Monday, February 27, 2006
Google's Talent Grab
Now it is Google's turn: Looks like they have been steadily hiring an eclectic set of expertise--signaling the pervasive and expansive view of search on the network. It is a lead indicator of the range of experimentation that could be pursued by Google in the coming years. It fits in with their 70-20-10 way (allocation of time) for overcoming competency traps and complacency. It fits in with my earlier post on Google's ambidexterity.
Losing customers and market share is a lag indicator; Attracting critical experts is a lead indicator.
Saturday, February 18, 2006
Microsoft's Strategy Evolution: Platform or Applications?
The following are worthy of keeping in mind:
Office Live goes live today! by ZDNet's Richard MacManus -- Microsoft's
web-based office product, called Office Live, is being released in beta today.
Office Live will integrate with existing Microsoft Office products Jupiter
analyst Joe Wilcox has the early word on the release. He firstly points out that
Office Live is in no way "a hosted version of Microsoft Office". That's true,
Office Live: Application suite or platform? by
ZDNet's Dion Hinchcliffe -- Fellow
ZDNet's blogger Richard MacManus wrote today about the release of Microsoft's
Office Live into beta. A lot of people have been tracking this development
because it seems to herald Microsoft's burgeoning seriousness about offering
versions of its core products as hosted online services. The feeling being that
if Microsoft puts its considerable muscle behind online business software, they
just might be able to dominate this space as well. But of course, the biggest
news about Office Live is that it isn't a port of its famed productivity suite
to the online world.
In a network era, third-party support is more important than ever before. So, I hope Microsoft continues to embrace its platform logic. Not abandon it.
Thursday, February 16, 2006
Will Amazon's Move Change the Music Landscape?
What's Amazon trying to do in music? Create a platform like Microsoft's Play For Sure? I doubt it. It looks like Amazon can leverage many things.
One is its brand: Amazon-branded mp3 players may stand out in an otherwise crowded consumer electronic marketplace but will selling itw own-branded mp3 player limit its ability to sell other branded digital music players? Will Apple stop selling ipod through Amazon? is the risk worth it?
Two: it is clear that Amazon wants to leverage its customer base: sure, it has gone beyond books but what proporition of its customers buy more than one category? two categories? more than two categories? More important is that it is seeking a subscription-based revenue model to compete against Apple and Yahoo. Time will tell if the subscription model takes off and who wins in that space.
Three: Amazon's success will depend on its ability to strike deals with music labels. It appears that it is in discussions with the following: Vivendi Universal SA's Universal Music Group; Sony BMG, a joint venture of Sony Corp. and Bertelsmann AG; Warner Music Group Corp.; and EMI Group PLC. If it can garner critical music content, customers may take it seriously.
Amazon knows how to orchestrate the interplay between direct and indirect network effects in physical e-commerce. So, I will not bet against Amazon. will it succeed in the digital space? The critical signs will be the nature and scope of relationships with the music labels. Worth watching for.
Wall Street Journal's observations about Amazon's foray into digital music are worth reading.
Among the manufacturers Amazon has mentioned as likely partners for a subsidized hardware offering is Samsung Electronics Co., whose flair for stylish design is raising hopes among music executives that the initiative could create a strong alternative to iPod. A representative at Samsung's headquarters in Seoul, South Korea, couldn't be reached for comment.
Amazon would face the same challenges as other music-player makers: buying enough flash memory to store content on small music-player devices and securing music content, says Mr. Crotty of iSuppli. Apple has tried to lock up available flash memory for its smallest music devices.
Amazon has been busy building technology for digital downloads. Amazon says it has hired 3,000 people companywide, including many software-development engineers who presumably are working on digital content initiatives, over the past year. That is more than Google and Yahoo, which hired 2,659 and 2,185 people companywide, respectively, last year.
The digital-music plan is one of several initiatives Amazon has been exploring to offer its content and products in digital form. Most recently, the company announced it will begin broadcasting a weekly Internet show featuring comedian Bill Maher and guests from the worlds of books, music and film.
