The Basic Diffusion Pattern of an Innovation

I wish developing great products was as easy as writing a check. — Steve Jobs

Imagine that you've just gotten back to your office from a long management meeting. The vice president of R&D took center stage, presenting a cool new technology that his scientists and engineers have been working on for the past two years. He informed the group that new products based on the breakthrough technology could be developed in a reasonable time frame — perhaps even a year from now — and asked for a green light and for green dollars to forge ahead with his development plans. The CEO seemed enthusiastic, exclaiming at one point that this may be the answer to the company's prayers. She is ready to "write the check" to fund development, yet being a prudent corporate leader, she has asked you, the vice president of marketing, to assess whether this new technology will succeed in the marketplace and to determine how long it would take to recoup the investment that the vice president of R&D asked for. Not one to shy away from a challenge, and quite impressed with the technology yourself, you promise a quick yet thorough analysis.

Eager to get started on the CEO's forecasting challenge, a few minutes later, you sit down at your desk, take another quick look at the demo video presented at the meeting, and go over your notes. And then it hits you: "If we launch an innovation based on this technology, is there any meaningful way, not just some wild speculation or overly naïve guess, to assess the return on investment (ROI) years down the road?" You're not quite sure where to begin. You might even start to panic a little as your report is due in less than two weeks.

Once you regain your composure, you recognize that you might want to break down the task in front of you into its fundamental components. To evaluate how well the proposed innovation will do in the marketplace — whether it's worth it for the CEO to write the check — it's useful to begin by studying how markets generally react to innovations and after that is understood, examining how your company's innovation might fare among consumers given its particular characteristics.

Innovations and the Marketplace: A Dynamic Relationship

One way to think about the market for an innovation is as the collection of individuals who would consider adopting it at some point in time. This simple definition entails several important notions relevant to constructing an effective commercial forecast for an innovation. First is the issue of who the individuals are that might find the innovation appealing; let's call that the set of potential adopters. Second is the issue of when an individual from the potential set will eventually adopt the innovation. Third is the issue of why an individual from that set would consider adopting it. As we will shortly see, answering these three questions — who, when, why — will create the foundation for constructing a powerful model that a company can use to project how demand for its innovations will likely evolve over time. This will help advance us in our quest to assess the commercial opportunity and expected ROI that an innovation presents.

It is instructive to begin by answering the last question — why a person adopts something new — and understand what causes individuals to bother with an innovation when they could simply stick to whatever it is they were doing before. Many sociologists, psychologists, marketing academics, behavioral economists, and practitioners have studied how individuals think about and react to novel concepts (a new product, a new service, a new social norm, an unfamiliar idea, etc.) and how they decide whether those concepts are worth embracing. In many respects, the findings from numerous studies conducted on the topic point to the fact that it is often more revealing to ask the question in the reverse — that is, "Why would a person not adopt something new?" It turns out that uncovering why people show a lack of interest in certain innovations or deem them unworthy of their time and money is critical to characterizing the manner in which we should expect the demand for an innovation to evolve over time. We examine these "barriers to adoption," as they are often called, and draw upon a classification schema proposed by esteemed innovation scholar Everett M. Rogers. The picture that will emerge from this examination is that of two main routes or forces that can lead to adoption.

Why do I need it? What's the relative advantage? Obviously, if the "new thing" under consideration is not perceived as delivering enough benefit or improvement over existing products and services to justify its cost, then consumers tend to pause, delay purchase, and even dismiss the innovation altogether. Take the Segway — or as it was officially called, the Segway Personal Transporter — as an example. This two-wheeled, self-balancing electric vehicle was introduced with much fanfare in December 2001 on the ABC News program Good Morning America by its inventor, Dean Kamen. Many notable industry pundits, including Steve Jobs and prominent venture capitalists, touted the Segway as a breakthrough that was "bigger than the Internet, and more important than the PC." They predicted that its rapid adoption would force the redesign of cities and make Segway Inc. the fastest company in history to reach $1 billion in sales. Obviously, these predictions did not come true, particularly the ones about how quickly it would be embraced by ordinary consumers. While this innovation is still with us, and its adoption figures are still on the rise (reports indicate that more than one hundred thousand Segways had been sold by the end of 2011, which marked the product's tenth anniversary), it was by no means an "instant success story." Although mainstream consumers marveled over the technology and were intrigued by its antics, very few rushed out to buy one.

What went wrong with the predictions? Given the widespread publicity that the Segway and its inventor enjoyed, including numerous appearances on television and radio and extensive print and online coverage, most consumers had heard about this new means of transportation and had seen video footage of it. So awareness per se does not seem to be the...