Forget The Early Adopters: Gadget Companies Should Target The Late Leapfroggers

from the skip-a-generation-or-two dept

Clive Thompson shows, once again, why his articles and columns tend to be fascinating must-reads. He's written up some details of some research suggesting gadget makers rethink their marketing strategy of going after early adopters, and instead, consider targeting late adopters. Now that might sound counterintuitive at first. Getting early adopters helps build buzz and then word of mouth passes down the chain to everyone else under the curve, right? Not quite. What the research shows is that "late adopters" are often so late that they never adopt certain generations of a technology. But, when they do "upgrade" they'll upgrade to the latest. So they basically "leapfrog."

[Jacob] Goldenberg offers the following thought experiment. Imagine that John is a laggard who buys a Walkman and listens to it while he jogs every day. Eventually, the Discman comes along, but John doesn't upgrade because he doesn't see anything wrong with his Walkman and doesn't want to re-buy his music on CD. Then MiniDisc players come along, but John still holds on to his Walkman. Then, 16 years after he bought his portable tape deck, MP3 players become the hot new thing.

By now, though, John is finally starting to feel self-conscious about his huge, bulky Walkman, and maybe it's starting to break down. He's finally ready to buy a new music player, so he becomes--ironically--one of the first people to get an iPod.

The research shows that this is often the case. The folks normally considered "late adopters" skip multiple generations, but when they upgrade, they upgrade to the latest and greatest, and are often among the first buyers of those devices, often planning to hang onto them for another few generations. Amusingly, as I thought about this, I realized that this actually describes me! For example, I tend to keep mobile phones for four or five years before upgrading, but when I do upgrade, I get something pretty new and snazzy and then use it until I'm almost embarrassed to show it ("wait, you write for a tech blog with that phone?" has been said to me more than once). Same with other gadgets as well. I have an ancient mp3 player and no intention of upgrading. I had the same super bulky and not very good digital camera for seven years before I recently bought a brand new one that puts the old one to shame.

The research then suggests that targeting those "late leapfroggers" rather than the early adopters can actually do quite a bit for the bottom line:

Goldenberg argues that the economic impact of leapfrogging laggards is huge. By his calculations, if only 10 percent of laggards leapfrog, their purchases can drive profits from a new gadget 89 percent higher than they would be without leapfrogging. "And that can be the difference between succeeding and not succeeding," he says.

If Goldenberg is right, marketers have made a colossal error by snubbing laggards. Instead, they ought to be frantically figuring out how to market to them. After all, early adopters don't need much convincing. But if you can figure out how to tip just 1 percent of laggards into the "buy" category, the upside is huge. What's more, Goldenberg thinks word-of-mouth recommendations from laggards are supremely persuasive: If John can handle that new gizmo, anyone can, right?

Thompson then wonders if some of this is driving the early sales success of the iPads. Sure, early adopters are buying it, but for some "laggards" who never bought a smartphone or a laptop, perhaps it's a reasonable buy? I'm not completely convinced that's the case, but it's an interesting theory. Would love to see some actual data on how many iPad buyers didn't already have a smartphone or a laptop.

That said, this story got me thinking about a concept that I've been pondering lately, which often explains why people have so much trouble understanding certain aspects of trends: it's because people have difficultly conceptualizing dynamic markets as an ongoing connected process, but instead, automatically think of them as an encapsulated unit. If you look at any product totally in isolation, the normal "adoption curve" that Geoffrey Moore built his career on makes sense.

It assumes an orderly progression from beginning to end, with your typical bell curve. But that assumes that each product is a market unto itself, without impact from additional innovations and newer products. That's not the case at all. Many of the "late adopters" never actually get around to adopting, and when they adopt, they may have jumped up onto another, higher curve, rather than coming down the back end of the adoption bell curve. Recognizing such dynamic market forces isn't always easy to do, and it's a huge reason why people sometimes have such difficulty predicting market trends.

Filed Under: early adopters, late adopters, leapfrog, marketing

People Pay For Access, Not Content... But Most People Don't Understand The Difference

from the partly-right dept

A bunch of folks have been sending over this short video by Forrester Analyst James McQuivey about the idea that people pay for access to content, not for content itself, and that this has always been the case: As he notes, in the past, content and access were often bundled together, so people confused the two. But, today, they've become somewhat separated, which is why many of the content industries are struggling. McQuivey's suggestion to people is to build business models that focus on charging for access and that's how you "get people to pay for content."

