A Conversation on Innovation and Marketing

This is the original, unedited version of my article which just ran on Inman News Friday 2/2/15(inman.com). This one is longer and includes stuff not on their site. My goal as always is not just tell you about innovation, but instead motivating you to think on your own as to how this affects your own business. Thanks for reading.

A Conversation On Innovation And Marketing

I would like for you to first take 20 minutes to go and read this this excellent exposé on Marketing and Innovation, on Imagination and Burning Desire, on Refusing Constraint and Pushing the Edges, by Camila Villafañe http://postcron.com/en/blog/10-amazing-marketing-lessons-steve-jobs-taught-us/. I suggest that you jam earbuds on so you can really focus. Refuse interruption for 20 minutes. Play the embedded videos she provides. Take a little while to absorb marketing and innovation. If you have any energy left after this, come back and visit with the Demon a little bit. Now go away, I’ll be here should you decide to come back.

Welcome Back

You know what, I lied. Actually I had every intention of starting my article here, but while you were becoming inspired by the prior article I stumbled across an ancient video where Steve Jobs is apparently fairly new to coming back to Apple and is introducing his “crazy ones” campaign. This is almost like some archeological discovery seeing how the pyramids were constructed or something—a time machine. I don’t know where or how raytracesvin got this, but I thank him. Now watch http://www.youtube.com/watch?v=keCwRdbwNQY and you don’t even have to bother coming back to read my stuff.

What is Innovation?

Let’s not use a definition that a PhD writing a textbook would be proud of—those never really get to the point. And let’s avoid what those in the financial industry call “Fed-Speak”—you know that circular, never-clear, non-committal jargon the government uses. Let’s talk about innovation as if we have to understand and apply it.

“The act of introducing something new…” is how Webster’s defines innovation. That’s too weak. I could introduce a new shape of marshmallows into the market, but it creates little change.

So let’s define two levels of innovation, the first being “incremental innovation—new, but not lethal”. Upon introduction of incremental innovation, within the marketplace there may be a little shuffling about of the main characters, somebody gets scratched, a little bleeding, and a twinge of fear, but everybody lives to tell about it and nothing cataclysmic occurs. Let’s call our second level of innovation “radical innovation—it leaves a corpse, quickly followed by a pack of feeding maggots”. I think the two definitions are easy to remember, easy to comprehend, and easy to apply. Somebody call Webster’s Dictionary please.

I think a radical innovation can be defined when a key power-player is uprooted by the radical innovator, and then a number of imitators quickly follow. Think Apple uprooting BlackBerry, and all the smart phones quickly appearing. Think of Starbucks appearing, how average donut shops disappeared, and of all the new imitator boutique coffee shops cropping up. Coffee was no longer just a morning drink—it was an attitude and an addiction. Think of IBM and Wang mainframes disappearing and millions of desktop computers proliferating in the world.

Something radical hit the market, the old guard was destroyed, and a multitude of imitators filled the market. Let’s call this the Demon of Marketing’s “Innovation Bomb™” affect. This is when the old guard leaves their prize market so unprotected (due to a lack of their own radical innovation), that someone flies over with a new perspective, and drops this innovation bomb dead on them. Boom: 1) radical innovation, 2) corpse, 3) maggots. I like that; let’s call this the Demon of Marketing’s “Model of Innovation™”.

The old guard almost never sees their destruction coming, as they are in defensive mode—trying to keep everything exactly the same, and never looking up or ahead. We’ve seen a lot of this in Apple’s line of work: ipods (Sony Walkman dead), smart phones (Blackberry dead), tablets (desktops/laptops heading toward death—at least for a particular market segment), etc. But when was the last time you saw something truly radically innovative in real estate? I mean if you are not literally perpetually innovating and bringing new products to market in the technology business, you are out of business, even if you pretty much founded a segment of the industry and dominated it at one time—BlackBerry. Why not real estate?

And it seems that once you are dead, you stay dead. There are few resurrections once an innovation bomb has taken you out.

BlackBerry had the whole pre-smart-phone market literally in their hands. Nobody could touch them. Then one day they were destroyed, much thanks to Apple and those who very quickly jumped in. There was a market leader; there was a radical innovation, there was a corpse; then followed many imitators. Has this ever this happened in real estate? Could this ever this happen in real estate?

Along with the old-guard’s corpse sometimes even the radical innovator has to sacrifice a little piece of their own life. What did Apple have to do before they could dominate the wireless world? They had to realize their prize possessions, their desktop computers, would be sacrificed. Did they do this because they wanted to do this? No, they did it because they knew the market would want the new methods. How did they know—really know? They didn’t; it was a risk—truly a huge risk. They were walking away from their core product to start anew. You might still be clicking away on your BlackBerry at this moment if they hadn’t.

The Boston Consulting Group Growth Share Matrix is pretty old stuff now days, but easy to understand and relevant. At some point Apple, and any company which provides products or services, had to decide where the market was, where it was heading, and take a chance on radical innovation. The matrix is just below here.

