A good product is one that solves valuable market problems.  To be successful in the market, a product needs to solve the problems that the right customers are willing to pay to solve.  To know if those customers are willing to pay, you need to understand how they perceive your product relative to alternative solutions.  If you’re new to the series, head back to the intro article on comparing products, and catch up with this article, where we look at pulling together the information about which customers are important.

Overall Product Comparison Process

This is a relatively long series.  Each article will start with a recap of the overall process.

Getting useful information from comparing products requires you to:

1. Introduction & Overview (so that the step-numbers align with the article numbers)
2. Identify your customers.
3. Articulate the problems they care about solving.
4. Determine how important solving each problem is, relative to the other problems, for your customers.
5. Characterize how important it is for you to solve the problems of each group of customers. (This article)
6. Discover which (competitive) products your customers consider to be your competition.
7. Assess how effectively each competitive product solves each important problem.
8. Assess how effectively each competitive product solves each important problem, for each important group of customers.

With this information, you can create a point of view about how your product compares to the others.

Target Personas

Previously in the series we identified (and refined) a set of personas that make sense for comparing products that compete with the Amazon Kindle.  [Note: for people new to the series, this is a hypothetical analysis - using manufactured data - with the goal of showing the mechanics of how to do the analysis, not an actual analysis of real market data.]

1. Tina - A hi-tech prosumer who is using the device to get smarter about the latest trends in her industry
2. Tim - A hi-tech prosumer who is using the device to enjoy niche fiction content, particularly comics, e-zines and self-published works
3. Kenny - A typical kindle user who is using the device for his work in the finance space, studying proposals and business plans, etc
4. Karla - A typical kindle user and voracious reader who is using the device to eliminate the large pile of books on her nightstand
5. Chris - A basic consumer who would is studying business in college
6. Christina - A basic consumer who is in a book club, and who is always reading the latest best seller

[...]
We also identified a set of problems that these personas would want to solve.

1. Read Anywhere – Be able to read content in multiple physical environments / on multiple devices, and not lose my place in the book.
2. Annotate – Be able to annotate / highlight what I’m reading for future review.
3. Talk About It – Be able to have conversations with other people who are reading what I’m reading.
4. Find More to Read – Make it easier for me to find other content that I would like to read.
5. Subscribe – Be able to subscribe to magazines / newspapers / blogs / serial publications.
6. More From My Network - Be able to read what people I trust are reading.

[larger image]
Comparing Products Part 3 – Market Problems

You can’t create great solutions for all of these problems, for all of these customers, at the same time.  This is one of the two main failings of the bureaucratic approach I’ve seen large companies take (the other one is using a long waterfall process, that even if it succeeds, results in a product that solves yesterday’s problems by the time it is released).  The old process would have you gather inputs from multiple stakeholders, identify multiple target customers and the capabilities needed to support them, and roll it all up into a giant document with MoSCoW reflections of the importance of each capability.  Since every capability is important to someone, every capability ends up being “important.”

If you’ve worked on a non-agile project, you’ve seen this:  Everything is high priority.

Except it isn’t.  The problem that the monolithic document, waterfall processes does not take into account is that while everything may be important, not everything is urgent.

Only items that are both important and urgent are high priority.

Every problem identified in our example is a “five” to at least one of our personas.  If you’re trying to be all things to all people, they are all important.  Figuring out which ones are urgent requires you to form a strategy on which problems you need to solve first.

Solve for One Persona First

This process is informed (biased?) by insights that resonated for me from the writings of Seth Godin, Al Ries & Jack Trout, Geoffrey Moore, Hayden Christensen, and innumerable conversations with other product professionals.  In summary, it has bubbled up into the following perspective from me.

• A product that is great for some people, even if unusable for other people, is a great product.
• A product that is usable by many people, but great for none of them, is a bad product.
• If you wait until your product is “perfect,” or even “great for a lot of people,” at best you will deliver yesterday’s product and no one will care anymore.

Believing this, my approach then is to ask:

• For whom should we build first?
• What do those customers expect and what will they love?

Those expectations are set, in part, by your competition – your market is a moving target - which is why comparing products is important to figuring out what problems to solve first, and how well you need to solve them.

Another way to think about it – success in your market is a reflection of aggregate sales.  But sales don’t come in aggregate.  Sales are made one at a time.  In any given sales conversation, your customer prospect is comparing your product with your competition.  If your customer has two choices – the first being marginally interesting (even if it happens to be marginally interesting to “everyone”), the second being “perfect,” which one will the prospect choose?  For any given sale, you want the reasons why that customer would purchase your product to be overwhelming.  You want to be the product that is perfect, not the product that is tolerable.

