Internet adoption and the SMEs

Exhibit 2 : E.ROGERS’ Diffusion of innovations theory

This model is inspired from the adoption curve of E.ROGER (xyz) is used to classify adopters of a new technology and monitor its diffusion. Rogers’ theory states that adopters of any new innovation could be categorized as innovators, early adopters, early majority, late majority and laggards. Characteristics of these categories are described further. The horizontal axis represents the life time of the technology; this length of time is variable but always follows the same path, accordingly to two factors. The speed of adoption take off and the speed at which later grow occurs. Factors could be the price to access the technology (if it is cheap take off should be quick), and its ability to spread the network effect. This tool can be used to help marketing decision, as it enables to identify the potential users of a technology in time; in other words, it can be used to test the maturity of a technology on a market. It helps measuring the investment risk, targeting the right consumers at the right time. Investment can be done at the pike of the curve, when the maximum amount of consumers will be concerned; marketing strategy can be voluntarily targeting other profiles of users, i.e. to enter a niche market.

Here follow the categories of users:

(source: www.valuebasedmanagement.net )

Innovators: Brave people, puling the change. Innovators are very important communication.

Early adopters:
Respectable people, opinion leaders, try out new ideas, but in a careful way.

Early majority:
Thoughtful people, careful but accepting change more quickly than the average.

Late majority:
Skeptic people, will use new ideas or products only when the majority is using it.

Laggards:
Traditional people, caring for the "old ways", are critical towards new ideas and will only accept it if the new idea has become mainstream or even tradition.

In small retailers photo store there used to be a natural segmentation of two categories of customers: these who buy on line and these who buy in store.

I used this curve to evaluate the adoption of Internet use in photography consumption, and more specifically the photo finishing consumption. One of the question to answer for a small retailer could be : Is it the right time to invest and build a system that enable on line photo consuming? Or, in other words, identify in which stage is currently evolving the online photo market, and what segment of adopters should be the target going on line now?

ccording to the SIPEC study, Internet has directly impacted the way to consume photography during the past years. In 2000, 4% of the prints were ordered online, today it represents 16% of the total prints orders[1]. The growth is recorded with 100% of progression per year as the number of shots increase. Yet, Internet also brought many new possibilities for the consumers to store, organize and share their pictures. PMA study estimates that 2/3 of shots were not be printed in 2005, but does not mention what have been done with these pictures. As of 2006 Snapfish, a web company that proposes storing, sharing and printing services since 2000 claims to have over 19 million members, and houses over 350 million unique digital pictures (wikipedia). Another survey from the web company Hitwise reveals that Snapfish’s market share of visits was only 4,06% towards the other players of that market the 17^th of June 2006 (exhibit 3). PixVillage a French peer to peer company dedicated to photography sharing announced in April 2005 that it had recorded the sharing of more of 1 million photos; in September 2006 the number was over 3 million.

Impact of network effect can be clearly identified in the growth of the studied market, and the role of incremental Internet innovations may be as well. That is a point on which Roger’s model can be criticised for being a too simple representation as it does not explicitly assess the interaction between the technology and its adopters.

Roger Clarke, in the article A Primer in Diffusion of Innovations Theory (1999) states that the nature of innovation might be impacted itself by the users as it is moving through the stages of adoption.

According to Clarke the stages through which a technological innovation passes are:

• knowledge (exposure to its existence, and understanding of its functions);
• persuasion (the forming of a favourable attitude to it);
• decision (commitment to its adoption);
• implementation (putting it to use); and
• confirmation (reinforcement based on positive outcomes from it)

Important characteristics of an innovation include:

• relative advantage (the degree to which it is perceived to be better than what it supersedes);
• compatibility (consistency with existing values, past experiences and needs);
• complexity (difficulty of understanding and use);
• trialability (the degree to which it can be experimented with on a limited basis);
• Observability (the visibility of its results). proposes a set of characteristics to define the stages of a innovation diffusion.

During the period concerned by the statistics surveys, Internet improved in several aspects such as the development of Web2.0 and peer to peer functionalities. The purpose here is not to discuss if these technologies have to be considered as incremental or disruptive technologies against the “traditional” use of Internet. Facts show that these technologies contributed to the success of the firms quoted in Hitwise survey. On the other hand, these firms managed to enlarge and fasten the process of adoption, basing their activity on consistent business models and value creation processes for the consumers. .

Speed and succeed of adoption are therefore based on a combination of elements that are inherent to the technology capacities, and the adopters actions on them as well. For example, XML technology has made the Internet easier for users, and users have turned this technology into valuable features such as Web 2.0; online storing of pictures has proven relative advantage against the old way (i.e. CD storage) but firms contributed to it diffusion making it “try able and observable” by making it valuable, often almost for free.

Therefore the initial question “Is it the right time for small retailers to invest and build a system that enable on line photo consuming?” should be formulated as following: “what could be the small retailers’ contribution in diffusing the use of Internet in photo consumption?” The issue is not anymore to find out whether they have opportunity to target early adopters or majority. It would rather be evaluate their own capability, in terms of business model and value creation process, to go and generate revenues on line.