An Insider’s View on Product Management

July 30, 2009

The importance of being first to market

Or is it? In the wake of the excess of the late ‘90s where in the name of market shares acquisition colossal amount of money were spent, one can seriously doubt it. What happened to the like of pets.com, eToys.com and the infamous Webvan?

As always the truth is not as simple. Being first usually confer a serious advantage to companies but also brings its share of problems. The whole intent to be the first mover in a new market segment is to capitalize on the lack of competition to capture mind shares and market shares.

Position your brand in customers’ minds

From a marketing point of view, this is a unique opportunity to establish your brand as the dominating player in a new field. Who has the best cola? Coca-cola. Who has the best car rental services? Hertz. And so on. By building customer loyalty early on with great customer service and establishing a superb reputation, a savvy product manager has the opportunity to strengthen his brand and create a formidable barrier to entry for potential competition.

However there are risks as well in being a pioneer. The market may not be established yet, and prospects may reject your value proposition because it does not match conventional assumptions. Therefore a lot of the marketing budget will go into educating the prospects and having a few –not too formidable- competitors can help you create the market place. Other typical issues include having miscalculated the target audience or the pricing might be incorrect. Finally distribution channels might be inexistent and will need to be created from the ground up.

Establish product leadership

From a product point of view you get a chance to set the standard and be seen as the market reference and thoughts leader. By setting the bar high enough and emphasizing your unique approach and technology, product manager can slow down competition and force them to play catch up with you.

Similarly, being first market mover and first to come with a product induce risks. Competition can capitalize on your customers’ feedback and mistake to improve your product. By the time they start developing their solution they typically have a much better understanding of the problems and needs in the market . Furthermore developing new technologies is expensive and a lot of trial and errors go in the process. By observing your attempts, mistakes and success, competition can innovate in a must cheaper and most effective way. They might even hire some of your experienced staff away or reverse engineer your solution to benefit from your inventions.

Apple’s Newton, a market failure

Apple with the Newton is a perfect example of a first market mover that was not able to capitalize on their ground breaking device. Apple was able to capture public imagination with the first version of “PDA” and basically invented a new market segment. However the product was not technically fit, too bulky, and was targeted to the wrong audience with a price tag too high. Apple had a chance to fix all this, but they were too slow in the process and the quality issues start catching up with them. A few years later, PALM that benefited from Apple mistakes and experience – and their own experience building the Zoomer with Casio- revolutionized the PDA with a cheaper, smaller and simpler solution appealing to a broader set of users.

Weigh pros and cons

Thus, product managers should carefully weigh the pros and cons in being the first mover in new markets. This is a strategy that with proper management and marketing can result into long terms advantages but that also involves a fair amount of risks.

July 6, 2009

Short term success is not a strategy

Filed under: Business Strategy,Product Management — Gregory @ 11:11 am
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In today business environment, executives are nervous. Sales are plummeting, prospects are uncertain and deals get delayed. Regardless of the unpredictable nature of the business cycle, shareholders, investors and owners make the management team accountable for any slowdown in business. The executives are under enormous pressure to deliver quarter after quarter and some of the pressure is often relayed to the product team.

Don’t succumb to external pressure

However despite external pressures, short term focus is not a business strategy. Good product managers know that valuable and successful products don’t get built in one day; it takes time. A few setbacks or bad quarters along the way are immaterial as long as the product is getting closer to the final vision.

Microsoft is the archetype for long term strategy and planning. When entering new markets they willingly accept to be simple contenders and recognize that short term opportunities are poor. However as long as their strategy is solid and the opportunity real, they will keep investing. They have been very successful with this approach during their corporate history. It all started with Windows.

A short history of Windows
Originally, Microsoft announced Windows in 1983 but the development was delayed multiple times. When Windows 1.0 was finally released in 1985, the industry was laughing. The product was poorly designed as a pure extension of MS-DOS and particularly. Even if some of the underlying concepts had a lot of merits nobody seemed to notice – running multiple applications concurrently and use a mouse device to control the interface.

Windows 1.02 years later, Windows 2.0 was launched and added some innovations that are now common in modern OS: windows overlay and resizing, keyboard shortcuts for navigation, etc… But adoption was still poor. Finally in 1990, 7 years after the first announcement for Windows, Microsoft revealed Windows 3.0 … and the industry stopped laughing. The product was a complete overhaul of the previous versions, with advanced graphics and better usability. The product proved a huge commercial success with 10 millions licenses sold and established one of the most dominant franchises in the computers history.

