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Time for Marketing Innovation 2.0

(video from Rory Sutherland's TEDGlobal talk)

For the first time in 23 years, Pepsi Co. has decided to not run any advertisements during the Super Bowl in 2010. Instead, the nation’s second-biggest soft drink maker is plowing marketing dollars into its "Pepsi Refresh Project," an online community that allows Pepsi fans to list their public service projects, which could range from helping to feed people to teaching children to read. Visitors to the site can vote to determine which projects receive money. The program will pay at least $20 million for projects people create to "refresh" communities. Last year, Pepsi Co. spent $33 million advertising products such as Pepsi, Gatorade, and Cheetos during the Super Bowl, according to TNS Media Intelligence, $15 million of it on Pepsi alone. Ad time last year for the NFL championship game cost about $3 million for 30 seconds, on average. Pepsi Co. spokeswoman Nicole Bradley said Super Bowl ads don’t work with the company's goals next year: "In 2010, each of our beverage brands has a strategy and marketing platform that will be less about a singular event and more about a movement." Pepsi's remarkable decision epitomizes the new paradigms of marketing: Online instead of TV; many-too-many instead of one-too-many; engagement instead of advertising; sharing instead of broadcasting; movements instead of events; communities instead of campaigns.

While one of the world's foremost consumer brands has acknowledged the signs of the times and is making the transition away from one-to-many mass-marketing to social marketing with meaning, marketing theory is struggling to catch up and grasp the new realities. An article on "Rethinking Marketing" (by Roland T. Rust, Christine Moorman, and Gaurav Bhalla) in the January issue of the Harvard Business Review (HBR) is the latest example. HBR deserves credit for recognizing the need to reinvent marketing, but the piece turns out to be far less radical than its title would suggest. The authors are putting the onus on the customer, demanding that marketers focus on the customer as the sole parameter of their efforts. In their eyes, this requires a shift from "pushing individual products to many customers" through the means of one way mass-marketing to "engaging individual customers in two-way communications,” building "long-term customer relationships" that provide value beyond one-off product promotions. Consequently, the authors argue, the marketing department needs to be reinvented as a "customer department," with the Chief Customer Officer replacing the Chief Marketing Officer, and "product and brand managers subservient to customer managers."

What a depressing read! First of all, the article rehashes existing concepts but doesn’t really offer any kind of "rethinking." To engage customers in two-way, personalized communications rather than marketing individual products to broad audiences is a no-brainer, and after hundreds of books and thousands of best practices it has already become so commonplace in the field that it is hard to believe HBR considers this to be an original concept. It's like social media never happened. On which analog planet did the authors live in the past three years? The concept of radical customer focus is not entirely new either and has been well-articulated before (i.e. in the book Chief Customer Officer by Jeanne Bliss in 2006, and most recently, with a more anthropological spin, in Chief Culture Officer by Grant McCracken).

But aside from the lack of originality, I also substantively object to the concept itself. While the authors' emphasis on "customer profitability" rather than product profitability and a long-term view on value creation are in theory good intentions (and a response to the demise of the concept of shareholder value, as Roger Martin lays out in his essay on "The Age of Customer Capitalism," also in the HBR January issue), I don't agree with the conclusion to turn the marketing department into the "customer department." Embracing a naive belief in customer-centrism, the HBR authors downgrade marketing to a discipline of tactical execution when in fact this time of disruptive digital technologies and changing consumer behavior presents a tremendous opportunity for marketing to reassert itself as a key strategic function in the enterprise. An extreme customer orientation, as propagated by the authors, ill-conceives the legitimate and important customer perspective. Of course it is paramount to understand customers' needs, of course companies need to ensure customer satisfaction, and of course CEOs always score when they tout the customer as their company’s raison d'etre. But that doesn’t mean the customer is the measure of all things.

The truth is less simplistic than a "customer happy, all good" approach would suggest. In addition to their customers, businesses have other stakeholders to serve: investors, employees, the community, and the broader public, as well as future generations and other constituents that are indirectly affected by the externalization of a company’s business. In fact, one could argue that the customer's demand is mostly short-term, not to say short-sighted, whereas the corporation can and should pursue a long-term perspective on value-creation that combines individual and social value, even if the latter may at times actually conflict with what customers want. Reducing the role of the company to just responding to customer needs drastically limits the critical role businesses can play in society, and it hampers companies' ability to drive real change. When it comes to innovation and marketing (according to the venerable Peter Drucker, these are the only two basic functions of an enterprise, and – if I may add – in good marketing organizations they are one and the same), companies should be empathetic to customers (that is, "Wired to Care," as Dev Patnaik put it in his book) but not reactive. Innovation – truly disruptive innovation that moves entire industries forward and gives our lives new meaning – never happens by just meeting existing customer needs, nor by anticipating unmet customer desires, as the apostles of customer research would like us to believe.

