Uleashing the killer app book

ULEASHING THE KILLER APP:BOOK REPORT

Digital Strategies for Market Dominance

Killer apps, goods or services that establish quickly and dominate the market, are displacing traditional planning and strategy in business. These revolutionary realities such as email, the first word-processing program, and e-commerce are sudden and dramatic changes that have recently found success in changing the face of business. Companies that use existing technologies are finding possible killer apps as a way to gain advantage over competitors and serve their customers in a more efficient manner. Companies that choose to use existing, traditional ideals of strategy and planning are being passed over as the power of emerging digital solutions attracts their customers.

Companies must now adopt a digital strategy to help produce their own killer apps to survive in their marketplace. This digital strategy encourages full staff involvement in the development of possible improvements in processes, rather than having a group of people who spend years developing strategies. This full staff involvement brings together the ideas of workers on the front lines of production who have real world answers on how to make their work faster and eliminate non-essential processes.

Once developed, killer apps take their market by storm. For example, electronic mail has established itself as the way of communicating notes and short correspondence over the traditional ways of writing letters. The US Postal Service has experienced extreme loses in revenue due to the hands of email. Killer apps will dominate a market quickly as customers find its advantages over traditional services and products.

THE LAWS THAT LEAD TO SUCCESSFUL KILLER APPS

Moore's Law

Moore's Law, Metcalfe's Law, and the economic theories of Ronald Coase help support the rise and domination of killer apps. Moore's law focuses on the constant growth in computing power. The law states that for every 18 months, processing power doubles while cost holds constant. Killer apps are now able to constantly evolve faster, smaller, and more efficient while keeping costs somewhat constant. In 1980, a gigabyte of storage cost several hundred thousand dollars and took large storage space. Moore's law has made it possible to shrink cost to $200 and drastically reducing storage space to the size of a credit card. This ever-improving processing power will serve as the backbone to the future of killer apps. Companies that choose not to invest in these technological answers to problematic issues will soon find themselves at the bottom of the market. This leads us to Metcalfe's law.

Metcalfe's Law

Metcalfe's law explains why technology spreads so rapidly, and how quickly people so readily accept it. R. Metcalfe is the founder of 3Com. His law states that new technologies are valuable only if people use them. His concept is easy to understand. If only two people have email accessibility, email would not be very important. Only those two people could communicate with each other using electronic mail technology. If the entire office were given the same email accessibility, email would become much more important. The more people use something, the more valuable it becomes, which will attract more people to use it. A prime example of the validity of Metcalfe's law is the Internet. As more people use it, it will become much more attractive to others.

Economic Theories of Ronald Coase

The economic theories of Ronald Coase have produced many opportunities for smaller companies to compete easier with larger, more established firms. Coase believed that firms are set up to minimize transactional costs. A larger firm can produce products like steel at lower economies of scale and more efficiently than an individual. Existing corporations are now competing against the economies of cyberspace. The economies of cyberspace significantly lower transactional costs more than traditional firms do because of the greatly reduced costs of land, labor, and capital. An online bank can offer as many advantages that traditional banks currently offer. This is because the transactional costs of an online bank are much lower. Their website serves as their "land" and their employees mostly work part-time. Clearly, Moore's Law, Metcalfe's Law, and the economic theories of Ronald Coase have provided a prosperous environment for killer apps to flourish in today's society. Killer apps will provide opportunities for many firms to find a new niche or service using digital technology that can help them revolutionize their markets.

DIGITAL STRATEGY

What is Digital Strategy?

Traditional strategic planning techniques such as those published in 1980 in Michael Porter's Competitive Advantage are very unsuitable for survival in cyberspace. In order to survive in today's digital world, companies need to adopt what Downes and Mui call digital strategy. Digital Strategy is a new approach to strategic planning. It consists of twelve design principles that guide the process for finding and developing killer apps, and techniques that organizations of any size and in any industry can use to achieve market dominance. It can be done by all companies, not just companies whose actual goods and services are already digital.

Strategic Planning versus Digital Strategy

In traditional strategy, the plan produced is mostly static. A team goes off for a period, performs its analysis, and returns with a document, which remains the plan until the next planning cycle. This team is usually made up of only senior executives or the staff of a specialized department. Digital Strategy is much different. A digital strategy is a dynamic plan that requires constant rethinking. It is developed by everyone. Although, usually by line managers in large organizations or functional heads in smaller ones.

The period for traditional strategy is between three to five years. As a direct result of Moore's Law and Metcalfe's Law, killer apps are entering the market quickly and reaching critical mass, the knee of Metcalfe's curve, in less than two years. For example, electronic commerce was not a part of any company's strategic plan, not even Microsoft's, two years ago, but now it is very popular in every industry. As of today, digital strategy takes close to twelve to eighteen months to implement, but that period is getting shorter as time goes by.

Michael Porter wrote in his book Competitive Advantage that a company must gain advantage over at least one of the "Five Forces." The "Five Forces" he spoke of are customers, suppliers, competitors, new entrants, and substitutes. Today, we have to deal with three new forces: digitization, globalization, and deregulation. These "New Forces" supersede the old forces as the focus of planning.

Traditional strategy is implemented through value chains. According, to Michael Porter, the value chain is the set of activities an organization performs to create and distribute its good and services. Each of these activities adds some value to the product, a value that Porter refers to as "margin." The presence of the new forces is forcing companies to no longer be concerned with today's value chain. Instead, they must consider destroying it altogether, rather than trying to improve it.

THE TWELVE PRINCIPLES

Reshaping the Landscape

The first four principles of killer app design refer to how a company can reshape the environment in which it competes. These four principles are outsource to the customer, cannibalize you markets, treat each customer as a market segment of one, and create communities of value.

Outsource to the Customer

A company can outsource to its customer by allowing them to access the company's information sources and customize them. The Web is the perfect tool to use to implement this. The customer can connect to a company's systems using his or her own equipment, phone lines, office space, and electricity, which can dramatically cut cost for the company. The customer can perform many of the tasks that used to be performed by the company itself such as customer service and order entry and tracking. For example, Holiday Inn's Web site allows users to locate a hotel nearest their destination, check availability, take of tour of the hotel, and complete their reservation.

Cannibalize Your Markets

Many companies today are implementing hybrid strategies because they are afraid of immediately shifting to a new way of doing things. For example, GM is having success with its Saturn division, except it has stolen customers from its other GM units. Hybrid strategies only make sense when they are designed for the sake of the customer. The best thing for a company to do is to completely get rid of its current, old market and try its hand in a new one. According to the book, cannibalizing your markets recognizes that the old channels will mature or disappear on their own soon enough, but by taking steps that may hasten that end you can get into the new channel early.

Treat Each Customer as a Market Segment of One

This principle refers to the term "mass customization" which means offering a customer a unique product or service not just one time, but every time. For example, Pointcast has turned a simple screen saver into a killer app by delivering content the user wants. Users can view their stock reports and other details of interest whenever the computer is not being used. Even the public utilities industry is getting on the bandwagon. The gateway proposition is a mass-customization strategy that will allow utility customers to monitor and measure power usage and performance and adjust devices and rate options to optimize their use.

Create Communities of Value

Companies can create communities of value by valuing community. People like to interact with and be entertained by each other. Companies like America Online have recognized this and built technologies by which customers ...

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