A couple of key ways Amazon hopes to set itself apart would involve a subscription service, in which users pay a flat monthly fee for access to an unlimited amount of music. Subscription services, like those by Napster Inc. and RealNetworks Inc. are typically more profitable for recorded-music companies than "a la carte" download stores like iTunes, which doesn't include a subscription option. However, their subscriber bases of 500,000 to 600,000 are tiny compared with Amazon's 55 million customer accounts.
Amazon has discussed offering subscribers digital-music players that come preloaded with tunes suggested by the online retailer, based on factors such as the subscriber's personal CD-buying history on the site. The preloaded music could be kept on the player as long as the customer pays the monthly fee, but could also be swapped out for other songs during the course of the subscription.
Another likely feature: the portable players would be free or very cheap with a long-term subscription -- say, a year -- similar to the way cellphone providers subsidize the cost of new handsets when customers commit to service agreements. It's possible Amazon would price the subscriptions close to what competitors typically charge -- about $15 a month -- and has said it may offer discounted CDs to subscribers.
Existing subscription services have been hampered in part by the fact that none of them are compatible with the market-dominating iPod, which sold 14 million units in the fourth quarter of last year. In a recent conference call with Wall Street analysts, Warner Music Chairman Edgar Bronfman Jr. said subscription services' "growth and popularity has been impacted by the lack of an outstanding device."
In general, competition is good for consumers. What's clear is that we are far from robust business models and stable competitive interactions in the music network.
Toshiba Corp., a Japanese electronics company that makes DVD players, laptops and nuclear power plants, has developed mobile-phone technology that searches for product reviews on up to 100 Web journals, or blogs, in 10 seconds.
Just use the phone's digital camera to snap a photo of the bar code of a product you're thinking about buying.
The technology can decipher if the blog chatter is positive or negative and tallies the count to show if a product is getting rave reviews or being trashed by consumers. That's useful if you're in a store about to buy an item.
Some of the more frequently visited blogs will also show up on the screen.
The bar-code information is sent wirelessly to a Toshiba server, which gathers data on blogs from the Internet and analyzes them, and then sends a reply back to the cell phone.
Toshiba expects to have information on thousands of products covering just about anything you might buy at a store -- from toys to electronic gadgets to food.
Toshiba plans to test the software at Japanese stores next month and hopes to offer it as a service on cell phones before April 2007, although details aren't decided.
Blog searches and bar codes that link to Web pages are already available on personal computers and portable devices, but Toshiba officials say their technology is convenient for shopping because it's for cell phones and carries out real-time blog searches from bar-codes.
The question in my mind is: should Toshiba hold the data or partner with Yahoo, Google, Microsoft and others (perhaps AC Nielsen) and concentrate on what they do best--make the technology (devices and the software). What they need to do is to recognize the dynamic vibrant ecosystem and figure out their specific role in it. Perhaps they may refine their strategy after the tests in the Japanese stores in 2007.
Lessons from Google's Playbook
Lessons From Google’s Playbook
Version: February 15, 2006
Just as 1995 may now be marked as the Year of Microsoft with its launch of Windows95, history may one day in the future mark 2005 as the Year of Google. Over the last decade, much has happened, including the euphoric rise and crash of dotcom companies and the growing number of software developed by open source community embracing Linux. At the same time, the World Wide Web has evolved from simple static web pages to dynamic, personalized read-write web sites (loosely termed as web 2.0) that serve as backbone to a global, connected network infrastructure. Google’s capitalization has skyrocketed from its IPO levels in August 2004, while Microsoft’s capitalization has barely budged since 2000. The obvious question is: just as Microsoft dictated competitive moves in the post-IBM (hardware) era, are we now in a post-Microsoft (software) era with Google dictating and shaping key moves? If so, what can we learn from Google’s actions and moves thus far?
At a first glance, it may appear that Microsoft is in software while Google is a search engine; they should be seen as complements in separate but related areas, not as competitors. However, such industry compartmentalization—a central characteristic of the industrial era to demarcate distinct industries based on differences in products and markets served—misses the broader convergence underway now. Information and communication technologies are restructuring industries by blurring the lines between competitive activities in areas that historically were distinct. As Fortune noted in an April 18, 2005 article: “In December 2003, Bill Gates was poking around the Google company website and came across a help-wanted page with descriptions of all the open jobs at Google. Why, he wondered, were the qualifications for so many of them identical to Microsoft job specs? Google was a web search business, yet here on the screen were postings for engineers with backgrounds that had nothing to do with search and everything to do with Microsoft's core business—people trained in things like operating-system design, compiler optimization, and distributed-systems architecture.”
