There is a key type of innovation for a web startup? An analysis through the most successful internet companies.
We always talk about innovation that can disrupt the market. But do we really need it? Are the most
important companies in the internet industry based on a disruptive innovation? Or should we rather
concentrate on just improve existing products on existing markets pursuing sustaining innovation?
After a brief introduction with a classification of different types of innovations, in order to answer
these questions this paper will analyze three of the most important companies in different areas of
internet. Such as Google for search, Facebook for social networking and Amazon for e-commerce,
hence we will try to understand whether there is a predominant type of innovation source of such a
huge success.
As a result we will discover that a start up must provide disruptive innovation to succeed. Moreover
there is an interlinked relevance among disruptive innovation and the innovation object, led by a
new product, a new process or a new business model.
There is a key type of innovation for a web startup?
1. There is a key type of innovation for a web startup?
An analysis through the most successful internet companies
Paper within:
Heuristics for economics students 2012
Author:
Fabio Miceli
Tutor:
Prof. Hans Verboven
2. Abstract
We always talk about innovation that can disrupt the market. But do we really need it? Are the most
important companies in the internet industry based on a disruptive innovation? Or should we rather
concentrate on just improve existing products on existing markets pursuing sustaining innovation?
After a brief introduction with a classification of different types of innovations, in order to answer
these questions this paper will analyze three of the most important companies in different areas of
internet. Such as Google for search, Facebook for social networking and Amazon for e-commerce,
hence we will try to understand whether there is a predominant type of innovation source of such a
huge success.
As a result we will discover that a start up must provide disruptive innovation to succeed. Moreover
there is an interlinked relevance among disruptive innovation and the innovation object, led by a
new product, a new process or a new business model.
A basic introduction on innovation perceived by someone as new” (Kotler,
1991).
To study innovation as a source of social and Secondly, screening the huge landscape of
economic growth, as also a driver of innovations, we will classify innovations
competitiveness, we must previously define based on the extent of the change that they
what innovation is and which types of these provide, focusing on two main types of these:
we will consider relevant for this essay. sustaining innovation and disruptive
First of all we choose an exhaustive definition innovation. This distinction is strategically
of innovation by Trott that is “the relevant to better understand the success (or
management of all activities involved in the failure) of a company, as to evaluate their
process of idea generation, technology impact on the market.
development, manufacturing and marketing of A sustaining innovation “targets demanding,
a new (or improved) product or high-end customers with better performance
manufacturing process or equipment” (Trott, than what was previously available. Some
2005, p. 15). Moreover Kotler explain clearly sustaining innovations are the incremental
and briefly the detail that “an innovation year-by-year improvements that all good
refers to any good, service, or idea that is companies grind out. Other sustaining
innovations are breakthrough, leap-frog-
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3. beyond-the-competition products” Meanwhile a process innovation is “the
(Christensen, 2012). implementation of a new or significantly
Disruptive innovations, in contrast, “don’t improved production or delivery method. This
attempt to bring better products to established includes significant changes in techniques,
customers in existing markets. Rather, they equipment and/or software. Process
disrupt and redefine that trajectory by innovations can be intended to decrease unit
introducing products and services that are not costs of production or delivery, to increase
as good as currently available products. But quality, or to produce or deliver new or
disruptive technologies offer other benefits— significantly improved products” (Oslo
typically, they are simpler, more convenient, Manual, 2005, p. 9).
and less expensive products that appeal to The business model is the last kind of object
new or less-demanding customers” that we would analyze and it represents the
(Christensen, 2012). core economic factor of an internet start up:
So disruptive doesn’t represent a technical “is the method of doing business by which a
breakthrough, buts rather a brand new market company can sustain itself, that is generate
or business that usually begin with a low revenue. The business model spells out how a
quality product. company makes money by specifying where
Furthermore we will also introduce a second it is positioned in the value chain”1. Innovate
classification based on the object of and discover new ways to make money in the
innovation, that can involve a product, a rough environment of internet can be
process or a business model. fundamental to assure a long-term growth.
According to the Oslo Manual (2005) a
product innovation is “the introduction of a
good or service that is new or significantly Organizing the world’s information
improved with respect to its characteristics or
intended uses. This includes significant Nowadays everybody knows how to look for
improvements in technical specifications, information: just type something on the
components and materials, incorporated google bar. But why did google become so
software, user friendliness or other functional famous and almost the first choice when we
characteristics. Product innovations can need information?
utilize new knowledge or technologies, or can The secret of the search engine is an
be based on new uses or combinations of algorithm, PageRank, that completely
existing knowledge or technologies”.
