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I recently read an article in The Economist about the Asian video game industry’s unique business model. They basically give away the software as a free download and let users play for nothing. Revenue instead comes from small payments made by more avid players to buy extras. The article went on to say that this model is now being applied outside of Asia, particularly in the United States. Although the concept of giving away “the game” for free and charging avid players for “extras” may be somewhat new to the American video games industry, companies have been luring customers with “free” with years. The most current and prominent example, of course, is the online consumer services industry. Several websites charge nothing for their services and instead make money via advertising… but of course, it’s not that easy. For example, while in the past newspaper advertising supported the traditional subscription fee, the newer (braver) news websites rely solely on advertising and may face big problems when the economy gets hit hard and advertising is the first thing that gets cut. Plus figuring out how to get consumers to click on ads is still a mystery for the most part.

Big companies also take advantage of “free” in order to penetrate the market and squeeze out competitors. Just think about how IBM gave away the integrated development environment (IDE) for free; it more or less destroyed the Java software tools market and enabled IBM to then sell its other products easily. Eclipse and the surrounding set of tools for debugging, testing and profiling Java code are not the best, but they are good enough because they are free. Companies could no longer justify paying for products, and under the guise of “open source” IBM’s strategy worked beautifully.

The consequence of such “give aways” is that my generation (the Millenials as we are called) is growing up not only with an expectation of free, but also a sense of entitlement to free. We want free music, free books, free software, and free services- and free is making several people very nervous. The online consumer services industry is still young and I don’t know how the business models of online companies (such as Facebook and the millions of other “social” websites) will evolve, but as youngsters become totally reliant on free tools like Google’s search engine and Gmail, companies will have certainly have to be innovative in developing their revenue models as well.

I listen to the radio when I drive to the bus station in the mornings, and I recently heard the DJs discussing www.mygallons.com, a new website that has done for gas what the United States Post Office’s forever stamps did for postage. The company guarantees the price of gas by allowing consumers to lock in the average gas price in their area today, for any given number of gallons they’d like to prepay for. The company supposedly makes money by charging a fee for this service. You sign up for a MyGallons Card for an annual fee of either $29.95 or $39.95, pre-purchase gas on your MyGallons Card and lock in a price before going to the pump. Then you just use the card when you get your gas. To get the cheaper annual fee, though, you must agree to allow MyGallons to automatically replenish your account when you drop below 15 gallons.

There are many major filling stations around the country, including Chevron, 76, Shell, Texaco, Exxon, etc., and since their launch in January almost 2,000 people representing a cross-section of regions across United States have signed up with the service to help them “find ways to cope with the rapidly rising price of gasoline” says Steven Verona (founder and owner). The risk to the consumer arises if gas prices fall in the future, and this would probably signal the end of MyGallons business. However, right now that risk appears pretty minimal. The company also reminds consumers that overtime the price will increase even if there is no change in the supply/demand relationship simply because of inflation.

Unlike forever stamps, however, this business model inherently incorporates a much higher level of risk. If gas prices continue to increase the way they have been recently, or worse, take more drastic leaps, it would seem that the company would be in major trouble. Verona claims that they use a “sophisticated hedging strategy to protect and meet obligations to members” but so far I haven’t been able to find more details. The future of this market is so volatile that I can’t quite figure out if this is going to be a Company Zero or a Company Hero yet, but if prices do continue on their current trend this could lead to huge savings for the average consumer!

Beautiful Vending. The concept is pretty simply actually. The company basically installs ‘Straight Up’ Vending Machines (“revolutionary, coin-operated, hair straightener machines”) at trendy, popular pubs, clubs, gyms, and shopping centers in the UK. My first thought? This is a terrible idea. Who is going to go to a pub, or club, or gym, or mall, and think ‘hmm, I just left my house 15 minutes ago but I really need to re-straighten my hair to make sure it’s perfect’? And then I realized that, oh wait, there are so many women that would absolutely do that!

Beautiful Vending has created a completely new business model: providing women with the luxury of straightening their hair on-the-go or after they face the “inevitable frustration” of stepping out into the rain, wind, heat, humidity, or whatever else the ‘Weather Gods’ can throw at us. I admit, even I have had those moments where sudden downpour has completely negated all benefits of the precious 15 minutes I spent on my hair before I went out.

The company has been particularly clever in its marketing scheme, positioning the devices as a status symbol and an absolute necessity in any chic and fashionable public place. “In today’s world image is everything. We spend billions annually on looking good not to mention the endless hours that are invested in the strive for perfection…The saviour of bad hair days has arrived, the Beautiful Vending Styler machine is now available in clubs, bars, gyms and shopping centres; so for those occasions when sleek and sexy turns to shock and horror, we have the solution,” they say. They are aggressively trying to penetrate this new market- so much so, in fact, that they recently sued a company that was trying to sell a very similar product (www.straightngo.com), a “copy cat company” as they called it, and have replaced all of straightngo’s machines with their own.

