UX+X=Business Model Innovation
As illustrated with Apple’s iTunes business model innovation, and now potentially with Apple Music, user experiences enabled by highly-scalable platform services and easy-to-use mobile devices, can unlock a significant amount of value. The mobile inflection point is well passed, and entrepreneurial ventures are realizing the importance of design in value delivery mechanisms. In her landmark Internet Trends Report in 2004 , Mary Meeker, partner at leading venture capital firm Kleiner Perkins Caufield & Byers (KPCB), identified that usage growth was tied to the user experience. Mary focuses on investments in the firm’s digital practice and helps lead KPCB’s Digital Growth Funds, targeting high-growth Internet companies that have achieved rapid adoption and scale. In her 2014 Internet Trends Report, Mary included a slide entitled, “R.I.P. Bad User Interfaces,” underscoring the importance of a quality user interface as the next key to growth.
To begin understanding the huge shift in value creation driven by user experiences, consider the following:
- Uber, the world’s largest taxi company, owns no vehicles.
- Facebook, the world’s largest popular media owner, creates no content (at least not yet).
- Alibaba, the most valuable retailer, has no inventory.
- Airbnb, the world’s largest accommodation provider, owns no real estate.
All of the above enterprises focus on designing superior, highly-contextualized mobile user experiences to drive growth. The main assets of these enterprises are not inventories but platforms – platforms for business model innovation that deliver compelling user experiences.
Design in Startup Ventures
Startup ventures, founded or led by designers, are being acquired by big corporations at an increasing rate. Investors realize that these designers understand the usability challenges involved in delivering better user experiences given the constraints of their go-to-market sectors and device form factors. In 2006, Google acquired YouTube, co-founded by Chad Burely who studied design, for $1.65 billion. Since 2010, companies like Google, Adobe, LinkedIn, Dropbox, Yahoo, and Facebook have acquired twenty-seven startups that were co-founded by designers.
In a study of the top 110 designers in the technology industry, 27% of those surveyed were working in early stage startups where capital raised was less than $10 million. These designers reported that the ratio between designers and engineers was somewhere between 1:4 and 1:5. This is a striking development, considering that the ratio used to be 1:15, or even 1:30, according to talent experts in the startup sector of the economy. Design is being baked into the startup DNA.
More business schools that feed talent into startups are also focusing on design as an imperative. Eight schools out of the 2015 Financial Times Top Ten Global Business Schools list, eight schools have student-led, design clubs and/or design partnerships. These business schools include:
- Stanford (d.school)
- MIT (Sloan)
- Berkeley (Haas)
- Chicago (Booth)
- Pennsylvania (Wharton)
- IESE Business School
Venture capital firms in Silicon Valley have been responding to the increasing importance of design in value creation at startup ventures. Realizing the value that the design-led startups have been creating, venture capital firms are making more funding available to these enterprises. In one study, five startups (co-founded by designers) were identified to have raised $2.5 billion. For the venture capital community, design is not about aesthetics, but about relevance and the evolution of business value in a world where innovation is accelerating and continually transforming.