Frontier Exclusive Visionary Interview for hardware, software, system related business and and academia
Frontier Journal (FJ): Geoffrey Moore is the founder, chairman and CEO of PC Advisor. He is also a venture capitalist and a best selling author. Geoffrey, my first question is, do you think Web 2.0 is still crossing the chasm or has been inside the tornado.
Geoffrey More (GM): Oh, that's a great question. So what's interesting about Web 2.0 is it doesn't follow the rules of the old crossing the chasm book and the reason is that there's actually two things to measure in a web 2.0 business. One is, how is your audience coming along, how many users do you have and the other is how much money are you making from advertisers. And the advertising part of the business does follow crossing the chasm rules. But the audience part, because it's free and it's easy, does not, so what we're seeing with Web 2.0 is in terms of audience and in users its inside the tornado beyond but in terms of advertising and what they call monetization its still crossing the chasm
FJ: Ok I see. So to separate from your competitor there are many ways to go, for example you can either invent your blue sea by creating a total new frontier or focus long tail where your competitors pay no attention so far. My question would be, what is the tipping point for startups to succeed in general?
GM: Well so when a startup is going after a blue sea idea where they're going to create a new market where there are no competitors, whether that's because they have a new technology that nobody's ever invented before or because as you said in the long tail they're going to go after customers that historically have not been profitable to serve and therefore they also are not going to have competition. In that situation when the tipping point is when you have enough repeat business, enough customers who come back to you the second, the third and fourth times that you have a business that is predictable and forcastable year after year it's what the accounting firms call a goingly that you, that reasonable people would believe would be in existence for another year. So that, capturing that group of customers is the tipping point. You'll get more customers after that but once you capture that critical mass of customers then from then on its just growing an established business. It's not the question of will your business be around next year.
FJ: Ah I see. In one of you recent books you talk about, a lot about core and context. In terms of the core of course it is related with innovation. So my question would be, is innovation the only driver to improvise, is there anything else?
GM: Sure, fair enough. In our terminology core is what makes you different and context is what makes you the same. Good businesses have to be, have to invest in both. Right, you have to invest in being different but you also have to invest in being the same. So the innovation is particularly focused initially on being different. So how do I, how do I innovate in some way so dramatically so that my competitors either cannot or will not match my offer. That's my core. Context is where I have to be at least good enough to match the standards of the industry. You still have to set a much lower goal, your not trying to be better than others, your just trying to be as good as the expectations of the industry so there's 2 kinds of innovation. One is to be good enough and the other is to be better than anybody else in your competitive set. Those 2 things and so when your trying to be better than anybody else, anything you can do in any part of your business that adds to your differentiation is a valuable thing to do and that's where you get that secondary support for innovation where maybe the designer is being the innovative person but the manufacturer helps the designer by changing the manufacturing method to be even better for designers going forward.
FJ: So in terms of improvising or magnifying core do you prefer disruptive innovation or non-disruptive innovation?
GM: Right, I think for amplifying anything you want non disruptive innovation. The amplifying role is not the lead role. So, the lead role would be the thing you're doing dramatically different and the amplifying role is how everybody else reengineers their processes to make the core vector be stronger if you will. So if its customer intimacy, then we reengineer our customer service processes and maybe even our billing processes whatever to give better service to the customers. If it's operational excellence, be cheaper and more cost effective. So depending on what vector we've chosen to go down, then we're going to reengineer our processes to give more strength to that vector.
FJ: Ok so looking at this operation excellence. So in terms of this context, is operations the only way to streaming context or are there any other ways?
GM: No that's fair, so remember that context is just whatever is not core. So the management team, the first decision they make is where are we going to be different. Is that going to be in design, in production, in customer service, in procurement? Where are we going to be really different? Every place else we're going to be the same. So now we're talking about doing, improving context. Now there are two goals. If I'm just trying to be the same there are two things I could have as a goal. One is just do it cheaper and faster and better. That's optimization. The other goal as we've just talked about is could I do this process in a way that accentuates or amplifies my core. If I could, I might redesign it in a way that doesn't make it cheaper but makes my differentiation stand out even more.
