The Three Part Innovation Formula and how to Drive Growth
Apple, Google and Amazon are tech titans. They dominate in their respective fields at a breathtaking scale.
Google has more than 80% market share in both search and mobile operating systems. Amazon dominates the e-commerce and hosting businesses like a boss. Apple runs the most profitable retail stores in the world and makes more than three times the profit per phone sold than Samsung.
So they are titans. That much is clear. What's a lot less understood is how they innovate and how their individual efforts compound together to create a unique flywheel effect for each company.
Apple, Google and Amazon innovate in separate ways that every business person needs to understand. You may as well learn how they do it if you want to avoid them coming into your market and raising hell.
Here is the three-part innovation spectrum of tech titans:
1. Customer experience
2. Product and service
3. Network effects
Without a doubt, we all experience that deep satisfaction when we go to an Apple store. Everything from the design and layout, to the helpful sales assistants and the Genius Bar.
Apple retail sets the standard with sales of $5,546 per square foot of retail space. That's the highest sales rate of any retailer on the planet. With Angela Ahrendts joining from Burberry to head up the Apple retail effort, you can count on your local Apple store continuing to delight you on every visit.
Amazon and Google are not lagging behind on customer experience either Amazon has their one-click shopping experience, and Google search has become an instant delight for billions of people.
Breath-taking products and services
What's unique about Amazon is their depth of innovation. They have great retail and hosting businesses, but they also make beautiful products too. Take the Kindle.
The Kindle is a robust single-purpose e-reader product. It continues to do one thing so well that's it's earnt over 80% market share. The Kindle is a spectacular feat given that iPad has not been able to displace the Kindle from the eBook throne. Moreover, Amazon has launched its second pioneering product - the Echo. This smart speaker could be the iPhone of the coming decade.
If we're talking product, then we need to remind ourselves of Apple's various contributions spanning the iPhone, iPad and the Apple Watch. Google is no slouch here, they've got the search and app suite too. In building the AdWords product, Google has completely disrupted the industrial-age Advertising economy.
The power of network effects
System-wide, large and hyper-scaling network effects are everywhere at Apple, Google and Amazon.
Each new customer on Amazon.com creates more demand in the marketplace. Amazon lower their prices and this, in turn, drives more sales, which makes prices lower, and you guessed it, attracts more users. That's a network effect.
Apple has the same dynamic with its app store and iTunes. As more customers buy apps and content via iTunes, the more developers create stuff for the market. The data generated by these apps and content then become the hooks that make switching to an alternative, such as Samsung and Android, less attractive.
Google is definitely on the dance floor of the network effects party. Google enjoys over 3.5 Billion searches per day. That means the search algorithm gets more accurate as a result of the data patterns that these searches create. This process goes on to grow the marketplace that advertisers find so attractive.
The flywheel is the advantage
As you digest the spectrum of innovation, I want to reveal my most important idea. The enormous success of Apple, Google and Amazon comes from the combination of innovation across all three areas; customer experience, products and services to network effects.
This combination unlocks enormous momentum - the Flywheel Effect. This momentum is more substantial than network effects. The Flywheel is where unrelated business products or services help grow each other.
Here's how Jeff Bezos explained the Flywheel Effect at a conference. “We get to monetise [our subscription video] in a very unusual way,” Bezos explained. “When we win a Golden Globe, it helps us sell more shoes. Also, it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non-Prime members, and one of the reasons they do that is once they pay their annual fee, they’re looking around to see ‘how can I get more value out of the program.’ So they look across more categories they shop more. Many of their behaviours change in ways that are very attractive to us as a business. And the customers utilise more of our services.”
This phenomenon helps these three companies expand across a variety of unsuspecting business areas such as health and finance.
You may think providing an exceptional customer experience is enough in the digital era. However, it's not. You need to innovate across the spectrum and be relentless in your effort to achieve the full scale of innovation like Apple, Google and Amazon.