True innovation is rare. Ecclesiastes 1:9 is several thousand years old and tells us that “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.”
Of course when we aren’t talking about “big picture life” – innovation on a smaller scale happens every once in a while. Historians can argue about the number of truly “world changing innovations” – things like development of agriculture, domestication of animals, improvements in building materials, etc but that isn’t what I’m concerned with today.
Markets
I enjoyed The Outfit (2022) – which is nominally about a master English tailor who has ended up in a small shop in mid-1950’s Chicago (Mark Rylance’s character describes himself as a “cutter” – it is one of those rare “character driven” gangster movies, the movie has a “tense” energy and we get some “action” – I liked it).
Near the end of the movie a character complains about how her “organization” had been ignored until they started making some “real” money. Which is plot driven exposition as much as anything.
THEN I saw a promo for a new “streaming series” – were the main character makes the same complaint – something like “no one paid attention till we started making money, now everyone wants to take over.”
Ok, both of those examples are “plot driven” but it is important to recognize that the complaint both (fictional characters) are making is that they “innovated”, created a “new” market segment, and then when that market segment became increasingly popular – competitors entered the marketplace.
“Imitation is the sincerest form of flattery that mediocrity can pay to greatness”
– Oscar Wilde
This is the same concept found in the “innovation acceptance curve.” The “innovation acceptance curve” looks like the classic “normal distribution” bell curve – with “innovators” and “early adopters” on one side and “laggards” on the other – and “early” and “late” majority in the middle.
My point is that there is probably a similar “number of competitors” curve that mirrors the “innovation acceptance curve.”
Cell Phones
Think “cell phones” – the first “cell phone” was invented in 1973. In the 1980’s cell phones were extremely rare – and if someone had one it probably looked like a World War 2 “walkie talkie.” By the end of the 1990s cell phones were common. The first iPhone was released in 2007 – which sparked another “innovation acceptance curve” for “smart phones.”
Look at the “cell phone market” – Nokia dominated the early stages of the acceptance curve – but back in the 1990s the “cell phone service providers” tended to “give away” the phone in exchange for the monthly service fee.
I’m sure there were a LOT of other companies making “cell phones” in those “early adopter”/”early Majority” days – and there were obviously other innovators (BlackBerry comes to mind).
If we set the “way back machine” to 2005 (2 years before the iPhone) and asked a random sampling of cell phone users if they would ever think of paying $500 for a cell phone – the response would have been overwhelmingly low, simply because the average user only used their cell phone to take the occasional low resolution picture and make phone calls.
(fwiw: I used to leave my flip phone in the car 99% of the time – because that was where I would need it, and the battery retained a charge for weeks at a time)
Of course in 2005 folks might have also carried around a laptop, a “personal digital assistant”, and/or a dedicated MP3 player (the first Apple iPod released in 2001 – but “portable personal music players” had been around for years).
The point here is that “innovation” is NOT always “market driven.” Successful innovation that results in “market disruption” is about providing something the “masses” didn’t realize they needed.
“If I had asked people what they wanted, they would have said faster horses.”
-Henry Ford
Legendary Apple founder Steve Jobs once said that he didn’t rely on “market research” when developing new products. I’m not questioning Mr. Jobs – but (my opinion) his “genius” was in seeing what people “needed” which was often different than what the “thought the wanted.”
Apple, Inc under Mr. Jobs was also known for making superior quality products that fell into the “elegant” category – i.e. achieving “product elegance” required a lot of “product testing” and development. SO Steve Jobs didn’t come back to Apple from the “wilderness” in 1997 and hand down from on high the “iMac”, and then the “iPod”, and finally the “iPod” – but he did create the innovation environment that made them possible.
Market Leaders and Innovation
After Apple disrupted the cell phone market by introducing the “iPhone” – Google, inc acquired the Android operating system and the HTC Dream was the first Android “smart phone” (September 2008)
In 2023 Android OS is the most popular operating system in the world with 70% of the market share. Apple iOS has 28% of the market.
From a “device” point of view – Samsung is the largest “Android” device manufacturer. Apple iOS is “closed source”/proprietary so obviously all “legal” iPhones are running iOS.
