In the Connected Age users have real power. They cannot be viewed as a gregarious heard of consumers waiting to be milked for what they have. Instead, value must be co-created and sharedRemember: customers are a company’s most valuable asset.

The practice of UX design inherently seeks to strengthen the value provided to users. With methods such as ethnography, mental models, personas and scenarios, UX strives to view the world from the outside in, rather than the inside out. In doing so, companies can better provide solutions that solve real-world problems and that fit into users’ lives.

But the contemporary practice of UX design doesn’t go far enough. The field implicitly examines and models user behavior as it currently exists. What’s needed is a better way to envision users as they may act.

Enter “The Ask,” a single question outlined by MIT Professor Michael Schrage in his book Who Do You Want Your Customers To Become?Successful innovations, Schrage contends, don’t merely ask users to do something different; they ask them to become someone different.

Here’s an example: George Eastman didn’t just invent inexpensive, automatic camera; he created photographers. His innovation allowed everyday people to do something only trained professionals could previously do with expensive equipment. The result: you, too, can be a photographer. That’s transformational.

kodak girl
With Eastman’s camera (circa 1888) anyone could be a photographer

Another example: Google’s innovation isn’t just a brilliant search algorithm; instead, Google let’s everyone become expert researchers and fact checkers. We’re now all reference librarians with the power of all known human knowledge at our finger tips. Powerful.

Now consider a would-be innovation that failed, such as the Segway. What does the Segway ask us to become? A mad helmeted scientist racing down the sidewalk? Or maybe an authority figure (e.g., policewoman) extending a few feet above other pedestrians? Or maybe just an odd ball on a weird scooter? During its commercial launch, the inventors of the Segway promised to revolutionize transportation and the way people get around cities. But instead it asked us to become somebody we didn’t want to become, and it failed.

nerd magnet<br /> small
The Segway asks us to become someone we don’t want to.

Role of UX

User experience design plays a role in all of the above examples. For instance, Kodak claimed in its early ads: “You push the button, we’ll do the rest.” Their strategy clearly relied on an exceptional user experience, and they delivered on that promise. This resulted in the mass adoption of Eastman’s camera.

Peter Merholz et al. discuss this at length in their book UX strategy Subject To Change. They write:

“[Eastman] recognized that his roll film could lead to a revolution if he focused on the experience he wanted to deliver, and experience captured in his advertising slogan, “You press the button, we do the rest.”

We find a similar pattern with Google: a drop-dead simple user experience with high tolerance for “user error” (e.g., spell correction) makes the service efficient, effective and enjoyable to use. Schrage also highlights the importance of user experience design in his book. He writes:

“Innovations failing to provide good user experiences find difficulty succeeding, no matter what their price…The better the customer experience, the better the odds for innovation success.”

Practically speaking, The Ask doesn’t supersede or replace current tools and methods, rather extends them. It offers a unique perspective on our practices and how they fit into the bigger picture of things. And it can help better shape existing techniques.

Take personas. Often the number and type of personas created for a solution line are determined by traditional (even outdated) segmentation techniques of existing markets. By using The Ask, we can now consider creating personas around the transformational outcomes we envision. Who will our customers become in the future? We can then align our personas to the answers of that question and describe them in terms that address their transformation.

Keep in mind that it is the innovation that transforms the customer. So the point here is to align tools of design and innovation to point towards the future. Right now, personas typically reflect an as-is view of customer behavior. But to be relevant in rallying teams around truly transformational innovations — such as in design sessions and in workshops — they should rather describe an answer
to The Ask.

.the ask

For more on The Ask, I recommend Michael Schrage’s book. It’s clear and compact, and it’s wholly relevant to core UX work. Written by a leading business thinker, this book highlights the increasing overlap between business and design. The Ask is a simple, reflective query can alter the way we see our users and our
offerings. It increases our ability to create more value through user experience design.

I encourage you to continually ask yourself and the clients you serve, who do we want our customers to become?

2012 was a relatively slow year for me in terms of quantity of new blog posts. But I was able to capture and share some of my best thoughts this year.

Here are quotes that summarize each of the top 5 posts by number of views in 2012, in reverse order of popularity:

#5 – Incremental Innovation Is Underrated

Some business stakeholders are swinging for the fences in their innovation efforts:they want the big wins. And rightfully so: reaching for the stars keeps the company pushing forward, beyond what it can currently deliver. This inspires and motivates employees and management alike. But sometimes this quest for the next biggest and best thing overshadows everything else.

