This post is part of a 5 part series on Business Modelling, Collective Intelligence & Innovation. You can read Part 1 here; and Part 2 here.

In Part 2 of this series on Business models, collective intelligence and its importance in innovation, we discussed the need to understand value chain contexts, and to possess the capability of re-articulating existing assets to seek out new competitive advantage.

In this part of the series, we have presented a case study of Apple – and analysed some of Apple’s biggest and most disruptive successes.

Case 1: Apple | United States of America

Apple iPod:

Here is a brainteaser. Did Apple really invent the iPod? To those who said yes, you would incur the wrath of a Brit gentleman (nay, serial inventor) – Kane Kramer – who actually invented a device that looks and works just like the iPod (hold your breath) in 1979! He called it IXI. Read this.

Kramer was 23 years old when he invented the IXI. The IXI System had a display screen and buttons for four-way navigation. In a report presented to investors in 1979, the IXI was described as being the size of a cigarette packet. Does this sound familiar?

Back in 1979, a memory chip would store a paltry 3 ½ minutes of music. Kramer fully expected this to improve, and foresaw a market for reliable, high quality digital music players which would be popular with both consumers and the record labels. It could actually be argued that he was still ahead of Apple after the first iPod went on sale — that had a hard drive, and Kramer had moved onto flash memory years earlier (in 1979)!!

Stupendous! But like all innovations, timing and contextualisation to your ecosystem is critical. In 1979, the ecosystem was just not there – and Kramer simply was unable to negotiate any funds for his product. To the extent that his patents expired since he had no money to renew them – Enter Apple in 2001 riding on a technology that became available because the inventor didn’t have enough cash with him to renew his patent. And did Apple offer him any real compensation? No, they did not. Rather, they pleaded with Kramer to appear on behalf of Apple for a technology infringement suit filed by Burst.com. Burst had claimed that they were the inventors of the iPod technology, and that was put to rest with Kramer’s evidence.

But that did not stop Burst from suing Apple for other patent infringements owned by Burst. Interestingly, Burst has won a settlement (~US$ 60 million) from Microsoft for an infringement of Burst’s technology to speed delivery of video. Burst’s claims against Apple pertain to patent infringements related to the iPod, iTunes, and QuickTime software. It seems that the case has finally been settled out of court – rumoured at about US$ 10 million. Apple got away cheap – real cheap!

The story of the iPod is now history – and how Apple emerged during the recession like a phoenix, and contextualised it’s product with a completely new design, a new concept (iTunes integrated with iPod – content married to device), and provided consumers something that they wanted to spend money on. That was true re(i)nnovation™ by Apple.

So, Apple did not invent the iPod [Q.E.D].

Did Apple re(i)nnovate™ it’s business model and disrupt the market? A resounding yes. It re-articulated existing assets (irrespective of whether it invented those assets or not) and created a new offering (not just a product; not just a service; but, a new offering) – thereby causing disruption.

Apple iTunes:

Yet another brainteaser. Did Apple invent iTunes? Short answer – NO!

iTunes is based on software originally called SoundJam which was developed by Jeff Robbin and Bill Kincaid and released by Casady & Greene in 1999. Apple purchased SoundJam in 2000, and added a new user interface and the ability to burn CDs, and released it as iTunes in January 2001. Copycat model – basically a version change with some existing technologies.

Okay. So what? The software came from SoundJam – and Apple bought it legally. But, didn’t Apple invent the concept of the iTunes store? Didn’t Apple invent the concept of DRM and provide the true first idea to protect media production houses from piracy? Surely, no one can claim credit for this portion of iTunes features? Or can they?

Short answer – YES. Read on….

You remember the Brit, Kane Kramer, from the iPod section above? Well, he had a partner and friend, James Campbell, 21 years old, back in 1979. Now what did Campbell do? Campbell was an electronics whiz kid and between himself and Kramer, the men came up with four prototypes of the IXI. According to Kramer’s website, a fifth prototype, pre-production unit actually went on sale at the APRS exhibition at Earls Court, London. But the really surprising part of Kramer’s invention is not the hardware but the infrastructure behind it. It eerily foreshadows the iTunes Store and pretty much any modern online music store.

Content was to be stored on a central server and distributed to music stores vie telephone line. Remember there was no concept of the internet back in 1979 – atleast for the public domain as we see it today. So, Kramer and Campbell had this idea that customers would take IXI players to the store, buy music, which would then be loaded on the IXI chips inside. Interestingly, these chips were removable – much akin to the concept of flash drives today. This would obviate the need for any physical media. WOW – remember, this is 1979. Now, here’s the real WOW factor.

