Chapter 7 Toward a Universal Service

Delivery Platform

Imagine yourself in a lecture about products and services. In front of you are three glasses, one filled with water, one filled with whiskey, and one that is empty. Put the two glasses containing liquids aside for the moment and pick up the empty one. What you have before you is a finely crafted glass container, probably conical in shape with the ability to hold a variety of liquids and all sorts of other objects. Now ask yourself: is this glass a product or a service?

Well obviously it is a product, but I wouldn’t pose the question if there were not a trick to it. Look at the definition of a product: it is the result of labor, the outcome of a process, and in the case of the glass, it is a physical object. A service on the other hand is an intangible economic good. Traditionally, a service cannot be held or touched and it benefits the individual who utilizes the service. So once again, is the glass a product or a service?

Let us assume the glass is a product and ask how we make money from it. Firstly, we need to be able to process the raw materials that constitute glass into a useable form, so we gather the capital to fund a batch house to handle the raw materials. Then we need to fund the hot-end side of the manufacturing process, which includes the installation of furnaces, annealing ovens, and forming machines. Our factory is now equipped to manufacture glass products, so we need to fund the cold-end side of the production process, which includes the necessary equipment to check and inspect the products, package them, and ship them. We use frozen and old knowledge to establish and set up the production process. The factory is likely to cost a fair amount, and we have not yet

160 Built to Thrive added the cost of the labor required to operate the factory; so, we hire a team of personnel to handle operations. We tell these individuals exactly what to do and how to do it, in order to produce our glass. And so the production process begins and we produce glasses.

Since the factory set up has cost us a healthy sum of money, and the labor costs add to our existing operating costs, a direct relationship is born between production costs and retail costs. Economic value is derived from the number of products we sell, whose price is then based on all expenses plus what we deem is a fair profit. To make more money we need to sell more products through our channels of distribution. Money flows up the chain as we pay our suppliers and they in turn pay theirs.

This was the old way of viewing economic activity. But look at the glass in light of a service-delivery platform. Assume the production process stays the same but the end result changes. Previously we sold the glass for what it is, a glass. Now, let us sell the same item for the service it offers. Put down your empty glass and reach for the two full ones; sell these instead. The consumer cannot buy our glass; instead, we are going to offer the right to use our glass at a price. How do we determine this price? Well it depends on what service it provides: if our consumer wants to use the glass to drink water, we will sell it for a small amount; but if the consumer wants to use it to drink whiskey, we will sell it for an amount that takes into account the new content. Effectively we are now selling the glass as a service not as a product; therefore, the relationship between the cost of production and the retail price is no longer direct. I can charge different prices at different points in time as consumption and behavior changes. I’m also in contact with the customer using the product as a service, hence my understanding increases faster than if I only sold it as a product and had to do research to determine how my product is used.

We are now pricing for experience, where the relationship between cost of production and retail price is abstract. This is the move to a service-delivery platform rather than the acquisition of products. Take Starbucks as an example: there is no realistic relationship between the cost of coffee beans and the price of a cup of coffee. So why do we pay so much for a cup of Starbucks

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coffee? It is because we are not paying for the coffee, we are paying for the Starbucks experience, the chance to enter a Starbucks store, watch your coffee ground and brewed before your eyes, choose from a selection of different flavors, and sit down to enjoy your coffee content in the knowledge that this is indeed a real cup of coffee made in a real coffee shop. Apparently what we drink has meaning; we buy Starbucks coffee to make a statement about what we drink, or to enjoy it in the Starbucks atmosphere, or to affirm our status. Whatever the reason for buying Starbucks coffee, most often it is not for the purpose of needing a cup of coffee, it is for the purpose of needing a Starbucks cup of coffee. We pay for experience.

As a business, what do you possess that does not provide a service and exists purely as a product? Even an ornament provides the service of aesthetic enjoyment. If everything acts to provide a service, shouldn’t we sell the access to services rather than cumbersome products? Let’s take a more analytical view of this situation.

There has always been a distinction between the services industry and the product industry, since one produces abstract commodities and the other produces physical goods. In a world where we strive to make sense of our experience, we also realize what it means to be a unique human being, not part of the automated processes of production, but part of an ecosystem filled with other unique human beings. With a constant desire to define ourselves and gain access to the world around us, the age of products is fast becoming an age of services and access.

Think about a high-end sports automobile. A person’s reason for buying a sports coupe will vary, but the effect the car has on people who do not own one are similar. Heads turn at the sound of a hundred thousand dollar Italian engine roaring down the road, evoking various emotions. Perceptions of the product (and its owner) may differ and range from disgust to jealously, depression to adoration; what we can ascertain, though, is that ownership of such a product evokes a reaction.

An automobile obviously provides a service—it’s a form of transportation—but in the case of a sports automobile it may serve to boost the owner’s reputation, fuel adrenalin, or signify a midlife

162 Built to Thrive crisis. But the presence of an alternative service provided by an automobile is not limited to sleek and expensive models. We buy cars for their functional use, but our choice is often influenced by the desire to use the shape, style, and feel of our automobile to represent a portion of our individuality. Think about the iconic image of a ’70s-inspired spiritually inclined individual driving a VW Beetle through the streets of a modern city.

