Flip Read online

  Interestingly, it took a music industry man (not a TV producer) and a gutsy UK television station to trial the reality format and to add voting capability to it. This was not a 'crowd' initiative. Fremantle Media and 19 Management are reaping the rewards of a concept popularly credited to one man: Simon Fuller. Fuller, who founded 19 Management in 1985, was previously known as the manager of the Spice Girls and S Club 7. The Spice Girls and the birth of the Idol format in 1998 make Simon Fuller a world-class flipstar.

  The most interesting iteration of the Idol format came in 2005 in Finland. They ran side by side with the show proper an uncontrolled version called Jokamiehen Idol (People's Idol), where anyone and everyone could post to the internet their own Idol performance, whether they had auditioned for the show or not, and whether they were any good or not: 150,000 Finns listened to the amateur posts and cast 1,950,000 votes, which according to SMLXL was more than actually voted for the televised 'real' Idol.

  Australia did the same with Telstra in 2006 when they allowed users to become the 'Street Idol', winning $20,000 and a trip to the Grammy Awards.What is cool about this is that it is an example of the producer letting go of even more control. It is the same participation that has driven the phenomenal success of YouTube.

  CUSTOMERS WANT WHAT THEY WANT

  Formerly of the MIT Media Lab, Nicholas Negroponte famously said, 'Customers don't want choice; they want what they want.' This is true, but a limited and controlled set of choices allowed companies to spread their risk, and get closer to giving what the customer wanted to a broad enough market to maintain some level of economies of scale so they could deliver their 'almost right' products to the market in a cost-effective way. Digital distribution, global markets, better production technology and more sophisticated supply chains giving the ability to the customer to more easily declare what he or she wants are just some of the things allowing companies to move from 'almost right' product choices to 'mass personalisation'.

  The truth is customers generally don't really know what they want.Many times a product succeeds when a company is able to convince consumers that they want something which previously they did not. Or in extreme cases like the motor car, the digital watch or more recently the digital music player, convince them they want something that previously did not even exist. Remember there is no wisdom in crowds when it comes to innovation, and maverick innovators are still required here.

  Let's revisit the Scion. Although the brand story and styling of the Scion are closely controlled by Toyota, part of that story is that this can be 'your' ride. Just how you want it. The Scion has been designed to be personalised. This is the trend to which I am referring – consumers' desire to have products that they feel are uniquely theirs. This is why the story is so powerful, as talked about in detail in chapter 3, 'Superficial is Anything But'.

  James Farley, vice-president of the Scion at the time of its unveiling, said, 'Scion is about personalisation. It's about providing buyers with a personalised dealership experience, a personalised ordering process and personalised vehicles.'

  The Scion team developed almost forty accessories that could be fitted to the car to meet the customer's exact wants, including fog lamps, rear spoilers and auxiliary interior light kits. Scions also lend themselves to post-purchase customisation, with a whole market of non-Toyota companies springing up to offer various types of customisation, including additions of subwoofers, superchargers and non- Scion decals.

  The Scion FUSE concept car unveiled at the New York Auto Show in 2006 takes this to the next level. Another Scion executive, Mark Templin, says that as well as pushing the 'creative envelope', the Scion also demonstrates 'boundless personalisation' potential. Everything from the customisable multicoloured headlights to the different options for in-car wi-fi access, video consoles and televisions can be tailored down to the individual tastes of the customer.

  Your company's version of personalisation does not need to be as sophisticated as the Toyota Scion. Perhaps you could start giving your customers a wider choice of payment methods. Maybe it is more delivery options. I am willing to bet you have all had that experience of buying a piece of furniture only to then be told it will need to be delivered in a few days (or months) as they keep no stock on hand. I can understand that, knowing how expensive retail space is, but your average consumer gets annoyed by it. If this is not bad enough, the retailer then tells you what day it will be delivered on, regardless of whether this suits you or not. So you arrange to duck out of work for an hour or so, but then they only give you a window of about six hours. And then they refuse to call you one hour before they are due to arrive. So basically you, the customer, end up having to take half a day off work, which probably costs you more in lost productivity than your initial purchase was worth, and you sit around waiting for the delivery truck to arrive. And if they are anything like the furniture company I referred to earlier in the book who sold me my lounge, they will leave their rubbish in your lounge room because 'this is not their responsibility'.

  Probably the best and most successful example of 'mass personalisation' around the world is Ikea. The build-ityourself model that Ikea embraces comes from their desire to constantly drive down prices but not sacrifice quality. They sell all their furniture disassembled (in 'flat packs') so costs of construction are passed on to the consumer (that is, the price in dollars is lower but the cost in effort is higher). The idea came from when Gilles Lundgren was struggling to fit a table into the back of his car, so he took the legs off it and it fit 'in five easy pieces'.

  People like this model for a few reasons. Firstly, they understand that their personal effort is part of the model that secures them lower prices, so they are happy to have a hand in building what they buy. But secondly, the fact that many Ikea products can be assembled in a number of ways (desks that can have a few hutches or just be plain, cupboards that can have multiple shelves in a few different layouts) means that consumers can assemble furniture that they feel is uniquely theirs – both functionally and aesthetically.