Don Norman, author of The Design of Future Things, among other books, and a long-time advocate of the business value of design, recently shocked his peers by coming to a similar conclusion. In an outburst of self-criticism, he belittles the impact of observational design research (or "ethnographic research") on innovation. In his eyes, design research may propel incremental innovation, but the only true driver of game-changing disruptive innovation remains technology: "Design research is great when it comes to improving existing product categories but essentially useless when it comes to new, innovative breakthroughs." Design research studies how people live, seeking to unearth unmet needs but Norman insists "Major innovation comes from technologists who have little understanding of all this research stuff: they invent because they are inventors." To support his point he refers to a list of inventions that all occurred without customer research: the airplane, the automobile, the telephone, the radio, the television, the computer, the personal computer, the Internet, text messaging, the cell phone." You might add the iPod and the iPhone, both creations of a company that famously refuses to conduct any customer research. The old Henry Ford line comes to mind ("If I had asked people what they wanted, they would have said faster horses") and along with it the provocative question: Can customers look beyond their individual needs? Can we rely on them to recognize what's good for society? Can we expect customers to dream up future products and services? Can we even expect them to know (or to show, as design researchers would say) what’s good for them now? Unlike Norman, Roberto Verganti would not categorically say no. A skeptical design thinker, Verganti, in his book Design-driven Innovation, emphasizes the need for "interpreters" (who can be designers but also any other species with an interdisciplinary mind- and skill set) to "radically change the meaning of things."

Both Norman and Verganti herald marketing as a creative discipline. If marketing lives up to its mission – creating innovative products and services and finding meaningful ways to make them valuable for customers and society at large – it needs to be a step ahead of customers. Customer research can inspire and validate but it can never replace the inventiveness and ingenuity of excellent marketing. Only mediocre marketers – those who lack fresh ideas and/or the guts to put them into action – rely heavily on research to back up their decisions. They end up as me-too's and yield good enough results with good enough tools. That's fine. But if you set out to "rethink" marketing, you must shoot a little higher.

The rest of the marketing thinkers do not do much better. In a way, the HBR article is indicative of a lack of vision across the industry. Since Malcom Gladwell's Tipping Point, there has not been one single book exerting comparable influence on the profession. CMOs' by-lined articles in industry trades usually play it safe and state the obvious. The myriad social media consultants who have popped up over the past few years, as well as marketing expert bloggers, boutique agencies, and industry outsiders are all preaching the social marketing gospel to the choir (or to those few remaining on the other side of the "new digital divide") in their publications. Even at conferences such as SXSW, next, the Conversational Marketing Summit, or Marketing 2.0, which are usually ahead of the digital curve, marketing thinkers have been beating a dead horse this year, more or less citing the same set of principles, practices, and case studies. At next09 in Hamburg, Get Satisfaction's Lane Becker, who spoke before me, and I were cracking up when we realized that we were referring to the same case studies in our presentations, the usual marketing 2.0 suspects: Zappos, Skittles, Best Buy, Starbuck's My Idea, Threadless, and so on.

As we are entering the new decade, it appears as if the marketing discipline, after undergoing a mesmerizing major transformation in the past two to three years, is facing stagnation. This often occurs when pioneering concepts are fully absorbed by the mainstream: Social marketing is on the way to becoming THE marketing, as social media is becoming THE media (it is always a sign of broad adoption if adjectives are dropped). Authenticity, engagement, meaning, communities, social, conversations, transparency, etc. – they're all accepted across the industry and widely implemented now. What then is the next frontier for marketers? What will be the next big marketing innovation?

Quiet is the New Loud

Rob Walker, the author of the just-released "Buying in," is a marketing connoisseur, an expert in reading the cultural underpinnings of commerce. In his Consumed column for the New York Times Magazine, he examines how technology shapes consumer culture and vice versa. In tomorrow's piece he elaborates on the history of headphones, and how their role evolved in modern society, from the first Bose set to the Sony Walkman to the iPod earbuds.

