Jigsaw - creating a market for contact information
Anne Ferguson, my assistant, drew this one to my attention. The company in question, Jigsaw, is trying to create a market for contact information, using a variant of the ‘free labor’ theme I’ve written about before. Here’s the idea: Each member adds contact information (the more detailed, the better) into the Jigsaw database. For doing this, members get points added to their accounts. Members can then search for all the contacts in the database and access them for a charge of points. When you enter a new contact, or significantly update a contact, you “own” the contract. Whenever anybody “buys” the contact, you get a percent of the proceeds in terms of points. For points (or payment, I presume) the company will also help create customized lists for marketing purposes.
It’s an interesting idea—you swap your rolodex for the chance to have a peek at the information in someone else’s. Contacts, by the way, have no choice about being entered. I checked on my own information and found that someone had put me into the database, and I hadn’t even known it. I’m intrigued by the combination of incentives to share private information and the benefits promised if others leverage your private information. The “sell” on Jigsaw’s overview page says:
How Jigsaw Helps
Bypass gatekeepers. Go straight to decision makers and influencers. If you’re a salesperson, recruiter, marketer or business owner, Jigsaw will save you precious time.
Interesting that the company’s main selling point is to help people bypass gatekeepers whose job it is to protect the target contact from unsolicited communications. One wonders how long before those who would prefer their information to remain private initiate action to get Jigsaw to remove those private contact details.
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- Posted Rita McGrath on April 21, 2008
Testing some key assumptions - second home market early warnings
Fortune, in their April 28, 2008 issue, printed a little statistic that struck me as valuable in terms of the sort of data one could use to test assumptions, but which often go unnoticed. They cite Dennis Gartman, of The Gartman Letter as noting that an American Research Group survey in March found that 16% of households have made summer vacation plans. This is a big decline from last March, when 48% had such plans.
Gartman concludes that one implication of this is that fewer Americans will be renting holiday homes this year. This in turn means that those who have purchased second homes and counted on rental income helping to finance them may be in for a big disappointment. Indeed, if the rental income doesn’t come up to expectations, Gartment suggests we could be witnessing a “fresh selling panic.”
What I thought was particularly insightful about this piece is the way in which a small bit of data (a leading indicator if you will) can provide an early warning of a later difficult event. If one were an owner of such a holiday home, you’d want to do some more investigation of whether the slowdown is likely to have an effect on your assets, and if so, start now to avoid the worst effects. That’s the whole concept of using early warnings to test assumptions in a discovery driven way.
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- Posted Rita McGrath on April 21, 2008
Michelin PAX Run-Flat: A stillborn revolution
This weekend’s New York Times carried the sad headline, “Michelin Giving Up on PAX Run-Flat Tire.”. So much for an innovation that was supposed to revolutionize the tire industry, in much the same way that Michelin’s introduction of steel-belted radial tires did nearly 60 years ago. My colleagues and I were so taken with the concept - a tire that could run for 120 miles even with a flat, eliminating the need to store a spare tire - that we’ve even used it in class. The example is how a company can innovate by eliminating features that some customer segments view as either negative (having to store a spare takes up space and costs more fuel) or a neutral (we don’t notice it and don’t care about it).
What could have gone so wrong with a new technology that promised to change the world? Indeed, Michelin’s own web site (at least as I’m writing this now) announces that “We haven’t been this proud since we invented the radial tire”. This was a big-bet innovation, intended to overturn the industry.
What went wrong?
While it certainly isn’t fair to retrospectively criticize the approach Michelin took to introducing this innovation, there were some trouble signs even early on. A Business Week article appearing on August 16, 2004, notes that the PAX tires don’t fit into conventionally designed vehicles. To use them, cars must be equipped with specially designed chassis and wheels. A PAX-friedly auto can’t take regular tires. What that means is that to get the tires replaced, customers must find an authorized PAX service center to repair or replace the tires. The lack of compatibility with pre-existing infrastructure proved to be a contributor to the products’ undoing. Although the company enjoyed some success, having the PAX tires as the standard on Honda’s 2005 Odyssey Touring minivan, other firms failed to adopt. PAX, as it turned out, was not a huge advance over other run-flat technologies, required specialized equipment and systemic changes, and was launched into a category that turned out to be a niche. This situation was a far cry from the promise of a tire that would revolutionize driving habits and totally change the industry.
