Launch and Relaunch

Launching New Products and Relaunching Failed Products: Services and Solutions Make More Sense

Draft 1.1 May 26, 2004

First release: April 25, 2004

Contact information: Alistair@eclicktick.com Phone: +1-650-298-9077

Executive Summary

In 2001, I argued (The End of an Era in Software) that a change had occurred in the software market. Traditional launch strategies would not succeed as frequently because of (1) the explosion in availability of software and (2) the increasing requirement for integration of information. Integration has dramatically changed the trade-offs between internal activities within companies and the purchasing of services, solutions and consulting from outside suppliers with better economics.

This two part article outlines current best practices in launching and relaunching new or failed products. It begins with a review of why services and solution strategies are being forced upon suppliers. In the second part to be published separately, the implications for launch strategies are addressed.

Introduction

About two years ago, I was approached by an entrepreneurial client who wished to start up a software business. When I asked him how much money he wanted to invest in the project, he gave me a number and then promptly wanted to talk about a proposal he had received to outsource his development work to Russia at a low cost per hour.

So, I introduced him to the idea of Total Cost of Ownership or TCO and we concluded very quickly that a far better solution was to purchase an existing off the shelf solution that would allow him to save at least $100,000 and perhaps more.

At about the same time, I was consulting to a CISCO distributor. It was running into the problem that most hardware vendors experience - that the declining price of hardware was causing not only a declining dollar profit per sale, but also a declining percentage profit per sale as the market became more commodity-like.

My solution for this company was to change their basis for doing business: from being a “box pusher” to a managed services supplier. Part of their service should be to acquire equipment acting on behalf of the client and taking a service fee for acquiring the best equipment that met the clients need. But the core of their business was to help clients manage their networks.

Like many hardware oriented firms, they had to make the transition from sales to representing the client and helping them achieve the business outcomes the client sought.

These two examples demonstrate how the world of high tech has changed.

How the use of information technology has changed

	The Old World	The New World
Nature of task	Novel	Routine
Challenge	How to solve the problem technically	Achieving business outcomes
Sales issues	Picking a surviving technology	Demonstrating business benefit
Staffing issues	Aggressive sales people	Account management and strategic selling.
Client knowledge	Low	High
Proprietary solutions	Acceptable	Less acceptable
Interest in solutions	Low	High
Choice	Low	High
Launch strategy	Direct, probably low service	High service component
Hardware profitability	High	Low
Services profitability	Free	Billed separately

The Bias

For most high tech firms, the transition towards a services model is profoundly uncomfortable. There are a number of reasons for this discomfort:

Venture capitalists have been very short sighted. A typical venture capitalist in Silicon Valley will tell you that service businesses are low margin and not leverageable. They would rather dominate a market that exhibits some phenomenon similar to Moore's Law, which essentially means “I want to sell hardware”.

The culture of Silicon Valley tends to admire product leadership in companies like Apple, rather than the more mundane process based strategies of companies such as Dell.

Customer focused solutions require more breadth of understanding. And the engineers of Silicon Valley are often not really comfortable with people oriented and customer oriented strategies.

So, it is no surprise that non-Silicon Valley firms such as IBM, EDS, Accenture, SAIC, CGI are examples of major firms pursuing outsourcing. These firms have historically closer relationships with customers, understand their businesses better and have a more sophisticated view of long term customer relationships, precisely because they have history.

How Customers Are Buying These Days

In my consulting and working with suppliers and CIOs, the new market for information technology startups off with five basic assumptions:

As in all markets, suppliers with superior skills and costs will displace less effective internal technology developers. In the same way that carbon paper and secretaries have been replaced by the Xerox machine, then by the computer and laser printer, and increasingly by the web server, technology suppliers continually industrialize and reduce the costs of activities traditionally done on a cottage industry basis within firms. The more advanced the economy, the more likely that companies will buy from suppliers rather than doing everything themselves.

Specialization and standards development makes the technical challenges of information management easier, but increases the knowledge necessary to assemble and manage solutions. The amount and variety of computer usage is increasing faster than internal IT departments can keep up. I have jokingly referred to this as Davidson's Law of Outsourcing: “Increasing usage trumps standardization.”

