Randy Komisar on Getting to Plan B

Randy Komisar, partner at Kleiner Perkins Caufield and Byers, and co-author of Getting to Plan B (see review/summary here), discusses the main ideas from his book.



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Getting to Plan B (2009)

Is Android Evil?

This is a guest post by Andreas Constantinou, an expert in the ecosystems of network operators, handset manufacturers and mobile service providers, research director at VisionMobile and a frequent speaker on the topic of mobile open source.

You thought Android was open? The Android governance model consists of an elaborate set of control points that allows Google to bundle its own services and control the exact software and hardware make-up on every handset. All this while touting the openness rhetoric that is founded on the Apache permissive license used in the Android SDK.

Whereas Android is completely open for the software developer ecosystem, it’s completely closed for the handset OEM (pre-load) ecosystem. There is no other platform which is so asymmetrical in terms of its governance structures.

Indeed, Google’s mobile platform is the smartest implementation of open source designed for driving commercial agendas. But before we dig into why, it’s worth discussing why Android’s success has very little to do with open source.

What makes Android tick

Despite early skepticism, Google’s Android operating system has been unequivocally supported by the mobile industry, including more network operators and handset manufacturers than one can count – with the stubborn exception of Nokia. Android managed to ramp from 1 handset model in 2008 to 50+ models announced for 2010 launch, leaving most industry observers in awe.

The Android success has nothing to do with open source; it’s owed to three key factors:

- Apple. As strange as it might seem, Android owes much of its success to one of its arch-rivals. Let me explain. With the unprecedented success of the iPhone and the take-it-or-leave-it terms dictated by Apple to network operators, the carriers have been eagerly looking for cheaper alternatives; as such the tier-1 operators have been embarking on Android projects to produce iPhones for people who can’t afford the iPhone and more importantly, without forking out the 300EUR+ subsidy needed to remain competitive in an iPhone market.

- Network operators/carriers around the world are eager to differentiate. Android provides the allure of a unified software platform supporting operator differentiation at a low cost (3 months instead of 12+ months offered by SavaJe, which was also aimed at the MNO customisation market). For larger operators with a software strategy, Android also presents a safe investment, as the mainstream option for bringing down the cost of smartphones. That’s why most Android handset projects are backed by a commercial bipoles of operator + OEM deals, with purchase commitments and NRE fees coming from the operator.

- Qualcomm. The $10B chipset vendor has been paramount to Android’s ramp up; manufacturers can take Qualcomm’s hardware reference design which is pre-integrated with Android and can go to market within an estimated 9-12 months (down from 16 months for the Motorola Cliq handset and 24+ months for the HTC G1). Besides Qualcomm we should also mention TI’s OMAP3 platform (on which Moto Droid is based) and ST Ericsson and Broadcom who are ramping up to offer chipsets with out-of-the-box support for Android.

In other words, in an Android handset, most of the OEM budget goes into differentiation; compare that to Symbian where most of the OEM budget goes into baseporting (radio and functional integration of hardware) due to historical choices made by Symbian in 2001. All-in-all, Android allows OEMs to reduce their R&D budgets and invest in differentiation, which is mana from heaven to manufacturers.

We should also not forget the ‘free factor’ (technically zero per-unit royalties for the public SDK) which stirred the emotional hype around Android handsets.

All in all, the ‘open source’ marketing moniker has been very successful at triggering major industry disruption – incl. Nokia ’s acquisition of Symbian and the derailment of Windows Mobile. Perhaps more importantly, the openness rhetoric and the Google aura has attracted thousands of developers on the platform, at a time when the money equation is sub-par; consider that – compared to the Apple devices – Android handsets are around 9x less in volume and paid-for apps are available in 6x fewer countries.

Behind the Open Source facade

What’s even more fascinating is how closed Android is, despite Google’s old don’t be evil mantra and the permissive Apache 2 license which Android source code is under. Paraphrasing a famous line from Henry Ford’s book on the Model-T, anyone can have Android in their own colour as long as it’s black. Android is the best example of how a company can use open source to build up interest and community participation, while running a very tight commercial model.