People choose their cars for a variety of reasons: economic situations, environmental concern, fashion and brand loyalty. But whichever way we choose to look at it, the fundamental purpose of an automobile is to provide a service, not exist as a product. The services of a single automobile to the individual that drives it could be to lower spending on fuel, to get to work, to increase reputation through looking fashionable, mobility, as a place to sleep, or purely to provide aesthetic value as it sits polished in the center of your garage.

Ownership has always signified a certain status level, but as people begin to realize their need for services, the automobile as a product is becoming obsolete and leasing is becoming increasingly fashionable. We have been indoctrinated into a market-orientated way of thinking, yet that thinking has slowly evolved as the importance of cultural and social interchange has predominated. The age of products is shifting to become an age of services and access. Cultural-economy, socio-cultural economy, service economy, and network economy are all terms that have begun to displace traditional conceptions of capitalism, introducing a new paradigm wherein services and offerings hold precedence.

The Decline of Product I remember a time not so long ago, when I would spend a great deal of time in the local electronics chain store. The use of e-mail had effectively infiltrated my sphere of business operations, so the next step was to become acquainted with the software that would help me filter through the hordes of electronic mail. The monotonous drone of the salesman would echo through my head as my attention was directed to various brightly colored boxes lined up on the shelves. A large blue sign sat above these boxes with the word software boldly displayed. Considering that the software I was planning to buy did

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absolutely nothing for me, aside from providing the means to send and receive e-mails, the price should have made me walk straight out the door. But that was then, and the exact nature of the platform’s functionality was only a minor detail.

Shopping trips such as these would serve to enhance my life like never before. I gladly forked out large sums of money to buy e-mail software, operating systems for my e-mail software, and a hard drive for my operating systems, and finally computers capable of running all these features. It even took the salesperson all of five minutes to convince me to buy the latest in answering machines, which were capable of storing up to an hour of messages.

Skip to the present day. My e-mails are filtered through an online service that is available free of charge and provides me with over 7 GB of free storage space. It provides all the functionality of my expensive previous desktop-bound program, and it filters out spam far more efficiently. My documents are primarily stored in a similar way, through utilizing the free services of online storage facilities that allow me to access them anywhere in the world without the cumbersome task of dragging my hard drives around with me. Now I live in the cloud, the digital universe that is the ecosystem of my virtual existence.

Admittedly I still fork out a few pennies for the latest laptop, but with all my services running through online programs, the capabilities of my physical computer are no longer my primary concern. I have trouble even remembering what my answering machine looked like since all my answering services are provided free of charge and accessible through a simple phone call. Looking around my office there is a notable lack of clocks, calendars, diaries, phonebooks, pens, radios, and calculators. Each of these products has one thing in common, they all exist to provide a service, and all these services are now available on my laptop, or even on my phone. My diary is online, easily edited and synced to all the other members of my office, so that negotiating our timetables can be done in a matter of seconds. It serves as a calendar too. I have a digital phonebook, so adding and removing contacts is done with ease; and if I am using my mobile phone to access my address book, I just call. My clock accompanies me all the time, as does my music, calculator, and notebook, which all sit comfortably in my pocket in a single device.

164 Built to Thrive What have previously been viewed as products designed to

simplify our lives are now seen as cumbersome objects whose purpose is to provide a single service. My laptop is also a product, but it is something else as well. Instead of a highly capable product offering multiple services, it is also a service-delivery platform because access to the Internet provides me with the ability to utilize services that may never have existed in the designers’ minds when they conceived the laptop. Think back to the App Store, it is not a product; it is a platform to access a multitude of services, and it is a service-delivery platform.

Look at the services that Google provides. At a basic level, a large number of them are free including e-mail, a calendar, a diary, roadmaps, world imaging, and search functions. Google provides another platform that is designed specifically to offer the utilization of services without buying a product. Their customers are not product consumers but service users. Google’s economic model does not rely on the few individuals who choose to purchase premium versions of Google services, but relies on the everyday activity of users in general. They know that people want access to services, and since this activity is guaranteed merely through the nature of a society eager to find information and connect to the world, their economic model could develop differently.

The activity displayed by their users has resulted in Google using advertising to generate revenue. Through a service-based approach and systems of clever marketing, they place ads that are relevant to the activity of the individual instead of bombarding them with annoying pop-ups. The Google platform has changed the way we use services as well as revolutionized traditional concepts of generating wealth.

Leased cars are displacing bought cars; eBooks are displacing books; iPod’s are displacing CDs; e-mail is displacing letters; credit cards are displacing physical money, which in turn are being displaced by online transactions. Entire libraries are being displaced by collective, online, and free resources such as Wikipedia. Certain products still exist, such as clothes, furniture, and structures, but they all serve a purpose too. The question to ask is: which services are becoming subject to change as the relevant

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technology increases? A virtual home on the Internet will not suffice as your living quarters in the real world, yet increasingly our world is becoming digitized.

What we often don’t realize is that the concept of services is changing just as rapidly as the product is declining. As our lives become more connected and our access to the world is enhanced, the services we require are changing too, and organizations that provide these services are finding it more difficult to dictate what the desired services are.

What Would You Like? When Starbucks decided to expand their brand and infiltrate the American market, they began by setting up central hubs in different cities around the country. When they found that a geographic region did not have a high demand for coffee, they did not begin hunting for a new region, but bombarded that location instead. Provided an area had a demographic they felt they could work with, the desire for coffee was not their primary concern. Where there was a desire they would provide; where there wasn’t a desire, they would create one. Using their central hubs as points of coordination, the company began to open hundreds of stores around the country, creating a market where there previously was none (or at least not to the scale there is now). Starbucks successfully implemented several strategies to create a mass market for their product, and one way was to provide a service.

