Service innovation: the path

to success in the Internet age

- Jim Lichtenberg O’Reilly Tools of Change, 2008 New York, NY February

Gozanoishi Shrine, on the north shore of Lake Tazawa © Jim Lichtenberg 2008

Many mountains to climb -- no matter what part of the book publishing industry you are involved with - to reach the peak of successful and profitable publishing.

© Jim Lichtenberg 2008

Originally: graphically-rendered thoughts were a rare or privileged communications for specific purposes.

© Jim Lichtenberg 2008

After Gutenberg: Textual content as a popular commodity… ...created and

(eventually)

owned by “rightsholders.” © Jim Lichtenberg 2008

In the age of the Internet: content is a “free for all,”

{which is not the same as “free” for all…}

for no single player controls it.

© Jim Lichtenberg 2008

What is a book publisher?

“…an editorial board with a bank.”

P. Jovanovich - 1999

What is the publishing value chain?

Companies to which publishers have outsourced many of the original publishers’ functions: - printers - manufacturers - distributor/wholesalers - retailers (new, used, online) © Jim Lichtenberg 2008

Who serves the customer?

Traditionally the bookstore (independent or chain)

Now, who serves the customer?

- bookstore - online retailer - off-shore retailer - sidewalk retailer - publishers website - authors website - special-interest sites - widgets - search (!) © Jim Lichtenberg 2008

The solution, Google says, is to give users the ability to search and browse their own content, and receive an electronic or hard copy version of the final product. And that final product will (could?) include advertisements highly relevant to the user.

© Jim Lichtenberg 2008

Is this a product or a service?

“An automobile is actually art, entertainment and mobile sculpture, which, coincidently, also happens to provide transportation.” Robert Lutz, Chairman, GM

© Jim Lichtenberg 2008

Is this a product or a service?

The Kindle's real breakthrough springs from a feature that its predecessors never offered: wireless connectivity... As a result, says Bezos: "This isn't a device, it's a service." © Jim Lichtenberg 2008

So... is this a product or a service?

© Jim Lichtenberg 2008

Moving from a PRODUCT to a SERVICE Orientation Represents a change in BUSINESS MODEL.

• The drastically changing landscape of book publishing is driving the emergence of new business models.

• This is not a bad thing because: Business Model Innovation improves margins • The right strategy and execution are key • Companies should start by understanding their current position, the industry and competition, and by defining and selecting opportunities.

• Experimentation (some failure) is the name of the game.

© Jim Lichtenberg 2008

Department of ‘nothing new under the sun’ “Publishing Models for Internet Commerce” Tim O’Reilly 6/19/1995 • Same technology available to everyone • Rich ecology of successful players • Niches abound “ A key part of what we established with Global Network Navigator was a brand and a subscriber list.

The actual content is valuable -- but far more valuable is the relationship with the people… “In an information glut … ‘context’ is king.”

{…..‘context’ is itself a service.}

© Jim Lichtenberg 2008

© Jim Lichtenberg 2008

1

During the deployment phase following technological advances, we see unprecedented opportunities and new business models

Installation Irruption Frenzy Crash Deployment Synergy Maturity The Industrial Revolution 1771 Panic 1797 1829 2 Age of Steam and Railways 1829 Panic 1847 1873 3 Age of Steel, Electricity and Heavy Engineering 1875 4 Age of Oil, Automobiles and Mass Production 1908 5 Age of Information and Telecommunications 1971

Source: Perez, C., “ Technological Revolutions and Financial Capital ”, 2002

Depression 1893 Crash 1929 Dot.com

Collapse 1920 1974 Institutional and Organizational Adjustment

© Jim Lichtenberg 2008

Over the past several decades publishing’s focus has been product innovation •hard cover •paperback •trade paperback •mass market paperback •audio book •e-book But the work flow processes have been geared to an ink-on-paper product. From which other formats are spun.

© Jim Lichtenberg 2008

The legacy model is uni-directional and producer-centric ...

author creates work publisher designs physical product printer / manufacturer creates physical product publishers / distributor sends products to retail customers can only buy what is on the shelf.

... and this is breaking down due to the Internet.

© Jim Lichtenberg 2008

The days of yesteryear..

The “T-Word”

CD-R , CD-R OM, CD -RW , SV CD, C D+G , CD Text , CD-R OM X A , CD i Bridg e , CD-i © Jim Lichtenberg 2008

The future is curled up in the past as a hidden dimension.

- scientific breakthroughs are fundamentally intuitive “artistic” leaps (Einstein: time is variable, the speed of light is a constant) - innovation requires: attraction to complexity,

intuition, aesthetic sensitivity and toleration of ambiguity

- Apple, Google: sensing what customers want

before they know they want it.

© Jim Lichtenberg 2008

The digital model is customer-centric multi directional, and interactive,...

author creates work (if desired with customer feed back via web 2.0 exchanges blogs, wiki’s etc.) publisher designs product in a variety of physical and digital formats publisher / printer create product (physical or digital file) customer informs publisher of format(s), content elements, and delivery / business model desired publisher / distributor / retailer fulfills order ... and remains flexible across formats and will continue to evolve.

