Monthly Archives: November 2006

I recall a speech by President Bill Clinton to the Saudi leaders sometime back where he said that Middle East should not be Oil repository of the World, it should be Energy repository of the World. He exclaimed that with big open desserts, high degrees of temperature and so much sunlight, what better place can be there to invest in solar energy! That’s so much true. There is continuous effort out there to locate alternative sources of energy as a primary means to fulfill the energy needs. Why not use this as an opportunity instead of threat? Same applies for the oil companies out there. These companies should see that the customer is trying to find alternative means to fulfill their energy requirements. So if they are not the ones showing customer the way by providing oil supplements, they should at least chase the customer and be in the business of meeting the customer needs. There should be no Oil company, there should be Energy companies that address customer needs of energy with oil as well as other alternative energy sources.

The same principle applies to any business. It’s the need of your customers that’s important, not the product that you are providing them to address the need. If there’s only one thing that’s constant in the World, it’s change. Change occurs with revolutionary new things or continuous evolution in existing things, but sooner or later it occurs. When it is lead by revolution, some new product to address customer needs in a better way comes along and the customer slowly starts moving towards it leaving the existing product they are using. When it occurs by evolution, it’s a gradual process and the customer keeps adopting the better product as the developments occur. Most of the existing companies try to retain their customer base by gradual improvements in their products. But what they tend to miss are the revolutionary new products in their field which pull the customers away from them. Why? Because of some obvious and some not so obvious reasons. These companies are so much concentrated in satisfying the existing customer requirements and making improvements in their existing products that they place these revolutionary products in their blind spot and completely miss them. In other cases, the big corporations generate high revenues and profits by marketing their existing products. When a start-up brings a new product to the market and till it doesn’t reach to mass adoption, the revenues generated by this product are considerably less and gets ignored. And then there are companies that believe in the “Used Apple Policy”, who like to wait and watch for the first comers to take the risks and jump in after the first comer shows the signs of success. So what do these companies do if they missed the opportunity to show customer the way? The smart ones follow the customer in the new product segments, start in-house development of the new product and/or do acquisitions, mergers and partnerships with the companies involved in developing the new products. Others either remain content with their existing products and try to retain customer with improvements in them or start to go downhill depending on how revolutionary the new product is.

There are several examples that can highlight this principle. To pick one, let’s talk about the entertainment industry. This is one industry that has evolved continuously over the past, taken several tangents and will keep doing the same in the future. Starting with the revolutionary part…(not going back to the medieval ages,) there was live theatre entertainment, then came cinemas, radios, televisions and now the Internet. With each of these revolutionary new platform of delivering content, new players evolved and several existing one made adaptions to the new platform. Most of the ones that became successful chose to either show customer the new platform of entertainment or chased them to the new platform and provided them content in there. The latest shift in the industry is from television to Internet. With the evolution of the World Wide Web and the broadband, slowly customer focus is increasing on getting more and more content on their computers. Television will always be there, but a very large customer base will adapt to the Internet providing the first stop for entertainment. Several big broadcasting networks like Viacom, News Corp and so on didn’t notice this at the start because either they were highly concentrated towards television based entertainment, or the revenue stream from videos on Internet was not clearly identifiable. This lead to new players like Yahoo, MSN and lately YouTube, MySpace etc. to evolve in this field. Observing the shift, the obvious happened – MSN and Yahoo started showing news and show snippets online and News Corp acquired MySpace. So what’s next? Very soon we will see all the big networking companies either going in for stronger partnerships or more acquisitions to keep hold of its customer base. The ones that won’t chase the customer, will still be there, but their growth might not be as fast as the ones that make the move.
Moving on to improvements with continuous evolution of the platforms…let’s consider television as an example. In case of television it started with black and white televisions sets, to color television sets and so on leading to high definition television sets to something much better in the future (I am no expert in this area…but change is constant). Most of the companies providing content to the customer on television kept evolving and providing content on improved platform and will hopefully do the same in the future.
The important thing to understand is that in the entertainment industry, it’s the content delivered to the customer that holds the importance, not the platform of delivering the content.

