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Service innovations to watch 2005 14 March 2005
Last week’s update looked at product innovations to watch in 2005. This week’s focuses on two intriguing service innovations – Skype and YourEncore.
1. Skype – internet phone service
Vonage internet phone service was one of my 2004 innovations to watch. This year, it’s Skype’s turn. While Vonage performs like plain old telephone service, Skype transforms the telephone experience for the user.
Rather than using a telephone handset, Skype users plug a headset and microphone into their computer. Each user has a buddy list of other Skype subscribers, and they can see when one of their buddies is online. The service is free and offers unprecedented sound quality for anyone accustomed to plain old telephone service.
“Build a better mousetrap and the world will beat a path to your door” Ralph Waldo Emerson, 1803 – 1882
Skype’s service is undoubtedly a better mousetrap – much higher sound quality at no cost to subscribers is pretty hard to beat.
These days, however, a better mousetrap isn’t sufficient for success. For Skype to succeed as a mass market product, a very large number of people would have to develop new habits and attitudes around telephone usage.
It’s very hard to change habits and attitudes. Most people would prefer the service to adapt to them rather than the other way around.
While it may never be a mass-market service, Skype has already demonstrated its power in a variety of business applications. At any moment, there are roughly two million people who are using Skype’s network. Many of those people would pay for the Skype service. The business itself has very low operating costs, so can be very profitable even if it never becomes very popular.
2. YourEncore
People don’t retire anymore. They just go on to do other things.
YourEncore Website
YourEncore provides large companies with elderly consultants. These are mostly scientists and technical managers who have retired from the research labs of large corporations, often with years of technical experience. Member companies, like Lilly or Boeing or Procter & Gamble, can hire these consultants to supplement their existing workforce for particular projects.
YourEncore launched in late 2003. Sponsoring companies pay a $50,000 annual fee. This allows them to hire employees from the YourEncore workforce who are retired scientists and engineers. These retirees have been hired by YourEncore but work only when there’s a project available for them. When the YourEncore employee is no longer needed by the sponsor, she can move on to another job or take a few months off.
"After 31 years of orienting my life toward productivity and problem-solving, it was very difficult to walk away from that cold turkey. This is like Nicorette."
Tim Balm, a YourEncore employee, in The New York Times
The YourEncore service appeals to retired workers because it represents a bridge between work and complete leisure.
Many people would prefer to gradually phase out of the working life, rather than stopping completely. Yet current labor laws and pension plans generate stiff penalties for phased retirement plans. For example, the size of pension benefits are often determined by a worker’s final salary, so part-time workers end up receiving smaller pensions. At the same time as older workers are looking to continue working after they retire, companies are going to find themselves increasingly needing these older workers to maintain their operations – there just aren’t enough younger workers available to replace all who are retiring. “Companies are realizing that they have to change their entire mindset about retirement.'' Diane Piktialis, a senior product manager at Ceridian, in The New York Times For all this fuss, YourEncore’s achievements to date have been quite modest. Since its inception, the company has signed up four sponsors. The New York Times reported in late 2004 that the company had placed about 400 people from 150 companies.
One reason for this slow start: YourEncore appeals more to retirees than to hiring companies. Comparing four factor diagrams for retirees and member companies provides a context for the problem.
Ø For retirees: Compared to solo consulting, the company takes care of marketing and the legal and administrative issues around contracting.
Ø For sponsoring companies: While YourEncore reduces the transaction costs for hiring retirees, it also reduces the breadth of choice in hiring. And it raises upfront costs – it’s a leap of faith on the part of the sponsoring company that they will be able to recoup their initial $50,000 investment.
The current situation reflects an economy where supply is still greater than demand. A sponsoring company has little reason to pay a substantial annual fee to YourEncore when it can find equally qualified individuals on its own.
This situation of relative oversupply may not be the case for long, however. Demography is destiny. As the workforce ages, companies will need people to work beyond retirement. YourEncore is one of the first companies to develop a market-based approach to phased retirement.
More Information:
1. VOIP hardware is moving quickly. Here’s a link to a report from the CeBit technology fair in Hannover Germany: http://www.nytimes.com/reuters/technology/tech-tech-internet-phones.html 2. I did a longer piece on Skype and Vonage in a recent update: http://www.biz-architect.com/skype_and_vonage.htm 3. The New York Times article on YourEncore: http://www.nytimes.com/2004/12/08/national/08retire.html?oref=login 4. YourEncore website is here: www.yourencore.com 5. For more on Demography and Destiny, see David DeLong’s book, Lost Knowledge, or visit his website: http://www.lostknowledge.com/ |
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