Unleashing the Killer Apps: Digital Strategies for Market Dominance

By Larry Downes and Chunka Mui

PURPOSE OF THE BOOK

The authors, Larry Downes and Chunka Mui explain why businesses in today's society need to change their focus from the use of traditional strategies to digital strategies. Their analysis illustrates how companies can survive in the new digital age. Mui and Downes use recent examples to establish a system for businesses to utilize in cyberspace.

AUTHORITY

Larry Downes is an independent consultant, lawyer, and instructor. He teaches courses on law and technology at Northwestern University. Chunka Mui is the founder of the Diamond Exchange, a think tank that brings business executives together with experts in both technology and strategy. The book publisher is Harvard Business School Press, which is a well-respected publisher for scholarly texts.

SCOPE

Introduction

Downs and Mui define a killer app as "A new good or service that establishes an entirely new category and, by being first, dominates it, returning several hundred percent on the initial investment." The personal computer, electronic fund transfer, the first word processing program, and e-commerce are all examples of killer apps. Finally, the authors proposes "digital strategy" as an approach to developing and unleashing "Killer Apps."

The authors discuss three major concepts including Moore's Law, Metcalfe's Law, and Coase's Theory. Additionally, the author's Law of Disruption is proposed. The subjects covered in this book are divided into three major parts.

Part I: Digital Strategy

This section describes the process from which killer apps originate and why they continue to proliferate. In order to understand how killer apps are conceived and how they proliferate, one must understand three key underlying concepts.

MOORE'S LAW:

Moore's law was a prediction by Intel founder, Gordon Moore, that every eighteen months, for the foreseeable future, chip density (and hence computing power) would double while costs remain constant, creating ever more powerful computing devices without raising their price.

METCALFE'S LAW:

Metcalfe's Law was an observation made by Robert Metcalfe, founder of 3Com. According to his observation, networks dramatically increase in value with each additional node or user. Once a standard has achieved critical mass, its value to everyone is multiplied exponentially.

Metcalfe's law explains why so many Internet companies give away their software rather than charging for it. Giving away software helps achieve what is referred to as "critical mass". Critical mass is the point at which the value of the software increases exponentially. After critical mass, companies can charge new users for the software because it is now a valuable and desired service. America Online is a perfect example of Metcalfe's law.

COASE'S THEORY:

Ronald Coase, Nobel Prize winner in economics, explained that firms organize to reduce transaction costs of repeated and complicated activities involved in creating, selling, and distributing their goods and services. This theory has been turned "upside down" in the new age of advanced technological change. Information is now readily available and in most cases free. As the market becomes more efficient, the size and organizational complexity of the modern industrial firm becomes uneconomic. This is called the Law of Diminishing Firms.

LAW OF DISRUPTION:

A historian named Thomas Kuhn described killer apps as discoveries so fundamental that they knock out the basic pillars of universally held beliefs, requiring that brand new structures be built to explain them. In the case of digital technology, the new structure is called cyberspace.

THE MODERN MODEL:

This book builds on Porter's concept of competitive advantage: the five forces model. The authors feel it will become harder for companies to find competitive advantage because of three new forces at work in the marketplace.

Digitization- This force stems from Moore's Law, as prices come down companies are able to use more advanced technology that was previously not available.

Globalization- This force comes from improvements in communications and transportation. It is now much easier for competitors to become globalized. This makes it more difficult to gain a competitive advantage.

Deregulation- This force is derived from the concept that the free market is the best regulator. Certain industries were once thought to be better regulated by the government giving them an easy competitive advantage. As deregulation occurs, natural competition is added to the equation.

CREATING KILLER APPS
DIGITAL STRATEGY:

Digital strategy is very different than traditional strategy. It involves the new models discussed above. Long-term planning will no longer consist of 3-5 years, but around eighteen months, which is part of Moore's Law. Digital strategy is also more creative. It consists of twelve design principles that guide the process for finding and shaping killer apps, and techniques that organizations of any size and any industry can use to achieve market dominance.

