Why do some products and technologies take off while others don’t? Why did iPhones become such a rage overnight, while some much hyped (and technologically sound) releases, such as Sony’s Blu-Ray discs, bombed in the market? The diffusion of innovation, or the likelihood and speed at which innovations and technologies spread, is a tricky science. There are many factors that determine innovation adoption, and the consequent success and failure of a product or technology.
Eitan Muller, Professor of Marketing at the New York University Stern School of Business and Chaired Professor of Hi-Tech Marketing at the Tel Aviv University Recanati School of Business, has been studying innovation diffusion for more than three decades now. During a recent visit to Beijing, Muller sat down with CKGSB Knowledge and talked about what it takes for an innovation to spread, the role of consumers, and the lifecycle of innovation.
Q. The early theories on diffusion of innovation focused primarily on the role of communication in new product adoption. In what ways are your ideas of innovation diffusion different?
A. They are similar in ways. One of them is the importance of social networks. If you look at the innovation diffusion literature since 1970s, the emphasis has been on word of mouth, communication, imitation, and what we call the “contagion effect”. People infect other people with new ideas or firms infect other firms with new ideas and innovations. That is the major driver of new product growth, of new innovation growth.
One of the things that we have managed to find out is the fact that innovation growth is slow. When somebody comes to you with a new product or a new innovation and that entrepreneur says it will capture 50% of the market in two years, that never happens. Usually when you think about very important innovations, say, CD players, MP3 players, if you think about the first market or one of the trials, either in North America, Europe or Southeast Asia, it takes [something] like 10 years to take 50% of the market.
It is slow because it’s been driven by word of mouth, or imitation we generally call “social influence”. It takes time if you think about the movement of the idea or the word of mouth between those who have the innovation and those who don’t.
That’s what we’ve been doing in the last 20 years. We were trying to figure out two things. One, how fast the process is and what determines the rate of growth. The newer work is on social networks. In the previous literature, we haven’t made an assumption on the way the market is determined. You don’t know what the network structure is. Now we have some inferences or proxies as to what the social network is. If you think about social networks, there is really only a proxy of the real network that lies beneath that. There are some ways to find out what the real network is and you can think about your acquaintances on Facebook or RenRen or you can think about your telephone contacts in all sorts of social context. That has a lot of effect on the growth of new products. So that’s one of the new studies on the rate of growth, and how the social network determines the way of growth and innovations.
Q. You say it takes 10 years for innovation to spread. It seems a little hard to believe that because we are living in a more globalized world. Information flows more freely than before. Social media allows a lot of diffusion of ideas. So why does it take so long?
A. Partly because adopting innovation is too risky. You don’t know whether the innovation will catch on. If you think about compact CDs, not the regular CDs but the small ones by Sony, they never got off the ground. And you don’t know that ahead of time. Now in retrospect we know it failed because there was a new kid on the block called the MP3 player and it killed all the old technology. There’s always a risk inherent in the technology. It’s not the brand itself.
When you buy one laptop now, there is really no risk to speak of. You buy one of the major brands and you know it’s going to work.. There is no risk involved in the brand, unless you buy a no-brand or a brand you’ve never heard of. The risk is not there because the technology is mature.
But if you buy a new technology, you don’t know whether it is going to succeed, for example the Blu Ray. You didn’t know at that time which technology is going to dominate, which is going to be the industry standard, so people waited. You wait, and therefore it takes time for the product to succeed.
Again, I’m talking on the industry level. Within the industry, some brands will grow faster than others. That’s fine, and then they might take a few years, less than 10 years to reach dominance in the market. But that’s not what we are talking about. It’s not about the brand’s market share. It’s out of the total market potential, how fast are you going to reach 50%? It’s not the market share of a specific brand, but the rate of growth of the market.
Q. Traditionally innovation theorists have distinguished between the different kinds of people who will adopt an innovation and those who won’t. There are categories like ’innovators’, ‘early adopters’, ‘early majority’, etc. Is there a need to rethink these categories now?
If you think about it, it’s really basic marketing. Good marketing in the sense of finding what people want and designing the product for them. It takes guts for the early adopters to adopt that. They don’t know what an iPhone is. You’ve seen it. It looks odd, with a large screen, no buttons and no keys. What do you do with it? So it appears to the early market and then very quickly to the main market. That’s one product that took off very quickly but still we are not at 50% of market penetration. If you think about the potential, it’s much less than 50%. Most of the world is still using old dumb phones because they are cheap and do the work. You can talk, you can send an SMS. One of the misleading things is that when we look around us, we see a lot of people using smartphones. That’s not the world. That’s the world that we know.
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]
Excellent. Dr.A.Jagadeesh Nellore(AP),India
on Sep 16, 2014