Flip's Pareto: 80% of the Functionality; 20% of the Cost
More than a year ago, we extolled the virtues of the Pure Digital Flip video camera (Mixner). Since then, the camera has sold millions of units in a down economy. The company has since sold to Cisco for $560 million. The Flip is still riding high. Sales still continue to be "off the charts," competitors are taking notice (and failing in their efforts), and the company is carefully adding features as costs come down (there is now a high definition version of the Flip for basically the same cost).
Capps calls products like the Flip "good enough" products (Capps, 118) because they give eighty percent of the functionality for twenty percent of the price, or, more succinctly, "twenty percent of the effort, features, or investment delivers eighty percent of the value to consumers" (Capps, 118). He lists a whole series of similar products and services (Capps, 113-118):
- AutoCAD has a simple, cheap competitor called SketchUp that costs $500 versus AutoCAD's $4,000.
- 90% of Google's ad revenue comes from text ads: no pictures, no celebrities.
- Netbooks have minimal storage, minimal processing power, no graphics capability and they are cheap, small and light. Shipments are up seven-fold in 2009.
- Kindle isn't high resolution or complex graphics driven. It is slim and has hundreds of book titles. Oh, and $310 million in sales its first year out.
- Net calls aren't so hot. They are cheap, however. Skype sales are up forty-two percent year-to-year.
- Conlin talks about the new simple in healthcare: Doctors who make house calls. A trip to the emergency room costs $1,500 on average; a home visit costs $150 (Conlin, 071). In this case the quality and the price is there. Not bad.
- Wildstrom talks about Microsoft's new free virus scrubber. They tried to sell it and failed, so they are giving it away. It is apparently as good as Symantec's offering, but simpler and not as "invasive" on a computer.
- Markoff talks about I.B.M.'s entry into the genome business with a targeted $1,000 report. Cheap, simple genomes will revolutionize medical diagnosis and treatment. Let's watch and see if I.B.M. is actually able to pull this off. Their personal computer decades ago was successful because they assigned the project to a remote team and left them alone. Let's hope they decide to do that again.
I am interested in one flaw in the discussion. I said it a year ago, and it still appears to be true: only small companies can create disruptive strategies that work. It's true until you begin to examine things a little bit closer (beyond the Microsoft and I.B.M. examples above). Two big-company examples:
- Kaiser Permanente has a new clinic in Hawaii staffed by two physicians who are able to do eighty percent of what any walk-in customer/patient might need. What they can't do, they refer across town to the Kaiser hospital with full services. No one needs to cart around x-rays or patient records: they're digital and accessible everywhere in the system (Capps, 118).
- It used to be that attack fighters were fast, heavily armed and devastating to the enemy. The only problem is they can't stay over a battle field for hours. Predator drones are the opposite (Capps, 117). They're light and minimally armed. They are also able to stay put to watch 24/7 (via video) what is going on over the hill or over the mountain range. They either fire their simple weaponry or call in the troops or the fighters.
Both the clinic and the drone were created by big companies (Kaiser and General Atomics). This deserves more study. Disruptive strategies work for small companies. They also work for big companies.
Capps, Robert. Why Lo-Fi High Tech Will Rule the World. Wired. November 2009. 111-118.
Conlin, Michelle. The Return of the House Call. BusinessWeek. 16 November 2009. 70. http://www.businessweek.com/magazine/content/09_46/b4155070821061.htm
Markoff, John. I.B.M. Joins Pursuit of $1,000 Personal Genome. New York Times. 5 October 2009. http://www.businessweek.com/magazine/content/09_46/b4155070821061.htm
Mixner, Jack. Disruptive Technology: Smaller Companies Have the Edge. http://mixnerstrategy.com/blog/2008/09/disruptive_technology_smaller.html
Wildstron, Stephen H. Microsoft Steps Up Its War on Hackers. BusinessWeek. 21 September 2009. 76. http://www.businessweek.com/magazine/content/09_38/b4147076993366.htm