Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Category: Software/Product Development

Extending Your Technology With Spinoff Products

Many software and hardware businesses, particularly smaller ones, are religiously focused on a specific vertical market. As well they should; focus is one of the most important attributes that can bring a business from startup to a strong growing business. This is often one of the key areas I concentrate on with many of my consulting clients. Many businesses just can’t turn down any sort of deal, no matter what the effect it has on their existing product development plans or other key corporate initiatives.

But there is another side to the focus issue. Many tech companies have developed excellent, mature technology bases at huge expense. If that basic technology has a horizontal appeal, it can be quite profitable to spend a modest amount of additional effort to bring that technology to other adjacent markets that the company is currently not serving.

Care needs to be taken, of course, to not spread your marketing efforts too thin. But if you’re smart about it your company can increase, sometimes dramatically, the return on its product development investments. Let’s take a look at a few potential tactics, all of which I’ve used successfully both at companies I’ve run and with consulting clients:

Customize your products for adjacent markets

As an example, maybe you have an ERP software package aimed at retail markets. It might be quite easy to customize the product for other inventory-oriented businesses, such as distribution or service/repair businesses. By doing this you’ve created a potentially large new revenue source, at a fraction what building that product from scratch might cost. The trick in this instance is often marketing the product–read below for a couple of ideas on how to accomplish that without doubling your marketing budget.

Private Label/OEM products

Private labeling or OEMing your product to another vendor can be an excellent way to extend your product development ROI. It might be as simple as partnering with a non-competitive vendor who takes your existing product “as is” or with minor modifications, as well as changing the product identity and labeling. The target partner would be a company very strong in a market segment that you aren’t successful in, have no interest in directly marketing in, or simply is beyond your resource level. If done well, this is a win-win for both companies. Your company gets additional revenues with little to no additional costs (“pure profit”), while your partner gains additional revenue in it’s target market–without any product development investment.

Integration & bundling with other products

One of the best things a software vendor is to create a “developer’s version” of it’s product, which essentially consists of creating APIs (application programming interface) to the software. This allows easy integration with complementary software applications and even hardware. Back when I was CEO of a mapping software company with limited resources, we created a developer’s version which enabled both integration and bundling with a number of complementary applications, notably in the real estate and CRM segments. Once again, this tactic required only modest product development investment and enabled us to draw revenue from a number of different markets. We would never have had the resources to pursue these markets if we tried to build a new product from scratch as a company would traditionally do.

Different price points

Using my favorite mapping software company example, we were often forced to think creatively to wring out as much revenue as we could out from our existing technology. One of the other tactics we used was “de-feature” our existing $99 high-end consumer application to create a $9.95 version, which we then sold through mass market retailers of all kinds. Not only did this create more revenue, but the high volume business also created a bunch of opportunities to upgrade these entry level customers to our higher-end core product. This is a strategy I’ve used many times; you almost can’t go wrong when creating a larger customer base for your technology. I use the simplistic phrase “the more you sell, the more you sell” to illustrate the advantages of this approach.

Business vs. consumer version

At that very same mapping software company we used one other great approach to extending your technology: creating a B2B version of our consumer product which was aimed at road warriors such as sales and service professionals (the converse works just as well). The B2B version had a few additional features and we sold it via different channels and strategic partners. It didn’t have the unit volume of the consumer version, but the margins were much higher.

So there are a few ideas on how to extend the use of your IP to increase your overall ROI. What are your ideas on creatively utilizing existing assets to create additional growth? Please post a comment with your own thoughts so we can all benefit.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

1 Comment by admin on December 5, 2011
filed in B2C, Business Models, Corporate Strategy, Distribution Channels, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, enterprise software, hardware
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Strategic Implications of the Google-Motorola Mobility Deal

The big question is why is Google doing this? Media reports and analysis of the potential deal has been all over the map. Much speculation has centered on the real value being in the large Motorola patent portfolio, to help defend Android against lawsuits. There has been other commentary which points to the possibility of using the Motorola set top box business as an entrée for GoogleTV to finally penetrate the market. One pundit has even suggested that Google will eventually be giving away Motorola/Android handsets, in an effort to disrupt the marketplace and further drive mobile advertising revenue.

The only folks that really know are those inside Google, and they aren’t saying.

I’ve seen this called a “Bold” move–but it is Bold or a really bad idea? Let’s look the deal from several angles:

Deal Price

The price, $12.5B seems very rich to me for an also-ran commodity hardware maker, but I’ve of course not modeled it and done rigorous “what if” analysis like the quants at Google surely have. As mentioned above, a lot of the analysis of this deal has centered on Motorola’s 17,000 held and 7500 pending patents, supposedly to help defend Android against a recent spate of lawsuits. That’s a lot of patents, not doubt. But how many of them are actually relevant? A Motorola shareholder has recently filed suit on the basis of the deal being below fair value, so maybe my opinion on the deal price being rich is off base. Of course, anyone can file suit for anything.

Hardware vs. Software, Margins & Commoditization

This is the biggest issue to me. Google has a beautiful, high margin software business. In most cases, I am baffled when a successful software company wants to buy into or otherwise enter the hardware business, as I have written previously about Oracle. In addition to higher margins, software tends to commoditize much less quickly as well, as you can constantly tweak and go vertical with your applications to stay ahead of competitors. Motorola Mobility is in a high volume, hit-driven business which tends toward low margins pretty quickly. You can make money in this segment, but results tend to change quickly, and it really helps to be one of the big two or three market gorillas.

Android Licensees

Of all the negatives, this one baffles me the most. Google is positioning itself to compete with its customers–the Android licensees. I realize this is the age of “coopetiton” and all that. But from a strategic perspective, it’s far better NOT to compete with your customers and partners if you don’t have to. This strikes me as one of those times that it’s not really necessary. The Google pundits are spinning the story that Google can use all of those patents to defend the Android licensees against business-damaging lawsuits, so they’ve really done this FOR the licensees. Maybe this is true, but it sure smells like spin to me. I think that handset manufacturers will be much more careful about investing in Android-based systems going forward.