The concept is a little off the wall (literally, see below)…

but it’s definitely serving a consumer need and it seems that women all over the UK are using these machines regularly. Besides the fact that they will have no hair left by the time they are 50 because of all the damage they are inflicting on it, it sounds like a win-win situation for the female consumers and the company. Before you know it there will be hair straightener vending machines next to the hair dryer in every trendy UK hotel. Bravo Beautiful Vending!

Check them out at www.beautifulvending.com (not to be confused with www.straightngo.com ). Ha.

The Ikan is a new countertop appliance whose mission is to eliminate trips to the grocery store. In essence it serves as a barcode scanner that offers a color screen, a laser scanner, and an interior Wi-Fi antenna that connects to your home’s wireless network. Basically every time you’re about to throw away an empty container you pass it under the scanner like you would at a price-check machine at Wal-Mart. The Ikan will beep, consult its online database of products, display the name and description of the item, and then add it to your shopping list saved somewhere in cyberspace. Every few days you can review the list online at Ikan.net and click to have your groceries delivered to your house at a time that you specify.

Reactions from users so far have been pretty varied. Some people can’t believe how much time it saves while others don’t think it takes much more effort to just maintain a handwritten list. With services like Stop n’ Shop’s Peapod grocery delivery service, the added benefit of delivery via the Ikan isn’t all that alluring. Yet others praise the “environmental benefit” the company claims to imbue.

This is where my head starts to explode.

Just because a green recycle logo appears on the screen when you scan a package that’s recyclable does not make Ikan a ‘green’ company. Plus, the gadget is always on. Even though it only uses a little bit of electricity, seeing the lit up screen night and day “will bug the environmentalist in you” says the New York Times. Oh, and when they deliver the items each comes in its own white plastic bag- every package of cheese, every tub of butter. That, my friends, is not ‘green’ by any means. I’m a huge proponent of ‘environmentally friendly’ but the millions of companies that gloat just because they hired a ‘green consultant’ (what does that even mean?) or because they recycle are not really ‘green’ at all.

Back to the Ikan though. So even if it’s not quite environmentally green there should be some other benefits right? Wrong. The Ikan encourages us to buy processed foods, be completely unimaginative and buy exactly what we’ve bought before, disregard seasonal, local, and fresh foods, and avoid an occasion to get out of the house and go to the grocery store (and even potentially bond with mom or dad or daughter or son).

We are already overly reliant on our smart phones to remind us about events, birthdays, important dates, etc. We really don’t need another $400 device to further weaken our memory, make us lazier, and reinforce bad eating habits.

Procter & Gamble is planning to give ConAgra (one of the US’s biggest food groups) access to its industry-leading packaging and design skills in one of the largest co-operation deals struck by the world’s biggest seller of consumer goods and personal products. ConAgra will be able to use everything ranging from P&G’s non-splatter valves on plastic bottles to their advanced wrapping techniques to improve the user-friendliness of its products. This is the first time that P&G has ever allowed another company to access its unique packaging technologies, and this could mean changes to hundreds of food lines across the country.

This has the potential to become of the largest deals to be developed under P&G’s “connect and develop” open-innovation strategy and could be the blueprint for further collaboration with other companies in areas such as manufacturing, research, and marketing.

I think the recent successes under the “connect and develop” strategy can be attributed to A.G Laftley, who became P&G’s CEO in 2000. Soon after becoming chief, he set a target of having half of P&G’s innovating coming from external partnerships. Unlike other companies and chiefs that are all talk when it comes to open innovation, though, A.G Laftley and P&G are actually forming these external partnerships and reaping great benefits. I was fortunate enough to hear Mr. Laftley speak this past February at the Undergraduate Business School Leadership Conference hosted by Emory’s Goizueta Business School. The theme of the conference was innovation so he spoke about a lot of the usual things… goals, strategy, core strengths, flexible culture, etc. but the thing I found most interesting was his enthusiasm in regards to partnerships. He was a huge proponent of collaboration between firms because he said that people don’t realize that there will always be more talent outside the firm than inside (just by nature of the size of the firm in comparison to all the innovators, engineers, etc. out there). The “not made here” stigma needs to go and corporations need to recognize the value in carefully executed collaboration.

A recent article in The Economist profiled the “free-market revolution” currently taking place in Sweden’s schools. Reforms from 1994 basically allow anyone that satisfies very basic standards to open a new school and accept students at the state’s expense. The local municipality must pay the school the equivalent of how much it would have spent educating the child itself (depending on child’s age and school’s location). There cannot be any religious requirements or entrance exams and the schooling must be absolutely free for the students. What has emerged is a series of chain schools that are sweeping the country in a wave of independent educational institutions, and the share of Swedish children educated privately has risen from less than 1% to more than 10% since the reform.

