危 wēi  danger

A couple of weeks ago an entrepreneur I respect told me that Google had “lost it”.  He pointed to the high profile failure of Wave, which was released to the general public in May last year as clear cut evidence. At the time, Wave was heralded as the future of communication.  It was billed as a web-based platform and communications protocol that would merge the best features of e-mail, instant messaging and social networking, enabling users to communicate both synchronously and asynchronously. Its launch was hotly anticipated, invitations were even sold for up to $70 on auction sites.

But, despite this initial buzz the uptake was poor, and Google announced that it was going to suspend the product’s development in August, just 3 months after launch.  As my friend said, surely this was clear evidence that Google was losing its way?

机 jī opportunity

I see the failure of Wave differently.  Firstly, I respect the fact that Google is still failing with product launches, albeit a high profile one in this case.  It appears that its Innovation Time Off programme (in which employees can use 20% of their time to work on any project that interests them) is still alive and kicking.  It would be easy for Google to sit back on its laurels and focus on its core business, after all its most recent quarterly profit was $2.3 billion.  But instead, it seems to retain its hunger: some launches end in failure but many of Google’s successes, such as Gmail, Google News, Orkut, and AdSense originated from Innovation Time Off.

Secondly, with the benefit of hindsight, I like the way that Google handled the ‘failure’ of Wave.  It made the decision swiftly, even though it had sunk significant resource into the project, and looked at the residual value in the product before choosing to retire the code absolutely. Much of the code was handed to the Apache Software Foundation and turned into Wave-in-a-box: it made sense to open up code that Google couldn’t obviously benefit from to the open source community as any developments would probably drive the usage of Google tools. In addition, Google held on to some of the code and I have started to see Wave functionality appear in other Google products.  Most obviously is its use in Google Docs “Discussions”. Discussions happen alongside documents, they can refer to selected parts of a document, and can be accessed both in the Google Docs interface and also by email.   You can watch a video on the product here.  Given that Google is now benefitting from many of the Wave features that were well received it seems odd to call it an total failure, and even more odd to point to it as an indication that Google has “lost it”.

At IDEO we enjoy developing sacrificial prototypes which we put in front of consumers to test hypotheses.  We call them sacrificial because they are designed for learning rather than as the final solution, we are never too emotionally wedded to them.  With the rapid compression of time and costs to launch startups the Wave story and Apple choosing to discontinue Mobile Me yesterday make me wonder if we will see a trend toward ‘sacrifical startups’ – launched to learn and test approaches with successful aspects rolled over into new startups or folded back into the core business swiftly even if the startup fails?

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危 wēi  danger

Retailer loyalty programmes fall in and out of fashion.  Their supporters describe increased customer stickiness (particularly for retailers that become known for value in price-sensitive markets), increased average spend per customer and valuable data aggregation for market research on shopping habits.  Tesco clearly believes in these benefits as it relaunched its Clubcard last summer, leading to an increase in scheme members to 15 million.  However, the schemes are expensive to launch and run: Clubcard’s relaunch cost c£150m.  In addition, as referenced in this Marketing Magazine blog, Tesco is quite unique: it sees data frequently and across many items, is able to change its offer using that data and can sell the data to its suppliers, turning a cost-centre to a revenue centre.  Given the high costs and uncertainty of benefits Amazon would surely be crazy to launch a loyalty programme open to everyone in a similar way?

机 jī opportunity

Maybe not.  Keith Melker, my friend from HBS, recently brought to my attention a slightly counter-intuitive trend in the introduction of ‘paid’ loyalty programmes in the US, and helped me understand why they’re often smarter than they appear.

Amazon Prime, launched in 2005 is one such example in which members enjoy unlimited free shipping with no minimum purchase amount.  But, instead of giving membership away free Amazon charges $79 per year.

Superficially you might expect this to be taken up solely by Amazon’s most frequent customers and that the programme would be loss-making because those customers place frequent orders (which Amazon would have to foot the shipping bill for).  But that assumes that customers don’t change their behaviour as a result of being a Prime member and a quick scan of various blog posts suggests that they do.  In fact anecdotal evidence suggests that Amazon’s customers go from about $160/yr to $600/yr after they buy Prime.  It appears that once customers pay for Prime they begin to order more (perhaps because they feel that they’re beating the system).  So, assuming the combination of the Prime charge and the increase in margin per member is greater than the value lost through free shipping it’s a business masterstroke.  Had Amazon given it away free the uptake might have been greater and the behaviour change might not have been as dramatic: that could have been hugely expensive.

How About…

• Re-examining loyalty programmes – perhaps deliberately offering it to a select group (rather than everyone)?
• Or even charging for it if it might drive positive behaviour change?

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