Additionally, many managers may initially look at Google as not being directly in their business space: comments such as “I am in manufacturing or in healthcare, and Google is not directly relevant for my strategy and operations,” are often heard. However, some of the lessons we derive by analyzing Google have broad relevance and applicability. Lessons from Google’s playbook are worthy of consideration by managers in most business sectors.
Shifting Cash Registers: From Product Platform to Service Platform
Microsoft’s spectacular success in the 1990s is based on architecting two product platforms: Windows Operating Systems for the personal computer and the Office suite of productivity tools. We can now look at how well Microsoft managed two interconnected network effects: the direct network effects based on the increasing number of end users for both product platforms, and the indirect network effects through the ecosystem of independent software developers creating software applications for both platforms. This cycle of greater end-consumer acceptance of the platforms, coupled with more applications available for the two product platforms, conferred Microsoft with insurmountable applications-barriers-to-entry. Competing platforms (Apple OS, Sun Solaris, IBM OS and others) with relatively low end-user penetration could not garner enough attention from the developer community to mount a viable attack against Microsoft. This cycle of interconnected direct and indirect network effects helped Microsoft to achieve impressive profit levels and market capitalization in the 1990s.
Google’s success thus far is also one of architecting a platform, but it is different from product platforms with complementary modules. Based on search, Google’s service platform is at the core of how consumers use the evolving functionality of the web, or more specifically how consumers live, work and play in the network era. As a service platform, Google still exploits the interconnected network effects: direct network effects of users employing Google to access the multi-billion pages indexed by Google’s search engine and the indirect network effects of companies advertising their services linked to specific search.
Microsoft’s revenue stream from its two product platforms is under attack from not only open source software (Linux) but also from the recent trend to deliver software-as-services. Microsoft’s direct revenue model, based on software license fee per user (seat), is challenged by the recent trend towards an indirect revenue model that is based on advertising revenue linked to search-enabled transactions. The danger that Bill Gates foresaw when he perused the list of open jobs on Google’s web pages was that a service platform could marginalize product platform. After all, Microsoft previously rode the wave of value shift from hardware to software with the introduction of the microprocessor and capitalized on Moore’s Law (faster-cheaper computers). It seems that Google is now seeking to capitalize on Metcalf’s law (the value of connections).
In November 2005, two Microsoft memos —one from Bill Gates and another from Ray Ozzie, CTO of Microsoft—communicated the urgency with which Microsoft should focus on the service platform logic. Those memos hint at the fact that Google (along with Yahoo, Amazon, eBay, Salesforce.com and others) are jockeying to control the cash register on the network in ways that could commoditize Microsoft’s product platforms and their established sources of revenue and profit margins. It appears that Google is directly attacking the business models that have helped Microsoft be a dominant force in the last two decades of the 20th century.
Google’s Four Vectors of Ambidexterity
A central thesis in strategy and leadership is that sustained success involves continually balancing exploration of new avenues while exploiting current opportunities and operations. Excessive focus on current operations traps companies into maximizing today’s opportunities today while failing to see the imminent discontinuous changes. Successful companies find mechanisms to overcome ‘competency traps’ or ‘learning myopia’ and adapt to shifts in business models.
Several management scholars have argued for the need for organizational structures that overcome competency traps: Michael Tushman and David Nadler coined the term ‘ambidextrous organization’ to bring attention to the design of structures to achieve ambidexterity; Clay Christensen and his colleagues refined these ideas further in their solutions kit to respond to disruptive technologies. To develop this idea further, ambidexterity can be viewed beyond organizational structure; it should also be seen through vectors of resource allocations to overcome learning myopia and competency traps.