Apple vs. Microsoft

Google Android has been positioned as hardware-agnostic system software, which has allowed it to grow extremely fast and shoot past the Apple iPhone in volume. Think Microsoft Windows in PCs in the old days vs. the MacIntosh. Apple is the world’s darling now and Microsoft isn’t held in high regard like it used to be. Apple has always used a strategy of tightly coupling their software with only their own hardware. But Microsoft built a hugely profitable software business with 90% market share by following a software-only business model, centered on partnering with hardware vendors–and swamped Apple in the PC business. Of course, Apple has won big in some major categories recently with their favored approach. The final verdict for each of these two very divergent strategies isn’t yet clear in the smartphone segment.  How important is having the software and hardware under one umbrella in this particular market, versus the ability to propagate your technology more broadly with 3rd party hardware partners? We shall see.

Business Complexity

A software-only business is far simpler since you don’t have to deal with the complexities of hardware supply chains, obsolete equipment, and inventory forecasting. Because of this, it’s much easier to focus your resources on fewer key business drivers, and much easier to “turn the ship” when necessary. Google is getting to be a very large, complex business as it is. Adding hardware to the mix will only make it more complex, and harder to manage as a result.

What Does Google Really Do with Motorola Mobility?

I have seen a lot of speculation in this area, some of it ridiculous. As I stated earlier, One VC speculated that he expects Google to eventually give away free handsets to somehow drive advertising revenue. Although on the surface this seems to fit with the Google business model, it’s one of the silliest things I’ve heard, and a great way to lose money.  Google announced that they will run the acquisition as a separate subsidiary, implying somewhat of an arms length relationship. Like we bought it, but we’re really not going to pay that much attention to what they’re doing, let alone influence how the company is run. Right — I’ve got some really attractive swampland you might want to buy if you believe that one. They just paid $12.5B–fair price or not–it’s not exactly chump-change. I think they have some plans and will be actively involved. But what are those plans? That’s being held close to the vest–it will be interesting to see what unfolds.

There are a lot of different ways to look at this deal. So many angles to view it, and a lot of information about Google’s true intentions aren’t available to us. But remember, most acquisitions fail. My own feeling is that if the Motorola patents aren’t worth $12.5B, Google will regret this deal. And unintended market fallout could make them regret it even if the patents are that valuable. It would not surprise me to see Google jettison the hardware business in a couple of years.  I want to hear how you analyze this move, so post a comment to share your views on this deal and continue the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

2 Comments by admin on September 5, 2011
filed in B2C, Business Models, Corporate Strategy, Mergers & Acquisitions, Software/Product Development, hardware
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Will Smartphones Replace PCs?

Smartphones are taking over the world–the tech world, at least. The computing buzz these days is decidedly mobile. The question is “where does it end”? Do Smartphones continue their growth until they are the dominant or sole computing platform, or does this trend stop somewhere short of that? Let’s look as some of the factors that will drive the market:

Processors

The state of microprocessors used in Smartphones will go a long way in deciding the ultimate outcome of this discussion. We’ve seen similar scenarios to the Smartphone phenomenon before, and history tells us that microprocessors will keep progressing on all three major computing platforms. History also says that applications have always grown in size and capability to take advantage of the increased level of processing power and memory available at a given cost. In addition, desktop PCs (and laptops to a lesser degree) don’t have the extreme power constraints that a pure mobile platform like a Smartphone does. If historical trends hold true, it won’t bode well for Smartphones becoming the dominant computing platform, because PCs will continue to have an inherent advantage in software capability due to more powerful hardware. If there is a leveling off in PC processor capability, Smartphones will have more of a chance to overtake them as the primary computing platform.

Screens

Screen size and power consumption are also very important to this argument. Until holograms become standard, screen size will always be an important factor is choosing where to do your computing. This doesn’t bode well for a total Smartphone takeover of computing.

Keyboards

Keyboards are an analogous issue to screens; once voice input becomes standard in the computing world, keyboard size will seize to be an issue, tilting the field toward Smartphones. But until this happens, all but the insane will prefer typing on a PC keyboard over anything available in the Smartphone world (although there have been definite improvements in Smartphone keyboards).

Batteries

Battery life is also a major driving factor in the capability of Smartphones. While mobile processors and memory will almost certainly continue to provide greater compute capability at lower power consumption, desktops essentially have no power constraints (except for the very green-conscious). Even laptops come with an assumption of working at least part of the time where they can be plugged in. There could come a day where batteries are so powerful and hardware is so miserly in power consumption that battery life is no longer a major issue. Until that day, however, the checkmark goes to PCs.

Software

There are two aspects of software that are important to this discussion. The first is the number and breadth of applications available–the Smartphone category has already blown through this checkpoint. Hundreds of thousands of applications are already available on Smartphone platforms. Smartphones are already in the mainstream from a software assortment perspective. The second question is the sophistication/capability of the infrastructure software available, to ensure whether bleeding edge technology can be used on a platform. While Smartphone infrastructure and tools aren’t t yet as powerful and mature as what’s available on PCs, things are moving fast and I don’t see this as a major issue preventing Smartphone dominance.

New Hybrid Smartphone/Laptops

This embryonic platform holds the promise of being a game-changer in the market, tilting the advantage towards Smartphones as your primary (and possibly only) computer. What I’m referring to is a normal Smartphone “docked” into a laptop accessory shell, providing a larger screen, keyboard and maybe even bigger battery while using the same interface and software available on your Smartphone. This allows all of your files and computing occur on a single device, which would represent a major breakthrough for users. It’s the holy grail of computing. You may have seen ads for one of the early models, the Motorola Atrix “Lapdock”; or heard about the recently announced ASUS Padfone hybrid Smartphone/Tablet. It’s still very early in this segment and definitely uncertain how it will turn out. As in any early market, prices are still high, and the early devices don’t quite work as well as you’d like. But the paradigm is a powerful one. If the companies bringing out these devices stick with it, continue to innovate and introduce next generation devices that meet market expectations, this is a product that could truly be a PC killer. Only time will tell if this category will become the next generation of computing, or peter out like so many other great ideas that weren’t carried out to the required maturity.