Companies need incremental innovation, breakthroughs and disruptions alike. To do this, there must be a comprehensive innovation program in place to channel attention and effort in the right direction.

The point is that incremental ideas shouldn’t be neglected: they are profitable and can fund your big idea projects. And they also provide a stepping stone toward game changers via the adjacent possible.

#4 – Principles of Alignment Diagrams

Specific techniques for research and diagramming are important, of course, but it’s really the principles of alignment diagrams that are essential. Once you grasp these, you’ll find there range of potential ways to go about diagraming, including mental models, customer journey maps, service blueprints and more. You may even introduce variations on these standard forms or come up with your own.

#3 – Clarifying Innovation: Four Zones of Innovation

I’m proposing a 2-dimensional picture of innovation:

  • The y-axis indicates the degree of technological progress an innovation brings with it. Moving from low to high along this line indicates improving existing capabilities, services and products.
  • The x-axis shows the impact an innovation has on the market, also from low to high. This usually entails new business models or reaching underserved target groups.

This gives rise to four distinct zones of innovation:

  • Incremental innovations involve modest changes to existing products and services. These are enhancements that keep a business competitive, such as new product features and service improvements.
  • Breakthrough innovation refers to large technological advances that propel an existing product or service ahead of competitors. This is often the result of research and development labs (R&D), who are striving for the next patentable formula, device and technology.
  • Disruptive innovation is a term coined by Clayton Christensen. In his best-selling book The Innovator’s Dilemma he shows that disruptive innovations “result is worse product performance, at least in the near-term. [They] bring to a market a very different value proposition than had been available previously” (p. xviii).
  • Game-changing innovation transform markets and even society. These innovations have a radical impact on how humans act, think and feel in some way.

#2 – Cross Channel Design with Alignment Diagrams

I’m advocating the incorporation of channel-based distinctions and information, such as a Touchpoint Matrix, directly in alignment diagrams. By doing this, you get not only channel-specific information, but you can also see how this aligns with both customer goals and business goals. In this light, alignment diagrams are a suitable tool for cross channel mapping and design.

#1 – The Project Canvas

Defining a project in its earliest stages is like hitting a golf ball: if the face of your club is slightly tilted , you’ll end up slicing the ball as it travels down the green. Likewise, small miscalculations at the beginning of projects can have massive consequences later on.

Part of the problem is that the logic of a project definition is invisible. You can’t “see“ project goals or risks, for instance. Sure, you can write them down as text. But long documents – if they get read at all – tend to get lost in the shuffle as the project unfolds.

What’s more, a written description of project elements doesn’t expose relationships between them. The big picture can fade quickly as work and deadlines pile up.

Here is a tool to help you get a quick, but broad definition of a project in a single overview. It’s called the Project Canvas.  You can download it here: Download the Project Canvas v1.0 (PDF)

UX Brighton 2012 was a fantastically brilliant event. I was truly honored to share the stage with a first-class line-up of speakers: Alex Wright, Mark Backler, Guy Smith-Ferrier, Ben Bashford, Sriram Subramanian, Mike Kuniavsky and Karl Fast. Wow.

The theme of the event was “Past & Future Interactions,” which took us from hundreds of years in the past via Alex’s history lesson to Guy’s controlling computers with his brainwaves. What a ride. One of the best single-day conferences I’ve ever attended.

My talk was entitled “Human Factors in Innovation: Designing for Adoption.” Here it is on SlideShare:

And here’s the summary from the conference program:

The ultimate goal of innovation is user adoption: we want people to actually use the things we create in a way that impacts their lives. But building the better mouse trap guarantees nothing. In fact, history shows it’s not the whiz-bang of technology but rather human factors that matter in the end. This is where UX designers come in. Through empathy and understanding of people’s needs and perceptions, we can increase the rate of adoption.

My intent was to give UX designers additional, high-level arguments to better evangelize UX or convince stakeholders for more time and money. I made 4 over-arching points in the course of the presentation that sum up the value of UX design in relation to innovation:

  1. The impetus for innovation has no start point: it’s an iteration between technology and needs.
  2. The end point of innovation always lies with users: the ultimate goal is adoption.
  3. UX reduces the risk of non-adoption and accelerates the rate of adoption.
  4. Good UX is good business: it is essential for innovation and for growth.

