Innovate or die

Innovation is an over-used word in the software industry (actually, its use should really be governed by some regulatory body that fines marketeers who deploy the term inappropriately) but as a part-time software industry anthropologist I’m always fascinated with how different goto-market strategies play out and how the various constituencies fare, not least the users.

At the end of last week Twitter surprised millions of users when it rolled out some huge changes to their web app on and completely redesigned their iPhone app. The response has been mixed. Personally speaking I think the new web client is OK and will probably just take some getting used to, but I’m really not digging the new iPhone app to the extent that I retrograded back to the previous version after only a day or so. Although I don’t pay for Twitter, it left me feeling put-out and short-changed as a frequent user of the iPhone app.

What I actually find more interesting than the subjective merits and demerits of software interface design is how unconventional Twitter’s behaviour is because its users don’t pay anything to use the service. For there’s not a single incumbent software vendor that charges users for the privilege of using its software who’d think of radically changing their application’s interface without warning or careful market testing.

However, Twitter is no ordinary incumbent software vendor and more to the point, its users aren’t really its customers – the businesses and brands who advertise on Twitter are the real customers. So, it’s likely that Twitter’s real paying customers (not to mention its investors) will probably be very happy with any changes and innovations Twitter introduces to build its effectiveness as an advertising platform.

This throws up a really interesting question. How do you monetize a service AND keep the innovations coming.

We regularly argue that the big incumbent competitors that we challenge don’t really innovate. This created a context for new challengers like Xero to build new businesses between the long-term cracks in incumbent innovation which, because of the modern distribution dynamics of  the web, can go on to scale up very quickly.

Of course, incumbents do innovate but because they’re forced to play more defensively, their innovation ‘budget’ tends to get spent on softer innovations around marketing (suspension of disbelief) or price innovation (either discounting or accentuating other complementary services to shore up the appeal of old products) but notably most often not what we’d think of as real, classic innovation, front and central inside apps with many thousands of paying customers.

So, it’s fair to say that innovation does need to exist to sustain or drive software monetization but as Twitter has just demonstrated – modern innovation comes in many different forms and it’s not always easy to spot which stakeholder constituency it’s actually serving.


Craig Hamnett
December 15, 2011 at 4:58 pm

Business class 101 – “If you aren’t paying for a product, you are the product being sold”.

Robin Jennings
December 18, 2011 at 4:18 pm

Nothing like a little upstart like Xero to fire up the accounting industry towards innovation.

Leave a Reply

Your email address will not be published. Required fields are marked *

The latest on Xero’s developer platform

If you’ve listened to Rod talk about Xero lately, you’ve probably heard him mention “the end of the beginning”. We’ve built beautiful accounting software and while that’s really cool, we’re only really getting started. That’s as true for Xero’s accounting software as it is for our Developer Platform. Having 500+ certified add-ons and thousands of ...

Trust is imperative when starting a digital business

The rules of trust are changing. Where customers used to trust large financial and commercial institutions without question, now that trust needs to be earned. This is benefiting start-ups and small businesses that offer accountability and a personal, authentic experience. Technology, whether in the form of social media or seamless programming, is greatly contributing to ...

  • Xero
  • by Sarah Allison