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 announcement of its poor results was very badly received by the stock market. The company lost 25% of its value in one day. The weakness of Facebook and the doubts about the relevance of the colossal investment made in the metaverse, a system creating a virtual world, question the strategy of the company. The weakness of the legacy activity, and the difficulty to launch a new activity, the situation of Meta is not unlike that of Kodak twenty years ago. A look at the history of the major bets made by companies to launch or renew themselves is useful to better understand the issues facing Meta and avoid hasty judgments.

For years, when I mentioned Tesla in my innovation seminars, I was met with skepticism, even hostility. I still remember the plant manager of a major car manufacturer being furious that I had dared to talk about it. This was in 2015. “Obviously you know nothing about our industry,” he began, which was correct. “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 vehicles.” Yet today, Tesla produces more than one million vehicles a year. And so, for years, experts dismissed Musk, an amateur with a crazy idea of making electric cars. Today, the same experts complain about the power he represents in the transformed industry.

So it is with the big bets launched by entrepreneurs. They surprise us; they shock us; we find them ridiculous and then, if they succeed, they become obvious and determine the new mental models of the industry, even of society. The metaverse is one of those big bets. Analysts are skeptical. The project looks an awful lot like one of those cool technologies that are looking for a problem to solve. The ads for it are silly. After huge sums of money invested, there’s not much to show for it. So the situation is the subject of furious discussion among experts. Is there any point to the metaverse? Yes, probably, if only because there are already several of them. Will Meta’s big bet succeed? 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, for 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 is very long of star products born from a big bet. 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 launched 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 succeed. 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 succeed. That is the nature of a bet. For a few very large, highly visible successes, there are multiple failures. Most of them are invisible, but not all of them: one thinks of Iridium, a network of communication satellites launched by Motorola and a consortium of the biggest tech companies in the 90s. The project went bankrupt in only a few years, having lost 5 billion dollars. Big companies can succeed in some 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).
Your innovation strategy (Source: Wikipedia)
  1. 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. There will therefore be a conflict in the allocation of resources. Where to put the budgets? How will the time and attention of top management be allocated? In some cases, the CEO is marked 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 will neglect the historical activity. This is what happened to Intel, which ventured into video telephony in the late 1990s and neglected its processor business. It came close to losing its leadership in the latter before recovering. It is also the case of Apple in the 90’s where the CEO of the time was passionate about the “personal communicator”, the ancestor of our smartphones. The Newton project proved a costly distraction until it was canceled by Steve Jobs.
  2. Big bets often do not respond to an 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 indicated that there was no demand for it either. Big bets create needs, and therefore demand. As economist and innovation specialist Joseph Schumpeter said, “it’s not enough to invent soap, you have to convince people to wash their hands.” Demand creation, i.e. 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.
  3. 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, in which no one at IBM believed except the founder’s son and a few crackpots. A real revolution that was delivered with great pain. And the list can go on. If the bet succeeds, the innovator is a hero who persisted in the face of adversity. If it fails, or as long as it does not succeed, the innovator is a dangerous madman who must be quickly brought to heel. It is difficult to distinguish between “it doesn’t work yet, but we must persist” and “it will never work”. Except after the fact, of course.

The big bet is not the only way to save the company. Kodak made a big bet on digital, spending a fortune to move 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.” Rather than a big bet, Fuji redeployed 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 the renewal of this business, if the company considers that it still has a future, or in the launch of a lifeboat, a brand new business, if it does not. For Kodak, there was no doubt that its argentic film activity 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. There is no direct threat to Facebook. It is rather a matter of its own slowing dynamics. The launch of the metaverse project corresponds to a belief by Mark Zuckerberg, founder and CEO, that there is a great opportunity in this field. Opinions differ on this, but this belief is defensible. The fact remains that the company is facing a dilemma: busy with his metaverse, Zuckerberg neglects Facebook, and risks losing both.

A big bet, yes, but how?

Even if a big bet is deemed necessary, it can be done differently. A mistake of big bets is often to devote a lot of resources at 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 according to which to succeed in a big bet, you need a big budget, and you have to go fast. Nothing is less certain. The entrepreneurial theory of effectuation has shown that in a situation of radical uncertainty, which is that of the metaverse, it is often more rational to progress in small steps, without the need for an initial grand and fixed vision. By progressing this way, it is easier to resolve difficulties, and one does not bet on 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 field, but by proceeding through a progressive construction of a patchwork with stakeholders.

The need for a strategic diagnostic

Hence, 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 suggests, 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, by making an in-depth diagnostic of the situation of the legacy activity, and of its potential for renewal. In this respect, and even if it was more discreet, Fuji is a better example to follow than Kodak.

[🇫🇷version en français]

➕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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