“Risk” and “growth” in business contexts aren’t things UX designers general talk about. These are terms business stakeholders understand and will grab their attention.

We need to live up these expectations, however, so my positioning of UX presents a real challenge for us. I hope you’re up for it!

“Innovation” is a tricky word to define: it means different things to different people. A recent article in the Wall Street Journal entitled “You Call That Innovation?” provides a solid review of the use of the word “innovation” in business contexts.

The article points out that some people limit the scope of term. Scott Berkun, author of The Myths of Innovation (see my review), reserves “innovation” for civilization-changing developments, like electricity and the telephone. This avoids the dilution of the term, which has already become the buzzword du jour.

In a broader perspective, some consider any change to be an innovation. Etymologically, this is acceptable: the Latin root “innovare” simply means to renew or change.

To distinguish between these two extremes, some definitions view innovation on dichotomous scale. For instance, Michael Porter talks about “continuous” and “discontinuous” technological changes;  Tushman and Anderson distinguish between “incremental” and “breakthrough” innovation; Abernathy and Clark refer to “conservative” vs. “radical” innovations; and Clayton Christensen shows the difference between “sustaining” and “disruptive” innovations. While this helps differentiate types of innovation efforts, viewing innovation along one dimension doesn’t tell the whole story.

To clarify the situation, I’m proposing a 2-dimensional picture of innovation:

 

  • The y-axis indicates the degree of technological progress an innovation brings with it. Moving from low to high along this line indicates improving existing capabilities, services and products.
  • The x-axis shows the impact an innovation has on the market, also from low to high. This usually entails new business models or reaching underserved target groups.

This gives rise to four distinct zones of innovation:

  • Incremental innovations involve modest changes to existing products and services. These are enhancements that keep a business competitive, such as new product features and service improvements.
  • Breakthrough innovation refers to large technological advances that propel an existing product or service ahead of competitors. This is often the result of research and development labs (R&D), who are striving for the next patentable formula, device and technology.
  • Disruptive innovation is a term coined by Clayton Christensen. In his best-selling book The Innovator’s Dilemma he shows that disruptive innovations “result is worse product performance, at least in the near-term. [They] bring to a market a very different value proposition than had been available previously” (p. xviii).
  • Game-changing innovation transform markets and even society. These innovations have a radical impact on how humans act, think and feel in some way.

My proposed view of innovation isn’t original. It’s directly influenced by a model developed Wheelright and Clark (1992), which is mentioned as a way to prioritize and plan for innovation in the book The Innovator’s DNA. Still, I believe my approach improves their model and sheds new light on some important differences in our discussions and efforts around innovation.

Chief among these is the confusion between “breakthrough” and “disruptive” innovation. Scott Anthony et al. point to this common misconception the book The Innovator’s Guide to Growth (see my review). They write:

The word disruption itself is loaded with alternative meanings and connotations, many of which run counter to the precise pattern Christensen identified is his original stream of research. As the concept has seeped into the mainstream, this language “disconnect” has led to confusion, misunderstanding, and the occasional misallocation of resources… The error people make most frequently is assuming that a great leap forward in performance is synonymous with disruption.

Breakthrough innovations promise significant improvements in performance compared with existing products. Examples include the Airbus 380, Nokia’s flagship Lumia 900 phone and Microsoft Office 2007. To contrast, disruptive innovations address underserved market needs with products that are more convenient to access, easier to use, and cheaper to buy. Examples include budget airlines, plain vanilla $25 mobile phones, and “good enough” web-based word processing software.

The value of viewing different levels of innovation along two dimensions, as in the graph above, is that you can plot different trajectories of innovation that keep breakthroughs separate from disruptions, as needed.

What’s more, the above zones of innovation can better guide innovation efforts. I believe a good innovation program should balance attention to each zone. Each has a different purpose and requires a different strategy:

  • Incremental innovations help keep a company in the game and provide short-term revenue.
  • Breakthrough innovations can catapult a product or service well ahead of competitors.
  • Disruptions usually entail a change in a business model, making them harder to implement. One strategy is to create a separate brand or company that operates at a lower level than its parent — perhaps more like a startup. (See my review of Xiameter, a sub-brand of Dow Corning launched to address the low end of the market.)
  • Game changers transform markets. They introduce new product categories, for instance, which can ensure long-term success for a business.

Of course the lines between each zone are blurry. And you can argue about the labels themselves. But it’s the logic behind the above graph that’s key here. I’ve found it helpful in explaining innovation to clients and hope you find it helpful too. I hope you’ll adopt my labels.