With the miniaturization of devices, the public exposure of personal space increased. I remember that when I was 14, I came home from school, had lunch, and didn't wait a second to lie down on my bed, put my clunky Sennheiser headphones on, and listen to an album I had just bought. Thomas Dolby's "Aliens Ate My Buick" or Prince's "Sign of the Times." I closed my eyes and forgot the world around me. It was a moment of total immersion and uncompromising intimacy, both with the artist and myself. I wasn't ready to share the music with anyone else until I had fully experienced and vetted every single note through the immediacy of the headphone connection.

Looking back, headphones seem to have anticipated the era of performance-enhancing body extensions that we may be entering soon, but at the same time they now appear like a nostalgic relict of a time when the supply of attention among young consumers was still excessive. Having their social function shifted from providing excessive to expressive intimacy, headphones have become a status symbol for consumers who want to consume in between or parallel to other activities, and who want do that on their own terms -- in public, alone; in a perfect manifestation of what psychoanalyst Jacques Lacan coined "extimacy." The album has dissolved into 99-cent units on iTunes, and the headphone experience has been succeeded by portable soundtracks for permanent distraction.

Rob Walker will read from his new book "Buying In" at the frog Design Mind speaker series in New York on June 11.

The Future of Business is Social

Notes from the Milken Institute's Global Conference 2008

"The difference between the optimist and the pessimist is that the pessimist has more facts," said Jean-Paul Betbèze, Chief Economist and Head of Economic Research Department, Crédit Agricole S.A., in a panel at the Millken Institute's Global Conference 2008 in Los Angeles a couple of weeks ago. True as this may be, his statement stood in sharp contrast to the overall vibe of the event: Yes, we can, was the prevailing sentiment, and the overwhelming majority of attendees would probably have outed themselves as fervent optimists, despite an abundance of fact-featuring PowerPoint slides supporting each of the panel discussions (I've never seen so many pie charts in my whole life). In fact, the gathered crowd was comprised of optimists with lots of money to spend on the world’s most pressing problems (poverty; terrorism; population; resources; energy; environment; human rights; social justice; etc.) and may well have the power and means to solve most of them if they wanted to. Muhammad Yunus, Nobel Peace Prize laureate and micro-lending pioneer, pointed out: "We wanted to go to the moon, and we went to the moon. If we really wanted to end poverty, we would have ended it a long time ago."

After listening to him and some other brilliant minds, I felt over-inspired and under-accomplished, ready to change the world or at least my life. It was indeed a humbling experience. And yet, it stunned me to realize that many members of the powerful elite are struggling to cope with the new realities of business and society. The difference between being on top and being ahead, between being innovator and pioneer, became obvious in several of the panel discussions, particularly those that addressed the changing media landscape, the ongoing digital revolution, changing consumer behavior, and the new business paradigms that come with it.

These trends include:

- A surge in broadband penetration enabling ubiquitous content distribution and hyper-social connectivity
- The explosion of user-generated content: every minute 10 hours of video are being uploaded to YouTube
- The collection and the friction-less, platform-independent distribution of content as the next big challenge for media and communication companies
- Mobile as the new container and memory device: 85 years of video (a whole lifetime) will be able to be stored on any new iPhone in a few years
- The power shift from content providers to media distribution platforms (Comcast, Hulu, etc.)
- The consumer consuming on his own terms
- The "prosumer" as a market force to reckon with
- The wisdom of the crowds as a source of innovation ("we are smarter than me")

Lex Fenwick, the CEO of Bloomberg LP, exemplified the old guard's awakening almost in real-time. First he boasted that he invented email and created the world's most valuable user community (of 350,000 customers) "by mistake," then he warned of giving users too much control ("they may join forces to challenge your prices"). Barry Libert, CEO of collaboration software provider Mzinga, nailed him on this: "If you have something to hide from your customers, or you are afraid of giving them too much power, you have a problem." At the end, Fenwick had converted from Saulus to Paulus, from "From Me to We," and, in a cathartic turn of events, he admitted he had learned quite a bit from the panel: "Thank you for your insights. I am inspired to make a few changes to the Bloomberg community based on this discussion."

Other companies have made this leap before him: Amazon, Netflix, Virgin Mobile, P&G, Dell, and recently Starbucks are all moving from a firm-centric to a network-centric organization, building and leveraging their community of users by giving them a voice in strategy, product development, and marketing decisions. They understand that crowdsourced and peer-to-peer business intelligence helps them overcome the "not-invented-here" syndrome, reconciling "inside-out" and "outside-in" innovation. Libert: "If customers cut the red tape and re-connect with customers, that's making it easier for them to find out what they really need." Of course it's always easier to proclaim a new paradigm than defending an old one, or as someone noted on another panel: "If you’re a futurist and you think ten years ahead, by the time you're wrong, no one will notice."

