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I'm the author of the article, I'm working with Clay at the moment. Thanks for the comment. It's subtle, but I think that most people outside of companies assu

by hype7 15y ago

I'm the author of the article, I'm working with Clay at the moment. Thanks for the comment. It's subtle, but I think that most people outside of companies assume that decisions get made as you're describing above — separate questions of "will this product be successful", and "will we make money out of it". In part, the dilemma is borne out of the fact that for almost every company, those aren't separate questions at all. Think about it; you're the CEO, and someone comes along and says, "let's invest this money in new R&D for a product that may, or may not, work. if, by chance, it does work... it will take out our existing product, and we'll end up making less money on the new product than we do right now on the old one". very few CEOs will put money down on that. they're using money from their cash cow to do what... to kill it? the problem is one of perspective. there's another famous example i love to quote when explaining: blockbuster and netflix. when netflix came along, blockbuster was this huge organization with massive margins and almost 100% name recognition. they looked at netflix, saw a new business emerging with a fraction of the margins that they had... why would they bother wasting their time on doing something like this? they could invest to create a netflix competitor, but if they did, it was going to cost them to do it, it may or may not be successful, and if it WAS successful, it would cannibalize their existing, high-margin business with one that was much less profitable. who would go for that? the mistake that most companies make is that they assume that they're the only ones that are capable of challenging their existing business with a disruptive entrant. the problem is (and it sounds obvious, but so many successful companies have fallen into this trap): if they don't challenge themselves, then someone else will. from the perspective of blockbuster, with all these profitable stores dotted all around the country, the "DVD by-mail market" was not at all attractive. but to netflix, which was looking at the market from the perspective of "we don't have any business at all, so any business is great", the margins actually looked pretty good. blockbuster thought its choices were "stick with high margin business, or move to low margin business". but really, its choices were "move to low margin business, or go bankrupt". that's the perspective thing i'm talking about; successful businesses have this tendency to view markets from the vantage point of where they stand right now. what's so noticeable about apple is that they never do that. they start from a fresh sheet of paper — what's best for the customer, not what's best from our bottom line. it's a mighty hard trick to pull off. hope this helps. thanks to everyone for voting up the article. cheers -- james

chintan 15y ago
> separate questions of "will this product be successful", and "will we make money out of it". In part, the dilemma is borne out of the fact that for almost every company, those aren't separate questions at all. NOT unless you are looking at Silicon Valley companies. Here both these questions ARE different. Think Facebook, Twitter etc, the "success" (and implied "scale") is more important than whether there is a direct or immediate revenue source. That is why we see BIG disruptions in Silicon Valley and not elsewhere. Generally, VCs bear the cost for growth period and entirely new markets are created. Just because the "innovators" were not burdened with the question of making money from the get go.
wtvanhest 15y ago
James, I really appreciated the article and the additional explanation. I tried to figure out a way to word this question, so forgive me if it isn't clear but: Did Steve Jobs even do the right thing? What I mean by that is that if you had 10 companies would you want all those CEOs making what seems to be illogical decisions in the off chance you get an Apple? Take Blockbuster for example, sure they obviously did the wrong thing in hindsight, but no one, and I mean no one thought netflix was going to be as successful as it was when it first started. I remember thinking, gosh, that is a lot of mailing expense for $7/month. How many ideas came along and went that were not worth replicating? I'm sure there are tons. There is probably some new network being worked on right now that will displace facebook in 10 years. Should facebook radically change the way they do business to adopt to that new basically unknown threat?
- apenwarr 15y ago
  That's what makes it a dilemma. :) The book is well worth reading, and this is what it talks about.

by hype7 15y ago

chintan 15y ago

> separate questions of "will this product be successful", and "will we make money out of it". In part, the dilemma is borne out of the fact that for almost every company, those aren't separate questions at all. NOT unless you are looking at Silicon Valley companies. Here both these questions ARE different. Think Facebook, Twitter etc, the "success" (and implied "scale") is more important than whether there is a direct or immediate revenue source. That is why we see BIG disruptions in Silicon Valley and not elsewhere. Generally, VCs bear the cost for growth period and entirely new markets are created. Just because the "innovators" were not burdened with the question of making money from the get go.

wtvanhest 15y ago

James, I really appreciated the article and the additional explanation. I tried to figure out a way to word this question, so forgive me if it isn't clear but: Did Steve Jobs even do the right thing? What I mean by that is that if you had 10 companies would you want all those CEOs making what seems to be illogical decisions in the off chance you get an Apple? Take Blockbuster for example, sure they obviously did the wrong thing in hindsight, but no one, and I mean no one thought netflix was going to be as successful as it was when it first started. I remember thinking, gosh, that is a lot of mailing expense for $7/month. How many ideas came along and went that were not worth replicating? I'm sure there are tons. There is probably some new network being worked on right now that will displace facebook in 10 years. Should facebook radically change the way they do business to adopt to that new basically unknown threat?

apenwarr 15y ago
That's what makes it a dilemma. :) The book is well worth reading, and this is what it talks about.