What makes Customer Buy Your Products?

Answer to this question is quite tricky. First we need to define who is the customer, next we need to classify the product and then depending on customer segment - we can identify reasons why customer will buy your product.

Who is the customer?

We can broadly classify customers into two categories:

1. Individual Consumers: i.e, people like you and me.
2. Corporate Customers: Organizations, Companies, & Governments.

Products can be classified into three main categories

1. Utility Products: Eg: Trucks, insurance,
2. Image or Prestige Products: Eg: Cars
3. Comfort Products: Eg: Car Seat

Products can also be classified based on pricing/value.

1. High Value/Priced products
2. Low priced products

Buying Behavior

Customer show different buying behaviors when dealing with different products. The concept of perceived value as the basis of buying works mostly on Utility Products and for corporate customers - where the prices/costs are high & there are checks/balances on purchases.

Also see: http://indianproductmanager.com/what-makes-customer-buy-your-products/

Impulsive buying is another factor - which is mostly seen in low value/cost utility products or even in high priced/value products.

Impulsive buying is seen even in organization - where a single individual makes the buying decision based on his instinct. For example, buying office furniture.

Impulsive or Instinct buying decisions are difficult to model - but can be easily exploited. 

How to identify and create disruptive innovation that customer would buy?

Everyone wants to create a disruptive innovation & change the world - but there are no formulas for success. Market research does not tell us how to create disruptive products which people will buy. Research can help identify opportunities for disruption, but success needs more that.

To begin with, we need to understand what is disruptive innovation?

Disruptive innovations are innovations that disrupts the current market leaders. For example, Bicycle, or the early cars were not disruptive innovations. Back then in that era, the personal transportation market was dominated by horse drawn carriages, trains and Boats/Ships. It was Ford Model-T which disrupted the market, and hence mass production of Model-T cars was a disruptive innovation, but not the car in itself.

In general disruptive innovation must have at least one of the following traits:

1. Creates a New Market: Eg.: MySpace, Yahoo, Netscape, Napster

2. Changes the value perception: Eg.: iTunes/iPod, WhatsApp,  

By this definition, disruptive innovation is relatively easy - just know/understand the existing business models and create a new product/service that creates new markets or changes the value proposition.

For example: VIBER is disruptive for telephone service providers. iPad/Tablets is disruptive for Laptops etc. BitCoin is disrupting the global currencies etc.

But making this successfully is a different story. A successful disruptive innovation is a whole lot tougher.

Creating successful disruptive innovation has two equally important parts:

1. Creating the disruptive technology

2. Overcoming the barriers to success. 

Creating a disruptive technology is the first necessary step. But in most cases, the original inventor of the disruptive technology has failed to make is successful - because there are several business barriers which prevents widespread acceptance.

For example, Alta-Vista & Yahoo created a web search technology much before Google & yet failed. Erricsson invented a smart phone and yet failed. Motorola created a satellite phone system called as Iridium and failed.

Disruptive technologies are often characterized by the "10X Factor" i.e., the new technology is 10X better or cheaper or faster or easier to use than the current alternative. A lot has been written about disruptive technology and you can read it yourself.

In this article, I am going to concentrate on the second part - Overcoming the barriers to success.
Knowing what are the challenges and barriers to success is just as important for success.

There are several challenges one must overcome to make a successful disruptive innovation.

Some of the major challenges are:

1. Legal rules. 

Usually the rules favor the current market leader. For example take the case of AirBnB. All the current hotel rules are designed to suit current incumbents, but the rules does help individuals who want to rent out a spare room to travelers on AirBnB.

2. Business Ecosystem 

When S3 Diamond/Rio MP3 player was launched, there were no online MP3 stores to download MP3 songs. Music distributors were suing individuals who downloaded MP3 songs from Napster and created an air of fear of using MP3 music in the market. So no wonder Diamond MP3 player failed in market, while Apple created iTunes Store - which enabled iPod to succeed.

Similarly, Ford's T-Model car was successful because of Standard Oil had built all refineries and there was gas stations in all cities.

3. Consumers readiness to change

Just because one introduces a revolutionary technology, people will not readily buy a new product. Most buyers prefer to wait and watch, before opening their wallets. For example take the case of Hybrid Cars: Chevy Volt or Toyota Prius. Though these cars give 2x-3x more mileage than the regular cars, customers prefer to wait and watch to see if other people are buying it. Customers readiness to change also depends on the comfort factor with their current option. In case of hybrid cars, customers were happy with their gasoline cars and were reluctant to change their buying habit.