Please let me know what you think.

In his book The Myths of Innovation (see my review), Scott Berkun highlights the importance of framing problems creatively. Finding the right problem is as important–if not more important–as coming up with a solution quickly. Berkun writes:

Discovering problems actually requires just as much creativity as discovering solutions. There are many ways to look at any problem, and realizing a problem is often the first step toward a creative solution. To paraphrase John Dewey, the inventor of the Dewey Decimal System, a properly defined problem is partially solved. (p. 128)

The start of innovation, then, shouldn’t begin with the search of the perfect solution, rather with the search for the right problem.

Read the rest of this entry »

I’ve been working with Alexanders Osterwalder’s approach to business model generation via the business model canvas (BMC) for a few years now. The canvas is straight forward to use, which is the beauty of it: you “get it” right away. But it does take some practice to identify and capture the various elements. It’s more of a craft than a science.

To sharpen my skills I decided to deconstruct the Xiameter business model and compare its parent, Dow Corning–just for fun. (You have the right to now say, “Get a life, Kalbach”). My starting point was an article outlining the structure of Xiameter: “Dow Corning’s Big Pricing Gamble” by Loren Gary. I combed the text for the 9 elements of the BMC, jotted them down on paper, and then entered them into the canvas.

The image below (Figure 1) shows my analysis using the iPad app for the BMC. The GREEN notes represent Dow Corning’s core business. The ORANGE notes show the Xiameter model. Interestingly, Xiameter seems to have had an effect back on the core business model, according to the article. These aspects are shown in BLUE notes.

Figure 1: Comparison of Dow Corning’s core business to Xiameter using the Business Model Canvas (Click to enlarge)

The new Xiameter channel is a textbook example of disruptive innovation. Clayton Christensen illustrates the basic dynamics of distruption in a now well-know diagram:

Figure 2: Clayton Christensens illustration of disruption

Dow Corning recognized that it was overshooting its market. Overshooting is one of the first signs of a market ready for disruption. Scott Anthony et al write about overshooting in The Innovator’s Guide to Growth:

At the heart of the disruptive innovation model is the concept of overshooting, that is, providing too much performance for a given group of customers. Remember, the model holds that companies innovate faster than people’s lives can change to take advantage of the advances those companies provide. As companies innovate, products or services that were previously not good enough become perfectly adequate; ultimately, they become too good for a given group of customers. (p. 65)

(See my full review of The Innovator’s Guide to Growth in a previous post).

As the Xiameter case study article shows, Dow Corning seems to have recognized overshooting:

In the early 1990s, however, Dow Corning noticed an emerging trend toward commoditization in some of its markets. This meant that as specific products matured, the priorities of clientele within them shifted from wanting help with innovation to wanting to keep costs low. …

This change in what some customers valued—and the consequent decline in profit margins within those market segments—led Dow Corning to conclude that the basis of competition had shifted in parts of the industry. Facing the possibility that such a shift might spread, the company realized it required a more needs-based approach to customer segmentation. Its existing business model, which emphasized selling technical assistance and product testing on top of its core products, ignored price-conscious customers. To meet their needs—and to keep them from migrating to other, less-expensive providers—Dow Corning would have to devise a radically lower cost structure that would allow it to profit solely from selling products.

Overshooting is a key sign of a market ready for disruption. But don’t confuse breakthrough innovation with disruption. A breakthrough is the next, biggest, better product or service in an existing market. It’s the fifth blade on a razor or the Airbus 380. Or, see Kohler’s numi toilets–another example of a breakthrough product design, with a heated seat, feet warming, music and a remote control. But by definition these aren’t disruptive.

Disruptive innovations are more convenient, cheaper and easier to use, generally targeting previously underserved market segments. Think: Flip video camera, eBay or Zopa (a peer-to-peer lending service), as well as Skype and Ryan Air as disruptions. Xiameter is also a disruptive innovation.

The amazing part of Xiameter, however, is that Dow Corning distrupted itself. The fear of self cannibalization is extremely difficult to overcome in most companies, particular those as large and traditional as Dow. And that fear is precisely what causes the innovator’s dilemma. Dow overcame this fear and didn’t let entrants take that piece of their pie, as the chart above (Figure 2) show what usually happens.

My big take-away from this exercise is in the power of visualizing and diagramming all of these elements. Go read the article article that I reversed engineered (Here’s the link again–opens in new window); then come back here and compare what you read to the diagram.

