Innovation & Predictive Analytics
By: Ted Gross
Tags: Innovation, Disruption, Data Analysis, Apple, Predictive Analytics

The Sony Walkman and Apple iPod

Answers to the above questions make up a considerable part of research and literature about innovative companies. While many theories seem valid under a specific context, at the heart of any attempt to use analytics for innovation, there are also basic formulations gleaned from sound theory. Dealing with innovation, predominantly disruptive and radical innovation, demands a new model of analytics. It is not merely a matter of extrapolating data and viewing the charts on sales, as this only comes after the innovation has penetrated the market.

Even applying predictive analytics can be drastically wrong, as Sony learned the hard way:

‘Sony’s breakthrough Walkman cassette player was temporarily put on hold when market research indicated that consumers would never buy a tape player that didn’t have the capacity to record and that customers would be irritated by the use of earphones. But Morita ignored his marketing department’s warning, trusting his own gut instead. The Walkman went on to sell over 330 million units and created a worldwide culture of personal music devices.’¹

Sony’s market data pointed to the Walkman’s complete failure — the precursor to Apple’s iPod. In reality, a disruptive innovation led to another disruptive innovation, and both succeeded against all current market data and analytics. Both Sony and Apple were guided by people who relied on gut instinct, intuition, and a deep understanding of the consumer. They did not allow market research or predictive analytics to be the beginning and end of all decisions. Perhaps, especially with Steve Jobs, this was caused by a disdain of marketers who relied solely on predictive data to determine their point of view.

Data, even predictive data, can be deceptive when dealing with innovation. Christensen’s fundamental question, something he struggled with for over 25 years, comes back to haunt us: ‘What causes a customer to purchase and use a particular product or service?’²

The Sony Walkman and Apple iPod are excellent examples of how to answer such a question. The Walkman was released in 1977 (ceasing production in 2010) and the iPod on 23rd October 2001 — a 24-year gap. On the face of it, there might seem little connecting these two disruptive innovations. The Walkman, after all, was simply a cassette-based music player with earphones. However, more than this, the Walkman brought a new method of listening to music to the market, creating a more ‘private’ experience.

Too few researchers follow the trail leading from the Walkman to the iPod, a colossal mistake when trying to understand and assess innovation. As a machine, the Walkman was arguably the more disruptive innovation of the two. The Walkman represented a new process, geared initially to a particular crowd of traveling journalists and businesspeople. However, the iPod disrupted the same market using different technology and a completely different method for delivering music to the consumer.

The Walkman tapped into a previously unrecognized and uncategorized consumer desire. As discussed, the predictive data on the Walkman was categorically flawed. Assumptions made by Sony’s leadership were mostly at odds, causing a delay in the release. Logical extrapolation by market analysts failed to identify any demand for the device because were no precedents to guide the analysts. There was a complete absence of data to extrapolate a logical and precise analysis within the current market. The Walkman represented a massive gamble on instinct and intuition.

‘Disruption, a theory of competitive response to an innovation, provides valuable insights to managers seeking to navigate threats and opportunities. But it leaves unanswered the critical question of how a company should innovate to consistently grow. It does not provide guidance on specifically where to look for new opportunities, or specifically what products and services you should create that customers will want to buy’.³

While the conventional wisdom holds that Apple’s iPod was disruptive because it tapped into a whole new, previously unknown, and undetected market, nothing could be further from the truth. Steve Jobs was not only himself a music freak but knew of the Walkman and its success. Providing music to the masses was not the disruption here. What Jobs disrupted was based upon his ability to focus on what the consumer desired. As Christensen et al. comment, ‘To elevate innovation from hit-or-miss to predictable, you have to understand the underlying causal mechanism — the progress a consumer is trying to make in particular circumstances.’⁴

To have the iPod succeed, Apple applied its innovation skills in a variety of areas:

Apple first revamped the architecture by:

Filing patents for the screen and other technologies used in the iPod; and

Acquiring the rights to an innovative small hard disk developed by Toshiba, which could hold 1,000 songs.

It applied its famed capabilities in user interfaces and user experience to make it easy for the user to move from song to song.

Most importantly, Apple drew on its company philosophy of owning the end-to-end chain from hardware to software and released the iTunes Store nine months before launching the iPod. In other words, the iTunes Store was released initially for the Mac and not the iPod. Apple disrupted the original disruptor.

Sony had made the classic mistake of thinking the Walkman owned the market and did not see the new technology coming. Jobs took advantage of this with his creative spark of genius and intuitive understanding that the consumer always wants more, better, smaller and more reliable, proving that ‘the mark of an innovative company is not only that it comes up with new ideas first, but also that it knows how to leapfrog when it finds itself behind.’⁵

Neither Apple nor Jobs were the true innovators when empowering the consumer to carry their music in their pocket. However, what they did do was:

Recognize the enormous market potential based merely upon the popularity of the Walkman;

Understand that innovation along the whole chain was a dominant factor to success;

Understand the need for technology to evolve past the cassette tape;

Own the entire process from the sale of songs to the iPod itself, both hardware and software, to keep customers within the Apple universe; and

Give consumers a better experience.

Just as Nokia and BlackBerry ignored the smartphone and Blockbuster ignored Netflix, Sony never saw it coming. The disruption did occur in technology, but it succeeded because it did not stop with a pure technological invention. Apple combined market, creativity, instinct, intuition, and market data to disrupt a market that had been born out of disruption.

‘For an idea to truly have an impact, it needs to become widely adopted, which means that it needs to replace an existing model already in use if it is to transform an entire industry or field. And that process of transformation is every bit as challenging and important as the discovery and innovation that precede it’.⁶

The iPod’s story and its release are often glamorized to the point where facts can no longer be distinguished from fiction. Apple created a new product, but this product’s market was already known thanks to the Walkman. Apple increased the quantity of music an individual could carry with them and the method of accessing that music and made sure it ‘owned’ the entire consumer value chain of that music. It also created a beautiful device. In short, Apple centered itself upon this innovation’s causal mechanism and presented a new method of dealing with the desired outcome.