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Mar 08

Fast and Open Innovation: Innovation Machine Apple, Google, Nokia, Microsoft, Research in Motion, Garmin Define Their Mobile Innovation Strategy

On Thursday, the innovation machine Apple announced the iPhone 2.0 Software Upgrade for its iPone. By virtue of this upgrade, Apple wants, as completely as possible, to equip the modern mobile user with applications that he is used to from his home or office. The innovation machine Google pursues a similar objective with its Android platform that Google presented on November 5 last year. Noty only the innovation machine Apple and the innovation machine Google have identified this customer need but also the innovation machine Nokia, Microsoft, Research in Motion (RIM), Garmin, and, of course, the telcos. Every company is sharpening its innovation strategy. In which innovation arena should the company compete, from which one should it abstain? Fast innovation is required in innovation management, i.e. the new innovation arena is to be rapidly occupied and dominated through innovations. Open innovation with the help of external development partners is an important accelerator for that.

Apart from the demand by consumers living predominantly in the developed countries for the mobile use of those applications that they have so far enjoyed as stationary services, there is another big demand which in the future probably will even surpass the first need: in many emerging countries such as China and India the mobile phone or other mobile communication devices will represent the first and often the only contact point to the internet. The PC technology as access tool to the internet will often be leapfrogged in those countries. Today already more than three billion people worldwide are using mobile phones. Each year about one billion new mobile phones are sold compared to about 200 million PCs sold per year. This discrepancy will rather increase than decline. Each month e.g. the Indian and the Chinese mobile phone market each grow by about seven million new users.

The innovation management results not only in a convergence of technologies but also in a convergence of companies which often collide with each other for the first time as competitors in the new mobile innovation arenas. Competitors such as the innovation machine Apple, Google, Nokia, Microsoft, RIM, Garmin, and telcos such as Vodafone, AT&T or T-Mobile originate from diverse markets. Either they hail from the private consumer market or from the business customer. They have their original competence either in hardware, in software or in the management of telecommunication networks. There is now a notable shift in focus in the innovation management of the mobile market going on due to the appearance of the new competitors Apple and Google: away from hardware and network technology, and towards software.

Fig.: Origin and Core Competencies of Mobile Providers
The opportunities for innovation management in the mobile market are manyfold. Because the customers have the most diverse needs. The innovation strategy of the enterprise and the selection of the mobile innovation arenas determines
· where the innovation ressources of the company will be invested (and where not)
· ressources that may still need to be acquired
· the search territory for new ideas (and this precludes the idea search in excluded arenas)

Four factors are determining for the selection of the innovation arenas:
· Consistency with the overarching enterprise strategy
· Synergy with the existing core competencies
· Potential of the innovation arena
· Synergies of the innovation arenas with each other
If we analyze the innovation machine Apple and the innovation machine Nokia, Microsoft, Google, Research in Motion and Garmin in more detail we note a rather diverse distribution of core competencies amongst the functionalities that the customers are looking for:

Fig:: Demanded Functionalities and Core Competencies of the Main Competitors

While the core competencies of the innovation machine Apple rest in the internet (Mac) and music (iPod), Nokia has particular strengths in speech and photo technology, Microsoft in e-mail, internet, search, games (Xbox) and office applications (Office), and Google in e-mail (Gmail), search (Google Search) and navigation (Google Maps). The status quo of offered functionalities roughly looks like follows:

Fig.: Status quo of offered functionalities

Not yet all the functionalities are known that will be supported by Google´s Android platform and by Garmin´s announced new nüvifone. The first Android mobile phone is expected for the first half of 2008, Garmin´s nüvifone for the thrid quarter of 2008.

Mid-term we can, however, safely expect that all main competitors will define their innovation strategy such that they will cover all functionalities. Even those for TV and mobile payment although for these the innovation management of these main competitors does not yet provide any product offer (different from mobile phone manufacturers and telcos in Japan). An important question for their innovation management will be: should these functionalilties be offered in one universal product (Swiss-knife-approach) or via several specialized products like e.g. Apple´s iPod (music, video) or the specialized devices of other competitors that have not yet been mentioned here such as TomTom (navigation) or Nintendo (game console DS) und Sony (game console PSP)?

