Umair Haque at HBR: Insane Argument about Insanely Great Products
Umair Haque is one of the freshest voices on Harvard Business Review’s blog team. I love his stuff, and his work in business is terrific. But when his latest post asserted that business model innovation is unnecessary and destructive…well, I say, “Aha! You want to fight? Fight me!” <John assumes the crane pose from The Karate Kid.>
Look, it is true that you have to start with insanely great products, as Umair correctly points out, but to say that if you have insanely great products you don’t have to find better business models to support them is simply driving off the cliff of the absurd.
Umair uses the recent financial debacle as a case for why business model innovation is bad. But the financial crisis was not brought on by business model innovation. Strictly speaking, it was brought on by the financial industry’s version of product development run amok. They weren’t offering insanely great products, just insane ones.
Business model innovation isn’t a simplistic matter of finding new ways to sell bad stuff. In fact, as IDEO and others have clearly shown, the product and the business model are all part of the same set of Lego that we snap together to change how people live their lives and see the world. A smart product designer today must also be a brilliant business model designer.
My early work at IBM was on the Java team. So object-oriented thinking is in my bones. When you analyze and construct business models in the same way you architect software, you discover hidden assumptions, novel relationships, and gives-and-gets that lead to new sources of revenue for your insanely great product.
Take Amazon and the Kindle. I argue that it is an insanely great product only because of its insanely great service business model. It is impossible to separate the product from the model that supports it. (The product is nominally the device and electronic content – though as Jeff Bezos has said, the device is not the point; being able to get “any book in under a minute” is the point.) For its business model, Amazon has set up a novel organizing system with publishers and authors at large, given readers the ability to buy a book with one click and see it on their iPhone or Kindle in under a minute, and set pricing which finally acknowledges that if you don’t have to store a lot of dead tree you can sell books for a lot less. Today, an author like Stephen King can finish his manuscript, quickly get it edited, decide on a price of his own choosing, and have it selling on the Kindle store in under four minutes. That is insanely great, and it is so because of both the product and the business model.
Okay, you had me at IDEO.
Another example is Better Place of Silicon Valley. This innovative “car” company doesn’t see a future for electric cars without the model to support them…
On the electric car… The electric car is far more efficient than gas, quieter and smoother riding, cleaner to operate and repair… and yet no one has one. An insanely good product that nobody owns? Then, Better Place creates a smarter business model around electric cars and the investors, the partners, and even the end customers can’t wait to be a part. A subscription for your car’s energy and batteries like a cell phone? Brilliant and innovative business model.
And where would the IPOD (and Apple for that matter?!) be without Itunes? Itunes isn’t a software or a technology so much as it is a business model. Prior to which, saying you “got a song online” meant you stole it!
John,
Success requires both a great product and a great business model. In fact, you could argue that many of the web businesses of the past 10 years have been mostly about business model innovation. Business models encompass pricing (freemium, upsells, etc) and distribution (digital, viral, social, etc).
The cell phone business, cable TV business, news business, web search business, and many others are successful because of the innovations in business models. The products themselves are fairly ordinary.
The iPod was an elegant design, but what made it really successful was the way iTunes (distribution) was wrapped around the iPod. That was business model innovation. There were lots of small, cool, Mp3 players around before the iPod. But there wasn’t an innovative pricing a distribution model wrapped around them.
There are lots of other examples too.
Umair saying that business model innovation is unnecessary and destructive is simply wrong.
Don Dodge
John, thanks for pointing this out – I hadn’t seen it. I agree with you, and in fact several people from Innosight have written about this in the past 6 motnhs or so — that the problem with the financial crisis was product innovation run amok when business model innovation would have been a better choice.
Great answer – I had a similar line of thoughts (and commented on his article, but my comment is “held for moderation” – I thought I was quite moderate, it didn’t even have the word ‘fight’ in it
)
Cheers,
Thorsten