Srinivas Reddy’s Weblog

My Tech Rants

Open Innovation and Business Models

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Two recent activities got me thinking on this topic. Trying to compile a Music CD for my kids Birthday party, I was amazed by the number of online options I had for doing this. There was something for every budget and sophistication needed. While the content distributors (be it iTunes, Amazon…) are doing a good job for consumers, how much of this revenue does actually go to the content creators (ie Artists in this case)?  Attending a customer session on Business challenges (of a large industrial manufacturing firm), the biggest challenge for them was to transform themselves from a Product company into a Solutions provider company that works together with business network. What is common in both cases is that disruption is taking place in production and consumption processes and the need to adapt to the changing business models.

Historically ‘Middle man’ have always made a lot of money (be it in Agriculture, Industrial products, Services…) selling in the ‘mass market’ but for the established ‘branded’ business firms.  In the emerging lean (onDemand) world that aims to reduce waste and product ‘just in time’ what the consumer wants the traditional role of ‘middle man’ and ‘branded companies’ is also changing. While the IT companies (Google, Amazon Apple…) try to establish themselves as the new ‘middle man’ (ie media companies & retailers in this case) their disruptive effect is sending ripples in the traditional companies. While ‘Marketing revenue’ is driven by ‘eye balls’ this is increasingly driven by the new media (be it twitter, blogs, social networks, iTunes…).  So where does this leave the content producers for this ‘new media’?  While the problem of finding ‘fair content monetization’ models is far from solved, at least the content producers have a ‘global market’ at their disposal with ‘reduced barriers to entry’.

While the Companies in the Western world find it difficult to compete with emerging economies (read ‘China price’) the options for them to compete are by moving up the value chain by becoming ‘Solutions providers’ working with their ‘Business Networks’ to create innovative products that add value for the ‘whole problem domain / Customer need’. To achieve this they need to open up their processes/data to the ecosystem. It is in this context that ‘open data’ and ‘open innovation’ have a whole new meaning for the business models.  How can the companies ensure that they can make enough money in the new business model? The recent attention Cloud / SaaS offerings are receiving are interesting to note in this regard. While the new ‘IT models’ promise just this, they are still in early stages to deliver ‘sustainable’ business value. ‘IBM’ for one has been pioneering this ‘open innovation’ driven business model with its contributions to different Open Source projects.

How can this be applied to other industries? While the different industries increasingly engage in online marketplaces (be it consumer, supplier,…), to ensure true ‘business network’ driven transformation more deeper changes are needed. How ‘open/transparent’ can the companies be to share data internally and externally? How can you design processes that can work across company borders (does your IT systems allow that? how about the management? legal requirements? How will the costs/profits be distributed and managed…). The ‘smart’ companies try to address these issues and try to become ‘leaner’. The need for ‘open innovation’ is understood but the road to get there (i.e. business model to follow) is work in progress. Having an ‘open data’ policy is the first step to getting there.

So where does it leave our ‘content creators’? While the new business model aims to reduce waste (lot of it is in distribution anyway!), true creative work can only benefit from reduced barrier to entry and increased collaboration assuming it’s using the right ‘middle man’. Off course the ‘global competition’ can work both ways :o)

Written by srinivasreddy

January 24, 2010 at 8:42 am

Posted in 1

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