Frameworks that might have helped anticipate the obstacles
We always advise companies launching innovations to consider not just the technical performance of the product (or service) but the whole chain of experiences customers go through in the course of being customers. With a tool called the consumption chain (described originally in a best-selling Harvard Business Review article), we suggest that companies work all the way through the total experience a customer has with their offering—from awareness of need all the way through search, selection of a provider, payment and so on through final disposal. Clearly, the PAX system let customers down at some of these vital “links” in their consumption chains. They faced difficulty getting the tires replaced and repaired and evidently the competitive separation between the PAX and other run-flat tire designs didn’t overcome those problems.
Another tool we frequently employ when we’re thinking about the launch of new offerings is to consider all the factors that may cause delay or resistance to the offer. We featured it in our book MarketBusters and it basically consists of systematically thinking through all the reasons that a customer might not be willing to adopt an innovation. Among the most serious, we argue, occurs when adoption requires changing expensive, embedded systems. Indeed, a product that is backwardly incompatible with other products and that requires specialized handling to repair or replace would have to be earth-shattering in its benefits (think iPod) to overcome people’s reluctance to change away from the conventional.
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- Posted Rita McGrath on April 21, 2008
Yikes! Putting your core business in discovery mode: BlockBuster & Circuit City
The unsolicited attempt by video rental chain Blockbuster to take over electronics retailer Circuit City looks like a pretty desperate move. In short, a company that prospered with the rise of the whole rent-it-out couch potato ethos that began to flourish in the 1980’s, hasn’t been willing or able to renew its core business, even as its advantages were eroding under pressure from competitors with different business models (such as Netflix), buying DVD’s and greater availability of alternatives, such as movie downloads and video on demand from cable companies.
Blockbuster’s CEO (who came out of retirement to turn the firm around after doing a good turnaround job at 7-Eleven) feels that cost savings and efficiencies will make the aggressive, indeed, bet-the-company move successful. Interestingly, at least at this stage, there doesn’t seem to be any compelling new business model in the offing. Circuit City stores would likely offer videos and games for rent (woo hoo - now there’s a big innovation) and Blockbuster stores might be able to sell hardware such as portable media players (ditto). He seems to think that the movie rental and consumer electronics businesses are ‘converging’ and cites the Apple stores as a case in point, even going to far as to note that Apple’s stores could be a model for the post-merger Circuit City/Blockbuster bid.
I’m not one to ever say ‘never’ but this one has me scratching my head.
Missing: Clearly defined customer segment with clearly defined needs
For starters, where is the market segment with a compelling need that this combined company will address? Apple stores are not just stores—they are complete retail experiences that showcase truly breakthrough products in a dramatically different way than competitors. Wal-Mart’s segment doesn’t value experiences so much as good value, so that is differentiating for them. Best Buy has been brilliant at customer segmentation and has gone so far (with its acquisition of the Geek Squad and the emphasis on product knowledge among its ‘blue shirted’ employees) as to make the retailing-purchasing-installing-using experiences far superior to those at other retailers. There doesn’t seem to be much customer focus here.
Assumption of ‘convergence’ or denial of reality?
A recent Wall Street Journal article notes that CEO Keyes believes that convergence between video consumption and consumer electronics is underway and that the merger will facilitate the postioning of the combined company to benefit. Convergence? Hardly. What’s happening here is that the core of Blockbuster’s business—movie rentals—has been in decline for some time and is likely to simply erode as a source of future profits and growth. Sure, there will be some customers who continue to use the service—just as for decades after deregulation meant you could purchase phones there were customers still renting them from Ma Bell—but if investors and other stakeholders are looking for growth, clinging to an increasingly obsolete core is not the answer.
