Charles Darwin never said “survival of the fittest” though many people wrongly attribute that notion to him.  Instead, Darwin said “it is not the strongest of the species that survive, or the most intelligent, but the ones most responsive to change.”  It’s being able to adapt in the face of changing conditions that sets the course for longevity and survival.

While it’s no surprise that this is also true in business, it isn’t very often that you get a sort of sea change event that will dramatically ripple through many industries.  A super mutation, if you will.

A super mutation has happened, and while it isn’t going to kill organizations or industries overnight, several of both are already suffering and failing to adapt.

The super mutation is very well described, oddly fittingly, by a rock star in a really well written piece in The New York Times.  The piece called WhoseTube? by Damian Kulash Jr. of the band OK Go.  I will admit I didn’t recognize the name of this band until Mr. Kulash mentioned the hugely famous YouTube video his band posted that shows the band members doing some really creative things on a series of treadmills.  The video literally cost them nothing to make, they filmed it at his sister’s house (though he didn’t mention why she has six treadmills in her house) but nearly 50 million people have watched it and it was hugely helpful in making the song and the band a global phenomenon.

So what does that have to do with a Darwinian super mutation?  I am getting there.  Even though the record producer EMI made a mountain of money as a result of the spike in the popularity the band caused by the YouTube video, they won’t allow anything like it to happen again.  EMI feels like they should have gotten money from all of the people who watched the video and heard the song.  They won’t let people embed the video link on other sites and they want to charge $.004 per view.  EMI is trying to charge for something that is free advertising which is the best way to sell more music.  That is at the heart of this super mutation – knowing what to charge for and what not to charge for, and what the right amount to charge is.

Kulash also does a very good job of explaining that record companies used to act more like venture capitalists (what he calls “risk aggregators”) where they would invest in lots and lots of bands, knowing only a tiny number would be huge hits, but they would keep most of the profits and that model worked for them.  Now record labels (probably in part due to shows like American Idol) sign mostly just the sure bets making it less likely that the OK Gos of the future will be able to sign on with a major recording studio for their first record.

The super mutation is that 20th century notions of licensing and royalties are dead.  Napster was the first shockwave where we learned that people want songs one at a time, and many people don’t think they should have to pay for it (the notion of property and intellectual property, especially when it costs little or nothing to duplicate, has changed).  The same happened with TV on YouTube when stations wouldn’t allow clips (or all) of their shows to be posted.

The first part of the super mutation is the fragmentation of the product.  Not so different from the introduction of pizza by the slice (which was initially laughed at), people don’t want to buy an entire album or watch an entire show, or pay for all of a software product.  While that is huge by itself, this radical shift in the idea of property is even bigger.  Last year the very popular band Radiohead did something groundbreaking that is probably one of the smartest adaptations to this super mutation – they posted a new album and asked people to pay what they thought it was worth.  This huge experiment was a gigantic success and I think it will set the pace for further adaptations.

But that brings up the other half of this super mutation, which is the marketing side.  Viral marketing and messaging isn’t new, but the mechanisms and media by which something can got viral (Facebook, YouTube, Twitter, blogs, etc.) have become the most powerful marketing tool imaginable.

The software world is probably the industry that is, thus far, doing the best job of adapting to this super mutation, through software rental, software-as-a-service (SaaS), and now Cloud computing (which is more than just the internet), and when you think of a huge company like Microsoft shifting from a model where people to buy their software to a model where customers pay for it in different ways, that’s a gigantic shift in everything from revenues, to sales commission structures, to marketing and beyond.

Licensing, pricing, marketing, and property models are changing very rapidly.  Everyone from the entertainment industry to Microsoft needs to start getting a handle on this change, and ask who their customers are (20-somethings have very different notions already compared to the 50-somethings, and so you need to know who you are dealing with) and plot a very different course.  Plotting a different course is harder than ever because you are trying to define where you will end up in such a volatile time – but it must be done, otherwise in the immortal words of Yogi Berra “if you don’t know where you are going, you might end up someplace else.”

So break out the big rethinking guns and plot your course.

OK? Go.

-Ric

P.S. Speaking of Darwin and change, I couldn’t help but wonder this weekend when I read a piece about dolphins being able to cure themselves of diabetes, if through all of the drugs and medical care we get, if that’s starting to teach our bodies to be less adaptive to change.  If the medicine solves the problem, we don’t have to do anything to deal with it.  Is that possible?  I would be interested to hear your thoughts.

As the Toyota mess continues to snowball, it’s clear at least a few people got sloppy there and that has led to the recall of nearly ten million vehicles.  On the other side of the globe, internet powerhouse Google also got called out for making a big mistake with the launch of its new social networking site Buzz, as an explicit effort to compete with Twitter and Facebook.  But Google’s mistake was very different.

