Tag Archives: apple pay

A Lesson From a Serial Innovator

Disruptive innovation is not about technology

Systems that are innovative at one time can become the “good enough” systems we need to overcome as they age and calcify. While it’s inspiring to see new systems render old ones obsolete, this prescription of change creates a future where decisions about our collective future will be commercial engineering decisions and not social ones.

Disruptive innovation comes at you fast. It is not about creating the best products and protecting profits. For example, with the launch of ApplePay, the whole world can do something Kenyans have done every day for more than 10 years. M-PESA, the mobile payment system offered by Safaricom, has been used by most adult Kenyans and is the model for hundreds of digital payment startups around the world today.

See also: What Is the Right Innovation Process?  

Kenyans don’t have bank accounts, making paper checks useless for all but the largest transactions. M-PESA was an appealing alternative to the status quo for transferring money from one city to another. Before you could transfer money through an SMS, it was common to give money to a taxi driver heading in that direction and ask him to deliver your payment for you. Safaricom, a leading mobile network provider in Kenya, captured consumers out of mainstream banking institutions and built customers — not the best technology.

Disruptive innovation refers to the strategy that employs technology; the technology itself isn’t disruptive, but rather the application of the technology can be disruptive or not. This depends on whether the technology is positioned with a disruptive strategy.

FinTech: Epicenter of Disruption (Part 2)

This is the second in a four part series. To read the first article click here.

To help industry players navigate the changes in the banking, fund transfer and payments, insurance and asset and wealth management sectors, we have identified the main emerging trends that will be most significant in the next five years in each area of the FS industry.

Overall, the key trends will enhance customer experience, self-directed services, sophisticated data analytics and cybersecurity. However, the focus will differ from one FS segment to another.

Banks are going for a renewed digital customer experience

Banks are moving toward non-physical channels by implementing operational solutions and developing new methods to reach, engage and retain customers.

As they pursue a renewed digital customer experience, many are engaging in FinTech to provide customer experiences on a par with large tech companies and innovative start-ups.

Screen Shot 2016-04-08 at 2.03.03 PM

Simplified operations to improve customer experience

The trends that financial institutions are prioritizing in the banking industry are closely linked. Solutions that banks can easily integrate to improve and simplify operations are rated highest in terms of level of importance, whereas the move toward non-physical or virtual channels is ranked highest in terms of likelihood to respond.

Banks are adopting new solutions to improve and simplify operations, which foster a move away from physical channels and toward digital/mobile delivery. Open development and software-as-a-service (SaaS) solutions have been central to giving banks the ability to streamline operational capabilities. The incorporation of application program interfaces (APIs) enables third parties to develop value-added solutions and features that can easily be integrated with bank platforms; and SaaS solutions assist banks in offering customers a wider array of options—which are constantly upgraded, without banks having to invest in the requisite research, design and development of new technologies.

The move toward virtual banking solutions is being driven, in large part, by consumer expectations. While some customer segments still prefer human interactions in certain parts of the process, a viable digital approach is now mandatory for lenders wishing to compete across all segments. Online banks rely  on transparency, service quality and unlimited global access to attract Millennials, who are willing to access multiple service channels. In addition, new players in the banking market offer ease of use in product design and prioritize 24/7 customer service, often provided through non-traditional methods such as social media.

So what?—Put the customer at the center of operations

Traditional banks may already have many of the streamlined and digital-/mobile-first capabilities, but they should look to integrate their multiple digital channels into an omni-channel customer experience and leverage their existing customer relationships and scale. Banks can organize around customers, rather than a single product or channel, and refine their approach to provide holistic solutions by tailoring their offerings to customer expectations. These efforts can also be supported by using newfound digital channels to collect data from customers to help better predict their needs, offer compelling value propositions and generate new revenue streams.

Fund transfer and payments priorities are security and increased ease of payment

Our survey shows that the major trends for fund transfer
and payments companies are related to both increased ease and security of payments.