From a “profitability” point of view – Apple, Inc is making a good living off of the selling iPhones for $1,000 and the “App Store” brings in $billions a year. So at the moment they are happily perched atop the “market profitability leader” stack – i.e. they don’t have the largest number of “devices” but they dominate the “top end” of the market and are far and away the most profitable.
i.e. you can buy a $50 Android smartphone and you can probably find a $100 iPhone, but it will be several “generations” old …
If you are curious about that other 2% of the mobile market (Android 70%, Apple 28%, other 2%?) – well, in 2023 I’m not sure –
Microsoft tried to have a “mobile” version of Windows for a long time, Microsoft announced “end of life” for Windows Mobile back in 2017, which means 2022 was when Microsoft support ended.
BlackBerry is also still around – so that 2% is mostly old Microsoft Mobile and BlackBerry devices.
The “modern business” cliche is that companies must “innovate or die” – but any “market” will tend to be irrational/unpredictable at a basic level because, well, “people” are involved.
“Innovation” for the sake of “innovation” is a bad idea – hey, if it ain’t broke, don’t perform radical surgery trying to “fix” it. “Intelligent innovation” with an eye on shifting market demands is always a good “long term” plan.
What Happened to Nokia?
ANYWAY – there is a very good documentary on the “Rise and Fall of Nokia Mobile” (2017)
Just like our fictional “market creators” at the start of this article – Nokia was an innovator and dominated the early mobile industry, then the market got big and profitable and then what happened …
Well, Nokia is a case study for why “market share dominance” does not always equal “profitability” – but the answer to what “happened” to Nokia is that Microsoft acquired them in 2013.
You can still buy a “Nokia” phone – they even have the classic “flip phone” – but the Finnish telecom company “Nokia” doesn’t make phones in 2023.
I’m not giving anything away by pointing out that the “old Nokia” employees blamed the “fall of Nokia” on the Microsoft acquisition – i.e. there is a LOT of “Microsoft as evil American corporation” bashing in the documentary – and for-what-it-is-worth they are probably right in their criticism of the contrasting corporate cultures.
BUT “Microsoft/Nokia” isn’t at the top of “worst mergers” of all time by any measure (hey, someone is gonna have to do something SPECTACULARLY stupid on a “Biblical” scale to be worse than AOL/Time Warner).
With 20/20 hindsight – “Nokia mobile” might be in exactly the same spot they are NOW if the Microsoft deal hadn’t happened – i.e. making mid-range Android phones. They certainly didn’t have the resources to compete with Apple and Google for users – so at some point they would (probably) have stopped trying to develop their own mobile OS and thrown in with Google/Android and be exactly where they are today.
Competition
Healthy competition drives intelligent innovation. At a “nation state” level this means that “protectionism” is usually a bad idea.
The “usually” qualifier sneaks in there because of “national security.” Outside of a “national security” concern the best thing for “politicians” to do in regards to “market competition” is “as close to nothing as possible.”
Yes, rules need to be enforced. Criminal activity should be dealt with as “criminal activity” NOT as an excuse for politicians to “wet their beak” meddling in market regulation. e.g. politicians are great at throwing money at bad ideas and extremely bad at encouraging actual “market innovation.”
(just in general the most cost effective thing the “gov’ment” can do is “have a contest” and then encourage the free market to solve the problem and win the contest)
Of course “cronyism” is ALWAYS bad at any level. The Venezuelan oil industry under Hugo Chavez becomes the cautionary tale of “cronyism” disguised as “nationalization.” e.g. no, a “centrally controlled economy” run by “human experts” won’t work on a national scale – and only the greedy and ignorant will try to tell the “masses” that you can get “something for nothing.”
Acres of Diamonds
Russell Conwell (February 15, 1843 – December 6, 1925) is remembered for giving a speech called “Acres of Diamonds” (feel free to read the lecture at your leisure)
One of the lessons that could be taken from Acres of Diamonds is that the best “market” for someone looking to “innovate” and “compete” is the market that they know best.
I say, beware of all enterprises that require new clothes, and not rather a new wearer of clothes.
– Henry David Thoreau
Just because someone else is doing something similar doesn’t mean that there isn’t room in the marketplace for your idea. e.g. Everyone told Dave Thomas that the United States didn’t need ANOTHER hamburger chain – but in 1969 he started “Wendy’s Old Fashioned Hamburgers” in Columbus, Ohio.
Mr Thomas had worked for the real Colonel Sanders and Kentucky Fried chicken before starting Wendy’s – so he didn’t need “new clothes”, he understood fast food franchising and customer service. btw – Dave Thomas at Wendy’s deserves credit for perfecting the “pick up window” and the
“salad bar” among other things.