1 [online available:]
http://digitalenterprise.org/models/models.html
15/05/12
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4. changed the way to provide results. Thanks to keywords to be on the Search Engine Results
this algorithm Google ranks websites based Page (SERP).
on popularity instead of displaying them Moreover the user interface was something
randomly on the page as competitors used to totally new, clear and minimalistic: a white
do. Results were extremly precises and background with an appealing colored script
incredibly fast. in the middle and the search bar just beneath.
Before Google the market was already They also improved the advertising
populated by many companies like Yahoo, organization dividing the organic search, as a
Excite, Altavista and more but they were result of PageRank work, to the paid search,
concentrated on developing web portals on a column on the right of the page.
features struggling to each other instead of On this way the advertising wouldn’t have
providing better search results. Thus, this has been confused with the classic results column
been a great opportunity at the right time to thanks to a perfect integration of colors and
provide a valuable new product to an already structure. This will still help users to find
crowded competitive market. anything they are looking for and also
Hence Larry Page and Sergey Brin, founders advertiser to be reached easily.
of Google Inc., didn’t create any new market This new business model was an amazing
but introduced a sustaining breakthrough insight compared to the old way of display
innovation that was highly better than the and broadcast advertising. A cheaper, well
others. This technical innovation was the first organised, glocal and misurable method that
step to persuade customers to switch to allowed not only big spenders like
Google search. multinational companies but also small and
Anyway this wouldn’t have been enough to medium enterprises and single entrepreneurs
make the business sustainable because you to invest money on Google.
need to combine it with a sustainable business So we can conclude that the success of the
model, to generate revenues. So this is the company is based on two main innovations:
disruptive innovation that Google established the first concern a technical breakthrough on
on the web, selling a new unknown product: its core competence, make search, and a
keywords. Keywords are the words you type consequent business model disruptive
in the search bar and Google’s guys (thanks to innovation which create the new market of
Idealab Inc.) understood that these words keywords that allow the company to be the
contains lots of useful information. Marketers most used search engine on internet and
would be definitely interested in buying generating revenues for billions of dollars.
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5. A world more open and connected Being part of the network, mostly for Harvard
University students at the beginning, was a
Discover why Facebook has succeed is much social tag, a business card to introduce
more complex and less clear. Social networks themselves to the world.
were already widespread and websites such as Stay in touch with new and old friends were a
myspace.com and friendster.com were must but other reasons may include feelings
leading the market. of affiliation and belonging, need for
Suddenly a 19-year-old Harvard guy, Mark information, goal achievement, self-identity,
Zuckerberg, launched in 2004 a new platform values and notions of accepted behavior
to stay connected with other students at (Ridings and Gefen, 2004).
university. The website was a close social Facebook also allow people to keep an eye on
network initially limited to Harvard students, friends lives, satisfying their need of
but every week requests for the platform from “voyeurism”. In complex it is a place where
other universities grew. For this reason they one can express yourself and a tool to
expanded to other colleges in the Boston area communicate easily with peers, for the first
first, in Ivy League colleges and the Stanford time with an established identity layer among
University after. So they increased gradually virtual and real life.
with all the others universities before opening For this reason the website became a treasure
to high school students and, when network of personal information like age, relationship
effetcs became significant, to anyone aged 13 status, political orientation and so forth, for
and over. users as well for marketers and advertiser.
The growth was incredibly fast and they had On the other hand when Facebook went
12 million monthly active users in 2006, 145 online people with just an .edu mail address
million in 2008, 608 million in 2010 were able to join the social network and this
(Facebook, 2012). gave two relevant advantages:
Analyzing more deeply the Facebook story - The contribution to built an exclusive
we can discover and formalize two main environment which people loved.
sources of this huge success: the first related - The possibility to enter in a unsatisfied
to human behaviour and social sciences and market niche of college students because
the second related to a market need and the college kids were usually not myspace or
business strategy rather than tecnology. friendster users.
