Product Innovation, Game Changers, and Empire Building.

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The ability to innovate may not be required to run a profitable business but it’s certainly a requirement for anyone who wishes to create an empire. Building businesses in the same league as a Ford, Amazon or Apple requires the ability to innovate beyond that which is imagined today.  And to be clear, striving to be the best in your industry is not enough. Being the best player at the game makes a business successful; reinventing the game creates an empire. This is what Netflix is doing today. It’s moved beyond product innovation and it’s more than a game changer. It is empire building.

Such businesses, whose leaders are able to reshape the playing field, can change the very makeup of an industry.  It’s not a matter of being first-to-market, which is another myth perpetrated by business books and academics.  Typically, these are not overnight sensations, but businesses whose efforts are calculated and consistent across a long period of time before the public (and often investors) take note; it’s all in the execution. A true game-changer is one that establishes such dominance that the competition can’t make a significant dent in that position for some 10 years or more. The competition is forced to play catch up just to stay in the game and thus has no time to innovate for itself.

Consider the Nintendo Wii in 2008: while Sony and Microsoft, already successful players in the game console market, continued to offer next-generation models that featured richer and richer graphics to satisfy audience demands, Nintendo chose to ignore their fixation on graphic-rich game interfaces and considered how gamers would be interacting with games in the future.  It developed and marketed a way for gamers to interact with games via motion-controlled devices instead of hand-held controllers.

The gamble paid off, even though its graphics and games were significantly simpler. Two years after its launch, Nintendo owned a near 50% market share in game consoles sold (2009-2010).  However, its failure to continue to follow up that innovation into other applications and devices, as well as its inability to build an ecosystem around the product, saw that dominance dwindle.  In  2011 and 2012, it captured only 30% and 22% respectively.

Southwest Airlines had a similar disruptive impact on its industry with the introduction of ticketless travel, low fares and its signature humor, yet it did not have the industry-changing effect that companies like Apple or Google have had. It certainly forced others in the industry to reconsider how they interact with customers and forced them to compete on attributes other than price, but it did not change the playing field in such a way that competitors could not adapt.

Slow and Steady Wins the Race

Changing the game isn’t based on one product or innovation but a long-term strategy. Changing the game requires a business foundation and product ecosystem to be in place, from which a new product can springboard the company into a position that cannot be challenged.  The industry shake up cannot be one that competitors can quickly emulate and integrate into their own products as was the case when Microsoft and  Sony each added motion-detection devices to their game consoles and took back market control.

Apple has been the go-to case study for more than a decade on how to disrupt the marketplace. Below is an exerpt from Influence Marketing: How to Create, Manage, and Measure Brand Influencers in Social Media Marketing, which speaks to one such game-changing innovation.

“In 2000 when the music industry was focused on fighting individuals sharing copyrighted music for free across peer-to-peer networks like Napster, Apple was monitoring the trend-currents. What others saw as a copyright or financial issue, they saw as a fundamental change in how people purchased and consumed music; the music community was trying to trying to manage the current trend while Apple focused on the trend-current. The late Jobs set out to create a solution that leveraged the Napster revolution to create an entirely new business model. Less than a year later, he introduced iTunes to the world, and within a few months was boasting a million downloads. Later that year, it launched the next iPod which featured a brand-new version of iTunes that seamlessly integrated with the songs and playlists stored on Mac computers. Within a year, Apple reinvented the industry, identifying and adapting to the trend-current, not the current trend.”

Google is another excellent example of a business that, one integrated product at a time, has so radically altered the playing field that competitors might conceivably never be able to catch up. It became such a dominant player in Internet search that its name became the commonly used verb for any sort of online information search.  Yet, Google understood that it wasn’t enough to change the game; it continued its plan to integrate with – and dominate other – Internet- and business-related functions such as email (with industry-leading free data storage), software (word processing, spreadsheet management, and PowerPoint-type presentations), online advertising, Internet browser (Chrome), and more recently social networking.

Google changed the playing field in such a pervasive manner that one can migrate from device to device, in any physical location, and perform an unlimited number of personal and business related tasks without skipping a beat. It did not affect one product; it built an interconnected ecosystem based on how people would want to live.  More than a product offering, it’s a way of life.

The Rise & Fall of Innovators

RIM V IPHONE

Much has been written about Apple’s domination of the mobile market, yet some would argue that it was RIM’s BlackBerry that was the first true game-changer in the space. When it was introduced, the BlackBerry created a new way for business people to communicate with each other, and it quickly became the standard.  Both its iconic hardware and supporting software became synonymous with the act of doing business in the modern era.