I realize that tablets are becoming an important part of the computing ecosystem, but for simplicity I’ve considered them a next generation laptop in the context of this discussion.

I can’t say I know how this eventually works out. If I had that type of view into the future, I’d be in Vegas placing bets rather than writing this article. But using history as a guide, I think all three major platforms–desktops, laptops and Smartphones–will be with us for a long while.

I do think there will be a re-alignment in computing market share among the main platforms. I see desktops continuing a slow decline in share and eventually becoming specialist computers, used only where the ultimate in computing power is required. Smartphones have already staked their claim as the new growth platform. How far this growth goes is the only question. The wildcard is the new hybrid category. I believe that these devices could become the dominant primary computing platform if the hybrid Smartphone/laptop category takes off–which is far from a certainty at this time. If hybrids don’t take off, I believe screen, keyboard and processor limitations will prevent Smartphones from becoming the dominant computing platform anytime soon.

That’s my forecast–what’s your opinion on the direction computing will take? Do desktops eventually go away completely? Are they replaced by a Smartphone/laptop hybrid device? Do two of these three platforms survive, or will all three co-exist in the future as they do now?  I’d be interested in your own forecast–leave a comment to further this discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

1 Comment by admin on June 12, 2011
filed in Business Models, Corporate Strategy, Software/Product Development, hardware, market research
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The Rise and Fall of Novell

Once again one of the great brand names of High Tech has been prominently in the news, this one  for it’s demise as a standalone company. This time it’s Novell, Inc.  Attachmate announced that it had closed its purchase of Novell, which becomes a brand of Attachmate.  The price was $2.2B–not chicken feed, but much less than the promise held by this company in the distant past.

This company holds a special place in my memory. In the early 90’s the Novell name was synonymous with Networking. The company was a pioneer in Corporate Networking, and played a major role in helping to create this market as we now know it. When I entered this market in 1990, the company’s core product, NetWare, held a commanding 70%+ market share in the networking software space, which was already very large at the time, and growing at a rapid rate. It was in this environment that I began my first general management position, starting up a systems and network management software business. Netware being the dominant NOS at the time, I got a very close look at the company’s activities, and some of the decisions and events that began Novell’s long decline. Novell is still a $1B business, but in terms of power and prominence, they are a shadow of the company I kept a close eye on in the 90s. There’s been speculation that the company would be an acquisition candidate for some time, so the news isn’t a big surprise. But it’s a story which is a cautionary tale, and many lessons for tech company management teams that don’t want to “blow it”.

So what caused the unfortunate change in fortunes for this former industry high-roller?

It’s a familiar story, actually, especially for those of you who are regular readers. The Novell story is particularly interesting, because several factors, each one itself capable of wreaking havoc on a solid company, came together to put this company into a long nosedive.

MICROSOFT-ITIS

The first problem was what I call “Microsoft-itis”. Novell became very successful on the back of its flagship NetWare platform, which drew the attention of Microsoft. Microsoft tends to become unhappy when any other software company grows too big, too fast. The upstart is then viewed as a potential threat in Redmond, as well as the fact that the market this other company has helped grow now becomes large enough to be attractive to MS. So the first problem was getting in the gun sight of Microsoft. Now, it’s hard to blame the company for this, it’s more of a side effect of success. This situation has caused problems for many a company, and is enough unto itself to throw a large majority of companies off their game. To have Microsoft target you is quite disconcerting, and if you don’t make the right decisions, you may be in serious trouble. How a company reacts to this challenge is critical, and in truth, often life or death.

ARROGANCE

Unfortunately, in some cases, being targeted by Microsoft sometimes builds a company up in its own view. It’s almost a baptism into the big-time. Microsoft is worried about us; we’re a peer to them now! We must really be smart! This leads to a false sense of security about the company’s true position in the market, leading to the second factor which can bring a company down—Arrogance.

Novell had plenty of excuses to be arrogant, even without Microsoft’s attention. They were truly dominating the Network Operating System business. The brand was dominant, the product was good, and the worldwide distribution network of VARs and distributors was second to none. Sales people at Novell no longer had to sell—they took orders. That led to a need to keep the big ball fast growth rolling, even as the market matured and became quite large. Wall Street, you know. Novell became known as a company that pushed, rather than created via pull marketing. There were numerous channel-stuffing scandals, so sales people could make their quarterly numbers and max out their bonus. No matter, things were well in hand, Novell was on a roll.

The closest competitor at the time was Banyan, with their VINES operating system. Banyan had a nice niche in the largest, WAN oriented corporations, but was no threat to Novell’s dominance. There was also a fast growing peer-to-peer player, Artisoft, who had a nice niche in the entry level market. Again, Artisoft posed no serious threat. And then there was Microsoft, with its alliance on the LAN Manager NOS with 3Com. At the time, Microsoft’s distribution strategy was still to primarily be an OEM supplier, preferring to let others take the lead in bringing the product to the end user market. They had piggybacked the hardware vendors with DOS and the emerging Windows 3.0, and were attempting to use that strategy in the Networking market with 3Com as their main partner. 3Com at the time was a dominant networking hardware vendor. They also teamed with many suppliers of UNIX software to create private label versions of LAN Manager for each UNIX flavor—HP UX, for instance. There were about 17 other platform partners, as I recall. It looked like a formidable syndicate which could challenge Novell for market leadership.

However, like many early Microsoft entrées into new markets, the offering was a joke. LAN Manager ran on top of OS/2, which should tell you something about its lack of success, right there. Technically inferior, with too many players involved to advance and support it, LAN Manager never gained significant traction vs. Netware, even with huge amounts of money being poured into development and marketing. Major new releases would be announced, each which was supposed be the one to give Novell a run for its money. It became a running joke in the network business. At this point, Novell looked invincible.

