Sony and "The First Mover Advantage Fallacy"

Sony's SmartWatch
Although first to market it might
only help competitors come up
with better offerings

One of the topics I discussed in my book, Living in the Innovation Age, is the fallacy of the first mover advantage. While there are cases where first movers have been highly successful, there are plenty of cases of disillusionment and despair as well. I used the meteoric success of TiVo followed by a decade of sagging profit as a case-in-point in my book. 

On October 12, I blogged about GM's failed attempts at capitalizing its first mover advantage with its early introduction of the redesigned "2013 Chevy Malibu" in February 2012. 

The May 6 - May 12 issue of Businessweek discusses yet another example of the so called first mover advantage fallacy. The victim this time? Sony. 

Sony introduced its first smart watch, LiveView, in 2010. As a new product in the growing and lucrative smart device marketplace, it was interesting but lacked in features and was mired with kinks. A more recent version called the SmartWatch is priced at $130, is about the size of an iPod nano, has a 1.3-inch touchscreen, and wirelessly connects to Android smartphones using Bluetooth technology. The gadget alerts users to incoming calls and allows them to reply to e-mails or texts with an array of pre-written messages. It even connects to Facebook and Twitter and controls a wearer’s phone-based music library. 

Sales are struggling though.

Sony’s failure to gain traction with the SmartWatch is the latest in a long line of first-mover advantages the electronics giant has squandered. Well known failures include the Clié, a Palm OS-based personal digital assistant that allowed users to listen to music, play games, and watch videos, which Sony introduced a year before Apple's iPod; a failed music platform similar to iTunes despite owning the distribution rights to thousands of popular songs and films; and an e-reader called the Portable Reader System, which Sony introduced a year ahead and with 600,000 titles, more than twice as many as Amazon’s Kindle.

Sources with inside knowledge of the company have attributed Sony's struggles to research that has been too inward-looking and deliberative and not focusing enough on early customer feedback. Perhaps Sony could learn and benefit from an increasingly popular concept known as the "Minimum Viable Product", which found its origins helping smaller entrepreneurial companies launch new products but seems equally applicable to larger companies such as Sony as well. 

The Bottom Line
Don't be too quick to assume a positive correlation between successful innovation and being first to market. As Mito Securities analyst Keita Wakabayashi puts it, "Sony was ahead of its rivals to release a watch, but it takes more than an idea to create a hit product. It’s about bringing a product that has functionalities that people would want and marketing the product in the right way.” So remember this the next time you have an innovative idea and instinctively want to rush to be first to market. You might just be helping out your competitors in the process...

Netflix - How it has "Innovated" itself out of the hole that nearly became its grave!

Netflix is near to my heart. Perhaps I am a bit biased but not because I love their $8.99 a month unlimited streaming plan that allows me to watch movies and TV shows to my heart's content. It's actually because I started Chapter 1 of my book, Living in the Innovation Age, with an interesting anecdote about Netflix that illustrated just how critical constant and continuous innovation is for all companies. Things looked pretty bleak for Netflix back in late 2011. About 18 months ago, Netflix was spending much time trying to save face. Netflix had awkwardly unveiled plans to raise prices and separate into two companies - a DVD mailer called Qwikster and a streaming entity still under the Netflix name - and lost millions of customers in the process. Not surprisingly, the share price fell from $298 to $52.81. Things were so bad that in a Saturday Night Live skit, Jason Sudeikis played the role of Netflix's CEO Hastings apologizing to consumers while at the same time unveiling increasingly complex businesses, culminating with Nutqwakflikster - a nut, insurance, and movie seller, mocking their recent Qwikster debacle.

But as I said, that was back in 2011. As documented in a recent Businessweek article, Netflix has mounted one of the all-time great comebacks. First quarter results show that revenue rose 18 percent from the same period last year to $1.02 billion, while the company added 2 million subscribers in the U.S. alone, dispelling widespread fears that its growth had slowed. And shares of Netflix are back above $200 being hailed as one of the best-performing stocks of the year. The article goes into quite a bit of depth on what has been going on at Netflix over the past 18 months.