In this article, I develop an operational framework of ambidexterity using Google as a case in point. Figure 1 is a two-dimensional representation of the key tensions of ambidexterity. The vertical axis is the experimentation—execution tension: how much of our scarce resources are allocated to explore new avenues relative to exploitation of current operations. The horizontal axis is the newer tension of internal control versus network-enablement: what activities should we carry out internally and what should we jointly pursue with partners or enable in the network through specific service offering. It is more than make-versus-buy decisions that define current business operations, but relationships that create complementary competencies for shaping new business models. Given pervasive interconnections among products, processes and services, this tension is central in the network era. A company’s success is intricately connected with the role of partnerships in the dynamic ecosystem.
These two dimensions accommodate the inherent tensions to be managed in order to create and capture value in the network era. Four vectors exist in this framework, each with its own domain of opportunity and strategic approaches. Unlike other two-by-two business matrices that specify decision makers to select one ‘magic quadrant,’ this framework highlights the full gamut of opportunities and actions. The management challenge is not selecting one vector; it’s about playing in all the four quadrants, as well as dynamically balancing the four vectors to win in the short-term, while positioning to win in the long-term.
I use Google’s recent actions to illustrate how these four vectors taken together create a compelling framework to win in the network era. However, the framework has larger implications and applicability beyond Google: it is relevant as a playbook for most corporations that find themselves crafting their strategies to recognize the ever-changing power and functionality of the Internet.
Vector 1 (Internal Execution)
Most know and recognize Google’s core offering: AdWords that appear when a search is carried out on Google (www.google.com). Google AdWords ads connect users to specific companies at the precise moment when they are looking for a product or services. The advertisers create their own advertisements and choose keywords to match ads to target audience; furthermore, they pay only when someone clicks on these ads. Google’s tagline “It’s all about results” shifted the focus away from monetizing eyeballs of visitors to clicks based on searches. Google leads in online advertising with a commanding market share of 46%, compared to 22.5% for Yahoo and 12.6% for MSN (based on Nielsen’s Net ratings, July 2005). Placed on the side of their webpage, AdWords displaying the results of a search are becoming as ubiquitous as advertisements placed in prominent places on the newspaper and magazine pages. Google’s revenue from AdWords was $2.28 billion for the nine-months ending September 2005 (compared to $1.05 billion for the same nine-month period in 2004). Besides the Google.com webpage, AdWords are also placed on Google Local and GMail messages, based on the content of messages using the same search algorithm. Despite initial controversy, GMail is steadily being accepted and embraced by users.
Internal execution of online advertising through AdWords is what has made Google successful so far. However, competition is gaining. Yahoo is a fierce competitor in this arena. Microsoft, having missed reading the signs of search-rendered-advertising, is fast catching up with its AdCenter. In order to stay ahead of competition, Google has acquired dMarc Broadcasting to extend the scope of Adwords to radio broadcasting.
Besides AdWords, Google is also in the midst of delivering Google desktop, Google Toolbar and Google Pack (a collection of software applications including Google Earth, Picasa, Screensaver, desktop and Google Toolbar for Internet Explorer). These are bold initiatives that directly challenge software product companies such as Microsoft and Adobe (Google’s Picasa challenging Adobe Photoshop Elements). These 'free' tools are complemented by revenue-earning tools based on Google Earth that can be used by managers in a variety of industries to enhance their operations (http://earth.google.com/industries.html).
Vector 2 (External Execution)
What makes Google different from its competitors is their early recognition of the need to go beyond their own website to influence search throughout the network. If Google were earning its revenue from advertisements only on its website, it would be just another passive portal (perhaps with a superior search algorithm). This vector highlights the complementary approach of capturing advertising revenue from search on partner websites. Google’s AdSense program distributes the advertisements for display on the web sites of Google Network—which include AOL, Netscape, EarthLink, AskJeeves as well as content providers like The New York Times, Wired, Business Week and blogs.
Going beyond internal execution, AdSense is an effective way to leverage the power of the partner network in order to maximize advertising revenue through its search service platform. Google’s AdSense allows websites to display relevant ads on their website's content pages and earn additional revenue—which they could not do without Google’s search platform. Customization of advertisements based on the content on a site enhances the likelihood that visitors would click through and thereby allow the site owners to earn revenue.
