Flip (21 page)

The absence of commission has been calculated to save up to $6000 on a $300,000 sale, $10,000 on a $500,000 sale, and over $21,000 on a million-dollar sale. The team structure makes it possible to assign a dedicated professional to each task, instead of having a 'jack of all trades' managing the whole thing – doing everything from taking photographs to booking advertising space – because their commission rides on it.

This turns the real estate model on its head, and it's being met with very positive reactions from consumers who have long felt that the traditional model wasn't giving them very good value for their money.

For companies and individuals the flip that there is no wisdom in crowds has two implications. Either differentiate yourself from competitors within an existing market or differentiate the market you operate in by creating a new market. Or for best results, do both – but in any case, start exploring.

Ten Things To Do Now

I know I have been finishing each chapter with five things to do, but in the spirit of being a little different, here are ten:

1. Start an innovators' club. Pull together a group (or multiple groups) of high performers in your company and host a meeting with them once a month where you look at fringe activities, new market opportunities and your current competitive strategy.

2. Keep a journal of fringe stuff. Not just fringe stuff in your market but any market. If your bank does something new and unique, write it down, give it some thought and then present it at your innovators' club.

3. Do something random at least four times per year. Visit an art gallery. Buy a different magazine to what you normally read. Or maybe even do a new course in something that does not relate to your job.

4. Surf the net.

5. Check out what teenagers are doing at the local shopping centre. What are they wearing? How are they talking? What are they talking about? Don't be weird, though, or you might get locked up.

6. Block out three hours at least four times per year and ask yourself: if I was going to build this company from the ground up, what would I do? Or if I was going to redesign this product, or develop a different product for this same need, what would it look like? What else could this product or service be used for?

7. Hire someone a little wacky. If you are big enough and have the resources, employ someone in marketing with an industrial design background. Or as Google does, hire an actuary to work in HR.

8. Don't attend your industry conference this year. Attend some other industry's conference instead. Or at least attend both.

9. Apply the 3M test. For example, demand that 20 per cent of your revenue in three years comes from a product or service (or many of them) you don't yet have.

10. Stop being such a wimp! Do something new, different and cool with your product or service. Something that has never been done before.

You don't own your brand, you don't own your customers and you don't own your staff. These days you have less control and influence over them than ever before. If you are smart you will flip this negative into a positive, and use it as a catalyst to tell a better story, add more value and to become an awesome place to work. This is the only way you will get significant control. And even then it won't really be control, just influence.

This is the hardest flip to master. It is human nature to want to expand the territory we control, whether as companies or as individuals, and at the very least hold onto the power that we already have. But some of the biggest success stories of our day are being written by the companies and entrepreneurs who have learned to give up control.

This chapter will give some examples of companies that are struggling to let go of the business models that have made them successful. This is understandable. Take for example the music industry, which – it is no secret – is struggling with the onset of digital music downloads, peerto- peer file sharing and a host of technologies that are completely changing the way music is made, distributed and listened to. You can hardly blame the music executives who have made their careers, and their companies' profits, with a tightly controlled selection and distribution model if they cling to the only way of doing business they have known.

I don't say this because I think a music executive reading this chapter will be surprised to hear that their business model is under threat. Nor will a CMO be shocked to learn that the customer owns their brand. What I do hope is that these executives, and you, feel inspired by the possibilities these changes present to you and your business rather than feeling crippled by them. Specifically, this chapter will suggest you do the following things:

• Stop resisting
  and learn to embrace the changes that are forced upon your business model and distribution networks.
  
• Connect and interact
  with your customers, not just so you can build valuable relationships with them, but so you can access their expertise for better product development and profit from the interaction too.
  
• Let go
  of your desire to control the research and development process, and tap into the pockets of individual brilliance that can be found when you open your doors to a wider community.
  
• Resist the urge to own and hold onto everything.
  Explore new business models where money can be made in relationship with suppliers, and even competitors, that your organisation cannot or will not exploit in isolation.
  
• Empower
  your staff to do their job.
  

THE POWER SHIFT

The four forces of change have shifted power from the organisation to the individual. Technology like the internet, increasingly affluent customers, oversupply in customer markets and extremely tight labour markets are putting the individual in the box seat. This new-found power is not only forcing businesses to be more accountable for what they do, but also undermining some of the most successful business models on the planet. Read on to learn how, and more importantly
what
, flipstars are doing about this new centre of power.