Screen Shot 2016-04-08 at 2.03.52 PM

Safe and fast payments are emerging trends

Smartphone adoption is one of the drivers of changing payments patterns. Today’s mobile-first consumers expect immediacy, convenience and security to be integral to payments. In our culture of on-demand streaming of digital products and services, archaic payment solutions that take days rather than seconds for settlement are considered unacceptable, motivating both incumbents and newcomers to develop solutions that enable transfer of funds globally in real time. End users also expect a consistent omni-channel experience in banking and payments, making digital wallets key to streamlining the user experience and enabling reduced friction at the checkout. Finally, end users expect all of this to be safe. Security and privacy are paramount to galvanizing support for nascent forms of digital transactions, and solutions that leverage biometrics for fast and robust authentication, coupled with obfuscation technologies, such as tokenization, are critical components in creating an environment of trust for new payment paradigms.

So what?—Speed up, but in a secure way

Speed, security and digitization will be growing trends for the payments ecosystem. In an environment where traditional loyalty to financial institutions is being diminished and barriers to entry from third parties are lowered, the competitive landscape is fluid and potentially changeable, as newcomers like Apple Pay, Venmo and Dwolla have demonstrated. Incumbents that are slow to adapt to change could well find themselves losing market share to companies that may not have a traditional payments pedigree but that have a critical mass of users and the network capability to enable payment experiences that are considered at least equivalent to the status quo. While most of these solutions “ride the rails” of traditional banking, in doing so they risk losing control of the customer experience and ceding ground to innovators, or “steers,” who conduct transactions as they see fit.

Asset and wealth management shifts from technology-enabled human advice to human-supported technology-driven advice

The proliferation of data, along with new methods to capture it and the declining cost of doing so, is reshaping the investment landscape. New uses of data analytics span the spectrum from institutional trading and risk management to small notional retail wealth management. The increased sophistication of data analytics is reducing the asymmetry of information between small- and large-scale financial institutions and investors, with the latter taking advantage of automated FS solutions. Sophisticated analytics also uses advanced trading and risk management approaches such as behavioral and predictive algorithms, enabling the analysis of all transactions in real time. Wealth managers are increasingly using analytics solutions at every stage of the customer relationship to increase client retention and reduce operational costs. By incorporating broader and multi-source data sets, they are forming a more holistic view of customers to better anticipate and satisfy their needs.

Spread Out

Given that wealth managers have a multitrillion-dollar opportunity in the transfer of wealth from Baby Boomers to Millennials, the incorporation of automated advisory capabilities—either in whole or in part—will be a prerequisite. This fundamental change in the financial adviser’s role empowers customers and can directly inform their financial decision-making process.

So what?—Withstand the pressure of automation

Automated investment advice (i.e. robo-advisers) poses a significant competitive threat to operators in the execution-only and self-directed investment market, as well as to traditional financial advisers. Such robot and automatic advisory capabilities will put pressure on traditional advisory services and fees, and they will transform the delivery of advice. Many self-directed firms have responded with in-house and proprietary solutions, and advisers are likely to adapt with hybrid high-tech/high-touch models. A secondary by-product of automated customer analysis is the lower cost of customer onboarding, conversion and funding rates. This change in the financial advisory model has created a challenge for wealth managers, who have struggled for years to figure out how to create profitable relationships with clients in possession of fewer total assets. Robo-advisers provide a viable solution for this segment and, if positioned correctly as part of a full service offering, can serve as a segue to full service advice for clients with specific needs or higher touch.

Insurers leverage data and analytics to bring personalized value propositions while managing risk

The insurance sector sees usage-based risk models and new methods for capturing risk-related data as key trends, while the shift to more self-directed services remains a top priority to efficiently meet existing customer expectations.

Together

Increasing self-directed services for insurance clients

Our survey shows that self-directed services are the most important trend and the one to which the market is by far most likely to respond. As is the case in other industry segments, insurance companies are investing in the design and implementation of more self-directed services for both customer acquisition and customer servicing. This allows companies to improve their operational efficiency while enabling online/mobile channels that are demanded by emerging segments such as Millennials. There have been interesting cases where customer-centric designs create compelling user experiences (e.g. quotes obtained by sending a quick picture of the driving license and the car vehicle identification number (VIN)), and where new solutions bring the opportunity to mobilize core processes in a matter of hours (e.g. provide access to services by using robots to create a mobile layer on top of legacy systems) or augment current key processes (e.g. FNOL3 notification, which includes differentiated mobile experiences).