Which explains the big picture better? Don’t get me wrong: the author of the article writes well, and it’s a clear story he tells. But you don’t get nearly the same sense of interlocking dependencies and overall logic you get from the text as you do from the canvas.

More importantly, the BMC let’s you design your business. You can quickly “sketch” multiple directions or variations. If they don’t work out, crumple it up and go back to the drawing board. That’s the power of it: iterative prototyping. With the BMC, you can apply design thinking to the innovation of a business model. It’s a far better better way than trying to detail a model out in text-based report or description.

Visualizing abstract business concepts really helps solve problems. I’ve been beating that drum for the last year or so, ever since I gave a presentation on “Alignment Diagrams” at the Euro IA conference last year. (See also the article Paul Kahn and I co-authored on alignment diagrams: “Locating Value with Alignment Diagrams“). Alignment diagrams are a class of document that includes such things as customer journey maps, service blueprints and mental model diagrams.

In a previous post, I suggest that the BMC is a type of alignment diagram. The elements on the right side represent customer-facing aspects. Alexander Osterwalder calls this the “front stage.” The fields on the left represent business-related aspects, or the “back stage.” In the middle is the “value proposition.” It’s this type of alignment between the back stage and front stage that’s often missing in business logic. While no silver bullet, the BMC and alignment diagrams can help bring clarity.

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NOTE: I’m giving two workshops this year on alignment diagrams:
1. Alignment Diagrams, Euro IA, 22 Sept 2011, Prague (1/2 day workshop)
2. Alignment Diagrams, part of UX Fest, 3 Nov, London (Full-day workshop)

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***DISCLAIMER: I have no association with or interest in either Xiameter or Dow Corning, nor do I have first-hand knowledge of their business models and thier success. The above analysis is based solely on the text in the article cited. 

Review of Free, by Chris Anderson (2009, Hyperion).

“Innovation,“ in the broadest sense of the term, comes in different forms. Sure, there is product or technology innovation. But there is also process innovation, design innovation, organizational innovation, and business model innovation. It turns out that the latter—business model innovation—actually proves to be the most disruptive (if we want to talk about disruptive innovation). As Mark Johnson and colleagues conclude in a recent Harvard Business Review article [1]:

Truly transformative businesses are never exclusively about the discovery and commercialization of a great technology. Their success comes from enveloping the new technology in an appropriate, powerful business model.

But not all business models are created equal: some prove to disrupt more than others. In his book The Silver Lining [2], Scott Anthony argues that companies should embrace low-cost products and services to connect with budget conscious customers and fend off attacks from competitors. He advises us to “learn to love the low end,“ referring to business models that target under-served customers with lower budgets. He writes:

There is a fortune at the bottom of the pyramid. Companies that follow the tenets of disruptive innovation can dramatically increase their chances of reaching that fortune. (p. 147)

Anthony then presents a framework for large corporations to innovate the low-end of the market, where disruptive innovation occurs most.

Chris Anderson, author of the best seller The Long Tail, explores the lowest of the low-end business models there is in his latest book, Free. After all, there’s nothing more disruptive than offering something for free. Anderson explains early in his book:

Today, we know that the most disruptive way to enter a market is to vaporize the economics of existing business models. Charge nothing for a product that the incumbents depend on for their profits. The world will beat a path to your door and you can then sell them something else. (p. 43)

“Vaporize”—that’s a good word to describe the effect free can have on markets. And throughout the book, Anderson show that free is not only disruptive, but also that there’s a fortune to be made.

The Free Lunch Revisited

The concept of free isn’t new, Anderson reminds us right from the outset. We get free samples of food a deli; or, credit cards offer us the first year of card use for free; or, we may get 33% more laundry detergent free in a promotional offer. We already know about free.

Or, consider the loss leader model, the classic example of which is the story of Gillette razor blades. The Gillette figured out that they can make more money selling blades to customers over their lifetimes than with a one-time sale of the razor itself. So the razor is practically given away, thereby creating a much more valuable market to sell blades to.

Anderson carefully details these and other kinds of free that have been around for over a hundred years. While some of this feels familiar and obvious, his examples are fascinating. And, as usually, Anderson does a great job at packaging and explaining his ideas for ready consumption by the reader. It’s eye-opening to learn about just how many different forms free can have.

Free At Last?