LOSING FOCUS

Then the arrogance at Novell rose to new levels. Apparently thinking Microsoft couldn’t beat them at their own game, Ray Noorda and senior management at Novell decided to also take on Microsoft on their own turf. Not only that, but to compete across many, many categories. They decided they wanted to become the new Microsoft, and in doing so opened a multi-front war against a larger competitor, with far more resources (See Hitler opening up the Russian front in the War against the Allies).

Novell bought WordPerfect to compete with MS Word, Quattro Pro to compete with Excel, and announced a dizzying array of additional new initiatives. (See Netscape taking a similar approach in its heyday, as well as Google is now, as we speak—that ought to be interesting). No one, I repeat, NO ONE, has won a multi-front war with Microsoft. The people that have fended them off (which is a small list), when MS has put them in their headlights, have done so by sticking to their knitting, and playing by the rules of their own market segment. Intuit is a notable example, which was able to keep MS in a minor role in the Personal Financial software segment, by advancing and focusing on its own offerings and current market.

WHAT HAPPENED?

Well, many of you who have been in High Tech for a while probably already know the result. Microsoft finally split with 3COM, developed Windows NT, essentially building Networking into the Operating System. This finally began to hurt Netware, and although it wasn’t an immediate rout, over time NT became the clear winner. The terminator of Redmond can be knocked down, but they almost never give up—they just go deeper into their pockets, and keep on coming.

The acquisitions that Novell made were already second or third tier products, and their markets were outside of Novell’s core market and competency. Drained of resources and fighting losing battles on many fronts, Novell was soundly defeated, ultimately selling off many of its acquisitions, retrenching and changing their strategy—quite a few times over the years, I might add. They went into a long, slow decline, and once this begins at a large company, it’s very difficult to truly turn it around.

WHAT IF?

So what would have happened it Novell hadn’t reacted like Netscape later did, choosing to battle it out toe-to-toe with Microsoft, blinded in a fit of rage and bravado? What if they had followed a similar strategy to the one that Intuit took? What if they had marshaled their resources, and kept their focus on maintaining the lead they had in Network Operating Systems and related businesses—which were pretty big markets in their own right? Hindsight is always 20/20, but my guess is that they would have had a much better chance of continued success—and possibly avoided the headlines in the Trade Magazines of the last few weeks.

Have you seen similar missteps in your own companies or markets?—please post a comment below to share the insights.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

5 Comments by admin on May 3, 2011
filed in Business Models, Corporate Strategy, Distribution Channels, General Management, Operations, Software/Product Development, VARs, enterprise software

Will SaaS Lead to the Death of Software Product Management?

There is a lot of talk in the software business these days about changing business models, particularly the trend toward SaaS (Software as a Service).

Will SaaS business models dominate the software business?

Many consultants, pundits and other industry figures are proclaiming that SaaS will very soon take over the world; saying if you’re not on the bus soon, you’re going to be out of business. I believe this is a bit overstated, but the strong trend toward the SaaS business model can’t be denied.

My opinion on SaaS adoption: When bandwidth is unlimited and close to free, all IT systems are totally secure, the Internet is as reliable as old AT&T; and every customer in the world decides they want to rent everything and own nothing–then I’ll agree that SaaS is heading toward 100% market share. As I said above there’s a strong trend in this direction, but we’re a long way from there.

Is software product management dead?

I’ve written about SaaS a number of times before, and since it has become very important in the software business I’ll continue to do so frequently. What I want to address today is another opinion some “experts” are also espousing: that the trend toward SaaS means the end of the Product Management function in the software business.

I find this statement to be downright silly.

When following this debate, it’s important to take notice that many of the folks proselytizing these opinions have businesses whose success is based upon these predictions actually coming true. It’s always important to consider conflicts of interest among the debaters.

In one recent webinar they trotted out a SaaS software company that was growing briskly every year with no product managers in the company. What wasn’t said is that it was always possible to find software companies (of the traditional sort) who didn’t have a product management function. Software companies are often founded by programmers, and they haven’t always seen the need for Product Management. There are very successful companies where the developers talk directly to the customers, with no product managers at all. However, the facts are that a very small percentage of companies that do business this way are successful, and its usually based upon special circumstances: the rare developer who understands markets and customers as well as he does coding, markets where the developers themselves are perfect customer proxies, etc.

So while software companies without Product Managers have always been out there, it just hasn’t been a broad formula for success. Trotting out one SaaS company successfully doing business this way (incidentally, I saw some big holes in their model long-term) doesn’t impress me much.

I’m not defending the status quo–I’ll say it once again, there is a huge move to SaaS in the software biz. Many (and maybe most) will be doing business this way in the near future. However, like most over-hyped trends, this are some pretty big overstatements being thrown around.

SKILLED product management will always be important

The argument being made is that many of the functions Product Managers currently perform are obsolete under the SaaS model. With continuous development more practical using SaaS, there may be fewer (or no) new version introductions. So the old waterfall chart with MRDs being created for the new version may go away along with new product introductions. I’m sure you get the picture. SaaS is a pretty fundamental change to the software business model, so you wouldn’t expect a product manager’s job to be stagnant under such change.

But those predicting the death of product management are focusing on the more mundane aspects of Product Management. The essence of this critical function is the ability to understand markets and match widespread, aggregate customer needs to the technical skills and IP of your company–creating a PRODUCT which can be sold to these many people. It doesn’t matter whether you deliver this PRODUCT over the Internet in a hosted manner using monthly subscriptions, or in the more traditional on-customer premises, licensed model. Product Management is about creating a profitable PRODUCT well-matched for a market segment. It matters not whether you are engaged in customer facing marketing/promotional activities, or upfront product planning–the product manager’s understanding of market needs and how your company can fulfill those needs is crucial in a product business. Otherwise, you’re just selling custom software–one-off’s for every customer. That’s a different business–not a bad one–and one you which doesn’t require product managers.

Can Social Media replace Product Management?