Unlike other major chain stores, Starbucks bought real estate with existing structures in place and modified those buildings to suit their needs. Immediately their stores took on the characteristics of the city. Having employed a team of architects and designers to reconstruct each shop according to the specific needs and desires of its clients, Starbucks set up shops that catered to a target market based on their specific location. Corner tables and private booths were set up for clients who might wish to use the coffee shop as an informal meeting place, and couches and furniture adorned the shops to create an atmosphere of comfort rather than the fast-paced environments in most other chain stores.

Another aspect of their client offering was their vast range of available coffees and coffee styles, which was inspired by their

166 Built to Thrive foreign counterparts. Through vigorous and in-depth training, Starbucks employees were taught the intricacies of professional coffee roasting and grinding, and soon the ritual of ordering coffee became just that. Customers became addicted to ordering their personalized coffee beverage every day.

As we have already argued, almost everything we buy is a service, whether it is traditionally seen as a product or not. A cup of coffee undoubtedly provides the service of quenching thirst, keeping you awake, or just delivering a delicious taste. Where Starbucks differed from their competitors in the market was the entire process they brought their clients into. A burger also exists as a service, but when we buy a burger at a fast food chain, we treat the process much the same as buying a product. The commodity is exchanged as quickly as possible. But, customers experience a range of services when they walk into Starbucks

The types of services offered in the Starbucks experience are as widely spread as those offered by an automobile. The basic service of the organization is to provide coffee, but they also provide a space to relax, to meet, and to socialize with friends. For the coffee connoisseur, the process of buying coffee affords the opportunity to watch the beans roasted, ground, and turned into a steaming latte. By integrating themselves into the local atmosphere, each coffee shop gains popularity through word of mouth rather than advertising. Their dominant market share also suggests another valued service is the status that comes with drinking a cup of Starbucks coffee.

As the Starbucks case suggests, the key to providing services pertinent to the customer, and turning that customer into a user, is to remain flexible and aware of the surroundings in which you operate. The landscape isn’t necessarily physical; it can be abstract too. By recognizing a product as performing a service, you can start to build your company with the aim of providing your customer with a platform to utilize your services. It all begins with determining what services you provide.

The Evolving Business Model In what has evolved from economic activity based on sustenance to the current understanding of the term in a capitalist setting, the

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business model may be seen as the function for making money. To operate successfully, a business model must contain a holistic set of descriptions that serve to enhance the economic growth of an entity. To better understand the evolving business models of our landscape, we will look at two processes that exist as part of the business model’s implementation.

The business model encompasses a range of understandings and capabilities. To drive growth, a business must focus both externally and internally, looking at the industry as a whole and the specific targeted markets. Understanding the capabilities of change and how that change is executed in the context of new growth are two fundamental aspects that make up a successful business model.

The way we handle change, and the execution of that change, are two aspects of business activity that I have determined as fundamental drivers of growth, but they still exist within a sphere of holistic activity. The drivers are seen as the activity that results in our capability to reach the sweet-spot of innovative execution. The first graph illustrates the effect on industry and the second graph is representational of our effect on markets.

Figure: 7.1. Handling Change in the Face of Discontinuity

168 Built to Thrive The above figure, directly related to the effect change has on

industry, looks at the drivers of pace and impact. The relationship of pace and impact on our handling of change and the resultant effect on the industry requires an understanding of each of the concepts in the context of business operations. Pace, describing the rate of activity or movement, is the speed at which an organization accepts and conceptualizes change. An organization continually devoting its resources to discovering changes in the industry, landscape, and ecosystem around it, and not ignoring these changes, is fast-paced. Impact describes the effect an action has. In the business sense, and in this context, impact is the effect the recognition of change and implementation of subsequent actions has on the industry.

Along the x-axis of the diagram, see impact as the result of either individual focus (the individual, company, or industry) or systemic focus (relating to ecosystem understanding). A focus on impact affecting the individual is a failure to acknowledge your place in a larger ecosystem. Individual focus negates an effective ability to envisage yourself as part of something bigger, where you are affected by change elsewhere, and others are affected by you. Viewing impact systemically is to realize your position in a landscape of interconnected players. This realization allows you to see how a change in a different industry may affect your industry, or how your development may affect others. To realize this is to acknowledge your dependence on other actors in the ecosystem, and the way you develop may evolve as a result.

Industries are affected by change as a result of pace and impact. If our actions encompass a mindset unwilling to change, the pace of change will occur very slowly, and if that same mindset focuses primarily on the individual organization’s sphere of activity in isolation, change (or lack thereof) will create a cognitive trap in which the organization operates. Operating in spheres of individual focus may fool an organization into thinking it does not need to change, and since the pace at which the change that does happen is so slow, the recognition of the need to change is even harder to come by.

The cognitive trap, an aspect of the situation trap, hampers growth. If impact is focused in a more systemic manner, with the organization operating within a known paradigm of interconnected activity, gradual change will manifest in the development of

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conservative businesses, systemically affecting other businesses in a like manner and creating a mature industry. If many industries recognize their interdependency, yet fail to achieve a fast pace of change, they will build upon the existing knowledge and practices of each other, gradually developing the industry.