Not being smart or disciplined about managing a full growth portfolio
The Blockbuster saga, to me, is a repeat of what happens to many a successful company over time. With the growth and success of the core business, more and more focus is placed there. It’s all too easy to keep pumping investment and people resources into that business. Financial tools and other conventional management practices make investments anywhere else look unattractive. When conditions change, competitors copy or leapfrog and customers’ desires shift, a company that has over-invested in the core can find itself with few choices. The next step is usually a desperate one—typically, the company will be acquired by another firm, often not for its declining core business, but for its other assets - such as brand, talent, or intellectual property. Sometimes the lure is simply assets such as real estate! The Blockbuster approach of Circuit City is simply this same process with a twist, the twist being that the CEO presiding over the declining-model company will be the one designing the strategy for revival (hmmm…).
The upshot: Invest in growth options before you need them!
What should the good folks over there at Blockbuster have done differently? Well, if there is trouble in the core business, the obvious answer is that you have to discover or find adjacent businesses to renew or create a new core. How do companies do this? I’ve argued that they need to think about investing in portfolios of opportunities. The chart gives an illustration.
If you think of your investments as distributed across dimensions of uncertainty, with market uncertainty extending across the bottom of the graph and technical or capability uncertainty going vertically to the left of the graphic, you have a way of picturing the activities you are investing in. Each boxes’ worth of activities serve different strategic purposes.
- Core enhancements are clearly those things you do to keep the current core business healthy. That’s essential, as without a healthy core you don’t have a lot of other options (as the Blockbuster scenario makes all too clear)
- Platform launches are next-generation businesses - you can think of them as candidates to form a new core business
- Options, just as the name suggests, are small investments you make today that give you the right but not the obligation to make a bigger investment going forward
My guess is that Blockbuster (and Circuit City, which isn’t in great shape itself) under-invested in the options that could have been crucial to the discovery of a new business model. Now, it’s trying the risky and difficult route of putting its core business into discovery mode - a practice that is likely to lead to expensive disappointments rather than the small, contained-downside, experiments that options represent.
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- Posted Rita McGrath on April 16, 2008
Discovery Driven Strategy: Predicting the Path for a Toy Shop
Many of you know that I’ve been following the progress of G. Willikers, a toy shop that opened in Sacramento, CA, in the summer of 2006. I got interested in their story initially by an inquiring reporter for the Sacramento Bee who wanted to know what I, as an entrepreneurship professor, thought about the startup. The concept was that the 3,100 foot store would be a ‘do touch’ zone where all the toys would be out and unboxed for the children to play with them. When someone wanted to purchase a toy, runners would get a fresh, new one from inventory. The atmosphere of the shop itself was to be special - a huge mountain with train tracks would be in the center of the store, and the whole experience was to be highly differentiated.
The photo is of Troy Carlson, the founder of the shop, as it was getting set up. The store was also to benefit from a nearby railroad museum which draws fans from all over the world. Oh, and no electronic games or wii’s or anything like that—the stock was to be playful toys like the ones we remember from growing up. Click here for the original story from the Sacramento Bee.
The original prediction
Here’s what I wrote to the reporter at the time, in an email dated May 12, 2006:
I don’t like to depress entrepreneurs, but the whole retail story for toys is not all that positive.
According to Hoovers.com:
“While retail toy sales have been dropping for several years, sales of children’s electronics, a fairly new category, rose 40% in 2004 to $694 million, according to the market research firm NPD Group.”
- Mass-market and discount stores accounted for 54% of all retail toy sales in 2005, according to data from NPD Group, a market-research firm.
- Traditional toy stores represented just 20% of the market. Indeed, Wal-Mart long ago overtook Toys ‘‘R’’ Us as the #1 seller of toys in the US.
- In another blow to specialty toy sellers, Target has launched “Time to Play!” toy boutiques inside the toy departments of each of its discount stores and appears poised to unseat Toys ‘‘R’’ Us as the #2 US toy seller.
- In the last 5 years, Toys R Us, KB Toys and FAO Schwartz have all gone out of business.
Creating a Discovery Driven Plan
I would tackle getting a handle on his chances for success by doing a very simple “discovery driven plan” for this business to get a reality check. The technique was originally featured in a 1995 Harvard Business Review article that I co-authored, and is the primary tool in a new book we are working on.
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- Posted Rita McGrath on April 04, 2008
