Innovaro Update

For their July issue, they asked me to contribute a column on picking winners. Here’s a reprint of that column…

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Every year, companies launch more than 30,000 new products and services, and this number has been increasing over time. The vast majority of these products and services will be losers, providing little or no return on the time and money invested. At the same time, a few of these launches will turn out to be spectacular winners, fuelling growth and success at the companies launching them.

The challenge, of course, is separating the winners from the losers. There is a set of four criteria that can help you determine the potential success of your new product or service. To illustrate these, here are two examples of new products that have recently been in the news:

Ø In October, 2003, US wireless provider Cingular introduced a neat piece of hardware called “FastForward” that automatically forwards your cell phone to a landline – an idea similar to that which BT in the UK is also planning to incorporate into its Bluephone service. It sounds a good idea, but will subscribers pay $40 for this product?

Cingular FastForward

Ø Sometime soon (they won’t say when), Google is going to launch a new free email service, which it calls Gmail. Gmail is currently available to a few thousand testers, and many of them are euphoric about the new service. Google’s mail service provides subscribers with 1 gigabyte of free storage, 250 times more than what’s available from services like Yahoo or Hotmail

Based on limited publicly available information, we can begin to determine which of these products will be successful, and why. We start with the “jobs framework” developed by Professor Clayton Christensen at Harvard’s Graduate School of Business. He noted ‘When a consumer buys a product, they are really ‘hiring’ it to get a job done. Companies are successful when they make it easier for their customers to get done what they were already trying to do.”

If Christensen’s framework is correct, then a product or service needs to fulfil four requirements in order to guarantee success:

1. It must be less expensive than other products;

2. It has to provide better features than existing offerings;

3. It has to have no switching or adoption costs;

4. It must be readily available for purchase.

The closer new products come to meeting all four requirements, the higher the chance of that product being purchased. Customers for whom all four conditions apply will purchase the product or service because there are benefits and no barriers. The innovation will be a financial success if these conditions can be met at a profit.

Unfortunately, it’s a very rare new product that meets all four requirements. Typically, a new product will provide new benefits at a higher price, forcing customers to choose between price and benefits. Many new product launches ignore switching costs, yet customer inertia is a powerful drag on new product purchase, even for products that provide more benefits at lower prices.

Market research can provide detailed answers to these four questions, but a general understanding of the market and the product concept will enable companies to generate approximate answers. This allows managers to quickly assess the probability of new product success, and the kinds of customers that might buy, before making extensive investments in the innovation.

Let’s look at the two new products mentioned above and apply the four question test:

Ø Cingular for the few. As a standalone product, the Cingular call-forwarder excels on two of the four criteria for product success – better benefits and ease of use. Its price is higher than current offerings, and availability is limited to Cingular subscribers with particular types of phones. Historically, these two benefits have not been enough to make a winner. The product could improve its position on price and value if it were given away as part of a Cingular subscription bundle. For a monthly price, subscribers would get a ‘free’ call forwarding stand along with their phone service.

This is the direction that Cingular has taken in the year that the service has been available – it offers the FastForward service for free to those signing up for additional Cingular services. Cingular has moved to increase performance across three of the four criteria of product success, although availability remains limited.

Ø GMail for the new. Compared to its competitors, Gmail, like the Cingular FastForward service, excels primarily in the higher benefits and ease-of-use areas as well. For those establishing a brand new email account, Google’s new service will be a clear improvement over current offerings – they’ll get higher performance at no cost. However, for users who already make use of a free email account, the total value of Google’s Gmail is less clear. There are significant switching costs for existing users - not only will they have to learn a new system, but they’ll need to move all their addresses to their Gmail account, and then they’ll have to tell everyone about their new location at Google.

There are certainly a few early adopters who will appreciate Gmail’s performance and will switch as soon as the service becomes available. But they are only a small portion of total potential customers.

For most users, free email services like Yahoo or Hotmail are good enough – they provide the same basic functions as Gmail at about the same price. The potential market for Gmail is thus much smaller than its early press would indicate. After the early adopters get their Gmail accounts, who will come next?

More Information:

Innovaro’s web site is http://www.innovaro.com/. To automatically receive their Innovation Update at the beginning of every month send your e-mail details to: update@innovaro.com

To learn more about Cingular’s “FastForward” product: http://www.cingular.com/beyond_voice/fastforward

I recently wrote more extensively about Google’s GMail. Here’s a link to my previous update on that topic: http://www.biz-architect.com/google_gmail.htm