Wednesday, June 30, 2010
Divergence or Convergence
Back in the June 18, 2007 edition of Advertising Age magazine, marketing guru Al Ries made a prediction. Apple was about to launch the first version of the iPhone. Al Ries predicted that the iPhone would be a major disappointment.
Well, looking back, it would appear that Al Ries was wrong. By just about any measure one can think of, the iPhone has been a HUGE success. For example, the recent launch of iPhone 4 sold 1.7 million units in the first three days.
WHAT WENT WRONG?
Since I think that Al Ries is one of the smartest human beings on the planet (at least when it comes to business and marketing), it shakes my confidence to see him appear to have been so wrong in his prediction. But then I realized that he was wrong for all the right reasons.
Ries predicted that iPhone would disappoint, because he saw it as a convergence device. Convergence devices try to be multi-functional by combining the functions of other single-purpose devices. Rather than creating a new solution, they merely take old solutions and cram them into a single device. In this case, he saw the iPhone as being a multi-function device combining the functions of a phone, a computer, a camera, a media player, and so on. As Ries so convincingly put it in his article, when consumers view your product as a convergence device it usually fails to catch on (think of all the failed combination computer/TVs that have been introduced over the years).
The problem is that when you are seen as combining a bunch of stuff into one device, you are not viewed as an expert at any single function. Why buy a complicated, sorta-good, multi-function device when you can buy the best single-function products from experts in that field?
Instead, Ries says success typically goes to the divergence device. A divergence device takes a current product offering and narrows the scope by becoming more specialized or more narrowly targeted than its predecessors. It goes narrow to create a more specialized solution for a more narrowly defined problem. To quote the Advertising Age article, “The first computer was a mainframe computer, followed by the minicomputer, the desktop computer, the laptop computer, the handheld computer, the server and other specialty computers. The computer didn’t converge with another device. It diverged.”
Therefore, since he saw the iPhone as a convergence device rather than a divergence device, Ries predicted disappointing results.
The theory was right. What was wrong was Ries’ prediction of how the iPhone would be perceived in the marketplace. Apple never marketed the iPhone as a convergence device and consumers never thought of it as a convergence device.
Instead, Apple created a unique, new business ecosystem centered around “apps.” First, there were the thousands upon thousands of apps developed, doing things never done that way before. Then there was the App Store, a place to purchase all of these unique Apps. And then there was the iPhone, a device to make the apps come to life.
The iPhone was not seen as the combination phone/computer/camera/ media player Ries feared it would be. Instead, the iPhone was viewed as a specialized divergence device—the first App Machine. Apple became the undisputed leader in the world of apps…they owned that space because they built an integrated system. Therefore its iPhone—the App Machine—became a huge success. Others are having trouble copying this success, not because they cannot mimic the device, but because they have an inferior offering of apps (making them inferior app machines).
In the last few blogs, we’ve been looking at ways to create innovative new growth opportunities by tweaking elements of the business model. We’ve seen how you can innovate by changing ownership, changing location, and changing who pays. Today, we are looking at changing the amount of functionality. The iPhone was a huge success, because it created a new way to look at how a phone functions (as an Apps machine, where talking is seen as just one of many apps—and not necessarily the most important one).
When it comes to functionality, you have several options:
1. Function Target: General Solution (broadening the target) or Niche/Specialty Solution (narrowing the target)
2. Function Bundle: Single Function Solution (unbundled) or Multi-Function Solution (bundled).
When you put this together, you get a 2x2 grid.
Let’s apply this grid to the way Procter and Gamble (P&G) approaches the laundry business. In the single function/general solution box you have Tide. Tide is positioned as the best working laundry detergent for the general public (one function for the masses—the upper left-hand box). But Tide did not stop there. They also have multi-function versions of Tide:
1. Tide with Bleach
2. Tide with Dawn Stain Scrubbers
3. Tide with Febreze Freshness
4. Tide with a Touch of Downy Softener
These multi-function products still target the masses, but do more than just regular detergent (placing them in the lower left-hand box).
And then there is Dryel, P&G’s system for doing dry cleaning in your home dryer. It is specialized, in that it was designed to only provide a solution for “dry clean only” clothing. But it is multi-functional, in that is claims to clean, freshen and unwrinkle those specialty fabrics. This places it in the lower right hand box.
Finally, there is the new brand from P&G, called Swash. Swash is targeted at a very special niche: Young adults who are too busy or too lazy to do laundry, yet still want to look nice when they go out socializing. There are four single-function products under the Swash brand:
1. Swash Fresh It Up – Spray your clothes and 5 minutes later they smell like they were just laundered. You can tell this product is targeted at young, socializing adults, because one of the fragrances is called “Posse,” a young adult term applied to one’s inner circle of friends/companions.
2. Swash Get It Out – Just rub the pen over the stain and it goes away.
3. Swash Smooth It Out – Just spray the clothes and smooth them out with your hands while it is still wet. When it dries in a few minutes, most of the wrinkles will have gone away.
4. Swash Steam It Out – Just put the sheet into the dryer for a few minutes with the worn clothes and they will come up almost like newly washed.
The beauty of this approach is that P&G has created all sorts of laundering innovations without having to create all sorts of new inventions. It’s multi-function versions of Tide are combining Tide with products/inventions already in the P&G portfolio—Dawn, Febreze, and Downy. Swash uses a lot of existing P&G technology, only packaged and modified a bit, such as the technology behind the Febreze freshener, the Dryel steaming sheet, and the Tide To Go stain pen.
The innovation behind Swash is not so much about inventing new technology as it is about taking old technology and reinventing the business model as it relates to functionality. They took generalized functionality and repackaged it as a solution for a niche audience/need. Suddenly you have a whole new laundry category.
BUT WHAT ABOUT THE CONVERGENCE ISSUE?
But what about Al Ries’ concern over the high failure rate for convergence products? Doesn’t that make adding multiple functions a bad move? The problem is not whether or not you add functionality. The problem is how you position the result.
The iPhone added a lot of new functions to the mobile phone, but it was not positioned as a mobile phone pus other functions. It was positioned as a single function device—the apps machine. Similarly, Dryel was not positioned as a freshener plus cleaner plus unwrinkler of specialty garments. It was positioned as the first system for doing dry cleaning at home (a new single function).
But what about things like Tide with Bleach? Well, the positioning there is that there is a single function to be done (cleaning your clothes). Rather than using two products during that single function (adding detergent AND adding bleach), you just add one product, giving you the benefit of one product/one step convenience plus the assurance of compatibility.
So, if you are going to change the business model to increase the number of functions, either position it as resulting in a brand new single-function category (Apps Machine or Dry Cleaning at Home), OR position it as a superior way to tackle a single problem (like doing laundry).
Don’t position it as a way to multi-task, a way to do multiple functions with a single product. This is where Al Ries says you get into trouble.
One way to innovate is by changing the functionality of the product. This includes the idea of either broadening or narrowing the target of the function (mass vs. niche) or broadening or narrowing the number of functions done (single vs. multi function). The trick is that if you want to broaden the number of functions, you need to position the result as a superior one-function product, even if that means inventing a new category.
In the blog, we talked about how P&G took mass oriented products and created a whole new industry when they applied them to a narrow solution with Swash. It can also work the other way. There have been lots of narrow solutions, like the coating to protect spacecraft re-entering the earth’s atmosphere, which created new industries when applied to mass solutions (Teflon coating for non-stick cookware). The idea here is to look at which box on grid a technology is currently located (regardless of where it is) and see if you can create innovation by putting that technology into a different box on the grid.