Another thing being bandied about by my favorite pundits is the impact of communities and other social media for its potential impact on product development. The thinking goes that there will be much more direct interaction with the end customer, leading to tremendous amounts of data available to ISVs. While SaaS is very well suited to communities (although not exclusive–they can be well utilized by traditional licensed software vendors), the ability to more easily obtain direct customer comments, and maybe take votes on potential new features doesn’t eliminate the need for product management. To the contrary. While communities and other forms of social media are very powerful tools, don’t mistake more data and customer access with actionable market intelligence. Data needs to be interpreted, and skilled marketers are best positioned to discern who’s telling you what and why–the underlying motivations behind any customer feedback. So all of this added customer access and resulting data will only put a premium on good product management, to use these powerful new tools and data for quicker action and to allow better product planning decisions. Remember, SaaS competitor down the road will have access to the same tools and data that you do.

It is rare to find a developer who has truly exceptional product management skills. That’s not a knock on developers; as a whole they are an extremely sharp bunch. But specialization in life happens for a reason–very seldom is someone the best at everything. Developers are trained to write code and build applications, not understand markets or extract the “truth” from customers. Different types of people’s brain’s work differently, and a good developer and good product manager are an example of this.

I find that it’s when a talented, open-minded development manager teams with a market-savvy product manager, that most great software applications are made. So no, I don’t believe that the Product Management function is going away anytime soon in the software business. There are many important changes going on in the business, the SaaS business model not the least of these. With any change in business model, functional roles will evolve and change. But I believe strongly that Product Management is a fundamental, important role that will remain critical in software businesses far into the future.

That’s what I think about SaaS and product management–what do you think? Post a comment to start the discussion! Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter.

3 Comments by admin on October 12, 2009
filed in Corporate Strategy, Product Marketing/Management, SaaS, Social media, Software/Product Development
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Startup Mistakes by Software and Tech Companies

Starting a company, any kind of company is the hardest thing to do in business. Sez me.

It’s also one of the most rewarding and fun, if you’re built for the startup experience–though not everyone is. Technology startups have their own unique challenges. There are many different ways to drive off the road, some of which I list below. Keep in mind that no startup is perfect, and mistakes will be made. The future can not be forecast, and in a software or tech startup you’re often flying nearly blind without a map, because you are trying to do something new and different.

In the end, if you are able to make it through, overcoming your mistakes may be the most satisfying part of the whole startup experience. So keep in mind that it’s almost impossible to play a perfect game. On the other hand, it’s crucial to steer clear of the mistakes which are often avoidable–because you only get some many chances to recover from errors.

Here are some of the common, often avoidable missteps to be aware of:

Too little capital
Sometimes this is unavoidable–but if you really don’t have enough capital maybe you shouldn’t start up in the first place. Activities such as software product development are notorious for going way past schedule and over budget. Most products don’t move like a knife through butter with the first modest promotional campaign. So build a decent amount of backup money into your plan, because things rarely go as planned. If they do, great, you can use the money to accelerate growth. But when things don’t go well, you’ll at least give yourself a fighting chance, if you’ve set aside a bit of money for a rainy day.

Don’t try to be a “Big Company” right off the bat
Many startup management teams are jealous of the resources available to their established competitors. These folks can become “Big Company Wannabes”, a classic formula for going out of business early. Don’t spend your precious time and resources on activities that don’t efficiently bring the product out, or market it. Period. Lavish trade show booths, company parties, expensive or large offices, administrative assistants for all the execs, etc., etc. Don’t hire a lot of big company people who don’t have early stage experience–they are prone to the types of costly waste listed above.

No backup plan
It is a startup and you have to expect little margin for error in reaching success. But that’s no excuse for a lack of strategic planning–within the constraints of your resources. A backup plan might be something simple: software companies going to open source if your high-priced commercial strategy meets resistance, a service-oriented revenue strategy with a cheap or free product, using a channel rather than building a full sales force, licensing your technology instead of marketing a full product to end users. It depends on your circumstances, but do try to have some type of a contingency plan going in.

The “Techies know everything” syndrome
This is a common malady in tech startups, because many new software and tech companies are led by management heavy in experience from the engineering or software development side of the business. Usually these folks are very smart, but in some cases also a bit full of themselves, unable to know their own blind spots. Those blind spots often appear in marketing and sales (which every engineer and software developer knows are easy, non-complex activities). The really smart guys quickly figure out those other parts of the business besides the tech stuff is hard as well, and make adjustments through education and bringing in outside expertise.

The “Technology is everything” syndrome
This is a corollary to the bullet point above. The technology and product is crucial in a tech startup, since it is usually the basis for your competitive advantage. But it’s not everything, and many a startup has failed despite great technology and an exciting new product.

No marketing budget or in-house expertise
Believe it or not, I see a lot of companies with little or no promotional budget. Its insanity, but they only have enough money to get the product built, apparently thinking “if you build it they will come”. This is nearly always a failure mode. If there is someone with marketing expertise among the founders, they usually won’t allow this to happen. So secure a marketer on your founding management team, or at least find a close advisor you will listen to, early on.

Under-estimating time to market
This is a very common mistake. By definition, you are trying to do something new, which isn’t forecast-able. So don’t believe your own pretty Gantt charts–garbage-in equals garbage-out when it comes to schedules. Don’t count on making it to the big trade show, commit to costly promotional activities with no recourse, or let the developers all plan to leave for that well-deserved month in Hawaii. Get the product done first. I tell you this with many painful experiences as a teacher, both personally in software and tech companies and through my clients.

Under-estimating time-to-success
Even if you are able to get the product out on time, that doesn’t mean version one will hit the ground running. They often crawl, stumble and fall at first. After all, this is your first opportunity at really accurate market research. Even if the product is right on target, finding the marketing mix that works is generally trial and error. Many products don’t find success until their second version is released, so have some money in the bank, and some emotional bandwidth available for this possibility.

Introducing a “buggy” product
This is one of my biggest pet peeves, especially for software products. Most products aren’t fully stable when the developers think it is ready. They work on it so long and hard, that human nature wants it to be finished near the end–and dangerous shortcuts can be the result. Dedicate as many resources as you can spell to ensure a credible, third party view that the product is as stable as it can be, before the market gets the opportunity to “debug it” for you. You only get one chance to make a first impression. If the situation is bad enough, it can cost you your business.