4. Ease of use of the new product.

New products may not be easy to use. For example, Erricson introduced a touch screen smart phone called Erricson Communicator - 10 years before Apple's iPhone. But using it was not easy, so the product failed. In general, customers do not like easy to use products.

Similarly, Nokia's Tablet - which predates iPad, or Sony Surfboard which predates Nokia Tablet - they all failed because of its complexity to use & lack of public awareness.

Another classic example is that of Electric cars. Electric cars was introduced in early 1900's = yet even in 2012, electric cars are yet to succeed - because of difficulties (and time) involved in charging the car. Also the ecosystem for electric cars does not support rapid adoption of electric cars.

5. Total cost of transition to new product

If customers have invested heavily in one technology/platform, then the cost of transistioning to a new product will be a major barrier. For example, Maglev trains failed in market - though it was mush faster and better than the current system - because of the cost of moving to the Maglev trains.

HD television took almost 80+ years to gain popular acceptance. Analog HDTV was first introduced by BBC in August 1936, but the total cost of transistioning to High Definition standard was prohibitively high till 2008!

6. Awareness on new product

Its a lot easier to develop disruptive technologies, when compared to building the awareness in the market and building the ecosystem needed for the product to succeed. In many cases, the original inventor would have exhausted all his resources building the product and will not have anything left to build market awareness.

For example, a startup in Silicon valley called Electriphy created a new technology to connect houses with high speed Internet using power lines, Which was must faster than phone lines (DSL), but it lacked the resources to make this new technology popular.  Similarly ReplayTV invented hard drive based Digital Video recorders - but did not have money for marketing it, and hence lost to TiVO.

Closing Thoughts

Everyone in business aspires to create disruptive innovation, but very few have succeeded. Companies that created the first wave of disruption have failed in their other attempts - and have been disrupted by other new entrants. The barriers to succeed are huge and is extremely difficult to overcome. There is no formula or a proven plan to create disruptive innovation.

In many cases, disruptive technologies suffer from various setbacks which has to be addressed first to make it successful - but the inventor does not have resources to eliminate these barriers.

Why is Facebook buying WhatsApp for $19Billion?

Feb 19th 2014, Facebook agreed to Pay $19 Billion for WhatsApp

While the whole world goes ga-ga about this eye popping, earth shaking deal. The deal makes perfect sense!

Let me explain.

There are few points I want you to consider first. Few weeks ago there was two big headlines

1. Facebook turns 10!

But along with the headline, there were tonnes of articles regarding how Facebook is making money off the people posts, and issues relating to privacy.

2. Facebook will lose 80% of users by 2017, say Princeton researchers

Here are some of the interesting snippets about Facebook from the media.

Facebook expects a decline in number of users logging on the social networking website through PCs globally, especially from the US and other developed markets of Europe and Asia.

Facebook's chief financial officer David Ebersman admitted: "We did see a decrease in daily users, specifically among younger teens."

All along last one year, there has been tonnes of articles relating to privacy issues and how Facebook is monetizing people's posts.

3. Facebook knows when you are about to fall in love

4. Facebook deal on privacy is under attack

One of Facebook's masterstrokes in this campaign has been to devise a set of metrics to help marketing executives measure the financial impact of advertisements they buy on the social network. It has formed a partnership with Datalogix, the sales analysis firm, to use information from loyalty card schemes to work out how much business every £1 spent on Facebook advertising generates offline. In 70pc of cases, that £1 translates to £3 in real-world sales – much more persuasive than how many people have "liked" a brand's Facebook page.

"Facebook is sitting on a huge repository of very valuable information about its users. One of its challenges is working out what it can actually use," Aho Williamson says. "Privacy will continue rearing its head as Facebook tries new things."

Privacy concerns have dogged Facebook since its early days as a website for Harvard students, but those concerns have intensified.

The social network is continually embroiled in controversy about how much data it is collecting, particularly in Europe, where privacy laws are much tighter than on the US company's home turf.

Many users have become much more careful about self-censoring, after being bombarded with advertising that transparently mines the content they post to friends. Women who announce their engagements on Facebook can rely upon advertisements for wedding dresses. 

Give it a year and the wedding dresses are pushed out in favour of maternity wear.
Some users find this second-guessing invasive, but from Facebook's perspective it is doing users a favour by offering content users are likely to find interesting.

"Our goal is to reach a point where the ads are as relevant and timely as the content your friends share with you," Zuckerberg said on a conference call with analysts last week.

As you read these articles together, it becomes clear that Facebook is heading to a mid-life crisis.

Now, let's look at WhatsApp.