You never absolutely know what the market will react to, so you have smart management that makes a final call and attacks a segment anyway. Looking at the BCG Matrix may help you to do the same. Essentially your vertical axis is the market growth rate for either an existing product or a market segment you are considering entering. The horizontal axis is your current market share in that market (it could be high or even zero if it’s one you are considering entering).

Perhaps Apple management saw desktop computers as high market share (think back 10 years) but they perceived the growth rate to be low. Thus they took a “cash-cow” position with desktops, which means crank them out as long as you can, get the cash to fund your innovations, but don’t heavily reinvest in this product line or market segment.

What did they do with all that money they made on desktops—well they took it offshore so they wouldn’t have to pay federal income taxes on their profits (sorry, that’s a different story). They invested into “question marks”—stuff that had a low market share at the time (for them or the marketplace in general)—but they saw as having a high potential growth rate: smart phones, tablets, mobile.

Your goal is to keep moving “question marks” into “star” status. And guess what, you have to decide what to do and what to invest in and what to walk away from, before the market or your competitors do. That takes smarts and guts. Looking at a simple model makes it appear easy. It is not. You are risking going out of business if you guess wrong. On the other hand you are risking going out business if you don’t take a guess and make a radical move. As someone else will and turn you into a BlackBerry.

Now, back to that question “When was the last time you saw something radically innovative in real estate?” When was the last time you saw someone in the real estate industry walk away—sacrifice their most valued core product to give the market what they know they want? I don’t think it has ever happened in real estate. I don’t think it has ever happened in real estate, but it is going to; it has to.

Let’s test our model: Did we and do we have key market players in real estate, yes. We have NAR, the 900 or so MLS companies, Major Franchises, Lenders, and Title companies. Has anything innovative come along to change the market, leave a corpse, and create imitators? Nothing—not a major player listed here has left the real estate market in like 100 years. No corpse, thus any changes has been incremental innovations.

All we really have in this most recent decade is a migration of real estate advertising from newspapers and magazines to the internet. Zillow’s automated valuation (AVM) was pretty close to a radical innovation. But Zillow never had to sacrifice anything to do this, and they didn’t drive the sword in to kill off a major player. They did initially have to sacrifice your monopoly on this information though, and they may now be enslaving a large number of brokers. So I guess they were going for “capture, not kill the enemy”. So now tens of thousands of brokers are building a pyramid for Zillow the Great, Pharaoh of Realty.

Zillow didn’t fully leverage their new-found power to make any kind of radical change in the industry; they just positioned themselves as a new intermediary designed to perpetuate the existing system (”incremental innovation—new, but not lethal; there was a little shuffling about of the main characters, somebody got scratched, a little bleeding, and a twinge of fear, but nothing cataclysmic occurred—no corpse”). They could have made that final radical step of being the new UniversalMLS, but there was too much profit to be made just being an incremental change. I am not saying what they did was good or bad. They did what they wanted to do. I am saying that radical innovation in the marketplace is going to leave some larger marks.

Besides, much of what Zillow did with their AVM was driven by routinizing the appraisal model: look at the physical attributes compared between homes, make value adjustments based on these attributes, and crank out a value. Zillow’s AVM uses some higher-end math through Random-Forest-Regression and weighting of the physical characteristics, but it’s still the appraisal model they base their system on. The nearest thing to innovation was making their AVM public. And for some reason no one has really tried to beat their AVM. Perhaps since the marketplace saw no corpse, there was nothing for the maggots to feed on—nobody imitated them. So again: no corpse, no maggots, thus no radical innovation.

I suppose that with NAR or Realtor.com having even greater information than Zillow they could create and offer their own AVM—oh, but there’s where that whole sacrifice part of innovation creeps in. The old guard very often does not want change, so this collective had better be watching upward for somebody’s innovation bomb. I think we’re covered innovation and the lack thereof within the real estate industry. So let’s move on to marketing.

What About Marketing?

There’s a lot here at the site on marketing, so I’ll keep this section short. How you know which market segments to move toward and which to start liquidating has much to do with marketing—real marketing (Advertising is Not Marketing). You will use your knowledge and skills in determining what the market wants, what it will want, and what it will no longer want. Marketing means determining the market’s desires and then giving that to them. Innovation entails determining the market’s desires and giving that to them—before your competition does. The Steve Jobs article at the beginning of this discussion does a pretty nice job of touching on marketing. Do be sure you read it.

But let’s just say that your market, home sellers and buyers, do not want the status quo. It’s obvious by their actions that they want full information and full control and change. You can try and guard your current position. But if you choose not to create radical innovation, then you can expect to receive somebody else’s innovation bomb and be the corpse.

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Trackbacks

  1. […] I get excited by those terms.  But this is not what the real estate industry really wants.  Realogy’s and the industry’s talk of innovation is a lie; a lie told to themselves.  “Upheaval” requires removal of the existing business model being replaced by something radically new. […]

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