Google to Facebook

Recently, the social networking phenom Facebook ousted Google as the most popular website in the United States. Should Google start to worry? Absolutely, says innovation expert Scott Anthony, managing director of Innosight Ventures. He should know, having written three books on innovation, the latest being The Silver Lining: An Innovation Playbook for Uncertain Times. “Remember 15 years ago when everyone said Microsoft was unstoppable? People talk about Google in the same way today, even as Facebook has relatively quietly built this massive audience with the potential to drive very disruptive models that tie into social networking. I think there’s a real chance that we might see a flip in power in the online world over the next 3-5 years from Google to Facebook,” he said in an interview with DNA. Excerpts:

What exactly do you mean by innovation?
I have a pretty simple definition of innovation — something different that has impact. The impact part of that definition is critical. Innovation is different from invention. It’s not just the creation of something new, it is the application of something new. That impact can be in the market, or it can be internal (like a new process). Now, what does innovation require? It has three parts. The first is the inspiration or insight that there is an opportunity to do something different. The second is an idea or plan to capitalise on that insight. And the third is turning a plan on paper into a real product, service, process or business. For example, a couple of years ago, Godrej had an inspiration - how can we reach the 90% of Indian homes that don’t have refrigerators? It developed a plan to create a low-cost, top-loading refrigerator. It launched that product — called Chotukool — last year.

As organisations become bigger, do they become less innovative?
It depends what you mean by innovative, of course. Large organisations can do some phenomenally innovative things. IBM is a massive organisation but it is constantly improving its current offerings and creating new ones. Apple now is the fourth-largest company in the world (based on market capitalisation) but it’s no less innovative than it was 20 years ago. And the Tata Group has sextupled its revenues over the past decade but continues to find innovative ways to enter markets. Large companies in particular thrive at what we call “sustaining” innovation. That is, taking what exists and making it better. For example, Sony has been a great sustaining innovator in its television business, mastering new technologies like HD, and now 3-D. Where large companies tend to struggle is in what we call “disruptive” innovations. That is the innovations that transform existing markets and create new ones. Sony has missed disruptive changes in the portable music, gaming, and handheld video recorder space, creating space for Apple, Nintendo, and Pure Digital.

In your new book, The Silver Lining, you talk about breaking down innovation into smaller chunks and not betting on a single roll of the dice...
There are two related thoughts here. The first is that anytime a large organisation’s future is riding on a single idea, I get very nervous. There are just too many unknowns ‘to bet the farm’ on a single idea. Any large company that is serious about innovation has a well-developed portfolio, because they know some of their efforts won’t succeed. The second thought is to have the same discipline about individual ideas. The research shows that no matter how smart you are, your first idea is going to be wrong in some kind of meaningful way. That’s  fine, as long as you don’t spend too much time or money figuring out how you are wrong.
For example, in 2008, we scripted a business plan to create a laundry services business in India. We called it ‘Village Laundry Service’.  The theory was that there is a ‘missing middle’ in the laundry sector between the dhobis and families that can afford high-end washing machines. We thought we could develop a business model that provided close-to-high-end quality at close-to-low-end prices. But we didn’t know if the market wanted this kind of idea. So we did a quick in-market test using a very rudimental delivery mechanism. There were enough positive signs that we decided to invest a bit more to figure out if we could actually develop a viable laundry ‘kiosk’. 

After we did that we started running a few retail locations. The business model has twisted and turned through the way, as we expected. The key is that we’ve learned in market, as opposed to a conference room. Today we have more than 20 kiosks in Bangalore, Mysore and Mumbai, with plans to scale the business throughout India over the next two years.

A famous innovation story is about Bank of America, which mandated that 30% of ideas had to fail. Google also had a similar working line with 20% of the employee time being spent on side projects. What’s your take on such strategising?
Those are actually two different strategies, and generally I like the Bank of America one more. That metric tells people that it is acceptable to take some amount of risk. If you never tolerate failure what you eventually get are very close to the core, incremental ideas. Those are fine, but won’t produce blockbuster results.
The Google approach, which 3M has done for a long period of time, works well in particular cultures. But it works less well in organisations that are still getting their innovation legs. All things being equal I would rather have three people spending all of their time on innovation than 100 people spending 10% of their time on innovation.

Part of the issue with replicating Google’s ‘20%’ system is there aren’t many people who have an end to end approach to innovation that is like Google’s. And if you copy one piece without the surrounding elements, it just won’t work.

Apple iPad is the next big innovative product from that haloed house. Are there reasons to suggest that the iPad won’t be Apple’s third game-changer in a decade, after iPod and iPhone?
It is so hard to bet against Apple. After all, Apple really had five spectacular successes since 2001: the iPod, iTunes, the iPhone, the App Store and the Apple Store. Yet, I think there’s a reasonable chance that the iPad disappoints. The thing I wonder is whether the iPad is really going after a big unmet need. The iPod was - let me carry my music collection in my pocket. The iPhone was - give me a whole series of ways to distract myself or be more productive on the go. Amazon.com’s Kindle targets a clear and simple “job-to-be-done” as well - let me carry a whole bunch of books and magazines around. But the iPad isn’t as clear. It’s possible the usage occasions will emerge, or that killer applications will create usage occasions we haven’t envisioned. But I think there’s a chance that the hype won’t match the reality.