How does Google control what services, software and hardware ships in Android handsets? The search giant has built an elaborate system of control points around Android handsets.

To dig deeper we spent two months talking to industry sources close to Android commercials – and the reality has been startling. From a high level, Google uses 8 control points to manage the make-up of Android handsets:

1. Private branches. There are multiple, private codelines available to selected partners (typically the OEM working on an Android project) on a need-to-know basis only. The private codelines are an estimated 6+ months ahead of the public SDK and therefore essential for an OEM to stay competitive. The main motivation for the public SDK and source code is to introduce the latest features (those stemming from private branches) into third party apps.

2. Closed review process. All code reviewers work for Google, meaning that Google is the only authority that can accept or reject a code submission from the community. There is also a rampant NIH (not invented here) culture inside Google that assumes code written by Googlers is second to none. Ask anyone who’s tried to contribute a patch to Android and you hear the same story: very few contributions get in and often no reason is offered on rejection.

3. Speed of evolution. Google innovates the Android platform at a speed that’s unprecedented for the mobile industry, releasing 4 major updates (1.6 to 2.1) in 18 months. OEMs wanting to build on Android have no choice but to stay close to Google so as not to lose on new features/bug fixes released. The Nexus One, Motorola Droid, HTC G1 and other Experience handsets serve the purpose of innovation testbeds for Google.

4. Incomplete software. The public source code is by no means sufficient to build a handset. Key building blocks missing are radio integration, international language packs, operator packs – and of course Google’s closed source apps like Market, Gmail and GTalk. There are a few custom ROM builders with a full Android stack like the Cyanogen distribution, but these use binaries that are not licensed for distribution in commercial handsets.

5. Gated developer community. Android Market is the exclusive distribution and discovery channel for the 40,000+ apps created by developers; and is available to phone manufacturers on separate agreement. This is one of the strongest control points as no OEM would dare produce a handset that doesn’t tap into the Android Market (perhaps with the exception of DECT phones, picture frames, in-car terminals or other exotic uses of Android). However, one should acknowledge that Android’s acceptance process for Market apps is liberal as it gets – and the complete antithesis of the Apple vetting process for apps.

6. Anti-fragmentation agreement. Little is known about the anti-fragmentation agreement signed by OHA members but we understand it’s a commitment to not release handsets which are not CTS compliant (more on CTS later).

7. Private roadmap. The visibility offered into Android’s roadmap is pathetic. At the time of writing, the roadmap published publicly is a year out of date (Q1 2009). To get a sneak peak into the private roadmap you need Google’s blessing.

8. Android trademark. Google holds the trademark to the Android name; as a manufacturer you can only leverage on the Android branding with approval from Google, much like how you need Sun’s approval to claim your handset is Java-powered.

In short, it’s either the Google way or the highway. If you want to branch off Android you ‘re completely on your own and you need resources of the size of China Mobile (see their OMS effort) to make it viable (hint: China Mobile is the biggest network operator bar none).

The Open Handset Alliance is another myth; since Google managed to attract sufficient industry interest in 2008, the OHA is simply a set of signatures with membership serving only as a VIP Club badge.

Another big chapter in the Android saga is the CTS (compatibility test suite) which is the formal testing process by which a handset passes Google requirements. According to our sources, CTS extends significantly beyond API compliance, and into performance testing, hardware features, device design, UI specs and bundled services. CTS is based on the principle of ensuring baseline compliance, so it’s ok to add features, but it’s not ok to detract; compare this with Apple’s no-Flash policy. Note that beyond CTS compliance, there are additional commercial licensing agreements that OEMs have to sign for Google services and private line access.

CTS hampers Android’s progress as well, as it precludes OEMs from creating stripped-down versions of Android that would fit on mass-market phones – those shipping in the 10s of millions. CTS – and forward compatibility to the pool of 40,000+ apps – is Google’s main challenge for hitting a 2-digit market share in the smartphone market. These restrictions – and frienemy relationship between Google and its OEM partners – have stirred up discussions of an ‘Android foundation‘ within OEM circles

The Google Endgame

With Android, Google aims to deliver a consistent platform to its own revenue-generating services. For now, this is the ad business. But in the future, Google is aiming at voice (reaching the billions who don’t have a data connection) and Checkout (i.e. becoming the Visa of mobile).