Jason Calacanis, founder and CEO of Mahalo and in-character as enfant terrible, thrived in the devilish charm of the futurist. In a panel on "The New Rules of PR," he joyfully exposed the insecurity of his audience. It was not so much his co-panelists -- some old-school PR pros who bravely defended their profession against his "PR is dead" claim -- but rather the ensuing Q&A that demonstrated how disturbing the new rules still are for many who have held the power in organizations for decades and find it difficult now to grasp and embrace some of the earth-shattering changes happening these days. "Should our CEO blog?" -- Yes. "How do I stay in control of my brand if our CEO gets critical comments to his blog posts?" -- Well, the truth is, you don't. Just let go. Brands are assets in the public domain. With production capabilities and financial assets off-shored and out-sourced, brands are ever more important as the only remaining indispensable value of a company, and yet they are ever more volatile. In this open-sourced, hyper-transparent economy, your customer owns your brand, and no brand platform, no brand book, no rigid compliance guidelines designed to protect your idea of your brand, can change that. Brands are social funds. Your mission is to raise their intellectual and emotional capital. The creation of brand equity is a cooperative act based on the values that you share with your customers. And, by the way, marketing's job is to promote these values, not to invent them.

In a panel on "Business Innovations that are Changing the World," Google Chairman and CEO Eric Schmidt said: "Let's not forget that the fundamental goal of any corporation is to change the world and not just to satisfy the interests of particular stakeholders." Indeed, this was the overarching theme of an economic summit that was all about social: social innovation, social media, social networks, social web, and social capitalism. What once was a noble mission is now a mandate for CEOs: the future of business is social, both in terms of raison d'etre and modus operandi. Companies that open themselves up to promoting and fully leveraging the social dimension of human beings in order to create smarter and more effective solutions for social problems will be the winners of this new social economy.

The Power of Design vs. Convergence/Divergence

Convergence and divergence: terms that many consider over-used and under-defined (although that judgment itself is over-used and under-defined, isn't it?). I gave a presentation at the recent "Power of Design" seminar in Berlin and offered some tentative definitions and a humble attempt to clear the deck of clichés, myths, and stereotypes that beset the current "design thinking" discussion. Rather than touting design as the ultimate problem solver in all aspects of social, professional, and political life, I sought to illuminate the (relative) power of design in balancing the possibilities of convergence (media; devices; platforms; disciplines; processes) with the unleashed forces of divergence in a web 2.0 world -- design as the facilitator between software and hardware; mobile, web, and desktop; analysis and creativity; virtual and real; professional and consumer; individual and crowd; business and art. And yet, weighing in on the ongoing debate over the ideal and actual power of design in corporations, my answer to the question "Can designers become CEOs?" would be: Yes, perhaps, but only if they can get over themselves. Leadership in business is about empowering others. Designers, however, are still busy yielding power for themselves.

Here's the full presentation (warning: 146 slides...)

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Apple and the Rest of Us

Is Apple's PR wearing thin?

Sure, there was the MacBook Air and the buzz around "thinnovation." But wasn't that -- pun intended -- too "thin" for a big media splash, especially compared to past years? Now that MacWorld is over, pundits are reviewing Apple's PR efforts, and when the expectations are so high (and a company is so good at it), it is not too surprising that some are disappointed with what they've seen this year. Frank Shaw, a PR professional at Waggener Edstrom, Microsoft's lead PR agency, is one of them, and you have to give him credit for being so vocal in public despite his affiliation with the Apple rival (it would be easy to dismiss his criticism as just a Microsoft cabal). Shaw is wondering whether Apple's shock and awe, event-focused product launch PR philosophy has lost its relevance in a time of always-on communications:

"The concept of holding news, building expectations and then unveiling a massive surprise has been super effective, and no more so than last year with the iPhone. It was a tour de force from a communications standpoint. This recent Macworld? Not so much."

He refers to the Feiler Faster Thesis, which states that people's ability to retain and process information has accelerated, resulting in significantly faster news cycles:

"So in this world, is a twice a year news bang sufficient? The answer could be yes -- but there is little room for events like today in that world. Apple stepped to the plate today, IMHO, and hit....a single. The company won't be up to bat again for a while....if you are only up a few times a year, you better hit some home runs."

