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Information Technology Commoditization, Innovation, and Strategic Insights

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Information Technology Commoditization, Innovation, and Strategic Insights

  1. 1. Cal Poly Pomona TheSmarterStartup.com Sonya Zhang PhD Information Technology Commoditization, Innovation, and Strategic Insights
  2. 2. A little background
  3. 3. The Smarter startup Neal Cabage Sonya Zhang, PhD Pearson New Riders Publishing Released March 2013
  4. 4. part 1: The Commoditization of IT
  5. 5. “It is difficult to imagine a more perfect commodity than a byte of data. As information technology‟s power and ubiquity have grown, its strategic importance has diminished.” ~ Nicholas Carr Harvard Business Review 2003 Does IT Matter?
  6. 6. The Driving Forces • Advanced technology • Outsourcing • Cloud computing: SalesForce, Amazon • SaaS applications: Mint • Open source frameworks and software: WordPress • Empowered Consumer • Smartphone apps: RedLaser, Decide, ShopAdvisor, PriceGrabber, Milo • Price and quality/rating comparison websites: Bizrate, ShopZilla • Deals websites: SlickDeals, FatWallet • Coupon websites: RetailMeNot
  7. 7. Examples • Infrastructure in the past: Railroads, Telegraph, Electric grid • Infrastructure now: Broadband, VPN, VoIP, SAN, CPU… • Web/software: websites, CMS*, CRM*, SEO and web analytics*… • Technology Replication Cycle is getting shorter and shorter as hardware* and software* costs decline faster; and knowledge and best practices spread wider.
  8. 8. “Indeed, as the strategic value of technology fades, the skill with which it is used on a day to day basis may well be even more important to a company‟s success.” ~ Nicholas Carr Lessons learned Does IT matter?
  9. 9. When is a good time?
  10. 10. Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) • Everett Rogers first described the lifecycle of technology innovation adoption as a bell curve in 1962. • The curve also shows how technology transits from innovation to commodity. Innovation Adoption curve Insight The Golden Era The Squeeze ConsolidationEarly Movers Capitulation *
  11. 11. Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) CHASM New Entrant Opportunity Ideal point to enter a market • Startup opportunity is best early, before a market is saturated. • Too early is equally challenging and high risk of no adoption. • Moore described the Chasm as the „goldilocks‟ time to enter a market. Crossing The Chasm Insight
  12. 12. Insight $5,000,000 $500,000 $50,000 $5,000 2000 2005 2009 2012 Open Source Software The Cloud Hosting Commoditized Cost of technology Marc Schuster of GRP Partners observed that it now costs 1000x less to build a comparable business than just 10 years ago!
  13. 13. As technology commoditizes, its competitive significance diminishes, and the advantage shifts to those who can break through the noise of increased competition. Insight Switch of emphasis over time Tech Innovation Marketing
  14. 14. The problem There are 10x more active hostnames today than in 2005. The new challenge is being significant amidst so much competition! Active domain names
  15. 15. Technology is key early in innovation lifecycle but eventually become commoditized. Timing is critical to innovation success. Good timing forgives a lot of mistakes. Lessons learned Being too early is as bad as being too late. When is good time?
  16. 16. Are some people just lucky? Let‟s play a game: http://www.theinvisiblegorilla.com/videos.html
  17. 17. When asked to focus on counting ball bounces, study participants did not see the 6 ft gorilla. Opportunity was missed because they were too focused on the problem. Dr. Richard Simmons called this “Selective Attention” or “Inattention Blindness”. The Experiment The invisible gorilla
  18. 18. Focus on finding problems that need to be solved; not the process or the art of solving them. Focus on helping others, NOT making money. You will naturally be able to see the problems that people need solved, which is precisely what people will reward you for (buying your product!) Insight
  19. 19. The Luck Factor Luck is something that can be learned! It is available to anyone willing to pay attention to: 1. Maximize your chance opportunity - Some people are not only more aware of opportunity, but are also more open to those opportunities and cease upon them as they arise. 2. Listen to your lucky intuition - Lucky people tend to following inner intuition and trust that good things will occur by doing so. 3. Expect good fortune - It's not just seeing the opportunity, it is the faith in pursuing it. 4. Turn bad luck into good - Lucky people tend to handle bad news more positively, which could lead to their success next time.
