The effect of long-tails on the generation of innovations
Innovation is defined as a new breakthrough in a market or a society in a smart method. This makes innovation as a must for firms in ICT industry, such as mobile operators and mobile vendors, to create a competitive advantage. In addition, the acceleration of products’ life-cycle apply strategic pressure on firms, for instance smartphones life-cycle shrank to be on average 12 month as for 2011. Thus, fostering the innovation process with the arise of a need for more open innovation is the target of ICT firms.
Open innovation Concept
The term open innovation was coined by Henry Chesbrough in 2003. Open innovation is the innovation process with the usage of external resources in a more efficient technique. Chesbrough emphasized on the importance of collaborating with external resources to gather more ideas and accelerate the innovation process to reach a successful product from such ideas. The innovation process consists of three main stages; research stage: where ideas are generated and gathered, developing stage: where multiple ideas are combined to form a final product, finally, commercializing stage: where the output product is marketed and commercialized. Each of this stages can include collaboration with one or more entity to accelerate it. In hist book “3000 ideas = 1 successful product” Stevens discussed his research that it requires 3000 raw idea in research stage to reach a final 1 successful product as shown in bellow figure. This fact explains that the innovation process is not a linear process, but it is shaped as a long-tail that is exponentially decaying. Furthermore, it behaves as the long-tail phenomenon that Chris Andferson focused on in his book “The long-tail tunnel”
The long-tail Phenomenon
As mentioned in previous section, open innovation adapts the long-tail phenomenon. Long-tail phenomenon is the state where the value of a service or a product is in the accumulated least ranked division (The long-tail) in comparison to the highest ranked graph beginning. This reflects in open innovation process in multiple situations, for instance, the successful idea and successful product. In a research conducted by idea gathering and innovation firm “Nevozymes” they gathered around 1000 idea. The gathering process was done through an online portal where a person can post one or more idea that will be evaluated and processed later if selected. The posters are ranked based on their number of posts on the portal. They found out that the five winning ideas that led to a successful project was posted by the least 70% ranked posters, hence the long-tail as shown in the figure below. This elucidates the existence of the long-tail phenomenon in the idea gathering in innovation process.
The Android Case
Once Google announced the release of their open source operating system (OS) for smartphone “Android”, it started to have a sinusoidal increase in it’s market share of OS. Android now dominates around 38% of the market of smartphones with expected growth at 2014, in comparison to Android nearest competitor, Apple iOS, that account for less than 20%.
The reason behind Android spread and success is adapting an open source approach, which is one type of open innovation. Thus, enabling them to leverage the potentials in the crowd of developers and users. Studying the case of smartphones, the long-tail effect on the business aspect of open innovation is proven as well in the domain of open source, the long-tail model can be observed in revenues from apps in applications stores, such as Android “Play Store” of Google. The top 25% Apps in store ranking account only for 28% of total revenue from the 7€ Billion market of mobile applications, Thus the true value exists in the long-tail, the 75% in our case and as in figure below. It is remarkable to notice the difference in the long-tail between Android and Apple iOS, where the first tend to have a more decaying exponential tail compared to the second, this reflects the higher openness in Android compared to iOS. This was explained in the book Adapting open innovation ecosystem dynamics, in the business approach section, where the interest in open innovation of Google and Apple were plotted together. With the app economy expansion, combined with a marketplace that reduces the power of brand recognition, such as Android “Play Store”, accumulated market revenue continues to shift to the long tail. In another words, the ecosystem of app development and smart phone applications changed that middle-class app developers dominates the market. In this economy, the deep pocket investments are not the differentiating power more than the innovativeness of an idea.
Open innovation is a strategic must for firms in a fast evolving ICT ecosystem. The competitive advantage nowadays arise from the ability of a firm to gather, develop and commercialize ideas into product the fastest way. In addition, firms need to realize the importance of the long-tail phenomenon in innovation process, thus investing in that area. One successful example is Android, more firms are moving in same direction, such as Firefox, Ubuntu, Tizen and Jolla phones. The challenge will be in enabling the acceleration of open innovation, and understanding the business aspect of innovation, such as long-tail phenomenon and acting based on that to dominate the market.