When innovation kills leading companies, a conversation with Alain Ferrandi (1/2)

Innovation is often considered to be an opportunity for incremental growth, which would add to the existing business base. However, a few days ago, I met with Alain and we talked about Vivendi, a leading French company. Alain said that the will to innovate whatever the cost quite killed Vivendi in the early 2000.

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 start up 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.

 

I/ The failure of Vivendi in 2002

As they invested massively in the net economy just before the.com bust, Vivendi lost most of its investment. Its stock share went from €120 in 2000 to €8 in 2002. This poor investment strategy led to high corporate debt.

In 2002, in order to avoid bankruptcy, the company sold the businesses that were actually doing well, such as Vivendi Environnement, currently known as Veolia, and Vivendi Publishing (former Havas).

These were the only businesses that people were willing to buy in the short delay given by the banks.

So I guess that this poses the following questions:

• How did Vivendi get into the situation?
• What was it about Vivendi’s practice of innovation that led to repeated failure rather than success?
• Is there anything we can learn about the company’s mistakes?

These are some of the questions that Alain and I brushed upon during our discussions.

II/ The world in the late 1990’s

Before we get into further details, let me provide some background information and describe what the world was like in the late 1990’s, when Vivendi made most of the investments that turned out to be failures.

At the time, the technological environment is very different from what it is today

• Facebook did not exist
• Smartphones did not exist
• There were no TV connected to the Internet
• Amazon was still in its beginning (pre-IPO)
• The speed of Internet connectivity was much lower than it is today both for desktop computers and mobile phones (even slower than the Edge speed available today)
• The internet was billed regarding the time of connection or the weight of the data used, there was not yet a fixed subscription price.
• Internet penetration in households was much lower than it was today

Alain believes that between 2000 and 2002 there were many good ideas that failed but that we see succeeding today.

So, what were the good ideas that failed between 2000 and 2002?

 

III/ The case of Vizzavi

This was a join-venture with Vodafone which proposed a website, much like Yahoo, that aggregated various kinds of information such as news, weather reports, music, videos and more.

• The website was accessible on a computer or on a mobile phone.
• The website was based on the premise that there would be a convergence between mobile use and desktop use together with content distribution, which is why it was primarily called a multi-access portal (the code name of the project was “MAP”).

But, unfortunately, Vizzavi turned out to be costly failure, for the following reasons:

• First of all, the mobile network wasn’t powerful enough. The mobile Internet was way too slow
• Plus, there were no Smartphones and no mobile terminals which could make the access to Vizzavi user-friendly

The result: more than €1 billion losses for no more than 4.2 millions users spread over 7 countries.

Today, we know that convergence between the distribution channels and the content providers was indeed a seminal insight. But those that made convergence between mobile Internet and landline Internet were not network companies but rather hardware companies such as Apple with its iPhone and iPad and Samsung with its Galaxy products and used the content to sell these products, such as the iPod has illustrated it at the very beginning.

 

IV/ When innovation kills leading companies

This shows that for innovation to be successful there is a need to:

• Understand and assess the technological maturity of the day. Although website-based technologies were available to make convergence happen, network technologies were not there yet. Also, there were no mobile devices that made browsing the Internet user-friendly and no user-friendly DRM tools.
• Assess consumer readiness. Consumers had too little experience with the Internet to pay for mobile Internet access (that was very costly).

In our next discussion, Alain shared more stories of failed innovations.

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 future disruptions in the telecom and IT industry, please refer to this article
• For a discussion on the reasons why innovations may fail please refer to this article