to perform extra functions, such as providing convenience, or saving us time. When you buy a mid-size car, then you know what performance to expect. Most will have similar engine power and you can expect them to last quite a few years before the first repairs are necessary. But what we can now see is that we receive more convenient options of configuring and finding our favorite cars. The vw.com website exemplifies this. We can also use a car on demand, as offered by Zipcar or Drive Now. Similarly, the web browser is not new. But Google chrome charms us by offering smarter and thus more convenient navigation and less typing thanks to autofill. Box.com’s key mission is not to provide you with physical data storage. Others can do this as well. But they set out “to make sharing, accessing and managing content ridiculously easy”, as Aaron Levie, box’s CEO states on their website. The Internet of Things is another example. Sensors have been there before. Smartphones have been there as well. Home appliances have been there before. But letting your home appliances speak with your iPhone enables new use cases, if you think about extreme sports for example.

Now back to GoPro. The quality and performance of the physical camera may not differ considerably from the camera of an iphone or a classic digital camera. It is their mounting options which make the cameras stand out. They increase the camera’s usability while doing sports. And they even open up new use cases and application areas.

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As we can see from the examples, and as we will continue to examine throughout this blog, such changes do not only apply to the imaging market. They apply to many other fields as well. As we said in the beginning, investors want to know how a market and its businesses will change over time. Understanding these dynamics will put them ahead of the herd.

Implications for Investors

Now why is this important for investors? Once we understand such changes we will be able to adjust our analysis. Audi measures its YouTube campaign in click through rates. As smart investors we know that such metrics indicate how well Audi engages its customers. Thus we should monitor them as well.

We are also aware that what made GoPro successful is different from what made Polaroid successful. Accordingly we will adjust our approach to analyzing each company. We will make sure that we don’t apply a one-size fits all approach (see also this post on this topic)

As we have pointed out, Polaroid benefited from a strong protection through innovation and patents. Accordingly its skill set was built around innovation capabilities. This becomes particularly obvious when we look at Polaroid’s development over time. Edwin Land’s early Polaroid was an innovation driven company, with an outsourced production. The book ‘Instant’ correctly describes it as a “Think Tank”. When Edwin Land had to leave the company, the skill set of the company shifted from innovation capabilities towards manufacturing excellence. In 1985, Isreal Allister MacBooth took over as CEO of the company. His background was production engineering. Accordingly, the company focused on optimizing manufacturing, reducing costs and licensing technologies that could be applied to its existing manufacturing skill set. While Polaroid changed from being an innovation driven company to being a manufacturing company it lost its innovation capability.

This is a common development as a company and its markets mature. It is not a bad thing per se. In this case however, it turned Polaroid into a one-product company. The company failed to launch innovations as its core product matured. This became life threatening for Polaroid when instant photography was substituted first by faster processing of 35mm film, and then by digital photography. The book “Instant” describes this in much detail.

Monitoring Polaroid’s innovation capabilities as well as alternative technologies put investors in a position to recognize the company’s decline early.

While Polaroid had lost the competitive advantage that it had thanks to its protected technology, GoPro didn’t have this advantage to start with.

As we have seen, today’s consumer electronics market offers fewer opportunities to differentiate based on technology and innovation. On the other side, GoPro, is successful in differentiating through its usability and its marketing. GoPro invested 16% of its 2013 revenue in marketing. It is close to its core customers. It understands their needs and can engage them in the long term. One key tool that helps the company achieve this is the content on its YouTube channel, which gives GoPro the characteristics of a media company. As such a media company, its skill set needs to reflect that. It invests in content curation and development. Their editors source the best content on various social media sites to aggregate them on GoPro’s YouTube channel. It recently hired a senior vice president of media. Also, part of its R&D budget goes to developing an integrated marketing platform that simplifies the organizing, editing and sharing of content for users. Sounds familiar? Yes, this is a content management system which publishers use as well.

Therefore investors will be curious to understand how efficient its marketing and content development operate. Can GoPro catch the limited attention of customers? Investors will have a look at media related metrics. They will try to understand how much it costs to acquire new customers and their attention and how long these stay with the company. Customer acquisition cost and customer lifetime value will be important indicators. Looking at the subscriber base and page views of its YouTube Channel tells them how sticky customers are. Understanding how often content gets shared or commented on helps us understand how committed customers are.

GoPro also plans to monetize add revenue. In that respect it will become important to understand the size and value of their inventory that can be monetized. What are the number of impressions that can be monetized and what are the ad rates in their field.

This does not mean that innovation skills are not important for GoPro any more. They still are, as long as it plans to earn money on physical devices. It’s just that UX may be more important than groundbreaking innovation. And that innovation skills are not the only factors that count. Investors will have to become more flexible in determining the metrics that drive a company’s success. The drivers of success change over time, and the better we understand what really makes a business tick the more we will be able to keep track of such changes.

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photo credits:
Roberto Caucino, Shutterstock
Shaiith, Shutterstock
Tooykrub, Shutterstock.com
holbox, shutterstock
Syda Productions, Shutterstock

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