April 13, 2011

70) Pure Technologies – remember option value

I was a little surprised yesterday by Cisco’s announcement that it would shut down its Flip video business and make 550 employees redundant – in part because I love the product and in part because I imagined that there must be an alternative, for example to spin the business out of Cisco.  It made me think through what made Flip previously great – to follow is a blog post on that and I’ll close out with some reflections on yesterday’s announcement…

危 wēi  danger

Pure Digital Technologies launched a line of disposable digital camera products in 2004 – customers would rent the cameras through drugstores, return them and pay for prints.  The product initially did well, however as the price of non-disposable cameras dropped Pure Digital’s sales tumbled.  “The market demand for that product just melted away, we found ourselves selling disposable cameras into a market that was shrinking by the hour” said Michael Moritz, an investor in Pure Digital.

The company pivoted into single-use digital camcorders, also distributed through drugstores but the customer uptake was poor.  Surely the company would continue to feel pricing pressure from the Asian manufacturers and would be forced to wind up gracefully?

机 jī opportunity

Jonathan Kaplan, the company’s CEO refused to roll over so easily.  Instead, he looked for option value in this apparent failure – he wondered if he could use his market learnings and company’s skills to identify a new opportunity.

Firstly, the company noticed that hackers were removing the memory chips from the single-use cameras so they could put videos onto their PCs.   Secondly, drugstores had been asking the company to limit the accessories it shipped with its cameras. With these market needs in mind Pure Digital’s staff hit upon the idea of creating a cheap, easy-to-use digital camera with a built-in USB connector.

The company initially launched a ”Pure Digital Point & Shoot” video camcorder in 2006 and then designed an even more minimal product – launching the Flip line of products in 2007. The device’s success was primarily attributed to this minimalism while all other camcorder manufacturers raced to add more features. As a result, the Flip grew the camcorder market: it held close to one-fifth of the total market at its peak.  It was announced in 2009, that Cisco Systems had acquired Pure Digital Technologies for $590 million USD in stock – it was on a roll.

The launch of the single use digital and video cameras hadn’t been an absolute failure – it had created the option for the company to iterate its strategy and develop the hugely successful Flip.

    —

    Fast forward to yesterday’s announcement.  Flip had succeeded previously by radically changing its strategy, I suspect this capability was lost once the business was folded into Cisco and so perhaps yesterdays announcement – to reverse years of efforts at diversifying into consumer products – might be the right one.  Not because there is no potential value in the Flip business but more because Cisco is not well designed to capitalise on the option value that the current challenges might hold.  After all, given the rise of the smartphone, the value in Flip must be in moving into offering services.

    Cisco failed to integrate Flip into its core vision of a networked world or to enable it to stand alone and retain its entrepreneurial spirit.  Had it chosen the latter Flip may just have found some new areas of opportunity and we might have seen entrepreneurs lead a management buy-out – instead the business fell between two stools…

    –

    How About…

    • Taking time to analyse market failures – examining what opportunities the learning opens up?
    • Observing the users that you do have – how are they really using your product?
    • If making an acquisition, assessing whether you need it to retain autonomy / ability to shift strategy?

    –

    Sources NYT article and yersterday’s announcement

    March 16, 2011

    68) Quora – innovation from recombination

    危 wēi danger

    Adam D’Angelo quit his position as CTO of Facebook to create Quora, an online knowledge market that aggregates questions and answers on various topics and allows users to collaborate on them.  He explained at the time: “Q & A is one of those areas on the internet where there are a lot of sites, but no one had come along and built something that was really good yet.” He’s right that Q&A has been around for a long time, with sites such Answers.com and Yahoo! Answers both receiving over 40 million unique visitors a month.  In addition there are more specific solutions such as Stack Overflow (for professional and amateur programmers) which has 250,000 users. Surely Quora would struggle to differentiate?