FJ: Are there any there any magical rules there on how to strike the balance between fielding the core and keeping up with context?
GM: It's a great question and the rule is before you worry about context you first have to worry about core. And the standard that you must meet with your core investment is you must create enough difference between your offers and your competitor's offers that you don't compete just on price. That you compete on some other quality and you have bargaining power with your customer because the customer cannot just substitute the competitor for you. And core is what creates that bargaining power by making yourself different enough from the competitor that the competitor cannot copy you and the customer has to either buy the thing that you're especially good at. So the first thing that you do is you must invest enough to achieve core no matter how much that is. As soon as you've gotten far enough separation everything else would go into context. And there you would be trying to reduce costs in part to help pay for the investment in core. So by being economical with context you can be, have more money to spend on core
FJ: Next question would be, it is very interesting as we look at software industry. Companies like IBM, originally they are product only company and become service company. They become more and more product oriented because they are packing their service as product. So what is between customer relations or into the services or into the product, which one will be more viable and more promising?
GM: So it depends a great deal on how far the, the growth and maturity of the marketplace. In a market when it's just starting, the strongest and most successful offerings are service offerings that are built as projects. So when you're starting a new market usually it starts with projects and over time those projects become more standardized and often they're called solutions or they're called vertical applications or they're still very service heavy but they have product centers and they have services around the outside. That's the solution model but when markets really want to spread rapidly the most successful model has been the product model where you just ship IPods or you just ship zip drives or cell phones or PCs or printers and you capture market share very very quickly because people buy the product and all of a sudden they're in the market. Then later on in the market when people have bought lots of products over the years then it goes back to the services model because eventually the customer says it would be much nicer if I didn't have to actually buy this product if you just gave me the service instead. So instead of me buying computers, you buy computers and I'll just buy computing from you. If you remember it was about 20 years ago there were a lot of answering machines for telephones and that was really we don't want to own answering machines we just want voicemail and that was a service. And so the rule with markets is, they start with project oriented services then they have product form in success in the high growth and then these more transaction oriented services are more powerful later on.
FJ: So it will be like a cycle.
GM: Exactly, exactly like a cycle.
FJ: So is it possible for us to intentionally lengthen or shorten the life cycle of our products or services?
GM: Yes it is and sometimes you would want to and sometimes you would not want to. So the thing that people do that is bad that shortens the life of their products unnecessarily is if you do not create enough core in your in your product offer, if you do not create enough differentiation, then it's very easy for the competitor with their next release to move the market away from you and onto the next form. So this is short. If you look at somebody who has had a lot of differentiation success, say Apple with the IPod or the IPhone. The product lifecycle gets longer because the product is sufficiently different and hard to copy it can be powerful longer in the market. So in general, if you are the product owner you want longer life cycles. Now if you are a contract manufacturer you want shorter lifecycles because you'll get more business faster. So for the contract manufacturers you kind enough fast enough, you don't try be, you don't try to be to do it really fast and keep the cycle of business moving.
FJ: Everything becomes more and more affordable for design work, software, hardware, bandwidth except time, time becomes more and more valuable. So in terms of the barriers of starting a new business becomes lower. How can we raise the bar to keep our competitors to eat our pieces of pie?
GM: That's a great question. What's happening is the investment barriers as you say are getting lower and I would add open source software to that.
FJ: Yeah sure.
GM: So what the established companies need to do is to use those techniques, established companies actually did not have open source when they started their companies or did not have low cost mansions accordingly and now that this is available they have to redesign in order to incorporate those advantages. If they don't do that then they give the next generation of competitors a very easy start. So the first thing they have to do is take advantage of the same forces the new competitors have. The other thing is that what established companies can do, is they have relationships with customers. The new competitor does not. And so the more you can secure your relationship with the customer by building solutions that are hard for the customer to leave behind and building relationships that are trusted with the customer. That turns out to be the best way to keep the customer relationship. And then, then even if you're not first to market with the new innovation, the customer will wait for you because they want to do business with you.