He's absolutely right that people have paid for access (a scarce good) and that getting people to pay for access is a business model that works (though, hardly the only content-based business model). However, the problem is that I think he underplays the difference between access and content, such that many people will hear his talk and assume that "paying for access" really means "putting up an artificial paywall that forces people to pay." The mistake there is in not realizing where the real separation is between access and content.

People pay for their broadband connections. That's access. People pay for their mobile phone data plans. That's access. Those are scarcities. Putting up a paywall or a micropayment system is not paying for access. It's trying to set an arbitrary limit on content. Unfortunately, McQuivey's "example" of paying for access is a bit misleading. He talks about Netflix's streaming offering. But he ignores that most of those subscribers were originally paying for DVDs, and the streaming is a throw-in. Where the real "access" that Netflix has tapped into lies in its ability to easily and conveniently get movies onto your TV. That's what people are paying for. It used to be DVDs (and still is for many Netflix customers), and more recently it includes integrated streaming. But that could come under pressure from other forms of easy and convenient access to the same content, so Netflix will need to continue upping its game.

So while I agree with McQuivey, and have said similar things in the past, I think he underplays how difficult it is to be in a position where you really can charge for "access." There really aren't that many players who can do so legitimately. I worry that many people will view this video and jump to the wrong conclusion, and try to artificially block access in order to get people to pay.

Filed Under: access, business models, content

Writer David Gerrold Highlights Why Any Industry That Thinks File Sharing Is Bad Is Ignoring Customers

from the indeed dept

Jeff Rife was the first of a few of you to send in author David Gerrold's opinion piece on why industry's fighting against unauthorized file sharing aren't properly servicing customers. He kicks off the piece by making it abundantly clear that he does not, in any way, support the idea of unauthorized file sharing, but then points out the basic tenets of "marketing myopia," where legacy industries focus on the product they're offering, rather than the benefit they're providing consumers:

After World War II, the government shifted many of its mail contracts from the railroad industry to the burgeoning airline industry. This was millions of dollars of revenue lost to the railroads. Because air travel was faster than trains, more and more people began to travel by air. As more people bought cars, and as the Interstate Highway System expanded, the railroads lost even more customers. The railroads still carry freight, but with the exception of a few high-density corridors, passenger rail travel in this country remains an intolerable mess.

This is because the railroad industry thought it was in the railroad business--they're not. They're in the transportation business. But they thought they were in competition and forgot about the possibility of partnership.

If the railroad industry had thought about providing genuine service to the customers, they would have partnered with the airlines. A train station can exist in a city center, an airport can't. They could have established transportation hubs, with trains delivering passengers from city centers directly to nearby airports. By making it more convenient to use trains to connect to planes, both leaving and arriving, they would have simplified travel.

This is, of course, a point that we've raised for years. Gerrold then applies it to the RIAA (again, something we've tried to do a few times as well):

This is the same mistake that the RIAA and the SMPTP are making today. They think they're in the business of selling discs. They're not. They're in the business of delivering entertainment. And they've forgotten that. At least, their lawyers seem to have forgotten it.

This isn't the first time the entertainment industry has made this mistake. Almost forty years ago, Sony started selling Betamax videotape recorders for home use. Universal and Disney promptly sued, claiming that home video recording would create the opportunity for copyright infringement and they would lose billions of dollars. The Supreme Court ruled against them. Under the fair use provisions of the copyright law, it's legal to record media at home for personal use. Even if some people might use videotape machines for illegal purposes, that was not sufficient justification for denying fair use to everyone else.

After losing that lawsuit, Disney and Universal (and all the other studios as well) began selling their movies on Betamax and VHS tapes, and later on DVD. Videotape sales became an enormous market for the studios and eventually DVD sales accounted for at least half, often more, of a film's total gross income.

From there, he highlights another point that we've mentioned multiple times: if there's "piracy" going on for your products, it generally means that you -- as a content producer -- are failing to provide what your fans want. Not serving your customers needs, because it goes again the product you sell is a recipe for failure. Going one step further and suing your fans for working hard to access the content they want is even worse. As Gerrold notes:

The only people who can benefit from that are the lawyers.

If your business model is more focused on benefiting the lawyers than your fans and customers, you're doing it wrong.