The upper end of the pace scale sees a slightly different development due to change. With fast-paced change, an individually focused business will drive change guided by self-interest. By recognizing a need for change, yet failing to see its impact in a systemic setting, an organization develops out of self-interest secured with patents and secrecy. A mindset of this nature may create short-term success, but in the long run, as we have seen with the mutant behavior of organizations, others will either catch on or change the industry.

If our mindsets are both open to fast-paced change and recognition of this change impacting the landscape systemically, the result will be growth that creates a discontinuity in the industry or even the formation of new industries. Recognition of your capacity to change, in terms of both pace and impact, will see the formation of a business model with the ability to drive successful growth according to your capabilities and wants. This brings us to the next set of drivers affecting the development of the business model.

Figure: 7.2. Finding the Execution Sweet-Spot

170 Built to Thrive Representing effects on the market, this graph may be seen as internally oriented since it characterizes the direct focus of an organization. We have already seen how change needs to be looked at systemically in the macrocosm, but in the microcosm of individual activity execution will still be internal. Execution of change depends on two key actions inspired by the market-oriented work of Sumatra Ghoshal: energy and focus.

Energy represents activity and the ability of an action to produce change or transformation in another system. Actions encompassing high energy levels are those that have a higher effect on the systems they are trying to change. The more energetic an action is the higher its impact will be. Focus is the area where your actions are concentrated. Wide focus will include many areas where you intend your actions to have effect, while narrow focus is more specific and closed to other areas. To view anything systemically is to have a wide focus, while individual thinking is brought about through narrow focus. Ghoshal’s view of energy and focus in an increasingly global world, if unpacked further, may have the following impact on organizations innovating on the micro-level.

Execution of change, driven by low energy levels and with narrow market focus, will see the gradual death of the organization. Low levels of initiative, underdeveloped goals, and a lack of control within the organization generally characterize this combination.

Tired energy levels of execution with a wide focus will see the organization stretch itself beyond its capabilities, and since execution is not administered properly, a rapid death of the organization will result. With too many areas of concentration, inadequate commitment is given to any one particular area of focus and projects burn out quickly. When the energy levels driving execution are high, commitment and ability to drive growth also increases.

With execution narrowly focused, high energy levels will see the domination of a market or even the development of a new market. In some cases, the narrow focus of execution may result in overcommitment or drive with no lateral thinking. What is most important to note is that execution of this type remains focused on narrow spheres of market activity.

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In the context of driving new innovation and successful business growth, high levels of energy must coexist with wide focus in the same sphere of activity. Unlike tired energy levels, hyperactivity sees a range of different areas of focus adequately supplemented with implementation of new ideas. Change can be executed effectively over a spectrum of activity. This type of activity will see an imminent fragmentation of the market, yet provided fast-paced systemic change is executed with high levels of energy, the fragmentation will yield positive growth as the organization effectively keeps up with the movement of industries and market shifts. This sees the internal focus of an organization merge with its external focus, creating a holistic sphere of integrated activity.

Assess your participation at two levels: handling change and execution. Can you keep up with the pace of change, and can you find the execution sweet-spot that is needed to compete in a particular setting? Pace of change is a relative concept. Your conception of pace is based on your assessment of the changes around you and how you understand the adoption of these changes. With a systemic view of change, your position as a leader or follower may be determined. The business model of the economic entity that is built to thrive must encompass a holistic understanding of the effect actions have on the surrounding landscape, the capacity of the entity to execute change, the effect implementation of change will have on the market, and a willingness to expend energy over a wide area of focus.

In the context of the service-delivery platform, we will see that business models become embedded in the emergent platform as an organization moves away from product-based operation toward operation-built on service-delivery platforms. Through effective recognition of change and the ability to find the sweet spot in the execution of change, the business model adapts to emergent means of operating.

From Breakthrough to Platform The platforms by which new innovations are driven generally do not pop into existence overnight; they experience a long lead up before widespread adoption drives their success. Christensen’s models of

172 Built to Thrive disruption give some clarity on this phenomenon, but this is another take. The point when a new technology is discovered, a new idea is developed, or an invention comes to light, is called the point of breakthrough. The breakthrough point could provide an entity with the opportunity to become a prime mover in an industry, utilizing the new technology or invention to drive their success effectively. Always though, we find there is a long period of time between the breakthrough point and its widespread adoption.

The breakthrough of a new technology or means of operating is generally followed by a period of lag-time. We will return to the business model later, and instead turn our attention to the processes behind the adoption of a breakthrough invention to create an emergent platform from which to innovate and drive growth. The platform in this context is not necessarily a service delivery platform, but the platform by which any industry (product or services) expands its growth.

The emergent platform resulting from a breakthrough point may not exist in a single industry either, but exist across a spectrum of industries where it has commercial benefit. Take digital imaging as an example: it is a platform that has been enlarged by the mobile phone, camera, computer, and advertising industries, to name a few. The platform it creates is consistent in what it does, but it does not belong to a single industry. To successfully innovate and drive an organization to economic success, you must recognize the process that an invention undergoes from its inception at the breakthrough point to its commercial adoption and success.