This is the case with every industry and will remain the same. A company should focus on the entire industry and not just the product they are delivering to fulfill some needs in that industry. Everyone should acknowledge that changes will occur and the better way to deal with them is to lead the way to bring changes and if that’s not happening, try to align yourself to adapt to the changes. Either show the way to the customer or chase them wherever they want to go.

“Used apple policy” in layman terms mean you don’t have to get the first bite of the apple to make out. The second or third juicy bite is good enough. Just be careful not to get the tenth skimpy one. In the business World, this can also be defined as product development by imitation. There are many pros of this approach. Like if the apple is rotten, you won’t suffer, i.e. if the industry is not ready for the product or for any other reason if the product is unsuccessful, your company won’t be hit by the damage. Another pro – fetching the apple to take the first bite is lot more expensive as compared to waiting for the second bite, in business terminology – innovating a product is more expensive in terms of research and development as compared to doing innovative imitation using reverse R&D. Now let’s switch sides to look at the cons. The biggest con is that someone else got the apple and they have the advantage to take the best and the biggest bite out of it, i.e. your product doesn’t have the first comer’s advantage in the market. Most of the time, you won’t be the only one there to take the second or the third bite, there will be many others looking to take the bite off the same apple, in other words you will have considerable competition from other imitating products in the market to grab the same market share.

Let’s talk about the more interesting part – how companies with used apple policy succeed? I think lot of factors help them in getting successful. To kick-off, they tend to keep an eye on the industry developments and put the competition activities under the radar. It is very important for a company to wider their horizons and look for opportunities in the industry outside the segment their products address. As always, you got to make sure that the customer needs are getting addressed. Following closely how the competition is trying to address the customer requirements and what innovative steps they are taking to succeed also helps in successful product imitation. It is very important for companies to correctly and truthfully evaluate the potential of the new products launched by the competition. This goes long way in successful product imitation. I think it’s clear that to be successful in the used apple policy, you got to be the second or third one to take the bite, not the tenth one. For this, it is critical to evaluate the new territory which the competition’s product is addressing. By doing the correct evaluation, you can get a quick start in getting a competitive product to the market while the territory is still hot and happening.

A very vital step for the company to be successful in this process is to locate the right apple. You got to look for the products closer to your company’s expertise. Going for out of the bound extensions are very risky for the company as a whole. It is always helpful to package or set links with the existing products of your company to attract the customers to the new product. In order to succeed using the used apple policy, it is important that the imitator does some innovative imitation. I think we should get it correct when we talk about innovation. Innovation is not just doing great research and development to bring new products to the market. That’s one type of innovation, but an equally important type of innovation is to start with existing products in the market and do creative and breakthrough developments in them to come up with more compelling solutions. The imitation of the product should have the correct mix of innovation in it to challenge the market leader in the segment. Imitators should establish concentrated reverse R&D units to do such innovative imitations.

Other factors that help companies with used apple policy succeed are better execution, stronger monitory muscle and better marketing. It is critical that an immitator develops and delivers project in an agile fashion to tackle the already existing innovative leader. The execution to bring this product out should be top-notch and the entire product unit should be alligned to achieve a clear goal. To invest in reverse R&D efforts and catch a leader from behind, you got to have enough cash flow to support the efforts and take risks. So there is no denying that strong monetory muscle is one of the most important part of this entire process. But I think the most important factor is to do the right marketing for the product. It’s critical that the product is presented in the market not like an immitator, but like an innovation to address the customer needs in the future. Marketing should make sure that their product looks like a better alternative as compared to anything else out there.

No company can be first in all products they launch. Every company at some point or the other follow the used apple policy and success in it is as critical as any other product development effort. The good part here is, you got the problem and the solution, now all you got to do is solve it in a better way. If you can do that, no one will remember down the road if you were the first one or not.