Filed Under: business models, david gerrold, economics, marketing myopia

Zappos Admits Pricing Mistake Cost It $1.6 Million; But Is Upfront About Taking The Hit Itself

from the such-is-life dept

For many years we've seen stories of companies making pricing mistakes at e-commerce stores. The news of those mistakes tends to spread very quickly, with lots of people piling on to order something for way less than it cost. Inevitably, the company realizes the mistake, and usually contacts everyone who ordered to let them know the order won't be fulfilled because it was a mistake. I actually have no problem with this, though some people think it's horribly evil. Either way, what seems to almost always happen is that the negative publicity that follows leads the company to change its mind and honor the original price. Sometimes, it actually takes a lawsuit to make that happen.

However, this weekend, it looks like Zappos had a pretty massive pricing glitch on its sister site 6pm.com. It lasted a few hours. But what's different this time is that once Zappos fixed things, it immediately decided that it would still honor the wrong prices, even though the mistakes would end up costing the company (now owned by Amazon) $1.6 million. Now, between Amazon and Zappos, the two companies have a ton of money, and continue making a lot of money every day. But, no matter what, a $1.6 million pricing error is still a big deal. Big enough that you would think that the company could potentially withstand any sort of PR hit to trying to not honor those prices (perhaps offering up some sort of gift certificate or benefit to those impacted, instead). However, for a company that bases its entire reputation on bending over backwards to make customers happy, it appears they quickly decided that it was best for their overall reputation to just eat the $1.6 million, and keep (or even boost) that customer service reputation.

Filed Under: customer service, losses, pricing
Companies: zappos

Some Final Stats On The Humble Indie Bundle

from the slice-the-humble-pie dept

BigKeithO writes in with some more followup, including some more results numbers from the Humble Indie Bundle experiment that we've written about a few times, involving some indie developers bundling up a bunch of PC games in a "pay what you want" pricing scheme. The program went on for two weeks, bringing in a grand total of $1,273,588. $833,630.69 went to the developers (or $166,726.14 to each), while the EFF got $183,601.47 and Child's Play got $188,578.04. I'm sure some will knock these numbers, suggesting that they're significantly lower than what some big name EA game would get, but you have to remember that these games were a bit older and weren't likely to get that many new purchases. On top of that, in two weeks, that's a pretty good sum of money for some indie developers on older games.

The other interesting tidbit, as many noted, is that despite suggestions from some that the "open source" world are folks who "just want stuff for free," the average amount paid by Linux users ($14.52) was significantly higher than those paid by Mac ($10.18) or Windows ($8.05) users. Obviously, averages are only so useful, given that they can be skewed by outliers (anyone got the medians? standard deviations?) but it's still information worth pointing out. All in all, a very interesting experiment, with some great results for those who participated.

Filed Under: business models, humble indie bundle, indie video games

Panera Bread Testing The 'Pay What You Want' Model

from the trying-it-all-out dept

Popular restaurant chain Panera Bread has long been interested in experimenting with smart new business models. It was one of the first restaurants out there to push free WiFi in all its locations -- at a time when many thought fee-based WiFi was the future -- noting how much it helped bring in more business for the food. A bunch of folks are now submitting the news that Panera is testing out a pay what you want model in one of its new restaurants. There are "recommended" prices -- but you can pay more or less than those numbers. This seems to be a take on the trend that became popular last year of restaurants offering certain days or nights where you could get free meals, which some restaurants found actually resulted in much more revenue (along with more loyal customers).

While I'm intrigued with how this will work out, I'm not convinced it's going to be a success (though I'd be pleasantly surprised to find out I'm wrong). The whole thing is actually set up separate from Panera, via a non-profit foundation, which Panera is supporting. The restaurant won't use the Panera name, but St. Louis Bread Co. Cares, which apparently was the company's original name. I would guess that many people will feel guilty enough to pay the list price, though some will obviously pay less. I doubt very many (if any) people will really pay much extra, which puts the operation in a tricky position. Since we're talking about food and salaries, there are real scarcities to deal with in terms of expenses, so a "pay what you want" model seems like it would have difficulty scaling.

Still, as business models go, it's one worth watching.

