Google Does Not Have Innovator's Dilemma

I asked a question to myself: "Why has Google been incredibly successful in defending and growing its core as well as introducing non-core disruptive innovations?". To answer my own question I ran down Google's innovation strategy through Clayton Christensen's concepts and framework as described in his book "Seeing What's Next". Here is the analysis:

Google's latest disruptive innovation is the introduction of free GPS on the Android phone. This has grave implications for Garmin. To put this innovation in the context it is a "sword and shield" style entrant strategy to beat an incumbent by serving the "overshot customers". The overshot customers are the ones who would stop paying for further improvements in performance that historically had merited attractive price premium. Google used its asymmetric skills and motivation - Android OS, mapping data, and no direct revenue expectations - as a shield to enter into the "GPS Market" to serve these overshot customers. Google later turned its shield into a "sword" strategy by disinteremediating the map providers and incentivizing the carriers with a revenue-share agreement.

On the other hand Google's core search technology and GMail are a couple of examples of "incremental to radical" sustaining innovations where Google went after the "undershot customers". The undershot customers are the ones who consume a product but are frustrated with its limitations and are willingly to switch if a better solution exists. The search engines and the web-based email solutions existed before Google introduced its own solutions. GMail delighted the users who were frustrated with their limited email quota and the search engine used better indexing and relevancy algorithms to improve the search experience. I find it remarkable that Google does not appear to be distracted by the competitors such as Microsoft who is targeting Google's core with Bing. Google continued a slow and steady investment into its sustainable innovation to maintain the revenue stream out of its core business. These investments include the next generation search platform Caffeine, social search, profiles, GMail labs etc.

Where most of the companies inevitably fail Google succeeded by spending (a lot of) money on lower-end disruptive innovations against "cramming" their sustaining innovation. Google even adopted this strategy internally to deal with the dilemma between its sustaining and disruptive innovations. One would think that the natural starting point for Google Wave would be the GMail team but it's not true. In fact my friends who work for Google tell me that the GMail team was shocked and surprised when they found out that some other team built Google Wave. Adding wave-like functionality in the email would have been cramming the sustaining innovation but innovating outside of email has potential to serve a variety of undershot and overshot customers in unexpected ways. This was indeed a clever strategy.

So, what's next?

If I were AT&T I would pay very close attention to Google's every single move. Let's just cover the obvious numbers. The number of smartphone units sold this year surpassed the number of laptops sold and the smartphone revenue is expected to surpass the laptop revenue in 2012. Comcast grew their phone subscribers eight-fold with the current number exceeding 7 million. Google Voice has over 1.4 million users of which 570,000 use it seven days a week. Even though Google does not like its phone bill Google seems to be committed to make Google Voice work. This could allow Google to serve a new class of overshot customers that has a little or no need of land line, desire to stay always-connected, and hungry for realtime content and conversations. Time after time Google has shown that it can disintermediate players along its value chain. It happened to NavTeq and Tele Atlas and it is happening to other players with Google Power Meter and Chrome.

Many people argue that Chrome OS is more disruptive. I beg to differ. I believe that Chrome OS does not have near term disruption trajectory. Being wary of hindsight bias, I would go back to the disruptive innovation theory and argue that Chrome OS is designed for the undershot customers that are frustrated with other market solutions at the same level. For the vast majority of the customers it does not matter. If Google does have a grand business plan around Chrome OS it certainly will take a lot of time, resources, and money before they see any traction. I see the telco disruption happening much sooner since it serves the overshot customers. I won't be surprised if Google puts a final nail in telco's coffin and redefines the telephony.

Branding On The Cloud Is Part Business Part Mindset

As it goes "on the Internet, nobody knows you're a dog". Actually people do. Recently AT&T asked their employees to fake the net neutrality. Employees were asked to use their personal email addresses to petition against net neutrality. The internal memo ended up on the blogs and Twitter in minutes. Forcing your brand down your employees' throats is not particularly a smart idea.

