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
Tags: , , ,

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 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.

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