Kramer’s investors pitch book extract explaining the features of IXI to investors:

  • Immediacy of delivery
  • No physical inventory and therefore no production costs
  • Live performances taped and then made immediately available
  • Entire back catalogs could be put on sale at almost no cost
  • New, risky artists can be promoted with low cost
  • Instant micro-billing, handled centrally
  • Vending machines for self-purchasing — located in bars, filling stations, & supermarkets

The vision of Kramer was such that he also foresaw DRM, or digital rights management, before it even had a name – yes, way back in 1979 (Apple was founded in 1976 – just 3 years earlier).

  • For every record or tape of conventional format sold, over one copy is made in an illegal form.
  • Therefore over 100% of the total sale potential is lost.
  • With IXI, all programme material (recordings) is stored and transmitted on a high security enclosed digital network, all terminals being supplied under license to retailers. Because of the attention to security, it is impossible to break into the system undetected, thus preventing bootlegging of the programme material by fraudulent means.
  • The first stage at which the digital encoded programme material is converted to analogue (audio) signals, is when the IXI CHIP is played back in the home playback unit.
  • It can be seen from the above, that the format prevents mass copying of programme material by fraudulent traders and home copying.

At that time, investors were laughing at his optimism, his sheer “lack of knowledge” of how the music industry works! But we now know that Kramer foresaw the recording industry’s huge reluctance to online delivery and attempted to diffuse it. What is really ironic is that, some 30 years later, the recording industry is still thinking the same way!

So, Apple did not invent iTunes, and neither did it invent the iTunes Store! [Q.E.D]

In a world where some management thinkers have resorted to linking corporations with feline cat forms (aka copycat), I think I will not break from that tradition.

I therefore call Apple “The Alley Cat”.

Apple not only copies, it contextualises its copy to its value chain, and then goes about adding an innovative design element to its products and services that simply leaves the competition gasping for breath. They can’t seem to catch up. Alley Cat! Apple Re(i)nnovates™ with a panache that only few organisations can match. And it is probably for this reason Steve Jobs and his team are considered ‘innovators’ and not ‘inventors”. Re(i)nnovation™ 101!

Apple iPad:

Here’s one more brainteser. Did Apple invent the iPad? Short answer – NO!

The original concept of the iPad was invented by Alan Kay (of the Xerox Palo Alto Research Center – PARC) some 38 years ago in 1972(!!); when he published a research paper detailing a device much like Apple’s iPad. Remember that back then, almost no one had any idea of what a personal computer was! The internet was non-existent. And Ken Olson, the Founder & CEO of Digital Equipment Corporation went on to muse in 1977: “There is no reason for any individual to have a computer in his home.”

Remember that the world had in 1968 (just 4 years before Alan’s breathtaking predictions), witnessed a preview of a concept of a “personal computer” by Douglas Englebart. However, it was in 1972, that the very first personal computer was invented and built – again, by Xerox PARC – and was called “Alto” – several years before Apple built their version and marketed it. (Sideline: Apple did not invent the PC either!).

So, really, 1972 was a year of some major events that shape the world we live in today. Take a look at the original iPad. Alan called it the Dynabook.

Take a look at Alan’s vision of how his Dynabook would be used (he provided examples of children using his product).

Awesome vision when you consider that PC’s had just about been introduced, and here was a man, who predicted the miniaturisation of the PC, in the year of the PC launch!!! Talk about innovative thinking, and futuristic laser vision! Alan was no ordinary man though. He is recognized as one of the first employees Xerox PARC, a key scientist behind the graphical user interface, one of the inventors of object-oriented programming, and was the muse when he said: “The best way to predict the future is to invent it.”

Was Alan’s vision “limited” to designing a futuristic, James Cameroon (aka Avatar) type of vision? Read Alan’s predictions, and compare how close (really close) he was to what the iPad is today, even down to the price of the product in the market – all neatly compiled in his research paper written in 1972.

  • Combination of carry anywhere device and global information utility
  • Easy to use for any person, even children
  • Millions of potential users
  • Flat screen or plasma panel, at least 512×512 pixel resolution and a capability to display 4000 characters per screen page
  • Contrast ratio approaching that of a book
  • Keyboard with no moving parts
  • Single-chip CPU for $40 or less
  • Rechargeable battery
  • Weight less than 4 lbs
  • File storage capacity of at least 500 books or several hours of audio/music
  • Capability to maintain and edit files
  • High bandwidth wireless data connection of 300 Kb/s or higher
  • Network connection with ability to purchase, transfer and download (“instantiate”) files
  • Secure payment system
  • Global information connectivity, such as libraries
  • Video game and entertainment functionality
  • Media connectivity
  • Network search feature
  • Target price of $500 (amazingly close to what the iPad costs today –

Spooky? Yeah – absolutely!!

