As large companies seek digital innovation, they find inspiration from startups. What is it that drives corporations to engage with startups, and how is this new ecosystem affecting the innovation roadmap in the long-term?

What do Nike, Mondelez, Nestlé, Coca Cola, and Disney have in common? They’re all teaming up with small and early stage startups to fuel digital innovation.

Firing up with startups

Mondelez, for example, the owners of popular brands Oreo, Ritz, Triscuit, Cadbury, and many more, charged the social curation platform RebelMouse (with its less than 50 employees) to rebuild the company’s websites and make them more engaging and relevant to consumers.

At Nestlé, we are piloting the content management platform Opal Moments to give our brand teams a tool for strategic planning of social media content. Unilever (Dove, Lipton, Ben & Jerry’s, etc.) invested in series A funding for the semantic recipe search engine Yummly.

And Diet Coke partnered with Pixlee, a visual content marketing firm with $1.5M in venture capital funding, to help them curate the best user-generated pictures for a photo contest.

Pixlee Diet Coke

Accelerating innovation

More and more consumer goods companies are creating dedicated innovation labs in startup hubs such as Silicon Valley, New York, and London and investing in startup accelerator programs to establish direct access to innovation from entrepreneurs.

At Nestlé we set up our own presence in Silicon Valley a little more than a year ago where we are tasked with finding disruptive digital innovation and implementing breakthrough startup technologies to help the company pursue its ambitious goal of going further and faster in digital technologies than the rest of our industry.

Other companies invest in their very own accelerator programs. Disney, for instance, just announced that it will invite 10 selected startups for a three-month mentorship and seed-stage investment program, offering each participant $120,000 to build their ideas.

Disney Accelerator

Nike invested in an accelerator program last year that invited 10 startups to build new services on its Nike+ platform. The company is extending the program into 2014 with a new accelerator opening this spring in San Francisco.

Road paved with good ideas—from startups

What is it that drives corporations to engage with startups, and how is this new ecosystem affecting the companies’ innovation roadmap in the long-term?

The answer is consumers and their expectations regarding engagement with brands. Today’s consumer is always connected, increasingly mobile, and active on social networks.

Global ownership of smartphones is exploding: one person in every five owns a smartphone, while one in every 17 owns a tablet. Last year, users downloaded more than 86 billion apps on smartphones and tablets. In addition, consumers are spending more time on social platforms than ever before, with more than two fifths of online adults now using multiple social sites.

Social media sites, 2012-2013

All of this not only profoundly changes the way they communicate with each other, but also with brands.

In this environment, fast-moving consumer goods companies find it increasingly difficult to connect to their customer base via traditional ads and communication channels. While traditional marketing used to be a one-way messaging push, consumers now expect entertainment, authenticity, and an open dialogue from brands.

Today, companies are looking for new ways to engage with their target group and create experienced-based brand communication. Digital technology can become the enabler for this new form of communication, which is more entertaining, native, and focused on consumer needs.

Think about it this way, brands are not just using digital solutions to distribute their message on Facebook or Twitter, they are using technology creatively to make the experience (Bob W. Lord & Ray Velez, Converge, 2013). Purina, for example, developed the addictive Flappy Bird style mobile game Pop It for their recent product launch.

Finding the next big thing: Why you might not want to do-it-yourself

Not all consumer goods companies are set up to produce consumer facing digital technologies, and many lack in-house software engineers and developers. They understand consumers but not necessarily the users of digital interfaces. Therefore, collaborating with external partners like startups can be a fast and efficient way to create this new form of marketing communication.

Startups are attractive to consumer goods companies. They are fast, nimble, and offer competitive pricing. Entering conversations with innovative entrepreneurs gives established companies the opportunity to have an early peek into “what’s next” and the possibility to – collaboratively – explore new paths of digital marketing for brands.

Identifying trends

Ultimately, collaborating with startups and testing new ways of engaging with consumers can help companies find the door to the next trend in marketing: digitally-enabled brand services. These technology-enabled experiences will allow brands to extend their product offering in a way that adds value for the consumer and creates a long lasting relationship (Bob W. Lord & Ray Velez, Converge, 2013 and L. McQuivey, Forrester 2014).

The most prominent example of such an offering is probably Nike Fuel. Nike has successfully mastered the progression from providing just a product to offering its customers a digitally enriched brand experience.

Nike Fuel

Nike Fuel is not only a wearable device that complements running shoes, apparel, and outerwear; it also is a digital platform, which on one hand creates a value added service for consumers and on the other hand establishes the potential for millions of instances of consumer engagement opportunities for the brand.

While Nike did develop the foundation of their digital offering in-house, this will not be possible for every company. Many will find it easier to partner with startups whose core strengths is to think about users and their (digital) needs.

To go this route, even in times of digital communication, the physical proximity of a dedicated innovation hub may prove to be a critical factor for success. Expect more, and expect it soon.

Want to read more about consumer-driven market change? Read our post on how the evolving customer is pushing technology in the automotive industry.