Usage-based insurance is becoming more relevant

Current trends also show an increasing interest in finding new underwriting approaches based on the generation of deep risk insights. In this respect, usage-based models—rated the second most important trend by survey participants—are becoming more relevant, even as initial challenges such as data privacy are being overcome. Auto insurance pay-as-you-drive is now the most popular usage-based insurance (UBI), and the current focus is shifting from underwriting to the customer. Initially, incumbents viewed UBI as an opportunity to underwrite risk in a more granular way by using new driving/ behavioral variables, but new players see UBI as an opportunity to meet new customers’ needs (e.g. low mileage or sporadic drivers).

Data capture and analytics as an emerging trend

Remote access and data capture was ranked third by the survey respondents in level of importance. Deep risk (and loss) insights can be generated from new data sources that can be accessed remotely and in real time if needed. This ability to capture huge amounts of data must be coupled with the ability to analyze it to generate the required insights. This trend also includes the impact of the Internet of Things (IoT); for example, (1) drones offer the ability to access remote areas and assess loss by running advanced imagery analytics, and (2) integrated IoT platforms solutions include various types of sensors, such as telematics, wearables and those found in industrial sites, connected homes or any other facilities/ equipment.

So what?—Differentiate, personalize and leverage new data sources

Customers with new expectations and the need to build trusted relationships are forcing incumbents to seek value propositions where experience, transaction efficiency and transparency
are key elements. As self-directed solutions emerge among competitors, the ability to differentiate will be a challenge.

Similarly, usage-based models are emerging in response to customer demands for personalized insurance solutions. The ability to access and capture remote risk data will help develop a more granular view of the risk, thus enabling personalization. The telematics-based solution that enables pay-as-you-drive is one of the first models to emerge and is gaining momentum; new approaches are also emerging in the life insurance market where the use of wearables to monitor the healthiness of lifestyles can bring rewards and premium discounts, among other benefits.

Leveraging new data sources to obtain a more granular view of the risk will not only offer a key competitive advantage in a market where risk selection and pricing strategies can be augmented, but it will also allow incumbents to explore unpenetrated segments. In this line, new players that have generated deep risk insights are also expected to enter these unpenetrated segments of the market; for example, life insurance for individuals with specific diseases.

Finally, we believe that, in addition to social changes, the driving force behind innovation in insurance can largely be attributed
to technological advances outside the insurance sector that will bring new opportunities to understand and manage the risk (e.g. telematics, wearables, connected homes, industrial sensors, medical advances, etc.), but will also have a direct impact on some of the foundations (e.g. ADAS and autonomous cars).

Blockchain: An untapped technology is rewriting the FS rulebook

Blockchain is a new technology that combines a number of mathematical, cryptographic and economic principles to maintain a database between multiple participants without the need for any third party validator or reconciliation. In simple terms, it is a secure and distributed ledger. Our insight is that blockchain represents the next evolutionary jump in business process optimization technology. Just as enterprise resource planning (ERP) software allowed functions and entities within a business to optimize business processes by sharing data and logic within the enterprise, blockchain will allow entire industries to optimize business processes further by sharing data between businesses that have different or competing economic objectives. That said, although the technology shows a lot of promise, several challenges and barriers to adoption remain. Further, a deep understanding of blockchain and its commercial implications requires knowledge that intersects various disparate fields, and this leads to some uncertainty regarding its potential applications.

Blocks

Uncertain responses to the promises of blockchain

Compared with the other trends, blockchain ranks lower on the agendas of survey participants. While a majority of respondents (56%) recognize its importance, 57% say they are unsure or unlikely to respond to this trend. This may be explained by the low level of familiarity with this new technology: 83% of respondents are at best “moderately” familiar with it, and very few consider themselves to be experts. This lack of understanding may lead market participants to underestimate the potential impact of blockchain on their activities.