WINNIN1G THROUGH LOSING

Change is like a wave. You either ride the change wave, get pummelled by it, or sit on the beach and watch it run its course. For a while in the early 1990s Microsoft decided to watch the internet wave from the beach. That was until two programmers still wet behind the ears released separate memos to senior managers at Microsoft in the space of a fortnight in early 1994. Those twenty-somethings were programmer J. Allard and technical adviser to Gates himself Steven Sinofsky. The thrust of their separate memos: get off the beach and get into the water, the internet is huge and it is here to stay.

In effect they were saying that the internet was no ordinary wave, it was a tsunami that would consume even those sitting on the beach. These memos were enough to get Microsoft off the sand and into the water. A little over twelve months later Bill Gates himself released a memo aptly titled 'The Internet Tidal Wave'. In the memo he exclaimed, rightly, that the net was the 'most important single development' in the computer industry since the IBM PC. 'I have gone through several stages of increasing my views of its importance. Now, I assign the internet the highest level,' he wrote.
¹
The battle began to develop the ubiquitous browser for the internet. Microsoft among a few others wanted to be the gateway to the world wide web. Or more technically the facilitator of people's web experience. The battle, mostly with Netscape in the late 1990s, was won by Microsoft. Firstly, because they built a better browser, and secondly because they engaged in extreme competitive behaviour that has since landed them in hot water.

The cool thing is that the internet wave is still coming in, and some would argue it has not even gotten started yet. Are you riding the wave, getting pummelled by it or standing on the beach? No one is immune. The internet is completely redefining distribution networks and consumer power, at the same time compromising the 'trust' and property rights that the capitalist system is built on. And it is not just the internet either. For Microsoft the next tidal wave, apart from perhaps Google and online applications, is probably China. The battle there is twofold, with the software pirates and with Linux, a free open-source operating system.

In the US, Europe and of course in Australia the battle for the computer desktop is well and truly won by Microsoft with more than 90 per cent of all PCs using Windows as their operating system. While piracy is still alive and well in these markets, it is nothing compared to the levels of piracy in China. According to the Business Software Alliance, piracy in the US hovers around 22 per cent, the UK 29 per cent and Australia surprisingly a little higher at 31 per cent. This sounds high, but it is estimated that 90 per cent of all software in China is pirated.

In China piracy seems to be a way of life. It is in everything from pharmaceuticals (making Viagra rip-offs using ancient Chinese herbal ingredients) to airplane and automobile parts.2 There was around US$2.2 billion worth of software, movies and music piracy in China in 2006. China accounts for roughly two-thirds of the world's pirated goods and is the point of origin of around 80 per cent of counterfeit goods seized at US borders.
³

Add to this equation that Linux is basically a free operating system which can be customised to your company's needs. Despite being a model of 'open source', which I will discuss later in this chapter, Linux has done little to dent the phenomenal market share that Microsoft has in the developed markets mentioned above. In China it is a different story. Although it is believed that Microsoft are ahead, Linux is not far behind in what is obviously a much more immature and rapidly growing market, including deals with the Chinese government and education system.

It's likely there are more illegal copies of Windows than legitimate ones. It may seem obvious to someone in Australia, the US or the UK to put a stop to this piracy and install similar controls on piracy in China as have been imposed in western countries. But it could be argued that this is the opposite of what Microsoft should try to accomplish. To win this war, Microsoft need to lose the battle. For now anyway, some industry experts have suggested that Microsoft turn a blind eye to the piracy that is rampant in China for two main reasons. Once you build your IT infrastructure around Windows, it is highly likely you will want a number of add-on applications, many of which are made and sold by Microsoft. And secondly it will be easier to enforce anti-piracy measures when China's own nascent computer and software indus-tries begin to value a more 'respectful' relationship with intellectual property rights advocates, and when Linux no longer poses a significant strategic threat.

This may seem like a very audacious thing to suggest for a company that has profited hugely from exercising strict control of their product, but winning by losing is actually a strategy Microsoft knows well. The Xbox 360 is built on this strategy. Microsoft and others see the next big market opportunity in becoming the operating system and hardware vendor of choice in the 'living room', as people increasingly receive and store their entertainment content digitally. In an attempt to gain the dominant position over its main rival Sony, and more recently Nintendo, Microsoft sells the Xbox 360, which ironically is still very expensive, at a loss.