Yet whatever the endgame, it’s worth realising that [from the manufacturer perspective] Android is no more open – and no less closed – than [licensable operating systems like] Windows Mobile, Symbian and BREW; it’s the smartest implementation of open source aimed at driving commercial agendas. Android is much less about the do-no-evil rhetoric that the PR spinners in Mountain View would like us to think.

So, is Android evil? No, it isn’t. It has done no harm – quite the contrary, Android has boosted the level of innovation on mobile software. The point of the article is not to vilify Google or concoct visions of Darth Vader; but to balance the level of openness hysteria with a reality check on the commercial dynamics of mobile open source.

Jeff Jarvis on New Business Models for News

Jeff Jarvis, professor of journalism at CUNY, on business models for news and hyper personal news streams.

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Videos from New Business Models For News Summit 2008

Dwayne Spradlin on The Power of Open Innovation

Dwayne Spradlin, CEO InnoCentive, on Open Innovation and the power of getting the crowd to work.

"Two skills that organizations need are:

1. They need to understand how to engage communities, communicate with them, build communities and trust, and that does require effort by organizations to do it well.
2. Organizations need to understand how to ask and how to process their own problems and prioritize those in ways that they typically never done before."

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Using the crowd as a part of the business model
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Seizing the White Space (2010)

The book, Seizing the White Space: Business Model Innovation for Growth and Renewalby Mark W. Johnson, is a rather quick read and primarily for people who have not read Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengersby Alex Osterwalder, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevantby W. Chan Kim and Renée Mauborgne, and Clayton M. Christensen's The Innovator's Dilemma.

For people who have followed the development of the business model concept, and read case studies such as Southwest Airlines, Hilti, Xerox, Kodak, DEC, FedEx, and Tata, this book is a bit of a disappointment. I looked forward to reading this book and wanted it to be a 5 star experience, but after reading it I have more questions about the author and the writing of the book, than about any new content or ideas.

The book in three bullet points:

• It presents the concept "White Space" defined as an area where new or existing customers are served in fundamentally different ways and there is a poor fit with the current (incumbent) organization; "The range of potential activities not defined or addressed by the company's current business model".
• It provides a business model framework, "The four box business model", comprising a customer value proposition, a profit formula and key resources and processes, very similar to the model presented in the 2008 HBR article Reinventing Your Business Modelby Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, with the focus point on the customers' job-to-be-done .
• It briefly explores the circumstances when a new business model might be needed, being when you must change your current profit formula (overhead cost structure, resource velocity or both), develop many new kinds of key resources and processes, and/or create fundamentally different core metrics, rules and norms to run your business.

A brief summary of the different chapters:

1. The White Space and Business Model Innovation

Introductory discussion on core vs. non-core business, defining the white space that lies far outside an organization's usual way of working, where assumptions are high and knowledge is low. In contrast to the Blue Ocean concept, described in the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, (not mentioned in Seizing the White Space), the white space focus on what a specific organization can do, whereas blue ocean is about doing things differently than competition to be in uncontested markets. In the first chapter Mark includes a nice table on companies founded in the last quarter century that have entered the Fortune 500 in the last decade.

The book contains some questionable statements without references or discussion and chapter one is no exception: "Most successful innovative business models are forged by start-ups" (p. 18) - I would like to see the reference and discussion (and definition of "successful", "innovative" and "start-up") as most examples and discussions covered in this book are not on start-ups.

2. The Four-Box Business Model Framework

The chapter starts off with the discussion about the lack of a shared vocabulary, "No one to my knowledge squarely focuses on the elements in the business system that are central to value's creation and delivery and the way those elements work together to ensure or impede the overall success of the enterprise" (p. 23) I laughed out loud when I read the references related to the statement above, all from the same page: Peter Drucker (Harvard Business Review), Joan Magretta (Harvard Business School, former strategy editor Harvard Business Review), Henry William Chesbrough x2 (Harvard Business School Press). I would argue that the MAIN reason why there is a lack of shared vocabulary regarding business models is due to academics/consultants that ignore the work of other academics/consultants working in other schools/companies than their own.

