What do the PC, Mac, and Xbox all have in common?

The original IBM PC, the Apple Mac, and Microsoft's Xbox were all innovative products that were disruptive to existing products or business models. Big companies really can develop disruptive innovative products, but rarely within the normal organizational boundaries.

Why it usually doesn't work - Last week I wrote "Why startups innovate while big companies incrementally improve". That post walked through all the reasons that big companies usually focus on incremental improvements to existing products, and how The Innovators Dilemma usually kills off innovative ideas.

What about 20% time? - Lloyd Budd, a regular reader, submitted a comment about Google's "20% time" or "distracted time" that got me thinking. Every startup I have ever worked for has consumed 100% of my waking hours with total focus on making the business succeed. There was no way to carve out 20% of my time to focus on "optional" things. My response to Lloyd's question was that companies should set aside 20% of their resources and people to focus 100% of their time on disruptive innovative ideas.

The IBM, Apple, Microsoft example - IBM, Apple, and Microsoft did exactly this when they developed the PC, Mac, and Xbox. They set up a new group at a separate facility that was totally focused on one thing. They had an executive sponsor with total authority and adequate budget to make it happen.

IBM set up the Entry Systems Division in Boca Raton, Florida...far away from corporate headquarters in New York. Apple did a similar thing for the Mac group, and Microsoft for the Xbox team. It seems obvious now but at the time this was revolutionary thinking, and in some cases it still is.

Disruption and risk? - The IBM PC was totally disruptive to the main stream computer business. The Apple Mac was a huge gamble at the time, and it threatened Apple's main revenue source...the Apple III. The Xbox was a radical departure for Microsoft, branching out into hardware development and consumer games.

Why don't big companies do this more often? - Why not allocate 20% of R&D spending to disruptive innovative projects? The IBM PC, Apple Mac, and Microsoft Xbox should be excellent proof points that this "skunk works team" approach really works. Am I ignoring examples of failure?

How are new markets created? - I have learned over the years that doing the engineering to create a new disruptive product is only half the battle. The other half of the battle is creating a new market, defining the pain points, value propositions, competitive positioning, building successful pilot projects, getting reference accounts, and providing technical support and hand holding throughout the whole process. Most big companies are not set up to do these things.

Selling versus taking orders - It takes a different kind of sales force to sell an unproven product that usually doesn't work as advertised. Lets face it, most V1.0 products from startups have lots of bugs and lack many features. I call this "missionary selling" where the sales person is part evangelist, part technical visionary, and part technical support person. The startup sales people face a million obstacles and disappointments but they just keep on going with a smile on their face. They go for the big deals with high risk...but somehow they make it happen.

Put yourself in their shoes - If you were a salesperson at a huge company with a $1 million sales quota and a small defined territory what would you do? Would you sell the well known reliable product to existing customers, or would you take the time to get trained on the new, complicated, unproven product, and try to sell it into new markets? Pretty simple choice.  This is why new disruptive products from big companies usually fail when they hit the market.

Create a separate sales force too - If it was necessary to set up a separate R&D group to build the new product, doesn't it make sense that you should set up a separate sales force with different compensation incentives to sell it? Well, I think it depends on how closely aligned the new disruptive product is to the existing product. The Mac was a replacement for the Apple III so it didn't require a new sales force. The Xbox was a totally different product which was sold through completely different sales channels like Best Buy and Circuit City. The point is that considerable thought should be given to how the new product will be marketed and sold.

What do you think? Why isn't this done more often? What are the counter examples of failure? Why did they fail? Do new products fail because the product is flawed or because the organization is not set up to succeed?

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Comments

[Matt]

Generally speaking, your post makes some good points. However, to claim that the Apple III was "Apple's main revenue source" and that the Mac was a "replacement for the Apple III" is simply ludicrous. The Apple III was actually the "replacement" for the Apple II, but was perhaps Apple Computer's first colossal blunder - as sales were terrible and the product itself was bug-ridden and unstable.