Even if your goal is to sell to “everyone,” you can’t launch your product with it being the “perfect” product for everyone.  You can launch with a focus on a single persona.  Note that I didn’t say with a product that is “perfect” for a single persona.  You probably don’t need to wait until it is perfect to start selling it.  You certainly shouldn’t wait until it is perfect before introducing it (and getting feedback that helps you improve) to people that are represented by your target persona.

When you think about the minimum viable product (MVP), the minimum is not “be tolerable to everyone” – it is “be good enough for someone.”  Focus first on one group of people.  And figure out where your minimum bar is.  That minimum bar is defined by a combination of

• Which problems are important to solve – if you don’t solve the “showstopper” or “table stakes” problems, you don’t have an MVP, and won’t even be part of your customer’s decision process
• How well do you need to solve each of these problems – the next article in this series gets into this, but it is primarily a matter of matching or exceeding customer expectations, which are informed (or anchored by) how well competing solutions solve those problems today.

Picking the Right First Persona

There are a bunch of factors that can feed into the appeal of targeting any particular persona first:

• Market Size - Fish Where the Fish Are.  All things being equal (although they never are), the largest market is the most attractive market.  How you define “size” may influence which market you pick however.  Is it the market with the potential for the most units sold?  The one market with the highest revenue potential or the one with the highest profit potential?
• Cross-Market Influence - After you’ve launched, you need a plan for growth.  Do you grow by gaining market share with your target persona, by growing share of wallet (sell more stuff) with your existing customers, by growing into adjacent markets (other personas).  Does picking one target persona first, and making them rabid fans, help you transition into other markets?  The best way to sell me a gadget is to convince the digerati (The Verge, Engadget, etc) that it is the best product ever.  The best way to sell my mom a gadget is to convince me.
• Higher-Level Strategy – Your product may only be part of a portfolio of products and services.  Your company may be focused on owning a niche, like being the technology supplier to all health care professionals.  The strategic value of being a “full service provider” or of preventing the entry of a competitor into a market segment by satisfying the personas in that segment may dwarf the value of any siloed value of your product.
• Risk Mitigation – This is the Lean approach.  With which group of customers can you most quickly, most cheaply, and most effectively test your hypothesis that you have a great product that will satisfy needs and succeed in a large market?  Early adopters are the most forgiving technology customers, and often provide the most insight about what problems the larger markets will care about later.  There’s also implicit value in the “gee whiz” factor of novel solutions to existing (and new) problems.  You can put out a beta version of a product to early adopters, where they are ok with some bugs, workarounds, and missing capabilities.  This isn’t likely to be your end goal – you’re serving these people first in order to more effectively serve another market next.
• Ease of Entry – Nature Abhors a Vacuum.   There may be a persona for whom none of the existing (competitive) products provides particularly compelling solutions.  You may want to attack this segment first, because easy early sales can fund your company and keep the lights on while you tackle the larger, and likely more competitive, market.  I think that one of the reasons the Innovator’s Dilemma happens is because there is a niche market with unsolved problems, into which companies introduced products that eventually (through improvements in the product, and changes in the needs of the larger market) becomes competitive and eventually displaces the original leaders in the larger market.

Jason Cohen, founder of Smart Bear Software, wrote a great piece on finding the “perfect customer” – an example of the risk mitigation approach.  The conversation on Jason’s article is great too – and I love one of his comments: “There’s no such things as ’5x better’ if there’s no customer in mind. Because “better” is in the eye of the beholder.”

Your overall approach will determine the different weightings you apply to each of these factors.  As a couple straw men for this example, Amazon might be taking a red ocean (beat the competition in an existing, defined market) or a blue ocean (“create” a new market by solving different problems) approach.  Those approaches might yield the following initial relative weightings:

For the personas in this example, I’ve made up the following reflection of their relative attractiveness along each axis.

[larger image]

These 1 to 5 values reflect the relative attractiveness of each persona for each strategic approach.  For example, the size of the potential market of people like Christina is much larger than the size for any of the other personas.  Note that the Ease of Entry field is shown in orange versus green to emphasize that these initial values reflect a guess at the ease of entry – a general perception of how effectively existing products address the needs of these personas for the problems we previously identified.  When you do the more detailed analysis in future steps, you should circle back and revisit these values.  In Marketing Warfare by Ries and Trout, they point out the importance of the linkage between strategy and tactics – each informs the other.  A tactical understanding of your market (like an understanding of the competitive products)) will inform the best strategy – the strategy that comes from an ivory tower will fail in the field.  That philosophy is consistent with the iterative process of refining a comparison of products, as part of informing your strategy.