Until, of course, the penetration of Apple’s iPhone’s into the mass market forced businesses to reconsider how they adopted the phone. BlackBerry changed the playing field of business communications but failed to understand “what’s next” and the disruptive factor that that truly portable personal computers (the iPhone) would have on which phone businesses would offer their employees and which platforms mobile developers would gravitate towards.  RIM become fixated on its product instead of how the audience’s needs were shifting, which made Apple the innovator that everyone talks about today.

Yet, even Apple’s day in the spotlight could be in jeopardy.  Competitors like Samsung are starting to make a serious dent in Apple’s market domination and its stock price has been on a roller coaster ride over the past year. Without the introduction of new technologies and devices that continue to transform the industry in a way that previous game-changing products like iTunes and iPhone did, it’s easy to see why investors, critics, and fans are worried.

The Future Is With Netflix?

So who is the next big innovator, the next to change the playing field so dramatically that competitors are blindsided? It may already be here. I humbly submit for your consideration: Netflix.

Blockbuster ignored Netflix when the company launched in 1997, believing its own hype and stuck in its traditional world.  People would never change the way they rented DVDs; leaving your home to pick up a movie was an experience, or so Blockbuster thought.  Fast forward to today and Blockbuster is essentially a non-entity while Netflix has 29,000,000 subscribers around the world.

I wrote about Netflix in my Huffington Post column earlier this week, claiming it was following in the steps of great innovators like Apple.  Since writing that post, I’ve learned that Netflix’s original program, House of Cards, has garnered Emmy nominations in the categories of Best Drama, Best Lead Actor in a Drama, and Best Lead Actress in a Drama.  It’s evolved considerably from its mail order DVD rentals days.

When the public’s appetite for the video store rental model began showing signs of fatigue, Netflix emerged as an alternative by offering  DVDs and Blu-ray discs through a monthly subscription. For one price, you’d get to pick from a catalogue of movies that would be mailed to your door, complete with return envelope for when you were done, no time limits, no late penalties.  As with other business models that buck conventional wisdom and “me-too thinking,” critics were plenty; however, they were quieted down when in February, 2007 the company reported its billionth DVD delivery.

While critics were busy reporting what was wrong with the model, Netflix was planning its next evolution: on-demand digital subscription service for movies and television programing. Like Apple, Netflix didn’t see limits to its model, nor would its growth strategy be dictated by conventional business practices. Why limit yourself to renting licensed material when you can capture greater wallet share by producing and streaming your own content?

House of Cards

It wasn’t long before original content was being produced and distributed to compete with other traditional entertainment channels. Yet, even here Netflix understood that the manner in which people consumed episodic programming was different. When Netflix picked up the rights to exclusively produce and broadcast a new season of the network-canceled show Arrested Development, it decided to release the entire season on the same day, at the same time.

It continues to make waves in the industry by- refusing to release viewer data and statistics and pre-ordering second seasons before the release of the season one premiere episode.  It’s become so pervasive that, according to research firm Cowen and Co., 20% of Netflix subscribers report that they’ve cancelled their pay-TV subscriptions.  HBO and other cable networks changed the nature f programming; however, Netflix changed the manner and place where people watch television. The difference is it’s now conceivable that one day we may not have television sets anymore, just as the  iPod and iTunes will be credited for eliminating the need to own CD and CD players.

What might be even more unconventional in the broadcast industry is Netflix’s use of consumer data collected from the search, views, and clicks of its 29 million users (data it does not share) to predict which shows will be a hit and invest accordingly.  It knew House of Cards would be a hit based on patterns detected through clicks and viewership and cross-referenced to celebrities, directors, and producers. Emboldened, it made the decision to approve a second season of Orange is the New Black ahead of the first season’s airing.  When critics panned its original series Hemlock Grove, did it care? No, it ordered a second season to be produced.  Data is driving Netflix’s programming, not reviews. It’s isn’t trying to be the best player at the game; it’s changing the rules of the game.

Now legitimized by the media broadcast industry thanks to the Emmy nominations, Netflix has elevated how digitally-distributed programming is recognized. Netflix has emerged from a somewhat troubled start-up to become the unconventional bellwether for what is to come in the digital media world

Sensei Debates: What are your thoughts? Is Netflix just another blip on the radar of television or is it empire building? The next Apple?   Can a business succeed today without such innovation? Can the market support too many such disruptions? Share your arguments – pro and con – in the comments below.   

Sam Fiorella
Feed Your Community, Not Your Ego

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