The New Model for Innovation Is Social — and Mobile: But Are Companies Ready?

Most business leaders are by now aware that the growing use of mobile phones is changing the competitive landscape for all companies, no matter what the industry. The extent of those changes is greater than most appreciate, however. They include entirely new methods of designing products and completely revamped methods for selling them. They also involve a fundamentally reinvented relationship with customers: To be precise, the customers are now the boss.

Those were some of the key ideas that emerged from a recent conference — “How Mobile and Social Are Transforming Innovation Models: Flipping the Paradigm?” — hosted by Wharton’s Mack Institute for Innovation Management at the school’s San Francisco campus. The question mark at the end of the conference’s title probably wasn’t necessary, judging by one of the slides shown by Scott Snyder, a senior fellow at the Mack Institute and president of Mobiquity, one the country’s largest mobile app developers. The slide was jammed with text and listed dozens of activities including shining a flashlight, using a tape measure and turning an air conditioner on and off. What the tasks had in common, Snyder said, was that all are among the constantly expanding list of things people are now doing with their mobile phones.  

“The war is over,” Snyder noted. “Mobile is the new platform. And it is changing our behavior. We are using it for everything, because we like doing things in the easiest way possible.”

There are many implications of this shift to mobile. One, Snyder added, is that the concerns about privacy and “masked identity” that were so dominant in the early days of the Internet are being changed by social networks like Facebook. The “new normal” is what Snyder called “exposed identity” and constant sharing. Because a smartphone always knows its holder’s location, one of mobile’s biggest impacts will involve providing “point of inspiration” messages to consumers that attempt to persuade them into a purchase at exactly the moment they’re able to make it.

Snyder predicted that several industries and professions were on the verge of being disrupted by mobile. Medicine is a prime example. There are now apps that serve as an “OpenTable for doctors,” allowing patients to search for participating local physicians with an opening that same day rather than having to wait a week for a session with their regular doctor.

New Possibilities for a New Economy

Another conference speaker, Todd Hewlin, said the new ground rules in the social and mobile economy were “the perfect storm for disruption,” requiring companies to learn an entirely new way of selling their products. Hewlin is a managing director of TCG Advisors, a consulting group best known for its association with Geoffrey Moore, author of the book Crossing the Chasm. Hewlin is a co-author of Consumption Economics: The New Rules of Tech.

The new way of selling products, Hewlin noted, involves a move from what he called the “CapEx” business model to one dubbed “OpEx.” Traditionally, Hewlin explained, companies assumed that customers made purchases with a “capital expenditures” mentality — i.e., making a big, one-time purchase and then using the product for many years. Hewlin said there was an “asymmetry of risk” in that arrangement, as customers were often stuck with obsolete products before they were able to amortize the purchase price.

Another downside to CapEx is that companies get into a vicious cycle of convincing customers to upgrade to a new product by “improving” the old one with the addition of new features. The results are often bloated products full of features most customers never use.

In the OpEx model, customers, in effect, lease rather than buy products. A number of “software as a service” companies, such as Salesforce.com, have pioneered this approach in the enterprise software market, and Hewlin predicted that the practice will spread to other industries. One of the main causes of this change, Hewlin said, is the growing power of customers. “Simplicity is going to be the key,” he noted. “We have to make products that are so simple that anyone can use them.”

Hewlin added that companies often have no idea which features of a particular product consumers are actually using. New, low-cost sensor technologies are making this sort of feedback possible, and Hewlin said firms should take advantage of them to better understand what customers want. That will help them to avoid crashing into the “margin wall,” which he said is an inevitable part of the OpEx model, with constantly declining prices and commoditized products.

The Psychology of Social Media

With companies turning more and more to marketing via social media, there is increased interest in figuring out what types of outreach will prompt consumers to engage with their favorite brands. Wharton operations and information management professor Kartik Hosanagar and fellow researchers are trying to come up with an answer, studying the psychology of these networks; specifically, what prompts people to “like” or comment on a Facebook post.

Hosanagar, who delivered his presentation via TelePresence technology from Cisco Systems that allowed the talk to be streamed live from the East coast to San Francisco, built a computer file of 106,000 Facebook messages posted by 782 companies over the course of nearly a year, starting in September 2011. Then he used Amazon’s Mechanical Turk service, which parcels out massive, repetitive tasks to stay-at-home workers, to ask people to categorize a subset of the messages based on criteria developed by the researchers.

Participants in the study were asked: Did a particular message make some sort of emotional appeal? Did it mention a specific deal on a specific day? Did it urge readers to contribute to a charity? Did it mention a holiday, like Christmas or Thanksgiving? After the subset of messages had been scored by humans, the results were turned over to a computer, which, using the latest in “machine learning” technology, used that data to quickly process the remainder of the sample.

The results contained a number of surprises. Unfortunately for retailers trying to drive customers to specific sales events, messages that promoted a particular item didn’t do a very good job of generating “likes” or comments. Neither did those involving holidays. What did? Posts written to appear as if they were coming from a friend or that urged readers to donate to a certain charity consistently got high scores. The lesson for retailers, according to Hosanagar, is that firms need to mix up their social communications rather than just blasting out endless messages about deals and products.

During the Q&A segment, several members of the audience asked Hosanagar whether the social media efforts now underway by big companies have any measurable return on investment. Hosanagar responded that the medium is still too young to know the answer, although researchers like him are actively pursuing it.

Feeding the Ecosystem

The new mobile and social business models bring myriad challenges and contradictions, according to Wharton management professor and Mack Institute co-director Harbir Singh.

Most businesses today understand that they need to exist in an “ecosystem” that includes other companies, some of them competitors. However, Singh said, there is a “constant tension” at firms about the issue. On the one hand, managers need to take steps that will nurture and sustain the ecosystem they find themselves in, but on the other hand, in doing so they often find that someone else, perhaps even a rival, is gaining most of the benefits from their contributions.

The right approach, Singh said, is one of “joint value creation,” wherein companies take great care to monitor what each is getting out of its business environment compared to what the firm is putting into it. Singh added that one tactic many companies use is to open up their products to create a platform that others can contribute to. For example, many small Internet companies have opted to build their services around Facebook’s infrastructure, or access Google analytics data to use in their products.

The conference also featured a panel of representatives from some of the country’s biggest companies who discussed the challenges they have faced in determining how to maneuver as social and mobile applications continue to grow in popularity.

In keeping with one of the big themes of the day — involving the growing role of customers — attendees at the conference were also asked to make their own contributions. During lunch, the audience was divided into three groups: “disrupters,” who are bringing about change; “incumbents,” who must adapt to change, and “enablers,” who are providing the tools to make those changes possible. Participants were asked to discuss the world from their assigned perspectives. After lunch, each table reported back on what had been said.

Many of the lunchtime sessions echoed themes that had been presented by speakers, notably Singh’s dissection of the challenges and opportunities involved in working inside a business ecosystem.

“You have to feed the ecosystem,” Singh noted. “It will die if all you do is extract value from it. But you also have to get your fair share of the benefits.”

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