The biggest chain, called Kunskapsskolan (or “Knowledge Schools”) now has 30 schools, 700 employees, and 10,000 students around the country and an operating profit of nearly SKr 62 million a year. How are they making money if they can’t charge students you may ask? Well, like IKEA, the giant Swedish furniture-maker, the schools get its customers to do much of the work themselves. Most important is the Kunskapsporten which is basically a website containing the entire syllabus. Although students attend some classes and lectures, a lot of the studying and learning is done independently and the students can work at their own level. The school saves on facilities by renting fields and classrooms a few times a week when needed.

I think this sounds like home-schooling with a little bit of tutoring and outside help. I’ve never been a huge fan of home schooling because I think one of the most vital parts of grade school is interacting with peers, learning how to live by a schedule, discovering the importance (and challenges) of team work, and being exposed to everything the world has to offer. That’s not to say I don’t have home schooled friends that are socially adept, but even they often complain of being ill prepared for college and/or the work life. Moreover they often complain about having difficulties building relationships with colleagues as they get older.

What’s worse though is the school systems attitude towards education. While many schools would be appalled at being likened to IKEA, the company’s boss goes so far as to compare his schools to McDonald’s. “If we’re religious about anything, it’s standardization. We tell our teachers it is more important to do things the same way than to do them well,” he says. He then further likens his schools to hotels and airlines which he says only make money if they are popular enough to maintain high occupancy rates. This concept sounds outrageous! You certainly aren’t going to produce the kinds of leaders and innovators and free-thinkers the world’s future needs with this approach. When it comes to education, doing things well seems pretty darn important to me. And I’m not sure comparing yourself to the airline industry is such a good idea right now anyways. The fact that it is difficult for airlines to differentiate themselves is definitely part of their problem because the only component they can really compete on is price and these schools can’t even compete on that.

Kunskapsskolan’s DIY style of education may soon spread beyond Sweden’s borders to the UK, says the article, but I sure hope it never comes here.

Yesterday Honda Motors celebrated the start of production of its FCX Clarity, the world’s first hydrogen-powered-fuel-cell vehicle intended for mass production. That’s a mouthful, but the car represents a major breakthrough in alternative energy automobiles. Honda only plans to make 200 of the FCX Clarity’s in the next three years but plans to increase production volumes in the future. The first five customers include actress Jamie Lee Curtis and a film producer in LA. The Clarity can drive 280 miles on a tank (almost as far as a gasoline car) and gets higher fuel efficiency than a gasoline car or even a hybrid- around 74 miles per gallon according to Honda.

No doubt the Clarity, and hydrogen-powered-fuel-cell vehicles still face several hurdles. The cars cost several thousand dollars to produce, but Honda predicts this will drop to less than $100,000 in under a decade since it has found ways to mass produce the car and take advantage of economies of scale. For now the company is subsidizing its customers who can lease the car for only $600 a month, which is not much more than leasing one of Honda’s top line Acura line luxury cars. The other major problem is infrastructure: very few states have built many hydrogen filling stations, though California is currently leading the way and setting an example for the rest of the states.

For now, the initial customers seem to be drawn mostly to the car’s novelty more than anything else. I can relate as my family bought me a Prius in its early stages back in 2004. Of course I loved the wonderfully quiet engine, the decreased gas costs, the ‘Park’ button, and the fact that I never had to take my key out of my purse, but most exciting was the look on people’s faces when I drove around and the awe of my friends. At the time experts predicted it would take 8-9 years to make up the premium we paid on the hybrid… now that number has dropped to approximately 3.

And that’s the thing that’s most interesting. Of course everyone is praising Honda and Toyota now that fears of major climate change, $140/barrel oil, and depleting fossil fuel resources are becoming the reality, but in the past two decades both companies have been criticized publically several times for pouring money into “unproven” technologies while refusing to follow the rest of the industry into large sport utility vehicles and pickup trucks. Well “unproven” is what innovation is all about! Now Honda is in an enviable position – Toyota too- while other companies try to deal with large inventories of gas-guzzling trucks and massive cars that requite large incentives to sell.

Just another example of how important it is to continue to invest in radical innovation (not just incremental) even while “things are good”. And as Jeff Bezos, the chief at Amazon, has always maintained, competitor-focused companies risk complacency when they become industry leaders- but customer-focused companies must always keep improving. Other CEOs and other companies, whether in the online retail industry, the automobile industry, or in ones completely unrelated, should learn a thing or two from these guys.