    机 jī opportunity

    On the contrary, Quora has had continued strong growth: since receiving funding from Benchmark Capital last year (valuing the start-up at a rumored $86 million) it has grown to nearly 500k users. This is all the more interesting because none of its components are revolutionary, instead the Quora team seems to have done an excellent job of spotting and tapping into emergent online behaviours and trends. Robert Scoble wrote this great post on why he thinks Quora is the future of blogging, in it he references some of the things that Quora learned from other sites, for example:

    1. Quora learned from Twitter – if you ask your social network a question they’ll answer it.  Twitter also taught us that alerts when new people follow you or answer questions you follow are a great way to pull users back to the site
    2. It learned from Digg – a voting mechanism (in which you can vote an answer up or down) enables you to have the best quality answers rise to the top
    3. It learned from Facebook – if you build a news feed that pushes new items to the user their average time on site and page views increase
    4. It learned from the best apps – we all want a sense of community instantly so it imports yours from Twitter
    5. It learned from RSS readers – curation is a valuable service so it allows users to follow topics in addition to people
    6. It learned from blogs about how to do great SEO – it’s amazing how often Quora shows up at the top of Google searches
    7. It learned from instant messaging clients – it shows who is answering a question while they are answering it
    8. It learned from Wikipedia – people are willing to suggest edits and the whole process can be predominantly user-administered

    Although none of these features are necessarily groundbreaking the combination is completely novel. Often innovations are just a recombination of existing features to create a new offer – in this case the Quora founders call their offer “reverse-blogging”. In other words, it’s a content system that starts with an interested audience and then fills in the content to serve that audience. The question is whether Quora can maintain the quality of answer as it grows beyond its Silicon Valley early adopters – when the numbers of questions outstrip the capacity of the informed to answer them.  But that’s a whole other blog post.

    How About…

    • When launching a new venture – look for emergent trends in adjacent industries?
    • What features can you recombine to create a completely new offer?

    —

    July 20, 2010

    59) Levi’s

    危 wēi  danger

    I have always been slightly skeptical of established US & European fashion brands’ ability to succeed in emerging markets, after all the average income per person in China is around $3,500 and in India it’s $1,000.  Counterfeiting is rife and unlike super-premium brands they seem particularly vulnerable to low end disruption.  The Indian jeans market is no exception – home-grown companies such as Arvind Mills have addressed the low end market with huge success.  The company, founded in 1931, grew to be the fourth largest producer of denim for wholesale over the course of the following 60 years. It realized that India’s poorest couldn’t afford jeans and launched its own label – Ruf n Tuf – in 1995 to address the opportunity.  Its approach was to focus on the Indian consumers at ‘the bottom of the pyramid’, completely redesigning its business model with an emphasis on value.  Arvind Mills succeeded by selling a jeans kit to local tailors for $6/pair – minimal kit variants kept manufacturing costs low and the local tailors quickly became an effective marketing channel.   Subsequently the company has continued to innovate, adopting a full franchisee system for the manufacture and distribution of Ruf and Tuf jeans in 1995.

    Surely the established jeans companies of the developed world, including Levi’s (the inventor of jeans) will be unable to service the ‘bottom of the pyramid’ and will be unable to compete, perpetually being disrupted by companies like Arvind Mills and being undermined by counterfeiting?

    机 jī opportunity

    Although the 1994 entry of Levi’s in India received a tepid response its fortunes have improved recently – it banks heavily on celebrity endorsement, product innovation and a superior retail experience to drive growth.  Most recently it has adopted an innovative “pay as you wear” model in India – the company offers cash-strapped Indians the opportunity to buy their jeans in three interest-free installments.  “A monthly installment scheme makes it easier for people to build their wardrobe with a premium brand like ours” says Shumone Chatterjee, MD of Levi’s in India.  The approach is smart – it enables more of India’s fashion conscious consumers to wear the Levi’s brand without eroding its brand equity or dropping its price points – although Levi’s will never completely straddle the pyramid it might manage to straddle a few more levels…

    How About…

    • Defending your market position from disruptors using creative pricing?
    • Examining straddling the pyramid in emerging markets?
    • Empowering another part of the value chain to finish your products and services?

    –

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