innovation

Google Announces Several Open Initiatives

Google plans on creating and giving away software tools for free.

Indeed, that strategy would fit into a model that Google has begun talking about recently. Vic Gundotra, who heads Google’s developer programs, said last week that Google would soon begin an aggressive project to create software tools and give them away free in an open-source format.

The goal, he said, is to improve not just Google’s applications, but any software that runs on the Web. That, in turn, would drive more Internet use, and Google would benefit indirectly by selling advertising, he said. More >

In my earlier post, I stated some of the generic advantages of open innovation.  I also listed a few notable organizations who are adopting the open innovation framework as part of their strategy.  One of the advantages I listed was using shared IP to reduce the barrier to entry.   Here are some specific announcements by Google and Apple that underscore the advantages of open innovation through open source:

1. Google launches open source cellphone operating system (Google Phone Plan Draws Interest.  The Wall Street Journal, Oct. 31, 2007)
2. Google announces OpenSocial for social networks (ZDNet Oct. 30, 2007)
3. More on Google OpenSocial
4. Meebo reinvents its business model by going open (Meebo Opens Site To Developers.  The Wall Street Journal, Oct. 30, 2007)
5. Apple working on SDK for iPhone (Apple To Open iPhone)
6. Shared IP in health IT (ZDNet Oct. 30, 200)
7. Open Source To Hit $22 billion by 2010 (C|Net)
8. NetworkWorld open source 2007 list of companies to watch

Kameran Ahari

Advantages of Open Innovation

Spend more time thinking about different ways to reinvent your business model.  Your business model is more important than your technology alone or source of innovation.  If you have ever been involved with technology, life sciences, pharma, or the semiconductor fables industry, you are probably familiar with the role of intellectual property (IP) and patents.  Chances are your IP management strategy was governed by a protectionist not invented here (NIH) and not sold here (NSH) policy.  Despite the status quo, an increasing number of innovative companies have managed to abstract the process and source of innovation from their value chain.  Meebo is the latest company to join the list of open innovators.

Earlier this year, I looked at technology start-ups who were implementing open business models as part of their core strategy.  A number of these initiatives involved the Internet, open source software, and open business models.  Zimbra and Meboo are just two recent examples.  You might be saying to yourself - so what's new?  What is new is the commercial intent of these initiatives with investor backing.  Cleary some of these new initiatives reflect the commercial viability of open innovation and business models.  In the early days, most open source projects had no commercial intent. Interestingly enough, a handful of companies like Google, Amazon, and Salesforce.com found it strategically advantageous to use free open source software (FOSS) for their own infrastructure.

Some of the companies who are embracing the open innovation framework:

• Apple
• Google
• Amazon
• Zimbra
• Meebo
• Skype
• Salesforce.com
• Eli Lilly
• P&G (Procter & Gamble)
• BASF
• DuPont
• Dow Chemical
• General Mills
• Kimberly-Clark
• GSK (Glaxo Smith Kline)

Don't fall into the NIH trap.  Creating your own IP is not a prerequisite or determinant for success.  75% to 95% of patented technologies stay on the shelf and go to waste.  Not to mention the fact that 90% of all products fail.  Moreover, if your IP management policy prohibits reassignment, then your patents are not assets.  With rising technology development costs and increasingly shorter product life cycles, the risk of innovation is almost certain.  Technology life cycle has gone from 4-5 years, from a decade ago, to 6-9 months.  In other words, your window of opportunity to recoup your investment got even shorter.  Having your innovation, business model, and community aligned is more important. 

So why are you waiting to explore the strategic advantages of what Henry Chesbrough calls - open business models.  Companies big and small are learning that many of their best ideas, approaches, and solutions come from the outside.  Moreover, by adopting the open innovation model, companies can dramatically reduce the pitfalls, costs, and risks associated with closed innovation. 

These are some of the generic advantages of open innovation:

• Speedup time to market
• Reduce the risk of innovation
• Less risk guessing what the market wants
• Let the market / community tell you what they want
• Integrated community innovation
• Innovation can come from anywhere and anyone
• Some of the best ideas are outside of your organization
• Some of the best solutions reside outside of your organization
• Lower your R&D and operating costs
• Supplement your R&D
• Tap into the virtual R&D community
• Create brand evangelists out of your community
• Shared IP can create a formidable barrier to entry

What does it mean to have an open business model?  Think of all the things you do in your value chain and how it fits into the entire supply chain.  What is a value chain?  Everything you currently do or that contributes to your value creation (product / service) is your value chain.  You can think of the supply chain as all other participants, suppliers, partners, and channels between your value chain and ultimate customer.

What is an open business model and how do you open your business model?  As you share technologies, seek IP, outsource functions within your value chain, and rearrange your supply chain, you begin to lay the foundation for a more open business model.  Remember, open business models are not the exclusive domain of open source software initiatives.  Community collaboration and innovation are simply some of the attributes. For simplicity, think of open and new business models somewhat interchangeably.  Some of the most innovative businesses are no more than a brand.  P&G is certainly adopting this trend.

Some of the marketplaces for trading, sharing, swapping, buying, or selling IP:

• InnoCentive
• NineSigma
• Big Idea Group
• InnovationXchange
• Shanghai Silicon IP Exchange
• Ocean Tomo
• SparkIP
• Techex
• Patentcafe
• Eureka-club

If your organization has successfully embraced the concept of open innovation and open business models, congratulations!  You just joined the ranks of some the hottest start-ups and handful of innovative Fortune 500 companies who understand that some of the best ideas come from the outside. There is a good chance your organization is creating and capturing value ahead of the competition.  Moreover, your business model more than likely reflects the state of your industry, technology or company life cycle, and R&D development cycle relative to the target market window of opportunity.   

