The wrong war, in the wrong place, against the wrong people,

My friend Stefano Mastrogiacomo, in his recent Lords of management book (coming out soon in English), offers a strategy for managers to make sure no one on their staff threatens them in the war for promotions: put the wrong people, in the wrong meetings, to discuss the wrong topics. This is exactly what the music industry has been doing for the past 15 years.

As a long time observer (I was on the team launching the first music web store in Switzerland back in the nineties), I quickly had an intuition the industry was on the wrong path. I deserve no credit for that. It is easy to see something goes terribly wrong for a business when it starts to sue its clients, and to make the life of those who paid miserable (remember the “CDs won’t play in your car because of copy protection”? A problem downloaders never had).

Shortly after came the downward spiral of profits. At that moment intuitions began to be replaced by hard facts. How can profits free fall when the usage of music spreads like fire? Something was obviously wrong.


US recorded music revenue in 2011 dollars – theunderstatement.com

Then came the studies and the numbers. This from a 2007 blog post:

Another study revealing the obvious: downloads are what TV is to DVD: a free teaser that actually increases sales in the long run. […]

When assessing the P2P downloading population, there was “a strong positive relationship between P2P file sharing and CD purchasing. […] The study estimates that 12 additional P2P downloads per month increases music purchasing by 0.44 CDs per year.

Link

Today comes another piece of the puzzle, an insight into the usage of the various channels available to move music around, from peer to peer to offline swapping. The conclusions are surprising, showing how the crusade against online file sharing is off target both in its concept (most of the music moves offline) and in it’s aim (digital lockers like megaupload account for only 4% of swapping):

 15 percent of all acquired music (paid + unpaid) comes from P2P file-sharing and just 4 percent from cyberlockers. Offline swapping in the form of hard drive trading and burning/ripping from others is much more prevalent with 19 and 27 percent respectively.

This leads to the, for us, surprising conclusion that more than 70% of all unpaid music comes from offline swapping.

Link

In a post last week, I was talking about how success can make you arrogant, and how in business arrogance is often the equivalent of blindness. Here is another example, an industry that had to face a disruptive innovation at the peak of its power. The result has been well documented: a war against clients, efforts to shut down systems generating free marketing, and above all a complete lack of innovation.

What can we learn from the above? A few ideas:

  • Try to always fight through positive rather than negative measures. Suing customers is a negative, slow and costly way to solve a problem. Testing new ways to download music, support efforts of artists and entrepreneurs exploring new models, trying things to see if they grow into something: that’s a positive way to fight. To take a famous example: instead of putting millions into Hadopi, give it to startups who reinvent the industry and really solve the problem.
  • Business decisions are better when based on facts. Intuitions can be very wrong, experts can be wrong, media can be wrong. Seek the facts, even if it takes a bit more time.
  • There are always weak signals out there. I remember a 1995 article in Wired (couldn’t find an online version) offering a detailed timeline of what was set to happen to the music industry, step by step. The manual was available in the mid 90s. Here and there, innovation happened, thanks to artists (Prince giving away his album in 2007, Radiohead and the name your price experiments, etc) and entrepreneurs (magnatunes in 2005), even video games (Motley Crue made more money from Rockband than iTunes in 2008). It is all about listening. A simple subscription to the right magazine can save you millions.

Time spent communicating in person: 4h in 1900, 1h in 2010

I continue the exploration of the Unlocking value and productivity through social technologies report by the McKinsey Global Institute. This evolution of media consumption and time spent communicating across the past 110 years is extremely valuable. It shows how much digital technologies are taking an important role in the mix in only 10 years (not a surprise) but mostly puts a number on the decline of face to face interactions.

Report homepage | Executive summary | Full report

Use contradictions, inversions, oddities, and coincidences to spot the future

The great Paul Saffo – formerly the director of the Institute for the Future – shared with Wired some of his tips on how to predict the future. He reacts on four indicators: contradictions, inversions, oddities, and coincidences.

When looking for the future, theory is easy and practice is hard. One rule is that it is much easier to foresee things when you are not trying: actively looking for contradictions or coincidences is hard. But keeping these triggers in the back of your mind will help. Next time you stumble on one of these, ask yourself what could be hiding behind…

There are four indicators I look for: contradictions, inversions, oddities, and coincidences. In 2007 stock prices and gold prices were both soaring. Usually you don’t see those prices high at the same time. When you see a contradiction like that, it means more fundamental change is ahead.