User friendliness will be a decisive criterion for the definition of the innovation strategy. The innovation machine Apple has repeatedly demonstrated with its innovation management what a success user friendliness and design can generate. It will be critical for the companies to fully understand the customer needs, to segment them and to priorize them. In the end the innovation management should (only) offer that bundle of functionalities in its product that is relevant for the respective user segment and which does not endanger the ease of use.

In order to occupy the selected innovation arenas, Fast Innovation is required. In the spirit of Open Innovation the competitors increasingly lay open their standards and operating systems in order to win over external software developers as partners for a rapid development of new applications. The social network Facebook has demonstrated Fast Innovation very well: it has dramatically and rapidly increased the attractiveness of its product by supplementing it with applications by independent software developers such as Slide or iLike. Besides laying open standards and operating systems, having an operating system that is free of charge will turn out to be a strong accelerator for its diffusion.

Google has sharpened its mobile innovation strategy, and with Android it has presented a platform for mobile devices that is completely open and free. Google has been offering its search software as a mobile applcation for years. But the Android platform is more: a Linux based operating system, which interacts with the hardware of the mobile device, plus middleware plus user friendly interface plus applications. Google´s Android business model is based on the generation of revenue through advertising, in partcular location-based advertising. Google has teamed up with 33 partners in the Open Handset Alliance (OHA) in order to propagate and support Android as an open platform for mobile devices in the spirit of Open Innovation. As of the second half of this year the first Android mobile phones are expected to hit the market. In the meantime Google has launched its Android Developer Challenge which offers 10 million $ in awards to those external software developers who develop the best applications for the Android open-source platform.

On Thursday the innovation machine Apple, too, took some important first steps towards opening up its innovation management. Apple has modified its innovation strategy, and will publicize the interface of its iPhone operating system in order to gain independent developers as Open Innovation partners. The latter are supposed to further heighten the attractiveness of the iPhone via their supplementary offers. On this project, Apple is cooperating with the leading venture capital firm Kleiner Perkins Caufield & Byers which has launched the $ 100 million iFund in order to invest in companies which develop market-changing applications and servies for Apple´s iPhone and iPod touch.

This is an important fine-tuning of Apple´s innovation strategy but Apple´s innovation management has not yet taken such a big step as Google with its Open Innovation strategy. The reason is Apple´s iPhone business model which at the moment is still very different: the iPhone operating system is not available for other hardware suppliers, and Apple cooperates in each country only with one telco as exclusive partner. The revenue of Apple´s iPhone accordingly does not derive from advertising but from the sale of the handsets, and a share of the iPhone communication revenue of the exclusive telco partners, and a share of the software revenue of the external software partners who will develop new applications for the iPhone.

Innovation management in a mostly closed system is still being pursued by the innovation machine Nokia which builds on its world-wide market leader status with 900 million sold mobile phones, and which is repositioning itself as an internet company through, amongst others, its Ovi internet portal. Via Ovi Nokia is now offering music, games, navigation services and the sharing of photos and videos to its consumers. Similarly closed are the still the innovation management systems of Microsoft und Research in Motion. Users have still to pay licence fees for their operating systems (e.g. $ 4.30 per device for Nokia´s Symbian operating system), and their interfaces have not yet been made public to a broader audience. Momentarily the operating system of the Symbian consortium, which is controlled by Nokia with its 47% participation, still holds a worldwide market share of 68% in the segment of the so-called smartphones. Microsoft´s Mobile software on the other side so far has not been able to progress beyond a market share of 12 % despite seven years of perseverant efforts. It will be highly interesting to observe when, under pressure from competition, these innovation machines will modify their innovation management by further opening themselves up to external software developers and other partners in the spirit of true Open Innovation. I suspect pretty soon. The innovation machine Nokia has already announced at least for its Ovi portal that it shall be opened up for external developers and hardware suppliers.

(c) Rolf-Christian Wentz

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