Is your brand ready for the cloud? This is not a question that many companies ask until their brand gets caught in a cloud storm. The storm is about the customers, partners, and suppliers discussing your products and brand in the public using social media, report problems using the SaaS tools, and engage into the conversations in ways that you never anticipated. Recently Seth Godin announced an initiative to help companies launch brand in public. It stirred quite a controversy and created confusion. He had to pull back. The organizations are simply not ready. The organizations are unclear on how to monitor, synthesize, and leverage the conversations that are happening on the cloud. The cloud enables the people to come together to share and amplify their conversations. .

Whether you are a SaaS ISV, non-SaaS ISV, or not even a software company, what can you do as an organization to build your brand on the cloud? It is part business past mindset:

Don't dread failures instead use them to amplify brand impact:

Recently an enterprise SaaS ISV, Workday, experienced an unplanned 15-hour outage. Not so surprisingly customers responded well with the outage. SaaS essentially made the outage a vendor's problem. Unclear? Take an example of the analog world. Occasionally I have experienced power outage in my neighborhood (yes, even in supposedly modern silicon valley). The wider the outage faster it got resolved. The utility folks feverishly worked to resolve the problem that impacted hundreds of subscribers. Coming back to Workday's outage, while Workday had all hands on the deck to resolve the outage the management team personally picked up the phone and started calling the customers to reassure them that the outage will be resolved soon. They extensively used the social media during and after the outage to be transparent about the overall situation. Now it gets even more interesting. They reached out to a key blogger, Michael Krigsman, who analyzes IT failures to brief him on what happened and extended an invitation to have a chat with the CEO. Michael Krigsman has a great post 'A matter of Trust' covering this outage and his subsequent conversations.

Workday used its outage not only to underscore the fact that why people think they are better of with a SaaS vendor but also used the opportunity to strengthen their brand proposition amongst the customers, analysts, and bloggers.

Building brand leveraging SaaS delivery model to act in realtime:

If you are a SaaS vendor ask yourself whether you are leveraging the SaaS delivery model to strengthen your brand in realtime. Jason Fried from 37 Signals was quite upset upset with Get Satisfaction when 37 Signals got labeled as “not yet committed to an open conversation”. A couple of people from Get Satisfiction immediately responded, apologized, and changed the parts of the tool in minutes that caused the problems. Similarly Twitter postponed its scheduled downtime to accommodate the protest against the outcome of the election in Iran. A former deputy national security advisor to George W. Bush, Mark Pfeifle, went to the extent to comment that Twitter founders should have won the nobel peace prize for postponing the downtime.

Being able to demonstrate the support for what you believe in has significant positive impact on your brand. Don't underestimate the power of social media on the cloud. Twitter has changed culture of Comcast.

Empower your employees to be your mavens:

As Malcolm Gladwell puts it customers don't retain their soap wrappers to call the toll free number to let the manufacturer know if they are unsatisfied. But if someone does call, you know that, you discovered a maven whom you should serve at any cost. That person will start the word-of-mouth epidemics. Chances are that some of your employees are already having conversations on the cloud. Make them mavens of your brand. Get Satisfiction is an example of a great tool that a company can use to encourage their employees to get closer to the customers using the alternate customer support channels. Glassdoor is another example of such a tool that not only works as a great salary benchmarking tool but also provides insights into culture of an organization. Primarily designed as a tool for the external candidates the tool has potential to be used by the internal executives to objectively assess the employee sentiment and help improve the external brand perception as projected by the employees. Focus on your employees and how they can better connect with the customers and partners using the tools and open communication channels on the cloud.

I am not ignoring the negative aspects of the cloud being an open medium that isn't perfect. It never will be. As Bruce Schneier describes the commercial speech arms race - "Commercial speech is on the internet to stay; we can only hope that they don't pollute the social systems we use so badly that they're no longer useful."