The strategic approach you choose will impact the “pseudo-math” of which persona is most important.  Consider the two examples – when you use the percentages from the first two tables to apply a weighting to the assessment of each strategy aspect, you get the following:

[larger Red Ocean image]

A Red Ocean Approach would indicate that Christina is the most important persona on which to focus.  The combination of the large market size of basic consumers reading for entertainment, along with an overall strategy to focus on the broad market makes Christina your target.

[larger Blue Ocean image]

A Blue Ocean Approach would indicate that Tina is the most important persona on which to focus.  The perception that no other products address her problems dominates the other factors.  Once we confirm that no one is solving the market problems that we know are important to Tina, we will have market data that validates that a blue ocean strategy is viable.

There are a lot of numbers here, and definitely a risk that you let the numbers overwhelm decisions and drive everything mechanically, like a computer algorithm.  That would be bad.  Where this data-driven view is useful is in giving you a framework for questioning the strategic approach.  The “math” highlights that a strategy of going toe-to-toe with competitors, and attacking the largest market first says Christina is the persona on which you should focus.  A blue ocean approach would drive you to emphasize investment in solving the problems that are important to Tina.  You also get a feel for how many “happy accidents” you might get along the way, by also “accidentally” creating a great product for Kenny & Chris while focusing on Tina, because the problems that Tim cares about also happen to be ones that Tina cares about.

[larger image]

Remember, though, that the Ease of Entry initial guesses will change as soon as you pull together detailed information about how effectively competitive products address the problems that are important to each persona.  Next we’ll look at the competition.

Summary

To create a competitive product, you need to know which customers on whom you should focus and for which problems they would value solutions.  There are always more potential customers, with differing needs and perspectives, than you can build product to satisfy.  You need to figure out which customers to focus on, and which ones you consider a “happy accident” if you acquire them.  Even if your management team insists that your product is “for everyone,” you need to know for which customers you will solve best and deliver first.

Recapping the overall flow of this series of articles on product comparison

Getting useful information from comparing products requires you to:

1. Introduction and Overview (so that the step-numbers align with the article numbers)
2. Identify your customers.
3. Articulate the problems your customers care about solving.
4. Determine how important solving each problem is, relative to the other problems, for your customers.
5. Characterize how important it is for you to solve the problems of each group of customers. (This article)
6. Discover which (competitive) products your customers consider to be your competition.
7. Assess how effectively each competitive product solves each important problem.
8. Assess how effectively each competitive product solves each important problem, for each important group of customers.

With this information, you can create a point of view about how your product compares to other products.

Attributions

Thanks Jon Worth for the skater photo.

Thanks Larry Lamsa for the skateboarder photo

Market concentration – or fragmentation – is an important big picture view of your market.  Insights into the nature of competition for your customers will help you make decisions about your product.  But only if you correctly define your market.

HHI – Measuring Market Concentration

I wrote about the mechanics of measuring market concentration, using the HHI – the Herfindal-Hirschman Index – last year.

The US government has declared that markets be classified based on the following ranges of HHI values:

• HHI below 1000 – a competitive market.  There are no dominant competitors in this market.
• HHI between 1000 and 1800 – a moderately concentrated market
• HHI above 1800 – a concentrated market.  There are one or more dominant competitors in this market.  Higher HHI values translate into fewer, more dominant competitors.

Measuring Market Concentration

The key ideas from that article can be summed up:

• Larger values of HHI represent markets with fewer, more dominant, competitors.
• Small differences in HHI values are meaningless – only large differences matter.

There’s also a fantastic discussion thread – thanks to Roger Cauvin (@rcauvin) and David Locke (@davidwlocke)! – that started by asking how knowing the HHI of your market could affect positioning, and quickly changed into a discussion about what positioning is.

HHI – What Are You Really Measuring?

Here’s the tricky part – what are you really measuring?

Lies, Damn Lies, and Statistics – (not originated by Twain or Disraeli, to my surprise) – refers to selectively promoting a measurement that supports your argument.  Product managers would never do that.  At least, not to themselves.  The trick is to measure market concentration in a way that is useful to you – measure something that helps you understand your market and inform product decisions.

Consider the Android mobile operating system and the global smartphone market.  The following diagram shows the global market share in Q2 of 2010 for each major smartphone operating system.  This market is concentrated, with an HHI of 2712.

[larger]

The next diagram shows the (presumably global) share, within the Android slice of the market, for different Android devices.  This data comes from TweetDeck’s recent analysis of platforms on which their mobile application was installed.  This analysis shows a competitive HHI value of 1253

[larger].

