Monetizing Innovation – Madhavan Ramanujam

Monetizing Innovation – Madhavan Ramanujam and Georg Tacke
Date read: 8/26/21. Recommendation: 7/10.

Reads like a series of case studies on the importance of monetization when you’re launching a new product or startup. However, it lacks some of the punch and the frameworks that a course like Reforge leverages to really drive its concepts home. To be fair, this is still a solid resource. Monetization strategy as it relates to building products is a subject that deserves more focus (and more books). The general principles of the book can be summed up as: assess willingness to pay early, segment customers based on willingness to pay, use that information to inform product configuration and bundling, and choose a pricing model that fits your business.

See my notes below or Amazon for details and reviews.

My Notes:

Willingness to pay:
“New products fail for many reasons. But the root of all innovation evil is the failure to put the customer’s willingness to pay for a new product at the very core of product design.” MR

The willingness to pay talk is critical to have early and will immediately tell you whether you have an opportunity to monetize your product and if it will help you prioritize features and design the product with the right set of features.

Asking about the value of your product:

• What do you think could be an acceptable price? Why?

• What do you think would be an expensive price? Why?

• What do you think would be a prohibitively expensive price? Why?

• Would you buy this product at $X? Why?

Other mechanisms for assessing value:

• Purchase probability questions (Scale of 1-5 how likely would you be to buy this product, how would you rate this product, etc.)

• Most-least questions (List six features and rank from most valuable to least valuable then run a MaxDiff).

Feature shocks:
When the product has too many “nice to haves” and too few “gotta haves.”

Rules for innovation + monetization success:

1. Have the willingness to pay talk with customers early

2. Build customer segments based on differences in their willingness to pay

3. Pay close attention to product configuration and bundling

4. Choose the right pricing and revenue models, how and how much is a critical decision that must match your product.

Segmentation:
Examples could be, 1) want price only (low cost), 2) want it now (fast delivery), 3) want product only (performance above other factors like service, shipping, price), 4) want the best (least price sensitive)

Monetization models:
Subscription (Netflix), dynamic pricing (airlines, Uber), market-based pricing (AdWords), pay as you go (CAT scan or jet engine).

How Innovation Works – Matt Ridley

How Innovation Works – by Matt Ridley
Recommendation: 8/10. Date read: 9/17/20.

Examines the role of innovation—an often misunderstood concept—in the modern age. He discusses the environmental conditions that promote innovation, how it differs from “invention,” and how our idea of a single moment of brilliance as the key to technological advances is flat out wrong. For those in technology who are on the ground floor doing the work, the message will be refreshing. Ridley emphasizes how iteration is the key to innovation—you have to get as many reps in as possible to turn an invention into something that’s both practical and affordable for widespread use. The story of innovation is one of incremental improvements and the freedom to exchange, experiment, imagine, invest, and fail.

See my notes below or Amazon for details and reviews.

My Notes:

Simultaneous Invention:
“Again and again, simultaneous invention marks the progress of technology as if there is something ripe about the moment. It does not necessarily imply plagiarism. In this case, the combination of better metalworking, more interest in mining and a scientific fascination with vacuums had come together in north-western Europe to make a rudimentary steam engine almost inevitable.”

“It was impossible for search engines not to be invented in the 1990s, and impossible for light bulbs not to be invented in the 1870s. They were inevitable. The state of the underlying technologies had reached the point where they would be bound to appear, no matter who was around.”

Brilliance vs. Hard Work:
“Vanity: people prefer to be thought brilliant rather than mere hard-working.”

Ingredients of Innovation:
Tolerance of error is critical: “Innovation is itself a product, the manufacturing of which is a team effort requiring trial and error.”

“The main ingredient in the secret sauce that leads to innovation is freedom. Freedom to exchange, experiment, imagine, invest and fail; freedom from the expropriation or restriction by chiefs, priests and thieves.” 

Revolution vs. Evolution:
Gradual improvements = key to iteration. “The history of turbines and electricity is profoundly gradual not marked by any sudden step changes…It was an evolution, not a series of revolutions. The key inventions along the way each built upon the previous one and made the next one possible.”

Innovation is the “product of incremental tinkering and trial and error by several people, not of brilliant leaps if imagination by a genius.” 

“Innovation is not an individual phenomenon, but a collective, incremental and messy network phenomenon.”

“The idea of a single moment of inspiration, of the apple landing on young Isaac Newton’s head, stirs the soul, even if it turns out to be apocryphal. In contrast, the idea that innovation occurs in fits and starts, with one person adapting a concept already in use and another figuring out how to make a profit from it, has little appeal.” Marc Levinson

“There is no day when you can say: computers did not exist the day before and did the day after, any more than you could say that one ape-person was an ape and her daughter was a person.”

The Arch of Innovation:
“The story of the internal-combustion engine displays the usual feature of an innovation: a long and deep prehistory characterized by failure; a shorter period marked by an improvement in affordability characterized by simultaneous patenting and rivalries; and a subsequent story of evolutionary improvement by trial and error.” 

“The simplest ingredients—which had always been there—can produce the most improbable outcome if combined in ingenious ways…just through the rearrangement of molecules and atoms in patterns far from thermodynamic equilibrium.” 

Opposition to Innovation:
“Big companies are bad at innovating, because they are too bureaucratic, have too big a vested interest in the status quo and stop paying attention to the interests, actual and potential, of their customers. Thus for innovation to flourish it is vital to have an economy that encourages or at least allows outsiders, challengers and disruptors to get a foothold. This means openness to competition, which historically is a surprisingly rare feature of most societies.”

Other characteristics that are in opposition to innovation: an appeal to safety, a degree of self-interest among vested interests, paranoia among the powerful.