Netflix and the Future of Innovation

If you know me, then one of the things you will probably say is that I'm not quite on top of what's what in popular culture.  What's on television?  I won't know.  Know who the biggest current pop stars are?  Ask someone else.  Thoughts about the movies that are out in theaters or DVDs?  I'm not your person.

Which is why the Netflix innovation contest that has been going on for the past two years has been a fascination for me.

If you're not familiar with Netflix, I'll give it to you in its simplest form.  They are a video rental service which offers customers the opportunity, for a reasonable monthly fee, to rent movies which are sent by mail and which the customer mails back.  Once Netflix receives the films you've returned, they'll release the next set you've ordered - and it's all done on the internet.

Reasonable prices.  Convenience.  Now offering downloadable films, too.

Netflix came into the market when brick and mortar video stores were the only way to rent movies.  They went up against everyone from your local shop to Blockbuster and Hollywood video.  They provided an alternative for those who wanted a next level of convenience and were willing to pay a monthly fee.  That fee, which is on a sliding scale, allows the customers to determine just about how many films they will probably watch each month.  So not only does the customer have product choice, but they are making a pricing choice too.

Nice.

All of which being said, I've never used Netflix.  I know people who do and love the service for its convenience and versatility.  The reviews I had always heard were consistently good.

And it's reviews - at least those specifically recommending which films to rent - that the innovation award was all about.

Netflix spends millions of dollars a year on research and development.  They're looking at how to improve every aspect of their business.  But a key aspect is the improvement of customer reviews and recommendations of films.  Those recommendations lead other customers to follow suit and rent the same movies and more.

A couple of years ago, the company decided that they wanted their algorithm to improve the results of those recommendations by ten percent.  However, instead of having their own in-house guys do the development, they set up a $1M prize to the person or team who could deliver that for them.

That prize started a push among developers - professional, academic and guys on the street who were sure they had a way - to get involved.  And, interestingly, to listen to them - winners and losers, alike - it wasn't for the bucks.  It was for the excitement and opportunity.  It was the challenge and possibility that engaged them and kept them enthused.

Ultimately, it took a village to win.  None of the teams on their own were able to crack the ten percent level.  They got close, but they just couldn't do it.  What that led to was a willingness on the part of competing teams to join together to see if their combined algorithms would net what, individually, didn't cut it.

When the win came, it wasn't a matter of breaking through the algorithmic ceiling.  Both teams cracked the ten percent mark.  It was a matter of minutes.  Twenty minutes, to be exact.  The winning team submitted their algorithm just twenty minutes before their closest competitor - and because they brought it in first, they got the money.  More than that, though, they got the excitement of their achievement.

Even better, the Netflix prize spawned a new online industry - prize challenge management sites.  And Netflix, itself, has started another prize challenge with an even more esoteric use of their demographic data to drive increased sales.

Just as it's supposed to - innovation spurs further innovation.

But what's most important is to understand what the Netflix prize says about the future of innovation and all the opportunities that exist.  Because that's where you and your organization can win - big time.

The competitive landscape is far too fierce and fast for any one organization to stay on top of all its innovation needs.  That means that companies are looking for answers - everywhere.  There are no longer any limits on getting your better than best idea into the market.  Chances are, someone is looking for it or a reasonable facsimile thereof.

Take Proctor and Gamble.  They established their Connect + Develop program specifically to invite people with ideas - individuals or businesses - to bring those ideas to P&G.  If it makes sense to P&G, your idea becomes part of their portfolio.  You get both money and the opportunity to see your idea come to life.

Or, whether P&G, Boeing, DuPont or others, the Big Boys have also realized that there are so many people out there who just want to get their hands on data sets (which was what motivated so many of the Netflix competitors), information and opportunities that would otherwise be closed to them that they are willing to participate in open network innovation.  For no money at all.

Call it Crowdsourcing or Distributed Labor Networks, companies open up opportunities by asking questions - and then let everyone who's paying attention free to give them what they need and more.  Because people want to contribute.  They have information and they want to use it.  They want to be engaged.

On a micro scale, we're seeing it done with Twitter.  In fact, David Pogue, the technology writer for the New York Times, wrote a whole book using just that technique.

On the macro scale, those information resources that provide guidance and information to the Big Boys are all the more likely to be the ones who get the gigs when the companies are looking for specialist knowledge.

And don't for a moment think we're only talking high technology.  Innovation is innovation.  It's something new.  A new way of thinking and doing things.  It's bringing a new view and opportunity to what you do and how others benefit from your products and services.  It's looking at an existing world through the lens of unlimited possibilities - and then going there.  Step by step by step.

So now it's onto you.  How are you building the innovation in your organization?  What are you doing to create communities that contribute to what you need to know - both within your employee population and beyond?  How wired are you into the new worlds of Crowdsourcing and Tweets?

And how much effort is being expended by your company to be part of that world that is making new money by answering others' questions when they can't find them for themselves?

While we're here, what about how you're using your knowledge of what best of breed companies - competitors and others - are doing to differentiate themselves in both products and service?  What are you doing to incorporate best of breed thinking into your day-to-day operations?

Nothing stands still and innovation is key to ongoing success.  Now, with the opportunities that exist to be involved in a much wider world of innovation, you can lead your organization to success from within, with the help of others and as the answer to others' questions.

You get to choose how, with whom and on what you innovate - with the nicest part being that it's a win all the way around.  For everyone.