Obviously Microsoft did not pick the easiest road and most companies could not have afforded to throw money for so long to unsuccessful projects. However you have to admire the conviction and discipline of Bill Gates who kept investing for 7 years in his long term vision despite so many setbacks.

Long term strategy is not a luxury

Some will argue that short-term results have become a matter of survival for many companies and long term planning is a luxury they can’t afford. However this reasoning is flawed. If a company is so ill, this is typically because a lot of bad decisions were made. Why bad decisions were made? Because management was only focused on short term prospects and gains not on long term strategy. If you are already in a hole, you need to stop digging. For example the big box electronics retailer Circuit City filed for bankruptcy protection in November 2008. One year before the company was already in a lot of trouble and a long term strategy to compete against Best Buy and Walmart was badly needed. Despite those obvious problems, management decided instead to focus on short term issues and laid off 3400 of its most highly paid and experienced employees. This certainly offered a short term relieve to their finance but eventually backfired and only accelerated their demise.

Keep your end goal in mind

The same than when running a marathon, you don’t plan your race as a succession of sprints, a product strategy should be focusing on long term vision and commitment. This is the duty of product managers to maintain a steady direction for the product and avoid getting distracted by short term opportunities and issues.

June 14, 2009

Developers, developers, developers, developers

It’s all about developers, developers, developers and developers. Steve Balmer put it better than anybody during his memorable performance where he was jumping around on stage or recently at MIX08.

What’s at stake?

Don’t get fooled by Steve Balmer, there is more to it than just a dance. Indeed any platform is only as good as the applications running on it. There is hardly anything new to this. You can build the most intuitive, powerful, robust and scalable platform in the world. It means nothing until you get applications that can take advantage of those capabilities and bring value to the end-users.

The demise of NeXT Computer

The best example is the raise and demise of NeXT Computer. When NeXT released its first computer in 1989, the operating system was second to none. It was crushing the competition and dwarfed Apple and Microsoft offerings. The OS was brilliant, robust and was swarming with innovations way ahead of his time. The hardware? Powerful, slick and stylish. In 3 words: a dream machine… As for marketing, the charismatic Steve Jobs was wowing crowds at conferences around the world. What could possibly go wrong?

Well, everybody was in awe but nobody would buy it. Granted the hardware was expensive at $6000 for a box but that should not stop people to pay if they see value in it. People pay for Mac even if they are twice more expensive than PCs because they judge it’s worth it. In fact the major issue for NeXT was really the lack of applications – NeXT never bothered to attract developers until it was already too late and some industry insiders even touted them as arrogant. They thought developers would come on their own, but they never did. As a result the public never bought the machines because it could not do anything useful for them and the company died from lack of applications.

Steve Jobs won’t get caught twice

Since then, Apple’s CEO has learned his lesson. The iPhone success can be attributed to its operating system, its well designed hardware, and the marketing genius of the Cupertino’s giant. However Steve Jobs, this time is well aware that Apple supremacy can be ephemeral and smart phones are an excellent base for distributing applications. To get more market shares and consolidate their position Apple needed to provide the most value-add above any other phones. Indeed in July 2008, Apple launched the App Store program to sell third-party applications for iPhone and iTouch. The store has been successful beyond expectations – they reached last winter their first Billion applications download in less than a year. Naturally, the competition has finally woken up and is trying to catch up. Nokia, Research in Motion, Palm, Google and Microsoft have all launched or announced their own version of the store.

The war is raging

If we look around us, the war for developers is raging and is all but limited to the mobile market – it’s all over the internet and has never been as intense. Companies small and big are exposing Open APIs, providing SDKs and creating developer communities. Indeed, the stakes are colossal for those who want to control the technologies of tomorrow:

  • Cloud supremacy: Microsoft Azur, Google App Engine, Amazon EC2 or somebody else?
  • Social Media dominance:  Facebook and its 50,000 applications or MySpace, Open Social, and others?
  • Rich Interface Application (RIA) control: Microsoft Silverlight, Adobe Flash, Sun FlashFX or will developers stick with AJAX?

Make developers a priority

Undeniably today more than ever, third-party developers have become strategic assets for companies. Thus, product managers should prioritize developer programs in their business strategy (when adequate for their product line). Yet, such requirements are too often discarded because not contributing directly to the bottom line – it’s well known that developers are cheap and don’t pay. In consequence companies are running the risk of missing incredible opportunities or to get caught unguarded as competition has already made its move.

June 6, 2009

Freemium, the new way to riches?