If your organization has embraced the open innovation framework, please tell me more about your open business model.

Kameran Ahari

Trends: Social Media Powered Search Engines

Human Powered Search Engines

Every now and then, the Internet makes a big turn, and changes everything.  Just today Google announced the acquisition of Jaiku.  Social media optimization (SMO) and search is one of those big turns.  But, before I tell you how social media sites like YouTube, Digg, del.icio.us and SlideShare can boost your web presence (website, blog, URL, or content ranking), first let me explain how these social media tools and networks are leveraging Google's own platform and business model.

Why does my presence matter?  As Seth Godin and perceptive online emarketers know all too well, if you're not showing up on the first page of a Google or Yahoo search - you're pretty much invisible.  Hardly anyone goes beyond the first few links.  Don't expect to see much traffic past link number 8.   So, what about the other million search results?  Sounds like an opportunity for some hot start-up.  Furthermore, 70% of people skip online ads ( Small Is The New Big ).  I guess people have an aversion to ads period. 

Over the years, I have become proficient in HTML, web design, blogs, and search engine optimization (SEO) techniques.  Moreover, at optimizing a website, blog, or digital content using things like keywords, meta tags, linking, and dozens of other SEO design elements.  I was experimenting with Overture (part of Yahoo now) well before Google jumped into the game.  It did not take me long to realize that my traffic ROI and conversion was much better as a native search engine result (1-8).  I was lucky to understand the significance of search engines and user behavior early on. Anyone who is serious about creating an online presence as part of their overall emarketing strategy has to understand the various techniques search engines like Google use to rank the relevancy of a web page or digital content. Although some of these techniques are well established, most companies don't appreciate the significance of social media optimization. SearchEngineWatch.com has one of the early explanations of this new paradigm.  A number of sources credit Rohit Bhargava for coining the term.

So how do you boost your presence?  If you cannot get enough traffic and visibility to your website, product, blog, or other content, start participating in some of these social media and networks that have cut deals with the top three online ad entities - Google, Yahoo, and MSN. These sites are going to have a bigger impact in boosting your presence through popularity features like my favorites, most viewed, bookmarked, and tagging.  Many of these media sites are social bookmarking websites.  You might want to start with YouTube, Digg, del.icio.us, Technorati, SlideShare, and Squidoo.  Joe Whyte has a comprehensive list of social media sites.  Over this summer, I tested one of these social media sites called SlideShare.  Originally, I was searching for a PowerPoint utility for converting my presentation into something suitable for HTML media.  Instead of building a community around video as the primary media, SlideShare uses Microsoft PowerPoint.  Once I uploaded and shared my slides, I quickly realized my topic - word of mouth marketing techniques - was a big hit with the community.  Within days, I noticed a direct correlation between my most favorites count and search engine ranking.  Somewhat analogous to cross-linking, community endorsement plays a big role in search engine algorithms.

Is this why the very same VCs who invested in Google are already exploring better solutions?  You bet !  They call this social media discovery or searching.  Think of it as human powered search engines.  Piper Jaffary has some reports on where the search engine industry in headed. Even at $600 per share, Google's leaving a lot of money on the table.  These social media outlets are keenly aware of these statistics.  The next time you run a Google search, see how many of the first results are from these other media sites.  You get the big picture.  I hope I've give you enough insight into what's going on with some of these social networking and discovery media sites like Digg.

As always, I welcome your comments, questions, insight, and suggestions.  If I missed any cool social media sites, add them to this post.

Kameran Ahari

http://gotastrategy.typepad.com

The Other Bubble: Pressure on Venture Capitalists

Sarah Lacy of BusinessWeek online published an interesting article about the state of the venture capital (VC) industry.  According to the article, despite the increased valuations and deals, expect to see even fewer VC firms next year.  In short, despite all the recent interest in tech stocks, the volume of IPOs is extremely low.  Hence, fewer exits.  Moreover, the YouTube type homeruns that sustained the 80/10 benchmark set in the late 90s is increasingly the exception for VC firms. http://www.msnbc.msn.com/id/21114509/ 

From my perspective, the issue has less to do with the supply side of IPOs or VC firms.  The fundamental issue is the lack of strategy in most of these portfolio companies.  One of the overarching problems is the status quo.  What does that mean?  The majority of these start-ups could not show you or articulate a truly differentiating approach, business model, or marketing strategy.  The prevailing approach is to build it first and figure out the rest along the way.  A number of venture backed start-ups in the Web 2.0 and other areas of technology services are too busy developing their products / solutions autonomously with no clear business or marketing strategy.  Otherwise, know as autonomous innovation.  I see only a handful of initiatives leveraging the open innovation framework or reflecting the new social media way of marketing. 

Earlier this year I outlined a simple framework for picking truly innovative start-ups in my blog.  Not one of my criterions had to do with leapfrogging intellectual property or technology.  I think the days of being the first to invent a router or some other infrastructure plumbing are over.  And good luck trying to go IPO with a strategy of building a cheaper mousetrap.  Most of the notable 10X homeruns have to do with disintermediation, disruption, and democratization of relatively well-established things.  The simplest guideline for a successful exit has more to do with understanding the need / problem and developing a solution with consensus and feedback from your community. As Zimbra pointed out to me in several conversation earlier this year, if you cannot validate your value proposition with your community from day one – good luck selling your solution when it comes time to launch your beta.

Kameran Ahari

http://gotastrategy.typepad.com