FJ: Right now it's not for market economy anymore. The boundary between producers and consumers becomes blurred. It's called presume according to Alvin Toffler. So what will the presume trend impact on business model and strategy. Let's take open source as an example.
GM: So I'm not quite sure, I'm not familiar with this particular work by Toffler and this notion of, I've heard the word prosumer. Prosumer is like a consumer who is very very skilled who's technically very, for example a prosumer might be a photographer using the advanced features of Adobe Photoshop or Premier Designer. But in open source that seems more like a, I don't think that's a prosumer.
FJ: Let me rephrase my question. Suppose we are an open source vendor and we hire other open source subcontractor, other open source vendor to work for us. We offer distinct solutions based on their open source solution. A consumer of open source while we are also a producer of open source because we are offering new solutions based on third parties open source solutions. So the question is has this model been changed, during old time consumer is just a consumer, producer is just a, but right now the boundary becomes blurred.
GM: So when the boundary becomes blurred, in often you talk about a value chain where in the old value chain the roles were very clear, there was a supplier, the vendor
FJ: Yeah exactly
GM: So as people blur these roles the important thing is going to be can the role that you're playing capture bargaining power with the end customer against all the other people in your value chain. The danger in the blurred situation is that the customer does not perceive you as unique or valuable; they feel like they can substitute around you. So that would be one danger. The great advantage of the blurring is that you're able to get things done faster, cause there's fewer, fewer jumps to go through if you will. The roles are more fluid so you can change more rapidly. And the challenge is just going to be can I, can I capture the value that I'm creating in terms of my fair share of the revenue in the category.
FJ: Okay so talking about outsourcing every business should have their context outsourced while only folks on their list, folks on their core full resources, Is that correct?
GM: Yeah if you would like, in a perfect world that would be true. What often happens is some of the context which you want to outsource is so mission critical, it's so, you're so dependent on a high quality outcome that you might be very reluctant to outsource it because you don't with a third party and what we say there in the short-term you will end up doing that work inside your own company. But you should build a long range plan to eventually get it out because in a perfect world the more people you have working on your core the higher your profit margins are going to be. But you cannot allow mission critical prophecies to fail and so that's the challenge that people can normally get caught up in.
FJ: One of your book is titled Dealing with Darwin, do you think only 6 survivors walk all the time in high tech industry or you have counter examples?
GM: Well what's interesting in the Darwinian system there are two things that create survival that have to work together to create survival. One is that you have to beat out the competitor and therefore stay alive and the other is that you have to get a mate so that you can breed and have children and your generations go forward. And in business there are these two things. You have to win the competition against competitors and investors to get the next generation of working capital. So as long as you keep the idea of survival of the fittest as a big idea which is, I am not only fit to win the competition but I am also fit to get investment capital to start the next competition. And I do think, I do think the Darwinian model is the right model.
FJ: So my very last question would be, you have been in the industry for several decades, so do you envision the fundamentals of, of competition mechanicals have been changed or remain unchanged?
GM: I think they've changed very dramatically during the time that I've been in business because when I joined business which was back in the 1970s
The very big businesses, the Xerox's, the Hitachi's you know, those companies, they had the dramatic advantage. And the small companies frankly had almost no power of any significance. And was has happened with the rise of technology is that smaller and more agile companies, particularly ones that had new business models and new design capabilities, inventions and whatnot have become increasingly more powerful. You know today you see a company like Google which in 1999 did not exist, I mean there were just 2 guys, is now one of the powerhouses of the world, eight years later. So I do think that the technology has changed the playing field dramatically and the ability to play, to compete against very large companies, even a very small company can, if they're very clever can compete effectively against very large companies. And that's new, at least in my lifetime.
FJ: Thank you so much I appreciate your insight and time Geoffrey
GM: Well Ed thank-you for interviewing me. If you have the opportunity to show me the result of the work if ever it is done, I don't know if it is only going to be done in Chinese or if it going to be done also in English, but if it's in English I would love to see the result.
FJ: Sure, sure. Okay thank you
GM: Take care
FJ: Bye-bye
Back to Home Page