When a pre-revenue company with about a dozen employees gets a $1 billion Silicon Valley payday, tongues wag. Did Facebook pay too much for Instagram -- the popular photo-sharing app that lets users take and customize pictures with their phones -- or not enough? Don't know.
The bigger question is why a larger, established company like Kodak didn't invent Instagram, or an app like it. They have the resources, the talent and the opportunity. What is it that stalled -- possibly fatally -- this once-smart company?
The short version is that they struggled unsuccessfully to adapt in the face of a changing digital world, filing bankruptcy even as photo-industry upstart Instagram was growing at the rate of about one million users a month.
But the real story is much bigger. Kodak, like hundreds or even thousands of otherwise successful companies, has yet to grasp this critical point: Digital innovation is enabling customers to act smarter than the firms that wish to serve them.
Unfortunately, we're guessing that about a third of Fortune 500 executives are running the next Kodak. They just don't know it yet.
Your customers' changing expectations have forever shifted the ways they expect to be treated.
A growing percentage of customers are nearly always connected. They increasingly demand access to products, information and services from wherever they are, whenever they want.
In many cases, they also want these products and services customized, with the service they get taking their preferences and desired experiences into account -- and get frustrated and impatient when companies can't meet these expectations.
Unfortunately, most established firms aren't prepared for this. Many keep data in silos, and don't use it to benefit their customers. Different parts of the company treat customers in different ways (like sales and marketing vs. customer support). They haven't leveraged technology or shifted business processes or products in a manner that permits intelligent use of customer insights.
In short, these companies act stupid.
To survive in the face of these smart, connected and digitally adept customers, established firms need to understand what's happening, and reinvent themselves to stay alive.
Four disruptive forces are altering the basic ground rules for business competition.
You already know that digital technology is getting smaller, cheaper, more powerful and more prevalent. You also know that almost everything and everyone can now be connected wirelessly. But you probably don't realize the degree to which these four disruptive forces work together to make it easier for customers to act smarter.
With thousands of entrepreneurs and bright developers leveraging these forces to provide your ever smarter customers with ever better, ever more disruptive tools, it's a certainty that game-changing innovation will come to your industry -- if it hasn't already.
The speed of this change -- the neck-snapping velocity that drove Instagram from zero to 30 million customers in under two years -- is happening faster than management teams have reacted. This is somewhat understandable. After all, larger organizations are slower to change.
According to U.C. Berkeley's Haas Business School Entrepreneurship Professor and former Sony executive Mark Coopersmith, "While large corporations talk about driving innovation, their structure and systems often inhibit it. Many don't allow -- much less encourage -- the real-time customer experimentation, fast product iteration and business model evolution that nimble start-ups embrace daily. In the face of smart customers, acting like this isn't just stupid, it can be fatal."
Without the inertia of larger, established companies, smaller companies tend to be nimbler and more innovative. Yet when a bigger company "gets it" -- such as Amazon, Apple, USAA, Zappos, and others -- they dominate. Their markets are forever changed.
The answer? Simple: Be the first to disrupt your industry. It's going to happen anyway and it's much more profitable (and way more fun) to be the disruptor. Just ask Instagram co-founders Kevin Systrom and Mike Krieger.
Jeffrey Hayzlett, former CMO of Kodak (and author of The Mirror Test and Running the Gauntlet) likes to say "Mama didn't take your Kodachrome. The consumer did." The consumer also took your Blackberry and flip phone. And she is looking for more to take.
Jeff Ogden, the Fearless Competitor
Host of Marketing Made Simple TV
http://www.marketingmadesimple.tv
Instagram has what? 9 employees? Zero revenue? What barriers to entry are there? Yes they have a lot of users but that doesn't mean money.
At bottom, only so much money will be spent on advertising. Then we will see a dilution of that money over zillions of competitors.
Kodak is probably right in that the model doesn't work but that doesn't stop them from going bust and, more importantly, prevent "visionaries" from seeing infinite wealth in the internet. Remember 2000 tech bust? My IRA sure does.
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I think what's overlooked is that even Instagram didn't invent Instagram. That is, nobody decided to build an app they knew was going to be worth a billion dollars to someone. Instead, Instagram built an app that happened to take off like a rocket. Not only do the app's creators not know how they did it, but at any given time there are many other people also trying to build the latest killer app, and not coming anywhere near success.