There are my thoughts on what critical mistakes to avoid in a technology startup. I’m sure many of you have your own lessons and ideas to share. Post a comment to start the discussion! Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter.

12 Comments by admin on September 14, 2009
filed in Corporate Strategy, General Management, Software/Product Development, Startup/Early Stage
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Cloud Computing, SaaS and Such–Have We Read This Story Before?

I have this incredible feeling of déjà vu.

Cloud computing and Software as a Service is all the rage. In my practice at PJM Consulting, I am very involved in software startup activity. Nearly every new software company that I see today is being built on the Software as a Service business model. It’s all the rage–so much so that it appears that any self-respecting software entrepreneur would be embarrassed to start a company using the traditional software licensing model. Even if an entrepreneur was so inclined, good luck finding a VC who would even consider funding such a company. No one wants to look like a dinosaur.

It’s all well and good–there is definitely a real trend toward SaaS and Cloud Computing, with many good reasons for it. But most high technology trends are initially a bit over-hyped, and tend to get ahead of themselves. In addition, this particular story seems ever so familiar to a tech veteran that’s been around for a few of these cycles.

The first bit of history this reminds me of is the old terminal/mainframe model from the early years of computing. There were some real advantages to this model, but also some big disadvantages as well–which opened the door for the golden age of PCs and networking.

The second era that the current SaaS wave reminds me of is “Web 1.0″, when Web-based hosted software (then called ASP rather than the modern SaaS terminology), was first going to take over the world. The current trend seems so very similar because it was around the Web 1.0 years of the late 90s/early 2000 when the traditional software license business model was first proclaimed dead. At that time nearly every new business plan was based upon an ASP model.

So some of this fast-moving Cloud Computing or SaaS trend is new–but much of it could be viewed as recycled from past trends. Let’s look at the Pros and Cons of this computing model:

ADVANTAGES

* Enables “Utility-Style” computing – variable expense instead of. capital investment
* Allows an end run around overwhelmed IT departments (like PC networking did)
* Supposedly “On-demand”–use only what you need, when you need it
* More efficient use of compute resources by time-slicing large farms of cost-efficient computing resources
* Web-based allows anywhere, anytime availability
* Off-site storage of data assists disaster recovery preparedness

DISADVANTAGES

* Immature and inherently more difficult Security
* More difficult integration with other applications
* Internet latency
* Internet reliability
* Data resides outside the company firewall
* Costs over time aren’t necessarily lower for customers
* Lower margins for software vendors–aren’t always accounted for in current pricing

SUMMARY

I believe that the trend toward computing in the cloud will continue, but there will be some stumbles and pullbacks along the way. Cloud Computing and SaaS has some inherent strengths–but also some under-publicized weaknesses. Many software vendors are overlooking the weaknesses at this time, as is typical of any new and hyped technology. Traditional licensed software hosted by the user still has its strengths and a definite place in the market. Like many mature technologies and business models, the death of traditional software licensing has been greatly exaggerated. Once the early hype passes, decisions on whether to computer within the firewall or in the cloud will once again be made on the individual merits, costs and user needs for a particular application within a particular company. That’s how I see it–post a comment with your opinion so we can look at all viewpoints.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

9 Comments by admin on May 4, 2009
filed in Corporate Strategy, General Management, Operations, SaaS, Software/Product Development, enterprise software
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Oracle is buying Sun?

Breaking News…. Oracle buys Sun!? What’s wrong with this picture?

What’s surprising is that a very large software company is buying a very large hardware company. You often see a hardware company buying a software company, but I can’t really think of a deal that’s gone the other way around. Certainly not at this level. My practice at PJM Consulting serves all kinds of technology companies–but a focus is on software. Although every situation is different, my typical advice is for software companies to stay away from hardware, if at all possible.

This news is very interesting on several levels:

Involvement of two high profile, strong personalities in the technology business
I’m talking about Larry Ellison and Scott McNealy. Of course, MCNealy no longer actively runs Sun, but he is still Chairman and a power to be dealt with. He was allegedly the force behind the killing of the potential deal with IBM. Apparently Larry and Scott are old buddies, so maybe there won’t be a problem. But these are two very strong-minded, controversial and sometimes outrageous leaders. Even though they are long time friends, they have never before played together so closely in the same sandbox. It wouldn’t be shocking to see a few disagreements, and some public drama as a result.

Combining the Largest Revenue Database Product with the Largest in Unit Market Share
This aspect of the deal will not get as much attention as some of the others. But Oracle is the 500 lb Gorilla at the top end of the market, and the open source MYSQL is the most popular database choice at the low end, particularly in website development. This aspect likely won’t demand anti-trust scrutiny because they don’t really compete directly. But potential marketplace competition from MYSQL going up market, and Oracle bringing out lower cost solutions, is eliminated by this deal.

Software Company buying a Hardware Company
As I stated above, this is highly unusual, especially for companies of this size. Most established software companies have very high margins, and wouldn’t want to “pollute” their earnings with the lower margin, often commoditized hardware revenue. I can’t think of another comparable deal, looking back even into the distant past. The business models are pretty different. In hardware companies manufacturing efficiency and inventory control are major factors in business success; in most software businesses these are inconsequential factors to success. Hardware businesses tend to be more capital-intensive, while software businesses are very R&D; intensive. I could go on, but suffice it to say that the management of these businesses includes different functional skill sets. Why is Ellison interested in Sun? Just for the Java and the Solaris OS software, or is he really going to continue with the hardware business as well? Even though in some ways, Sun was a bargain at the price of just under $6B net. But if he’s just interested in the software pieces of Sun, the price looks pretty steep–Sun’s direct revenue from Java and Solaris is a pretty minimal portion of its total revenue. Ellison had a flirtation with hardware years ago with the Network Computer concept–could he really still be itching to become a fully integrated systems company?