He admits that he's a proponent of "small ball" rather than "home run ball," and it's hard to judge whether that makes him old-school or PR avant-garde:

"I've never been a big fan of 'giving up control of the message' or 'information wants to be free' or 'user generated content will rule the world' or 'it's all about the conversation.' But I'm a huge believer in the value of ongoing communication, to the right audiences, about the topics they care most about, in a regular, sustained way."

iPhone guilt

But Apple products raise more than just PR questions. On the O’Reilly blog, Dale Dougherty takes Apple's 1984 slogan "The computer for the rest of us" as a starting point to meditate on the "rest of the rest of us," those excluded from our high-tech frenzy and without the means to participate in the Apple universe of godly gadgets. He does so because he feels "iPhone guilt":

"Taking the iPhone out of my pocket in a public place makes me uncomfortable. Some people ask nicely about it: 'How do you like it?' But I'm keenly aware that others don't have what I have and they notice it. The iPhone is a great phone but I'm conscious that it's helping to define 'the rest of us versus them.'"

Dougherty's moral treatise poses some uncomfortable questions:

"Is the high-tech world indifferent to the problems of the poor? Do we have any competence that matters in helping them find a better life? Or are we just making 'the happy few' that much happier? What is a social network if the people facing the toughest problems are not part of it? They don't need more signs that tell them that they are on their own. The have-nots don't do networking. It doesn't get them anywhere."

"Whether it's the latest from Web 2.0 or Apple Computer, do we need to ask what it means for those who aren't able to take part? Does it help them catch up or put them further behind? That calculation is part of the social cost of any new technology. We might think of it like we're starting to think about our oversized carbon footprint and its impact on the physical world. Is there any way to offset the negative social impact of the technology that we're so busily developing?"

"It's a challenge for the 'best of us' to address."

Slow Innovation- Long Wow?

(Credit: Yodel Anecdotal)

The Putting People First blog by Experientia has pointed me towards the excellent essay "The Long Wow" by Adaptive Path's Brandon Schauer. Schauer outlines a vision of creating lasting customer loyalty and brand value that runs counter to the fixation on quick wins and instant gratification, which many companies, under the pressure of shorter product life-cycles and CMO tenures, seem to pursue these days. He defines "The Long Wow" as "a means to achieving long-term customer loyalty through systematically impressing your customers again and again."

This goes far beyond adding new features for features' sake, implementing loyalty programs such as membership awards, or simply measuring loyalty in economic terms: "Like Christmas, customer loyalty can't be bought or bottled. It's not something you can capture in an ID card. Loyalty is a sense that grows within people based on the series of notable interactions they have with products, services, and companies." As he describes them, "Notably great experiences are punctuated by a moment of 'wow,' when the product or service delights, anticipates the needs of, or pleasantly surprises a customer. For Schauer, "OXO's Good Grips Angled Measuring Cup triggers such a moment of wow. A set of angled markings on the OXO cup lets you quickly measure liquids for recipes without having to stop cooking and bend over. Suddenly a little part of your life is easier, because OXO thought carefully about the way you cook. This delightful surprise resonates because it feels tailored to your needs."

It is interesting to assume a causal relationship between this kind of lasting value and the time it takes to create it. What if the immense pressure to innovate quickly or to rush to market comes at the expense of quality and sustainability? What if the "Long Wow" presupposes a long time-to-market or, in other words, "slow innovation?" Innovation and creativity expert Derek Cheshire has answers to these questions and -- obviously inspired by the Slow Food movement -- suggests a slow approach to innovation. In a recent manifesto for Change This, he heralds the goal of creating "an innovative company whose structure and culture are conducive to long-term growth and sustainability." His argument is convincing: "In the world of slow, there will be less waste as there's time to be more resourceful and to use the materials already available."

Essentially, this is a question of how companies manage their time. Both the concepts of "Long Wow" and "Slow Innovation" ask for more time: more time to listen to customers, more time to build a meaningful relationship with them, and more time for the innovator to develop products and services that are built to last. But what about the customers? Will they have the time to wait for this kind of high-quality, sustainable innovation?

Change as a Feature: Designing for Consumers in a State of Permanent Crisis

Can you call a concept a cultural phenomenon if different people conceive of it at the same time? Within the past few months, three publications have come to similar conclusions. The digital media agency Avenue A | Razorfish released a study called "Fast Forward: Designing for Constant Change." It consists of thirteen essays as well as research exploring how consumers' digital media habits are changing, and how this affects the design of user experiences and brands. The key take-away is: Today's online users are forced to adjust to constant change in increasingly volatile rich media environments, and they are increasingly good at it.