© Jim Lichtenberg 2008

(digital)

Source File

web press short run POD digital audio file

(phone)

pod-cast e-book chapter (chunk) search result + citizen content

blog review annotation play list

+ new flexible business models (ads?)

© Jim Lichtenberg 2008

© Jim Lichtenberg 2008

A “service” transformation in design and manufacturing...

Digital prototyping: create, integrate, collaborate.

This approach gives manufacturers the ability to explore a complete product before it is built — so they can create, validate, optimize, and manage designs from concept through manufacturing.

“The digital prototype is shared among designers, engineers, and even customers so the (product) can be refined earlier in the process.

Why not publishers’ content?

© Jim Lichtenberg 2008

Since IBM first started experimenting with virtual worlds almost a year ago, progress has been rapid… These experimentations are part of an IBM-led initiative to

collaborate with clients and partners

on both conducting business inside virtual worlds and connecting the virtual world with the real world to create a richer, more immersive Web environment - thereby solving business problems in a new way.

© Jim Lichtenberg 2008

Context and motivations

• Services becoming the new hub of most modern economies • Services dominating current economic activities (U.S. Department of Commerce, 1995, p. 417) © Jim Lichtenberg 2008

Over the past 45 years, the US economy has doubled from 65 million workers in 1960 to more than 140 million in 2005 © Jim Lichtenberg 2008

Service dominant view

Three primary elements of service

1.

Co-creation of value

2.

Relationships

3.

Service provisioning

© Jim Lichtenberg 2008

© Jim Lichtenberg 2008

© Jim Lichtenberg 2008

© Jim Lichtenberg 2008

Components of a work as service (formerly a product, i.e. a book):

- author’s original manuscript, - authors comments, - parts of other related works, - customer content, - social media content (added by publisher, author, customer), - urls, - audio/visual content - advertising, - ???

Created via: web press, short run, POD, purely digital

(internet, wireless, audio) © Jim Lichtenberg 2008

“We are aiming to integrate author-generated content with the author's own"book" content--through our Author Assistant and our Browse Inside applications available on harpercollins.com.

We think it makes the most sense for readers to have an

integrated experience of book and author

others to hear the author's voice?” --why should they have to go to one site to look at the book, and many © Jim Lichtenberg 2008

Steps for service success…

• Be clear about your own business. What do you want to do in the marketplace?

• Put all that aside, forget it, and listen as attentively as possible to your customers (consumers not bookstores!) • Analyze what they appear to be saying, and what they may really be saying.

• Return to who you are, and what you do, and rigorously, (not slavishly) change may be required to create what customers want.

© Jim Lichtenberg 2008

The image of the antisocial, sunlight deprived game geek is enshrined in the popular consciousness as deeply as any stereotype of recent decades.

That’s changing. Online PC games in which thousands of together subscribers players gab and explore are attracting tens of millions of

© Jim Lichtenberg 2008

Getting at the customer value proposition Start with the “Job”

“Kill small snippets of time productively” “Make sure I don’t run out of cash”

Customer is looking for a quarter inch hole, not a quarter inch drill Close observation and deep interactions with custo mers can be key way to find target jobs “The customer rarely buys what the company thinks it is selling him”

- Peter Drucker

© Jim Lichtenberg 2008

Success in any uncertain market requires testing, experimenting & adapting

Flawed Strategy Successful Strategy Point of Learning and Adjustment

More than 90% of successful new ventures start off following the wrong strategy

© Jim Lichtenberg

© 2008 Innosight LLC

Transformation requires changing the game; game changers often breaker internal rules.

Established companies that master disruption break

internal

rules Established companies that struggle with disruption let their rules overwhelm the opportunity New printers must produce higher quality output Our products have to compete with the quality of images on silver halide film We don’t introduce products on Windows platforms We must fit into our parent’s route structure © 2008 Innosight LLC

© Jim Lichtenberg 2008

37

…AND IN CONCLUSION

We are witnesses and midwives at the birth of new business models for our industry.

Just as the economy as a whole is moving from a manufacturing to a service model, book publishing is moving from bringing physical commodities to market, to offering services that delivers content in a variety of modalities based on consumer choice...

© Jim Lichtenberg 2008

And as in the context of the broader economy, the older business model -- producer creates (and owns) product and determines the terms of sale, via distributors and retailers, to the end user, take it or leave it -- is breaking down.

Taking its place, as we are seeing, is a more flexible, if still incomplete (incoherent?) model in which all parts of the supply chain, including the customer, work together to optimize benefits.

© Jim Lichtenberg 2008

Transformative opportunities are “high-assumption, low-knowledge” areas

Extensions/Derivatives Core (Incremental) Core (Discontinuous) Adjacencies Reach New Customer Uncharted Territory Create New Market Assumptions Knowledge

© Jim Lichtenberg

© 2008 Innosight LLC

Moving from a PRODUCT to a SERVICE Orientation Represents a change in BUSINESS MODEL.

• The drastically changing landscape of book publishing is driving the emergence of new business models.

• This is not a bad thing because: Business Model Innovation improves margins • The right strategy and execution are key • Companies should start by understanding their current position, the industry and competition, and by defining and selecting opportunities.

• Experimentation (some failure) is the name of the game.

© Jim Lichtenberg 2008

Thank you.

Questions?

[email protected]

© Jim Lichtenberg 2008