Kaihan Krippend...'s  Instablog

I'm sitting in my rental car outside of eBay headquarters on a rainy day in San Francisco. I'm about to step into my second day delivering an Outthinker workshop to group of technology execs from various companies. Television news here centers around the rapidly reorganizing technology landscape: the Yelp IPO, Yahoo suing Facebook during its pre-IPO quiet period.

But the most game-changing technology news has gone mostly overlooked. Comcast, the largest US cable service provider, announced it will soon launch a video-streaming service aimed at beating Netflix. It's easy to miss the strategic importance of this move. But if you understand the strategic narrative that cable companies have played again and again to devastating effect, you will recognize this as the critical turning point in the plot.

The battle to own the "digital home" has been waging for years, but over the past 12 months, it has really heated up. Apple is rumored to be launching a television, Amazon's video-streaming business is taking off, Samsung and other electronics firms are imbedding ever more online video services into their TVs, and television channels are increasingly streaming directly. How this all plays out will have significant consequences for investors and television viewers around the country.

The future may look uncertain but look to the past and you will see a pattern that points clearly to where things may be going. A shift is underway. Cable companies look poised to turn the tables on Netflix and other video streaming players. The recent relative stock performance of Comcast and Netflix underscores that this is happening (see the stock chart below). That in a few days Netflix will lose its rights to carry Starz video content, including my daughter's favorite Disney films, offers yet more evidence.

Here is what the past tells us about who may win and lose in this high-stakes game.

1. There are only three sources of advantage and Netflix has none of them: for any company to win over the long term, they must secure one of three sources of competitive advantage: customer captivity (think Microsoft Windows), economies of scale (think Walmart), or preferential access to resources (think De Beers Diamonds). Netflix once enjoyed customer captivity but this advantage has eroded thanks to its missteps that upset customers, drove an exodus of over 800,000 Netflix users, and cut its stock price dramatically.

2. The tortuous heads toward the finish line: cable companies have historically acted like the tortuous to high-tech innovator hares. They adopt a predictable pattern - they let someone introduce a new service, watch the market grow, and much later step in and take away the opportunity. This is how cable companies beat out TiVo (which introduced the world to the DVR) and Vonage (which convinced Americans to embrace VoIP). Comcast's announcement is the most direct message yet that it intends to seriously attack the new video-streaming opportunity Netflix has ushered in.

3. Google and others understand the game: this is why Google is making steady inroads into the home. In Kansas City, Google has launched an experiment with potentially huge consequences. It has begun wiring homes with high-speed fiber optic service which positions it to get into the cable service provider game.

4. Netflix's last hope is to become HBO: there is little reason to believe Netflix can regain customer captivity or create economies of scale, so the company's only hope is to secure preferred access to content, which it is attempting to do by producing its own shows and movies. If Netflix can succeed at this, it will begin looking more like HBO. If it fails, it falls.

As you watch your company evolve, look for these three sources of advantage and see who is moving toward them ahead of you. Do you have customer captivity? Do you have economies of scale? Do you have preferential access to a key input? If not, start making plans now, like Google is doing and Netflix probably should have done, to build such power now.

View my weblog here.

When the U.S. Air Force asked their best fighter pilot, John Boyd, to analyze how he trained pilots to outmaneuver even better-armed enemies, he took the task seriously. He analyzed not just his dog-fights, but many of history's greatest battles, seeking to understand what he and other great generals did to win. After years of analysis and refinement, he came up with a powerfully simple answer.

His theory is that all intelligent organizations and even organisms win by passing more efficiently through four stages of interactions with their environments:

• Observation: collecting data from multiple sources (e.g., the senses for organisms, business systems for corporations, spies for the CIA)
• Orientation: analyzing and synthesizing the data to form a mental model
• Decision: deciding to take a specific set of actions based on your mental model
• Action: physically making or executing your decisions

You have surely heard the debates about which step is most important. Many say great companies win through execution (Action) while others say the key is strategy (Decision). Amazon offers 1,000 books about strategy and 6,000 about execution and if you read these you'd think you'd have covered your bases.

But John Boyd would likely agree with a newcomer on the block who says that if you cannot observe and orient well, all of your execution or strategy crafting skill is useless. It is time that large companies begin to consider a new concept, Unified Information Access (UIA), a vision espoused by an interesting young technology company called Attivio. UIA, if realized, has the potential to turn the slow, entangling web that most large companies have into nimble jet planes of information.

Check my blog next week when I will share my interview with Sid Probstein, Attivio's CTO, to learn more about this vision, how Attivio is trying to get us there, and whether we ever will reach the promise land.

The Chief Innovation Officer of a large financial services company was interviewing me for an article when she poised an unexpected question: "What do you learn from your children about innovation?"

After stalling with "umm," it hit me: warm batteries. My son has taught me to look out for warm batteries. That lesson, I believe, is the fundamental key to unlocking breakthrough ideas.

You see, we keep our batteries in the freezer because someone once told me that cold batteries last longer. So when my son's electric train stops working, we replace its batteries with cold ones. When the flashlight is dead, cold batteries bring it back to life. When our baby's rocker no longer rocks, you guessed it, cold batteries.

My son has figured it out. If something doesn't work, check if it has batteries, and if the batteries are warm, replace them with cold ones.

Now, we may giggle and call it cute. The things a 4-year-old believes! But the same is true for the way the world works around us. Isn't the process by which my son "realizes" cold batteries make the train run identical to the one we use to make sense of the world?

1. We have a problem (get my train to run)
2. We notice a correlation (replacing warm batteries with cold ones makes the train run)
3. We believe a cause-effect law (cold makes batteries work)

The scientific process is simply this process formalized: state a problem, develop a hypothesis, test the hypothesis until it becomes a theory or law. And just like my son reaching for cold batteries, this process leads us to accept any number of false beliefs.

Outthinkers, great innovators, are willing to test these beliefs and challenge what everyone else has accepted. Nearly every breakthrough company begins with challenging a false belief.

Consider: IBM: challenged the belief that there would only be demand for a few computers in the world
Dell: challenged the belief that PC buyers needed their hands held by a retailer Southwest Airlines: challenged the belief that hubs and spokes were better than point-to-point networks
Apple: challenges the belief that the designer works for the technologist (rather than the other way around)

How many times a day do YOU reach for cold batteries in your business? What have you accepted as just the way things are? Pick one accepted belief a day that your company or industry holds, and ask, "Is this really true?" I am willing to bet in a month you will have come up with at least three industry-transforming ideas.