In the new economy wrought on by the online, digital world, we’re experiencing a new kind of free. It’s precisely this new type of free that is a central thesis of the book. Anderson writes:

It the atoms economy, which is to say most of the stuff around us, things tend to get more expensive over time. But in the bits economy, which is the online world, things get cheaper. The atoms economy is inflationary, while the bits economy is deflationary.

The twentieth century was primarily an atoms economy. The twentyfirst century will be equally a bits economy. Anything free in the atoms economy must be paid for by something else, which is why so much traditional free feels like bait and switch—it’s you paying, one way or another. But free in the bits economy can be really free, with money often taken out of the equation altogether. People are rightly suspicious of free in the atoms economy, and rightly trusting of free in the bits economy. Intuitively, they understand the difference between the two economies, and why free works so well online. (p. 12)

Online there’s no “paying later“ effect. There really is such a thing as a free lunch, or so it would seem.

Note that free isn’t just about advertising. On the contrary, Anderson explores a range of ways that products and services can be free without advertisements. Sure, advertising keeps a lot things free—from TV to web services. But there’s more to free in the new digital economy, as Anderson sees it.

A centerpiece of this new paradigm is the “freemium” business model. This model is becoming increasingly popular, particularly with web-based services, where the basic service is given away for free while charging for a premium service. Think Flickr, LinkedIn, and Skype.

The freemium model isn’t just about giving away free samples. It’s not like getting just enough chocolate or perfume or whatever the manufacturer is giving away for a single use. Instead, with digital products, you pretty much can get the whole thing.

More importantly, the ratios of usage are reversed compared to freebies in the physical world. Anderson calls this reversal the 5-percent rule: 5 percent of users support all the rest.

In the freemium model, that means for every user who pays for the premium version of the site, nineteen others get the basic free version. The reason this works is that the cost of serving the nineteen is close enough to zero to call it nothing. (p. 27)

And that’s the real crux of the matter: treating something that approaches zero cost as if it were free. Storage space on computers is so inexpensive, for instance, providers should just give it away, or so Anderson would claim. That’s why Google’s Gmail accounts, for one, offer nearly 8 gigabytes of space to save emails for free. (The cost per gigabyte is currently measured in cents—somewhere between $0.15 – $0.20 per gigabyte—and falling). Anticipate the cheap, the author advises us.

Anderson doesn’t consider any of this a passing trend. Instead, he views free as the way of the future, particularly for digital products:

In the digital realm you can try to keep free at bay with laws and locks, but eventually the force of economic gravity will win.

And this gravitational force can change entire industries. The newspaper and the music industries seem to be on the chopping block first. Others will follow.

Free Beer Tomorrow

In the end Anderson is a realist. He knows that somewhere, someone is paying for free services. In all of the models examined in his book, there is always someone funding it. There’s just a huge difference to previously models of free in how the costs are shared:

What’s changing, however, is that those costs are moving from the mostly “hidden“ (the small matter of the beer you must buy for that lunch) to the “distributed“ (somebody’s paying, but it’s probably not you; indeed, the costs may be so distributed that we individually don’t feel them at all.) (p. 217)

Consider Wikipedia. We all use it, and someone pays for it. Servers and electricity cost money, after all. Apart from a donation, your contribution to Wikipedia comes indirectly by supporting companies that support Wikipedia, like Sun or Google. So the costs get so distributed, they are essentially non-existent to a wide majority of the users of the service.

But Wait, There’s More

In Free, Anderson also debunks myths about Stewart Brand’s famous statement that “information wants to be free.” This is frequently misquoted and taken out of context. Brand never intended to imply that all content should simply be free. On the contrary, looking at what Brand originally said he implies the opposite:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

The first part—about information wanting to be expensive—is all but completely left out of most popular discussions of free content in the digital world. Yet it has important implications, particularly for companies trying to compete with free services.

And while free models can certainly be disruptive, Anderson also reminds us that introducing a free product doesn’t necessarily make that given market collapse. Premium brands have known this for a long time. Quality, satisfaction, brand loyalty, trust, credibility—these are also reasons that people are willing to pay more money for a product.

