• Modify its functionality (iPod, iPod Nano, iPod Touch)
• Lower its cost (Minute Maid currently fills their 64oz bottles with only 59oz’s of juice)
• Find new ways to use the product (Baking Soda in your refrigerator)
• Create specialized sub-products or sub-brands (22 SKUs of Tide)

Traditional Product Development Attributes

This approach to innovation has its roots in the explosion of consumer products during the 1950’s, and it hasn’t really changed a lot in the past 60 years.  It’s a tried and true method; and it’s what we all learned in Business School.

But, this approach has questionable relevance in a marketplace where the definition of a “Product” continues to be a work in progress.  The internet and cloud-based services have taken familiar products and transformed them into virtual products, changed one-time purchases into monthly subscriptions, and made some products free of charge.   This new environment has made the product-centric approach feel outdated and restrictive.

In my recent new product research, I have found it more fruitful to expand this traditional platform, to allow for a new set of opportunities for innovation.

A New Platform for Innovation

The second diagram provides a framework for thinking about the way a product is delivered and consumed, rather than the way it is constructed and utilized. These attributes are more consistent with the realities of a virtual marketplace, and open the development process to many new areas of innovation.

I’d be very interested in hearing how other researchers and product development specialists feel about this approach, and to learn how they are dealing with product innovation in a cloud based world.

This chart shows the reality of the situation.  Facebook’s revenues from display ads have grown astronomically, but, after a brief stall, so have Google’s.  In fact, almost all of Facebook’s growth has come at the expense of Yahoo, and AOL; not Google.  And, of course, while Facebook’s revenues come primarily from ads, the bulk of Google’s revenues come from search.

The biggest winner on the chart?  Microsoft.  Every day Steve Balmer counts his blessings that Yahoo inexplicably turned down their $45 Billion dollar offer a few years ago.  The only piece of good news Microsoft has had in the online space.

The biggest loser on the chart?  Also Microsoft.  Regardless of their shrinking market capitalization, Microsoft is still the most strategically important technology company on the planet.  No matter what Apple says, the world runs on Windows.  But there they are, stalled out at the bottom of the pile.  It is mystifying how a company that does so many things well, can lose money on every one of its online efforts.

But, as much as I admire Microsoft, this can’t go on forever.   The combination of Google’s cash, combined with the move to the cloud, is pushing Microsoft to the edge of the cliff.  Either they figure out how to make the transition to a cloud based world, or they are history.

While the discrepancy has decreased, a recent internet trends market research study by IAB continues to show a huge income gap.

• Individuals with household incomes of $100K plus spend 20% more time online than the general population.

• High income households spend about 50% less time watching TV than the general population.

These differences are pretty dramatic, and have tremendous implications on media planning.

This drop in TV hours, combined with the high likelihood that a high income household uses a DVR to skip commercials, puts further pressure on manufacturers and retailers of high end goods to shift dollars away from traditional TV buys.

And, as high end advertisers move away from spending on TV, watching television will be increasingly like watching the network news; a lot of ads for Walmart, Viagra, and Depends.  Since programming follows ad dollars, reruns of Angela Lansbury can’t be far behind.  Needless to say, more episodes of Murder She Wrote will only accelerate the migration by high income households away from television.

Regardless of who you believe, it is clear that PCs are clearly not going away anytime soon.  But, it is also clear that changes in technology (tablets, smartphones, etc.) have reshaped the PC market forever.

This chart demonstrates how dramatic that market change has been.

But, the issue is not really about changes in technology.  And the idea that we’re moving to a tablet based world is much too restrictive; it’s not about tablet technology or form factors.  It’s about consumer and business expectations for access to information.

Over the past 40 years we’ve moved from Mainframes, to Mini’s, to PCs, to Notebooks, to Tablets.  Each of those transitions were driven by a technology that provides individuals greater access to information.  There is no magic to the form factor; the power lies in providing users with the greatest degree of freedom.  The current form factors will change again soon, but the driving force for change will remain the same.

Surprisingly, Amazon killed all the other brands.

This reflects the power of the Amazon brand, much more than the popularity of the Kindle.  After all, the Barnes & Noble Nook often gets better reviews than the Kindle.  And, as popular as the Kindle is, it still has only a tiny penetration in the overall marketplace.

Instead, this is a demonstration of the power of a brand.  Consumers have faith that Amazon will deliver on a promise, they believe in the brand.  And, it demonstrates that they don’t have faith in the traditional providers of computers and electronics.  An unfortunate fact for HP, as it rolls out its first tablet.

HP was once known as THE brand for innovation, reliability, trust.  And brands like Dell and RIM had similar strong reputations. But, over the past few years, regardless of the quality of their own products; these brands became associated with an industry marred by poor service, and unreliable products.  And as a result, they have all been tarred with the same negative halo.