This second data set is definitely biased, in that it represents a subset of the Android-purchasing customers – specifically, the ones who are both early-adopters and who are active users of social media.

If you look at a similar analysis of Android device share data from AdMob, you get a very similar looking graph – but with different handsets in the top 10.  The HHI analysis still shows a (slightly less) competitive market with a 1508 rating.

[larger]

In fact, there’s no (mathematically) discernible correlation in the  two Android-device-share data sets.

[Tangent: Since the AdMob data represents "all users", this becomes an interesting data point that undermines the conventional wisdom that the early-adopters (especially the social-media-savvy, and presumably highly vocal ones) are the thought-leaders that influence mass-market purchasers.  Time to brush up on my Geoffrey Moore and Malcolm Gladwell! Do they predict this directly, or is that the conclusion people reach from reading their works?]

You now have two different HHI numbers for trying to understand Android device competitiveness in the global smart-phone market – representing two different assessments of the market.

Is this market fragmented or concentrated?

Asking What Matters for Your Product

Which analysis better informs the decisions about your product?  Are the customers in your target market users of any smartphone operating system?  Or are you focused explicitly on a segment of smartphone users who have already self-selected as members of the Church of Android?

If you’re building an Android application (that can be downloaded onto Android devices), you’re probably focused on the handset-share data (within the universe of Android handsets).  If you’re developing a product that integrates smartphones with car electronics / stereo systems, you probably care about the overall smartphone OS share data.

If you’re developing mobile advertising, operating-system share (and by extension, advertising “real estate” by ad-network share) is probably most important to you – although variations in form-factors within handsets can also be useful data.

Conclusion

When you’re developing an understanding of how your market operates, including the concentration of competitors in your market, make sure you’ve got the right definition of your market.  Otherwise, you’ll just be basing your decisions on a stack of lies.

April Dunford just presented Startup Marketing 101 at DemoCamp Toronto.  Great ideas from the ‘marketing and your startup’ point of view.  I’ve often said that product managers and product marketers care about much of the same market data, they just do different things with it.  The idea of minimal feature set came up in April’s presentation – this article talks about product management, agile, and initial market acceptance.

Initial Market Acceptance and Minimum Market Acceptance

April mentions (in slide 4) that an important event to the timing of marketing activities is achieving the “_minimal feature set (for certain markets)_.”  April organizes those marketing investments in terms of three stages of “product marketing lifecycle”:

1. What to do when your startup has a “pre-product” product.
2. Where to focus when you’re focused on early adopters.
3. How to invest in your marketing programs when your focus is on scale / growth.

Coming from an agile background, I think about two distinct notions of “minimum” or “initial” when it comes products and markets.  The following definitions are in a B2B context, as I’ve been focusing on this recently with a client in the B2B space.  The same ideas are relevant to B2C and B2B2C companies, but the language would be slightly different.

I’m assuming that when April used the phrase “minimal feature set”, she was really talking about “minimum market acceptance” in the way that I’m describing here.  The distinction is that features describe what a product does, which is an inside-out view of the product.  To be market focused, you have to think about which market problems are being solved, for whom they are solved, and how well they are being solved – an outside-in product view.

If you focus on, and organize around your features, you are likely to miss the mark.  You must focus on the problems that your customers need to solve.  In your product, you will prioritize the development of capabilities (embodied through features) that are designed to help your customers (buyers and users) solve their problems.  Your market analysis should be geared around understanding how many customers in each segment face each problem, and how much they are willing to pay to solve those problems.

Agile or Waterfall or Waterfragile?

As an agile product manager, and former developer, I know that when you do “everything we need to be successful” in the first release, you’re not being agile – we’re being waterfall.  A slight extension of this is “everything we need to be minimally successful” – and that is still waterfall.

An agile team should focus on the first release addressing the initial market acceptance criteria – the minimal set for a single customer.  The goal is to get the product in front of customers as soon as possible – this starts your revenue stream earlier, gives you valuable market feedback, and gives you the opportunity to establish momentum through repeated incremental releases of your product.  Each release will solve addressed problems “better” and / or address additional problems, until you reach minimum market acceptance.

Kano Analysis for Understanding Problems

Last year, I was thrilled to share my approach for applying Kano Analysis as a product manager with the PMV webinar audience as well as the Austin IIBA chapter.  One of the key ideas in the application of Kano Analysis to understanding your market is developing the personas within that market, and understanding how each of them treats each problem / capability.

[slideshare presentation & PMV webinar]

This analysis, in addition to being useful for understanding the market (or a segment) as a whole, also helps you identify your first customer.  Once you know who your first customer is, you can determine the initial market acceptance criteria for that customer, and that determines the must have capabilities.