[Lucas McDonnell]

Guy Kawasaki talked a bit about this a few days ago (http://blog.guykawasaki.com/2006/01/the_art_of_intr.html). He also refers specifically to the Apple II, in the "kill your cash cow" part of the post.

Most often I think these 'disruptive/innovative products' fail before they get out of the gate because most people are not willing to stick with an idea that they're unsure will succeed. Most organizations are driven by the passionate, innovative people, the rest will follow the crowd.

[Don Dodge]

Help me out with Apple history. I wasn't paying attention to Apple in those days.

The Apple II was the big revenue producer. Did Apple simultaneously develop the Mac and the Apple III? Certainly the Apple III replaced the Apple II, but when did Mac come on the scene? And when did the Lisa happen? Was Lisa a precursor to the Mac? And then there was the Newton in there somewhere too. Can someone lay out the chronology?

Apple took some tremendous risks and were willing to kill their own cash cows. They had some failures but ultimately succeeded. My point was that they set up a seperate group to develop new disruptive products that threatened their existing cash cows. pretty impressive!

[Brian P Halligan]

Hi Don,

I agree with your comments relative to having to create a separate salesforce within a large company to make these work.

I agree with the "incentives" arguement you make on this point. In addition to that, the skills associated with selling a buggy, new technology to "early adopter" potential customers are much different than the skilss associated with selling a stable technology to early majority customers.

Ironically, in many of these early adopter, new technology situations, the potential cusotmers find you. If they encounter the wrong (in their mind) "type" of sales person who qualifies hard up front, they will be repelled. In the case of Groove, the Darpa (Poindexter), HP (C Samuel), and GSK (F Calhoun) basically found us...

Brian.

[Don Dodge]

Good point Brian. Like many things in life people self select. They gravitate towards situations that interest them.

Early adopter customers are a unique breed, just like start-up people. That gravitate towards each other. they want to be the leading edge early adopter leaders.

Startup sales people sell a vision...not so much a product. Early adopters buy the vision, and know that the first release of a product is just one step along the path to that vision.

Maybe the problems come when there is a mismatch of expectations and vision between the seller and buyer.

[Lloyd Budd]

Terms that come to mind immediately to me about the challenges are: expectations and jealousy.

Expectations: how to measure the costs and gains. Most true prototyping results in no tangibles, only experience -- VCs gamble on the huge gains of the few hits among the many misses. Giving what you write about how a large organization is well positioned to be a fast follower, it sounds like it would be a hard sell.

Jealousy: the tension between the Apple Lisa and Apple Mac teams is legendary. Competition. In my own experience at IBM, I witnessed tension between business units. When different teams were competitively working in the same verticals or one team tuned up another's product, it could be nasty.

It is 20% time for someone. For the organizations top leadership, they have to champion both the 80% of the "comfortable" business and the 20% "risky" business.

--

Wikipedia is our friend.
http://en.wikipedia.org/wiki/Apple_Inc. suggests Apple III was released in 1980. It was the Lisa and Mac projects that Apple developed concurrently in the mid-80s.

[Brant Sears]

I'd hardly call the XBox "disruptive" and it is certainly not in the same league as the Mac or IBM PC. The damn thing has been on the market for several years now and has yet to make a profit. It came in a distant second in the last generation of consoles (basically tied with Game Cube) and this time around it looks like it is about to be upstaged by the Wii.

The whole point behind the XBox is to get game programmers programming with DirectX instead of OpenGL because by doing this, they help create lock in to the Windows platform - and its not even a strategy that is succeeding.

[DAR]

Java is another good example of a successful skunk works project launched by a large company.

[mac pc]

I agree with your comments relative to having to create a separate sales force within a large company to make these work.

[Christine]

100 million Playstation 2's in the market would suggest that XBOX was neither innovative nor disruptive. So would the cumulative $16B that Microsoft has lost on it.

12 million highly profitable Nintendo Wii's and 100 million ipods on the other hand is an entirely different story.