Filed Under: food, pay what you want
Companies: panera

Reinventing Book Publishing: Building Real Communities, And Only Holding Rights For Three Years

from the brilliance-in-action dept

We talk about the economics and new business models impacting all sorts of industries from software to music to movies to newspapers to video games, but haven't talked all that much about book publishing. Certainly, we've discussed some aspects of ebooks (and the bizarre pricing decisions there), but there's really been so little that has come across as truly innovative, that I haven't spent much time digging in. Yes, there are things like Google books and print-on-demand and other such things -- but all of those seem mostly focused on just taking the old business and "making it digital," rather than looking at ways to rethink what the digital world really means for book publishing. There have been some one off cases -- with examples of individual authors like Robin Sloan and JC Hutchins doing some interesting experiments as novelists, but nothing larger. And... many people point out that with fiction writers, they just don't see the same scarcities that we discuss in other industries.

So I'm quite happy to learn about a company that really is experimenting in this space, and doing so in interesting ways. Ross Pruden clued me in to a project called Cursor, started by Richard Nash, that appears to be doing some rather interesting things. The key point is that, rather than just focusing on publishing books, it's really a community driven platform that produces books as one aspect of the overall experience -- and uses a tiered support model, similar to those we've discussed in so many other areas:

My business plan is now out with investors--I will spare you the P&L numbers and just offer the broad strokes. Cursor will establish a portfolio of self-reinforcing online membership communities. To start, this includes Red Lemonade, a pop-lit-alt-cult operation, and charmQuark, a sci-fi/fantasy community.

The business will focus on developing the value of the reading and writing ecosystem, including the growth of markets for established authors, as well as engaging readers and supporting emerging writers. Each community will have a publishing imprint, which will make money from authors' books, sold as digital downloads, conventional print and limited artisanal editions--and will offer authors all the benefits of a digital platform: faster time to market, faster accounting cycles, faster payments to authors. But the greatest opportunity is in the community itself. Each will have tiers of membership, including paid memberships that will offer exclusive access to tools and services, such as rich text editors for members to upload their own writing, peer-to-peer writing groups, recommendation engines, access to established authors online and in person, and editorial or marketing assistance. Members can get both peer-based feedback and professional feedback.

Other revenue opportunities include the provision of electronic distribution services to other publishers; fee-based or revenue-share software modules, especially for online writing workshops or seminars for publishers, literary journals, teaching programs; fee-based linking of writers to suppliers of publishing services, including traditional publishers and agents; corporate sponsorships and site advertising; and events and speaking fees.

Now there are some things in this description that I think are great, and others that I'm not sure will work, but it definitely is a big and interesting vision, that really does seem to get the basic concept of both connecting with fans and giving them a reason to buy, while also looking to build out complementary scarcities. My main concern are (as usual) the attempts to use infinite goods as if they were scarce, but given so many other smart aspects to this program, I get the feeling that after some experimentation, things will shake out in a way that works well.

But, fundamentally, the fact that this whole thing isn't even set up as a "publishing house with some community features," but rather as "communities that also publish," is a very, very smart way of going about things. It's a recognition of the power of community, enabled by modern communication technology, that gets so incredibly ignored by so many legacy business lines.

Beyond that, Nash is doing some other interesting things that many in the publishing world will consider horrifying -- but which really are extremely forward-looking. The reason Ross pointed this out to me is because Nash has decided that, unlike pretty much every other publisher in the world, to purposely limit the length of the contract away from "life-of-copyright." As he notes, traditionally, when you sign a publishing deal, the publishing house controls the rights until the work hits the public domain (long after you're dead). Instead? His deals are three years:

No more life-of-the-copyright contracts.

Instead: three year contracts.

Yup, from a contract that locks you in till seventy years after you're dead, to a three year contract. Renewable annually thereafter. Which means after three years you can walk. Or stay, but stick it to us for better royalties because there's gonna be a movie. Or stay with us because with all the additional formats and revenue opportunities we're creating above and beyond what any publisher has to offer, you're making more money than ever before.

You see, most publishers have accepted they're not going to make money publishing your book. They're publishing your book and a bunch of other books like it so they can have exclusive rights over as much intellectual property as possible. Such that if, three or five or nine years down the road, you win the NBA, or the Orange, or there's a movie, or an Oprah pick, your whole backlist starts to sell but they don't have to pay you one single extra red percent in royalties.

That's where their profits come from, from being able to NOT have to renegotiate royalties when your books start selling better than they expected.

I have no idea if Cursor is "the answer." In fact, I'd bet that it's not. But it is one answer that's experimenting in some very interesting and compelling ways. And that's the key point. There no longer is just one answer to the business model for any particular industry. Each of these industries is learning that business models change rapidly, and the way to succeed is in smart, focused experimentation that is most focused on providing greater value (rather than looking to limit participants). Who knows if Cursor, as an individual experiment, will work. But succeed or fail, it's an experiment worth watching closely.

