Diffusion of innovations

Two of the biggest myths relate to the notion that change is fast and that the rules of business have changed because of the Internet (Has YouTube made any money yet as a stand-alone business?). Granted, things may change faster than before, but there's a big difference between faster and fast. If you want proof of just how slow things can be, just try the following experiment: try introducing a radically new product to a market with itchy bosses and investors breathing down your neck. You'll want to throttle that person who says, "Change is fast." It could even be argued that the increased interconnectedness in today's world actually has the potential to slow things down.

There are many factors that influence how quickly new product offerings get tried, used, paid for and, importantly, used again in markets. Culture (surprise! surprise!) plays an important role here and different cultures absorb different products at different rates. Here in Taiwan, Skype, an Internet-based telephone system, became very popular in a very short time. What contributed to Skype's rapid absorption into the Taiwan market? There are many factors, of course: relatively expensive international telephone rates; a nation of tech-savvy individuals who are comfortable with the Internet; a nation with many family members/business partners in foreign countries (the Taiwan diaspora); fast Internet connections for rapid downloads and installation.

Compare this rapid penetration of Skype in Taiwan with Skype’s slow penetration into the U.K. market. People in the U.K. are often suspicious of products that are perceived as too cheap or free. Sounds nuts, but it’s true. Us poor Brits have been so used to paying over the odds for just about everything that we will actually resist many newer, cheaper innovations. Can you imagine a conversation about Skype? (this one is based on an actual one I had with my sister):

Sister: “What’s Skype all about then? Is it safe?”
Me: “It allows you to make free calls over the Internet. Of course it’s safe: I’ve been using it a lot. It’s really popular here in Taiwan .”
Sister: “Yeah, but the quality’s not good, is it?”
Me: “Sometimes it isn’t that great. But it’s free for goodness sake. What do you expect?”

And the conversation fizzles out with my sister continuing to use British Telecom, despite the fact that she could save herself significant amounts of money by using Skype. The same is true with mortgages with cheap rates and fees. People often ask: “Is it safe?” How daft is that? They are giving you the money, so grab it while you can!

For firms, it may be “cool” to be first with a very new (radical) product offering, but you have to be prepared to overcome the initial wall of resistance from the market (my sister). This can be costly, and if the funds/resources are pulled too early, the new product offering will fail. Too early is not much better than too late, in other words. Check out this great article from the MIT's Sloan Management Review (not free). The authors discuss the diffusion of microwave ovens, dishwashers and screwcap wine closers in three country-markets. They also identify another type of innovation: a Resistant Innovation, an innovation that requires users to alter established habits.