Tumblelog by Soup.io
Newer posts are loading.
You are at the newest post.
Click here to check if anything new just came in.

January 19 2012

15:28

What Kodak teaches us about disruptive innovation

The demise of Eastman Kodak is a story of a company which did not take on the challenges of disruptive innovation.

After 133 years, the company has filed for bankruptcy. Essentially, Kodak was caught out by a combination of factors.

The technologies that enable us to represent with world in still images changed radically with the development of digital cameras. The rise of digital was bad news for a company that made so much of its money from selling film.

But technology alone doesn’t explain Kodak’s demise.  Along with digital technologies came changing patterns of behaviour.  A device intended to help us communicate while on the go, the mobile phone, took over as our everyday camera.

There is a sense of irony at play. Here is a brand that became synonymous with the Kodak moment - “a rare, one-time moment captured with a photo, or should have been captured by a photo,” as the company defines it.

Now, those moments are captured by a device that most people carry with them all the time, the mobile phone. These connected devices also make it easy for us to immediately share those “Kodak moments” with friends and family,

Kodak failed to see the danger from digital imagery, the mobile phone, increased connectivity and the shifts in people’s habits.

But it is easy to see why the company didn’t act.  The first cameras on mobile phones were of such poor quality that there seems little reason for Kodak to see them as much of a threat. The phones were clunky, slow and not hooked up the net.

Such an attitude ignores the lessons of disruptive innovation.  Clayton M. Christensen argues that companies fail to see the value of disruptive innovation as:

They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.

Based on this premise, Kodak would not have seen digital cameras and mobile phones as competition or potential threat to its core business. Its core market was film and film cameras for customers who wanted good quality photos.

However, the history of technology shows how often the initial versions of a product or service are often of low quality but over time shift from being low-end and overtake established products and services.

Executives are reluctant to invest in technologies which disrupt their existing markets and customers, and usually bring in much less revenue, at least initially.

The rise and fall of Kodak is an example of how companies struggle between sustaining innovations that prop up existing markets and customers and disruptive innovations which challenge long-standing ways of doing business and require a radical rethink in corporate strategy.

 

October 14 2010

18:00

Eric von Hippel on users driving innovation ahead of producers

Every week, our friends at the Berkman Center for Internet and Society invite academics and other thinkers to discuss their work over lunch. Thankfully for us, they record the sessions. Last month, the Center hosted renowned MIT professor Eric von Hippel to discuss the broad — and, for us, compelling — topic of “how innovation works.” He argues that open collaboration, and end-user innovation, are competing with producer innovation in many economic sectors — and may, in fact, displace it. And the implications of that shift are as profound for the news media as they are for other institutions.

In the video above, the professor discusses the transition we’re in and its far-reaching implications. Ethan Zuckerman did his usual fine job of blogging the talk, for those who prefer to read their innovation theory rather than hear it. Ethan:

To explain his body of work, von Hippel explains that he’s tried to bring thinking about the communications space into the world of physical things, examining how processes we think of as affecting digital media can also apply to other forms of innovation.

February 04 2010

17:00

Is online news just ramen noodles? What media economics research can teach us about valuing paid content

The New York Times’ announcement that it would be charging for some access to its website, starting in 2011, rekindled yet another round of debate about paywalls for online news. Beyond the practical question (will it work?) or the theoretical one (what does this mean for the Times’ notion of the “public”?), there remains another question to be untangled here — perhaps one more relevant to the smaller papers who might be thinking of following the Times’ example:

What is the underlying economic value of online news, anyway?

Media economist Iris Chyi [see disclosure below] has a few ideas about this problem. An assistant professor in the School of Journalism at the University of Texas, she has been researching the paid-vs.-free, print-vs.-online conundrum since the late ’90s. Her research has consistently found that even while online news use continues growing, its preference lags behind that of traditional media. In other words: Even as audiences transition from TV/print news consumption to the web, they still like the traditional formats better for getting news, all other things being equal.

Now, this seemingly makes no sense: How could a format as clunky, messy and old-school as print “beat” such a faster, richer and more interactive medium on likability?

Chyi believes she found the answer in the economic principle of “inferior goods.” The idea is simple: When income increases, consumers buy more “normal goods” (think: steak) and fewer “inferior goods” (think: ramen noodles). When income goes down, the opposite occurs (again, all things being equal in economics terms). Inferiority, in this case, isn’t so much a statement of actual quality as it is of consumer perception and demand. If we get richer, our desires for steak go up and our desires for ramen go down.