On one hand Facebook is an answer for a We should also underline the ability of Mark
social need, sometimes for helping a curious Zuckerberg and his the team to stay focused
mind and other times a narcisist’s dream. on the mission statement of the company
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6. during all the tough path of the start up, build the most succesful e-commerce
facing all challenges very well. company ever.
As a result Facebook has all the Based on his analisys, that revealed a strong
characteristics to be indicated as a disruptive growth potential of internet usage, he came
innovation. Technologies improvement, out with a short list of 20 products that could
although were numerous, represented a be easily sold on the web. He used parameters
marginal contribution and we can tag them as like familiarity of the product, market size,
a sustaining innovation . Instead a new competition in that market, inventory
combination of them, the new open market of management, discount opportunities and
college students and the forward-looking shipping costs to figure out the online
insight of Facebook’s founders marked the potential of each item. Comparing strenghts
success of this start up, through a perfect and weaknesses of these products, books were
answer to people’s need, perfectly almost all times first in this special ranking.
combinated with a winning strategy. He had the same approach looking for the
best place to start up: gathering data he had
quantifiable reasons to pick out Seattle as the
The earth's most customer centric most strategic place to start the business as a
company well connected, top-flight programming talent
city and close to the largest book distribution
Amazon.com, the most famous e-commerce center in the United States.
website, is the result of an accurate market Also the name of the company has been a
research linked to the vision of his founder, marketing choice lead by the fact that online
Jeff Bezos and we should follow all the path, websites were listed in alphabetical order,
from the idea generation to the start up, to hence to be first in the list the name should
explain why strategic decisions mixed to a start with an A.
new technology and a new customers service Amazon.com opened in 1995 with a database
have been the real innovation. of more than one million titles, offering
He started investigating on internet business considerable discounts, has been
possibilities in 1994 when the World Wide distinguished since the beginning as a
Web went mainstream, bringing itself huge customer friendly website. They developed a
opportunities, and focusing on its commercial recommendation center to offer books based
capabilities. The study he conducted was on habits, preferences and past purchases, a
meticulous as useful and was the first step to secure credit card payment system and a
community of customers, all supported by an
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7. in-house innovative technological service, understanding and solving the
infrastructure. On the other side, as a virtual inventory issues for producers and distributors.
retailer, it was a lean start up with no All these types of innovations were totally
inventory, no warehouse and with no related disruptive, redefining a new trajectory,
costs, carrying a considerable innovation as a showing how to purchase easily, in a more
distribution channel, solving one of the most convenient way with just a few clicks.
important and expensive problems in the
distribution industry.
Moreover, as a pioneer entrant, Amazon Conclusion
would benefit of few advantages being the
first mover. In particular on the internet This study started so to better understand the
market major advantages concern on role of different types of innovation for
proprietary technology, preemption of startups in the internet industry. We analyzed
superior resources, lock-in effects, network three majors companies in this sector and we
effects (Lieberman and Montgomery, 1988, discovered their key factors of success,
1998) and the generation of a valuable brand always closely related to innovation.
recognition, even if a long term sustainability Google largely improved the research
is not guaranteed without patents investments. technology and invented the new market of
Sales increased rapidly and the main goal was the keywords, creating a new sustainable
to get big fast in order to achieve reasonable business model; Facebook, with its strategy,
economy of scales. Thanks to new investors completely disrupted the college students
the company had the possibility to grow market, offering a new way to stay connected
quickly, thus, expanding from its existing with peers and a bridge among real and
business of selling books to selling a wide virtual life; Amazon taught a new useful way
variety of products as DVDs, music CDs, to purchase to the world, saving money and
computer software, video games, electronics time.
and more. The ingredients behind these startups are
According to this successful story we can multiple but always driven by an ambitious
realize that every single idea was strategic to vision of its founders and by an achiveble as
come out with innovations concerning well as a methodical strategy.
processes: providing products to clients Thus, we can conclude that, despite every
promoting a new way to purchase, developing start up has its story, the recurring element in
a wide customer relationship management to all these companies is the disruptive
achieve a high quality level and a customized
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8. innovation that they realized and we can tag it business model innovation). In fact these
as the keystone for such a huge success. three companies has disrupted in at least one
Moreover these three cases revealed a type of innovation: the business model of
particular relation among disruptive Google, the new percieved product of
innovation and the object of the innovation Facebook, the sale process of Amazon.
(process innovation, product innovation or
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