Lessons learned: Success Factors 2.0

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, industry transformation also changes the sources of differentiation and protection for businesses.
  • Second, as a result of this the the success factors of a business and the skill sets, it needs to apply change. This means that also the metrics change that decision makers and 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, external changes such as new customer preferences or technological developments will have an 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.

Barriers to Entry 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. This also means that success factors of a business have changed from the tangible to the intangible.

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.

Consumer-El-Old-New-900px

Image Credits: Shaiith, Tooykrub, holbox, Syda Productions, Shutterstock

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.

Access to physical resources has declined as an entry barrier. Yet the importance of intangible factors to the success of companies have increased.

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 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.

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

Get this Program in small doses

We have put this Program into a free 3-step email for you. Continue reading later and get a dosis once a week, providing you with time to digest and learn.
 

Save your progress

Free Registration enables you to save your reading progress, take notes and access our closed Forums

See the Important Shifts Happening

Not every Tweet is of importance in this noisy world. Stay updated on the most important shifts that are happening at the intersection of Business, Innovation and Culture.