As I write this blog post, somewhere in the hotel below me our Forum team is busily preparing for the opening day of our 2011 Consumer Forum. There I will take the stage as the opening keynote presenter and, although I'm going to be talking about the future, it makes me think about the past. Because in 1999 I stood on a similar stage and offered my first Forrester keynote address, entitled "Meet the Digital Consumers."
Back on that stage, with the help of Forrester's Consumer Technographics survey data, I explained how consumers -- once digitally enabled -- would forever alter the way companies serve them. It's now 12 years later, and everything I said then came true, plus some. I didn't know then about YouTube, Facebook, or Groupon. But I did know that digital consumers would want more benefits, more easily, than they received in an analog world.
Today I'll stand on the stage and introduce people to a new entity: digital disruptors. Because while disruption is not new (just as consumers have always been with us), digital disruption is more powerful than before. It allows more individuals to bring ideas to market more cheaply than ever before. Below is a sneak peek at a key slide from the presentation I'll deliver in an hour's time.
Join me in Chicago on October 27-28 as I help you prepare for digital disruption.
Not old-school disruption, the kind you've heard of before, that takes years to develop and decades to have its devastating effect. I'm talking about digital disruption -- a better, stronger, faster version of disruption that is running rampant across industries as divergent as book publishing, cosmetics, and auto insurance. Digital disruptors are people and companies that use digital tools to: 1) remove traditional barriers to entry; 2) produce better products and services; and 3) build digital relationships with your customers that forever relegate you to the margins of your customer's thoughts and plans. And they do all of this faster than you can.
It's what makers of the app Lose It! are doing to the dieting business (and what their competitors at Daily Burn are trying to do to the folks at Lose It!); it's what Garmin is poised to do to personal training; it's what our magic mirror will undoubtedly do to the beauty and wellness business; and it's what every digital disruptor is plotting to do to your business right now.
Beat them by joining them. Become digital disruptors yourselves before it's too late. How? By stealing crucial pages from the digital disruptor's handbook. Check out this video summary to hear more about The Disruptor's Handbook.
All through the past decade, observers in industry and on Wall Street have offered reasons to discount Netflix’s efforts. Supposed obstacles ranged from Blockbuster to scant streaming options to recent rate hikes on DVD renters. When will these people ever learn? We understand why people cheer against disruptive players like Netflix — it would be nice if we could pretend all these digital disruptions will go away. But they won’t, and neither will Netflix. We’ve written about this in our latest report that people who keep an eye on content strategy will find valuable (see our newest report on Netflix).
But it’s not really written for them – it’s written for people who take an even bigger view, as do we. These people – today’s product strategists – know that Netflix is a powerful example of disruptive digital product strategy and are eager to learn how to act like Netflix in their own context and industry. In our report, we extract three specific lessons from Netflix:
Control the product experience. The company that controls the user’s total product experience will win, whether retailer, producer, distributor, or platform. That company will have ultimate control over what options people have, what prices they pay, and what value they believe they are getting. It’s a big responsibility, but it’s one that people charged with product strategy must be willing to accept. Makers of products as wide-ranging as sleeping pills, running shoes, and auto insurance should all follow Netflix’s lead and control the total product experience they deliver.
We live in a world punctuated by big innovations. From fire and the wheel down to the light bulb and the iPad, we mark the march of history by the steady beat of transformative innovations. Except that steady beat is no longer so steady. The rate at which these life-altering innovations are coming to market is accelerating so quickly that it's no longer sufficient to invoke even Moore's Law to explain them.
Not only are new things being introduced more swiftly than before but consumers are adopting them more rapidly than before. I make my living studying early adopters, but recently I've had to throw many hard-earned lessons out the window. Because in a world where Microsoft sold 8 million Kinect cameras for the Xbox 360 in just two months, traditional definitions of "early adopter" became irrelevant after about week two.
This is both exciting and maddening. We've spent that last several years watching the acceleration of innovation to figure out what is making this rate of innovation possible and we've discovered that innovating at this pace is tricky, but doable, with the right approach.
This week, the iPad app world is frantically sorting through some recent changes in its environment. Last Monday, Apple quietly altered its app approval policies in a way that will make publishers much happier. Specifically, Apple has relaxed control over whether apps can access content paid for outside of the App Store’s purchase APIs. The company has also allowed publishers to price however they want, both outside and inside of the app.
In the same week, FT.com released a subscription-based HTML5 web app intended for iPad users that bypasses Apple entirely, giving the publisher its own path to market that does not depend on or enrich Apple directly. The coincidence of these two events is not lost on most of us industry observers and is the topic of a Forrester report issued by my colleague Nick Thomas last Friday. In it, Nick explains why the FT’s move is probably the first of many such moves by the most recognized publishers, even with Apple’s newly announced policy reversal.
But while publishers figure out their next steps for their content apps, there’s one app that no one is talking about but I believe everyone should have their eye on. It’s the Amazon Kindle app. This app violates even Apple’s revised policies and will soon face a day of reckoning when Apple's June 30th deadline for compliance comes up.
I don’t claim to know Amazon's plans, but I will claim to tell Amazon what it should do:
That's right, I said eReaders. True, it looks like a tablet, runs like a tablet, and delivers a lot of the value that tablets deliver, but the Nook Color's 1.2 upgrade (which is actually a step up to Android 2.2; don't let the numbers confuse you too much) is really a foreshadowing of the future of eReaders, not the future of tablets.