When Jack Welch was running G.E. they encouraged suggestions/feedback from “ordinary” workers – the idea being that the person that knows how to do the job “better” is probably the person doing the job.
Yes, for every “introduced into production” G.E. probably had hundreds of “impractical” suggestions – but that is like saying that most rocks in the diamond mine are not diamonds, you don’t stop mining for diamonds because of the “not diamonds”
(any organization that encourages suggestions should also have a way of quickly evaluating those suggestions – I’d be happy to take a big consulting fee to figure out a way, but with modern I.T. there are a lot of easily implemented solutions).
Textbooks will through out terms like “unique selling proposition” (USP) – which boil down to “just because other folks are doing it doesn’t mean your slightly different idea won’t work.”
Ideally your idea will do “something” different/better/cheaper — but the fact that a LOT of other folks are doing “whatever” just means that there is a DEMAND for “whatever.” i.e. if you think that you have a truly unique/innovative idea that no one else has thought of – you might be wrong.
It is POSSIBLE that your idea has been tried (and failed) OR that there simply isn’t a profitable market for “whatever.” This is where doing a “competitor analysis” becomes informative – if you can’t find ANY competitors than I’d be worried …
e.g. not surprisingly McDonald’s sells the most hamburgers in the United States but there are 91,989 other “hamburger restaurant businesses” in the U.S. and the number continues to grow.
I don’t know if I would suggest starting a “hamburger restaurant” if you have 20 years of completely unrelated experience – but this is where “franchising” tries to fill in the knowledge/experience gaps for prospective entrepreneurs.
Probably having a good location is just as important as having a recognizable brand – e.g. if I have been driving for 8 hours and I’m hungry and have to use the restroom if “anonymous greasy spoon truck stop” is the only place in sight they would look REAL attractive …
Unlimited Demand
Usually when doing a competition assessment you will factor in the impact that changes in price will have on “market demand” as well as the cost of “switching.”
Specifics aren’t important -this is where the textbooks will talk about “elasticity” – but the core idea is that changes in price can have a large impact on “demand.”
i.e. if you are selling “product x” for $1, something happens, and you need to start charging $2 to stay in business. There are 3 possibilities – you could lose customers, your retain the same number of customers, or you might gain customers (in rare situations).
Your customer reaction to the price change will probably revolve around the “cost” of switching. e.g. how much do competitors charge and how much trouble is it to switch to one of those competitors?
To make up a story – imagine “local gas station” increases their prices. Some folks won’t notice because it is inconvenient to go somewhere else, and some will rearrange their lives so that they never have to buy gas at that location again – and probably the only way a “local gas station” INCREASES customers is if traffic patterns change.
Of course if a competitor is charging 10¢ less and is just across the street – well, that competitor will have long lines and probably put the first station out of business. btw – the cost of gas at “big chain” stations tends to reflect local taxation just as much as the cost of the gasoline – but that is another subject.
BUT if the price of gas gets too high – folks will buy more gas efficient vehicles and cut down on their driving – so gasoline does not have UNLIMITED demand.
The number of items with “unlimited” demand are kind of small – “air” comes to mind, but even then “no longer breathing” is a drastic option, and when “basic necessities” become scarce the breakdown of civil society is gonna happen (riots/war/anarchy).
On a less apocalyptic level – “entertainment” tends to have unlimited demand and also zero switching costs. This is (probably) obvious – the challenge for “creators” becomes not just “making an entertaining video” but finding an audience.
A tiny audience could equal “profitability” – if production costs are controlled and enough “sponsors”/subscribers found. A large audience could equal “huge losses” – if production costs are high and “advertising”/subscribers are not “large enough.”
The same math applies to podcasts, broadcast/cable stations, and motion pictures. When “Superman Returns” was released in 2006 it had a $200 million budget. When it made almost $400 million worldwide it returned a profit, but not enough – e.g. a planned sequel was cancelled
At the same time “The Devil Wears Prada” was released with a $35 million budget. It would make $327 million in box office – AND be considered a huge success making back 8x its budget.
(umm, it isn’t important that I’ve seen one of those movies and it isn’t the one about the fashion industry – the point is one that Disney, Inc is relearning in 2023, i.e. heavily marketing a polished piece of tripe doesn’t make the tripe into a hamburger)
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