WhatsApp is 5 years old and with its rapid growth and success is facing an infliction point.

With 450 Million users, Adding Million new users per day! 1 Billion messages sent via WhatsApp per day! 200 Million  photos per day!

WhatsApp is burning cash faster than a bush fire. To sustain this hyper growth, WhatsApp needs tonnes of cash for the next few years till they can figure out how to make money!

For WhatsApp, the choice was simple: Go IPO or sell out.

Its tough to launch a multi-billion dollar IPO and it takes time, during which WhatsApp could run the risk of running out of cash. So I guess WhatsApp choose to sell itself.

Coming back to Facebook and my personal observations and experience.

I have been an early adopter of Facebook and in last two years, I have seen a dramatic change in how I use Facebook.

Earlier, Facebook was a communication platform. I used Facebook to communicate with all my friends and relatives. Slowly, as Facebook tampered with its privacy settings, I stopped sharing things on Facebook and urged all other to stop as well. Over a period of two years, my Facebook wall has become a "read-only" page for me, and 90% of the postings on my wall are from organizations and not from my friends.

I checked this observation with my friends in Bangalore and with students at Manipal University, and all the observations were the same pattern. Young people and middle aged people are abandoning Facebook!

Also See: 

Teens Loathe Facebook Because of All the Old People and Baby Pics

Young users see Facebook as 'dead and buried'

"Facebook is not just on the slide - it is basically dead and buried," wrote Daniel Miller, lead anthropologist on the research team, who is professor of material culture of University College London.

Students in Bangalore and elsewhere in the US & Europe & India are not using Facebook as a sharing/communication platform. Only older generation (aged above 60) are still active on Facebook.

In short, Facebook is on a rapid decline.

Another major problem brewing at Facebook is total lack on innovation internally at Facebook. In last 10 years, Facebook has not added any new innovative products - which is not tied to the core Facebook.com site. The Facebook mobile app was a belated and knee jerk reaction. Facebook's lack of focus on mobile platform in terms of launching new products is a major worry.

While I can see a rapid decline in my Facebook usage, usage on WhatsApp is a different story. In a typical week, I see about 600+ messages on WhatsApp and all these are from my friends.

So in short, WhatsApp is replacing Facebook. So as users abandon Facebook and move to WhatsApp or similar apps (such as WeChat, Line, Viber etc), it becomes clear to me that Facebook must expand beyond social networking to social messaging and purchasing WhatsApp is one surefire way to extend Facebook's life span and survivability.

To survive Facebook must add other products into its portfolio. Just the social networking site is not enough. Facebook lacks internal product innovation and to survive and grow, Facebook will have to buy innovation.

To survive, Facebook will have to buy several mobile apps and platforms.  Instagram was $1 Billion pill - but it was not enough.

For a company looking for survival, $19 Billion is a small price to pay for getting another shot at elixir of youth. 

Buying WhatsApp is just one such acquisition. I am sure there will be more to follow!

Product Management - Value of Data Visualization

Recently I was asked to talk about product visualization, and this blog is a summary of that.

Human brains are designed to think graphically - i.e, we see  things in pictures and try to understand the various relationships between them. Once the images are understood, human mind is capable to taking swift action. But if the brain fails to understand the image then there will no action. To illustrate this consider the game of Cricket (for those who don't know about cricket - think baseball)

In the game, the batsman has to see the ball, judge the speed, the angle, the height, the turn/swing and then makes a decision on how to play the ball. If he gets it correctly - batsman can score runs else if he get it wrong he is out.

Now imagine that you could document all that visual information into text and present it to the batsman and ask him to make a decision in a fraction of a second! I bet there is no human who can process that quantity of text and play the shot in time.

While the idea of presenting all the bowling data in text sounds ridiculous, but we tend to do that every day. Computer systems today are capturing so much data - often in text or in binary (which is non-readable by humans) and then asking people to make decisions on that!

Today, we are dealing with the challengs of big data. One of the main challenge with big data is visualization and product managers have to deal with it. Data visualization is not an exact science, meeting this challenge is called as the art of product management.

As a product manager of software, Service Assurance Suite - populalrly known as Smarts that analyzes big data - millions of events coming from thousands of devices. The data is collected continiously in real time - so that it can do an effective data-driven analysis. The software provides up-to-the second updates, so that operations team can immedieatly access the imact of any application or infrastructure changes - even before the end users can notice the effects.

The software will have to process this information in real time and present it to users in meaningful ways.

Let me explain this with an example.