What will Oracle Do With Sun’s Software?
To me, this is by far the most intriguing question raised by the deal. Solaris is a nice OS, and has a good installed base. But it’s never really had the same impact in the market since open source Linux came around. Java is pervasive in the computing arena, and in embedded systems as well. It has a huge impact on the Internet. It’s literally everywhere. But after trying to charge big money for Java in the early days, Sun decided to give it away. I was intimately involved in the embedded Java market in those early days. Sun initially looked like they had created a technology that could allow them to challenge Microsoft for computing dominance. I believe Microsoft was very worried at the time. But to say that Sun fumbled the ball would be way too kind. Frankly, their effort to commercialize Java was like something out of the Keystone Cops. I could detail their myriad missteps. To summarize, the biggest problem was that they were a hardware company attempting to commercialize a software product, which usually doesn’t work very well. Sun appeared not to have a clue as to what they were doing. Finally, they quit trying to directly make money at Java; they put it into open source and basically decided to give away the technology to anyone who wanted to use it. It looked to me like a way to spite Microsoft, more than anything.

What Happens to Java?
So where does that leave Oracle once they close the deal and own Java? What is their plan to leverage Java in the marketplace? Will they start trying to charge for it somehow? I think this is doubtful; there’s probably no going back on that decision at this point. I’m sure that Mr. Ellison and his team have something in mind–but I can’t imagine what it is. They’ve been very savvy at making some acquisitions that haven’t looked all that complementary, that have worked out well. So I wouldn’t bet against them. But I can help wonder if they haven’t stretched a bit too far in their minds to find synergy in this one. It reminds me a bit of Ebay’s very expensive purchase of Skype, which is now being unraveled because it just didn’t create any synergy. We shall see what happens–it should be interesting to watch this unfold.

SUMMARY
The prospective Sun-Oracle deal is one of the more interesting we’ve seen for a while. There shouldn’t be any major anti-trust issues with this deal, and it doesn’t appear that a higher bidder is likely to emerge. Watching the organizational integration (and possible divestment), as well as the interaction of the outsized personalities, should be entertaining at the very least. But most of all look for what Ellison does with Java–that’s where the real intrigue lays. Post a comment to give me your view of this deal.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on April 22, 2009
filed in Business Development, Corporate Strategy, Mergers & Acquisitions, Software/Product Development, hardware
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Google Chrome–a Strategic Platform or just another Browser?

Google’s new Chrome Browser came out a few weeks ago to quite a bit of attention. It’s big news 1) because it’s from Google and 2) it brings back memories of the “browser wars”, and seems like it could potentially signal the next big battleground in the intense rivalry between Google and Microsoft.

I’ve downloaded Chrome and played with it a bit, but this isn’t intended to be a technical review of Chrome’s merits. It seems reasonably snappy, and has Google’s typical minimalist design philosophy, including a single box for multiple functions (search, address bar, etc.). Your personal preferences will decide whether you like that or not. It has some nice features such as tabbed browsing, which theoretically should prevent one bad browser window from crashing all open browser windows–much like when Windows became multi-threaded. Nice stuff, but doesn’t really fundamentally change the browser game. But technically it’s still a beta anyway (of course just about everything is with Google), and it will evolve over time–so it’s not really time to judge it from a technical perspective anyway.

What I want to do is to examine Chrome as a strategic move by Google with respect to the software and online worlds–what does it really mean, where will it take the market, and what are its chances for success?

Let’s take a look at some of the potential ways that Chrome could affect the marketplace:

A Better Browser
Of course, PR propaganda always will say that this is the “real” reason for bringing out a new product such as this. When I was at HP we used to call this “making a contribution to the market”. Google in particular often gets sanctimonious about this type of thing, with all their “do no evil” and saving the world stuff. Does the world really need another, better browser? Not sure. Firefox and Safari, to name two, are already probably technically superior to IE, and while they’ve made some inroads in the marketplace, they still trail Microsoft by a wide margin. But history tells us that competition is a good thing, and a step forward on major platform like a browser can certainly be thought of as a gateway to allow software innovation to develop faster. Having a company like Google enter the fray should increase rate of innovation that’s possible in the online market.

An Application Development Platform
This is the position that many pundits suspect may be the major impact of Google’s move. In their introduction, Google talked quite a bit about “remaking” the browser for Web 3.0, if you will. And a fresh approach does make sense, given that Internet Explorer was conceived long before serious online applications were envisioned for the Web. With SaaS and Web 2-3-4.0 currently all the rage, having a browser platform designed from the bottom up to accommodate online software applications should be a good thing. If it’s all it’s cracked up to be, this could conceivably be a game-changer and a real threat to Microsoft. The key here is how much of the talk about re-architecting the Browser is real, and how much is hype. This will become more apparent over time as Chrome is further developed, and application developers take a look to see if there truly are features they can take advantage of to build better online apps for users.

An Additional Way To Track User Behavior
This is one of the more cynical viewpoints as to the major motivation behind Google’s introduction of Chrome. The thinking is that this is one more insidious move by Google to “big brother” your online activity. It’s no secret that Google uses web activity data they collect by various means (such as Google Analytics) to fine-tune their advertising business. Certainly owning browser could be seen as the “holy grail” towards creating a complete characterization of online activity. What else might they use this data for, in addition to fine tuning their advertising platform? That’s the question and concern.

A Way To Drive More Search Traffic And Adwords Revenue
Along the same lines as the bullet point directly above, owning the browser could be seen as the ultimate in terms of driving web traffic toward Google’s Adwords online advertising. The first thing you see upon downloading Chrome is the opportunity to switch to Google as your default search engine. How much will they do in this regard, either subtly or in a straightforward manner? As stated above, at a minimum, it gives them the opportunity to make Google the default search engine, which is critical to their base business. Only time will tell how much of a factor this is in Google’s Chrome strategy.

