Follow up on payment systems - RadioShack and Western Union’s money-transfer offer
In a recent post, I noted that many companies are trying out different ways to change how we make payments, with American Express having decided that apparently key fobs is not the way. Just today, Western Union and RadioShack announced a new payment program in which special purpose phones can be used to transfer pre-paid cash amounts of up to $200 within Western Union’s network. Just as we would advise, the national rollout begun today (April 1) follows a year of testing the phones in locations that have large numbers of ‘unbanked’ folks who might be interested in transferring funds to people back home, let’s say.
While I haven’t studied the concept in detail, a few elements of the business plan strike me as slightly problematic. First, people have to go to a RadioShack store and sign up for a Trumpet pre-paid phone (Trumpet being the wireless company who creates the payment service stream). They can’t use cell phones they may already have, which creates a sunk cost problem. Then they have to pre-pay for the service and load the phone with the money to be transferred. For people who are cash-strapped, that may be a lot to swallow in one chunk. The recipient has to have a compatible system or else use the Western Union network. And many obstacles to success will be internal to Western Union - as in, creating an entirely new kind of business that conceivably threatens their existing ways of working.
The good news about the plan is that if it does get adopted by large numbers of people, it could increase the convenience of transferring money. In addition, I would expect the service to evolve so that those without a banking relationship or credit card can enjoy many of the conveniences those have to offer. And, eventually, such technologies (when freed from a single phone platform) could be highly destabilizing to established remittance markets right in their core business.
Let’s see what happens next.
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- Posted Rita McGrath on April 01, 2008
Expose Your Company’s Blind Spots
Rita McGrath has posted at the Harvard Business Review blog.
Is your company unintentionally keeping your most senior people from getting the feedback they most need? It can easily happen as an unintended consequence of success.
Read the entire posting at Conversation Starter.
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- Posted Admin on March 31, 2008
Discovery Driven Strategy: Options investments enable the right kind of failures (Amex Express Pay)
American Express has just announced that it is discontinuing the “Express Pay” offering that allows contact-less payments by consumers, along the lines of the popular Speedpass payment systems that were successfully implemented by gas stations to facilitate making purchases there. The payments are linked to a key fob, which users wave at a receiving device to make a payment. Unlike the Speedpass offer, however, the Express Pay device didn’t seem to get much traction.
Surprisingly, according to an Amex Executive quoted in today’s Wall Street Journal, “We have actually found that our customers prefer to use the contact-less technology through our traditional cards” rather than the key fob. What did Amex spend to learn this lesson? Although the article isn’t specific, it notes that the fobs were only available to customers in a few markets—New York and Phoenix, among them. Contrast this limited-downside, learning-rich experience with what might have happened had Amex gone after this as a big-bang investment, convinced that this was the Next Big Thing. They could easily have blanketed the country with promotional materials, spent millions on ads and more millions on give-aways to entice consumers to try to carry the device. The lesson would have probably been the same, but the tuition would have been much steeper.
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- Posted Rita McGrath on March 31, 2008
FotoNation: Why new entrants to an industry often see opportunities incumbents don’t
This past Friday’s Wall Street Journal reported on a terrific little Irish-based company, FotoNation, that has achieved breakthrough growth by using software algorithms to solve problems that have bedeviled the photography industry for years. Red-eye, auto-focusing on empty spaces when there is more than one face in the picture, and plain old snapping photos when your subjects aren’t ready have been fairly intractable problems. FotoNation’s breakthrough idea was to use software algorithms to manipulate the images.
Take red-eye, which occurs when flash photographs reflect back the color of blood vessels in people’s eyes. FotoNation was able to develop an algorithm that can recognize when red-eye occurs and correct the image before it is even stored on the camera. This first breakthrough product was legitimized by Nikon’s inclusion of the software in its CoolPix product line in 2003. According to the Journal, last year 80% of the 100 million plus digital cameras had red-eye reduction installed. Another innovation gives camera makers a way to improve the way pictures of faces are shot. Face tracking software allows for some interesting innovations, such as beign able to keep two faces in focus even when they are not at the center of the picture. Eran Steinberg, the firm’s founder, notes that 80% of consumer photos have faces in them. Also in development: Software that recognizes when people are smiling and warns the photographer not to shoot the photo if they aren’t.