Note that finding the initial solution (that the first customer will buy) does not mean releasing a poor quality product – it just means releasing a product that solves enough problems (well enough) for one customer.  With the feedback from that customer, you can drive the prioritization for your next iteration – making the next iteration better for that customer (which can really help your word of mouth), and gaining more customers.  Repeat this process until you get to minimum market acceptance.

Timing Marketing Investments for Minimum Market Acceptance

[slide 9 from April's presentation on slideshare]

Since I wasn’t at April’s presentation, I don’t know exactly what she would think of the following, but I believe it makes sense:

• Initial Market Scceptance (one customer would buy your product) marks the transition from pre-product to early adopters.
• Minimum Market Acceptance (enough to succeed in the market) happens before the transition from early adopters to scale.  Note that it may not (probably doesn’t) mark the transition, but I suspect happens mid-stream.

Would love to see what other folks think about mapping this product management centric view to the marketing timeline.  Please chime in below.

In the previous article on the Conversation Ecosystem, I introduced a hierarchy of increasingly valuable conversations.   Some great feedback from you inspired a better visualization.

The Conversation Hierarchy

In The Conversation Ecosystem, I presented a perspective on the conversations around you, your company, and your product.  The conversation ecosystem is building on ideas introduced in The Conversation Economy, which build on several great ideas from some great thinkers.

That presentation of the conversation showed a hierarchy representing conversations of increasing value to you.  For example, following someone is more valuable (to you) than being followed by them – because it gives you an opportunity to gain market insights.  Being friends with that person is significantly more valuable than that – because it gives you permission to explore your market, try new ideas, fail quickly (with reduced penalties for failures), and discover and validate important trends, problems, and ideas.

[larger image]

Each of the elements above was presented separately, but the above view is what it added up to.  April Dunford pointed out that you don’t always move from one level in the hierarchy to the next (up or down).  An ecosystem is the environment around you.  Combining the two ideas led to an improved visualization of the conversations around you.

[larger image]

Adding all of the possible transitions within (and entry points into) the conversation circle would just make the diagram a mess.  Viewing the conversations as a circle around you instead of in a stack helps expose another key element of conversation, and why managing it can help you grow your conversations.

The Growing Conversation Hierarchy

Imagine what the circle above would look like for anyone else in your conversation ecosystem.  That person would be in the center, and you would be in orbit around them.  When you acknowledge that your conversations are just a part of other people’s conversations, you immediately jump to the following visualization:

[larger image]

Conversations Lead to Conversations

Conversations lead to introductions, which can then lead to new conversations.  When you are conversing with a friend, that friend may introduce you to some of the people he is having conversations with.  When you are conversing with someone who is promoting you, she is explicitly making other people aware of you, and encouraging them to have conversations with you.  You’re even more likely to have conversations with them.

Someone who is followed by you is conversing with their friends, and you can see some of those conversations – but it is analogous to eavesdropping at a party.  You won’t get introductions to those people.  This is still a valid avenue to growing the size of your conversational circle, but you’re starting the conversation by saying “I overheard you talking to Jimmy, and you mentioned you were a horticulturist – that must be fascinating…”  Awkward.

Conversation, certainly in the conversation economy, is built on trust.  You won’t engender much trust by saying “Hey – I was stalking this friend of yours, and by going through her trash, I found your phone number.”  That’s why you don’t get access to that circle of people.

What Do You Think?

I’d love your feedback on this view of conversations.  What ideas come to mind when you look at things this way?

The industrial age is behind us. It was surpassed by the knowledge economy, rapidly evolved into the attention economy. Successful companies realize that attention comes as a result of conversation. We’re now in the conversation economy.

Software as a Service and Conversation

Software as a Service (SaaS) products are products where instead of paying an up-front licensing fee, customers make recurring payments, for as long as they use the software. As soon as the software becomes obsolete, or you no longer need it, you stop using it – and stop paying for it. As long as the product continues to be relevant, and continues to provide the best solutions for your problems, you’ll keep using it.

Peter Cohen at SaaS Market Strategy Advisors, recently did some analysis on the lifetime value of a SaaS customer. What was particularly interesting was that he found that the return on investment (revenue versus cost of acquisition) grows dramatically over a one, three, and five year analysis. His analysis is particularly exciting because he’s quantified the benefits of focusing on your existing customers.  Anecdotally, he shows that Salesforce.com needs to keep customers around for a bit under three years to cover their marketing expenses.  Given how integral CRM becomes once deployed at a large company, that’s not a bad bet – Salesforce can become an entrenched player, who will only be displaced when their customers focus on the ongoing costs (versus the ongoing benefits).

