A few weeks ago, Mint carried an article originally published in The Wall Street Journal of how Microsoft had ample opportunity to build a strong search advertising business, and blew it, leaving the market largely to Google. The article describes how Microsoft started working on paid search, where companies bid to have small advertisements tied to search keywords, in the late 1990s. The company ran a paid search trial on the MSN site in 2000. MSN managers placed restrictions on the trial, such as having $15 as a minimum price (can you imagine?!), to minimize cannibalization! The trial brought in less than $1 million in revenue, and was shut down in 2000.
Microsoft re-focused on the market in 2002 after Google’s AdWords program began to take off. In 2003, it passed on buying Overture, a company whose technology facilitated paid search. Microsoft launched its organically created system in 2006. By that time Google had established a dominant market lead.
It is a classic story of the traps that market leading companies fall into while seeking to pioneer new markets. Firms are likely to encounter the core business putting restrictions on the new business. There is also the all-too-familiar management impatience in the face of an unknown business. Add Microsoft to the list of companies that had a massive disruptive growth business in their hands, and let it slip away.
My point, finally, is that if highly progressive companies that are on the cutting edge of technology and research can allow this to happen, is it surprising that “innovation” in pharmaceutical marketing is understood as a different form of visual aid (usually with brighter colors and charts), converting hand-written memos to digital ones that can be sent by e-mail, and perhaps, subjecting the sales force to a targeting workshop once in a decade!
I may be too cynical, but IMHO, every company talks of aggressive growth plans. Of “getting more with less” as a flavor of the recession season. And yet when managers identify areas of growth in businesses adjacent to the core revenue stream, management wants assured sales to enable it to make an investment decision! Is “getting more with less” more about cost containment to present a robust bottom line or more a chance to strengthen revenue generation through innovation?
I think its important for market-leading companies looking to enter new business streams, to remember a few important things:
1) It is impossible to know for sure what a new market or business will look like. Building new markets requires iteration and intuition. After all, the decision to enter a new market is to guide the firm into new growth areas
2) Pioneering requires patience. Making decisions based solely on early-year revenues can be a mistake. It is very important to look for signs of early progress and proof that you have a winning model
3) Creating organizational space for innovation is critical. Asking managers who live based on their profit and loss statements to prioritize something that could make them less money is a sure way to kill innovation
At this point, its pertinent to ask the question “What makes a company innovative?” In a March 2nd blog post, Scott D. Anthony — President of Innosight and lead author on The Innovator’s Guide to Growth: Putting Disruptive Innovation to Work, answers that question categorizing an innovative company as one that does more than exploit a single idea. It develops the systematic ability to extend into new markets, and create new business models. And importantly, it doesn’t just invent new things; it makes money with its new efforts. This makes Google inventive and Amazon innovative. Google was inventive because it threw in newer products into the market and yet 97% of its revenues came from its core business. Amazon, on the other hand, was innovative because it made money by demonstrating a rare ability to execute seamlessly in its core business while moving into new businesses.
How did Amazon, a retailer that mostly sold books, decide to sell a diverse range of products, subscription services (Amazon Prime), host third-party retailers, products (Kindle), and Web services? Definitely from ideas within the company!! Encouraging an entrepreneurial spirit within the firm can work wonders to lift up sagging employee morale, excite and retain talent AND come up with path breaking ideas for growth as firms struggle to maintain revenue streams.
To “get more with less”, firms should look to the future with those disruptive ideas that must be brewing somewhere within them.