The greatest level of familiarity with blockchain can be seen among fund transfer and payments institutions, with 30% of respondents saying they are very familiar with blockchain (meaning they are relatively confident about their knowledge of how the technology works).

How the financial sector can benefit from blockchain

In our view, blockchain technology may result in a radically different competitive future in the FS industry, where current profit pools are disrupted and redistributed toward the owners of new, highly efficient blockchain platforms. Not only could there be huge cost savings through its use in back-office operations, but there could also be large gains in transparency that could be very positive from an audit and regulatory point of view. One particular hot topic is that of “smart contracts”—contracts that are translated into computer programs and, as such, have the ability to be self-executing and self-maintaining. This area is just starting to be explored, but its potential for automating and speeding up manual and costly processes is huge.

Innovation from start-ups in this space is frenetic, with the pace of change so rapid that by the time print materials go to press, they could already be out-of-date. To put this in perspective, PwC’s Global Blockchain team has identified more than 700 companies entering this arena. Among them, 150 are worthy to be tracked, and 25 will likely emerge as leaders.

The use cases are coming thick and fast but usually center on increasing efficiency by removing the need for reconciliation between parties, speeding up the settlement of trades or completely revamping existing processes, including:

    • Enhancing efficiency in loan origination and servicing;
    • Improving clearing house functions used by banks;
    • Facilitating access to securities. For example, a bond that could automatically pay the coupons to bondholders, and any additional provisions could be executed when the conditions are met, without any need for human maintenance; and
    • The application of smart contracts in relation to the Internet of Things (IoT). Imagine a car insurance that is embedded
      in the car and changes the premium paid based on
      the driving habits of the owner. The car contract could also contact the nearest garages that have a contract with the insurance company in the event of an accident or a request for towing. All of this could happen with very limited human interaction.

So what?—An area worth exploring

When faced with disruptive technologies, the most effective companies thrive by incorporating them into the way they do business. Distributed ledger technologies offer FS institutions a once-in-a-generation opportunity to transform the industry to their benefit, or not.

However, as seen in the survey responses, the knowledge of and the likelihood to react to the developments in blockchain technology are relatively low. We believe that lack of understanding of the technology and its potential for disruption poses significant risks to the existing profit pools and business models. Therefore, we recommend an active approach to identify and respond to the various threats and opportunities this transformative technology presents. A number of start-ups in the field, such as R3CEV, Digital Asset Holdings and Blockstream, are working to create entirely new business models that would lead to accelerated “creative destruction” in the industry. The ability to collaborate on both the strategic and business levels with a few key partners, in our view, could become a key competitive advantage in the coming years.

This post was co-written by: John Shipman, Dean Nicolacakis, Manoj Kashyap and Steve Davies.

5 Questions That Regulators Must Ask

Fast growth and disruptive strategies make the likes of Uber, Airbnb and Lending Club a vanguard of young, fundamentally digital companies that are changing the way people travel, save, learn, eat, pay, lend—and more. Typically positioned as alternatives, they offer, among other things, financial services without being banks, car services without being taxi companies and somewhere to stay without being hotels.

In other words, the companies don’t play by established industry rules. And that’s the reason regulators and courts in a number of countries struggle to make sense of the changed industry ecosystems they oversee as they try to determine whether to permit or prohibit these digital disruptors. We believe the choice doesn’t have to be black or white: Regulators will want to enable the potential of these digitally contestable markets to deliver efficiency and innovation, while minimizing risks for consumers and the burden of adjustment for incumbents. The question is, how should they approach this difficult task?

The entrepreneurs who create digitally disruptive companies are routinely guided by a number of related strategic questions. We believe oversight bodies can use similar questions to arrive at appropriate regulatory responses. Here we suggest five:

1. How can we better serve customers’ needs and wants?

Many of the new digital business models work by putting underemployed talents or assets—like spare rooms or underutilized cars—to productive use. These business models usually won’t fit into traditional industry categories, such as “hotels” or “taxis.” Consequently, to make sense of them, regulators should fully consider the perspective of the consumer, setting aside purely industry sector approaches and taking a market view—the market for overnight stays or for travelling within a city, for instance. This way, they can support the successful operation of the market as a whole, namely balancing the many different outcomes demanded by consumers, including price, quality, availability, choice and safety.

