An Insider’s View on Product Management

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 17, 2009

Brand Hijacking

Filed under: Marketing,Social Media — Gregory @ 11:05 am
Tags: , ,

Social network like Facebook, MySpace and Twitter have opened a new area of opportunities for companies to promote their brand and manage their online presence. But they are also created a new source of challenges for companies to control and protect themselves in this inherently anonymous world.

Beginning of this year, 2 Dominos employees released a video on YouTube where they were blowing snot on pizzas at Dominos store. They are now facing felony charges. Last year, a person named “Janet” registered an account “ExxonMobilCorp” on Twitter and started answering questions on behalf of the company. In 2008 again, JC Penney became the latest victim of unofficial advertising – a video ads depicting fake sex was unleashed in the blogosphere.
The hijacking trend is not slowing down and represents a real danger for brands and corporations. Identity control will remain an issue on the web. Despite the fact that most social media sites provides strict terms and conditions to prevent impersonation, the temptation is too high and the copyright infringements prove difficult to enforce.

Consequently, companies should have an appropriate online strategy, monitor regularly their presence in the social media world and be ready to respond quickly to any “brandjacking” attempt. A preemptive action would be to register your company name across social media sites. This is especially efficient on sites like Twitter and YouTube where the username becomes the identity of the poster.

So now that you got warned, don’t get caught unaware!

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