This article is the final part of an 8 part series. Read part 7 to learn how to find your economic sweet spot.
Geoffrey Moore is an expert at disruptive innovation. His best selling books incorporate his research and knowledge about disruptive innovation and best business practices. Below, Moore discusses how to approach a new disruptive innovation opportunity: developing a smartphone app.
Geoffrey-I have not.
Curt-It's fascinating. Nye breaks the concept of power into different courses and flavors. It's in a government context, but it's obviously applicable to businesses, too. It's serious work.
Geoffrey-For small businesses, in particular, the forms of power have got to be based on mutuality and trust. It's clear that Apple is playing a coercive game right now against the music industry and potentially the publishing industry, but small businesses can't compete with that.
Customers have to give companies power. This happens when customers become so delighted with how the company steps up to needs they didn't even know they had. The company shows the customer their need, steps up to help with the need and subsequently gains power.
Curt-Many of my readers are experimenting with the smartphone app market. Few of these apps cost more than $10. If an app gets 5,000 downloads, that's really great performance. This is a new market where software companies like mine should be looking for their next disruption innovation. Software companies will either be the disruptor or get disrupted by it. How can companies build a business in this area? They are up against Google, who is giving apps away for free. If a software company gets $50,000 of revenue a year from smartphone apps, they've probably done really well.
Geoffrey-The app business for smartphones is a volume operations business. Most of the businesses we've been talking about are complex systems businesses. Complex systems businesses will lose their shirt in an app store for the economic reasons you've just said. So who wins in an app store? It's the individual entrepreneur and game developer kid, or whoever can essentially treat this as opportunistic revenue. Then, if they get a hit, they have a successful app, but most of the time it doesn't happen.
Basically, the people who succeed in that model are in game factories where they learn to play the volume operations game by building a platform that generates knock-off applications very rapidly. It doesn't have to be Angry Birds in order to be successful. For most small companies, that's a feeder business. What I mean by that is this: there might be something interesting for you to offer on a smartphone, but it should be a client portion of the total app. It should simply be a convenience for the contractor who wants to collect data on site via his smartphone, for example.
Small businesses should offer their smartphone apps for free. If a small, complex operations business tries to monetize a smartphone app, then they enter the volume operations game. If this happens, small businesses have to be ready to play the volume operations game on scale. It's a totally transactional game and there is no selling at all. Apps are a great example of a product that is bought rather than sold. A small business has to identify if they are in a business where their products are sold or bought. Answering this question can help a small business determine whether they are a complex system or a volume operations business.
This concludes our Geoffrey Moore interview series. I'd love to hear your thoughts on the information that was presented. I encourage you to go back and read these entries often -- the information never grows old.