1. Basics of Software Business
ITK260
Fall 2003, Rauli Käppi
In cooperation with Oulu and Helsinki SB-programs
Special thanks to Oulu SB-line, who has been the major contributor for this material

2. Lecture focus
Concept of Innovation in product terms – market acceptance
Geoffrey Moore (Crossing the Chasm, Inside the Tornado)
High-tech market segmentation and segment behaviour

3. High Tech Marketing Specializes in Discontinuous Innovations
Discontinuous vs. Continuous Innovations
High Tech Marketing Specializes in Discontinuous Innovations
Discontinuous
Electric (hydrogen) car
Multimedia Set-Tops
Video Conferencing
Continuous
Better mileage cars
Remote-control tuning
Voice Mail
Diesel cars
Programmable VCRs
Conference Calling
Paradigm shift

4. The High-Tech Value Chain
Product Providers
Service Providers
Customers
Technology
Products
Systems
Technical
Buyers
End
Users
Economic
Sales
Channels S A L E $$
Discontinuous innovations must create new value chains to survive.
Continuous innovations leverage existing value chains.

5. Two views on Product Concept development and focus
A well known view in the academic world by Theodore Levitt – Augmented product view
Education, installation, maintenance, support, consulting can be provided by partners to produce a more “Whole Product offering
A more simplistic, business-oriented view by Geoffrey Moore

6. Please think about the company focus at each stage
Whole Product model
This model illustrates the product focus in different stages
Generic product – first implementation – basic functionality
Expected product – different user groups’ needs are catered for
Augmented product – with partners’ add-ons
Potential = Redefined product which includes all the functionality showing market interest
By Theodore Levitt
Please think about the company focus at each stage

7. Whole Product cont. Moore’s Whole Product dilemma
A SW product company is already doing business and has several different kind of customers within their customer base, there comes a time to start the development process for a new release
What should the product management do?
A common answer - Collect requirements from all the customers and select the most important ones from each  that will give you the next product release requirements specification Something for everybody
Dilemma – which customer segment will be really satisfied?

8. Software company’s internal product process – aiming to Whole Product
Käppi, R. 2002

9. Whole Product cont.
Moore’s view: none of the product’s segments will be satisfied, especially the pragmatist customers, this will lead to mediocre sales in most / all segments Everything for nobody
Instead: the management needs to focus on the selected customer segment(s) and fulfill their product requirements to level they require (to reach sales in a particular segment)
Moore’s definition (Moore 1995, 21) of the Whole Product is more simplistic: “The minimum set of products and services necessary to ensure that the target customer will achieve his or her compelling reason to buy”.

10. Advancing in the selected customer segment
One vertical / horizontal SW product segment is divided into subsegments based on the customer behaviour
Innovators, Early adopters, Pragmatists, Conservatives and Skeptics
Moore suggests that a company should advance through these subsegments in consecutive order
According to the theory the Pramatists and Conservatives offer most of the revenue
The Chasm before the Pragmatists kills most of the SW companies

11. Geoffrey Moore Please compare these thougts to Theodore Levitt’s model

12. The beginning

13. Innovators - Technology Enthusiasts
Primary Motivation:
Learn about new technologies for their own sake
Key Characteristics:
Strong aptitude for technical information
Still emphasis on project, instead of product qualities
Like to alpha test new products
Can ignore the missing elements
Do whatever they can to help
Challenges:
Want unrestricted access to top technical people
Want no-profit pricing (preferably free)

14. Working with the Visionaries

15. Early Adopters - The Visionaries
Primary Motivation:
Gain dramatic competitive advantage via revolutionary breakthrough
For the SW company there is the need to create different versions for each selected segment to be compelling enough
Key Characteristics:
Great imaginations for strategic applications
Attracted by high-risk, high-reward propositions
Will commit to supply the missing elements
Perceive order-of-magnitude gains — so not price-sensitive
Challenges:
Want rapid time-to-market
Demand high degree of customization and support

16. The Chasm Visionaries Pragmatists Real problems
The transition from the Visionaries to Pragmatists is difficult for any organisation
Values of these customer groups are completely different ”I see”.
Visionaries don’t see enough of a head start
Too late to be the first one
Too easy for “fast-followers” to catch up
Pragmatists see no reason to start yet
Too early for anything to be “in production”
No herd of references has yet formed
Visionaries
Pragmatists
Intuitive
Analytic
Support revolution
Support evolution
Break away from the pack
Stay with the herd
Take risks
Manage risks
See what is possible
Pursue what is probable

17. Model Breaks Down at Key Transition
Visionaries
vs.
Pragmatists
Adventurous
Early buy-in attitude
Think Big
Go it alone relationships
Spend big
First strike capability
Think Pragmatists are pedestrian
Prudent
Wait-and-see
Manage expectations
Maintain
Spend to budget
Staying power
Think Visionaries are dangerous
Pragmatists don't trust visionaries as references.

18. Working with the pragmatists

19. Early Majority - Pragmatists
Primary Motivation:
Gain productivity improvements via evolutionary change
Streamlined one-size-fits-all whole product
Key Characteristics:
Astute managers of mission-critical applications
Understand real-world issues and tradeoffs
Focus on proven applications and buy Whole Products only
Like to go with the market leader
Challenges:
Insist on good references from trusted colleagues
Want to see the solution in production at the reference site

20. The conservatives

21. Late Majority - Conservatives
Primary Motivation:
Just stay even with the competition.
SW-Company: Mass customisation-Standard core for price-sensitive sales, Customizable for differentiated offers (MS Word – end user experience as important as the Product)
Key Characteristics:
Better with people than technology
Risk averse, Price-sensitive
Highly reliant on a single, trusted advisor
Challenges:
Need completely pre-assembled solutions
Would benefit from value-added services but do not want to pay for them

22. End of the product’s life cycle

23. Laggards - Skeptics Primary Motivation: Maintain status quo.
Key Characteristics:
Good at debunking marketing hype
Disbelieve productivity-improvement arguments
Believe in the law of unintended consequences
Seek to block purchases of new technology
Challenges:
Not a customer
Can be formidable opposition to early adoption

24. Summary - Product and Tailoring business…

25. Summary - Discussion of Moore’s thinking
Many markets never reach all the stages Moore suggests
The organisational changes that would enable the company to enact the model are discussed very little
The model may be critisized whether it always holds
One clear contibution the model offers is the required shift in company / marketing focus as the company and its products grow more mature
Theodore Levitt and Geoffrey Moore share similar, supportive thought and together offer good understanding of the phenomenon