[TIM KASTELLE] Chester Carlson invented the photocopier - and

he was granted a patent for this in 1942.

He built the first Xerox machine in his kitchen, and then he had to figure out how
to make
some money from his invention.
After a few years of trying on his own, he realized that he needed some
manufacturing
clout to help him bring his idea to market, so he sold a license to Haloid
Photographic
Company.
He went to work for them, and in 1949 they launched the Xerox Model A photocopier.
Which utterly and completely failed.
They thought that the value they should create was to replace a mimeograph machine.
This made sense, because nearly every company in America at the time had one.
But at six times the cost for machinery, and the same cost per copy, no one was
interested
in replacing a machine that on average made about 100 copies per month.
So Haloid and Carlson went back to work.
In 1959, they launched the Xerox 914.
This time, instead of replacing another machine, like the mimeograph, they looked
at the other
way that people made permanent copies then - they tried to replace a typist.
This ended up making more sense, and within five years they were selling 500
million dollars
of 914s annually.
This was not based on a technological breakthrough - the 914 wasn't really that
different from
the first photocopier that Carlson built in his kitchen.
The innovation was in the business model - finding the right problem to solve, the
right way
to create value.
The number of companies that had large typing pools was much smaller than the
number that
had mimeographs.
But typists were a lot more expensive - so the potential value was much greater for
those
firms.
It took finding the right business model to get Carlson's great idea to work.
It didn't work when their value proposition was "replace your mimeograph machine"
and
the target market was "every company in America."
But it did once the value proposition was "replace a typist" and the target market
was
"only the 500 largest companies."
After the breakthrough with the 914, Haloid changed their name to Xerox, and they
kept
innovating.
They made machines that were faster, that could copy on both sides, that could
staple
and sort.
Their machines were big and expensive.
And they still mostly sold to the largest organizations.
If you were smaller, you either still used a mimeograph, or you went to a print
shop
that could afford to buy a big Xerox machine.
This changed in the 1970s when Ricoh and Fuji introduced new, smaller copiers.
Technologically, their machines were a lot like the original Xerox Model A. Their
value
proposition was the same too - "replace your mimeograph" and their target market
was "every
company in America, and Japan and Europe too."
And this time, that business model worked.
The value of photocopying had been established for more than 20 years so now
mimeograph owners
were more than ready to make the switch.
Because their new competitors' technology was so primitive, at first Xerox didn't
pay
any attention to them.
After all, they knew you couldn't make money at the low end of the market.
Well, at least, Xerox couldn't.
They sold through a well-trained, expensive direct sales force.
This model worked when your target customers numbered in the 1000s.
But it didn't work at all when there were suddenly millions of potential customers.
Ricoh and Fuji, they addressed this by not having a sales force at all - they sold
their
machines through office supply stores.
All this nearly put Xerox out of business.
Eventually, they figured out how to reach all parts of the market.
But in the time it took to do this, their competitors were building bigger, more
sophisticated
copiers and were now competing with Xerox at the high end of the market.
To find new growth markets, Xerox started to invest heavily into research and
development
on personal computers.
They put together one of the best corporate R&D teams in history at their Palo Alto
Research
Center, Xerox PARC - and that team basically invented all of the critical parts of
personal
computers.
Through this work, Xerox became the first computer company in the world to offer a
PC
with: a mouse, a graphical user interface, network capability, laser printers, and
many
other things we now take for granted.
They tried to sell all of these things - and they failed.
They packaged them up so that each component was very expensive, and they targeted
their
big corporate clients.
Xerox ended up selling off the patents, or licensing them.
The technology developed at PARC ended up getting into the market through Apple and
the first Macintosh PCs - using their own graphical user interface and mouse,
through 3COM - built
on their networking technology, through Adobe, built on their Portable Document
Format, and
several others.
They made a ton of money off of laser printers - because that's something that
their big
corporate clients did need.
Everything else was successful outside of Xerox.
This story tells us three very important things about creating value with our new
ideas.
First, great new ideas usually need new business models to realise their potential
impact.
All of the inventions from Xerox PARC failed for Xerox because they tried to use
them within
their existing business model.
This only worked for laser printers.
All the other inventions needed new business models to succeed.
The second lesson is that it takes time to find the right new business model.
It took Chester Carlson about 7 years to invent and patent the first photocopier.
It then took Carlson and Haloid another 20 years to find a successful business
model
for this new invention.
Finally, the entrance of Ricoh and Fuji into the photocopier market tells us a lot
about
business dynamics.
Their technology was nearly 40 years old when they launched their copiers - and
yet, they
nearly put Xerox out of business.
They did this by inventing a successful new business model that was nearly
impossible
for Xerox to copy.
It all shows that to create value, new ideas need new business models.