With Twitter and Facebook, people have to explicitly reach out to “follow” or “friend” a person in Twitter and Facebook, respectively.  And with varying degrees, once you are a friend or a follower on those sites, you can see who else has been “approved” by the user as a friend or a follower.  Google decided to skip that step for Buzz users, in part because they “could” in the sense that Buzz is connected to a person’s G-mail account and the G-mail account has the names and e-mail addresses of all of the people you contact on G-mail.   So G-mail decided that for everyone who opted into Buzz, they would automatically connect users in the friend/follow sense with their most frequently contacted G-mail contacts.  In a certain sense they did it because they could, the technology was there.  It harkens back to the old British explorer George Mallory  who was one of the first people to try to climb Mount Everest, and when asked why he was doing it, he replied “because it’s there.”

This happens to be a vivid example of a spectacularly bad decision to use technology “because it’s there.”

In Rethink I talk at length about the importance of being in touch with what your customer values, and what they don’t value, and in 2010,  irrespective of customer segment by age, socioeconomic grouping, height, hair color, you name it – privacy is one of the top two or three things you cannot mess with.  Somehow Google overlooked this one and apparently inferred that users would like this feature, but the gigantic uproar last week proved otherwise.

They seem to think that now that they have fixed this problem, they are asking the tens of millions of people who opted in to the Buzz service to opt in again.  I did last week, but I am not going back anytime soon.  It will be a case study for the ages watching whether the Google brand is going to trump the mistake, or if the mistake will be like Odwalla’s E. coli mess in the mid-90s where they lost the trust of their customer and it took more than a decade to rebuild that trust.

I am going to tweet this post now . . .

-Ric

P.S. I do have to wonder if George Mallory’s nickname was G-mall.

If you look back at the big recalls of the past 20+ years, most of us remember them, and not just in the automotive industry:

Audi had their acceleration issue made famous in a 60 Minutes program which turned out not to be Audi’s fault, and it took them nearly 20 years to recover in the US

Odwalla, the juice maker, had e coli in their juices and very nearly went out of business because of it.  I still won’t buy it.

Suzuki’s Samurai tipped over.

But Jack in the Box had e coli and they were fine in the long run.  Ford’s Pinto’s blew up and Ford was fine.

So what will happen to Toyota as they recall millions of vehicles because of a problem with the gas pedal sticking?  Toyota’s brand is built on the reputation of super high quality.  Quality is their culture and their brand.  Certainly this recall pierces through that image of perfection, and certainly we will all remember it for a long, long time.

But I wonder if it will have any meaningful impact on sales.  When their competition is really Ford and GM, in the quality race those companies are farther behind Toyota than I would be in a 100 yard dash with Usain Bolt.

In fairness, the US car companies never really tried to build their brands on quality, they built them on warranties.  When the ads talk about ten year bumper-to-bumper warranties, I hear “sure it’s going to break down a lot, but we will fix it for free” and that message has worked for a long time.

My point is, the Toyota value proposition is different from all the rest, and one mistake on one part is going to tarnish, but not blow up the Toyota brand and I doubt very much there will be any shift in customer loyalty.   I am also confident that Toyota will punish themselves for this more than any public humiliation they face, so my guess is that Toyota will be higher quality than ever as a result of this.

No major rethinking needed at Toyota on this one.

-Ric

The way I see this, it’s a little bit like peanut butter and chocolate, two great tastes you might not expect to go well together.  People are talking about the possible acquisition of video company Netflix by Amazon, and they are speculating that it has to do with movies and streaming media. Maybe, but I don’t think that’s why this acquisition would be so powerful, and I am frankly surprised I haven’t heard more people talking about this.

Here’s why.

One of the biggest mistakes I think Amazon has been making all along is ignoring the buying history of customers.  They never recommend anything to me based on my buying history.  They tell me what other people have bought when I buy a certain book or a tent or a squash racket, but they don’t seem to really pay attention to what I buy and what I like. And I buy a LOT on Amazon.  They are crazy to have ignored this for so long.

By contrast, Netflix has the most incredible recommendation process ever.   While I do have to make the effort to rate movies I have watched (irrespective of whether I watched them through Netflix) based on what I have liked and what I haven’t liked, they have the ability to say, for example, that for a movie like Pulp Fiction, while the average viewer gave it three and a half stars out of five, based on my history and preferences, they think I would like it much more, on the order of four and a half stars.  What’s amazing to me is that they are always right, and I have really unusual taste in movies.

Back to peanut butter and chocolate – if Amazon could use the Netflix recommendation engine to do a better job of tracking my purchases and preferences and recommending everything from books to movies to music to running shoes, it would  be amazing.

Is it worth it?  Well as of today, Netflix is worth about $3.22 billion, according to Wall Street, and Amazon is about 16 times bigger at $52 billion and to have this incredible way to connect with customers and help them find what they will really like even before they know about it, that would be a huge, much needed, boost for Amazon.  The lift in revenue would be significant – just ask anyone in retail about how much upselling is done at the point of purchase.

Overdue rethinking at Amazon, but a great match.  I really hope it happens.

-Ric

P.S.  It makes for an interesting side note if Amazon does buy them, that probably puts founder and CEO Reed Hastings on the board, and he’s already on the board of Microsoft.  Would he stay on the board of Microsoft?

I have blogged extensively in the past about the importance of knowing who your most valuable customer is, and knowing what they value and making sure your value proposition stays aligned with that customer, or even those customer segments.