A “Real” Competitor Aimed At Microsoft IE To Make Them Defend Their Turf
Of all the bullet points I’m raising, this is the one I’m most sure of. Google and Microsoft are locked in one of those classic death matches for online software supremacy, and don’t miss an opportunity to tweak their arch-rival and make them sweat a bit. Going back to the application development argument above, there is a feeling that Chrome could serve as the basis for a suite of online Google apps to threaten obsolescence for Microsoft’s desktop software business. I don’t doubt that Google may try to do this. But even if from a technical and marketing perspective Chrome is only a modest success, it almost certainly will get Microsoft’s attention and cause them to expend resources and management attention on browser technology, to an extent they may not have preferred.

SUMMARY
Chrome is intriguing, but it’s too early to tell for sure what the major reason is for this Google initiative. They may not even know for sure themselves at this point. But the product, and more importantly the move itself, will likely make Microsoft react. The ensuing competition should be all good for the user and developer communities, as long as it doesn’t take us toward another tiresome and market-paralyzing “platform API” war. I’ll be following the future development of Chrome closely to see where it takes us–how about you?

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

No Comments by admin on October 9, 2008
filed in Corporate Strategy, Product Marketing/Management, SaaS, Software/Product Development
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Integrating the Marketing and Engineering Functions at Technology Companies

In most tech companies, Product Marketing and Product Development/Engineering are managed separately. There is usually a VP over the Product Development function and another over the overall marketing function, which usually includes future product marketing/planning.

While this is certainly an appropriate way to organize a tech company, there is a great danger in one are when it comes to these separate operating “silos”: the planning of new products.

I have a particularly strong opinion on this topic, with an extensive product marketing background and also having worked as a product developer earlier in my career (albeit in a non-tech business).

With respect to current products, the silo approach isn’t much of an issue. The day-to-day activities of the marketing and engineering departments are very different, and can be managed separately quite successfully.

It’s in the future product area that things can get messy. Product Marketing and Product Development both have a key role to play here, if the company is to optimize the process of planning, developing and introducing the best new product possible. The problems is that at every level, from the VP-level down to the engineering project managers and marketing product managers, the product marketing and engineering functions are often staffed by individuals with very different world outlooks when compared to their direct counterparts in the other department.

Inevitably, if care isn’t taken, these very different personality types can lead to some pretty intense conflicts. I’ve been a soldier, captain and general in this war–and let me tell you, it isn’t pretty. The battlefield often is a company’s strategic plan, which ends up in a trampled mess. I have seen this battle play out regularly in the companies that I have worked for as an employee, as well as at many of my clients in eight years as a consultant at PJM Consulting. It sometimes gets so ugly it paralyzes a company, putting it at a severe disadvantage vs. competitors who have less of a conflict.

THE “WRONG” WAYS TO HANDLE THIS POTENTIAL PROBLEM

Unfortunately, most CEOs that I meet are not all that in tune to how damaging these conflicts can become.

Often they will ignore or deny the problem, thinking it is a responsibility to be handled at the VP level.

Another strategy that I have seen companies put in place is to extract the product planning function from the marketing department, and put it under engineering. This will often greatly reduce or eliminate the conflict, but it akin to throwing the baby out with the bathwater. As I said earlier, both marketing and engineering have a key role to play in product planning. This strategy effectively removes the voice of the customer, which is a key role that the marketing department should be playing in any successful software or tech company. As much as product developers think it looks easy, they almost never have the mentality or experience to accurately read markets or customers. Almost no one is great at everything; monitoring and reading markets, and technical product development, are two very different skill sets. Having both mentalities involved in a positive way leads to far better products in the end.

Finally, if they happen to have come from one side of the battle or the other, CEOs sometimes “take sides” in the battle–predetermining the winner. The problem is there is never any real winner in this battle–and the only certain loser is the company and its shareholders.

A CEO can choose to let Marketing have the upper hand–and this may work out adequately in commodity products where there is very little engineering differentiation. In any other circumstance, results will likely be sub-optimal.

Or he can let Engineering win and dominate the planning process–which is a very common occurrence in early stage, technically-driven software and tech companies. But this generally only works well for products made by engineers, built for engineers (the early days of Hewlett Packard are an example of this strategy working successfully). For every company that has used this approach successfully, there are probably hundreds or even thousands that failed in large part because of it.

Ultimately, to make sure that this conflict and its dire consequences are to be avoided, there is one key thing that needs to happen:

IT IS THE CEO’S RESPONSIBILITY TO PREVENT, RECOGNIZE AND FIX THIS PROBLEM.

So what steps can a software or tech CEO take to be on the lookout for this problem–and more importantly, what can they do to prevent it from developing?

*It’s all about relationships: closely monitor the personal relationship between VP-Marketing and VP-Engineering
*Make sure that the VPs are monitoring the relationships below them
*Make sure they are both VPs are open and honest with you about the relationship between departments
*Plan activities which allow engineering and marketing counterparts to get to know each other as “people” outside of their project activities
*Be careful that you don’t inadvertently make decisions or set up policies that reward or tolerate politics
*Design goals and MBOs to reward the two departments for working together
*Don’t ever allow one department to “get ahead” by blaming the other–tie them together as much as possible
*Hire marketing personnel that can talk the language of engineers
*Screen product development hires who will interact with Marketing for the not uncommon attitude that engineers are “superior” human beings
*Encourage the marketing department to get product developers in front of customers
*Watch out for arrogance when screening potential new hires for either department that will interface with the other –arrogance is usually the trigger which starts the battle rolling

SUMMARY

Marketing/Engineering conflict over the product planning process is a common problem that is often overlooked by tech company CEOs. A certain amount of creative tension can exist between the two departments, and be totally healthy. All too often, though, this tension turns into a bloody fight which is destructive to the company’s prospects. It is not “fait accompli”, however. It can be minimized and even prevented by a watchful and proactive CEO.

That’s my take on a common issue which is rarely discussed out loud. Have you had your own issues in this area? Post a comment to add to our discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on July 8, 2008
filed in General Management, Marcom, Operations, Product Marketing/Management, Software/Product Development, hardware
tagged , , , , , , , , , ,
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