Doing so will enable regulators to make a sober and impartial assessment of a new player’s potential to improve or upset this balance. Ruling out new players from the start simply because they don’t fit an existing industry definition could deny consumers better or cheaper ways of fulfilling their needs and wants. Worse, a start-up whose activities fall outside the realm of regulation could decide to enter an unregulated “shadow” sector that could ultimately create even greater trouble for incumbents and consumers. The recent rise of the so-called shadow banking sector should give consumers and regulators alike pause for thought.
In practice, regulators may be constrained by existing laws; they can, however, start the conversation about how regulation will need to adapt.

2. Are we considering all the competition?

Within a digitally contestable market (for example, the market for payments) new entrants very often straddle multiple industries. A good example is Apple Pay, a new way of paying for things with an Apple device. It has the potential to reinvent in-store and mobile transactions, simultaneously disrupting the telecom, financial services and retail industries. The market for wearable biometric technology is another example, bringing together high-tech, mobile and healthcare services within accessories and apparel that needs to be demonstrably safe for personal use.

As digital markets run beyond industry boundaries, regulators in different industries will need to collaborate with one another to catch up. Collaboration between regulatory bodies, where appropriate, may be both necessary and desirable—not only to execute current responsibilities but also to create common frameworks that encourage businesses to invest in digitally contestable markets. This approach can drive growth and productivity for the economy as a whole.

3. Are we thinking globally?

Just as digital disruptors don’t conform to traditional industry definitions, neither do they confine their ambitions within national borders. Mobile apps can work in the same way the world over as long as there is unfettered Internet access, and providers want to back them with consistent services. Moreover, customer expectations exhibit a ratchet effect. If it’s possible to use a mobile app to arrange a ride in London, why not in any other city? Why should a consumer’s experience of VoIP services from the same provider vary from country to country?

The work of regulators will increasingly depend on international collaboration. National bodies should actively align their work programs to increase the evidence base, accelerate the uptake of “next practice” and coordinate regulatory responses where it makes sense to do so in the interests of consumers.

4. Where can we experiment?

Digital disruptors don’t just compete in existing markets—they explore, create, define and shape new markets. Take Postmates, a San Francisco startup launched in 2011 that has built its business model on the entire process involved in “getting things,” including queuing, purchasing and delivering. Consumers and businesses can use the company’s app to arrange for a “Postmate”—an individual with spare time and wheels—to buy and hand-deliver any item within a city in less than an hour for a distance-based fee starting at $5. Using technology to combine elements of the retail, courier, concierge and postal sectors, the company is opening up a market for integrated convenience services previously available only to the affluent. Postmates can now be found in 13 metropolitan areas in the U.S. and has inspired similar services in Europe. It is also developing a merchant program to enable local businesses to initiate deliveries to customers and establish virtual stores within the Postmates app.

Disruptive businesses don’t wait for market potential to be proved before they act—and neither should regulators. While regulators will always base their oversight activities on deliberative, comprehensive assessments, today they also need to become as agile as the new players to react quickly to events, or even anticipate them. Digital tools and techniques can help.
One example: A/B testing, frequently used by digital disruptors to run multiple fast experiments on small samples of their customer base. This enables them to refine and improve proposed changes to the online user experience—design, offerings, prices—before rolling them out in full. While taking care to secure the consent of participants, regulators could harness techniques like these to test regulatory adaptations. If a market’s participants innovate and succeed through speedy knowledge of what works and what doesn’t, why shouldn’t that market’s enabling framework benefit in the same way?

