Is the Cost of Innovation Worth it?

A great article explaining why focusing solely on a businesses current core strengths is not always a good thing. At least not in the long term.

https://hbr.org/2014/02/the-strategic-mistake-almost-everybody-makes/

I find it fascinating that many intelligent people fall into the trap of thinking that because their company has a competitive advantage in an area (whether  a market segment or a specific product) it means that they do not have to keep innovating. Often it’s born out of a fear of cannibalising the sales of existing products or what the market will think of their margins or a fear of competition. But look at three of the most successful companies going, Apple, Amazon and Microsoft.

First Apple is in no way shape or form afraid of cannibalising their own sales. If they were they would not have introduced the iPad Mini, the iPod touch or the iPhone 6 plus.

Second Amazon, Bezos has steadfastly ignored the markets desire to see Amazon’s profit margins increase. Instead Amazon continues to stick with margins that would barely allow others to continue operating. The strategy… grow market share. Amazon wants a share of every $ spent on line. This is the thinking that underpinned the Amazon Market place. Rather than competing with every online seller as well as with eBay, Amazon created a platform whereby everyone is a partner and pays them for the privilege. The pay off is starting to be seen as Amazon is now the first place most head when searching for products online.

Microsoft may not be first to the party but with pockets as deep as theirs they are able to play a long game. Don’t believe it? How about the Xbox it started out as the bit player in the console gaming market dominated by Sony and Nintendo. Now Nintendo are an after thought despite being the first to introduce motion sensors into gaming. Also the introduction of Office 365 subscriptions that include the right to install versions of office on multiple devices at no extra cost. Great for the consumer but not so good for the bottom line as they are foregoing revenue  on those sales in order to keep market share away from Google Docs (also Microsoft are still in the search game. Not nearly on the scale of Google but still enough for it to be worthwhile).

Speaking of Google it has been shown relying on advertising revenue to support a suite of free apps is not necessarily the best business model.

So next time you hear someone bemoaning the amount of money being invested into new product R&D tell them to stop being so short sighted and start thinking in terms of the long game!

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