, FotoNation recently was sold to Tessera Technologies of San Jose for a reported $39 million. As part of Tessera, the group hopes to extend its reach beyond digital photography to medical devices, automobiles and even home security.
The reason I find this story fascinating is that it combines several themes having to do with breakthrough growth.
Incumbency blinders. The first is that photography incumbents simply didn’t see the opportunity in software to solve their problems. Why not? As Eran Steinberg notes, “Traditional camera companies look at improving image quality with glass. We asked, “how can you do things to the image?’”. This is a classic example of how opportunity can be created by looking at solving problems in a different way than incumbents in an industry do. Often, problems and solutions become part of a standardized recipe - it isn’t until some newcomer demonstrates a radically different approach that growth takes off. In the most serious case for incumbents,such a shift can lead to the destabilizing ‘disruptive business models’ that our colleague Clayton Christensen has made so recognizable. In this case, the innovation actually made the offering better for incumbents, even to the point that consumers might purchase a new camera just to gain the performance improvements.
Changing the attributes in a customer’s experience. A second theme that this case illustrates is that there are often rich rewards to be gained by eliminating negatives in a customers’ experience. In this case, amateur photographers have for years put up with red-eye, fuzzy faces and the like simply because no one found a way to eliminate these negative aspects of the experience. With software, these negatives can be eliminated, turning a ‘tolerable’ feature that people put up with to one that is actively dissatisfying. If our theories are right, eventually these dissatisfying features will become enraging, making red-eye reduction and so forth a ‘non-negotiable’ in the product category.
Deep innovation in the core business. A form of innovation that doesn’t get nearly the amount of attention that it deserves is when major innovations in technology, process, or business model serve to reinforce and sustain the core business. In this case, FotoNation’s products are ways in which the traditional core business of camera companies can be strengthened, even though it is a radical departure from the traditional technologies they use.
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- Posted Rita McGrath on March 30, 2008
Enraged customers will create opportunities in the wireless space
Business Week recently described the sad state of the art of wireless phone services in the United States. Wireless companies, it seems, generate more customer complaints than any other industry. Even more than airlines. Wireless companies, in fact, according to the Better Business Bureau, generate the most complaints out of all 3,900 industries it tracks! Customers are so enraged at some wireless companies’ practices—signing them up for two year contracts for minor changes in service, charging them for supposedly ‘free’ downloads like ring tones, and of course (my favorite) providing poor coverage in general - that regulation has started to look pretty good to lawmakers. But which lawmakers? Ah, there’s an interesting dilemma. States are starting to get into the act, threatening the industry with the kind of nightmarish regulation that industries such as insurance are dealing with right now - state by state requirements with slight differences among them. A so-called ‘wireless bill of rights’ looks like a nice juicy political win for the state lawmakers.
The carriers, of course, don’t like this idea at all, and are investing in federal regulation of cell phone services. I guess better one regulator than many, is their thinking. Meanwhile, they are investing loads of cash in fighting the state regulatory initiatives in places like Minnesota.
So how is this likely to proceed? One lesson, I think, comes from the experiences of manufacturers such as the US auto industry - during the period when they were relatively protected from foreign competition, quality was terrible, pricing high, and innovation basically incremental. It wasn’t until a real competitive threat appeared in the 1970’s that automakers started to upgrade their service and performance, by which time they had alienated so many customers that many won’t even consider buying a US-made car. Similarly, the wireless carriers have used their oligopoly positions to offer pretty poor service including many ‘enrager’ features for the average customer. This is bound to create an enormous opportunity at some point for players who can offer a better experience. Why is the iPhone so popular? It addresses some of the device based enragers, although it still can’t overcome the limitations of the AT&T network that it runs on. But, that is highly likely to change. And customers sure will be motivated to flock to an alternative, should one present itself.
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- Posted Rita McGrath on March 28, 2008
