Lessons From General Motors' Fall from the Top.

The news today is grim on several fronts, as recession fears continue to grip world markets. If plunging markets and an economic slowdown weren't bad enough, it became official that General Motors is no longer the world's largest auto manufacturer.

While GM hasn't lost the title entirely, its new sales data shows it's in a dead heat with Toyota. Odds are, as many industry analysts have predicted over the past several years, Toyota will overtake GM and retain the new leadership mantle with ease.

At the same time, Apple's financial data shows iPod sales slowed. While the company famous for its Mac computers and the iPhone sold more of the personal music players in the last quarter than ever before, the increase in year-over-year sales slow to its lowest point since the gadget was introduced five years ago.

Part of what's behind the rise--and fall--of these giants is innovation and the failure to keep innovating.

GM built its business on a tried-and-true model of fixed obsolescence. Like most carmakers, GM's cars and trucks have an average lifespan of about five years (coincidentally, the same time as most car loans). Each year, it releases new models with modified designs, features and performance standards. The idea is to entice people to churn their cars in favor of more stylish vehicles with new, previously unavailable features.

Guess what? We saw the same thing with the iPod. The iPod Apple sold over the holidays is hardly the same as the brick it introduced in 2002. For roughly $200, you could get a new 8 GB iPod Nano with a solid-state hard drive, color screen, video capabilities and a host of new features like games and whiz-bang graphics that were previously unavailable. Sitting alongside the Nano on the store shelf was the "classic" iPod. For just $150 more, you could get 80 GB of memory and video, but it's also three times the size and has none of the new features.

For the same money as the Nano and $100 less than the iTouch (basically a iPhone sans phone), gadget buyers could get a Microsoft Zune. Larger than a Nano and with a screen even larger than the Classic, Zune outsold iPod for the first time over the holidays. This leap happened because the ...