What does this mean for journalism? “Users perceive online news in similar ways — online news fulfills certain needs but is not perceived as desirable as print newspapers,” Chyi said.

She and co-author Mengchieh Jacie Yang make this point through an analysis of data on news consumption gathered from a random sample of U.S. adults; their findings are published in the latest issue of Journalism & Mass Communication Quarterly, the flagship peer-reviewed journal for AEJMC. (See the related news release, overall highlights, and the full-text PDF). Chyi and Yang summarize their key findings as follows:

This analysis, based on data collected by the Pew Research Center in 2004, identified a negative relationship between income and online news consumption: When income increases, online news use decreases; when income decreases, online news use increases, other things (demographics, news interest, and/or other news media use) being equal — suggesting that online news is an inferior good among users. In contrast, the print newspaper is a normal good.

Such findings, at first glance, may surprise media scholars as well as online news professionals. After all, in communication research, no news products have been labeled as inferior goods before. In addition, major U.S. media companies have invested heavily in their online ventures, offering an array of interactive features and multimedia content — most of which are unattainable by print newspapers. It is therefore difficult to understand why online news could be an inferior good. Yet, from an economic perspective, “goods are what are thought of as goods.” Any product’s economic nature is determined by consumer perception and response. Based on this particular data set, which consists of survey responses collected from a national sample of online news users by a major polling institution in 2004, online news is an inferior good among users.

Clearly, the use of 2004 data is a limiting factor here (although the authors explain why more recent Pew surveys couldn’t be used for this kind of question). Yet, if we accept these findings, we’re left to unravel two mysteries: Why is online news perceived as an inferior good in the first place? And what should that mean for the future of web journalism?

On the first question, there are at least several possibilities, as Chyi suggests. Maybe the computer screen just isn’t an enjoyable reading device. (And how might that compare with smartphones and e-readers?) Or maybe online newspapers still have content/design problems — think of all the ads for teeth whitening and tummy tightening, not to mention the general lack of contextual cues afforded by print. Or maybe it’s simply because online news is free — and, as behavioral economics research has indicated, sometimes consumers perceive higher-price products as more enjoyable. In any case, as Chyi puts its: “More research, as opposed to guesswork or wishful thinking, on the perception of news products is essential.”

Then there’s the second question: What does this suggest about the future of online news? Perhaps nothing too dire, as people still do pay for ramen noodles when it suits them — when the price, convenience, or alternatives make ramen noodles the preferred choice. This isn’t to suggest that consumers invariably will pay for online news, but rather that they might if the perception calculation is right.

The key here is to recognize that consumers are rapidly adopting online news not necessarily because they prefer the medium to print, but because online news is “good enough” — cheap, convenient, flexible, and sufficient to satiate our information cravings. (This takes us into territory related to disruptive innovations and fidelity vs. convenience — interesting stuff, but something for a later post.) But the danger is in taking a “platform-neutral” approach if that leads one to assume that content value remains constant between print and online — that, basically, you can charge for content either way. Chyi suggests that is like trying to market ramen noodles as steak: Newspapers do so at their peril.

So, what does all of this say about the Times and its paywall? Perhaps not much because, after all, “the Times is the Times.” Yet, the notion of online news as an inferior good highlights a few salient points for thought: (1) news usage doesn’t always correlate with preference, counterintuitive as that is; (2) publishers hoping to charge for niche content need to understand where their offering fits in the normal-inferior goods relationship, and how that should affect pricing and marketing strategies; and (3) there’s a critical need for R&D to help us grasp why consumers perceive online news as inferior, and how that perception might vary among different demographics of users and/or according to different types of news content.

In the meantime, enjoy your ramen noodles.

[Disclosure: Chyi and I have collaborated on several research projects through her Media Economics Research Group in the School of Journalism at the University of Texas — including a recent peer-reviewed article on newspapers' effectiveness in penetrating the local online market (PDF). Also, she's currently a member of my dissertation committee.]

Photo of ramen by Broderick used under a Creative Commons license.

Older posts are this way If this message doesn't go away, click anywhere on the page to continue loading posts.
Could not load more posts
Maybe Soup is currently being updated? I'll try again automatically in a few seconds...
Just a second, loading more posts...
You've reached the end.

Don't be the product, buy the product!

Schweinderl