Are you thinking about your new product? No? So you are already late…
Did you know that Google has 177 active products in addition to 79 discontinued products? These are the statistics from Google just before it announced Alphabet in August 2015.
And how many offices has Google spread around the world? I tried to count on the map below, but couldn’t. It looks more like a map of the board game War, with Google conquering the world.
Locaweb, in due proportion, also has a similar strategy. Back in 2016 we had over 25 products and we have already discontinued over 10. In addition, Locaweb has offices in Porto Alegre, Marília, and Blumenau.
Another example is Caelum, which has in-house software development consulting and software development classes in Sao Paulo, Rio de Janeiro, and Brasilia. It had an on-demand software development service that was discontinued and created an online e-learning service and they also became a publisher.
Why do these companies use this strategy of portfolio diversification and new markets?
As I explained in the article How does the lifecycle of a software product work?, we need to review the concept of the technology adoption curve. This concept first appeared in a 1962 book called Diffusion of Innovations, written by Everett M. Rogers, a sociologist, and professor at Iowa State University. In this book, Rogers explains that technological innovations are adopted along the following curve.
In the beginning, innovators are the first to be interested in new products and innovations. They even come up with incomplete and defective products for the pleasure of being the first to use this new product. Next up are the early adopters, also known as visionaries or enthusiasts, who take the risks of testing a new product, not for the pleasure of being the first, but because they see the potential of that new product. They usually have an influence on the organizations and communities they are part of. The early majority, also called pragmatists, buy new products only after having references. Late majority are the conservatives, i.e., those who buy only after the price has dropped considerably. Finally, there are the laggards, which only buy a new product if this is the only option available.
Doing the integral of this curve (who remembers calculus classes?) we get the famous S-curve of technology adoption.
This S curve can be broken down into 3 phases: the slowest start, which is the innovation phase, then comes the growth phase when early majority and late majority adopt the product, and finally the maturity phase, where the product has already conquered virtually the entire market.
There is always a “but”. In 1991, Geoffrey Moore wrote a book entitled Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers.
In this book, he explains that between early adopters and the early majority (pragmatists) there is a chasm that many products cannot cross. This is because pragmatists need good referrals in order to buy a new product and enthusiasts are usually not good referrals. Hence the difficulty of some products crossing this chasm.
Consequently, a single product company will eventually:
- Not cross the chasm: The company cannot make its product go beyond enthusiasts and therefore will have no customers to survive. This is one reason for the premature death of many startups.
- Mature: Your product will work and the company will eventually reach the top of the S curve, and it will slow down until some other company invents a product that replaces your product. An example is Kodak, which has not yet recovered from the invention of digital cameras, as it had its revenue primarily from the sale of film and photographic material.
To quote once again the “Queen of Sciences”, the mathematics: Q.E.D.
Quod erat demonstrandum is a Latin expression meaning “as one wanted to demonstrate”. It is usual to appear at the end of a mathematical demonstration with the abbreviation Q.E.D., or in the Portuguese version C.Q.D.
By understanding the technology adoption S curve and the gap concept that exists between this enthusiast and the pragmatic curve, it is easy to see the need for portfolio diversification that companies have. However, some questions remain unanswered:
- What options are there to diversify the product portfolio?
- How to manage a product portfolio?
- Why do some companies choose to focus on a single product even though it is clear (as described above) the need for product portfolio diversification for their survival?
These questions will be answered in the next articles.
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