In Infrastructure management, Smarts product identifies a physical server has failed. A statement "Server A1234 is down" is useful - but it does not help the data center operator in terms of solving the problem. So to make his job easier, we added a geographic map and location map information to the server, which tells where exactly the server is located, in which rack, in which data center etc. Now the data center operator knows where the device is located and can quickly remedy the problem. Similarly, proving a heat map of the data center along with high temperature alerts is more useful.

While it may not be obvious to non-users abour the importance of the above example because Smarts as a product is something you may not use, but think about it in your life example: Your friend/spouse says he/she has a car broken down on the road - and is trying to tell you the location, and compare it with getting the same information - with a map and photos of the car. Now its is easy for to understand and decide on the action you need to take.

This is the key to the value proposition of data visualization!

You can convey a whole lot of information with visualization. But then there is a challenge for product management - in terms of covering all possible use cases,  which is almost unviable. Instead we need to open up the data visualization aspects & allow customers to create their own visualization.

Often, customers have multiple data streams which relate to the same event. So having an ability to mashup multiple data steams and create highly valuable interactivity with the underlying data. In other words the visuals are not static - customer can add or delete different data sources, understand relationships, patterns within the complex data set. Customers now have the ability to click on various parts of a visual to drill into different views of the same data on the fly. Customer can intergrate other Business intelligence tools to create drill down performance reports, compliance reports etc. Such a visual mashup will be very powerful and useful for customers.

As part of complete makeover of the software, we added a mashup capability in the latest release and one of the best features of this modern visualization tool is that they permit interactivity with a wide range of data streams. Customers now have the ability to click on various parts of a visual to drill into different views of the same data on the fly. Customer can intergrate other Business intelligence tools to create drill down performance reports, compliance reports etc. Customers should no longer be constrained by a limited data visualization options. Data visualization tools of today must not apply limits on what users can do, instead visualization tools must open up a lot more options for analyzing data.

Never underestimate the values of an appropriate visual when it comes to helping customers understand the situation and help get your point across. Having a high-impact visualization is a must in order to fully grasp the huge volumes of data.

The good news is that modern visualization tools can really help users at any skill level do a better job of analyzing, comprehending, and presenting information. There is a reason for the saying "A picture is worth a thousand words."

Lowering the Cost of Software Ownership

Enterprise Software such as Oracle, Exchange, SAP etc., have a long life cycle spanning decades and during that period, companies spend more money to maintain the software than what they have paid to buy the product.

Software maintenance costs include: Annual Support Fees, Periodic upgrades, personnel costs, and operational costs that includes servers, data storage, network bandwidth and power etc.

During good times, when the business is growing, companies are on an expansion spree and don't mind spending money on software. But during tough economic times, companies start questioning the maintenance costs and look to minimize those costs. Some customers refuse to upgrade or suspend annual maintenance contracts or look for a lower cost alternatives.

Today, 80% of the IT budget is being used to keep the current operations going on - i.e., "Keeping the lights ON" and since everyone is looking to lower the cost of operations, Many companies try to negotiate a lower annual maintenance fees and bargain for free upgrades.

In order to counter such customer backlash, Product Managers have to constantly innovate and develop the product to lower the cost of ownership to customers. In order to entice customers to upgrade to newer version, new upgrades of the product must lower the cost of ownership.

As a Product manager, there are several software innovations that can lower the cost of ownership:

1. Simplifying & Automate the installation of patches, upgrades and new installs.
2. Automating software support issues.
3. Improving product quality & stability & security.
4. Simplifying the product administration process
5. Offer the product as a SaaS model.
6. Simplify product licensing.
7. Simplify product trouble shooting.
8. Simplify product integration with other software.
9. Simplify product usage, so as to lower or eliminate the cost of employee training costs.

These enhancements must be built into newer versions of the product - so that customers have financial incentive to buy new versions and save money on operational costs.

Cloud technologies: SaaS, PaaS, IaaS etc can be leveraged to lower costs of ownership - by blending the core on-site product offering with a cloud offering, such that customers can use the cloud to meet their peak demand workloads, while use the on-site deployments for base work loads.

Many of these costs can be reduced by enhancing the software and then build/modify business models that lowers the costs. For example, support costs can be lowered by off shoring product support, and the savings can be passed on to customers. Another way to lower cost to customers will be to offer "On-Demand" support services instead of a flat annual fees.

Closing Thoughts 

Product managers must constantly understand the costs involved in using the software and constantly review software product enhancements to lower costs to customers. Companies should develop new business models to help customers during tough economic times.

Lowering cost of ownership will increase customer loyalty and increase profitability for software vendors.