Increasingly, no one really cares about information technology. Most managers would be equally happy with a Macintosh or a Windows XP system and very shortly Linux desktops will be equally acceptable for the majority of tasks that most people perform. To most managers, the difference between HP, IBM, Sun and LINUX server operating systems is imperceptible.

In contrast, reliability, performance and the obtaining of business outcomes is far more important to managers, and increasingly the pervasive use of information technology means that more business oriented managers are involved in traditionally information technology areas of decision making..

The sheer variety of information technology usage means that different portions of the organization have different priorities for their information technology and speed matters. But speed is the one area that centralized IT departments cannot provide current environments. Outside suppliers can and business managers are often prepared to pay for such speed to achieve business goals.

Riding an Ecosystem

Now the argument that nobody cares about information technology is not a naïve one. I am not arguing that the economic value created by an ecosystem (the supporting software, consultants and complementary products and services) is irrelevant. Clearly, there is software that runs better on different operating systems. There is greater choice on some operating systems. But the reality is, of course, that the differences are decreasingly important. And as standards emerge, the difficulty of combining even oddball systems decreases.

By way of simple example, if your only use of your computer is for e-mail and browsing, it simply does not matter what operating system you run on.

If you run a SQL database, good design would tend to encourage development of applications that allow you to plug in a number of potential SQL databases, e.g. from Microsoft, Oracle, IBM or open source databases.

And clearly, some firms make the decision that it is easier to work with a major vendor who can simplify the tasks that they must address.

But in a world where IT departments are overwhelmed and where standards are available, there are three basic choices for purchases of information management solutions:

The primarily single vendor solution. On the software side, the choices today are few. Microsoft and IBM and to some extent Oracle represent the three choices.

The open standards solution, where best of breed solutions are selected and integration is required. Sun's Java approach is a successful approach here for many companies.

The packaged solution approach where purchasing decisions are made to avoid having to perform integration. Examples here include the major ERP vendors such as SAP, Oracle and PeopleSoft with Microsoft penetrating the low end of the market; and, integrated productivity solutions such as MS-Office or OpenOffice which while taken for granted also represent integrated solutions. Adobe to some extent provides a similar capability in the publishing world. And Veritas' cross platform capability plays a similar role in the world of storage.

But the reality is that for all the money spent on marketing, the difference between the various choices is, in most cases, less important than the cost advantages of outsourcing or purchasing services.

If you decision is between SAP, Oracle and PeopleSoft, I would suggest that for many (but not all) areas of the market, the more important decision is often whether the software is acquired directly or via an outsourced service.

The Implications for Launching New Products or Relaunching Unsuccessful Products

The implications of the current environment seem very clear.

If you are a new company launching a new product, then:

A product launch requires a higher level of customer knowledge, more understanding of customers, fewer bugs that a consulting or service launch.

The increased understanding that is obtained from living and working with clients will translate into better product management and faster improvement in value creation for the customer.

Competitive advantages can be built faster by iterating your product and service more quickly. Avoiding traditional product R&D, testing and launch cycles will allow to reach the state of a better product or service faster.

The higher value provided by having faster iterations will increase market share achieved and probability of success.

If you are an existing company that has not had success in launching a product or is thinking about to capture value from past R&D, then a service strategy provides the following advantages:

You can sell the service without getting trapped into a capital budget long cycle sales process.

You can reduce, to some extent, the problem of not being perceived as a dominant player in the product space.

You can compensate for the holes in your functionality with human consulting or integration with third party software and services and brand the service not the technology.

You can develop relationships based upon other people's R&D and not get trapped into lengthy R&D cycles with inadequate funding.

Your relationship with service clients will likely identify biases and mistakes made in past R&D and help you understand the actual usage practices, key buying issues and ROI justifications for addition investments in your area.

End of Part 1

If you are interested in Part 2 of this article about best practices and approaches to a services launch, please contact the author, Alistair Davidson at alistair@eclicktick.com