Around the same time, the Museum of Modern Art in New York announced an exhibit called "Design and the Elastic Mind," which will open in February, 2008. While the Avenue A | Razorfish study provides actionable advice for marketers, the MOMA exhibit examines the philosophical implications for designers:

"In the past few decades, individuals have experienced dramatic changes in some of the most established dimensions of human life: time, space, matter, and individuality. Working across several time zones, traveling with relative ease between satellite maps and nanoscale images, gleefully drowning in information, acting fast in order to preserve some slow downtime, people cope daily with dozens of changes in scale. Minds adapt and acquire enough elasticity to be able to synthesize such abundance. One of design's most fundamental tasks is to stand between revolutions and life, and to help people deal with change."

And lastly, in a similar vein, Roger Martin, dean of the Rotman School of Management and father of the concept of "integrative thinking," elaborates on "The Opposable Mind" in a book published earlier this year. F. Scott Fitzgerald once wrote that one sign of a "first-rate intelligence" is the ability "to hold two opposing ideas in mind at the same time and still retain the ability to function." Accordingly, Martin argues, a sure sign of first-rate business intelligence is the ability to recognize two diametrically opposing ideas and meld them into a new model that is superior to either. Martin says that designers often engage in abductive reasoning: they imagine what might be and act on that insight -- even though they can't prove it.

The "adaptive," the "elastic mind," or the "opposable mind" -- business or consumer, and whatever the name, the concept is the same: the rise of new digital technologies has turned us into skilled micro-managers of constant change, in all aspects of our lives. Uncertainty has become our routine as we live in a state of permanent crisis, in a multi-task, muti-tab, multi-media, multi-window world where each new online event requires a new and different reaction. Sometimes we flee but mostly we adapt, bridge, and synthesize. We have become adept at adapting. We switch back and forth from from macro to micro, zoom in and zoom out, face-to-face and space-to-space, at the same time but at different paces, shifting time and shifting places. We possess what drummers show when they perform two distinct rhythms in their hands and feet -- excellent coordination. Seamless is our modus operandi.

As micro-managers of constant change, we stretch our minds' boundaries and sometimes over-reach; we combine the long and the short form, the philosophical and the mundane, the narrative and the 140-word Tweet. We understand that the "map is outgrowing the territory," as Bruce Sterling puts it. We can think meta while in beta, and we understand that every idea immediately transcends itself into something bigger, something universal that it is meta-tagged before it is even final.

What does all that mean for product designers, not only in the digital realm? Acknowledge that consumers are smarter than you. Hence, design for input, and do not just satisfy the user preferences. Understand change as a feature. Design a highly modifiable and personalizable experience that is adaptive to change, but build in enough flexibility for the users to adapt the experience itself to changing conditions. Make your products adapt, bridge, and synthesize, as your users do. Give them features that literally scale. Equip them with "peripheral vision" -- the ability to see things outside of the usual spectrum, not front and center but right, left, and in the back. And if all that isn't enough: Allow the user to customize, mash up, and ultimately re-design the product or service beyond its original purpose.

Examples? Netscape, Flash, JavaScript, TCP/IP, IM, and a host of other products in the digital realm have all moved far beyond what they started out as. The iPod enabled podcasts, Google Earth triggered hundreds of mash-ups, Google's Open Social and Open Mobile inititiaves will further spur third-party innovation resulting in myriad new applications that will change the orignal services. And then there is of course Facebook, which from a social network evolved into an operating sytem, a content distribution platform, a whole new micro-economy -- or all of that together. The product is the system and the system is change.

Design Is Your Business: GABA Event at Frog Design in Palo Alto

In partnership with the California chapter of GABA (German American Business Association), frog design will co-host an event titled “Design Is Your Business” on September 11 in frog's Palo Alto studio.

"Business leaders worldwide recognize design as a critical business factor, not just beautification. Large corporations have added executives with design expertise to their team, leveraging the ability to think in the integrative designer’s way. Designers and business executives need to work together to shape business processes that make design an integral part of the DNA of a company. No matter whether the design team is in-house or a specialized design firm is hired."

The panel discussion will be moderated by Steffan Heuer (Brand Eins/The Economist) and will feature panelists Michael Meyer (General Manager, frog design), Sara Brody (Design Director, Apple), Cordell Ratzlaff (Director of User-Centered Design, Cisco), and Mike Tschudy (Design Strategist, SAP).

GABA events are usually attended by a good crowd of high-tech execs, VCs, and media.

More details

Will Microsoft Compensate File-Sharers?

“What are you in line for?” asked one ignorant passerby the hundreds of people in front of the Apple store in Palo Alto. “Zunes!” someone yelled back and the crowd broke out in laughter. Is the Zune really only a joke? Microsoft is still working hard to uncover an innovative business model for its struggling music handheld. Now ZuneScene, a fan site devoted to Microsoft's portable music player, is again reporting (Engadget already rumored back in November) that Microsoft has filed a patent for a system to compensate Zune users for sharing music wirelessly.

It would allow you to share a song within a certain limited period of time (3 days), regardless of its source (own CD collection, a file-sharing network, or a Zune Marketplace download) with other Zune users. The person receiving the file could use it three times, then be forced to pay for the song. If s/he decides to purchase the song from the Zune Marketplace, you get a small commission, for example points good for buying other songs from the Marketplace.

Combining the social with the monetary - an interesting idea that would allow Microsoft and content owners to monetize the huge traffic of free files on file-sharing sites and elsewhere. ZuneScene comments: "The system would essentially convert illegal music into legal music. It would also give a strong retail presence to Zune by creating 1 million traveling salesmen of all ages. "

Demystifying Holy Grails of Innovation: Six Sigma, 3M, Apple, and Convergence

The classic antagonism between excellence and efficiency (read Apple vs. Dell) is enjoying a renaissance these days, and along with it, the old conundrum of creativity versus process in fostering innovation has re-emerged. It is thus not too surprising that, in a recent issue, Business Week questions the value of Six Sigma, the Holy Grail of process (and performance) optimization in which many corporate heavyweights fervently believe. The Six Sigma methodology, with its emphasis on quality management, was once understood to be a strong innovation enabler. However, as competitive advantages are increasingly built upon top-line growth, in other words, explorative rather than exploitative strategies, it suddenly seems to be a little dusty. Six Sigma was developed to minimize risk and variation, but for free-spirited innovation to blossom, allowing risk and variation is paramount. The magazine illustrates the ramifications of ill-directed Six Sigma rigor by juxtaposing the leadership philosophies of James McNerney and George Buckley at 3M and showing how an over-emphasis on process-quality led to “sameness” and the gradual waning of the company’s innovative power. Process-obsession may in fact be opposed to “the new age of creativity” that propels hyper-customization and attempts to save brands from the “death spiral of commoditization.” If you measure everything you manage, risky ideas will not spark. Employees need to be able to dream, and they need to know that their company not only encourages risk but in fact exhibits a high tolerance for failure.

Not coincidentally, the 3M critique coincides with the eulogies that Apple is receiving upon the release of the iPhone. The Economist, for example, praises Apple as “the company that epitomizes the art of innovation,” deriving four principles of innovation from Apple’s success. In short, they are:

1. Network innovation – “very welcome” vs. “not invented here”
2. User first! – design around the needs of the user not the demands of the technology.
3. Discover untapped markets – listen to what your customers do not say rather than relying solely on the requirements they articulate
4. Fail wisely – allow failure but don’t make the same mistake twice

None of these four principles appears to be very original on paper – in fact, they’ve been recurring themes throughout the business media in the past five years or so. However, applying them is a whole different ballgame. There are too many companies attempting to follow the Apple way and still not getting anywhere close to Apple’s mastery of the “art of innovation.” Which is why perhaps the most important lesson of all is: Study Apple, but don’t imitate it! Do innovation your own way: Follow your guts and make sure your organization is following you. The next Apple will not be a believer; it will be a heathen.

Let’s stay with Apple though for a moment and take a closer look at the other Holy Grail of innovation – convergence. There are many pundits who herald Apple for its convergence strategy by simply refering to the facts: iTunes is on over 300 million computers, iTunes ranks number 3 in all music sales, the analysts are predicting iPod sales of 10 million units this quarter, Apple TV has been launched, and the iPhone should emerge as the most talked about new consumer electronic device in history and is expected to fuel the launch of more all-in-one gadgets from competing consumer electronic makers. Experts foresee that Apple “could well be the big winner when our home computing environments and our home entertainment environments merge into one integrated environment that makes moving between media sources, data sources and applications seamless and easy.” Convergence is – once again – all the rage, not just with regard to Apple. Reuters reports that top industry executives forecast that wireless, TV, and Internet services would increasingly converge. And just two days ago, for example, in a meditated step toward converged video and phone communications, AT&T unveiled at the industry trade show NXTcomm a video-sharing service for its wireless customers. With this Video Share service, users are able to send live videos to each other during phone conversations.

But what does convergence exactly mean? Let’s try a very simplified overview. First of all, there is the media convergence between the worlds of telecoms, TV, Internet, and computing, including fixed-mobile convergence, voice-and data convergence, and -- most importantly -- three-screen-convergence. Then there is what you may call messaging convergence: email, chat, video-conferencing, and other messaging tools are becoming more and more integrated. And then there is device convergence: Everything from a laptop to a mobile phone to a television to a games console is now, arguably, the same kind of device: each consists of a microprocessor, a screen, some storage, an input device and a network connection. You can make phone calls on your laptop, play games on your mobile phone, and watch videos on your games console. Finally, there is the convergence of the user experience, which media scholar Norbert Bolz approaches from a philosophical, design-thinking angle: “Shaping the interface between telecommunications, new media, and computer technologies is the most important task of the future. There is a computer in an increasing number of things around us. And an increasing number of things that surround us are the products of design.” Indeed, there is a gradual convergence of things with Internet and the Internet of things. This is a reality for all of us and a daunting challenge for designers: Ubiquitous computing requires ubiquitous design.

Yet this ubiquitous design does not necessarily need to be convergent. According to Al Ries of Ad Age, “In the high-tech world, divergence devices have been spectacular successes. But convergence devices, for the most part, have been spectacular failures.” Ries provides some examples: “The first MP3 players (the Diamond Rio, for example) were flash-memory units capable of holding only 20 or 30 songs. The first iPod, on the other hand, had a hard drive and could hold thousands of songs. Now there were two types of MP3 players, a classic example of divergence at work. Every high-tech device has followed a similar pattern. The first computer was a mainframe computer, followed by the minicomputer, the desktop computer, the laptop computer, the handheld computer, the server and other specialty computers. The computer didn't converge with another device. It diverged. When the cellphone was first introduced, it was called a ‘car phone’ because it was too big and heavy to lug around. You might have thought it would eventually converge with the automobile. It did not. Instead it diverged and today we have many types of cellphones. Every Best Buy and Circuit City is filled with a host of other divergence devices that have been enormously successful: the digital camera, the plasma TV, the wireless e-mail device, the personal video recorder, the GPS navigation device. What convergence device has been a big success? Not many, although there have been a lot of convergence failures.

• The computer/phone. AT&T, Motorola and others introduced combination products. Few were ever purchased.
• The computer/TV. Apple, Gateway, Toshiba, Philips and others tried to market combination products with little success.
• Interactive TV. Microsoft spent $425 million to buy WebTV and then poured more than half a billion dollars into the venture. That didn't work, so it moved on to Ultimate TV, which didn't work either.
• Cellevision. Everybody is talking about the third screen, watching TV on your cellphone, but relatively few people do. (The real action in TV is the booming market for divergence products such as big-screen plasma and LCD sets.)
• Media-center PCs. Everybody was going to run everything in their homes from personal computers. It never happened.”

Ries’ theses are backed by the findings of a recent research project, conducted by Swisscom’s R&D division. The study examines how users really use their cell phones, and it unearths some surprising insights that run counter to the widespread gospel of convergence: “People are in fact using different communications technologies in distinct and divergent ways. The fixed-line phone is the collective channel, a shared organisational tool, with most calls made ‘in public’ because they are relevant to the other members of the household…(…) Mobile calls are for last-minute planning or to co-ordinate travel and meetings. Texting is for ‘intimacy, emotions and efficiency.’ E-mail is for administration and to exchange pictures, documents and music. Instant-messaging (IM) and voice-over-internet calls are ‘continuous channels,’ open in the background while people do other things. Each communication channel is performing an increasingly different function.”

So what do innovators not only in the mobile sector but also in the broader media/communications/entertainment space learn from the Swisscom research? Is convergence a myth that users don’t really care about, or is the current state of convergence just not satisfying enough to lure users out of their divergent use patterns? Is the answer to divergence more divergence or better convergence? “We have to be extremely careful that we don't go in the Swiss army knife kind of direction where we lose focus on what the consumer wants,” says Olli-Pekka Kallasvuo, the boss of Nokia.

I think he’s right. What will be critical is that companies have a “convergent view” on product ecosystems and know when to design the space between the devices and platforms and when not. This will result in a greater diversity of hybrid devices that orchestrates convergence and divergence to the benefit of a more satisfying user experience. Convergence must not equal “sameness.” Convergence and divergence are not fixed attributes; they are adverbs that describe the modality of an experience. A convergence/divergence combination will enable variety, which will again enable true personalization. The Holy Grail is not Six Sigma; it is not convergence. It is a slight variation of a line by Malcom Gladwell: “There is no perfect product. There are only perfect products.”