In contrast, Amazon has delivered so well on its promise as on online retailer, that now consumers have faith the the company can expand beyond their original mission.   Because while companies like Dell are constantly striving to win customers with the least expensive product, Amazon is constantly working to provide the highest value product.  And loyalty is the reward for exceeding customer expectations.

At the same time, Microsoft seems incapable of making money online.  While every day a new online business rises out of nowhere, and is given a multi-billion dollar valuation.  Microsoft’s online investments can only lose money.

I certainly understand that creating scale businesses takes some investment, but 22 consecutive quarterly losses, with the last 6 losing over $500 million per quarter?

To become successful, over the past few years Microsoft has introduced process and structure to its formerly highly entrepreneurial corporate culture.  These changes were needed to properly manage a corporate giant.  But, when it comes to the internet, Microsoft seems to have forgotten how to innovate.  Their online offerings make strategic sense, but seem out of pace with the market.

As great as Microsoft is, in the online world, they don’t seem to be able to lead, follow, or get out of the way.  And, if they can’t create something of value themselves, they need to learn how to invest in those who can.  Right now, all they’re good at is throwing billions down the sewer.

A recent Healthcare IT market research study showed that while physicians accept the concept that EHRs will improve the level of patient care, many question the benefit of making the change.

The study, conducted by Weill Cornell Medical College, monitored the prescription errors of 19 physicians in an adult ambulatory clinic before the switch from an older EHR to a newer system, then again 12 weeks after the switch and once again a year later.

• 40% of doctors weren’t satisfied with the implementation of the new system
• Only one-third thought it was safer than the old one
• 60% reported that the alerts weren’t useful
• Two-thirds indicated that the new system slowed down drug orders and refills

While many of the physicians in the test did not perceive that the system reduced prescription errors, follow-up research found the opposite.

• The rate of prescription errors dropped by two-thirds, from about 36% to about 12% one year later.
• They also found that the rate of improper abbreviations, such as the outmoded “QD” instead of “once daily,” fell by three-quarters, from about 24% to about 6% one year later.

Greater physician acceptance can be expected as more Healthcare IT Market Research studies demonstrate the effectiveness of EHRs in reducing physician errors.  But, providers of EHR systems need to work harder to help physicians make the transition.

The goal of an EHR system should not be to just lessen the pain of the transition.  The goal should be to make the physicians daily life easier, to make physicians prefer the new system.  Until that happens, they will be spending unnecessary resources fighting the physician resistance that delays implementations and raises the costs of EHR projects.

Google Places is a part of Google’s effort to integrate Social Media and its web services, and to drive more localized advertising revenue by making it easier for consumers to connect with local retailers.

But, while this all sounds good, how effective is it really?

A recent study shows that the vast majority of retailers receive only 1 check in per week on Foursquare.  And, while the top location had 17,000 check ins, it then dropped to 3,000, and quickly down to a handful of check ins.

In fact, during the course of a week there are relatively few locations that get more than 20 check-ins.  And most of those are general locations; such as malls, airports or public transit.

And, while I don’t have any numbers to support my assumption, I expect that the majority of check-ins come from a handful of users. And, as fun as they may be, location based apps simply have not delivered the payoff to general consumers.  I believe in part, because they are were really developed to deliver benefits to retailers; and drive retail ad dollars.

This is not to deny the value of localized information.  We’ve all seen the tremendous adoption of Yelp and Groupon, among others.  But, until that value connection is made for Google  Places or Foursquare, they will remain a hot topic of conversation, but a dud among most users.

Given the level of concern, a recent Adweek/Harris Poll revealed both some expected, and unexpected, information on Americans’ attitudes toward online companies and personal information.

Not surprisingly, 3 out of 4 Americans (76%) Strongly Agree or Somewhat Agree that Google and Facebook “…control too much of our personal information…”

At the same time, there is relatively little interest in government intervention to manage these companies.  Only 9% of the respondents said that they Strongly Support and 27% said they Somewhat Support “Government intervention to regulate large online companies”.

If Americans are so concerned about Facebook knowing too much, why are we so opposed to government regulations?  Does this represent a general anti-regulatory sentiment?  A strong belief in the freedom of the Internet?

I believe that the answer is much simpler.  After countless news stories revealing our complete lack of privacy; consumers are surrendering to a lack of privacy as their new reality.  Like death and taxes, they have come to see the loss of privacy the inevitable cost of having an online life.

As angry as they become when one of these companies oversteps its bounds; very few are deleting their Facebook page, putting down their iPhone, or disconnecting from Google.