  It obviously works. Ikea had an annual revenue of over US$23.75 billion to March 2007 and employs over 100,000 people. Profit margins are 18 per cent and sales have trebled in the last decade, while at the same time prices have come down.

  I have to be honest here.Until very recently I hated Ikea with a passion. Seriously, the thought of having to take down my own order, load my own trolley and car and then not be able to pay on American Express was enough to drive me nuts. Paying extra for some service is what I prefer. (Perhaps Ikea should consider a premium service, where you get a one-to-one service for sixty minutes for a percentage of your purchase, with a minimum charge.) However, a recent experience has changed my view, and now I am a huge fan.

  I was redesigning my kids' toy room. I like minimalist design and I like things to fit perfectly. I'm also known as mildly obsessive compulsive. I had been to at least five different furniture stores looking for what I wanted. None of them was Ikea, because about a year prior – after being made to get my own heavy boxes, furniture which I would later have to put together myself, and not being able to pay with my then only credit card, Amex – I swore to never again grace an Ikea store. But I was desperate and so I went to the huge Ikea at Rhodes in Sydney.Not only did I find a huge range of shelving and cupboards that would work in my home, I found them with every possible variation. Glass doors, white doors, beech doors, no doors, and so on.

  Everything was designed to be changed around, adapted, bolted together, kept apart and any other 'personalise?' combination you could think of. I got what I wanted and actually enjoyed putting it together and creating a great new space. In practice Ikea is a living, working and profitable example of 'mass personalisation'. It is fast, good, cheap and personalised. The personalised has made up for it not being easy.

  The point: where possible give your customers what they want and not what you think they want. Or worse, what you want. Do an audit of your product choices, delivery options
and payment methods. Ask yourself, are they set up to favour the customer or to favour you?

  THE TRUE WISDOM OF CROWDS

  It may come as a shock to you, but the smartest people in the world don't all work for you. But you still want to access their brains and creativity, and these days that is easier than ever before. Consider the Chicago t-shirt manufacturer Threadless. It makes all its t-shirts to designs that its customers post on the company website and that other site visitors can rate on a scale of one to five. Each week, the company puts the most popular new designs into production, paying each winning designer US$1500 in cash and US$500 in merchandise. On an average day well over one hundred designs are posted on Threadless.com, and in an average month the company sells almost 80,000 t-shirts at $15 a piece.

  According to Threadless co-founder Jacob DeHart, 'We've got four rules we follow. We let the [Threadless customer] community create the content. We let the community build itself – no advertising. We let the community help with the business; we add features based on user feedback. And we reward members of the community for participating.'

  Similarly, on the website of Seattle's fast-growing Jones Soda, which sells a range of organic teas and carbonated beverages, customers post and vote on photographs, with the winning images becoming incorporated into Jones Soda bottle labels. Founder and CEO Peter van Stolk says, 'We founded this company with the philosophy that the world does not need another soda. That forced us to look at things differently: How could we create a new kind of connection with customers, let them play with the brand, let them take ownership of it? Everything at this company is about sharing ownership of the brand with our customers. This is not my brand. This is not our soda. It belongs to our customers.'

  The point is, while the crowd itself is not wise in the sense of generating new ideas, there are a lot of insanely talented individuals in that crowd who have the ability and desire to contribute in meaningful ways to the brands they love. Sometimes, purely for love. Consider Lego.

  In 2003 Lego made its greatest ever loss of US$238 million. In response, rather than keep doing the same thing and hoping it would turn it around, Lego adapted. It tore up the detailed blueprint it had been operating under and became a flipstar. The company folded its game software division, as well as a number of underperforming Lego kit designs, and decreased the number of unique Lego blocks and other kit pieces it manufactures by over 40 per cent. Fairly normal cost cutting, but a bold, aggressive start to the action.

  Lego followed that by deciding to reinvigorate one of its most successful recent products, the Mindstorms Lego robot kit. Costing US$199 at retail, the Mindstorms kit had sold almost one million units since its 1998 release and by 2003 was still selling around 40,000 units a year with no advertising. But the kit was too complex for most children, and many of its most loyal fans were adults.

  After some initial development of a new Mindstorms prototype in house, Lego decided to reach out to a small group of adult users who had become celebrities in the Mindstorms world to join a top-secret Mindstorms Users Panel (MUP): Steve Hassenpflug, an Indiana software engineer; John Barnes, the owner of a firm that manufactures ultrasonic sensors; Ralph Hempel, author of several Mindstorms how-to books; and David Schilling, cofounder of a Mindstorms user group called SMART, the Seattle Mindstorms and Robotic Techies. Working on the project without pay, and even buying their own plane tickets when they visited Lego headquarters in Denmark, the MUP-sters influenced every aspect of what became Mindstorms NXT, a runaway bestseller for Lego at a list price of US$249 since its 2006 release, in exchange for a few free prototypes and other Lego kits and the satisfaction of being involved in creating the new version of something they loved.