5. Do we know what’s around the corner?

Digitally contestable markets often catch regulators by surprise. The head of the UK’s Competition and Markets Authority called digital disruptors “a Schumpeterian gale” sweeping across the economy. To harness the power of this storm of creative destruction, regulators will have to do more than simply react to change. They also need to be prepared before markets are upended.
To prepare effectively, they should make renewed use of horizon-scanning activities to spot systemic risks and emerging trends. When postal agencies (and their regulators) were debating the competitive merits of “last-mile” delivery companies, did they really envisage the breadth of service integration that players like Postmates would provide? Regulatory agencies will also need to develop techniques that encompass new technologies, encourage innovative business models, and explore new and more effective policy tools.

digital

Getting Started

The level of uncertainty generated by digitally contestable markets is unprecedented. New market dynamics are rapidly altering the boundaries and methods of oversight. Regulators will need to build new capabilities if they are to ask and meaningfully answer the five critical questions. They can start in three areas:

1. Talent: They should recruit people with experience in startups, to acquire the range of skills and mindsets needed to cope with fast-changing markets. Agencies should also ensure they have employees who are well-acquainted with disruptive technologies, whether through their work or simply in daily life.

2. Technology: To inform and enhance decision making, regulators should become comfortable with employing digital technology, including the “SMAC” of social, mobile, analytics and cloud. In particular, they should make full use of the intelligent data collection tools available today, including consumer apps such as Field Agent, as well as the burgeoning Industrial Internet of Things. Their goal should be to improve decision making using an evidence-based and data-driven approach. Beyond that, big data analytics can help them more accurately predict changes in customer and regulatory demand.

3. Tactics: To better anticipate and meet regulatory challenges, there are some no-regret steps regulators can take. For example, they can undertake “social listening” via Twitter, LinkedIn and other conversation spaces; this will help them identify future market players and spot market trends. Regulators should also participate in industry “hackathon” events to learn about the challenges entrepreneurs and innovators are currently facing, and even employ their own open, problem-solving events—physical or digital—to understand current concerns and explore potential solutions.

Digital innovation hasn’t changed the objective of regulation: promoting consumer welfare. But how to do it—developing and applying rules that deliver efficient and equitable outcomes—has become more complex and difficult. In economies increasingly populated by digital disruptors, the first step for regulators is to begin to question, think and act like the companies they oversee.

This article was originally published in Outlook, Accenture’s online journal of high-performance business. It is available here

Read more about digitally contestable markets here and ecosystem collaboration here.

What the Apple Watch Says About Innovation

Now that the dust has settled on the long-anticipated unveiling of the Apple Watch, a major obstacle to its success is coming into view: the iPhone.

The Apple Watch has been the subject of breathless anticipation for years because, as Tim Cook said at its introduction, it represents “the next chapter in Apple’s story.” Conceived three years ago, shortly after Steve Jobs’ passing, the Watch is the embodiment of multiple dramatic arcs and aspirations.

It is the first major product developed under Tim Cook and Jony Ive outside of Jobs’ shadow—and thus has huge personal and legacy implications for both men.

The Watch is also Apple’s attempt to catalyze and dominate the wearables category. Given the intense competition in the smartphone market and the widespread view that new killer products, platforms and ecosystems will emerge somewhere at the intersection of the Internet of Things and wearable computing, the Watch is central to Apple’s post-iPhone strategy.

It might seem that the iPhone should be the Apple Watch’s greatest asset. Apple is positioning the Watch as a jaw-dropping, must-have peripheral to the iPhone. Millions of iPhone-toting Apple fans are sure to queue up upon the Watch’s 2015 launch to buy it. But do not mistake early adopters for market validation. For billions of other potential customers, the Watch’s close linkage and tethering to the iPhone could be a fundamental weakness.

In the short term, Apple must convince existing customers that they need a Watch in addition to their iPhone. Apple, however, has yet to offer a convincing case for this.

Long-rumored groundbreaking health apps built on Watch-mounted sensors have not materialized—disappointing many healthcare watchers (including me). That leaves Apple competing against more narrowly focused wearable devices like the Fitbit and Pebble—but at multiple times the price and fractions of the battery life.

Apple is also touting Apple Pay as a killer app that will attract consumers to the Watch. But, while Apple Pay is an intriguing service-oriented strategy for Apple, there is no need for consumers to buy an Apple Watch to use it. Apple Pay will work fine with just the iPhone.