  20. 20. How an Entrepreneur Can “Get Lucky”• Always keep your eyes and mind open to new startup opportunities • Read tech news, join community, find mentors, talk to peer, seek funding, etc. • Follow intuition • Follow your inner intuition which is built upon understanding your customer needs, domain expertise, experience, and external environment. • Have faith for success • Read other entrepreneur's success stories. Have faith in your own success someday. Be determinate and persistent. • Be optimistic • 80% of startups will fail in first year. Stay positive and keep on trying different approaches.
  21. 21. Blue Ocean Strategy “The only way to beat the competition is to stop trying to beat the competition.” “In red oceans, the industry boundaries are defined and accepted, and the competitive rules of the game are known… The companies caught in the red ocean followed a conventional approach, racing to beat the competition by building a defensible position within the existing industry order.” “In blue oceans, competition is irrelevant because the rules of the game are waiting to be set… Instead of focusing on beating the competition, (the creators of blue oceans) focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.” ~ Chan Kim
  22. 22. Purple Cow “The current marketing „rules‟ will ultimately lead to failure. In a crowded marketplace, fitting in is failing. In a busy marketplace, not standing out is the same as being invisible.” “Once you‟ve managed to create something truly remarkable, the challenge is to do two things simultaneously. • Milk the Cow for everything its worth. Figure out how to extend it and profit from it for as long as possible. • Create an environment where you are likely to invent a new Purple Cow in time to replace the first one when its benefits inevitably trail off.” ~ Seth Godin
  23. 23. Opportunity blindness occurs when too busy and too focused on problems. Stay positive and follow your intuition. Lessons learned Focus on helping others, not making money. Are some people just lucky?
  24. 24. Create Value, not stuff
  25. 25. Can you create an awesome business by selling commodities? “If I went to a group of consumers and asked them if I should sell a $4 cup of coffee, what would they have told me?“ ~ Howard Schultz CEO of Starbucks
  26. 26. create value, not stuff Books Acme Books Amazon.com Which Will She Choose? Books The book someone buys from Amazon.com is a commodity. But the selection, fast shipping, easy return policy, and dependability also add value for the customer. This is value chain augmentation. Insight $10 $10
  27. 27. create value, not stuff Dependability Easy Returns Fast Shipping Infinite Selection Books Books Acme Books Amazon.com Which Will She Choose? ?
  28. 28. create value, not stuff “We asked ourselves what we wanted this company to stand for. We didn't want to just sell shoes. I wasn't even into shoes - but I was passionate about customer service.” ~ Tony Hsieh CEO of Zappos
  29. 29. Apple
  30. 30. create value, not stuff Proactively design your business, starting with identifying real value for your customers and what activities you’ll need to focus on, in order to achieve this goal. Insight Inputs (dependencies) Outputs (value creation) Function (primary activity) Customers (unmet need)
  31. 31. create value, not stuff Sell the value chain, not a commodity. Focus on increasing value for customers. Proactively define your business, customers, function and the value you create. Lessons learned
  32. 32. don‟t build a product In search of a market
  33. 33. “No business plan survives first contact with customers… Get out of the building and talk to your customers” ~ Steve Blank Four Steps to the Epiphany Understand Your market and audience
  34. 34. Measure Learn Build Ideas Product Data Insight The Lean methodology “build, learn, measure” feedback look is fantastic for optimizing a product concept if approximate customer demand is know. Lean Methodology
  35. 35. …But Lean is not efficient for early stage “green field” market discovery. If you find yourself “pivoting” frequently, then you missed a step! Insight Don‟t pivot
  36. 36. There must be a more efficient way to discover market opportunity … Insight Is there better way?
