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Book
Summary/Review: Unleashing The Killer App
This
article is based on the following book:
Unleashing The Killer App
"Digital Strategies For Market Dominance"
by Larry Downes and Chunka Mui
Printed
with permission from: 
There are few books that I recommend reading from cover
to cover. This is one such book. I will share the insights
that I have gained from reading this book in the hopes that
they will also benefit your business.
INTRODUCTION
- pg. 4
"A
killer app is a new good or service that establishes an
entirely new category and, by being first dominates it,
returning several hundred percent on the initial investment.
The personal computer, electronic funds transfer, and the
first word processing program are all examples of killer
apps."
Much
of the book is premised on "Moore's Law" and "Metcalfe's
Law". Moore's Law, is a prediction by Intel founder
Gordon Moore that every 18 months, computing power would
double while cost remained constant. The result is that
computing devices are getting faster, cheaper, smaller and
better. Metcalfe's Law is an observation made by Robert
Metcalfe, founder of 3COM Corporation, that networks dramatically
increase in value with each additional node or user. The
book goes on to describe how the interaction of these two
"Laws" is creating fundamental changes in the
way in which we do business. One such affect is what the
authors call the "Law of Diminishing Firms" in
which they indicate that in today's digital economy size
is uneconomic. While firms will not disappear, they will
become smaller and comprised of complicated webs of well
managed relationships.
The
authors then discuss the "second-order effects"
that unintentionally challenge the basis of business systems
in general and give by way of example how the steam engine
opened the American West. They claim that the web is tearing
apart the financial services and telecommunications industries
and inspiring changes as much as the steam engine did many
years ago. [R. Buckminister Fuller in the Critical Path
spent a great deal of time discussing the precessional affects
of conduct. While we might be focusing on the 180° outcome,
the greater changes are general generated by the 90°
or processional affects.
DIGITAL
STRATEGY
Business
people today are feeling "dazed". [That's as good
of term as I can think of.]
What
will be the potential impact on your business of Internet
ready television, cars and other appliances, low-cost digital
cameras, desktop publishing software and personal laser
printers, intelligence software agents and telephone services
on the Internet? [An interesting exercise is to go through
Daniel Burrus' material on techno trends and ask these same
questions. It looks like I will have to update my communications
checklist to reflect these new avenues of communication.]
One
of the most interesting things discussed in this book is
the "giving away of the killer app". The classic
example is that of Netscape which exploded to a market valuation
of more than
$3-billion days after it's stock debut in 1995.
Nicholas
Negroponte wrote in 1995 in his book Being Digital that
"Computing is not about computers anymore. It is about
living."
In
today's digital economy a company that is one Internet year
old acts like one that has been around for seven years.
The
law of digital disruption forces us to continually ask,
"What is the transaction cost of various activity and
what are their benefits? How can these activities be displaced
digitally?" We break these transaction costs down into
six separate areas: search cost, information costs, bargaining
costs, decision costs, policing costs, and enforcement costs.
In a classic example that I have dealt with first hand,
some times the size of a firm actually generates a transaction
cost which is greater than that of the open market. A classic
example is where employees use their own travel agents rather
than hassling with corporate travel departments.
A
number of companies are being generated to focus on reducing
transaction costs in both the business to consumer and business
to business setting. [Bruno Bassi's computer economics is
one such example.] Whether we are dealing with the sale
of an insurance product, automobile, airline ticket, hotel
room or any other commodity you can think of, we are getting
very close to real time market costs. [A recent Business
Week cover questioned whether we are meeting the death of
the salesman.]
One
effect of this digital revolution is the US Department of
Labor predicts that by the year 2005 the largest employer
in the country will be "self". [My prediction
is that the EEOC and other agencies are going to have a
very difficult time dealing with this phenomenon. What happens
when one independent agent refuses to work with another
independent agent because of their race, color or skin?
I guess the other question is since the Internet is essentially
"color blind" this phenomenon may in fact reduce
the incidents of discriminatory type conduct.]
Digital
revolution will continue the trend of outsourcing and downsizing.
[Today's digital revolution is creating what I call the
"death of control". The fact is in today's economy
the less you control the more you can do. As Dr. Deming
said there are three things that a company does: those that
add value, those that are administrative and those that
generate waste. The first should be focused on and the second
should be outsourced and third should be eliminated.
John
Perry Barlow of the Electronic Frontier Foundation said,
"Information wants to be free". [For my purposes
this may result in my giving away my books and a great deal
of my other materials. The challenge for a consultant like
myself is to determine what is the backend for giving away
your best. If it is more speaking or consulting opportunities
the concern that I have is that there is very little leverage
in that. Information can be leverage, my time can't be.
So, do I giveaway my best information and attempt to sell
what's left? Do I give away half of my best? These are challenges
that me and many others will be facing over the coming months
and years.]
The
authors indicate that their clients frequently challenge
them to find information assets hiding in their organization.
They claim to do so never takes long. Distributors have
logistics, manufactures have engineering, retailers have
customers, etc. [This goes back to my point that we should
never assume where knowledge lies in our organizations nor
what form it takes. That's one reason why surveying an employee
with powerful questions can lead to significant breakthroughs.]