‘Ads by Google’ on web pages is becoming the network-era equivalent of ‘Intel Inside’ in the personal computer era. It has been financially successful for Google: for the nine months ended September 30, 2005, it earned $1.89 billion (compared to $1.06 billion for the comparative period a year ago). More impressive is the fact that this amount is nearly as much as what Google earns on its website with its AdWords ($2.27 billion). It is clear that AdSense and AdWords are two equally balanced complementary services that together define Google’s role in monetizing search today.
In addition, Google is making enterprise solutions available for companies to manage their internal information explosition. Google Search Appliance today has the capability to search 15 million documents, and it has the potential to make Google a dominant search engine inside many enterprises.
Vector 3 (Internal Experimentation)
The third vector recognizes internal experimentation initiatives. Since one should not extrapolate from the past to the future, innovation is critical for future success. Most companies explore new avenues, often extending their existing products into new markets or launching new products for their current customers. The problem often is not in the recognition of this vector, but on the relative emphasis given to experimentation versus execution—since scarce resources are often redirected from focus on creating new avenues for success to fix current operational crises.
We can array how companies stack up on their internal experimentation vector by one of two indices— input (e.g., R&D budget) or outputs (e.g., patents or new product launches). Google is in the midst of creating a culture of experimentation to ensure that the resource allocation to innovations result in successful services. Two mechanisms stand out: one is tracking how Googlers spend their time (approximately 30% of the time should be directed at extensions and innovations); the other is to involve customers who consider themselves lead users and enthusiasts in the product development and refinement. Taking a page out of the enthusiasm of the user community seen in the open source innovation movement, Google has been able to get rapid feedback from the user and developer community before launching its services. Google Labs and associated blogs provide a peek into the innovation playground where business ideas take shape. It’s early peek into the ideas that Googlers are working on; it’s also a systematic way for Google to get early feedback from passionate users tinkering with beta versions and providing continuous feedback.
Some of these experiments now in beta have the potential to fundamentally disrupt business models. Google News, which aggregates news stories from 4,500 global sources using computer algorithms bypassing human editors and updated every 15 minutes, is one example. A link allows the reader to go to the originator of the news story. Individuals can customize Google News by rearranging sections (thanks to the use of AJAX technology, ironically developed by Microsoft), and the headlines are delivered based on Google’s continuous analysis of click streams (personalized search within Google). By allowing Google Personalized newspaper and associated links to be shared with friends, this experiment is also tapping into the social network trend underway. Google News, currently in beta version (with no advertisements), could prove to be a major business challenge to news organizations like Reuters, New York Times, CNN (Time Warner) and Financial Times.
Vector 4 (External Experimentation)
The importance of this vector is based on the premise that robust business models in the network era are created using a portfolio of relationships. New business models are co-created with partner companies that bring complementary capabilities; thus, effective experimentation is not limited to what can be done inside one’s organizational boundaries.
External experimentation through ecosystems can be seen as a dynamic interplay between designed and emergent ecosystems. Designed ecosystems are best exemplified by Microsoft’s success with Windows with its core set of partners: Intel (microprocessors), Dell and Compaq (hardware), H-P (hardware and peripherals) and Accenture (system integration). This ecosystem enabled Microsoft to dominate in software as the computer industry shifted from vertical integration to horizontal layers of distinct capabilities (see David Moschella’s article in a previous issue of the Journal.)
Google is in the midst of designing its own service ecosystem with key partners: an alliance with Sun Microsystems for downloads of Star Office, a 5% equity stake in AOL, Google-Intel link for video downloads on the Viiv drive, relationships with Deutsche Telekom, Motorola and RIM (Blackberry) for aligning search in mobile phones .
At the same time, network era connections are emergent as companies use the available API interfaces to overlay data from different sources to create new services. These relationships are not formally structured but are triggered by the availability of API interfaces that make interconnection of services possible. Google Modules (www.googlemodules.com) are not official Google offerings but are software applications that allow end users to have a personalized Google web page. Google Video (http://video.google.com/) is an experiment to involve individuals and companies (e.g. CBS and Getty Images) to upload content that could be watched by others or downloaded for a fee: this has the potential to transform the media and entertainment industry from bundled offerings to pay-per-view of specific modules of entertainment.