  37. 37. the poem framework Introducing
  38. 38. Imagine an object inside of a box and only a few holes in the box to look through. If you look through all of the holes however, you can start to construct a rough idea of what is inside. The Idea The Poem framework
  39. 39. Compare business verticals across the 7 business model archetypes to surface possible business opportunities. Then rate each one on the 5 forces of opporutnity market. Ideation The Poem framework Business Model Archetypes VerticalMarkets
  40. 40. Product Service Trade Subscription Marketplace Brokerage Ecosystem Real Estate Education Small Business Marketing Financial The Poem framework A matrix like the following can be used to identify possible opportunities. Each opportunity can then be graded and compared.
  41. 41. The Poem scorecard i. Customer FIlter • Clearly Identifiable Customer [ A-F] • Meaningful Problem to Solve [ ] • Segmentable market [ ] • Customer Accessibility [ ] • Customer Loyalty [ ] Overall Customer Score ____ II. Product/Service Filter • Tight Niche Focus [ ] • No Network Effect [ ] • Lean Method Viable [ ] • Team-to-Market Fit [ ] • Inherent Story (Virality) [ ] Overall Product Score ____ iii. Economic Filter • Healthy Margins [ ] • Demand Constraints [ ] • Supply Constraints [ ] • Sunk Costs [ ] • Cash Flow Requirements [ ] Overall Financing Score ____ IV. Timing Filter • Secular Trend Alignment [ ] • Recent Innovation Enabler [ ] • Market Inefficiency [ ] • Recent Competition Surge [ ] • Signs of Commoditization [ ] Overall Timing Score ____ V. Competition Filter • Limited Competition [ ] • Competitor Fitness [ ] • Team Fitness [ ] • Defensible Position [ ] • Barriers to Entry [ ] Overall Competition Score ____ Overall Score i. Customer Overall Score [ ] ii. Product Overall Score [ ] iii. Financing Overall Score [ ] iv. Timing Overall Score [ ] v. Competition Overall Score [ ] Total Overall Score ____
  42. 42. The Product Opportunity Evaluation Matrix (POEM) is open source and available via Creative Commons license. Learn more and find resources at: http://PoemFramework.org The Poem framework
  43. 43. What are hot right now? What are just starting? • Social network (Facebook, Pinterest, Tencent) • Mobile apps (iOS, Android) • Big data (Factual) • Online learning (Coursera) • 3-D printing • Health and bio informatics • Wearable gear (Google glasses, Pebble smart watches) • Internet TV • Any other ideas?
  44. 44. Exercise and Discussion • Work in a group of two. • Find a Internet technology in the past 20 years that began as innovative and disruptive and now has become as a commodity. Discuss how that technology initially provided companies with competitive advantage and now that the advantage vanished. • Find an innovative Internet technology that is currently at the Chasm stage and is going to become popular and disruptive. Discuss why you think so. • Present to the class your findings. • Try not to use the examples already given in the lecture.
  45. 45. Part 2: online Business Models
  46. 46. create value, not stuff Trade Product Service Marketplace Ecosystem Subscription Brokerage prototypes: • e-commerce • lead generation prototypes: • software • content prototypes: • service platform • service agency prototypes: • ad network • dropship program prototypes: • content as a service • software as service prototypes: • products market • services market prototypes: • technology platform • media platform There are 7 fundamental business personalities, called Business Model Archetypes. Similar to an additive color wheel, three primaries (product, service, trade) are combined to create the additional four. Business Model Archetypes
  47. 47. Business model prototypes
  48. 48. Online Business models Understand the seven foundational archetypes for online business, their key values, strategies, examples, and market segments. Lessons learned Studying and analyzing established business models will help you understand the core operations of businesses similar to what you might develop for your own business.
  49. 49. Thank you! Find the book online TheSmarterStartup.com Facebook.com/SmarterStartup Keep In Touch SonyaZhang.com sonyazhang@gmail.com