"We
believe that in the new economy many traditional functions
merge into one overall activity. For the moment, lets call
that one activity what it is today: brand management."
"The
best way to predict the future is to invent it." Alan
Kay
The
authors make the point that traditional planning simply
doesn't work in times of great change. The authors claim
that business change now originates with digital technology
and that it will remain the essential disrupter of current
operating models and their underlining assumptions. According
to the authors "technology isn't the solution, it's
the problem". Today's planning cycle is between 12
and 18 months, not 5 years. [Quite frankly, today's business
that can not go from concept to launch within a year is
in serious trouble. I try to emphasize this fact in trying
to start the American Academy of Employment Law Attorneys,
but it fell on deaf ears. The failure to generate the necessary
financing to support such a time frame lead to its eventual
demise. There is a lesson here - next time I work with a
start up company, I will make sure that the financing is
in place to make the company go as fast as it possibly can.]
Today's
new business environment has to be treated as an evolving
community, increasing bound together by cheap digital technology,
rather than as a discrete and largely static set of individual
actors.
The
authors 12 step program for designing the killer application
is as follows.
1. Outsource to the customer.
2. Cannibalize your markets.
3. Treat each customer as a market segment of one.
4. Create communities of value.
5. Replace rude interfaces with learning interfaces.
6. Insure continuity for the customer, not yourself.
7. Give away as much information as you can.
8. Structure every transaction as a joint venture.
9. Treat you assets as liabilities.
10. Destroy your value chain.
11. Manage innovation as a portfolio of options.
12. Hire the children.
DESIGNING THE KILLER APP
Think
of and measure your daily operations as a series of unique
transactions rather than broad categories like products
and customer segments. Focus on how these transaction costs
can approach zero.
Data
collection and customer service functions should be outsourced
directly to the customer. Amazon.com is a classic example.
[Focus on one-time entry of information in purchase orders.
Also find a way to manage refunds online.]
While
customer profiling and target profiling are not new the
ability of unfunded companies to collect high-quality data
on a global scale at almost no cost and generate incredible
value. [See www.firefly.com]
One
of the biggest traps currently facing companies is their
effort to develop "highbred" strategies which
mix and match traditional structures with digitally based
ones. The authors believe that this approach actually hampered
development and caused diminishing returns.
How
can you cannibalize either your own business or someone
else's? One example given is how the Wall Street Journal
with its online edition has in part cannibalized it's publishing
arm, but at the effect of creating an even larger online
audience. [For my purposes I will be able to cannibalize
many suppliers of human resource products such as employee
forms, software and employee handbook software should I
choose to give that away. How will they be able to compete
with that? If I do in fact take that approach how will I
benefit from it? Perhaps only by keeping the faith and waiting
until I find out the answer.]
The
advent of "push technology" while not reaching
it's heralded status is in fact having a significant impact
on making digital strategies appear personal. [I intend
to use this technology to generate "screen savers"
for the sharing of corporate values, strategies, and other
information essential for long-term growth.] The authors
make the point that push technology can not only respond
to what it is that you think you like, but also provide
you with information what you're "going to like".
Technology
is allowing greater interactivity. Technology can design
everything from your retirement plan to your vacation online.
[How do you turn that into an enjoyable activity? One you
would want to do over and over again. Generate excitement
and you will generate loyalty.]
One
of the greatest advantages of the Internet is its ability
to generate online communities. Now people with like interests
can share in ways never imagined.
Build
some kind of online community on your web site. Give them
something to talk about the way ESPN Sports Zone gives them
fantasy sport leagues.
I
will be generating an online forum for human resource executives.
Will call it the Chief Relationship Officer Forum. This
forum can act as a "Board of Directors" or "Mastermind
Group" for its participants. Every direct contact with
the customer is an opportunity to improve the relationship
and to learn more about the customer's needs. [The same
can be said for dealing with your employees, vendors, and
other partners.]
Companies
that will be making it in the business to business online
environment will do so by destroying additional pricing
structures. Whether the medium is E-Bay or Jango, a personal
shopping agent for a wide variety of products sold in Cyber
Space, procure additional means of pricing and not be able
to with stand the attack. Commodities can be just as easily
purchased on the Internet, through an enjoyable experience,
than what is going to happen to your business?
The
age of closed systems is over. Everything now is open architecture
and open systems. Open, Open, Open. If you have information
give it away and you will be blessed. [I am considering
giving away my forms and employee handbook to those willing
to add their two cents worth. That will make a good product
even better. What are you going to do if you sell employee
handbook software for $100 and I am giving away a better
version for free? The question for me is what could be the
processional effect of giving it away? The point is, you
may never know until you do it. Remember, planning out or
strategizing outcomes can be futile exercises.]
The
destruction of captive markets signals the decline of switching
costs for customers. As they do throughout the book the
authors point to numerous industries that seem to be ignoring
the Internets reality. Traditional information providers,
retailers, real estate agents, etc. were highlighted. It
actually becomes hard to think of a company that could not
be affected by this revolution. [I can't name one - can
you? I've often kidded with friends and challenged them
to tell me some line of business that people can't make
money in. The fact is, you can make money doing anything
- if you are good at it. Perhaps the same could be said
for use of today's new technologies.]