More importantly, Google (along with Amazon and Yahoo) have opened up their APIs to allow third parties to create innovative mash-ups that could prove to be attractive business models in specific niches. Housing Maps is a prototypical mashup (http://www.housingmaps.com): Google Maps + Craigslist to create a visual housing search page via dynamic overlays of Craigslist home listings on Google Maps. Another popular mash-up is Chicagocrime.org (http://www.chicagocrime.org), a representation of crimes reported in Chicago overlaid onto Google Maps. Just as web pages proliferated in the early days of the WWW, without robust revenue or profit models, mash-ups are now burgeoning without coherent articulation of appropriation of value (www.programmableweb.com). However, these emergent connections have the potential to define a critical building block of service innovations in the network era.
Dynamics of Four Vectors
Metaphorically, ambidexterity is about balancing competing pull. These pulls are not static since the requisite set of winning competencies change: today’s core competence becomes tomorrow’s competitive parity, and new avenues of exploration become standard avenues for execution tomorrow. The focus is more than product innovations and extensions; it’s about business model innovations and adaptation of revenue and profit models.
Thus the activities in the vectors are not static. What appears in one quadrant at a point in time will move to another quadrant in the next time period due to competitive moves and reallocation of priorities. For example, Google Maps, Google Scholar, Google Desktop and Personalized Google Home pages have all evolved from beta versions in the lab to full-fledged offerings. However, the revenue and profit models are not firmed up since they do not support Google Ads yet. Similarly, Google is experimenting with direct payment for content (see Google Videos) to complement its core ad-based revenue models. The dynamic logic of ambidexterity is key for effective navigation in the network era. Google embodies the inherent dynamics of experimentation—execution cycle; it is also balancing internal activities with initiatives with a network of partners to make its search engine into an advertising engine with the power to be a central hub in global transactions.
Six Lessons from Google’s Playbook
What can we learn from Google’s playbook as played out thus far? Six lessons appear useful.
One: Are services threatening revenues (and margins) from your products?
The Microsoft—Google scuffle is really a battle of business models where revenue from products and services directly compete against each other. There appears to be a larger general trend where value is migrating from products to services: namely, closer to the point of consumption. IBM’s shift in emphasis over the last decade is another example of the broader shift in value away from points of production to points of use and consumption. This battle is not limited to software-enabled services; rather, it has implications for other sectors as well in manufacturing, logistics, healthcare and pharmaceuticals. It’s also timely to assess if one’s revenue sources from products could be bundled by someone else as part of a more comprehensive service offering.
The first lesson is: assess the breakdown of revenue and profit margin between products and services from an end-customer point of view. Are you participating in the value shift or are you losing out? Do not let your historical focus on products prevent you from thinking about services that are wrapped around your products.
Two: Are your occupying value hubs in networks as positions of strategic advantage?
The new business landscape for most industries is digital, global and connected. I have argued before that the business landscape is at the confluence of three powerful laws: Moore’s Law, which specifies price-performance trends in computing power; Metcalf’s Law, about the value of connectivity, and Bandwidth Law, which specifies steady increase in the speed of connectivity to the network (now growing at 50% each year). This new global infrastructure is created by faster and cheaper computing power, widespread connectivity and enhanced bandwidth creates new value hubs. Seeking to occupy a central value hub in the information network, Google is straddling traditional industries such as media and entertainment; publishing; advertising and mobile telecommunications, just to name a few. Additionally, many others— most notably, Microsoft, Yahoo, Amazon, eBay and Apple— are jockeying to position as value hubs in the network as well.
Today, the impact of these laws may appear to be limited to high-tech and information-intensive sectors. However, the inevitable trend is that the global digital network is the business infrastructure on which value will be created, consumed and captured. More companies find themselves recognizing the pervasive power of the network that is altering the competitive landscape. The second lesson is: strategically identify how to occupy an emerging value hub that is likely to be the new drivers of value in the network era.
Three: Are you fully capitalizing connections as core currencies?
