Extending ROI With Spin Off Technology Products

If a basic technology has a horizontal appeal, it can be quite profitable to spend a modest amount of additional effort to spin off technology of this type to other adjacent markets that the company is currently not serving. However, many software and hardware businesses, particularly smaller ones, are religiously focused on a specific vertical market. They don’t consider spinning off technology for other purposes. And they should be focused! 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 can’t turn down any deal, no matter the impact on their existing product development plans or other key corporate initiatives. This lack of focus is often harmful to a business that requires a strong focus to have a chance to “win”. But there is another side to the focus issue. Many software and hardware companies have developed excellent, mature technology bases at huge expense. It makes sense to, at a minimum, consider spinning off this technology into another product category.

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

Customize your spin-off technology 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 of what building that product from scratch might cost. The trick in this instance is often marketing the product effectively–read below for a couple of ideas on how to accomplish that without doubling your marketing budget.

Spin off technology products via Private Label/OEM

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. Of course, changing the product identity and labeling. The target partner would be a company that is very strong in a market segment that you aren’t successful in, or you have no interest in directly marketing to. Or that is simply beyond your resource level. This is a great approach to profitably spin off technology because if done well, it’s 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 its home market–without any product development investment.

Integration & bundling with other products

One of the best things a software vendor can do is to create a “developer’s version” of its product, which essentially consists of creating APIs (application programming interface) for 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 of our product. This enabled both integration and bundling with several complementary applications, notably in the real estate and CRM segments. Once again, this tactic required only modest product development investment. It enabled us to draw revenue from some different markets. We would never have had the resources to pursue these markets organically. We didn’t have the resources to build a brand-new, market-segment-customized product from scratch, as a company would traditionally do.

Different software or hardware price points

Let’s use my favorite mapping software company example. We were often forced to think creatively to wring out as much revenue as we could from our existing technology. One of the other tactics we used was to “de-feature” our existing $99 high-end consumer application to create a $9.95 version. This allowed us to sell through mass market retailers of all kinds. Not only did this create more revenue, but this high-volume business also created a bunch of opportunities.

Notably,  this allowed us to upgrade many of these entry-level customers to our higher-end core products. This is the type of strategy I’ve used many times. You almost can’t go wrong when creating a larger customer base for your technology. It tends to create many more opportunities that come to you from your enhanced marketplace profile. I use the simplistic phrase “the more you sell, the more you sell” to illustrate the advantages of this scale-building approach to marketing.

Business vs. consumer versions

At that very same mapping software company, we used another great approach to extending our technology. That was creating a B2B version of our consumer product. We aimed the B2B version at road warriors such as sales and service professionals. But the converse strategy works just as well. The B2B version had a few additional features (as well as an API for integration), and we sold it via different channels and strategic partners. It didn’t have the unit volume of the consumer version, but the price and margin were much higher.

So there are a few ideas on how to extend the use of your expensive-to-build IP using the strategic concept of spin-off technology 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 and experiences so we can all benefit.