I discussed with Marcel Côté, cofounder of SECOR (which was recently acquired by KPMG), the topic of innovation in the information and communication technology industries. For 35 years, he has been an expert in strategic management to CEOs in the private and public sector. Mr. Côté was talking about key concepts from his new book “Innovation Reinvented." Mr. Côté has some special advices to entrepreneurs and managers if they want to create value in the evolving ICT industries.
A winning strategy identified in the book is to go for complementary products and services to build the ecosystem (i.e. iPhone/Mac and App Store; iPod and iTunes). Advice from Mr. Côté to entrepreneurs is to seek co-benefits, between an application as well as a platform. Applications must evolve with the platform, or else they will only last a few years at most.
Apple initially had qualified success with the iPhone, despite its cool design: it reached only about six million sales in its first year. It's only when Apple changed iTunes to make it the App Store that sales increased quickly. Application developers were the first to see the great potential of iStore.
Mr. Côté suggests to SMEs the 10/90% rule: 10% of the applications generate over 90% of revenues. Many are called, few are chosen. Quickly launch your applications based on the novelty, even if the product is not perfect. Entrepreneurs must test the concept quickly. Entrepreneurs should also capitalize on the momentum of growing platforms (i.e. Apple and Android).
For entrepreneurs who want to tackle a market for ICT in Canada, he’d say that it is best to go on the side of applications. Canada is more exposed to influences from European concepts, and is more open also to foreign influences.
This is a great source of creativity. Moreover, developing and launching an application does not require much capital. It is the opposite with a new platform, which can take up to five years to reach the breakeven point. A new platform may require $30 to 50 million in investments before being able to generate positive cash flow. We don’t have the venture capital firms here in Canada to even consider such investments.
Someone who wants to develop a platform must find a niche and properly assess the required investment. A new platform must overcome the barriers from the beginning, become well-known and convince developers to take interest in it. If it succeeds in attracting users in sufficient numbers, a company can find itself in a virtuous circle, more users, more applications, and so on. However, in 1,000 attempts to launch platforms, less than 10 are real hits.
It’s easier with apps. Take the example of Zynga. Originally, Zynga adapted the concept of an existing game to create Farmville, which was a great success on the Facebook platform. But for each Farmville, there have been a hundred failures or partial successes on Facebook. Now that it is well established, Zynga also seeks to distance himself from Facebook, to reduce its dependence on their too expensive business model (30% of revenues in fees), and seeks as well to develop its own social games platform.
As final word he would tell you that, if we talk too much about innovation today, it is due to the slow growth of the industrialized countries’ economy. The problem is that there is no magic recipe for innovation. In particular, technological innovation is nothing if it is not accompanied by a great marketing strategy.
That’s our great weakness in Canada. Canadians have many ideas because they are creative. But few Canadian companies have used large marketing strategies to support their innovations.