I am optimistic. The cloud is a great platform for social participation that, if used wisely, could strengthen your brand.

Augmented Reality Will Change Enterprise Software For Real

Augmented Reality (AR) has seen a sudden buzz in the last few weeks. The announcements just keep coming; Layar announced a 3D API and Wikitude announced AR API. VentureBeat recently ranked the emerging start-ups in augmented reality. AR is still a nascent domain with many quirks and twists but it is for real and it is going to cause disruptions in many dimensions. This is how I see it would affect the enterprise software:

No interface will be the interface

The augmented reality uses the most natural interface, the reality, and layers information on top of it essentially eliminating the need to have an artificial interface. Users will prefer in-context user experience at the locations where they perform their primary task compared to unnatural static experience on their current devices. I also see the impact and potential for innovation in the MVC frameworks. The AR opens up a lot more opportunities for the developers and designers, who were constrained by the traditional technological barriers, to innovate new UI frameworks that have higher affordance and closer mapping to users’ mental model against an unproductive artificial user interface. Getting closer to user’s mental model is going to make the user experience a pleasure and the users more productive. Check out this Layar video:



Data will be the new design

With the growing popularity of AR once considered a nice to have feature, the alternate data consumption, will become the core requirement of the enterprise software. The users are likely to access data with a variety of new clients in unanticipated ways. The widespread adoption of RSS feeds made the interaction and visual design of a blog less relevant against burning the feeds to deliver the content in realtime. Similarly accessibility to a range of rich enterprise data in real-time is going to outweigh everything else. The users will create new environments and experiences. This emergent behavior is a golden opportunity for the companies that have captured rich enterprise data but have faced challenges to make it accessible and useful to the end users.

The SaaS, the cloud, and mobility will be base expectations

The AR applications require the data to be accessed from a range of physical locations on mobile devices without any latency. This distributed data need combined with the nature of the AR deployments where one company does not own an end-to-end solution will necessitate the data and the apps to be delivered from the cloud to optimize the solution. The users will not only demand that the application be accessible from the mobile devices but the mobile devices might be the primary and in some cases the only interface to the business information. Emerging technology trend such as cloud-based rendering, when combined with such AR deployments, has potential for some killer innovative applications.

These are exciting times and I hope that the entrepreneurs tap into the world of augmented reality and make it real by creating innovative experiences that demonstrate technology excellence, create new business models, and make it a real pleasure to interact with the enterprise software.

True Entrepreneurial Spirit Is Believing In A BHAG

GigaOM has a post "How Start-ups can win big with VCs" that muddies their point of view of having a clear value proposition with not doing something because no one may want this or someone else has already done it. I added the following comments to that post:

I agree with the viewpoint about honing the pitch. However I have a different take on some of the start-ups. It’s one thing not to know what the value proposition is but it is other thing to believe in a BHAG. Many start-ups had huge success when people initially thought that they could live without that. Twitter is one of those examples. Also, there is nothing wrong in duplicating what someone else is doing. Presence of similar companies signal that there is a market. It is now up to the new entrant to beat the competition by solving the problem well. When Google announced Gmail it was one of the last (as of now) web-based email that was introduced. Google would not have released Gmail or even the search engine if they would have thought that other people are already solving this problem.

I welcome the entrepreneurial spirit of the Silicon Valley. This innovation engine is amazing. I was watching the panelists beat up http://anyclip.com at Techcrunch 50 suggesting that the content deals are hard to come by. I liked the answer: “No one thought that we would have a black president one day”. The company acknowledges that it is an astronomic task but the reward is very high if they can pull that one off. We all know the story about Steve Jobs, iTunes, and the music industry. Let’s not forget that we can repeat the history only if we believe into these start-ups and give them an opportunity to succeed.

Amazon Customers Can Now Get A Placebo Cloud

That would be the new Virtual Private Cloud (VPC) by Amazon.