Figure: 7.3. Industry Innovation and Adoption of New Platforms

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In the diagram above, there are several key terms. Each one is dependent on the others in the system for its function, so we will follow the path from breakthrough to platform while simultaneously understanding the various terms.

The process is instigated at the breakthrough point, with the discovery of a new technology or invention. The breakthrough technology is not immediately adopted and instead it exists for a period of undefined time before its widespread adoption. Let us take the breakthrough discovery of MP3 as a basic example to supplement our understanding. Designed to reduce the amount of data needed to store an audio recording, MPEG-1 or MPEG-2 Audio Layer 3 (MP3) was designed in the early ’90s by the Moving Picture Experts Group. However, the pervasiveness of MP3 technology in our everyday lives today was certainly not as apparent two decades ago. Instead, the breakthrough technology experienced a long period of lag time before its social adoption.

But at the breakthrough point, and as the technology awaits its adoption, two significant processes occur concurrently. The first is the creation of the platform in its first generation form and based on the breakthrough technology, and the second is the gradual establishment of derivatives based on the platform. The breakthrough technology sees the creation of a new platform. At the early stages, the platform is often unrecognized or underestimated in value. In the case of MP3, the platform was the digital form in which audio could be played back, and for the first decade or so after the breakthrough point of MP3 the platform was available but incrementally utilized. It became a dominant design for industries whose focus was audio distribution.

The derivatives form the entities that use the platform, yet may or may not experience overwhelming and widespread success in the early stages of the platform’s existence. If the derivatives experience major growth and successfully penetrate the market, the lag time may be short. If their success is not so apparent, the lag time may persist even with the presence of these derivatives. Sometimes there are no derivatives to try to use the new technology, and the lag time exists until such derivatives spring up and attempt to drive growth by utilizing the new platform. With the MP3 platform, there were no notable derivatives that attempted to

174 Built to Thrive expand it until approximately eight years after the platform’s establishment. In 1998, Winamp became the first successful derivative to utilize the MP3 platform and provide a means by which to listen to MP3 audio through your computer. The computer became the first support environment for the technology.

Support environments are different platforms or technologies that provide support for the breakthrough technology. Support environments are generally the result of an increasing interest in the technology, and if this is not the case (if the support environments are coincidental in their ability to support the platform) they may spark up increased interest in the platform.

The breakthrough technology becomes more accessible through support environments, giving more incentive for derivatives to establish themselves. The computer became one of the first support environments for the MP3, and since the platform was available through different means, accessibility increased interest in the technology.

Within the context of the computer support environment, portable MP3 players began to appear, which could be synced with personal computers, providing easy access to the MP3 platform, which could then be listened to through headphones. As derivatives make more of an impact, and support systems encourage interest in the new product, the derivative that recognizes the potential of the new platform will become the prime mover, using the new platform to drive success and instigating its widespread social adoption.

MP3 players have become widespread socially adopted phenomena due to Apple’s insight that went further than any previous derivative of the platform. At the point of social adoption, the breakthrough technology is no longer seen as breakthrough, but considered commonplace technology since it is found throughout society. The other thing that may happen at the point of social adoption is the transformation from first generation to second generation of the platform. While the underlying platform persists, its technology or systems of operation may be upgraded and stabilized, which encourages effective use of the platform even further. Let’s take a quick look at the World Wide Web as an example.

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The Internet originated in the early 1960s when J. C. R. Licklider began publishing papers describing his vision of computers being able to connect globally. In the late 1960s UNIX was developed, which was an operating system set to heavily influence the way we conceptualize open software such as Linux today. E-mail was tentatively introduced in the early ’70s and was soon followed by the introduction of TCP/IP. This set of communications protocols further developed the groundwork for the Internet as we have come to know it, and in 1984, domain name space and domain name servers began providing addresses for online sites.

The Internet continued to develop with over thirty thousand online hosts connected in the late ’80s, and in 1989 America Online (AOL) was established. This was also the year that saw the proposal of the World Wide Web (WWW), and two years later the first web page was created. Initially the web provided a platform for hosting websites and accessing information in this manner; this was called Web 1.0.

Through a cumulative series of developments, the capabilities of the web changed, and interaction on the web began to encompass collaborative behavior and interactive dialogues between users. As the web increasingly facilitated interactive systems of behavior, it became known as Web 2.0 after Tim O’Reilly coined the term (before which the concept of Web 1.0 did not exist either). The platform that we know as the World Wide Web stabilized and in its second-generation phase (2.0) became widely adopted. The shift from first generation phase to second generation phase may not encompass physical changes, or even a single tangible change in the way a platform operates, it is rather a concept of a platform moving from its unstable and initial existence, into a sphere of higher capability and widespread utility.

The progression from breakthrough point to socially adopted platform is not only technology specific, but can encompass a range of new ideas with the potential to change the way in which commercial activity is driven. An awareness of the processes behind the progression may be the difference between your position as a prime mover or fast follower. A derivative of a new platform may come across as a prime mover, but as in the case of

176 Built to Thrive Winamp, the true potential of what the MP3 platform could achieve was only fully conceptualized by Apple, who promptly took the lead. Growth phases are slow during breakthrough testing, but once the platform is adopted by large organizations, growth begins to speed up rapidly.