The link from core competencies to profitability may be apparent in the industrial era, but it is far more complex in the network era. A major reason for the dotcom boom-n-bust is due to lack of clarity of core currencies that resulted in sustained profitability. In other words: where should companies place ‘cash registers’ in complex interconnected business models? Through its superior search algorithms, Google has created new currencies based on connections: the paths that individual consumers traverse on the network are linked to specific set of search words that advertisers could use to position their products and services. Both AdWords and AdSense are masterstrokes to monetize search-related queries. The network era seems to offer other ways to monetize connections: Amazon with its recommender system is based on linkages uncovered in purchase preference data; eBay with its success based on establishing connections with global buyers and sellers that initially fell outside the domain of mainstream commerce; Apple’s genius in monetizing the connections between music content providers and end users through itunes—which is fast approaching a billion downloads (read: connections). The myriad social networking initiatives (MySpace.com, Flickr, LinkedIn, Yahoo/360, Facebook and others) are seeking to create robust business models based on connections. Seeking to capitalize on the recent trend in mash-ups, The Washington Post hired Adrian Holovaty, creator of Chicagocrime.org mash-up, to explore how it can create currencies out of the news feed from Washington Post content.
The third lesson is: evaluate the potential of network connections as new currencies of value creation as your business embraces the network-era.
Four: Are you creating value potential through experimentation inside and with partners outside?
One cannot and should not extrapolate the future from the past. Companies often fail because they continue to refine business rules long after these rules have outlived their use and validity. Strategies are more than incremental adjustments of resource allocation patterns; they call for systematic experimentation to explore future business models. Beyond advertising, Google is exploring new avenues of revenue and profits, both inside their labs (labs.google.com) and through selected external relationships with companies such as AOL, Intel, Motorola and Research in Motion (makers of Blackberry). Moreove r, experimentation is underway to create robust revenue models using data made available through APIs from Google (and others). The Google print initiative with publishers to digitize printed books, despite its initial controversies, is to explore ways of monetizing information now stored in archaic ways with limited potential for exploiting the power of the network.
Experimentation is needed at a time when business models and profit sources are unclear and past rules do not seem to apply. Systematic experimentation to shape new business models is critical for companies to shape new ways of delivering value where competition may arise from unfamiliar quarters. Look at Reuters (http://labs.reuters.com/) and Adobe (http://labs.macromedia.com/) as examples of companies involving customers as part of experimentation. The fourth lesson is: approach strategy as experimentation carried out both inside the firm and using a select but varying set of partners to examine the full gamut of likely future courses of action.
Five: Are you capturing value through world-class execution inside and with partners?
Experimentation without execution is fatally flawed. When value is co-created as in the network era, it is important to device mechanisms to capture fair share of value created. Thus far, Google has exhibited flawlessly in its core service offerings both inside (AdWords) and outside in the network (AdSense). They are continually making sure that the advertisements placed on their sites and on partner sites are executed to maximize value for all concerned. Google Analytics and other tools allow the site owners to exercise control over their advertising plans and marketing strategies more than they could ever do in the traditional way.
Since 2000, the corporate sector is becoming brutally efficient and the broader implication for other sectors is that inefficiencies may not be long tolerated in a global network of competencies. Offshoring of jobs to India and China reflects the changing geography of work that recognizes the inherent efficiencies of the global business process network. The fifth lesson is: develop information-led approaches to execute strategies both inside and outside to extract fair share of the value.
Six: Are You Mapping your own activities on the four vectors of ambidexterity?
Finally, you may find it helpful to use the ambidexterity framework without any direct reference to Google. Map your key activities and resource allocations along the four vectors and see how well your profile compares against (1) your recent past; and (2) your competitors and others you benchmark against. Often, most companies find that their focus of attention is on the lower left (internal execution) and some on the lower right (sourcing and distribution agreements) vectors. This audit often serves as a useful trigger to rebalance the emphasis, especially if leaders recognize that the future is not a linear extrapolation of historical positions; and that past success does not guarantee future dominance. A balanced approach along the four vectors helps minimizing competency traps and overcome myopic views of business strategies.
Ambidexterity as a Leadership Challenge
How does Google balance the competing requirements of ambidexterity? In Eric Schmidt’s words: “Here's how it works…: We spend 70 percent of our time on core search and ads. We spend 20 percent on adjacent businesses, ones related to the core businesses in some interesting way. Examples of that would be Google News, Google Earth, and Google Local. And then 10 percent of our time should be on things that are truly new. we’re in the business of making all the world’s information accessible and useful. The test that I apply—and we do this every day, 70/20/10—is to ask how a feature will extend the core, the adjacent, or the innovative stuff to fulfill our mission.”
