Open Innovation at Tesco

Point: Open innovation makes developing niche products and services affordable

Story:Tesco.com, the world’s largest online grocery retailer, is opening its API to third-party developers. Developers get access to Tesco’s powerful grocery engine to design apps for specialized purposes. For example, a developer could design an app for customers who have an allergy to peanuts. The app would display only those Tesco grocery items that are free of any peanuts. Likewise, another app could focus on calorie counting: customers could order just the right amount of food to stay within the calorie, carb, and fat limits of their chosen diet.

The Open Innovation strategy is a win/win: Tesco doesn’t have time to develop and support all these apps internally, so it benefits from the skills of external developers. The developers might have special relationships with particular customer segments (e.g., a tie to allergist or being the author of a best-selling diet books).  External developers get compensated (currently 5 pounds) for each new customer who signs on to Tesco.com, and they receive a micropayment for each purchase made that used the app.

The biggest hurdle Tesco executives had to overcome before opening up to external developers was “allowing someone to be between us and the customer,” said Nick Lansley, head of Tesco.com. “This is an issue. But what convinced us is that we don’t have the time or resources to write for all these different websites, but others do.”  Tesco requires that developers must support the app and they can’t use “Tesco” in the title, only “powered by the Tesco API.”  To further convince developers that the initiative is real, Tesco stated that they will maintain the API for at least two years.

Action:

1. Define a reusable interface that lets software developers bundle or use your systems to meet new needs
2. Create a mutually-beneficial compensation plan to both attract developers and to encourage developers to attract customers
3. Pledge to support the API

For Further Information:

http://www.vimeo.com/7738321

4 Comments »Case study, Innovation, open innovation

4 Responses to “Open Innovation at Tesco”

  1. Josh Gluckman Jan 11th 2010 at 03:44 pm 1

    This is a great development, and great open innovation example.
    I can already envisage some handy applications for Halal/Kashrut certifications…

  2. Andrea Meyer Jan 11th 2010 at 03:50 pm 2

    That’s a great point, thanks Josh!

  3. larry berezin Jan 17th 2010 at 03:53 pm 3

    Andrea
    Well wishes for the New Year. I hope things are going great for you.
    Excellent, thought-provoking post, as usual. Does this seem to be a business trend embraced by larger companies; or is Testco forging some new frontier?

  4. Andrea Meyer Jan 17th 2010 at 06:33 pm 4

    Thanks for your well-wishes and kind comment, Larry. You pose a good question. I know that many technology companies have APIs for their products (for example, Microsoft, Apple, Google Android, Twitter, Amazon, etc.), but currently I think it’s still unusual for non-technology companies to offer an APIs because companies fear having someone between them and the customer. Yet, as the world’s first and largest online grocery retailer, Tesco is naturally on the forefront of expanding its leadership. The idea of letting a third party use your company’s technology through an API becomes justified when your company thinks there are others out there who know about non-customers’ needs and have a way to facilitate making those non-customers become your customers. Second, I also think that the need for speed and constraints on internal resources may make this more of a trend. With an API you can encourage other really smart folk to invest in developing some cool new applications at almost no cost to your company that create new business for both parties.

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