Filed Under: book publishing, business models, community, copyright
Companies: cursor

Successful Businesses Focus On Innovating

from the spend-your-energy-wisely dept

One of the most common challenges for any company is developing new directions that contribute to the bottom line. For small businesses, it's difficult to find the "20% time" to work on projects that may have no immediate benefit. For tight budgets and resources, even justifying an unpaid intern can be a difficulty. But realistically, innovation takes time and effort. The myth of a flash of genius resulting in a revolutionary new product is a widespread fiction, especially considering the history of innovation shows that truly significant new ideas require dedication and persistence in order to pay off.

Anyone working at a small company has likely experienced the time distractions of playing phone tag and chasing down late payments. These diversions can drain enthusiasm and energy that could otherwise be put to better use. Given this common problem, we're on the lookout for how others in small businesses are creating innovative projects. Software as a service offerings are often cited as examples for saving time -- allowing small companies to focus on their own tasks, rather than dealing with maintaining IT resources and installing software packages.

If you're already a member of the Insight Community, you can contribute your thoughts on encouraging innovation. If you're not already a member, you can join now. And, along these lines, we're also still looking for insights into how small businesses are more innovatively handling "mundane" tasks, such as invoicing. All too often, these kinds of necessary tasks can get in the way of actually focusing on the core task of innovating.

Filed Under: innovation, small business

Restaurants Experiment With Selling Tickets For Dinner

from the entrepreneurial-restaurateurs dept

It is notoriously difficult to be successful in the restaurant business (though the popular adage that "9 out of 10 restaurants fail within the first year" may actually be false). That said, a restaurant is a business like any other, so experimentation with new business models is important, especially in tough economic times like we have been facing in recent years. Traditionally, restaurant reservations can be canceled at the whim of the diner without penalty, but for an industry, whose margins are continually squeezed, canceled reservations could make the difference between a profitable night and an unprofitable one. Restaurants sell a limited amount of daily perishable goods and services, which draws many parallels to both the theater and airline businesses. So, perhaps restaurateurs took note of these similarities for themselves when they started selling "tickets" for their nightly dinners instead of taking reservations. In addition to tickets to individual dinners, the restaurants also offer subscriptions to a whole season of dinners -- another tactic lifted right out of the playbook of theaters. These restaurateurs correctly recognize that dining out is not just about the food; it is a social experience just like a concert, the movies, or a sporting event.

The benefit for the restaurant is that even if the diner doesn't show up for the meal, the restaurant isn't stuck holding the bag -- the responsibility to offload an unwanted dinner ticket then shifts to the diner rather than the business. Furthermore with a guarantee of revenue for the evening, shopping for expensive perishables in preparation for an evening's dinner service is much easier. That said, pre-paying for a night's meal is a complete departure from the regular dining out experience, so at first, I can really only see this tactic working for a set of exclusive restaurants. After all, online reservation marketplace TableXchange folded last year, citing empty tables at even the most popular dining hotspots.

Filed Under: dinner, subscriptions, tickets

Humble Indie Bundle Hits One Million In Sales... Goes Open Source

from the something-special-each-day dept

We were just talking about how the Humble Indie Bundle of video games continued to exceed expectations by doing things to make fans like them even more -- such as adding more games to the bundle after people had already bought -- and comparing that to EA's strategy of limiting the resale market with coded content. One strategy involves exceeding expectations and giving people reason to be excited (and reasons to be happy to spend) and the other... does not.

As the official "one week" Humble Indie Bundle offer comes to a close (though, they'll still keep offering it afterwards), it's nice to see that the effort easily soared past the $1 million mark (including over $300,000 going to charities -- including the EFF). But, beyond that, Wolfire continues to make things even cooler for people. First, it open sourced one of the games, and followed that up by announcing that three others are also going open source (World of Goo is remaining closed, as is the late addition of Samorost 2). Once again, the focus is on doing things that excite the community, build loyalty and give people a reason to want to buy, rather than making people feel guilty or annoyed about buying.

There really are tremendous lessons here for anyone building a business today: focus on ways to delight your customers, rather than pissing them off; and focus on giving people real reasons to buy, rather than just feeling entitled to define the terms under which they buy and looking for ways to limit those who want to interact with you in a different manner.

Filed Under: business models, humble indie bundle, open source, positive experience, video games