In 2008, Arun Ganesh, a Chennai-based information design student, was frustrated by the lack of accurate bus route maps or timetables and decided to take the matter into his own hands.1,2 Mapping Chennai's bus routes can be daunting. It is India's fourth largest city, spread over 426 square kilometres, and on average five million passengers use more than 800 different bus routes.3 Arun and his fellow students came up with a simple but innovative solution to solve the problem: they crowdsourced the data pertaining to bus routes from daily commuters. Less than a week after setting up the platform, they were able to map most of Chennai's bus network.4 The crowdsourced maps were not only more accurate, they also unearthed a host of information on the city's infrastructure that has proved of huge value to city planners.
Around the same time in Israel a small start-up called Waze began using crowdsourcing to collect and relay routing and traffic information in real time to daily commuters. The well-established start-up ecosystem in Israel allowed Waze to secure venture capital funding and rapidly expand globally. The live route updates proved to be an instant hit and Waze quickly amassed 50 million users. This attracted the attention of Google, who in 2013 acquired them for $1 billion.5
Ideas have always travelled rapidly and digitisation continues to make the world increasingly borderless, which means ideas now travel faster and further than ever before. In recent years, the pace of technological advancement has been unprecedented and its disruptive potential is further amplified by crowdsourcing emerging as a business model and an abundance of capital ready to fund innovative ideas. The confluence of these three factors is unleashing a wave of innovation across the globe. This means that the next billion dollar idea is as likely to come from a workshop in Tel Aviv or a bus stop in Chennai as it is a garage in Silicon Valley.
This gives entrepreneurs the opportunity to access capital and talent to realise their ideas on a global scale. It also gives the corporate sector an opportunity to pursue growth through innovation by developing new products and services that cut across traditional market boundaries. Equally, the pace of technological advancement means both entrepreneurs and corporates could get caught out by newer technologies that can make products and services rapidly redundant.
The aim of this report is to highlight the changing market dynamics fuelling this wave of innovation and also offer recommendations on how the corporate sector could harness external innovation to realise their growth ambitions. In subsequent reports we will address the challenges of integrating innovation into the complex environment of multinational companies.
Changing market dynamics
Technology advancement and adoption
The widespread adoption of technology has been possible because of the sustained drop in cost and increase in performance of key technologies such as computing power, data bandwidth and data storage. This has shifted the balance in favour of the innovator. The average cost to set-up a start-up company in the late 1990s was estimated at $5 million. However, with the breakthroughs in technology, platform-based delivery and collaborative ecosystems, the cost is now estimated at $65,000.6,7
The rise of the smartphone encapsulates the falling cost of technological advancements best. A Huffington Post columnist recently highlighted a 1991 advertisement for RadioShack that listed all the latest devices, ranging from a portable CD player to a VHS Camcorder. He estimated that back in 1991 it would have cost nearly $3,000 to buy all the devices that today are bundled in a smartphone which costs just $250 on average.8
Whereas it took the landline over 100 years to reach a billion users, it took the internet just 14 years. The smartphone has outpaced both taking just eight years to reach that milestone.
The pace of technology obsolescence and the decrease in cost is well documented, but it is the potent combination of increasing functionality and widespread adoption that makes the smartphone a powerful tool to deliver new innovative services. Companies as disparate as Nest Labs, in home automation, Uber, in travel services and Square, in payment transactions, all use smartphones as the medium to deliver their services.
This widespread adoption also allows developing market countries to 'leapfrog' generations of infrastructure investment. In India, an estimated 904 million people have mobile phones, which means more people have a mobile phone than access to clean water on a regular basis.9 An Indian social start-up called NextDrop is using the mobile network to connect people with clean water by creating a smart grid system that helps distribute water more efficiently.10
The crowd and impact of collaborative networks
The widespread adoption of the internet allows innovators to unlock the full potential of a connected world since they have access to scale, diversity and multiplicity of viewpoints. Crowdsourcing is one such innovative model that has emerged as a result. In theory it is feasible that every major service could have a crowdsourced alternative. Crowdsourcing is also driving new sets of behaviours where sharing and collaboration are fast becoming the norm. This in itself present opportunities to create new market offerings.
Crowdsourcing is broadly evolving into the following three business models:
Peers over corporates
In this model the peer group is both the supplier and consumer of services and products, bypassing the corporate sector as the traditional supplier. Most industries seem to have their own version of peer-to-peer service innovation. The most popular is Airbnb, founded in 2008. At its current rate of growth it is on course to be the world's largest hotelier by 2015.11
Peer-to-peer lending is a new dynamic that is disrupting the traditional banking sector. Companies like Lending Club, Funding Circle and Zopa are directly connecting lenders with borrowers. It is estimated that this peer-to-peer lending model will raise $8.8 billion by the end of 2014.12
Access over ownership
Access over ownership is a business model where people share products and services, instead of owning them outright. This uncouples the value of products or services from ownership. For instance, Lyft, a ridesharing company based in San Francisco, is revitalising the informal car-pooling arrangement by turning it into a mainstream transportation network.
Collaboration over competition
Since the early days of the internet, distributed computing projects such as SETI@ home have enabled volunteers to collaborate. Wikipedia is perhaps the most famous and successful collaboration project. Many of these projects are now offering credible alternatives to well established services. For instance, OpenStreetMap (OSM), a global collaborative project started in the UK in 2004, offers free editable maps of the world by crowdsourcing the data.13,14 OSM is harnessing the power of the collective to map places ranging from inaccessible regions to countries that have not given private companies permission to map their territory. OSM has grown to 1.5 million registered editors and is emerging as a credible alternative to other popular street maps, despite having an annual maintenance cost of just $100,000.15 Recently Telenav, a wireless location service company, made a significant investment in OSM and are planning to integrate the OSM maps into their mobile navigation system.16
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Footnotes
1 "Information is Beautiful hacks in India with David Cameron", The Guardian, July 30, 2010.
2 See http://wiki.openstreetmap.org/wiki/Chennai/Bus_Route_mapping_project
3 See http://www.freebase.com/m/0c8tk
4 See http://www.mtcbus.org
5 "Waze sale signals new growth for Israeli high tech", Yahoo News, June 12, 2013.
6 It's morning in VC, Upfront Ventures, June 29, 2014.
7 See http://smallbusiness.chron.com/costs-open-business-2456.html
8 See http://www.huffingtonpost.com/steve-cichon/radio-shack-ad_b_4612973.html
9 See http://www.trai.gov.in/WriteReadData/PressRealease/Document/Press%20Release-TSD-Mar,14.pdf
10 "How mobile phones help bring water to India's thirsty", The Guardian, August 2, 2013.
11 See http://www.businessinsider.com/airbnb-largest-hotelier-2013-11
12 See http://www.foundationcapital.com/downloads/FoundationCap_MarketplaceLendingWhitepaper.pdf
13 See http://peninsulapress.com/2014/04/21/operstreetmap-steve-coast-telenav/
14 See http://www.wired.com/2012/01/openstreetmap-google
15 See http://blog.emacsen.net/blog/2014/01/04/why-the-world-needs-openstreetmap/
16 See http://techcrunch.com/2014/05/19/telenav-takes-on-google-with-new-openstreetmap-based-offlinenavigation- sdk/
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