It seems that Microsoft has been doing this in China for longer than we may think. In a 1998 presentation at the University of Washington Bill Gates remarked, 'Although about three million computers get sold every year in China, people don't pay for the software. Someday they will, though. And as long as they are going to steal it, we want them to steal ours. They'll get sort of addicted and then we'll somehow figure out how to collect sometime in the next decade.' That decade is basically up and Microsoft has yet to collect. However, any attempt to control piracy in China is likely to be ineffective. In this case Microsoft will only get some control if it is willing to give it up for a little longer.
⁴

If the internet is the main power shifter, it would be remiss not to examine the company that has probably best worked out how to profit from the democratisation the net has created: eBay. The last chapter of this book is about the flip that 'Action precedes Clarity', and eBay is the ultimate actionprecedes- clarity business. Pierre Omidyar began eBay as a 'thought experiment'. He was interested in finding out if people could trust each other enough to buy and sell items without being controlled by some third party. Obviously it worked. In terms of the preceding chapter, Omidyar brought his innovation in from the fringe of his own mind and had it validated by the wisdom of crowds.Not only that, but even the name was not part of some grand master plan. Prior to starting eBay in 1995, Omidyar owned a business consultancy called Echo Bay Technology Group and tried to register EchoBay.com, but it was owned by Echo Bay Mines. So he abbreviated it to eBay.

To show the power of eBay, consider the following numbers:

• Since its launch in 1995, eBay has grown from nothing to US$6.35 billion a year. Not bad for a company barely a decade old.
  
• More than US$52 billion worth of goods were sold on eBay in 2006.
  
• Approximately 1.3 million people around the world used eBay as their primary or secondary source of income in 2006, including almost 13,000 in India.
  
• There are more than 222 million members of eBay who trade in over 50,000 categories of goods. More than US$729 is spent on eBay every second.
  
• There are more than 100 million items on the site at any given second, with 6.6 million added per day.
  
• Last year, more than £2 billion worth of goods were sold on eBay in the UK alone (a car was sold every two minutes), and eBay claims that as many as 70,000 Britons now make their living from eBay.
  

What is cool about eBay is that it is not a middleman in the same way Mortgage Choice is a middleman. In my mind it is not a middleman at all. It is simply a marketplace, a platform with very limited controls, policed mainly by the users (the wisdom of the crowd), where buyers and sellers meet and transact.

Pierre and eBay still kick Yahoo! Auction's butt because they moved fast, had a simple and fast procedure and gathered a critical mass of users that makes it seem crazy to buy or sell anywhere else. As a result they are able to charge a premium for listings and sales that is three times that of other competitive online auction sites. And it is not just eBay that wins. By removing the layers of control (all the people trying to skim dollars off the top), the eBay buyer gets a better deal and quite often so does the seller because of the excitement of the auction and the absence of high rent retail space.

Best of all eBay owns, stores and ships
nothing!
You don't have to own everything!

The next big frontier,which to date they have generally failed to establish, is in the Chinese market. After ploughing tens of millions of dollars into China, eBay recently announced a partnership with Chinese company Tom Online Inc.

FREE MUSIC ANYONE?

The recorded music business offers an example of an industry that until recently was very resistant to the changing nature of its marketplace. The entire industry is being dragged kicking and screaming into allowing customers to purchase and download individual songs online rather than buy an entire CD. Despite the enormous success of selling song downloads in the last couple of years, the recording industry is still wasting time and money suing illegal downloaders in court. Whether they like it or not, that war is already lost to the overwhelming force of consumer action. Some day an economics student will make a nice PhD thesis calculating how much money the record companies lost in refusing to face reality.

One of the hall of shame examples in that thesis will be Sony's misguided attempt to copy-protect its CDs with a virus that invaded customers' computers. Sony secretly implanted two types of viruses on around one hundred different CD titles which it sold to consumers.

When CD owners went to play their CDs on their computers, the viruses secretly installed themselves on the computer operating systems and started making changes to the media player to ensure the CD could only be played on one computer. The problem was, the program automatically installed upon insertion of the CD and the user was never informed about its presence. The changes it made to your computer also made it susceptible to other viruses and hackers. The program also communicated personal information to Sony about the computer on which it was installed, including the user's IP address (enabling Sony to identify you).

This was seen by many, justifiably, as a massive breach of privacy and trust. Eventually, Sony had to recall the CDs from distribution. They also faced legal action over the copy protection programs, due to breaches of privacy and damage to personal computer property.

Sony Pictures Entertainment senior vice-president Steve Heckler said in 2001, 'The industry will take whatever steps it needs to protect itself and protect its revenue streams . . . Sony is going to take aggressive steps to stop this. We will develop technology that transcends the individual user. We will firewall Napster at source – we will block it at your cable company, we will block it at your phone company, we will block it at your ISP. We will firewall it at your PC . . . These strategies are being aggressively pursued because there is simply too much at stake.'
⁵