In my previous article on the economics of SaaS (and the extended remix version published in The Pragmatic Marketer), I provided a qualitative analysis, and the logical conclusion that SaaS providers are incented to focus on their existing customers. Cohen’s analysis supports those conclusions and makes them more concrete.

Long Term Relationships and Conversation

A long term relationship with your customers requires you to have an ongoing conversation with them. To keep that relationship going for years, it also needs to be a fantastic conversation.

A fantastic conversation is one where not only you, but your customers are engaged. Ask yourself – if you’re talking to your customers over coffee, are they leaning back, or leaning forward? Engaged users are leaning forward, and disengaged users are leaning back.

If your users aren’t leaning forward, you need to figure out how to make the conversation more interesting to them and get them engaged.

Activity Versus Engagement and Conversation

In the bad old days, you either forgot to think about your customers, or you thought about them as active or inactive.   That was the way we framed analysis.  And SaaS models forced us to focus on helping inactive customers re-activate.

A conversational model is different, however.  Just because a customer is active does not mean they are engaged.  More on this later – just planting a seed for now.

The Freemium Business Model and Conversation

The freemium business model is one where some people get to use your product for free, where other people are paying customers who get to use a different version of the same product. The revenues from your paying customers cover the costs of providing your product to all of your customers. This is a common business model to use with SaaS products, but can also be applied to licensed products. The costs of development, support, and ongoing operations are all covered by the paying customers – even though you incur costs from the free-product users too.

In a recent interview with Damon Darlin on the New York Times site, Evernote’s CEO, Phil Libin talked quite candidly about the conversion of users of the free version of Evernote into paying customers. He noted that the longer a user sticks around, the more likely that user is to become a customer of Evernote’s for-a-fee version.

Mr. Libin studied the behavior of the earliest adopters and found that the longer customers used the service, the more likely they were to start paying for it. About 0.5 percent convert to paying customers in the first month. But after about a year, 4 percent have converted. (He says he thinks the figure will top out at about 22 percent.)

While I’m not convinced that 22% conversion is achievable, the trend is obvious, and 4% is a fantastic number.

You have to have a pretty engaging conversation to keep users around long enough to be profitable.

Combining The Activity Model and the Freemium Model

We can combine the active-inactive perspective with the for-a-fee and for-free approach, and we get the following magic square.

This diagram is interesting, but oh-so-2005.  The only moderately interesting insight you get is that the inactive, for-a-fee customers are at risk.  They’re just giving you money for no good reason.  You should probably figure out how to help them before they go away (and take their money with them).

Introducing a Conversation Model – QCP

As I mentioned earlier, being active does not necessarily mean being engaged and conversational.  The following three categories make sense for thinking about “how conversational” a customer is:

• Quiet - An active, satisfied, and possibly loyal, but not outspoken customer (or user).
• Conversing - A customer or user who is engaging with you and with the community about your products.
• Promoting- A customer or user who is actively encouraging other people to become customers or users.

Quiet customers are like the active users in the old model.  They use the software and pay the bills on time.  Quiet customers are passive.  But in a conversational economy, that’s not enough.  It may be enough to keep the lights on, but you can’t hope to defend against your competition when all of your customers are quiet.

Conversing customers are engaged in conversation – with you and with the community (yours and theirs).  Conversing customers are following you on Twitter, they are fans of your Facebook page, and they retweet, like, and favorite your messages.  They interact with you – asking questions, submitting bugs and feature requests.  The write blog posts, and are extroverted in sharing their relationship (with you) with their friends.  In the standard “engagement model” (satisfied, loyal, and engaged), these customers are engaged.  From the conversing customers you improve your understanding of your market, users, and competition.  These customers are the foundation of your business.

Promoting customers are your dream team.  They aren’t just interacting publicly with you, they are promoting your product.  When you begin to focus on word of mouth marketing, or viral product management, you’ll start sending presents to these folks and inviting them to the company kegger.

Your Thoughts and More Thoughts

I’d love for you to share your thoughts here with me and everyone else!

I feel like this is more of a starting point than a comprehensive article.  For example, I have some scribbles about how to move customers  from the “active free” box to the “active for-a-fee” box (and from inactive to active, etc), and how to move people up the QCP ladder.  Will cover that stuff in a future article.

So – chime in, and as my dad would say, please and thank you!

Blue Ocean Strategy provides an interesting reactive analysis of companies and markets.  Personas are used to understand your customer’s needs.  Combining the two provides powerful proactive insights when positioning your product for market success.