Overcoming the competency trap is not easy. Lotus created a separate company to spearhead the development of Notes when the bulk of management attention was focused on their flagship product at that time—The Lotus 1-2-3 spreadsheet. Edwin Land at Polaroid experimenetd with design teams to understand how their products could be rendered obsolete before their competitors could. 3M Company would focus on sales and profit levels achieved from new products introduced within the last 3 and 5 years. Google is using resource allocation through the 70-20-10 rule as a way to overcome complacency. The ultimate leadership test is whether such rules are adhered to under times of crisis to execute on current strategic direction. Google has not been tested under fire thus far; when it is tested, we will know how well it followed the rule.
Is Google on your Strategy Radar?
Why all this attention on Google today? Most companies recognized Microsoft’s role when they were developing their information technology strategies over the last two decades. However, Google is different: by virtue of its superior ability to trace, index and make available all kinds of data, it could impact business strategies in many industries. For example, Google Talk, Google Mobile and Google WiFi impact the global telecommunications sector; Google music and Google video influence the media and entertainment sector. Google News with its aggregation and personalization features are challenging the current business models. Google print is forcing publishers to wake up to the realities of the digital network. I urge that every company should include Google on its business and IT strategy radar screen.
1. Map your position in the network relative to Google. If you are using Google inside your company (Google search appliances) for managing information to enhance your current operations, then you are its customer. If you are using Google AdSense as part of your website operations, then you are a partner in Google’s advertising network. If you are using data from Google through Google API to create new mash-ups or new service offerings, then you are a co-creator of new business models using Web 2.0. Take a look at the budding initiatives in Google labs and assess what they could mean for your business operations. If you find that Google is marginalizing your product-service offerings, Google is a competitor to you. Your first step is to understand specifically, your role vis-à-vis Google: Supplier? Customer? Co-creator? Partner? Competitor? What is the role today and how could it change in the future? Many companies could benefit from considering Google as a way to organize their internal information and developing a cost-effective way to search and access internal databases and repsoitories. Some companies may benefit from taking a look at the variety of mash-ups that have been created by combining data from multiple sites to craete new offerings (www.programmableweb.com). While they may look like trivial applications now, they hint at the power of leveraging data from multiple sources to create new value propositions to consumers.
2. Conduct a management workshop focused on what Google means for your company today and what it could mean in the future. I have found that while there is general fascination with Google as a company, few managers seriously understand the potential role that Google could have on their business. Google’s role is multi-faceted, complex and potentially far-reaching. Its rise has occurred against the backdrop of some profound changes in the power and functionality of the web. Instead of dismissing the role of Google as being at the periphery, take the time to design a workshop to develop plausible scenarios that could fundamentally impact your business models. While the focus may be on Google as a central actor, it is useful to understand the roles of other players such as Microsoft, Yahoo, eBay, Apple, Salesforce.com and Amazon. What opportunities and/or threats do they pose? For example: Volkswagen is working with Google to examine using its maps technology as part of future GPS-based navigation system. At minimum, such workshops create general shared awareness of the trends that have propelled Google to being where it is today. Yet more importantly, such workshops serve as catalysts to understand the emergence of network era and the need to craft strategies that leverage the power of the network.
3. Develop a continuous monitoring system of network era moves by Google and others. In 2004, Google was mainly focused on search-related advertising through AdWords and AdSense. Today, the scope of Google’s service platform has expanded significantly and the initiatives underway in its labs hint at even greater impact in the future. Most media and entertainment companies may not have recognized Google as a relevant company as part of their strategic assessments in 2004 but today they do so at their peril: Google video is clearly poised to become a hub in this space. Since effective strategy involves early recognition of 'weak signals' and subsequent rapid responses, it is a worthwhile investment to assign someone responsible to monitor moves along the four vectors of strategic ambidexterity that Google is pursuing. Such early monitoring of moves by Google and others will prove useful and effective to shape and fine-tune your business strategy.