The authors believe that the digital strategy model, which is explained in great detail in the book, will allow companies to make the transition from fixed organizational structures to virtual organizations.

Part II: Designing the Killer App

The authors convey their twelve key design principles for developing, encouraging, or simply taming killer apps.

These twelve new rules are organized into three stages.

Reshaping the landscape:

1. Outsource to the customer.
Data collection and customer service functions can now be performed by customers. By giving customers the tools to build and customize an interface, this can result in customers adding their own value to the system.

2. Cannibalize your markets.
Companies must be willing to cannibalize their own markets before someone else does.

3. Treat each customer as a market segment of one.
Technology is allowing companies to serve markets of one. Each customer can now have his or her own customized service. Pointcast is "push" technology that allows its users to create a custom profile and receive news tailored to their preferences.

4. Create communities of value.
Communities will add their own value; a company just has to offer a free environment to allow communities to flourish.

Building new connections:

5. Replace rude interfaces with learning interfaces.
Provide customers with interactive interfaces that can create more value every time they are used.

6. Ensure continuity for the customer, not yourself.
Many companies refuse to admit that change is needed. They claim that their customers just aren't ready to move to cyberspace. The fact is that customers are on the move and companies need to keep up with the changes.

7. Give away as much information as you can.
This is arguably the hardest concept for companies to grasp. It requires a deeper understanding of the company and its true core competencies. Open systems are the only ones that last. The Internet has become so successful because of the fact that it is an open system.

8. Structure every transaction as a joint venture.
Companies must develop the ability to find useful partnerships. These partnerships will help the company take advantage of new technological opportunities while spreading the risk.

Redefining the interior:

9. Treat your assets as liabilities.
The need for a physical marketplace and lots of assets is disappearing very rapidly. Information is an asset; buildings and printing presses have become liabilities.

10. Destroy your value chain.
Companies must continuously find new, innovative, ways to re-invent themselves.

11. Manage innovation as a portfolio of options.
Companies must be open to many different opportunities. Firms invest in dozens of technologies and developments so that they can take advantage of a killer app as it emerges.

12. Hire the children.
Young people understand the new technological environment better than others. Hiring young minds is important to the development of your killer app.

Part III: Unleashing the Killer App

The final section describes how digital strategy is integrated with the new rules within an organization's processes. This concluding section focuses on learning, collaborating, prototyping and strategy design.

AUDIENCE

This book is mainly directed toward firm managers and executives. It is a tool to help managers turn their anxiety about technology into an advantage. It is meant as a guide for companies in today's society to utilize cyberspace as a resource. It could, however, be of use to entrepreneurs who seek to introduce their product using an organizational framework that will help rather than hamper their product's chances for success.

FORMAT

The authors present the material in a very concise, almost redundant, format. Terminology is explained and supported by numerous useful examples. Each chapter has a summary highlighting key points and concepts.

RECOMMENDATION

We would recommend this book for anyone interested in exploring new paradigms for conducting business in today's digital age.

OTHER REVIEWS

The New York Times:
"A practical and persuasive guide that focuses on how all businesses, even risk-averse old-line organizations, have an opportunity 'not just to survive but to exploit dramatic changes' wrought in their markets by technology.... Instead of shrinking from the hard problems facing existing corporations, Mr. Downes and Mr. Mui attack them head-on with 12 technology strategies to help build what the authors call 'killer apps.'"-- Denise Caruso.

Wired Magazine:
"Unleashing the Killer App is a best-of-breed primer for executives cramming for the new economy."

Business Week:
[T]he authors rise above all the chatter about increased productivity and sound a warning cry: Change your strategy now. With many businesses still lumbering along in the Industrial Age, it's a message well worth hearing.... For the tech-savvy, many of these allusions will be familiar, making Killer App a sure snoozer. But the corporate Everyman should make room on his shelf. Roger O. Crockett.