The last time we spoke you had said, “There’s obviously a lot to like about Google, but if you peel it apart it’s a one-trick pony to date.” Do you still stand by that? 
I do. Its business is almost all about selling those little text-based advertisements that run alongside search results. The trick is astronomically good and profitable. Having said that there are a lot of things Google has done over the past year or so to lay the foundation of what could be interesting businesses. The two most obvious things are its operating system (Android) and its mobile phone play (Nexus One). It also has built its display advertising business into a billion-dollar plus one. The question has never been whether or not Google can be inventive. It has always been whether or not Google can create meaningful businesses beyond its core advertising business. So far, most of its innovations have been managed so that they help to extend its core business as opposed to serving as the foundation for new growth businesses. It hasn’t demonstrated the ability of an Apple, Amazon.com, or IBM to concurrently optimise existing businesses, further extend those businesses, and create booming new growth businesses.

What about the Google Phone? Do you see it taking on the likes of Apple iPhone and Blackberry?
I think it’s possible. The thing that is interesting about Google’s phone isn’t the phone, it is its business model. What Google is trying to do is shift from a carrier-centric to a device-centric model. Even Apple’s devices are still tied tightly to carriers (particularly in the United States). Google has the potential to commoditise the carrier by having people buy the phone online, then select the service package they want. Now, Google hasn’t actually demonstrated that it can execute this model yet, but if it can the model has some interesting disruptive potential.

Social networking sights like Facebook and Twitter have been a huge hit in the recent past. But do you think there is a business model in place, which makes these sites viable in the long run?
I think the answer is clearer for Facebook than for Twitter. There already is a booming ecosystem around Facebook related to widgets and micropayments. Zynga makes an astonishing amount of money getting people to dole out small amounts to buy fruits and such on Farmville. Additionally, Facebook is very well positioned to translate the astonishing amount of information it collects and the power of its social community into a very disruptive business model. Remember, estimates say it’s already close to $1 billion in revenues. Net, all in all, I am quite optimistic that Facebook has it in itself to develop into a true business powerhouse. Twitter neither has a business model nor shows any particular interest in developing one. I suspect the company will be acquired by someone within the next 18 months or so. And its founders and investors will be delighted by that outcome. 

Recently Facebook seems to have overtaken Google in the US. Should Google start to worry?
Absolutely. Remember 15 years ago when everyone said Microsoft was unstoppable? People talk about Google in the same way today, even as Facebook has relatively quietly built this massive audience with the potential to drive very disruptive models that tie into social networking. Google has tried to respond with its Orkut social network, which is very popular in some parts of the world, but I think there’s a real chance that we might see a flip in power in the online world over the next 3-5 years from Google to Facebook. Google isn’t going to disappear or anything, but the loss of its ‘alpha dog’ status could affect its ability to attract talent, which would further inhibit its ability to innovate for sure. 

You recently wrote a blog titled “Is the Tata Nano Really “The People’s Car?”” Can you explain why do you think it may not be a people’s car?
The strategic intent of the Tata Nano was to make cars affordable enough that they could replace scooters. My observation is that many of Nano purchasers are people who could afford cars but find the Nano to be “sexy.” There’s nothing wrong with that, of course, but it means that it might require further decreases in cost before Tata really realises its strategic intent. Every time I visit India I wonder as well what would happen if each of those scooters, which just seamlessly fill gaps on roads, were to turn into a Nano. You think your streets are congested today!

What is your view on Kindle? Will it disrupt a book reading habit?
Our general view is that you always want to seek to disrupt competitors. But you never want to disrupt customers. In fact, you want to find ways to make it simpler and easier for people to solve the problems they are facing in their lives. That’s why I love my Kindle. It’s very similar to reading a book, but I also get the ability to quickly and easily get new content and carry around 10 things at the same time without breaking my back. The battery lasts forever if I’m not accessing the wireless network. So I personally view it as a great solution. I expect even with the introduction of the iPad that Amazon.com has just scratched the surface of the Kindle opportunity.

This is a question I ask all innovation experts. Will Google disrupt Microsoft?
Along some dimensions, Google already has disrupted Microsoft, because it seized the opportunity to profit from the internet. Google Docs and its Android operating system are getting awfully close to that “good enough” bar for a growing group of users, which will place some real stress on Microsoft. I certainly don’t think Microsoft is going to collapse or anything, but Google will increasingly siphon profits out of Microsoft’s core business, which will make it progressively harder for Microsoft to invest in innovation. It’s astonishing to think about all the things Microsoft could have done during the 2000s give the astronomical profits generated by its core business. Search advertising, MP3 players, electronic readers, social networking, and microblogging are all businesses that Microsoft could have owned. But it didn’t. It’s a cautionary tale for those projecting hegemony for Google in the next decade.