Value Propositions And Business Models Matter More Than Technology
In November 2015, Sony finally announced that it would stop selling Betamax video cassettes. By this time, its battle for dominance with the rival VHS format from rival JVC was already lost. The story of the rivalry between Betamax and JVC, and how JVC eventually won, is an example of how it takes more than having the best technology to win in the market.
When people think about innovation, there is a tendency to look for technological breakthroughs. While the fascination with technology is understandable, this also obscures what it really takes to be successful with innovation.
Developing breakthrough technologies is not the same thing as innovation. This is because having a great technology is not the same thing as having a great value proposition. Furthermore, having a great value proposition is not the same thing as having a great business model.
To succeed with innovation, you need to figure out all three things:
- A cool breakthrough technology, product or service
- A value proposition that resonates with customers
- A business model that is profitable and scalable
Betamax Versus VHS
In the battle between Betamax and VHS, Sony had the better quality video player. For example, the original Sony Betamax player’s eject mechanism was far smoother than that of JVC’s original VHS player. Betamax also had better video quality compared to the VHS.
However, having the better manufactured player with the better picture quality were not the value propositions that resonated with customers. In fact, the quality of the Betamax video player made it heavier and more expensive than its JVC rival.
Furthermore, even though VHS had poorer picture quality, their early cassette tapes played for two hours, compared to one hour for the Betamax. This meant that with a single VHS cassette you could record and play a whole movie. Later, VHS made it possible to record for 4–6 hours. This length of recording and play time turned out to be the value proposition that resonated the most with customers.
When it came to their business models, Sony decided to focus its sales pitch to time shifting peoples viewing. It marketed Betamax by emphasizing that people could watch what they wanted whenever they wanted. In contrast, JVC figured out that if people were recording movies, they may want to rent them too. So it focused its attention on working with the nascent video rental market.
Given that its cassette tapes already had the right length of playing time, VHS soon became the default format for movie rentals. When Sony finally caught up with VHS in terms of length, it was too late. VHS had become the default. This was a position that VHS held until the arrival of the DVD movie format in 1997.
Value Propositions And Business Models
This story of VHS versus Betamax dispels the notion that technical excellence is the most important variable for innovation success. Indeed, Sony was even first to market with Betamax. However, it lost out in the video format wars to the VHS, which came later with a poorer picture quality and a cheaper player. In the end, what won it for VHS was the value proposition of a longer play time and the business model move of entering the video rental market.
To succeed with innovation we have to think beyond technology and consider two other key things. A value proposition that resonates with customers and a business model that is profitable and scalable.
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This article was first published on Forbes where Tendayi Viki is a regular contributor. Learn more at www.tendayiviki.com.
