Here is a short theory.
Product innovation is all the work which satisfies one of these two outcomes:
A) it increases the size of the core user base
B) it increases the amount of added value for the product
This is it. Really. And you can see this in place at the current Behemoths of software: Google, Facebook and Apple.
The most handy case study about product innovation is Apple. I’m sorry I don’t have others at hand, I wish I did because these big companies have been hyper second guessed already. But, bear with me.
The core user base is made of those users who buy into the company’s mission, most users will buy into the company’s vision.
On the laptop market, Apple’s core user base were artists and creators of all kinds, yet not because the machines were significantly better. Actually, the premiums were rarely justified. These core users bought into the positioning of Apple’s unofficial mission:
Man is the creator of change in this world. As such he should be above systems and structures, and not subordinate to them.
It doesn’t matter that the above was not the “official” Apple mission. It illustrates perfectly the creator’s dilemma about the tools of creation and the basic “it just works” expectation.
Their initial core user base of artists and creators weren’t there because Photoshop ran faster or because it was cool to own an Apple machine, they were there because these people saw Apple as a company which understood what they mean and what they need.
So how did they innovate? The first product innovation that expanded the core user base was the move of the OS to a unix type system. This expanded the core user base to include software developers, lured in by the extensive tool chain and reliability newly found in OS X, finally a useable Linux.
For what laptops are concerned, the base value proposition is simple: a portable powerful computer. Apple differentiated their laptops with their high performance, driven by the control of both hardware and software.
The added value is all product development which increases the gap between the basic value propositions and the perceived added value.
Apple was making great laptops but began to up the ante on added value with product development such aluminum unibody, Retina display or the glass trackpad. All these were product innovation because it increased the delta between the basic value proposition of the Apple laptops and the added value which the user perceives to pay for.
The advantage of having a high core user base is that you can outlast market innovation delivering a constantly shitty product. The advantage of a high added value proposition is more money, money coming from engagement and repeated use.
With a core user base that today spans multiple consumer categories Apple continues to thrive even while they clearly deliver shittier products. Reaping benefits of a good gap between base and added value, Apple still collects premium margins and consumer lock-ins without proposing new products. This is the power of product innovation.
The core user base is the best foundation for the product against a destabilizing future.
For facebook every user that has at least one friend is a core user. This makes their foundation “fortress level”. It is impossible to successfully attack Facebook, and it appears that the sole good strategy is a Trojan Horse.
If I was Google, I’d get the Russians buy and misuse a lot of Facebook advertising.
A huge margin between base value proposition and the added value is the best attack against competing products.
For Google, every other thing it provides on top of search results is added value. Facebook is a fortress, Google is a raging army. With the immense added value to the basic product benefit of searching the web it is impossible to stand to their attack, whatever you do they did better or will do better. It is impossible to successfully defend against Google. and it appears that the sole good strategy is flee and burn.
Google requires privacy and content. Content for the basic benefit and privacy provides the added value.
Flee and burn is a tactic where you run like hell but you destroy everything that the invading army might use as a resource. Marching on deserted land takes an immense toll.
If I was Facebook I’d do my best to starve Google’s content hungry war machines by luring publishers to put their stuff inside my walls. I’d also support all those NGO’s that try to make available private data less and less of a default.
Product innovation is a term really thrown around. Remember though that there are many ways to confuse innovation for what it isn’t:
- optimizing profits or increasing returns is not product innovation
- improving feature delivery times is not product innovation
- increasing market share is not product innovation
Product innovation is hard. For example, Apple TV. This product is still a hobby project so many years after it’s inception. Why? Well, how can you expand the core user base of “people who watch tv”? You can but in a very hard and complicated way. When something is hard and complicated execution suffers big time. They tried making it a game console, failed. They tried to smarten all those dumb TV’s, they failed. Also, how can you increase the added value delta for a TV accessory? Pretty hard. 4K, too late. Aggregate content? Not enough. Touch remote? …
Does the iPhone X innovate as a product? There is something new about AR and the edge to edge display is specifically good for AR. This AR push though, is it going to expand on the core user base of the iPhone? I don’t think so, because it’s a me too move and it does not deliver much usefulness, so far. Face ID is not product innovation because it is a mere feature, not actual product development. It is also required because of the edge to edge screen.
Again, product innovation is hard.
Everything that works in increasing the core user base always bears the risk of alienating the folk who were there in the first place. Everything that produces added value increases pressure on supply chains, on production cost and on overall product quality.