Kevin Kelly also explores similar factors in an insightful posting entitled “Better Than Free.“ [3] From his studies of the network economy, he identified eight types of qualities of products and services that trump free. He calls these “generatives,“ or attributes that must be grown and can’t be copied easily. Kelly’s generatives that are better than free are:

  • Immediacy: Receiving products and services the moment they become available is something worth paying for. The opening night of a movie costs of lot more than a rental DVD of that same movie a year later.
  • Personalization: Products that are custom made to your needs are generally worth more.
  • Interpretation: Understanding information often comes at a price. As the old joke goes, the software may be free but the manual costs $10,000.
  • Authenticity: Getting a certified original is worth paying for in many instances. People may be willing to pay for bug-free, reliable and warranted products, even though a comparable knock-off may be cheap or free.
  • Accessibility: People are willing to pay for storage, access, and organization of their things, even in a completely free economy.  
  • Embodiment: The form in which a product or service is presented can make a big difference in its value. You may pay a considerable price to see your favorite band live although you own all of their music.
  • Patronage: Some audiences may want to reward the work of artists, musicians, and authors, among others. Radiohead’s release of the album In Rainbows is one example. ArtistShare.com has based its entire business on this effect.
  • Findability: Just because something is free doesn’t necessarily help people find it—in fact it may hinder people discovering it. Being found can be extremely valuable, as the folks in the SEO business are well aware.

While free can indeed vaporize markets, all hope is not lost. If the products you sell can be copied and re-distributed easily, Kelley would advise to start looking at one or more the about attributes as part your business model.

 

May I Have Your Attention, Please?

The twentieth century, Anderson argues, not only started to embrace the concept of free, it also saw the arrival of abundance. Everything from electronics to cars to information is now so abundant, we take it for granted. What’s more, the “Age of Abundance,” as Anderson calls it, has driven extraordinary social and economic change.  Consider this example the author offers:

When I was a kid, hunger was one of the main problems of poverty in America. Today, it’s obesity. Something dramatic has changed in the world of agriculture in the past four decades—we got much better at growing food. A technology-driven revolution turned a scarce commodity into an abundant one. And in that story lie clues to what can happen when any major resource shifts from scarcity to abundance. (p. 45)

Citing Herbert Simon’s rule of economics, Anderson makes another key point in his book: “Every abundance creates a new scarcity.” This is the heart of “freeconomics,” as he affectionately calls it, and how we ultimately can find fortune with free. Namely, while treating the abundant things as if they are free, you must simultaneously find the resulting scarcity. That’s where the money is to be made.

In an information-rich world, the scarcity is attention. A person’s interest in a given matter is worth money. Attention, then, becomes the new currency. In this light, Anderson re-casts Stewart Brand’s quote (above) about information wanting to be free as such:

Abundant information wants to be free. Scarce information wants to be expensive. (p. 97)

Organizations looking to earn profits by providing information are advised to find the scarce information and capitalize on that.

Achtung, Baby!

The consequences of too much information are dire, results in a lack of focus and attention. Paul Hemp explores the relationship between attention and information overload in a recent Harvard Business Review article. [4] He writes:

So it’s a lot of stuff [i.e., information], but what precisely is the problem? Well, the chorus of whining (punctuated by my own discordant moans) apparently has some validity. Researchers say that the stress of not being able to process information as fast as it arrives, combined with the personal and social expectation that, say, you will answer every e-mail message, can deplete and demoralize you. Edward Hallowell, a psychiatrist and expert on attention-deficit disorders, argues that the modern workplace induces what he calls “attention deficit trait,” with characteristics similar to those of the genetically based disorder. Author Linda Stone, who coined the term “continuous partial attention” to describe the mental state of today’s knowledge workers, says she’s now noticing, get this, “e-mail apnea”: the unconscious suspension of regular and steady breathing when people tackle their e-mail.

There are even claims that the relentless cascade of information lowers people’s intelligence. A few years ago, a study commissioned by Hewlett-Packard reported that the IQ scores of knowledge workers distracted by e-mail and phone calls fell from their normal level by an average of 10 points, twice the decline recorded for those smoking marijuana, several commentators wryly noted.

This doesn’t mean you can turn off Outlook and smoke a joint at work. But it does underlie a scarcity in an information-rich environment: your attention.

Hemp goes on to present some interesting statistics from a survey on Intel employees to demonstrate just how distracted people can get from information overload. For instance, knowledge workers average nearly 20 hours a week managing email. They may also turn to email 50 to 100 times per day.  Sadly, though, employees consider only one in three emails to be necessary.

By Anderson’s logic in Free, companies looking to innovate the information industry would be better served solving those customer problems rather than offering more information.