The first element of Mark's Four-Box Framework is the Customer Value Proposition (CVP), an offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job-to-be-done) at a given price. In some versions of the model, such as Figure 9, 19, 20 and 24, there is no explicit customer mentioned in the CVP. In other versions, such as Figure 21 and in the model presented in the 2008 HBR article "Reinventing you business model", a target customer is included. The second element is the Profit Formula that defines how the company will create value for itself and its shareholders. It specifies the revenue model, the cost structure, target unit margin and how quickly resources need to be used to support target volume. The third element is Key Resources, the people, technology, products, equipment, information, channels, partnerships, funding, and brand required to deliver the value proposition to the customer. The fourth and final element is Key Processes such as design, development, sourcing, manufacturing, marketing, hiring and training by which a company delivers on the customer value proposition. Readers familiar with popular concepts such as Osterwalder's business model canvas recognize most terms and ideas.

3. The White Space Within: Transforming Existing Markets

Chapter three discuss business model innovation opportunities within existing markets by delivering new customers value propositions, something Mark argues often relate to predictable shifts in what customers are willing to pay a premium price for (at least the primary basis of competition). He presents an argument based on one example on how companies compete and differentiate with different forms of innovation according to the figure below. The references used for the "predictable shifts" are to colleague Christensen's The Innovator's Dilemma, and Geoffrey A. More's Crossing the Chasm, a book about selling disruptive products to mainstream customers. I would love to read more about these shifts, the research behind it, and how for example design and the use of brands affects the shifts in the basis of competition?

The chapter contains a nice case study on Dow Corning and Xiameter (mostly covered in HBR article from 2009), and the more classical case studies on Hilti, FedEx and IKEA.

4. The White Space Beyond: Creating New Markets

Seizing the white space beyond means developing new business models to serve entirely new customers and create new markets, often where large groups of potential customers are shut out of a market because existing offerings are too expensive, complicated or that the potential customers lack access. In the chapter Mark provides a table of archetypal business models and a nice case study on Hindustran Unilever and the Shakti Initiative together with some shorter versions covering MinuteClinic and SAP.

Obvious concepts to discuss in relation creating new markets are the tools, frameworks and methodologies presented in Blue Ocean Strategyby W. Chan Kim and Renée Mauborgne. Even though the Blue Ocean Strategy concepts are trademark protected, registered by ITM Research (INSEAD), other authors have been able to refer to the concepts and tools presented in the book.

5. The White Space Between: Dealing with Industry Discontinuity

Chapter five focus on the uncharted territory between what was and what is to be, after game changing events such as the commercialization of Internet technology or the push to address greenhouse gas emissions. Mark presents ideas in relation to unpredictable or radical shifts in market demand, in technology and in government policy targeted at the business environment. Examples are in the defense industry (transformative market shifts), Encyclopaedia Britannica (technology driven shifts), and Better Place (shifts in government policy and regulation). The chapter also contains a nice table including the industries and infrastructure of each technological revolution, from Carlota Perez' Technological Revolutions and Financial Capital.

6. Designing a New Business Model

In the chapter Mark discusses the business model innovation process from identifying a job-to-be-done to creating the customer value proposition, and compares the new business model that would be required with the existing model. When searching for unfilled jobs-to-be-done Mark puts emphasis on not only functional aspects of a job but also its social and emotional aspects, together with a short reflection on that Web 2.0 tools give businesses the ability to deeply understand their customers through increased interaction, with Threadless as an example. He introduces a way to use levers to contrast offerings, and mentions the reverse income statement to working up the projections for a business with a new profit formula. This chapter also contains an original and interesting case study from a project undertaken by Innosight with the customer name changed for purposes of confidentiality and a table with business model analogies.

7. Implementing the Model

For the implementation of a new business model, Mark describes three stages: incubation (1-3 years), acceleration (2-5 years), and transition (1-3 years). Incubation is the process of testing (early, cheaply and often) to identify and verify the assumptions most critical to success. Once the new model is proven viable, the Acceleration stage focus on setting up processes, together with rules, norms and metrics, to make the business model profitable. The final stage addresses the question if the new business can be integrated into the core or if it must remain a separate unit in order to thrive. Mark also discusses acquisitions and some successful and less successful examples.