The second indicator is an inversion, where you see something that’s out of place. When the Mexican police captured the head of a drug cartel, in the photos the perpetrators were looking proudly at the camera while the cops were wearing ski masks. Usually it’s the reverse. To me that was an indicator that Mexico was very far from winning its war against the cartels.

Then there are oddities. When the Roomba robot vacuum was introduced in 2002, all the engineers I know were very excited, and I don’t recall them owning vacuums. I said, this is damn strange. This is not about cleaning floors, this is about scratching some kind of itch. It’s about something happening with robots.

Finally, there are coincidences. At the fourth Darpa Grand Challenge in 2007, a bunch of robots successfully drove in a simulated suburb. The same day, there was a 118-car pileup on a California highway. We had robots that understand the California vehicle code better than humans, and a bunch of humans crashing into each other. That said to me, really, people shouldn’t drive.

Link

What innovators can learn from Nokia’s demise

There are two ways to learn: do the mistakes yourself, or listen to those who made them and try to do better. The Wall Street Journal gives us a shot at the second solution, with an interesting article on Nokia’s fall from a $300 billion company to 1.83$ a share (6.85b valuation). Several lessons can be drawn:

Most of the time, the people who can innovate are already there. They are just buried deep into the organization, unable to rise to the top and catch decision maker’s attention:

“More than seven years before Apple Inc. rolled out the iPhone, the Nokia team showed a phone with a color touch screen set above a single button. The device was shown locating a restaurant, playing a racing game and ordering lipstick. In the late 1990s, Nokia secretly developed another alluring product: a tablet computer with a wireless connection and touch screen—all features today of the hot-selling Apple iPad.”

Do not let today’s profitable products define your strategy when market conditions are changing very rapidly. What is true today might not be true in two years. Those who are on top have little to gain, but a lot to lose. They will make more conservative decisions to try to protect their assets instead of looking ahead. Because looking ahead is looking beyond themselves:

“In late 2004, U.S. manufacturer Motorola scored a world-wide hit with its thin Razr flip-phones. Nokia weathered criticism from investors that it was expending too much effort on high-end smartphones while its rival ate into its lucrative business selling expensive ‘dumb’ phones to upwardly mobile people around the world. [The new CEO] merged Nokia’s smartphone and basic-phone operations. The result, said several former executives, was that the more profitable basic phone business started calling the shots.”

Don’t ever let success make you arrogant. Because arrogant means blind:

“Nokia engineers’ “tear-down” reports, according to people who saw them, emphasized that the iPhone was expensive to manufacture and only worked on second-generation networks—primitive compared with Nokia’s 3G technology. One report noted that the iPhone didn’t come close to passing Nokia’s rigorous “drop test,” in which a phone is dropped five feet onto concrete from a variety of angles. Yet consumers loved the iPhone”.

Business is a lot of work, intelligence, network and money. But luck and timing play a huge role too, and these you can not control:

“‘We had exactly the right view of what it was all about,’ says Mr. Ollila, who stepped down as chief executive in 2006 and retired as chairman in May. ‘We were about five years ahead.'”

Keep things simple. If there are more than 3 persons to make a decision, start to wonder what went wrong:

At some companies, such decisions might be made around a conference table. In Nokia’s case, the meeting involved gathering about 100 engineers and product managers from offices as far-flung as Massachusetts and China in a hotel ballroom in Mainz, Germany, two people who attended the meeting recall.

In time of crisis, making radical shifts and getting rid of past products can save your life. Nokia did it once in an impressive fashion:

“Nokia has a long history of successfully adapting to big market shifts. The company started out in 1865 as a lumber mill. Over the years, it diversified into electricity production and rubber products. At the end of the 1980s, the Soviet Union’s collapse and recession in Europe caused demand for Nokia’s diverse slate of products to dry up, leaving the company in crisis. Jorma Ollila, a former Citibank banker, took over as CEO in 1992 and focused Nokia on cellphones.”

Link

Nokia has a great team working hard to put the company back on track. Their newest phones are surprisingly cool. Let’s hope a european company can stay in the hunt in the highly competitive mobile handsets market.

L’oréal backs women-led digital startups

There are plenty of initiatives to mix big businesses and startups: prehypeIDEO startup in residence programMicrosoft Bizspark.