Here are three key takeaways that I believe have contributed to their awe inspiring success:

Cloud Computing - Netflix has bet its future on cloud computing and Amazon's cloud platform. At any moment, Netflix draws upon 10,000 to 20,000 servers running in Amazon data centers somewhere. Being an early pioneer, Netflix has been forced to build from scratch much of the software it needs to survive. Since it relies on Amazon for data centers, its 700 engineers focus on coming up with tools for, say, automating the ways in which thousands of cloud servers get started and configured.

Original Shows - The biggest bets Netflix is making now are on its original shows. The company won’t disclose how much it paid for two seasons of House of Cards, though the Hollywood blog Deadline.com says it was about $100 million. Other original content includes Hemlock Grove, Arrested Development, and Orange Is the New Black.

Creativity and Innovation - Netflix is best known for the 1 million bounty that it offered to the person or group that could improve its ratings-based algorithm the most. A prime example of an open innovation contest, the winning team, a collection of independent engineers from around the world, built Netflix a better prediction engine. Netflix is always testing things - better recommendations, using avatars for interaction, voice guidance, etc. This mindset is at the crux of Principles 2 (Innovation is a Journey, Not a Destination) and 3 (Innovation is "Where No Man Has Gone Before") that I discuss in my aforementioned book.

The Bottom Line
Netflix is an excellent example of a company that has come back into relevance after everyone had given up on it. It did so, not by trying to doing the same things over again or finding new ways of cutting costs. Rather it rethought its business model with new technology platforms, new content, and new ideas. In other words, Netflix innovated! 

The Legal Side of Innovation - Who needs Soap Operas Anyway?

Over the past few months, I have written several blog posts about a topic that I call the "Legal Side of Innovation" and I first covered in my book, Living in the Innovation Age. The "Legal Side of Innovation" is a phenomenon in which companies are increasingly using patents and other intellectual property (IP) as a way of attacking each other in highly innovative and competitive areas such as smartphones and tablets. Essentially, IP law has become a double-edged sword that on the one hand protects an innovator's hard work and yet on the other hand creates impediments in the very road to innovation that it seeks to promote.

The legal battle between Apple and Samsung has become the technology world's version of steamy afternoon soap operas. As the never ending saga of twists and turns continues, Apple is now asking a court to force Google to turn over its Android source code as part of its patent litigation against Samsung. Apple, as part of its second patent-infringement lawsuit against Samsung, argues that Android is used in all of Samsung’s allegedly infringing products and “provides much of the accused functionality” in Apple’s claims. Meanwhile Matthew Warren, a lawyer for Google who also represents Samsung, claims that Apple made a “strategic decision” in filing its case “to keep Google off the complaint.” to ensure that Google doesn't have the same legal rights that Apple and Samsung have with respect to “reciprocal discovery.”

Now, isn't this a story that can match any of the love-hate triangles on today's soaps?!

The Bottom Line

By now none of us should have any doubts that the "Legal Side of Innovation" is real and here to stay. Hmmm... might be an interesting career opportunity here - a new caped crusader who is a dry, boring, attorney by day and a dynamic, cool innovator by night. :)

The "First Class" CIO - A Sequel

A few months back I had written a white paper on the struggles that CIOs face as they try to establish themselves as "equals amongst equals". In other words, many CIOs are viewed as second-tier executives in their organizations, less equal than other CXOs. The paper is aptly titled The "First Class" CIO - Three strategies to help ensure the CIO's seat at the executive table.

In the past few days, I have seen two blog entries in HBR on the same subject. The first entry, titled "How CIOs Can Keep In Step With CEOs", discusses the dissonance between corporate IT and the C-suite. The entry cites new research, conducted with HBR, The Economist, CEB, and TNS Global, which reveals that CEOs believe CIOs are not in sync with the new issues CEOs are facing. It states that CEOs often believe that CIOs do not understand where the business needs to go and how IT should support strategic goals. The second entry, titled "Three Ways CIOs Can Connect with the C-Suite", provides three simple steps CIOs can take to begin repairing the dissonance between business and IT, and guiding their organizations into the 21st century.

I hope you enjoy my white paper (if you have not read it already) and these two blog entries. I'd love to hear your thoughts on the subject.