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Motorola and Wireless Pizza 3 Nov 03 It’s Friday evening, you’re in the car, and you want to order a pizza. What do you do?
You might open your cell phone and call Domino’s. If you can get through to your local parlor, you’ll talk to someone who will take down your pizza preferences and your address, and get a pizza delivered to you. If you can’t get through (Fridays are quite busy), you might try somewhere else.
It’s expensive for Domino’s when customers can’t get through. The chart below provides an example:
Domino’s has about 7000 locations worldwide, so a rough estimate of the lost takeout revenue is $300 million yearly.
In 2000, Motorola saw a way to capture those lost revenues. In their wireless future, you would open your Motorola cell phone, scroll down a list of Domino’s locations near you, and order a pizza wirelessly. In three clicks you could place an order for pizza and have it delivered to your home.
Domino’s gets to capture all the calls that they used to miss. They also automate part of their order entry process. They could even increase sales because new customers might be attracted by this new electronic channel.
The service providers can add this feature at very low cost, and could use the service as an advertising medium as well. Imagine an ad for Coke coming on your mobile phone screen as you choose to order the pizza.
This kind of innovation appears to provide benefits all around. Unfortunately, it has a very low chance of success. It faces two major classes of problems.
1. The architecture of adoption is too complex. The system requires three independent entities to adopt it in order to work:
a. Domino’s pizza has to subscribe; b. The wireless service companies have to support it; c. Customers have to use it.
2. The application itself is not a “must-have” purchase for any one of the groups that need to adopt. In the four factor model of innovation success I’ve discussed in earlier updates, total scores are low across all three groups. The inclination to adopt is highest for Domino’s, because there is measurable revenue gain from recovering lost revenues. Benefits are more speculative for service providers and customers.
Motorola hired Jay Mathur, CEO of valueideas (www.valueideas.com) to develop the offering. Jay describes it this way:
“Using an approach I call the ‘network value model,’ we at valueideas were able to build a model of each group’s economics to test the value of such a system.
“We made the model flexible enough so that it could serve as the basis for a conversation with each group. For the pizza people, we would ask questions about their call volume and see if they had any idea about the rate of blocked calls. The technology had advanced so quickly that even reducing the dropped calls by a small amount would generate substantial payback to such a system.
“As we worked each group through the model, they began to see how this service could benefit them. For the service providers, it generated additional revenue as a new service, and also had the potential to reduce churn. For the pizza company, it provided a way to capture lost calls as well as build a new order channel – the early adopters who want to order their pizza electronically. The value of the application was recognized and each of the players was very enthusiastic about it.”
In the end, however, Motorola was the weakest link in this innovation chain. Senior executives in the mobile telephony division decided that the company was not an applications provider – instead, it sold handsets. The application was sold to Food.com, a short-lived internet startup. The modeling work that Jay Mathur and valueideas did with Motorola in 2000 had its intended effect three years later, however. In February 2003, Domino’s signed up with Jacent Technologies, a new Silicon Valley software firm funded by Apple founder Steve Wozniak, to deliver a similar solution.
Jacent’s system has a simpler architecture than Motorola’s – it’s a voice response and storage system installed at a Domino’s parlor. There’s no need to convince a service provider to support a new application on its network. In addition, customer habits don’t have to change for the system to work. A customer calling in will get to choose the automated system if they wish, but the pizza ordering process is still the same for them. It’s just that they don’t get a busy signal when they call, and they interact with a computer rather than a person.
Successful innovations are frequently preceded by false starts. In this example, Jay’s pioneering work with Domino’s resulted in the company recognizing and addressing the opportunity. Motorola had the first system, and introduced it to Domino’s. But Jacent simplified the offer and made the sale.
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