Marketing Expert's Corner

This article written in 2009

When Innovation Goes Backwards

We in high tech have a belief in relentless progress.  Next year's product is going to be better, cheaper, and faster than the one we have now.  Because technological know-how never recedes, products really should get better and better indefinitely.

In the world of commercial products, unfortunately, it isn't quite that simple.  We all know that the best product rarely wins.  Due to market power and financial heft, an 800-lb gorilla can wipe out a small vendor that has a superior product.  We also know that the phrase "build a better mousetrap, and the world..." should realistically end with the phrase "...probably won't care."

Let's look at a high-tech product that is close to timeless.  Originally introduced in 1946, Klipsch horn-driven speakers have been in production with almost no changes for over 65 years.  Efficiency, clarity, and bullet-proof construction make them an audiophile favorite.  But this is the rare exception in technology products.  Typically, new designs and technologies make products obsolete in a hurry. 

But what happens if the "obsolete" product was better than the new one?  What are the conditions under which this occurs, and what should your marketing strategy be?

Nostalgia Isn't What It Used to Be

This article isn't about sentimentality or cult products.  While those both have powerful marketing effects, we're all about mainstream products and the economics that can hit them.

Looking at the computer and network hardware markets, things do seem to get inexorably better.  Sure, there might be some cheapness introduced in a product evolution (a light-duty power supply or a flimsy casing), but the core technology has to be better with each product generation.  Slower routers and crummier graphics accelerators just don't last in the market.  Bad stuff gets sent off to Weird Stuff in a hurry.

Even so, there are situations where the new model is just not as good as the old one.  A laptop with shorter battery life.  A new LCD TV with an underpowered graphics processor or really crummy rendering of SD images.  A newer model DLP TV with truly garish color rendition, making it much harder to watch than the plasma panel or CRT it replaced.

These situations tend to occur because of cost or competitive pressures that make it impossible to continue offering last-year's model, even though it was better.  Management needs to shave costs, so engineering and manufacturing will cut corners.  One of the most striking examples of this was in the 1970's, when high-end US-based stereo vendors made stunning strides in sound reproduction, technology, and quality.  For example, SAE's focus was to do better with higher technology, staying ahead of the Japanese with superb execution.  Literally hundreds of watts per channel with parts-per-million distortion.

That's what Harvard's Michael Porter would have suggested you do.  The problem was, the Innovator's Dilemma -- that hadn't yet been discovered by Harvard's Clayton Christensen.  Every vendor was able to innovate much faster than the customers' ability to absorb the improvements.  Nobody can hear the difference between 0.2% distortion and 0.001%.  So the cheap Japanese gear became more than good enough for the market.  In response, SAE and other vendors tried to create cheapened versions of their products, but this was doomed from the beginning.  All high-end vendors had to retreat to the professional audio market, which didn't have enough demand to keep more than a couple of US vendors alive.

The lesson?  As a marketer, if you face cost or competitive pressures that make next year's model crummier than the one you ship now, watch out for industry restructuring.  That's the Harvard way of saying "you and most of your competitors will be out of this business in a few years." 

This lesson is not universally applicable, though.  If your product is running to commodity, there are things you can do.  You may be able to redefine your product form, packaging, and price so that next year, you're not shipping a product that is comparable to what you're shipping now.  Staying within the audio market, you could do what Bose or Bang & Olufson did, literally redefining the audio industry around themselves.  If you make hardware, there are always things you can do to combine separate products into attractive new forms.  Sony and Apple have made their names by adding value, style, and coolness to commodity product categories, churning out electronic jewelry that nobody else can touch.

When Software Innovation Goes Backwards 

What about software?  Looking at packaged software, SaaS, and digital media markets, you'll find all too many examples of product degradation over time. 

The poster child for this is Microsoft:  was Windows ME any better than Win98?  Was Vista better than XP?  I can count on one hand the features of Office 2007 that make it better than Office 2003.  Unfortunately, I can count several more "features" that make it worse.  The root causes:  the inevitable effects of monopoly, bloatware, and, once again, the Innovator's Dilemma.  Aside from quality and security, there really is no customer need for Microsoft to "improve" most of its cash cows.  So Google and OpenOffice can come in with crummier products that are free, satisfying the "good enough" threshold.

The lessons from Microsoft don't universally apply, but any time you find that your product category is perfect for most users, stop innovating along those lines.  Find ways to change the product form and packaging.  Experiment with bundling, unbundling, repricing, and ways to make the product easier to buy and use.  It is almost impossible to spend too much on ease of use and smooth purchase transactions.

Let's look at other software vendors.  There are several market spaces where vendors go out of business even though there is still an unmet market need.  The most obvious situations are in markets with credible open source offerings:  the proprietary vendors can't compete with free, and the croudsourcing effects of open source mean that it will soon get "good enough."  But good enough isn't great, particularly in the area of user interface.  In several product areas, no vendor can afford to really solve the customer's problem...and the open source software may not get to the needed level of refinement for years. 

If you find your market space being invaded by open source projects (check out this list I put together), you need to do some serious product and marketing strategy work.  Do not attempt to fight open source:  instead, find a way to leverage and even co-opt it.  Great examples of this are Jaspersoft and Actuate.

Finally, lets look at digital media and social networking properties.  In the initial land-grab, vendors will apply freemium and viral marketing models to get mindshare and eyeballs.  Soon enough, though, pay-walls go up and a decent proportion of sites go dark.  In a recent example, the hugely useful Kartoo visual search engine is gone, and so is the related Grokker tool.  Market researchers and web cognoscenti are now high and dry.  (If you know of a decent substitute, please mail me immediately!)

Why does this happen?  There's only so much VC money and university grants to go around, and all companies need a sustainable business model.  Wikipedia is asking for donations of money, even though the content and editing costs them nothing.  Lots of podcasters are discovering that the cost of download bandwidth is anything but free.  The action item for marketers:  do not let the monetization topic get pushed to the back burner.  It will not matter how many eyeballs you have if all they ever do is watch.  Pricing and commercial strategy is where you can add unique value to your company.  Go do it:  cash flow is job one.

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