  Assembling the MUP was a huge break from Lego's tradition of controlling every aspect of design and production inhouse. A flip, no less. To create Mindstorms NXT, they also went outside for software programming. But they had already taken an important step in this direction with the original Mindstorms product release in 1998. When a hacker quickly broke and published the Mindstorms software code, Lego considered legal action against him. Then it took a far more profitable legal action: it altered the Mindstorms software licence by inserting a 'right to hack'. As fanatical Mindstorms hackers published code for creating Mindstorms robots that could deal blackjack, scrub toilets and perform a host of other functions that had never been in Lego's product brief, Lego became one of the first manufacturers to reap the benefits of open-source software development.

  On a final note, Lego has started to use this same approach to sell more of its innovative new products. Lego enlisted influential consumers as online evangelists. After a new locomotive was shown to the 250 most hardcore Lego train fans, their word of mouse helped the first 10,000 units sell out in ten days with no other marketing.

  The open-source model is the antithesis of the commandand- control systems of product development and exploitation that most businesses still follow. In command-and-control R&D, the company sets all the parameters at the top executive level, and a research and development department attempts to execute accordingly. Attempts, because as history amply demonstrates, there is no effective way to dictate specific discoveries in a closed system.

  In chapter 5, 'There is No Wisdom in Crowds', I argued that you have to be open to ideas from the fringe to innovate. You have to be open to serendipity, to finding things you weren't looking for. The open-source model does this by recruiting the energies not of a proprietary research force whose resources are limited even in the largest companies and organisations, or even the most powerful governments, but of anyone who cares to contribute. This ensures that new ideas will have a chance to emerge from the fringe. It's a flip on a flip. The true wisdom of virtual crowds is that people will be pursuing their individual interests and agendas. It's a market of the mind, which winnows out the good ideas from the bad in an uncontrolled, Darwinian survival of the fittest.

  Nothing demonstrates the potential of the open-source model better than Linux. Linux itself grew out of two earlier open-source projects – Unix and GNU.Unix, the free-time pet project of two AT&T Bell Labs researchers in the late 1960s, was initially quite successful but quickly became heavily protected by patents. In response, GNU emerged as an opensource alternative to Unix, but lacked some central elements of a viable operating system, such as a microkernel.

  Linux, the brainchild of Finnish computer scientist Linus Torvalds, was released in the public domain in 1991 and was a fully viable operating system. It is hugely successful. IBM and other large IT corporations use Linux as an operating system, and there are numerous small companies selling Linux software, which runs on everything from supercomputers and servers to mobile phones and PDAs. In 2008 the global Linux market is projected to reach $35.7 billion a year.

  None of this could have happened cost effectively within a single company's, or even a consortium's, proprietary software development. To compile the millions of lines of source code in Red Hat Linux – the first important, but now discontinued, product from Red Hat – would have taken 8000 employee years of conventional development time at a cost of $1.08 billion a year.

  I said that open-source development represents the true wisdom of crowds, and the thousands of contributors to Linux certainly make up quite a crowd. But this does not actually contradict chapter 5's flip, 'There is No Wisdom in Crowds'. To appreciate this, we have to look closely at the development of the Linux kernel and consider the concept of lead users, people who innovate solutions for their own specific needs in advance of similar general needs.

  Only 2 per cent of the current Linux kernel is directly attributable to Linus Torvalds. But by functioning as, in effect, a lead user of the Unix-like concepts and designs that he drew on to create the first Linux kernel, Torvalds put his stamp on everything Linux and pointed out a direction for its future development. By the same token, Lego's Mindstorms User Panel, recruited from outside the company, served as lead users for the development of Mindstorms N
XT. By definition, lead users are to be found on the fringe of mainstream activities, or to put it another way, on the cutting edge of developing trends.

  Lead users act like fringe ideas that attract mainstream interest. As I said in chapter 5, innovations don't begin in crowds, but crowds are necessary to validate innovations. There may be no 'I' in team, but there definitely is an 'I' in innovation, and lead users put it there. An article published in BRW here in Australia cited research that looked at fifty projects in development over about a year and found that products using the lead-user approach generated returns which were on average eight times greater than products developed the conventional way. In his book Democratizing Innovation, Eric von Hippel shows that lead-user product development can be a far more effective means of innovation than conventional product development within a closed system. At 3M, for example, von Hippel and his research associates found that lead-user development resulted in five major new product lines with annual sales forecasts of US$146 million per product, whereas conventional solelywithin- the-company product development over the study period resulted in forty-one incremental improvements to existing product lines and only one major new product line with an annual sales forecast of US$18 million.

  Eric von Hippel says of the lead-user product development process, 'This is not traditional market research – asking customers what they want. This is identifying what your most advanced users are already doing and understanding what their innovations mean for the future of your business.'

  Some of the most interesting new branding and product development today are being done by companies that use social networking technology to solicit contributions from lead users and/or validate innovations by seeing what customers in general think of them. For example, the Vancouver-based shoe designer John Fluevog, who has boutiques in several North American cities and distributes his shoes to high-end shops around the world, practises what he calls 'open-source footwear' by inviting design submissions from customers. Although only a few such submissions become actual products, Fluevog says: 'Even submissions we can't make add to the stimulation. Our customers get more involved, and we get insight into who they are and what they're doing.'