Blue Ocean Strategy

The book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, by Kim and Mauborgne, was written in 2005.  The book presents a very compelling way to visualize competition in your market by contrasting the emphasis (or effectiveness) of each company at solving particular problems.  The authors argue that red oceans are competitive markets where companies compete to solve the same problems for the same customers.  Their main idea is that by identifying (and solving) unaddressed problems, you can define a new market – a blue ocean with no relevant competitors.  The “red” in their metaphor implies blood in the water, caused by cut-throat competition.  Their position – by defining a new market boundaries with no competition, you eliminate the blood in the water and give yourself a calm, blue ocean in which to navigate your company.

This is a compelling idea, and has a lot of merit.  The Smarter Product Managers book club (started by Cindy Alvarez) reviewed this book last month, and one conclusion we reached during the discussion is that the examples in the book felt “reverse-engineered.”  I feel that the lack of prescriptive advice from the authors created a sense of “that’s fine, but how do I apply these ideas proactively?”   Some of the examples in the book, like Cirque de Solei and Southwest Airlines, felt very compelling (and are often cited), while others felt a bit more contrived.  Almost as if the authors were searching for data to support their arguments – a big no-no for product managers.

Creating a Blue Ocean Strategy Map

The book presents examples of “mapping” markets based upon the strength of the offerings from companies, along different dimensions.  The following example was created by me (and is used throughout this article), but follows the pattern of analysis described in the book.  This is an unresearched, hypothetical example analysis of the market for vaccuum cleaners – or more generically, floor cleaning products.

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The diagram above identifies seven dimensions by which you could characterize the offerings from each company.

• Breathe Easier / Anti-Allergen – sometimes, people vaccuum their rugs in order to reduce allergens (by sucking up dust), making it easier for them to breathe in their homes.  Vaccuum cleaners work by sucking up air through the carpet, collecting the dirt (that is sucked up along with the air), and filtering the exhaust air (that is expelled into the room).  Different vaccuum cleaners pay different levels of attention to removing allergens during this cleaning process, by (1) getting the allergens out of the carpet and (2) filtering the allergens out of the exhaust air.
• Remove Stains – one motivation to clean your floor is to remove stains.  This is not generally a focus of vaccuum cleaners, but products like the Green Machine do focus on removing stains, while also “picking up dirt.”
• Physically Easy to Use – after back surgery, one of the key pieces of advice my mother received from her doctor was “no vaccuuming.”  When you are young and healthy, you don’t expect vaccuuming to be something that is forbidden by your doctor.  Shoveling snow, climbing a mountain, running a marathon, yes – but vaccuuming?
• Reducing Hassle – Why don’t we vaccuum every day?  Because it can be a hassle to get out the vaccuum, set up the equipment, and actually use it.  When you reduce the hassle involved in vaccuuming, you are likely to vaccuum more often, thereby realizing more benefits from vaccuuming.
• Saving Time – Hassle is not the only barrier to vaccuuming.  If you could vaccuum your house in 5 minutes instead of 105 minutes, you would do it more often.  As a teenager, I used to jog behind the lawn mower, just to get the yard done so I could move on to other things.
• Reliability – While reliability is not a major factor when vaccuuming your house (once), it is a key component of making purchasing decisions – because you don’t vaccuum just once.  The more you vaccuum, the more you care about reliability.  This is also an indirect cost factor – a vaccuum cleaner that has to be frequently repaired or replaced will cost more per year than one that has the same purchase price and is more reliable.  This is also an indirect hassle factor – you may delay vaccuuming your home until you can make time to get a broken vaccuum cleaner repaired.
• Avoiding Cost – A direct focus on cost is primarily driven by purchase price.  Other factors (like reliability, and the cost of replacement bags or filters), but people place greater emphasis on purchase price when thinking about cost.  Consumer Reports and other “product review” companies will often “do the math” for you, taking into account all of the post-purchase costs to calculate total-cost-of-ownership.

The above diagram, with fictitous values for “Strength of Competitive Offering”, shows the competitive landscape for the vaccuum cleaner market.  One of the very powerful features of this visualization is that the Roomba faces “no competition” from the other companies in three of the seven categories – Ease of Use, Hassle, and Time.  A Blue Ocean Strategy analysis would say that the Roomba has created their own market, with an absense of competition.

This gets back to our insight that the examples felt “reverse engineered.”  The Roomba does have a dramatically different value-proposition, and focused on dimensions that are not addressed by their competition.  So why isn’t the Roomba in the book?  Because they still compete in the red ocean.  Unlike Southwest Airlines, they did not differentiate their offering in a relevant way.  And that’s the problem we found in trying to apply the principles from the book.  

It is not enough to be innovative and differentiated, which the Roomba certainly is, you have to be valuably differentiated.