For now, it seems that Apple has higher hopes for the Watch as a fashion accessory than as a category-defining killer app. But even that highbrow aspiration has ample skeptics who question the Watch’s fashion chops and business potential.

In the long term, when and if compelling apps emerge for the Watch, Apple will have to convince Watch enthusiasts that they need an iPhone in addition to the Watch.

This might not seem like a limiting factor given that there are more than 300 million active iPhone users. But imagine if the iPhone were just a peripheral to the Mac, thereby limiting its addressable market to Mac owners. Or imagine if the iPhone had to be tethered to the iPod. Do not such scenarios, in retrospect, sound implausibly shortsighted?

Both the Mac and the iPod were great products with loyal followings at the iPhone’s introduction. Apple, however, did not limit the iPhone to its predecessors’ market niches. As shown in Figure 1, the result was a blockbuster that lifted Apple far beyond those earlier products. The iPhone has grown to represent more than half of Apple’s revenues and perhaps even more of its profits.

chunkagraph1

Figure 1 — Apple Device Sales

Now the iPhone has a loyal following but a small share of the smartphone market. Will Tim Cook limit the Apple Watch’s success to iPhone owners, or will Cook free it to dominate the potentially larger wearable devices space?

Freeing the Watch is a strategic imperative.

History tells us that market-leading technology products like the iPhone inevitably fade. The companies that depend on them must innovate into the succeeding categories or fade as well. Kodak, Polaroid, IBM, DEC, Nokia, Motorola, Blackberry, Intel, Sony, Dell and Microsoft are among those fading or faded companies.

All of those other companies underutilized disruptive advances in information technology for (at best) incremental enhancements to their dominant products. By doing so, they missed out on new killer products, business models and industries that coalesced around the new platforms enabled by those technology advances.

Thus, Kodak wasted decades trying to deploy digital photography (which it invented) as an enhancer to its dominant film-driven businesses. Microsoft was slow to the web and the cloud and killed its early e-reader and tablet devices because of internecine struggles over how those new categories related to its Windows and Office businesses. The list goes on: IBM did not lead in minicomputers. DEC and every other leading minicomputer maker missed out on personal computers. Motorola and Nokia were killed by smartphones, and Blackberry is near death.

Limiting the Watch to a peripheral role in the iPhone-centric ecosystem would repeat the same mistake made by those earlier market-leading technology companies.

That’s not to say there is not a lot of money to be made in the defend-the-cash-cow approach. Just look at the more than $650 billion in revenue and nearly $250 billion in earnings that Steve Ballmer delivered in his tenure as Microsoft CEO. Ballmer achieved those impressive numbers by defending and milking Microsoft’s dominant Office and Windows products. Ballmer, Microsoft and its investors missed out, however, on the market value created by Google, Apple, Facebook, Twitter and others that capitalized on search, big data, cloud computing, mobile devices and social media. Ballmer’s inability to grow beyond the core products that he inherited stagnated Microsoft’s market value for a decade.

Likewise, Tim Cook could nurse Apple’s iPhone-driven revenue stream for a long time. I doubt, however, that Tim Cook would be satisfied with a value-creation legacy comparable to Steve Ballmer’s.

It is too early to dismiss the Apple Watch’s potential to transcend the iPhone. We’ll get a measure of Apple’s foresight when it releases the software development kit (SDK) for the Watch. That will show how fundamentally tethered the Watch is to the iPhone and whether Apple has laid the groundwork for the Watch to be standalone at some point.

The real gut check for Tim Cook is further out in time, when technology and creativity enables wearable devices like the Watch to not only stand alone from the iPhone but also to replace it.

Will Tim Cook allow the Watch to cannibalize iPhone sales—as Apple previously allowed the iPhone to eat away at the iPod and risked the iPad’s doing the same to the Mac? Or will Apple stagnate as competitors and new entrants out-innovate it? Will Apple fade away as the riches from new killer apps, devices, ecosystems and business models that coalesce around emerging wearables-centric platforms flow to others?