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What Has Not Changed
CHAPTER SUMMARY: This chapter covers how legacy companies may develop exponential technology or other innovations but be unable to effectively and sustainably make products of them. We review the causes of the failure of Google Wallet (later Google Pay Send) and other innovations—including creating the wrong incentives for partners, failing to upgrade products quickly enough, and failing to retain innovation leaders who want to move faster and create more.
What Went Wrong with Google Wallet
In 2011, to great fanfare, Google announced Google Wallet, a mobile payment app and ecosystem that the search giant claimed would finally push American and European customers to ditch plastic and use their phones to pay for everything. Wallet cost hundreds of millions of dollars to create and required a massive business development effort that included partnerships with credit card processor and financial-services behemoth Mastercard, big bank Citi, wireless carrier Sprint, and others. In introducing Wallet, the head of the effort, Google Payments’ V.P., Osama Bedier, called it “one of the biggest investments” Google had ever made. “This is just the start of what has already been a great adventure towards the future of mobile shopping. We’re incredibly excited and hope you are, too,” wrote Google Wallet founding engineers Jonathan Wall and Rob von Behren in the introductory blog post.1
Reviewers and the tech press lauded Google Wallet. The mood was celebratory. And yet, two years later, only a small number of users had downloaded Google Wallet and were using it on their Android devices. Negative press was accumulating, and consumers yawned at several efforts to reintroduce Wallet.
Right Product, Right Vision, Wrong Approach
Clearly the concept of mobile payments had not been misplaced. Since launching Apple Pay in 2014, Google rival Apple has steadily gained ground in mobile payments; it is now used by tens of millions of people each day in the United States and Europe. In Europe, contactless payments too have taken off (but nothing compared to China, where cash is going out of vogue). Large retailers Starbucks and Walmart have successfully marketed their branded mobile-payment applications; and Starbucks trails only Apple in adoption, even though its app is useful only for purchasing coffee or food at its stores. Google’s own Google Pay has gained a good amount of market share since the failure of Wallet but still trails Apple and Starbucks by a large margin as of this writing.2
Perhaps most damning of all, Bedier left Google and went on to launch Poynt, a maker of new point-of-sale software and hardware that embraces contactless payments. Poynt has raised nearly $300 million and is almost certain to have a successful exit. Among its funders is, ironically, Google Ventures, the venture-capital arm of Google.
Google was the first big mover. It had clearly seen the future and had built a product that worked pretty well. So what had it gotten so wrong?
Inflexibility in Its Business Model
Unlike Apple, Google had insisted that the wireless carriers, banks, and payment-processing entities share purchase data with Google. This was consistent with the premise of Google’s entire business model: offering free services and collecting granular user data. But Google has always pursued this transaction via a direct relationship with the customer. In this case, Google was taking information that is the lifeblood of many of its partners. Predictably, this spooked the very partners and would-be partners vital to Google’s access to it.
It’s true that there were other problems. Google Wallet landed when only two-thirds of the developed world’s population had begun using smartphones. Additionally, Wallet depended on point-of-sale terminals capable of contactless communication, which did not become widespread in the United States until after 2015. In both contexts, Apple’s timing was better. But Google certainly had the financial wherewithal to wait for those trends to catch up with its product. The fatal problem was the flaw in its business model that entailed taking someone else’s lunch: customer data. In the grand scheme of things, that may seem like a small miss. In modern business, though, business-model failures are the worst kind, because they so often become evident after massive investments have been made in engineering, design, and marketing.
Surprisingly, failure is par for the course for Google: the company has racked up a long array of technology failures despite its reputation as one of the most innovative companies in history. Apple, which launches far fewer products, has far fewer massive failures and has shown an ability to expand into new markets far more smoothly than Google. This is in part because Apple has proven its flexibility in its business arrangements and its willingness to adapt and innovate in its business models in order to meet situational requirements.
Failure to Launch, Adapt, Change, and Take Risks
The reality is that most of the great technology successes we read about are based on ideas that were borrowed or stolen from other companies or labs. Almost every single innovation attributed to Apple emerged from something that the Cupertino behemoth either acquired or copied. And examples abound of legacy companies’ creating amazing technology on which others later capitalize: Xerox PARC and the mouse, Cisco video conferencing and Zoom, the spreadsheet (Lotus123) and Microsoft Excel, and so forth.