But what if your target customer doesn’t even know you exist?

There was a really interesting article in The New York Times last weekend called “Colleges Market Easy, No-Fee Sell to Applicants” and I wasn’t surprised to see that it made the front page.  The article, by Jacques Steinberg talked about a crafty new way some lesser known college programs are attracting more applicants, by making it really easy to apply (no fee and no essay needed), in some cases even labeling them “Distinctive Candidate Application” to make the applicants feel as though they are being hand picked.  Most of us have gotten loads of junk mail from credit card companies who want our business, and I throw those out because I realize how little differentiation there is in many of those credit cards.  But colleges, like a lot of businesses are different in the sense that they all actually offer something unique, whether it’s the location, or their specialties, or whatever.

Application fees for education have all sorts of interesting elements, in that for some schools it makes sense to charge a fee just so that people who really think they have a shot at getting in will apply, and that’s certainly the case for some of the bigger name schools like Michigan, Stanford, Harvard.  But for every one of those big name schools, there are a hundred lesser known programs that have something special to offer, and it makes all the sense in the world for them to target students who seem to fit the profile of their ideal student body base to get on their radar and see if those students will apply.

In the case of businesses that are not a household name, certainly the internet has made it easier for most organizations to put their value proposition out on the web to help customers find them, and I think this is a great example for that.  But there is also another piece of this which is looking at whether you are treating a part of your organization the right way in terms of metrics and in terms of assessing its role in the performance of the overall.  Beyond just whether something is a cost or a source of revenue -what is its job?  In the case of applications, in the past many schools treated applications as a cost recovery model and simply assumed that enough students would learn about their schools and that would be enough to fill up the classrooms.  By making applications free, these are schools that are turning the application process itself into a marketing activity to raise awareness and attract top students, and a more diverse student body.  Very clever.

I used a similar analogy when I used to ask people whether WiFi access in a coffee shop should be treated as a marketing expense to bring people into the store and keep them there to buy more things, or an actual product where you would charge them for it.  It was a bit of a trick question I would point out, because either is a valid treatment of that offering – it’s simply important to be specific about what its job is and to measure it accordingly.  If it’s to be a marketing tool, quantify that and see if it’s doing its job, and if it’s a “product” that you sell, measure it that way, but also keep an eye in that case on impact on other product sales.

This is good rethinking of an otherwise ho-hum commodity step “how” people go about applying for schools that translates very well into the business community as well.

-Ric

I define innovation as figuring out a way to accomplish the same outcome, the “what” we do, in a way that doesn’t resemble “how” we used to do it.  Flight check-in over the web doesn’t resemble the experience of talking to the airline employee at the counter, but it accomplishes the same three outcomes (confirming a reservation, conducting a survey, and managing logistics when there is luggage).  A revolution, by contrast, I would define as an innovation that results in a dramatically different, or richer experience.  E-mail and text messaging haven’t just replaced prior forms of communication, they have revolutionized the way we communicate in ways we couldn’t imagine 20 years ago.

Right now, I see very distinct places where innovation is desperately needed, and at the same time, I see a place where a revolution isn’t quite overdue, but it’s getting there.

The most urgent innovation needs are in U.S. health care and energy. People in Washington are chipping away at ways to improve the administration of health care and the role of insurers and doctor incentives, and while I will grant that those are all big messes that need cleaning up, that’s not where the greatest need is. The greatest need is to stop people from needing to see the doctor in the first place and the way to do that is managing wellness in a structured, disciplined way.  People get insurance through their work in the US, and the companies should mandate regular checkups and the insurers should provide statistics (not at the individual level – for obvious privacy reasons) as to where the risks are and then invest in wellness programs accordingly. Just at Microsoft alone, if they don’t take action on diabetes and obesity alone, in less than six years they will have to spend about $70 million more each year – and most of that will be avoided if the high risk employees lose just six pounds before they turn 46 (source: The American Diabetes Association, and Microsoft Corporation).  People ask about the return on investment from wellness programs – there it is.  Energy – this one is harder but more obvious.  The car replaced the horse, we need something to replace our dependency on petrochemicals.  I don’t know where it will come from, waves, wind, cold fusion, whatever, but we need it soon.

As for where the revolution is needed, or why, I would say we need it because we are in a new era – the era I will call post-decentralization.

We grew up in a world of a finite number of TV stations, the record labels decided what music we would listen to, and we all got newspapers (all very centralized sources of news, entertainment, music, and information).  Now, we are in a very different world that includes social networking, YouTube, blogs, iTunes, and the iPhone. Most of the sources information, music and content have become almost cartoonishly decentralized.  That’s great from a control perspective, but except for those who are really on top of it all, it’s hard for people to feel comfortable that they are getting connected to the right stuff that’s most aligned with their needs and interests.  We need innovations to do better match making between consumers and all of these decentralized sources of apps and content.  I shouldn’t have to find the best news articles, blogs, video clips, and music, they should find me based on who I am and what I am interested in.  I happen to have some ideas on how that will happen – but that is going to allow us to really fulfill the potential of the internet, and it will be awesome.

-Ric