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Snap – Netscape On Steroids?

By Shlomo Maital

snap

On August 1995, Wall St. witnessed a near-miracle.   A company called Netscape Communications, maker of the first widely-used Internet browser (given away for free) did an initial public offering of its shares.

     Here is what happened: “The stock was set to be offered at US$14 per share, but a last-minute decision doubled the initial offering to US$28 per share. The stock’s value soared to US$75 during the first day of trading, nearly a record for first-day gain. The stock closed at US$58.25, which gave Netscape a market value of US$2.9 billion.”

     That defying-gravity IPO showed Wall St. it had a sure-fire way to print money – issue shares of dot.com companies, and watch the manic rise print profits for insiders. The bubble burst in 2000/1, and then came a bigger collapse, in 2007/8.  

   Fast forward to the remarkable IPO of Snap Inc. (Snapchat, photo messaging company).

   “Snap shares closed their first day of trading up 44 percent at $24.48 a share, quenching a long drought in the market for tech IPOs.  More than 200 million shares — the entire size of the offering — changed hands over the course of the day, accounting for roughly 10 percent of the total volume of trading on the New York Stock Exchange on Thursday. The stock opened shortly before 11:20 a.m. on Thursday in New York, and started trading at $24 a share, rising 41.2 percent from its pricing at the open. The company, trading under the ticker SNAP, priced its public offering at $17 a share on Wednesday.  Share prices rose as high as $26.05,  and fell as low as $23.50.  The opening price of $24 puts the company’s market capitalization at about $33 billion, about the size of Marriot and Target. Twitter’s market cap is about 11 billion, while Facebook’s is about $395 billion. The young ephemeral photo messaging company posted a $515 million loss last year.

So, a company that lost over half a billion dollars last year is valued by the market at $33 b., equal to the valuation of a huge hotel chain, profitable, or a huge retail chain, also highly profitable.

     Here we go again.

Innovate Your Business – Not Just Your Product

By Shlomo Maital

business-innovation

   Psychologists sometimes use a ‘word association’ approach. Say a word. What comes to your mind first?

   Say, “innovation”. Do you picture a gadget? A product?   Most of us do.

   But what about all the other areas, where fresh ideas are needed? What about the way you make things, the way you sell and market them, the way you motivate your workers – and in general, the way you design and run your business.

   Business design and operations are, for many innovators, a dark corner. No light shines there.

     Among experts, there is controversy.   Guy Kawasaki, the marketing guru of Apple’s Macintosh, founder of garage.com, and author of Art of the Start, claims that creativity is vital for innovative products but when it comes to designing the business to implement them, stick to conventional white-sliced-bread methods.  

   We disagree.   Business design innovation can bring bigger dividends that product innovations, which often fail.   If you can build a unique innovative business design around an existing product, you can win big.

     Here are four examples.

*   Mobileye is a Jerusalem-based global company selling warning systems for vehicles, founded in 1999. Founders Amnon Shashua and Ziv Aviram raised money innovatively, unconventionally, by avoiding venture capital and appealing to a list of wealthy people interested in high-tech. Those investors proved far more patient than VC’s and enabled Mobileye to take nearly 8 years to develop its product, ready in 2007. Mobileye now has annual global sales of $350 m., and a profit margin of some 60 per cent.

* Netscape provided the world with one of the first browsers and its IPO in 1995 led off an enormous dot.com boom.   Netscape’s business design was ‘give it away’ – charge zero for the browser.   This innovation has since been widely imitated. Netscape’s browser was a powerful marketing device, used by millions, to advance sales of its software products.  

* El-Op: this wholly owned subsidiary of Elbit, a market leader in electro-optics, uses a unique approach to innovation – bottom-up.   Workers are encouraged to submit ideas to a website, and they are quickly passed on to mid-level managers and the head of operations. In many organizations, innovation is confined to product innovation emerging from R&D departments. This often leads to a false assumption, that ONLY the R&D department has innovation in its job description. At El-Op   innovation is part of the job description of every worker. Moreover, research has shown that process innovation – innovation in operating procedures – is far more profitable and pays a far higher ROI, return on investment, than product innovation, because new products often fail when introduced to the market. At El-Op, many hundreds of ideas emerging from line workers have saved the company millions of dollars over the years.

* Toyota: This leading automobile company introduced just-in-time in its manufacturing process. Until then manufacturers stockpiled mountains of components in advance. Toyota asked, why? Why not have the components delivered just in time to use them in production? Why not eliminate costly component warehouses?   The cost saving and efficiency gains were enormous. This innovation was based on challenging a conventional assumption.

     What we learn from this is simple.   Innovate everywhere, everything, all the time. Make fresh new ideas part of the job description of every worker.   Listen carefully especially to workers who are “at the coal face” (where the coal is mined), because they are the ones who really know what is going on and what needs to be changed. Make sure that each fresh idea is acknowledged, read, studied, tested and either implemented or shelved for some future date, and that the person who proposed the idea is updated at every stage. And create an award ceremony for innovators. Just recognizing the creativity is often enough to stimulate it tenfold.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
May 2017
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