I am a big proponent of the public cloud but I am a bigger proponent of giving what the customers really want. Amazon had resisted offering a private cloud but they finally gave in and offered a private cloud or at least this is what they want the customers to believe. The bloggers are already questioning whether VPC is a true private cloud. Regardless of the arguments whether the VPC is really a “virtual” private cloud or a “virtually" private cloud, I believe, this placebo cloud is likely to help the customers overcome the cloud computing adoption barriers:

Security: The placebo cloud would alleviate the perceived risk of adopting the cloud computing. The perceived risk is based on the customers’ past experiences. The customers believe that anything that they can connect using VPN must be safe even if they are tunneling into a set of shared resources. The customers will get an environment what they believe is safe and secure to deploy and consume the applications.

Ownership: The VPC does not let the customers own the computing but still provides a sense of ownership. If Amazon’s marketing engine does a good job the customers would be less wary about the lack of ownership.

Virtualization: The customers are not necessarily clear about the real differences between virtualization and the cloud and they necessarily don’t care as long as their business goals are realized. The VPC would allow the customers to work with the existing technology stack that they already understand such as VPN and network-virtualization. The VPC would also empower the partners to help the customers build the bridge from their on-premise systems to the cloud to create a hybrid virtualization environment that spans across various resources.

Even if I personally favor the public cloud I do want to see the customers buy into the cloud computing and later make a decision whether they should move to the public cloud to leverage the cloud in its true sense.

SOAP may finally REST

Lately I have observed significant movement in two transformational trends - adoption of REST over SOAP and proliferation of non-relational persistence options. These two trends complement each other and they are likely to cause disruption sooner than later.

The enterprise software that required complex transactions, monitoring, and orchestration capabilities relied on the SOAP-based architecture and standards to realize their SOA efforts. The consumer web on the other side raced towards embracing RESTful interfaces since they were simple to set up and consume. There are arguments on both the sides. However, lately the market forces have taken the side of REST even if REST has significant drawbacks in the areas such as security and transactions. This once again proves that a simple and good enough approach that conforms to loose contracts outweighs a complex solution that complies to stricter standards even if it means compromising certain critical features. The web is essentially an unreliable stateless medium and any attempts to regulate it is less likely to work in our favor.

Many argue that the self-describing standards for SOAP are its strength over the RESTful services that lacks such features. However designing a RESTful service is fairly trivial since it allows to learn and experiment by being iterative unlike a relatively complex upfront learning process associated with the SOAP-based architecture. There has been a flurry of activities in the messaging middleware by Google that makes these RESTful interface even more compelling. This includes Google Wave Federation and PubSubHubbub. The developers are more likely to prefer these messaging protocols against SOAP and that would mean more RESTful APIs in the Pushbutton Web. Easy consumability reduces the initial adoption barrier and that's the key to success in many cases.

Since I last blogged about the continuum of the database on the cloud from schemaless to full-schema new persistence options have emerged such as RethinkDB and HadoopDB and many debates have spurred questioning the legacy of the RDBMS. For a cloud-like environment the statelessness, ad hoc persistence design, and instantaneous horizontal scale go well with the RESTful architecture. The growing popularity of SimpleDB and CouchDB along with many discussions on how to achieve CRUD with REST signal that the persistence is becoming more RESTful and schemaless.

I was convinced quite some back that REST was certainly the future for the consumer web but the latest trends have made me believe that the REST will see its adoption in the enterprise software accelerated much sooner than I had originally expected. This is like Java and Internet; the organizations embraced Java and the Internet at the same. The same will be true for the cloud and REST. When the companies consider moving to the cloud they will reconsider their SOA and persistence strategy and will likely adopt REST and alternate persistence models.

The cloud might be the last nail in the SOAP coffin.