First, the facts. With the new upgrade that will be gradually pushed out to all existing Nook Color devices for free over the next few weeks (or you can download now at www.nookcolor.com/update), the folks at B&N have added some very useful features: an integrated email client, Flash 10.1 support, a curated Android app store (see sidebar), and an improved user experience through a myriad of tweaks. These upgrades make the Nook Color look more and more like a tablet, with a very attractive $249 price point to boot.
Must the iPad now cower in fear? No, not really. Because even at this price point, the Nook Color remains a smaller, less powerful tablet than the iPad. And as we've seen, the range of competitors coming in after the iPad's territory are coming in at higher prices with more powerful features (for example, last week I dropped $529 for an LG G-Slate from T-Mobile with 3D video camera and 4G data plan). The tablet market is gradually moving into higher-power features, not lower-power experiences.
At first blush, the decision by Warner Bros to rent movies on Facebook seems a little out of place. Sure, people watch a lot of video (mostly YouTube) on Facebook, but they don't go there to watch two hour movies, right? Well, for now they don't, but with some tweaks, they could start doing so very soon.
As my colleague Nick Thomas said yesterday in his blog post about Facebook's potential as a premium content platform, the future of traditional and social media are likely to be intertwined. Most of us, myself included, have been imagining them blending in the living room, where viewers can access Facebook on any number of devices while watching a movie on the TV. But would people be interested in exactly the reverse? When I checked in on Facebook I found the first evidence that the answer is yes.
You see here that within 11 hours of being posted, 1,914 people liked the idea of watching The Dark Knight on Facebook. This is compared to the 1,433 people who have liked the App Edition of Dark Knight that was announced nearly a month ago. (Don't try this at home; for some reason, the post announcing Facebook viewing has since been removed and I can't check for more recent numbers.)
The most important outcome of this week’s emerging tussle between Apple and Google is that we are about to have an intense and financially difficult conversation about what a fair price is for delivering customers to developers, publishers, and producers. Economically, this is one of the most critical issues that has to be resolved for the future of electronic content. Very soon, a majority of consumer experiences (that which we used to refer to as the media) will be digital. But not until the people who will develop those experiences have unambiguous, market-clearing rules for how they can expect to profit from those experiences.
The question comes down to this: Is 30% a fair price for Apple to charge? I must be clear about my intentions here. I do not employ the word “fair” the way my children often do. I am not whining about Apple’s right to charge whatever it wants. Apple may do whatever is best for shareholders in the short- and long-run. I argued yesterday that Apple’s recent decision does not serve its shareholders in the long run. Google announced One Pass yesterday – hastily, I might add – in order to signal to Apple and its shareholders that monopoly power rarely lasts forever. But none of that questions the ultimate morality of Apple’s decision or its rights.
I use the word “fair” to refer to a state of economic efficiency. A fair price is one that maximizes not just individual revenue, but total revenue across all players. Such revenue maximization cannot be achieved without simultaneously satisfying the largest possible number of consumers with the greatest possible amount of innovation.
Yesterday Apple announced its intention to tighten its hold on the payment for and the delivery of content through its successful iTunes platform. (I’ll leave off the I-told-you-so; oops, too late.) Apple will require that all content experiences that can be paid for in an Apple app must be purchasable inside the app, with Apple collecting its 30% fee. The app can no longer direct you to a browser or some other means for completing a transaction. Crucially, the in-app purchase offer must be extended at the same price as the same offer made elsewhere. Though the announcement of the subscription model was the triggering event, the policy extends to all paid content.
I do not believe this is where Apple will stop – I personally expect them to eventually deny the delivery of content paid for outside of the app without some kind of convenience charge. But my personal expectations are irrelevant here, because what Apple has done already is sufficient to make providers of content aggressively invest in alternative means to reach the market.
Subscription content services are the lifeblood of the content economy. A full 63% of the money consumers spend on content of all types comes through a renewable subscription (I’ll be publishing this data from a survey of 4,000 US online adults as part of a bigger analysis next month, hang tight). Most of that subscription revenue goes to pay-TV providers, but 17% of it goes to newspaper and magazine publishers, including their online or app content experiences.
Today The New York Times is reporting that Apple is changing its policy for allowing apps to deliver content that was paid for somewhere other than in the app where Apple would get a cut. This came to light when Sony was forced to explain why its iPhone and iPad apps were not being released as promised. This is important to illustrate clearly because this is not just about Sony. In fact, it is expected that Apple will apply this same policy to existing apps over the coming months. The most obvious target is Amazon.com's Kindle store, but we have no reason to believe it will stop with eBook retailers; instead, this policy should also affect magazines, newspapers, even videos and games.
This represents a shift for Apple. Going back to the iPod days, Apple only sold music because it helped sell iPods. When Apple added the iPhone app store, it allowed Amazon to add a Kindle app because it would only make iPhones more valuable to potential buyers. The same held true for the iPad. But now that the company has built such a powerful ecosystem of devices, content, and consumers, it appears Apple is eager to ensure it can collect any and all tolls along its proprietary highways. I note this with some irony because it was just three weeks ago that I praised Apple's surprising openness in a report explaining the iPad's rapid growth: