Without getting academic about it, Vinnie Mirchandani breaks up technology markets into old and new, which mean, nutshelled, traditional and innovation-driven revenue, respectively. I’ve often looked at it the same way; in fact, one of the reasons I’m linking to Vinnie’s post is because he articulated my thoughts better than I could. Here it is in its entirety. You should read it.
There is old revenue and new, innovation generated revenue. The poster child is Apple. The iPhone has gone from zero to half of Apple’s revenue in less than 4 years. When you add iPad, barely a year old, you get even more of revenue which is new, innovation generated.
Contrast this to SAP, Oracle, Verizon, IBM and so many other large technology vendors. SAP has been talking in-memory applications and its BYD SaaS product for almost 5 years now, and related revenue is less than 5%. Oracle has been talking Fusion apps for over 6 years and it only has 50 or so customers. IBM markets the heck out of its “Smarter Planet” projects, but most of its revenues come from decades old Lotus, Tivoli and other software and data centers that often go back to the Cold War times. Verizon spends a disproportionate amount of its advertising budget on its 4G LTE offerings, when that is less than 1% of its revenues. There are plenty more examples in techland.
It’s not for a lack of want that these lip-service vs. performance discrepancies exist; it’s for a lack of an encouraging corporate culture and the fact that these companies must perform quarter after quarter, so radical new behaviors (and sales force incentives) are very difficult. When there are analyst targets to meet and compensation plans to fulfill, nobody is going to push the avant garde products and services unless the company culture specifically demands they do so.
Another key point by Mirchandani:
It takes an Apple (and historically Intel) to actively develop and launch new products, and not worry about cannibalizing older revenues.
Exactly right. When Apple designed the iPhone and, later, the iPad, it knew full well that the iPod’s days were numbered. Think about that. The iPod – an iconic device if there ever was one – was certain to be massively cannibalized by new products. Not just new products, mind you, but new products forging new markets. How many companies would have the courage of their conviction to walk headlong into that algebra? Not many.
Eventually, as the competitive landscape firms up as it relates to these next-gen products and services, companies will make the internal adjustments based on market pressures. When that happens, you’ll start seeing the shift from ‘old’ revenue to ‘new.’ And, ironically, my money says the products responsible for the ‘old’ revenue get a new (albeit perhaps short) lease on life. Why? Innovation increases the luster of everything in the house.
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