Chapter 9

Incubate Internally

Of the three enterprise innovation strategies—incubating, investing, and acquiring—incubating internally is the hardest. You're creating something out of nothing: You're on the hook for brilliant ideas. Moreover, your startups begin with zero momentum, and you're responsible for bringing them to fruition by using internal resources. They might have to compete for internal resources, or even with products that are the company's bread and butter.

Maybe that's why enterprises have proven so bad at incubation. Take Microsoft. The company that built an industry around MS-DOS and then Windows is no slouch at innovation, yet even the monarch of the desktop operating system wasn't able to generate success with two major internal projects, Zune and Surface. (On the other hand, Xbox is a striking counterpoint, and a very successful one at that.)

Zune was a notorious failure. The purported iPod killer, launched in 2006 five years after Apple's wildly successful music player, generated $117 million in revenue during Q4 2008 compared to iPod's $3.37 billion around the same time. Microsoft finally laid it to rest in 2012.

Perhaps it's too soon to be sure about Surface, but early indications don't look good. In July 2013, the company slashed prices and announced a $900 million charge on the device, equivalent to a loss of $0.07 per share. Incidentally, neither product was a disruptive innovation; both were me-too follow-ups to Apple's success.

Incubating disruptive ...

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