Today's
Internet users give back more information than they take
away. "Treat your assets as liabilities." Whether
it's a printing machine, manufacturing plant, retail outlet
or even personnel, companies must look around them and ask
how can I replace this with bits?
Break
up your value chain or someone else will. Because Dell has
no resellers, it can afford to deal directly with the customer.
As a result it now sells more computers than Compaq. What
will be the value of resellers if they are not necessary
to the selling process? What if their expertise can be replaced
by an online consultant? What if "intelligent agents"
allow the customer to go through a friendly interface being
prompted with a series of yes, no, checkmark, fill in the
blank questions which allow the company to generate a mild
design exactly for the customer's specific needs? What if
you design that once and it works a million times? Where
is the value in the value chain?
Give
people who use your products the ability to comment on those
products and services. [I will provide on my web site a
place for managers, human resource professionals, and trainers,
to post reviews of existing CD-ROM, video and online products
and services. By creating a "safe place for dialogue"
I could even sell the products identified much as Amazon.com
does. You can allow for open comment on a wide range of
products and services and still get an override for being
the source point. [Travel agent, post office, music retailers,
etc.]
Don't
get in the way of your own people creating the "killer
app". If you don't allow your people to step out beyond
your strategic planning you will end up behind the times.
Don't let it bother you if you don't understand. I just
say to myself "I won't be able to understand the whole
game anytime soon, so I just play." A thirteen year
old child having SIMLIFE, a computer game that simulates
the life of an Eco system.
Today's
executives would be well served to understand that the real
technology revolution will be lead by those just entering
the workforce. Ask almost any parent and they will tell
you that their children can run circles around them when
it comes to using technology. That's why the authors suggest
hiring children or at least including them in the process
of product development, strategy formation and workplace
design. It is suggested that you go even beyond that and
try to "live in their world".
UNLEASING THE KILLER APP
"You
do not need to understand electricity to use it." Julia
Cameron [This is one of my favorite quotes. The revolution
will be complete when technology becomes invisible."]
"To
succeed at digital strategy, your organization must be a
learning organization, more focused and ideas and experiments
than detailed plans and forecasts. [I couldn't agree more.
That's one reason I encourage companies to use the employee
knowledge survey.]
The
authors encourage you to consider about the tools on the
horizon including geographical information systems (GIS),
Global Positioning Satellites (GPS), video and teleconferencing,
etc.
The
authors ask how would your "goals change in a world
where each transaction including purchasing, pricing, menus
and site development could be customized in real time?"
The point they are making is that in the future the customer
will be dictating the price - not you. [My only criticism
of the book is the tendency by the authors to ignore what
John Nasbitt coined the "high touch" aspects of
high tech. The fact is people like to go out shopping. You
can't replace a handshake hug or kiss. You can't test drive
a car on the Internet. Any substitute for high touch will
be building of online relationships. As I state in my seminars,
building powerful relationships of any kind require that
the parties have trust in each other, share a sense of common
direction, communicate through the use of dialogue, and
are focused on their commitments.]
The
authors also ignore the reality that socioeconomic groups
react to digital strategies differently. Men use the Internet
differently than women do. Comfortable interface may not
be one for a teenager and so on. When I do my workshops
I always attempt to ask "enrolling" questions.
I then acknowledge the response whatever it may be. The
fact is you have to earn the right to be a trusted digital
partner.
"Finding
information is too easy." Finding useful information,
on the other hand, is what separates success from failure."
[Somebody has to sort through all the information and there
are plenty of people willing to pay for someone other than
them to do. Is it your highest and best use to sort through
this information or should that be outsourced? And if it
is outsourced, how can the information be enhanced? How
can you access it on a just in time basis? How can you get
the information how you want it, when you want it, and with
support through the process?]
One
of the most interesting insights they had that asking how
you can make money with new technologies is like asking
how you can use a printing press to make money. The point
they make is that it takes the same thing to be successful
online merchant as it does with any other kind of merchant.
How
can you get the most leverage from your intellectual property?
[For me it may be simply by giving it away or giving "turnkey
licenses" to other attorneys and consultants for their
eventual distribution.]
Use
new events, contests, customer feedback, chat rooms, etc.
"The Internet is where you make money. Intranets are
where you save money." Son Microsystems.
Try
this interesting exercise suggested by the authors. Send
an e-mail message to your entire company with an attachment.
Find out how many of your managers and employees actually
end up receiving the e-mail with the attachment in tact.
If the answer is 100% than you're in pretty good shape.
Look
into the Cyber Space Law Institute and the Electronic Frontier
Foundation.
MY
CONCLUDING THOUGHTS
The
value of this book is not only in it's examples, but also
the questions it asks you to consider. As you can see from
my comments, by asking myself those questions I gained added
insight into my business opportunities.
(c)
Copyright Donald A. Phin
http://www.donphin.com
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