This provides a technical overview of the basic process from breakthrough to platform, but in understanding the process in its behavioral setting we will look at the Internet in further detail. What we will see is that a breakthrough technology undergoes processes of change before it becomes stable and widely adopted. The World Wide Web will be used to illustrate the process, as it developed, stabilized, and became widely adopted as a result of the breakthrough technology of the Internet.

Here is another story. Wendy worked in a company. The company owned several hundred bookstores around the country, and she was the financial director for her region. Having studied for several years and been taught a set of skills that relied on an unchanging economic model that would influence her industry indefinitely, she felt secure in her position and was well-off in her own right. Then she caught wind of a new company rumored to be operating strictly from the Internet and selling books online. Because the Internet was currently only useful for sending e-mail, she paid no heed to the rumor, until her financial reports began to drop. The online phenomenon was gaining momentum and this began to concern her. So she left her company.

Having acquired a large number of skills in both finances and book sales, Wendy contacted the online bookstore and was soon hired as their finance officer. She was pleased with herself, as other industries were following suit and she had been lucky to jump on board the hype as quickly as she had. As online industries flourished so did the company’s sales, and soon she projected that at their current rate their growth would exceed expectations due to the rapidly increasing market for online services. The company, having been advised of their financial growth by Wendy, began investing heavily in infrastructure so as to increase their capabilities and online capacity for customer utilization.

The future looked good, and soon industries began appearing all over the web as people began to leave their jobs and flock to

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online businesses for employment. With projections of future market penetration suggesting imminent growth becoming evident to most online companies, everyone began throwing capital at the development of infrastructure to support the expected mass utilization of the web by future customers. Then one day Wendy heard of a prominent company pulling out of its online business and dissolving because their investors had dropped out.

The company in question, analyzing their market more realistically, realized their expected market penetration was way above the mark. Current trends suggested that even though the existence of online industries was sparking interest in the marketplace, this interest was not going to create the growth they had expected for a while. The public was just not ready to dive headfirst into the new online industry fad. The investors, eyes only on short-term success, pulled out and the company went under. Wendy thought nothing of it and continued her blissful existence.

But apparently the future projections of most online companies had all missed the mark; the market would not reach its expected position in online activity as was previously forecasted. Panic struck as investors, eager to salvage any capital they had left, began to pull out of online industries. Company after company crashed, and the web experienced a severe economic drop. Wendy’s company was not exempt, and after five years, the company went bankrupt. Wendy went back to her old company, who were glad to accept her since suddenly their sales were beginning to rise again. A year later Wendy bought her first book from Amazon.com, it was a self-help publication about how to find a job after thirty-five.

The growth from breakthrough technology to stable platform is often characterized by an initial peak in income across the industries involved, followed by an economic crash before its second rise sees massive success in the organizations that drive new growth by means of the stabilized platform in its second growth phase.

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Figure: 7.4. Waves of Change in an Industry

In these graphs we will look at the adoption of a platform (as seen in terms of economic growth) against the development of the industry over time. The economic growth and adoption of a new platform is based on the breakthrough technology.

Figure: 7.5. Emergence of Platforms and Derivatives

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The breakthrough point occurs at the point in the graph where time is zero. It can only occur at this point since the platform develops out of the breakthrough technology, which instigates the development of a new industry based on that platform, which begins the timeline. With slow initial industry development, the initial rise in adoption of the new platform is the result of venture capital funding the initial development of an industry based on that platform. Adoption of the platform begins to rise as more industries transform themselves and adapt to the new platform, creating an expansion in the new industry. The new platform supports the creation of a new industry, and a new industry can only flourish if organizations operate within it, and since these entities have to come from somewhere, what we see is the rise of an industry through participation of organizations previously existing in a variety of different industries.

We saw this in the case of Wendy’s bookstore. Realizing the potential offered by the new industry, many other industries began altering their practices to benefit from the platform offered by the new breakthrough technology, and thus drove adoption of the new platform into a period of rapid growth. The organizations that flock to the new industry may be seen as derivatives of the new platform. The development of the new industry begins its lifeline.

Figure: 7.6. Pressure Points as Industry Develops over Time

180 Built to Thrive The period where the platform experiences rapid growth is a

hype curve. The excitement of the new industry, and the possibilities created by the new platform, attract an increasing number of organizations, which fuels the growth curve. This interest is not solely experienced by participating organizations, but also by the market they intend to focus on. The initial peak in market interest, driven by the excitement of the new technology, further excites the participating organizations. As an increasing number of derivative companies enter the industry, they project the future of their market, and since they are operating on a hype curve their projections of their future markets are unrealistically high.

Wendy’s company for example, under the impression that their online store would overtake the business of all traditional bookstores, projected their future market as consisting of the entire market previously owned by traditional book stores. With such high predictions of future markets dominating the spreadsheets of every organization operating from the new platform, two distinct phenomena occur. Investors are met by promises of revenue income based on these projected figures of the market, and current spending takes place with these markets in mind. We will put the relationship between entity and investor to the side for now and concentrate first on the spending behavior displayed by these organizations.

Envision the industry position at a point nearing the initial peak in platform adoption; this point experiences the highest concentration of incoming organizations, including investors and customers, fuelling the growth of the industry. As these industries realize their need to facilitate markets based on their projections of the future (keeping in mind that these projections rely solely on the current behavior displayed by the market), they begin strategically spending their capital. The platform by which the industry operates in its infant stage is unstable. This platform will contain many platforms over time. In the case of the Internet, the technology exists to enhance the capabilities of the platform, but the infrastructure of the Internet itself is not sufficient to carry the activity that future projections will rely on for economic growth. Therefore, a large portion of capital expenditure is dedicated toward the development of infrastructure and upgrading the capabilities of the platform.

