Implications: From Innovation Skills to Media Metrics
Now why is this important? Once we understand such changes we will be able to adjust the business analysis. Audi measures its YouTube campaign in click through rates. 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.
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 decision makers and investors will be curious to understand how efficient its marketing and content development operate. Can GoPro catch the limited attention of customers? We 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 capabilities 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 success factors of a business 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.
This article was part of our free series Business Thinking 3.0