In our current age of free internet and globalization, people have come to expect to pay less to get more. Technology and products become cheaper days after days.  Companies like Google that gives everything for free, and cheap manufacturing from China are strongly contributing to this trend. A good way for astute product managers to capitalize on this trend is to consider a“Freemium” business model to distribute their products. The word “Freemium” comes from a combination of “free” and “premium” and was first coined by venture capitalist Fred Wilson in 2006 after a suggestion from Jarid Lukin. The model is hardly new. The idea is to attract a large number of users by offering basic services for free, and then charge a premium for custom or advanced features.

A popular model

For example LinkedIn let you register your profiles and browse their database for free. However if you want to directly send messages to anybody or want to access advanced search, you will need to upgrade your account.

Similarly Pandora, the internet radio, broadcast your favorite music free of charge. But if you want to enjoy higher streaming quality and advanced features you need to opt for their premium package.

The Freemium model is also very popular in the gaming industry. Games might give you access to a few level for free, but encourage players to purchase additional equipments or extra levels.

Finally Facebook has been recently experimenting with micropayments strategies and offers virtual gifts you can share with your friends but not at a virtual price.

Is Freemium right for you?

If so many high profile companies are following a Freemium strategy, should you also consider this business model for your own products? The model has merits and deserves consideration as a monetization and marketing strategy. It is well adapted to the web consumer market and can dramatically reduce customer cost acquisitions, while still generating incomes by converting user to premium offering. However beyond the buzz, as any other business models it might not be appropriate for your company. Let’s review how it applies to a few situations.

Consumer market

In the social network space, Freemium is a necessity – not a choice. Indeed companies want to drive adoption and the best way to drive adoption is to give services for free. The core value provided by companies like LinkedIn or Facebook is directly tied to the numbers of people registered on their site – more people use it, more people will join. Unfortunately social media companies have a tendency to completely ignore the monetization aspect and only focus on increasing their user base. Not surprisingly, stronghold names such as Facebook and Twitter have notoriously struggled to generate incomes – to they discharge they claim they are still focusing on growth not profits.

Another example in the consumer market is the gaming industry. Product managers are betting on player emotional involvement and on the addictive nature of the games. Once a player is hooked into the game and gets emotionally involved, he is much more likely to turn into a regular paying user. In a recent Meetup about “Monetizing Web 2.0”, Kevin Xu CEO of IGG.com explained that emotions are critical to games success. Sadly, he then went on to tell how his team discovered that players will spend a lot of more money when they hate other players, than if they are simply in love or leaving in harmony… Welcome to our beautiful world!

Enterprise market

Finally in the enterprise market “Freemium” business models have not proven as successful so far. Since the target market is generally smaller and easier to reach, strong adoption and reduced marketing spending don’t always justify the loss in potential revenue.

However Freemium can still be useful as a disruptive user model, to undercut the competition or simply because it can be the best way to get people try your product and love it. In that case, the idea is still to give away something for free for adoption and then get paid on something else.

Redhat for example virtually offer their operating for free – anybody can get Fedora for free- but they charge for support. Other commercial companies leveraging open source solution have been often following this model because they know enterprises the way they are structured need to purchase appropriate support before deploying applications.

However the danger for Redhat as others is to give up too much for free so people have no incentives to upgrade. If people don’t upgrade but still enjoy your service you may be leaving a lot of money on the table.

Pay attention to your brand

Another issue is to weaken the strength of your brand. Indeed after you position part of your product for free, customers will naturally expect the rest to come for cheap. Furthermore, even if you are ok with a low pricing tag for your product, you still need to pass a second hurdle because in people mind there is a huge gap between “free” and “almost free”. Once a customer gets used to not pay for a service it will difficult to convert him into a paying customer. Some startups seem to have taken noticed. E.g crazyegg –a web analytic solution- and zendesk – an helpdesk solution- have been offering their product at a very low entry price but not free.

An alternative strategy to neutralize negative customer perception is to clearly separate what is free from what is not. A perfect example is the mobile industry: a cell phone is very different than a calling plan. People will take for granted a good deal for the phone but are expecting high prices for the calling plan – even if they don’t like it.

Conclusion

To conclude Freemium is a valuable weapon in a product manager arsenal that is aligned with macro economic trends. However if the approach can be very valuable to serve broad consumer markets, product managers should proceed with more caution in the enterprise market.

May 2, 2009

Should you listen to your customers?

