SHANGHAI – "Reverse innovation" should not be confused with “reverse engineering.” Let's examine the differences.
First, some context.
Earlier this month when I sat down for breakfast here with Feng Chen, vice president of China fabless company Rockchip, he abruptly asked if I knew the “80-3-2 rule.” I had never heard of it.[Get a 10% discount on ARM TechCon 2012 conference passes by using promo code EDIT. Click here to learn about the show and register.]
The subject came up as we were discussing the global media tablet market. Chen, who noted that this is his personal theory, not Rockchip’s, explained: If you design a system (or chip) with performance of at 80 percent compared to the best-in-class product on the market, and if you offer it at one-third the price, you can double the sales volume of your system (chip).
Chen used the media tablet market as an example. Many Android-based tablets with relatively less performance than Apple’s iPad, will eventually exceed sales of iPad in volume, he argued.
In other words, don’t over-engineer it.
Android, along with outsourcing and faster product turnarounds are the key elements that make the 80-3-2 rule possible. The rule also offers a mechanism for getting products in the hands of consumers.
Source: IHS iSuppli
Does the 80-3-2 rule make sense? Sort of.
The chart above illustrates the theory’s flaw: While Apple gets all the profits generated by the iPad, sales revenue for the Android camp is divvied up by many me-too Android tablet and chip suppliers. Presumably those companies, all subscribing to the 80-3-2 rule, are fiercely undercutting one another, further reducing their margins.
So, the 80-3-2 rule is simplicity itself, but it doesn’t look sustainable to me.
Chen’s theory reminded me of something else. The Economist
carried a story about "frugal innovation." The article cited companies like General Electric and India’s Tata Consultancy Services (TCS) that developed new products like a hand-held electrocardiogram (by GE) and a water filter (TCS).
“Instead of adding ever more bells and whistles, they strip the products down to their bare essentials," embarking on “frugal innovation,” or as it is sometimes called, “reverse innovation,” the Economist