Apple also had its eye on the ibooks market. The Amazon Kindle had made waves ever since it was launched, and digital books (e-books) were becoming the order of the day. Amazon however had one problem – the Kindle format was proprietary. But, it circumvented that problem by collaborating with the books industry. It is an amazing device, and makes reading a pleasure. Apple wanted that market. It also wanted a market that brought a computer into your bare hands – one that you could carry around – unlike bulky laptops! And so the iPad was born by combining the features of the Dynabook and Kindle.

And like everything that Apple does, it launched a great design – probably one of the few companies that used the Halo Effect to maximum advantage. Apple is indeed one of the perfect examples to understand how to launch a re(i)nnovation™ agenda, and see it to successful completion.

So, Apple did not invent iPad! [Q.E.D]

Our Analysis of Apple’s success story:

Apple essentially re-invented it’s business model, relied primarily on re-use of existing assets, and launched an “incremental” innovation agenda over existing assets, and sought out a completely new offering for customers, thereby creating a game-changer; and disrupted the music portable device, and online media content industry for a long time to come. Such global disruption was astutely achieved through a combination of various means – means that required guile, craft, and marketing wizardry, a strong use of the Halo Effect, collaboration, and open business models. The combination of these factors led Apple to realise not just the full potential of its first successful product, but it created a totally new business dimension that allowed Apple to exploit almost the same business model and concept for the successive launches it made. Apple caused disruption through re(i)nnovation™.

In part 4 of this series, I will be analysing the innovative business model of the world’s third largest telecom operator, and how it achieved stupendous heights and market share, but simply re-shaping, and re-articulating assets that were at its disposal. More importantly, I will present my analysis on how the company used re(i)nnovation strategies in an already crowded market space, and re-wrote the business and operating design of how a telecom operator must function. Indeed, a fascinating story.

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  8. Hands down, Apple’s app store wins by a mile. It’s a huge selection of all sorts of apps vs a rather sad selection of a handful for Zune. Microsoft has plans, especially in the realm of games, but I’m not sure I’d want to bet on the future if this aspect is important to you. The iPod is a much better choice in that case.

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  17. Paul says:

    Scooter and My Little Pony on Apple..

    “Apple is beyond proprietary, and the consumer has no idea that they are checking into the roach motel. Jobs has been brilliant, and he also understands the power of the secret better than anyone I have ever seen.”

    http://jonathanischwartz.wordpress.com/2010/03/09/good-artists-copy-great-artists-steal/

    http://steveblank.com/category/secret-history-of-silicon-valley/

  18. […] This post was mentioned on Twitter by Nathan Hill, Ananth Swaminath. Ananth Swaminath said: Re(I)nnovate™ Series – Part 3: http://wp.me/pWdql-2k […]

  19. Wow, that’s amazing research you have there. Great job!

    And you’re so right, Apple’s innovation is largely borrowed. 🙂

  20. Mim Bizic says:

    Excellent article, well researched and presented. Kudos to the author!

    Enjoyed the “Live” links after I finished reading the article through. Never knew of Kane Kramer before and am glad you brought this unheralded inventor to my attention. I understand he had to move out of his old house as he couldn’t afford it, and currently lives in a rental property with his wife and children. However, its good to know that he is currently still pursuing his dreams of creating a new invention at home in Engliand. All the best to him.

    If I were Apple, I would certainly want him on my team, long-term, not just pay him a consultant’s fee, give him an ipod and send him on his way. Big mistake and “Not fair! , Apple.” And I’m an Apple evangelist!.

  21. Allen Knoll says:

    Ananth it reads like a believe it or not pulp comic strip. I am amazed regarding the delft abilities of all of these lucky 3rd generation mavericks. Apple is a phoenix and the CEO is really tight with their retained earnings. For all the people I have talked to about dynamically routed transportation systems, they always stick to dogmatic or metaphoric belief systems. Around that time I was postulating what area I wanted to gravitate towards. I had many of those thoughts but not at a level of comprehension as these young innovators. I am very fortunate to still have the secret sauce required to reach critical mass. I would like the community business model to be preserved in a transportation solution set and only a very few mega corporations handling the backbone. The rest totally decentralized. I cannot see paying for an oil change based on transit authorities manifest union stipulations.

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