Filed under: Business Strategy,Product Management — Gregory @ 8:18 pm
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Ford Model T There is a trend in today’s business to get closer to customers and let them directly influence product roadmap and features. Indeed, with the democratization of open communication and the internet, customer feedback programs are growing in popularity. Those programs are sometimes referred to as crowdsourcing and are adopted by high profile companies such as Dell IdeaStorm , Starbucks MyStarbucksIdeas and SalesForce IdeasExchange. Consequently, customers’ wishes, hopes and desires are getting added into products roadmaps with less and less scrutiny. After all, users should be the best judges for product enhancements. Without a doubt, incorporating customer suggestions into existing products is a proven approach to bring in incremental improvements and ensure customers retention. In fact, within the software industry, agile development methodologies have became all the rage in recent years and rely on the promise of constant customer feedbacks and iterative enhancements.

However companies should resist the temptation of taking this idea too far. Product managers must be careful not to confuse customer suggestions and feedback with the underlying bigger problem they are trying to solve. As Henry Ford famously put it: “If I had asked people what they wanted, they would have said a faster horse”. Similarly, did anyone asked for the light bulb before Thomas Edison invented it? What about Sony’s Walkman? Keeping ahead of the competition and bringing to market the next relevant product take imagination and creativity. By solely focusing on present customers’ issues and existing solutions, companies unconsciously hinder their capacity to innovate, pay less attention to external industry trends and become more vulnerable to competition.

For companies, the key to a sustainable business strategy is not only to understand what customers want today and enhance existing product lines, but also to realize the limitations of this approach and encourage investments in longer term innovations.

April 21, 2009

Embracing the cloud

Filed under: Business Strategy — Gregory @ 11:45 pm
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The lure of cloud computing is getting increasingly difficult to ignore for IT organizations.  For the last 2 years, cloud’s adoption has been strong and shows no sign of slowing down. A lot more cloud platforms are now available for companies to choose from; new vendors are following suit behind Amazon’s EC2. Solutions range from behemots like Google’s App Engine and Microsoft’s Windows Azure to pure players like GoGrid and FlexiScale. Early skeptic voices are now acknowledging cloud computing has some merits. As a result, although most fortune 500 CIOs still dismiss the importance of cloud as part of their future strategy, they are getting more concerned about their datacenter efficiency. IT initiatives are popping up to build private clouds, promote servers virtualization and experiment with public clouds for new R&D projects.

However, this is still in the startups world that you will find the most fervent adopters. Here are a few reasons why the cloud is so attractive to startups:

  • Startups have typically poor visibility into their service adoption and they don’t want to incur huge upfront hardware costs. Cloud technologies give them the flexibility to scale up and down their processing capacity as their business evolve.
  • Startups need to focus on their core business and keep innovating as fast as possible. Hardware and datacenter management should not come into the way of development. If the business becomes more predictable, administrators and operators can be always brought on board later.
  • Startups can only spend limited resources and time on high availability. Cloud providers are almost certain to do a better job than a startup staff. Furthermore disaster recovery is an extremely expensive proposition. Having hardware sitting idle, waiting for an unlikely disaster scenario is not a good option. Leveraging the cloud for spawning new instances or using automatic failover is a sounder approach.
  • Finally, let’s not underestimate the buzz associated to cloud computing. If you do nothing different than your competitors but are running in the cloud, chances are that you will be the one noticed by the community.

April 11, 2009

Open API

Filed under: Business Strategy — Gregory @ 11:35 pm
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Open APIs or Web APIs are playing an increasing role in companies’ web strategies. In the past Web APIs were often decried as developer’s eccentricities with no business merit. However the success of companies like Amazon, Ebay, SalesForce or Twitter has changed the general attitude and brought a lot more interest to the subject. Let’s take a look at some of the most remarkable successes. Last year, Amazon announced that its API traffic had surpassed its website traffic and the trend is accelerating:

  • Twitter  is believed to get 10 times more requests through its APIs than its website.
  • Salesforce, arguably the most successful SaaS company, has probably more than 40% of its traffic going through APIs and is aggressively promoting the AppExchange platform to attract even more developers.
  • Google surfing on the popularity of its Maps API, keeps adding new services to its already impressive list and seems to be determined to become the single biggest service provider.

Others are following suit and trying to catch on the phenomenon. We can include in the race companies like Microsoft with its mashup editor or the New York Times, that is offering through an API every articles the paper has written since 1981.

It’s becoming undeniable that the API wave promises to reshape the internet landscape with the multiplication of mashups, widgets and other 3rd party applications. Indeed APIs promote participation and collaboration of end-users and transform the web from a static place to a dynamic environment. But behind the hype of those well documented success stories, should every company adopt an API strategy? That’s what we will explore in another post.

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