Coming up with a good idea for a product or service is hard. Getting it into market is harder still. But perhaps hardest of all is being able to replicate the first two tasks over and over again. Because once you have taken advantage of most of the sales opportunities in a market, you then need to work like buggery (a la the makers of the Rubik’s Cube – and not entirely successfully) to ensure that you can convince people to buy the upgraded product again and again.
Just like the recording industry, the world of entrepreneurship is littered with one-hit wonders. The numbers increase when you add in the raft of companies that have become victims of their own success.
I was reminded of this last year when the optical drive on my notebook computer broke down, and Toshiba was kind enough to lend me a replacement machine while it was being repaired.
Normally I use Windows XP, and have done so since it came out. It is easy to use, stable, and does everything that I ask of it.
The replacement machine came loaded with Windows Vista. My subsequent experience reminded me of one basic rule – once you make a product that is really pretty good, you may have great difficulty convincing people to buy the next version.
My experience with Vista convinced me that there is absolutely no reason for me to ever upgrade. What is touted as one of the biggest enhancements in Vista – the new user interface – did not seem to want to work with the applications I was running. Otherwise, much of my experience was punctuated by frustration as I went looking to see where Microsoft had hidden many of the features that I regularly use in XP.My Vista experience also reminded me that for the better part of this decade, all of the improvements in functionality that have been delivered on my computer have been delivered through the browser, and have almost nothing to do with the operating system.
The applications we talk about today – Google, Facebook, Flickr, MySpace – are all delivered online, and will run just as well on an XP machine as on a Vista machine. Even Adobe is planning on posting up a web-based version of its photo editing software online.
Most of the technology companies I talk to now have cottoned on, following the lead of Salesforce.com in delivering their applications across the internet. SaaSu, Tangler, Buzka, Atlassian, and Omnidrive are all examples of fast-growth emerging technology companies that have forsaken the packaged software model to use the distribution potential of the internet.
These companies have also figured out that it is much smarter to charge their clients on a subscription basis rather than asking them to pay an upfront licence fee. This keeps the customers paying on a regular basis and eliminates the potential for piracy. Packaged software companies have to cajole clients into paying ongoing maintenance and support, and then work damned hard to include as many new features as possible in upgraded versions to convince clients to spend money buying what is essentially the same product.
It’s a difficult ask – how many of the features that have been added to your word processor in the past five years do you actually use?
In fact, I struggle to think of new Australian tech start-ups that are selling packaged software to consumers today. Apart perhaps from advanced graphics and media editing applications, the model has limited value.
Microsoft understands this of course, and in the battle with its newest enemy, Google, is shifting more and more of its emphasis to delivering applications and services online through its Live portal. But Microsoft’s business model sees it tied to the upgrade cycle, and you can be sure that Vista won’t be the last version of Windows released. The company has diversified into an ever-wider range of applications, but in the consumer market it still relies on Windows and Office for the bulk of its revenue. While Microsoft has clearly not been a one-hit wonder, it has perhaps joined the ranks of Billy Joel or The Eagles in recycling the glory of a more innovative and market-relevant past.
The lesson is this: if you are going to sell discrete products in a packaged format, you’d better have a solid road-map of future features and functions to keep customers coming back for more, or risk becoming another one-hit wonder on the entrepreneurial scrap-heap.
Brad Howarth is a journalist and author of ‘Innovation and the Emerging Markets: Where the Next Bulls Will Run’, a study on the challenges facing small Australian technology companies. You can read his blog at lagrangepoint.typepad.com