This is unsurprising in light of the penalties, overt or tacit, that risk-taking generally attracts. Even though tech companies trumpet failure as a badge of determination, none reward failed project leaders with promotions or raises for their manifest ambition. Like Google Wallet’s project lead, who left the company to launch a startup, many of the highest-paid employees tend to be in roles that penalize risk and most handsomely reward constancy. This is because Wall Street, which drives the strategy of so many legacy companies, generally has very low tolerance for failure, making it much harder for public companies to take big risks. The demand for constancy and predictability results in tight, top-down hierarchies, causing risk-averse companies to become painfully slow in decision-making and product development. With such internal inertia, all too often, even when the disruption is obvious—as in the disruption of phone companies by Skype—they cannot contrive a response that is effective or even meaningful.
The variable critical to creating innovative ideas in these companies is the time, thinking space, and other resources afforded to employees. Some companies, such as Amazon, have systematized this process: it offers employees with ideas in approved product areas a startup grant and other incentives to encourage them to start that company. The implicit promise, moreover, is that, should their venture fail, Amazon will welcome them back into the fold.
For its part, Amazon has elevated failure to a high art. It is one of the few very large companies that not only accepts failure but expects it in its most ambitious experimental new products and services. Google famously has encouraged internal startups in a similar fashion, but without the same results: only one major product success, Gmail, has emerged from internal startups. (Some might count Google G Suite corporate applications, but those lag far behind Microsoft’s Office365 online suite of tools everywhere except in Silicon Valley.)
Amazon’s methods probably don’t, though, herald a future in which innovative ideas will receive their due and nurture in large companies. Even Google has been cutting back on the innovation time it allows to engineers; and Apple, long the model of corporate innovation, is among the most top-down companies in terms of product innovation and management.
Cisco’s Failure and the Rise of Zoom
Eric Yuan had a problem. As the vice president in charge of Cisco’s collaboration and video-conferencing unit, he had lots of ideas on how to make his products better and more beloved by users. But he got the company’s practical support for hardly any of them—despite leading the unit.
The year was 2011, and Cisco was the dominant player in the field. It competed with Polycom for high-end videoconferencing software and equipment, and with GoToMeeting for lower-end corporate videoconferencing contracts; but Cisco was the overall market leader. Cisco’s general bet on videoconferencing’s being a growth industry had paid off. The unit had posted sales and profit growth that outstripped that of the legacy networking equipment businesses.
But no one loved Cisco’s collaboration and meeting products. They were unreliable, often requiring that users install them multiple times on the same machine for no apparent reason. Though the innovative products like virtual-reality conferencing were well received, Cisco left the lower end of its market starved for innovation and improvements, and small fit-and-finish details were left by the wayside. For example, a one-touch dial-in option would have saved people who were calling into Webex the enormous hassle of flipping back and forth between invitation text and the application merely in order to enter the meeting’s code (which was always a seven-digit number, just long enough to be hard for humans to remember). And then there was the problem of bandwidth: Webex hogged it and delivered poor quality except when connectivity was perfect.
All these problems were noted and cataloged by Yuan, a super-smart and motivated Chinese engineer who came to Cisco with the Webex acquisition in 2007. Yuan initially set out to fix them inside Cisco. As he said in a 2017 interview, “I was paid very well as a VP at Cisco. But Webex was my baby. In 2010 and 2011, I did not see happy customers. I was very embarrassed that I spent so much time on the technology. Why are the customers not happy?”3
The Innovator Leaves, Starts His Own Thing, and Zooms Away
Yuan finally had had enough and left Cisco, taking with him roughly 40 of the top engineers from Webex. His new goal was to make a universal tool for videoconferencing that users loved. It would work as well in a coffee shop as on a corporate campus. It would gracefully handle fluctuations in bandwidth. And it would be incredibly easy to use. Yuan named it Zoom. He decided to try a bottom-up freemium strategy that allowed anyone to set up an account for free 40-minute meetings of a limited number of participants. Zoom would sell upgrades for longer meetings, storage of online recordings, and management tools, as well as dedicated videoconferencing hardware for higher-fidelity meetings. Eight years after launching, Zoom went public and quickly achieved a market capitalization in excess of $20 billion. Yuan’s retooled videoconferencing product has won rave reviews. And, in the true mark of market dominance, it has become a verb in the vernacular of its users. Although Cisco has publicly denied it, many analysts believe that Zoom has stolen considerable market share from Cisco.
The tale of Zoom illustrates not only that legacy companies fail in launches of new products because they tend to view the world through the lens of existing business models but also that they struggle mightily to fix basic, obvious problems in their existing dominant products. Implementing such reforms would seem an obvious opportunity. But, as anyone who has spent time pitching for placement on a product roadmap can attest, the bigger the company and the more engineers depending on the roadmap, the harder it is to make any real headway in a timely fashion.