Is Meta the new Kodak? Eight history lessons on the necessity and risks of big innovation bets

Meta, the parent company of Facebook, is doing badly. The weakness of Facebook, its legacy business, and doubts about the relevance of the colossal investment made in the metaverse, a system for creating a virtual world, call into question the company’s strategy. The combination of the weakness of the legacy business and the difficulty of launching a new business is not unlike that of Kodak twenty years ago. A look at the history of major bets made by companies to launch or renew themselves is useful to better understand the issues facing meta and to avoid rash judgments.

For years, when I mentioned Tesla in my innovation seminars, I was met with skepticism, even hostility. I remember the plant manager of a major automaker being furious that I had dared to talk about it. This was in 2015. “Obviously you don’t know anything about our industry,” he began, which was true. “Tesla is a newcomer. It took us a century to optimize our manufacturing. Tesla will never be able to make more than a few thousand cars.” Yet today Tesla produces more than a million cars a year. And so, for years, experts dismissed Musk, an amateur with a crazy idea about making electric cars. Today, those same pundits complain about the power he represents in the transformed industry.

So it is with the big bets that entrepreneurs make. They surprise us; they shock us; we find them ridiculous, and then, if they succeed, they become obvious and define the new mental models of industry, even of society. The metaverse is one of these big bets. Analysts are skeptical. The project looks a lot like one of those cool technologies looking for a problem to solve. The hype is silly. After a lot of money has been spent, there’s not much to show for it. So the situation is the subject of heated discussion among experts. Does the metaverse make sense? Yes, probably, if only because there are already several of them. Will Meta’s big bet pay off? No one knows, of course, but there are at least eight lessons from the history of innovation that can be drawn for reflection and, above all, nuance.

Eight history lessons from great innovation bets

1. Innovation bets are nothing new. History is full of them. The Gillette razor, Procter & Gamble’s disposable diapers, the IBM 360, the Bic pen, the Boeing 707, the IBM PC, Nespresso, the Dacia Logan, the iPhone,… the list of star products born from a big bet is very long. This even if not all star products are born from a big bet, far from it.

2. Big bets have always been met with skepticism. By definition, they do not fit the dominant mental models of the time, of investors, experts, and potential customers alike. When Ford introduced the Model T in 1908, the idea that every American could have a car seemed ridiculous.

3. Big bets often take a long time to pay off. It took Nestlé 21 years to succeed with Nespresso. For 21 years, the project was uncertain; technical and commercial problems multiplied, and the first two launches failed. For 21 years, the project was a big bet that seemed absurd to all observers, including internal ones. The third launch was the right one, and thirty years later it is still a considerable success.

4. Big bets don’t always pay off. That is the nature of a bet. For a few very large, highly visible successes, there are many failures. Most are invisible, but not all: consider Iridium, a network of communications satellites launched by Motorola and a consortium of major technology companies in the 1990s. The project went bankrupt in just a few years after losing $5 billion. Large companies can succeed in some areas and fail in others: Microsoft, to take just one example, has had its share of big bets: some failed (the Bing search engine, mobile telephony), while others succeeded (Azure, Office 365).

5. Big bets are threatened by the innovator’s dilemma. They are often launched to replace a declining legacy business or to respond to a new opportunity. In both cases, the company will find itself managing two very different activities: the legacy and the new. As a result, there will be a conflict in resource allocation. Where will budgets go? How will top management’s time and attention be allocated? In some cases, the CEO will be shaped by the historical activity and hostile to the breakthrough project; in other cases, it will be the opposite: he or she will be fascinated by the breakthrough and neglect the historical activity. This is what happened to Intel when it ventured into video telephony in the late 1990s and neglected its processor business. It almost lost its leadership in the latter before recovering. It is also the case of Apple in the 90s, where the then CEO was passionate about the “personal communicator”, the ancestor of our smartphones. The Newton project proved to be a costly distraction until it was cancelled by Steve Jobs.

6. Big bets often do not respond to existing demand. There was no demand for cell phones, no demand for the Internet, no demand for MP3s, no demand for social networking. The market research done for Nespresso showed that there was no demand for it either. Big bets create needs and therefore demand. As economist and innovation expert Joseph Schumpeter said, “It is not enough to invent soap, you have to convince people to wash their hands”. Demand creation, working on mental models, is an integral part of the work of disruptive innovators. The argument “The metaverse fails because there is no demand” is therefore invalid.

7. Big bets put companies at risk. The launch of the Boeing 707 brought Boeing to the brink of collapse. The same goes for the IBM 360, the father of all current computers, which nobody at IBM believed in except the founder’s son and a few crackpots. A true revolution that was delivered with great pain. And the list goes on. If the bet succeeds, the innovator is a hero who persevered in the face of adversity. If it fails, or as long as it fails, the innovator is a dangerous madman who must be brought to heel quickly. It’s hard to tell the difference between “it doesn’t work yet, but we must persist” and “it will never work”. Except in hindsight, of course.

8. The big bet is not the only way to save the company. Kodak made a big bet on digital, spending a fortune to transition from film to digital photography, without success. Faced with the same disruption, its direct competitor Fuji did something different. Fuji said, “We are chemists. Digital photography is not for us”. Instead of making a big bet, Fuji quietly refocused its activities to take advantage of its expertise in chemistry, with great success.

Meta = Kodak? Not really

Like Kodak, Meta finds itself in a situation where its legacy business, the Facebook social network, is in decline after considerable success. Innovation is needed. It could be in renewing that business if the company believes it still has a future, or in launching a lifeboat, an entirely new business, if it does not. For Kodak, there was no doubt that its argentic film business was doomed by digital. It was therefore a question of managing the decline of this activity, on the one hand, and launching an alternative activity, on the other. The case of Meta is different. It is not a direct threat to Facebook. Rather, it is a question of its own slowing dynamics. The launch of the Metaverse project corresponds to the conviction of Mark Zuckerberg, founder and CEO, that there is a great opportunity in this field. Opinions differ, but the belief is defensible. The fact remains that the company faces a dilemma: if Zuckerberg is busy with his Metaverse, he neglects Facebook, and risks losing both.

A big bet, yes, but how?

Even when a big bet is deemed necessary, it can be done differently. A common mistake with big bets is to invest a lot of resources in the beginning in the hope of being more successful; this is the so-called “big bang” or “moonshot” approach. This mistake is explained by a mental model that says to succeed in a big bet, you need a big budget and you need to move fast. Nothing is less certain. The entrepreneurial theory of effectuation has shown that in a situation of radical uncertainty, that of the metaverse, it is often more rational to proceed in small steps, without the need for an initial big and fixed vision. By progressing in this way, difficulties are more easily resolved, and one does not bet everything at once at the risk of paying dearly for one’s mistakes. In this approach, the big bet is a determined decision to move forward in a given area, but by proceeding through a progressive construction of a patchwork with stakeholders.

The need for a strategic diagnostic

Thus, a big bet can be attempted by controlling the risk taken through an effectual approach that escapes big-bang mental models. But as the history of innovation shows, there are many ways to give a company a new dynamic, and the big bet is only one of them. It is therefore necessary to act as a true strategist, making an in-depth diagnosis of the situation of the old activity and its potential for renewal. In this respect, and even if it was more discreet, Fuji is a better example to follow than Kodak.

📖More about disruptive innovation, see my book: A Manager’s Guide to Disruptive Innovation

➕More about these topics with my previous articles: ▶️Nespresso: when the simplicity of the product hides the complexity of the innovation process ▶️Why asking a innovation unit to be more disruptive is not a good idea ▶️Disruptive Innovation: What We Owe to Clayton Christensen.

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