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The first organizations utilizing the Internet as their operating platform channeled capital into routers, cables, and storage hubs. Through such activity, the platform begins to evolve and stabilize, but expenditure on the advancement of technology and infrastructure is unequally balanced, and less attention is paid to marketing strategies for example. At this point in the growth cycle, a great reliance is placed on the disruption caused by the industry to excite the market. But as the excitement cools and the organizations begin to realize that their projections of the future market may have been a tad optimistic, there is a falter in economic growth, which is met by organizations in two ways: they either go bankrupt or undergo a massive asset correction to survive.

Without jumping too far ahead, let us focus on the imminent economic crash of a new industry driven by the emerging platform. While capital is being pumped into platform infrastructure and development, organizations often fail to realize that the market, although displaying promising interest at the onset of the new industry, are still stuck in their old ways.

Initial projections suggest the market will develop promisingly, and indeed if the platform is revolutionary and useful enough it will, but often it will take slightly longer than expected. Once news of the delay in projected revenue intake reaches investors’ ears, uncertainty begins to emerge. Suddenly an investor, unwilling to continue funding an entity whose projections have become slightly less enticing, pulls out of the industry. The entity supported by the investor files for bankruptcy, and panic enters the industry. Investors become more concerned about these false projections, and as other investors begin pulling out and companies begin to go under, a mass exit from the industry occurs, and the adoption of the platform plummets.

The Internet experienced such a crash in what was known as the “dot-com bubble.” With the economic growth of the Internet soaring in the late ’90s, market shares peaked in March 2000 (with the NASDAQ closing at 5048.62) and then began to fall steadily. The subsequent stock market crash of 2000–2002 saw losses of five trillion dollars in the market value of companies. What we have witnessed since is the second period of growth experienced by the Internet.

182 Built to Thrive The organizations that pull out either disappear or integrate

back into their previous industries and focus on their old existing markets, which may have been disrupted by the new industry but still remain. The decline in the new industry, as caused by the economic crash, will see a subsequent strengthening of the old market feeding the previous industries, and things will go back to how they were before the disruption of the breakthrough technology. Until a fresh new company comes along and decides to try its luck operating from the platform in the new industry, and they succeed spectacularly.

After years of developing the industry, the older organizations, most of who have pulled out of the industry, are too tired to attempt to enter the industry again. But their years developing the new industry have yielded an opportunity for new companies. The platform created by the breakthrough technology is no longer unstable and instead, after receiving large amounts of infrastructure development from previous organizations, has become a fully functional and stable platform from which to operate. A new company will enter the industry and utilize the platform without having to channel major amounts of capital into infrastructure development, since this has already been done, and they can instead market their product effectively.

This sees the industry exist in its second-generation form, where the growth curve, after experiencing a severe dip, begins to rise rapidly again.

The first generation focused on infrastructure and platform-related inventions and the dominant business model was based on product approaches and generic access methods. With the infrastructure developed sufficiently, the ways the platform is utilized can evolve allowing alternative business models to emerge where money is made outside of the classic products/services model. An organization that successfully manages to undergo an asset correction may survive the evolution of the way the platform is used, and the economic crash that is usually associated with such development may be avoided.

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Figure: 7.7. Emerging Successful Business Models Are Based on New Capabilities

Let us look at two different companies that will illustrate the shift from the World Wide Web in its first generation phase (Web 1.0) to its current second-generation phase (Web 2.0). The platform of the web remains the same, but the generation in which it exists is dependent on how it is utilized. After organizations began filing bankruptcy as the web experienced its major economic dip, Amazon managed to undergo a successful asset correction and continued to drive their growth. They realized that the industry they were in was not merely an online extension of an industry that existed prior to the Internet; instead, their dominant idea had to change. They realized that their offering to their market was not a product, but a service that was revolutionary in terms of the new platform from which they could operate. They began to provide a service that could map out customers’ needs and wants, and make suggestions based on these wants. Selling books as a product came secondary to their service of determining what a customer desired.

Google, on the other hand, entered the industry properly after the crash and, with the entire infrastructure at their fingertips, they were afforded the luxury of determining how they would utilize this platform effectively in providing a service that the market

184 Built to Thrive would need and appreciate. They became a pioneer of Web 2.0 and rode the wave of success, which began with the organizations that first attempted to develop the industry while the platform was still unstable.

As the platforms become stable, entities evolve and structure themselves to fit in with the opportunities provided by the new platform. The capacities of the web as a platform were not understood properly before it became stable. Web 2.0, having developed structures to effectively link the activities of multiple individuals or entities using the platform, had become something entirely new in its stable form. Whereas before it was used as a supplement for product-based commercial activity, the new generation of organizations driving the industry recognized the platform as something else. The new concept of the web platform saw it as providing the capacity to grow service-based activity in ways never before possible.

With the dominant idea of service-based industry in mind, companies such as Google, Facebook, Amazon, and eBay all began implementing their dominant designs through business models that were entirely new and implemented new technology to drive their growth.