SaaS 2.0 Will Be All About Reducing The Cost Of Sales

A clever choice of the right architecture on right infrastructure has helped the SaaS vendors better manage their operational infrastructure cost but the SaaS vendors are still struggling to curtail the cost of sales. As majority of the SaaS vendors achieve feature and infrastructure cost parity, reducing the cost of sales is going to be the next biggest differentiation for the SaaS vendors to stay competitive in the marketplace.

Direct sales model is highly ineffective and cost-prohibitive for the SaaS vendors as it does not scale with the volume business model that has relatively smaller average deal size. The role of the direct sales organization will essentially get redefined to focus on the relationship with the customers to ensure service excellence and high contract renewal rates in addition to working on long sales cycles for large accounts.

How can a SaaS vendor reduce the overall cost of sales to maintain healthy margins and growth?

This is a difficult nut to crack. There are no quick fixes. There is no easy way to optimize the tale end of the process without holistically redesigning the entire SaaS life cycle.

Self-service demos to "self-selling" trials:

Fundamentally the direct sales model for an on-premise software sales has been all about initial investment into the right demos to model customer scenarios and align the sales pitch to match the solution needs. The SaaS vendors moved away from this model as much as they could and replaced it with the self-service demos or trials. However these demos are not "self-selling" and still requires intervention from the direct sales people at various levels.

The SaaS vendors need to move from self-service demos to the self-selling ones that are not only fully functional out-of-the-box but also articulate the solution capabilities implicitly or explicitly. The demo is not just about showing what problems you are solving but it is also about how well it maps to the customers' pain points. It is like buying a hole and not a drill. The demo and the product should scream out loud the value proposition without making customers go through a webinar or a series of PowerPoint slides.

Customer acquisition to customer retention:

SaaS companies have traditionally focused their sales and marketing budget on customer acquisition against retention. While customer acquisition is a necessity the increasing SaaS competition could result into the current customers ditching the vendors. Customer support is the new sales model. Design your customer support organization and operations to retain customers. Don't let the contract renewals slip through the cracks.

Your customers are the biggest asset that you have. Market new solutions to them as an up-sell. One of the powerful features of a SaaS platform is to be able to integrate and push the new products effortlessly to the existing customers and have them try it out before they start paying you. Modernize your internal tools to track the usage analytics to better understand your customers, sales activities and effectiveness of the marketing campaigns. You have a problem if you cannot tell which customer is using what, who are the right partners, who needs training and support etc. If you haven't lately looked at the tools that your sales people use this is the right time. I would not expect a SaaS vendor to reduce the cost of sales without empowering the sales force with the true customer, competitior, and partner intelligence.

Low-touch persuasions to hi-touch interactions:

Low-touch one-to-one selling does not scale. Replicate the Avon model. Design a great ecosystem of your channel partners to whom you can pass on the cost of sales. Align the incentives and encourage the partners to sell but ensure the customer support and overall brand integrity. This strategy would require an extensive partner program with sizable investment in training and tracking what and how the partners are selling but this investment will go long way.

Reserve the direct sales force engagement for large hi-touch CIO type deals where you are required to go whole nine yards before you get a contract. The key is to have a highly variable sales force and extremely efficient compensation model to deal with a variety of prospects and customers. One size does not fit all.


Low-barrier adoption to zero-barrier productivity:

The SaaS model pioneered the low-barrier adoption empowering the LOB to sign up and start using the software without an approval or help from the IT. Eliminate any and all barriers to further penetrate the adoption. Do not enforce upfront credit-card requirements and even skip the registration if you can. Let the customers use the software with the minimum or no information up front. Demonstrate value when asking for more information e.g. Picnik lets you manipulate image in any way you want but would ask you to register if you want to save images. There should be no paper work whatsoever, not even a physical contract. Allow customers to bring in the content from other sources such as Flickr, Facebook etc. Allow the customers to have access to a live sandbox as a step before the dedicated trial. Starting from a blank canvas could be a hindrance to evaluate a product.