“We have a strategic plan. It’s called doing things.” – Herb Kelleher, Founder of Southwest Airlines
Whenever you hear or read about innovation, it usually refers to some technical development that results in a product that is usually cheaper, faster or better than the incumbent. Disruptive innovation occurs when something much cheaper and usually initially lower quality, comes into the low end of the market as an alternative to more capable, but more expensive options. When MP3s first hit the market, everyone scoffed because the sound quality was inferior to CDs. But over time, the advantages in portability, distribution, size and increases in quality have turned MP3 into the new standard for music. In a similar vein, digital photography was once the poor cousin to its analog predecessors, but within a few years, digital imaging progressed to a point where it is superior in every way that matters. So it’s clear how disruptive innovation works for products. But what about services?
How valuable is an open business model, with an open API and an entrepreneurial mindset? Take a look at this Twitterverse graphic by Brian Solis. There are hundreds of companies that have built startups around Twitter, in 19 different categories spanning mobile applications to social CRM to search to geolocation. Suffice it to say, there is a significant halo around open products like Twitter and Facebook, growing the value of the service exponentially. This allows the core company to focus on platform, what it does best.
It’s no secret that Netflix is moving up the value chain. Seeing the need to evolve away from a DVD-mail based business model, they’ve become the Apple of the streaming movie business, accounting for 20% of web traffic during prime time hours. They have quickly become the standard platform — and strong selling point – for any streaming media device, including AppleTV, Roku, Boxee and others. Netflix has also developed applications for nearly all mobile devices, so you can stream from device to device.