The breakthrough technology, instigating the new platform, sparks interest in other industries. The initial funding provided to the new industries helps the platform grow and evolve through the development of infrastructure and capabilities, but when the industry falters due to a unrealistic perception of growth based on the initial excitement and hype, it leaves a gap. With infrastructure already developed, new companies can enter the industry and fill the gap. They proceed to drive growth of the industry as the platform has now been stabilized and organizations can therefore conceptualize the possibilities it may provide more effectively. In its second period of growth, the perceptions of what a platform may be capable of providing differ radically from perceptions of that same platform in its developmental stage. Google saw the web as able to provide a service; Apple saw MP3 as having the potential to revolutionize personal media and individuality rather than merely store audio.

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Adoption of the dominant design across many large investor-based commercial businesses fuels the deployment of the invention encapsulated in the platform. Think about personal media players as an example: as soon as the MP3 platform became the industry standard for music, invention based on the MP3 platform (such as media players) was the aim of the dominant designs adopted, the dominant design being the restructuring of operations to create media players.

The business model, restructured in correlation to the enabling technology (emergent platform), will see innovation in a company manifest differently according to the level of business model restructuring as well as the level by which new technology in enabled. Consider the following graph.

Figure: 7.8. The Intersection of Platform Technologies and the Business Model

In order to drive new innovation and entity growth, the adoption of a new platform or enabling technology must correspond with the implementation of new business models to facilitate the usage of that platform. The use of technology, seen as

186 Built to Thrive either old or new, presents the technological platforms by which an organization operates, using these platforms to drive growth. Canon moved away from old technology and began using digital technology, and revolutionized the camera industry. Digital became the new technological platform enabling them to drive new growth.

The other aspect of the graph depicts the business model in relation to the enabling technology.

If an entity keeps their existing business model and does not attempt to implement new technology, they will undergo incremental restructuring and improvement as a result. Without tangible changes in either the business model (directing operations) or the platforms by which they operate, the restructuring or development an organization undergoes is subject to the restrictions imposed by old systems of operation.

As new platforms are used, and new technology is introduced into the spheres of operation, the business will undergo necessary architectural innovation. This will occur in the restructuring of operations as they are influenced by the new technology. With a restructuring of the business model to supplement technological changes, the innovation will exist in the sphere of physical operation in isolation.

In order to drive growth, operations must be compelled by the philosophical and embedded needs of the entity. These form the underpinning for the emergent business model, developed to supplement the dominant idea and provide the foundation for the dominant design. As I have already mentioned, the manner in which a business model emerges and drives an entity’s growth is the primary concern of the following chapter, so at this point we will look at the business model as a facet of change that is integral in supplementing the use of new technology (or new platforms).

Without concerning ourselves as to the exact intricacies of what a business model consists of, we can view the concept as a number of actions by which an organization directs its behavior to achieve a specific outcome. Without changing these actions to accord with the use of new technology, we see that an organization will either experience incremental restructuring and growth (with old technology) or innovative restructuring in a non-holistic

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manner (with new technology). If the business model is restructured without the use of new technology, the organization undergoes disruptive innovation, often resulting in some new markets. Without the utilization of new technology, a new business model does not enable an organization to effectively reconfigure operations. The utilization of new technology in concurrence with the implementation of a new business model will see radical innovation take place and new business concepts will emerge. Radical innovation, by using new technology and platforms, will see successful economic growth.

Universal Service Delivery Platform We are learning that access to information should be free or very cheap. Our desire to make meaning of our lives drives a desire to access more and more information, and as the Internet increasingly connects us, our desire to gain access grows stronger. In an age of interconnectivity and interdependency, we demand that secrets be made public and our access to knowledge is free. But what is information? Is information knowledge that is codified in the written word, or does information in the digital age consist of any type of accessible data that provides meaning? Is music information? And if so, should it be free?

As we move into a completely digitally integrated world, our view of information, and its worth in our lives, is shifting. There are some things we expect to be free, such as plans and activities undertaken by entities that may affect our lives. For example, we would not expect to pay for a change in lay-out adopted by our current webmail provider. Other things we accept as having price tag, such as music and many services like GPS maps on our mobile phones, but the boundaries between what society demands for free and what they accept as a commercial commodity keep shifting. How do we keep track of where these boundaries lie, and more importantly, how will business models adapt to this new thinking?

Often companies invent business models that other industries adopt and use outside the initial scope of design. For example, many companies adapted the business models of existing web-based organizations to fit in with their own industries. This in turn pushes ideas into new directions, resulting in alternative business approaches.

188 Built to Thrive The more directions the industry takes, the higher its social

adoption in all spheres of the ecosystem. This “socio spill” accelerates as the interconnected world leaves no idea unturned and implementation untested. It is the emergence of hypercompetitive industries that will be reformed radically as the interconnectivity grows.

Moving into the third megawave, multi-technology business-integrated platforms provide capabilities for new business models in service delivery more than anything else. The Internet provides the most obvious example; it’s seen as a platform to sell products more efficiently and as a platform to provide services. Economic growth evolves accordingly. As platforms emerge and become stable, entities need to recognize the more dynamic capabilities of the platform since it exists in a highly connected ecosystem, encompassing individuals who demand more from their daily experience of life. As we begin to recognize the emergence of new platforms, we also need to begin to conceptualize what these platforms may be able to provide in terms of service-based activity; slowly we are moving into an era of service delivery platforms.