Recommendation

Overall, Free is a detailed look at forward-looking business models, particularly in online, information-rich contexts. But Anderson doesn’t just touch on digital products. He looks everything from free silverware to free DVRs to free bikes. His sidebars on these and other topics are quite compelling. For instance: How can air travel be free? How can a university education be free? How can a car be free? Get Free to find out. It’s quite fascinating.

Free is well written and well researched. As expected, Anderson carefully dissects the free business model with surgical precision. Discussions include everything from the history of free (chapter 3) to the psychology of free (chapter 4) to explanations of “freeconomics” (chapters 11-16). This book should prove to be of interest to a broad audience—not just MBA-types in marketing positions or folks deciding on product price points. It’s recommended for anyone who designs, creates, and sells products, online and offline.

Quotes From The Book
“Therein lies the paradox of Free: People are making a lot of money charging nothing.“ (p. 3)

“Twentieth-first-century Free is different from twentieth-century Free. Somewhere in the transition from atoms to bits, a phenomenon that we thought we understood was transformed.“Free“ become Free…The older critics, who had grown up with twentieth-century Free, were rightly suspicious: Surely “free“ is nothing of the sort—we all pay sooner or later. Not only is it not new, but it’s the oldest marketing gimmick in the book. When you hear “free,“ reach for your wallet. The younger critics had a different response: “Duh!“ This is the Google Generation, and they’ve grown up online simply assuming that everything digital is free.” (p. 5)

“It’s as if our brains were wired to raise a flag every time we’re confronted with a price. This is the “is it worth it?” flag. If you charge a price, any price, we are forced to ask ourselves if we really want to open our wallets. But if the price is zero, that flag never goes up and the decision just got easier.” (p. 59)

“So from a consumer’s perspective, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely difference business, one of clawing and scratching for every customer. The truth is that zero is one market and any other price is another. In many cases, that’s the difference between a great market and none at all” (p. 63)

“This is one of the negative implications of Free. People often don’t care as much about things they don’t pay for, and as a result they don’t think as much about how they consume them. Free can encourage gluttony, hoarding, thoughtless consumption, waste, guilt, and greed. We take stuff because it’s there, not necessarily because we want it. Charging a price, even a very low price, can encourage much more responsible behavior.” (p. 67)

“…Free is almost always a choice. If you don’t offer it explicitly, others will typically find a way to introduce it themselves. When the marginal cost of reproduction is zero, the barriers to Free are mostly psychological—fear of breaking the law, a sense of fairness, an individual’s calculation on the value of his or her time, perhaps a habit of paying or ignorance that a free version can be obtained. Sooner or later, most producers in the digital realm will find themselves competing with Free.“ (p. 72)

“The problem is a classic one in Free. It’s easier for the newcomers than for incumbents. That’s not just because the incumbents have a revenue stream that they’re in danger of cannibalizing. It’s also that they have a lot more users, and the costs of serving millions of customers can be astronomical.“ (p. 144)

“The way to compete with free is to move past the abundance to find the adjacent scarcity. If software is free, sell support. If phone calls are free, sell distant labor and talent that can be reached by those free calls (the Indian outsourcing model in a nutshell). If your skills are being turned into a commodity that can be done by software (hello, travel agents, stockbrokers, and realtors), then move upstream to more complicated problems that still require the human touch. Not only can you compete with Free in that instance, but the people who need these custom solutions are often the ones most willing to pay highly for them.“ (p. 231)

“Ten principles of abundance thinking:

  1. If it’s digital, sooner or later it’s going to be free.
  2. Atoms would like to be free, too, but they’re not so pushy about it.
  3. You can’t stop free.
  4. You can make money from free.
  5. Redefine your market.
  6. Round down. If something is heading to zero, free is just a matter of when, not if.
  7. Sooner or later you will compete with free.
  8. Embrace waste.
  9. Free make other things more valuable.
  10. Manage for abundance, not scarcity. “ (pp. 241-243)

[1] Mark W. Johnson, Clayton M. Christensen, Henning Kagermann, “Reinventing Your Business Model.” Harvard Business Review (Dec  2008).

[2] Scott Anthony, The Silvering Lining. Harvard Business Press, 2009.

[3] Kevin Kelly, “Better Than Free.“ Blog post part of The Technium (Jan 2008). http://www.kk.org/thetechnium/archives/2008/01/better_than_fre.php

[4] Paul Hemp, “Death by Information Overload.” Harvard Business Review (Sept 2009).

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