The Philadelphia Inquirer and Philadelphia Daily News recently ran ads for a “new airline” called Derrie-Air which supposedly charges passengers by the pound. But this new carrier will never actually take flight because it was simply a one-day advertising campaign by Philadelphia Media Holdings, the papers’ owner.. The goal was to “demonstrate the power of our brands in generating awareness and generating traffic for our advertisers, and put a smile on people’s faces” says Philadelphia Media Holdings spokesman Jay Devine. If you visit the website you’ll read that Derrie-Air is the “world’s first carbon-neutral luxury airline” and see sample rates that range from $1.40 a pound for flights from Philly to Chicago to $2.25 a pound for flights from Philly to LA. The company tracked traffic to the Derrie-Air site (http://www.flyderrie-air.com) and noted that the website drew a much higher-than-usual response rate (1.25% click-through rate compared to a national click-through of 0.05%!)

It was an interesting experiment for sure, but of course the lack of full disclosure on most of the ads has prompted concern for several journalism veterans who claim it is “clearly deception” and that “newspapers should not be in the business of deception.” Honestly, though, how else could the company conduct market research in terms of understand how advertising is going to work in this era. Plus the ads were so far-fetched that’s it hard to imagine that anyone would take them seriously. And if that wasn’t enough, the name of the airline (which means booty/back-end in French) should have given it away!

^haha

This reminds me of the “War of the Worlds” broadcast that aired over the CBS radio network on Halloween in 1938 and terrified citizens across the country. The news-bulletin format was decried as cruelly deceptive by some newspapers and public figures but it did bring fame to Welles (the director). In the same way, this has brought more attention to the worsening plight of airlines.

The difference: an airline that charges per pound is much more foreseeable in the near future than an alien attack!

…Which brings me to my main point…

I’m sympathetic to the airlines’ troubles but treating customers like freight and taking away service elements is certainly not going to help. Desperate times call for desperate measures- but the focus should be on innovations that can help airlines greatly lower their operating expenses, not on finding ways to cut corners. Some airlines have found commendable simple fixes for the time being. For example, Japan Airlines Corporation is using crockery in their cabins, which is 20% lighter than the service items they replaced, and Southwest Airlines is flying slower (cutting just 72 seconds on a Houston to LA flight can save them 8.7 gallons of fuel for each of the airline’s four daily non-stops!). This is definitely scalable in the short run. But really, what we need are large scale, sustainable solutions. In the 70s Brazil responded to the OPEC oil embargo by launching a national program to create a viable alternative to gasoline by using the nation’s sugarcane industry to produce enough ethanol to meet its economic needs. Wall Street laughed then- but who’s laughing now?

Basically, instead of trying to solve America’s obesity problem, airlines need concentrate on technology, efficiency, and sustainability…the pressure is on.

Yotel, Simon Woodroffe’s (founder of YO! Sushi back in 1997) newest undertaking was launched in July 2007 and aims to provide consumers with “luxury” hotel rooms at affordable prices. Simon came up with the idea of Japanese capsule hotels (hotel system of extremely dense occupancy popular in Japan) a while ago and recently combined forces with the designer of British Airways first class cabin, Priestman Goode, to create a chain of small, but comfortable and fashionable hotel rooms. Yotel offers “economy” and “premium” rooms that are only 7 and 10 square meters in size, respectively, but the designers have incorporated innovative use of space and impressive interactive technology (“techno wall” where iPod can be directly plugged into room’s sound system without speakers or international sockets, flat screen TV, mood lighting, etc) to make the rooms appealing. Bedside charging points, personal lighting, a dimming control and bed deployment switch allows you to work or relax without moving from the comfort of your bed. The luxury bathroom includes overhead rain shower, a hand shower, and a heated mirror among other things. The study desk folds out of the “techno wall” with its own stow able chair and a complete range of power and connectivity including free internet access. Suit and dress hanging and storage for everything from your car keys to loose change provide a place for everything. The 23”flat screen TV system mentioned earlier hangs from the wall with a varied choice of films, TV, radio, and internet. Obviously the reduced land costs due to the small room size add to Yotel’s ability to provide affordable prices even with all these features. There has even been talk of putting these rooms underground!

As more and more people have begun traveling, I think this is a great idea. As a student I love the concept because the rooms are so technologically savvy and cheap at the same time!

It is refreshing to read about an innovative start up that is not in the tech- space and and that has an idea that actually makes sense. I would love to stay in a Yotel room one day. Too bad they are currently only available near Heathrow and Gatwick Airports in the UK, but a Yotel is set to open in Amsterdam later this summer and plans to expand further are underway. An excuse to go to Europe perhaps?!

If you’re going to be traveling anytime soon, or just want to check them out, go to www.yotel.com