Innovation has become a buzzword in discourse among business, academic, development and media communities. It has many connotations. One of them is: taking ideas to market at profit. At the dawn of the 21st century, smartphone has been a remarkable innovation. It has democratised the ownership of high-end computing and communication power across the world. Worldwide smartphone penetration continues to increase with 2.4bn people using smartphones by the end of 2017. According to IDC, 344.3 million smartphones were shipped worldwide in the first quarter of 2017. Although smartphone is primarily for the purpose of making phone calls, it has gobbled up an array of discrete products like radio, camera, personal digital assistant, music player, calculator, watch, compass, global positioning receiver, video player and many more, even torchlight. Is there any underlying pattern behind this remarkable innovation? Or, is it simply a mix of random 'Eureka' moments?
When an innovative product, irrespective of its greatness, enters the market it starts experiencing four forces: i. replication, ii. imitation, iii. innovation, and substitution. They collectively form the competition pressure. This competition pressure forces the willingness to pay for the product drifting downward.
To counter this force, the innovator needs to upgrade the product with either adding new features or upgrading existing ones, or making progress in both dimensions. With the release of iPod in 2001, Apple had a sigh of relief from being bankrupt. But Steve Jobs' success of lifting Apple from near bankruptcy was short-lived.
Mobile handset innovators like Nokia were adding music player as integral feature of smartphone, creating substitution effect to Apple's lifeline, iPod. If smartphone could do the additional job of playing music, why would people carry iPod was an obvious question. Steve Jobs then made a strong appeal to Apple's board for allowing him to take a project to add phone feature to iPod-starting the journey of giving birth to iPhone. In the process of innovating iPhone, Steve carefully investigated existing smartphone features of that time. He figured out that full qwerty keyboard was occupying of the half the surface. To support growing usages of smartphone for the purpose of Internet browsing and e-mail communication, the user needed both full-size keyboard and large screen. Although he noticed that stylus was an integral accessory for allowing users to click key words in using web content. These were major limitations of smartphones for busy professionals who often had one hand tied up, whether carrying office bag or holding hanging strap in congested subway train.
Upon careful investigation, Steve took the decision of adding a unique feature to iPhone causing substitution effect to incumbent smartphones. The selection of keyboard and also stylus free multi-touch user interface was the response. Consumers showed interest to those features, creating strong substitution effect to incumbent smartphones having physical keyboard and also stylus. Although, Nokia and also other smartphones makers attempted to respond to that substitution effect with incremental innovation of existing features, the substitution force was strong enough to cause disruption to incumbents' business, consequentially making Nokia bankrupt. But Apple's success of selling iPhone did not stay long. Within one year, iPhone's sale came down to virtually zero. Since the inception, Apple's iPhone has also been suffering from other three competition forces: replication, imitation and innovation.
Some device makers in China started to produce replica of iPhone, offering at far lesser price. Contrary to Nokia's incremental innovation strategy, Samsung chose the imitation approach by rapidly adopting Android. In course of time, Samsung has also acquired the innovation capability to offer even certain new features, which iPhone did not have. To respond to such reality, Apple had to release the subsequent versions with added and also improved features at regular intervals. Along the way, many other producers like OPPO, Vivo, and Huawei have joined the journey with replication and imitation strategy. Due to the maturity of many of the underlying technologies, Apple or Samsung's innovation ability to maintain or increase willingness of customers to pay has been getting weaker. As a result, companies with replication and imitation strategy are succeeding in taking away market shares from innovators.
Apart from the rivalry among smartphone makers, smartphone innovation has caused disruption to diverse industries like portable music players, radio, PDA, camera, torchlight, and even remote controllers of television. Smartphones are also showing substitution effect towards laptop or desktop computers. In the theory of innovation, we term this remarkable transformation of grabbing multiple devices as scope advantage. In order to maintain or improve customers' willingness to pay, the innovator needs to keep adding to and/or upgrading features of the product.
By taking the advantage of software, mobile handset innovators started adding up one after another feature to the handset making it smartphone, which gobbled up one after another discrete products. As a result, the willingness to pay for mobile handset went up expanding the customer base, as the cost did not proportionately go up-- thanks to zero cost of replication of software. On the other hand, the growing customer-base offered high scale advantage, particularly due to zero cost of replication of most valued component of the smartphone: software.
Smartphone has been a great success story of innovation of taking scope and scale advantages-- increasing both consumer and producer surpluses simultaneously. Ubiquitous wireless connectivity and social networking applications have also added network externality effect to the attractiveness of smartphones. Moreover, the option of adding 3rd party apps has also opened the road of improving the utility of smartphones by users themselves. It appears that there has been a strong theory behind this success story. Even such a remarkable innovation success story is not a magical outcome, rather it is the manifestation of systematic application of theory.
Although oftentimes we consider innovations as magical outcome of creative minds, there appear to be strong underlying patterns to follow to take ideas to market at profit. Such patterns are being shaped by the competition forces being encountered in the market economy. In the absence of in-depth understanding of the underlying force shaping innovation patterns, often highly creative minds fail to turn their great ideas into profitable outcomes-resulting in wastage of time and money. It's time to appreciate and research this dynamics of innovation in market economy, and make stakeholders aware of it in order to leverage innovation led economic growth opportunities.
M Rokonuzzaman, Ph.D is academic, researcher and activist on technology, innovation and policy.