In Switzerland there is the “P&G as your first client” program we launched with Filippo Catalano at Lift11. It consists in a call for startups followed by in person meetings during the conference. If you make the cut, you get a prestigious and massive first client to help make the cashflow a bit smoother.

As innovation is so hard to foster inside large organizations, more and more are trying to get a share of the startup’s creativity and energy. The result is a growing feeling of saturation, traditional startup accelerators fighting a new wave of entrants (seedcamp, founder institute), and now even corporate initiatives.

Some incubations are more interesting than others, and I really like this one from L’oréal, one of the world’s largest companies but still open to test the opportunities presented by technologies. After being an early adopter of blogs (first in the wrong way, then rightly), after testing crowdsourcing ads on current.tv, the cosmetics giant is now launching a venture program where women-led digital startups receive support and connections to the L’Oréal ecosystem of brands.

This program wants to tackle a recurring problem: women are 50% of the total users of technologies. Yet “only 1% of VC money goes to companies with a woman, or women, at the helm”. If women can design products and services better than their male counterparts, then here is a massive opportunity, and L’Oréal’s initiative makes a lot of sense.

Original article from the High Low:

After founding an innovation fund last year and realizing they’d need to do some serious work to find the right digital start-ups with whom to work on the fund’s projects, L’Oréal held their first-ever NEXT Generation Awards to get to the right candidates.

The five winners, picked from a pool of 2200 candidates, were announced yesterday.  All are women founders/CEOs of ingenious new digital tech companies:

No set deals between L’Oréal and any of the start-ups have been announced, but the cosmetics behemoth will most likely engage all of them on pilot projects, at the very least.  Ultimately, L’Oréal’s initiative […] managed to bring the attention of the venture capital community to women-led start-ups.  This is no small feat, since as it stands, all of 1% of venture capital funding currently goes to new companies with a woman, or women, at the helm.

How to make apps sticky

Canvas8 (my favorite behavioural insights agency) has an article on how to make apps sticky, and here are a few interesting quotes:

  • According to research by Gigya, visits to sites using a social login (such as Facebook Connect) last 50% longer than visits using a standard login […]
  • A study published in Personal and Ubiquitous Computing found that smartphone users indulged in “checking” – picking up their phones and looking at email or social media – an average of 34.11 times per day.
  • What made Draw Something sticky? Its game mechanic was simple and familiar, […] it has no levels and no escalating complexity, […] it can act as a low-intensity way to keep in touch with friends, individual rounds are short, […] it is asynchronous, so play does not depend on both players being online at the same time.
  • Adding mechanisms to increase the time spent with a poor app is counterproductive to the value of a brand. […] Stickiness flows from the quality of the content.

Link (registration required)

“The quality of work decreases when you become institutionalized”

Marc Laperrouza sent me this interview of Lift12 speaker [videoTricia Wang on FastCompany. She explains her job, which consists in watching people on the fringe of society to identify social change and future trends. Towards the end, she answers a question about her job and makes a couple of comments I find typical of how 21st century nomad workers think:

I think I’m a better researcher when I’m able to work in multiple places and for multiple clients. If I were only doing research for one company, one product, or one community, I don’t think I’d be as valuable. The quality of work decreases when you become institutionalized–you start thinking like an institution, you have to sort of conform to the institutional culture. I don’t fit in that kind of situation, nor do I want to. I want to continue bridging the gap between the tech worlds, the advocacy worlds, and the research worlds, even if there’s not an obvious job description or path to follow.

Link

I don’t know if it is a personal trait or a sign of the times, but I heard this fear of being institutionalized from many of my peers, mostly people who grew up around the “internet” values of global collaboration, information sharing, and constant interactions. I used to think that this way of being would take over the world, that generation Y was about to spread this culture of not being “captive”.

A few years later, I am not so sure anymore. I see corporate life and its reassuring sides making a comeback, fueled by the constant flow of economic gloom. After all, a (disputed but still published on major media) survey found that 75% of French youth would like to have a government job. Another survey found a proportion of 1/3rd. Plan B is becoming the plan A for many, and who can blame them?

I am wondering whether the way Tricia wants to work is a luxury that will remain marginal, or if she is a canary in the coal mine, functioning in a way that will soon be widely adopted across society. I certainly have a small idea on which side I would like to see triumph, but that’s not the question 😉