When innovation kills leading companies, a conversation with Alain Ferrandi (2/2)

Innovation is sometimes viewed as a growth driver and yet recent business history is littered with failed innovation companies. A few days ago, Alain and I sat down and talked about  failed innovation companies in the last decade.

I/ Alain’s bio

With more than 12 years of experience in digital and internet at management levels, Alain has got the expertise in setting up and implementing strategic business development plans to drive growth in startup and established businesses and a track record in negotiating and managing IP rights and digital distribution within Mobile Telecommunications, Digital Entertainment and Online Media.

He has had the experience of working in startups inside a big group as a CFO, a deputy CEO and a CEO at international level.

II/ The case of Scoot.com

Another example of a failed innovation is Scoot. Scoot has a web only information website dedicated to professional. But, unlike its competitors like the Yellow Pages, Scout was only designed to be available on the Internet or by phone (only in some territories), not on paper. When Scoot was launched, consumers were still attached to paper-based information material and Internet access needed, for most of the people, to turn on the modem of their PC and wait for the connection.

So consumers had not reached the maturity to revert to a web-only information service. This explains why Scoot failed. This failure is the result of misinterpreting consumer technological maturity.

III/ The case of iFrance

Another example of a failed innovation is iFrance. iFrance was a service that hosted websites. This failed because the market it was targeting, digital advertisement, plummeted. However, today, OVH, a webhosting service, is succeeding beautifully and this is because the digital market has increased: digital advertisement has gained respect. Today, digital advertisement accounts for 13% of the advertisement market and is projected to reach 32% by 2017.

This surge in market share is one of the reasons why Publicis a leading advertising agency, merged with Omnicom, another leading advertisement energy agency. The merger gave birth to form the largest advertisement agency in the world. This is in stark contrast to what the digital advertisement market was when iFrance was created. The market was not there. It wasn’t ready yet.

IV/ The case of Ad2One

Another example of a failed innovation is Ad2One. Ad2One sold advertisement space on the Internet. The company was immediately staffed with abundant personnel compared with the market size: there were about 20/25 people working in each of the subsidiaries in France, UK and Germany plus some more in Belgium and in Netherlands. Furthermore, the adserving system was fully operated and owned by the company.

This incurred high fixed costs. And, given that this was still a company operating in a new market where the value of online ads remained to be proven, there was little revenue to balance out existing fixed costs. Again, this led to the eventual failure of the company.

And those that prevailed on the online advertisement market such as Google and Facebook, came in much later and proceeded differently. They first tried to bring value to the user whether it was through providing Internet search capabilities in the case of Google or whether it was by creating an online network of friends in the case of Facebook, and it was based on the increasing audience, mainly due to the development of the technology, that their advertisement capabilities were developed..

Now, given this experience in repeated innovation failures, how should companies go about innovating without risking significant losses? This is the topic we covered in our next conversation.

Further readings:

• For another discussion on how the Internet has changed and disrupted other businesses including the press, please refer to this blog article
• For a discussion on the reasons why innovations may fail please refer to this article
• For a discussion on the merger between Publicis and Omnicom, please refer to Alain’s blog, here
• For a presentation of the British subsidiary of Ad2One, please refer here