8. Overcoming Incumbent Challenges

In the final chapter Mark describes three dangers incumbent face when implementing new business models: 1) Failure the allocate resources, 2) The Urge to cram new opportunities into the existing business model, and 3) Impatience for growth. He also briefly addresses the problem of the existing rules, norms, and metrics used by the company something that would be very interesting to dig deeper into.

My main questions after reading this book:

Why do Mark ignore existing body of knowledge and obvious references when defining the White space and his business model framework, and instead almost exclusively refer to his own or colleagues' work? Why does he focus so much on old examples, already covered in other books and articles, without using his frameworks to provide more depth into the cases? Why not look at modern examples of companies pushing its core business into new areas? Why are several included figures not referenced in the text, nor referenced for source?

A quick comparison with some other popular books on business models:

• Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Osterwalder and Pigneur is the obvious book to compare with. It also aims to introduce a standard language, a business model framework, and ideas on how to develop, test and implement new business models. In contrast to Seizing the White Space, Business Model Generation uses many sources and refers to popular management concepts, including Blue Ocean Strategy when looking at new market opportunities. Osterwalder focus much more on the customer and customer segments, and have that as a very explicit element of the business model framework. For me, Business Model Generation is a more original and content rich book. See my review here
• Getting to Plan B: Breaking Through to a Better Business Modelby John Mullins and Randy Komisar focus more on the financials and the start-up situation. It defines the business model slightly different from the two books above but shares the idea to experiment and adjust the business model as you learn new things. See my review here
• The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profitsby Slywotzky, Morrison and Andelman, has a heavier focus on profitability and the changing areas in which high profit is possible to keep, it is a quick read. See my review here
• Open Business Models: How to Thrive in the New Innovation Landscapeby Henry Chesbrough has a heavier focus on technological innovation in the context of business models and also covers the important area of Intellectual Property in relation to open business models.

All in all, Seizing the White Space is a good book, containing many valuable lessons. It will not WOW you, and it presents surprisingly few new case studies. One of the most important (implicit) lessons from the book is that business models need to be consciously designed and that companies must always stay on their toes looking for new opportunities around their core business, but also in the white space.

If you find this book review/summary helpful, please go to the Amazon book review page and rate my identical review "Helpful" Thanks!

Albert S Humphrey's business model elements from 1968

Albert S Humphrey (1926-2005) who during his work at the Stanford Research Institute developed SOFT analysis that was later developed into SWOT analysis, also outlined an early version of the business model concept in 1968. For a business to be successful, Humphrey defined six inter-related areas which had to be developed simultaneously:

1. Products & Services - What are they, how do they work, and when and how should they be improved
2. Process - How the products and services are to be made and/or assembled, including subcontracting and purchasing labor and machinery
3. Customer - Who will buy the products and services and how will customers be persuaded to buy them
4. Distribution - How the product and services be warehoused, transported and delivered
5. Finance - Where will the money come from and how will the cash flow be controlled
6. Administration - How the organization will be managed, the management style, the organization structure and the people skill required

This was part of TAM (Team Action Management), a step by step method for improving company performance. The inter-related areas above are almost identical to modern definitions and elements of the business model concept. To read more about TAM see this article.

Mark Johnson on Business Model Innovation and his new book Seizing the White Space

Mark Johnson, chairman of Innosight and author of Seizing the White Space: Business Model Innovation for Growth and Renewal (see review & summary here), explains his version of the business model concept "The Four-Box Business Model" comprising the Customer Value Proposition, the Profit Formula, and the Key Resources and Processes. This model was also the topic of yesterday's discussion at Innochat, see transcript here.

"Where are there opportunities to deliver new value propositions, where are there important unmet jobs that this company has the potential to make a successful product or service to address."

"Think about where these opportunities are and then allow the organization the flexibility to start devising ways at which it could deliver on that value proposition, that may not be the traditional way it does business"

Related videos:

Clayton Christensen on jobs needing to get done
Scott Anthony on Disruptive Innovation