So how do you differentiate valuably and proactively?  Identify the problems that your customers value, but don’t yet have solutions for.  How do you do that?  With personas.

Personas

Personas represent customers in your target markets.  Markets are not homogenous – different people in your markets value different things for different reasons.  You develop personas as archetypes to represent subsets of the customers in a given market who share common problems.  More concretely, personas share common valuations of shared problems.

To combine persona development with the market-mapping concept from Blue Ocean Strategy, create the same map, but for personas.  Instead of identifying the strength of each company/product along each dimension, identify how much each persona cares about each particular dimension.

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In the chart above, I’ve created 6 hypothetical personas who populate our market:

• Single Parent – the classic superman / superwoman who does everything, including keeping the house clean.
• Housekeeper – someone employed to keep someone else’s house clean.
• Office Cleaner – the person who vaccuums your office at 2am every night and picks up all the empty Diet Coke cans and Twinkee wrappers.
• Kid (Doing Chores) – most kids won’t ask for a vaccuum cleaner for their birthday, but when you child is responsible for vaccuuming, do you want a battle every week because they hate it?
• Homeowner – like the single parent, but maybe without kids, and definitely with fewer responsibilities (and more time).
• Retiree – like the homeowner, but with a lot more time, and a less robust physical condition.

[Note - the above examples are really stereotypes and not personas (there is no research to back them up - they are entirely fictional) - don't fall into the trap of thinking persona development is this easy.]

OK, now we have an understanding of how much importance each persona places on each dimension.  It looks like a mess, for this example, when you try and absorb the big picture.  If you focus on a single persona, you get great clarity about what that type of customer cares about.  Look at each curve individually, then look at them all together.  If you’re thinking ahead, you’ll suspect that the Roomba is perfect for the kid doing chores.  But wait, we’ll come back to that.

One insight we can gain from this messy view of the market is that you can’t create a product that is “perfect” for all of these personas.  You have to target a specific persona, and tailor your product for that persona.

Mapping Personas to Products

Now we have two views of the market, along 7 dimensions.  We have assessments of the relative strength of each competitor’s offering, and we have estimates of the relative importance to each persona – for each dimension.  What we need to do is combine the two.

All of this analysis runs the risk of introducing a notion of false precision - we have a lot of data, therefore it must be accurate.  So our inclination may be to try and do some mathematically refined, scientific analysis.  I suspect that would be wasted effort, providing no additional insights, and risking leaps to the wrong conclusions.  I propose a simpler approach.

The analysis we really care about – which product offering is best aligned with the needs of each persona?  A simple mathematical equivalent of “which curves match the best” is an easy analysis.  By comparing the values from each competitor curve with those of each persona curve, we can create a series of “how good a fit is it?” values.

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Imagine a persona saying “how well does each company’s product align with my goals?”  This “simple math mashup” takes into account both “they succeed at what I care about” and “they haven’t invested in something I don’t care about (at the expense of something I do care about).”

You can see that the Roomba clearly wins with kids doing chores.  The rest of offerings stand out less, but do provide insight.  Now you can easily drive strategic decisions – “we want to be the vaccuum of choice for housekeepers” now drives some obvious emphasis on ease of use and a reduced emphasis on reducing costs.

Improving The Model

My two main problems with the blue ocean strategy were lack of relevance (who cares about dimension X) and magnitude (which dimension is most important?).  The model above addresses only relevance – a focus on target personas.  We can overlay some “relative importance of each persona” data, or just manually focus our efforts on each persona in series.  

The other magnitude challenge is in understanding not just which problems are important in absolute terms (kids care a lot about saving time, but not cost), but in relative terms (kids would trade an hour of time for a modicum of ease-of-use).  Essentially, defining the utility-curves for each persona.  For any but the largest, most saturated markets, I would hesitate to do the utility curve analysis in detail – it feels too heavyweight and un-agile.

Conclusion

The Blue Ocean Strategy book provides us with a visceral tool for visualizing relative offerings from competitors in a given market.  Combine it with the same visualization approach for personas that participate in that market, and you gain insights into which problems to solve next to achieve product success.

Is your market competitive, or concentrated?  What’s the difference, and how can you be objective about it and not just subjective?  The United States government uses a measure called HHI – the Herfindal-Hirschman Index – as an objective measure of how competitive a market is.  They use this measure to determine if a company is operating monopolistically, or to determine if a merger needs to be explored from an anti-trust perspective.  The ask the question: would the merger create an anti-competitive market?

You can use this metric to get insight into how competitive your market is, and to gain a better appreciation for trends in your market.  Read on to review the competitive landscapes and trends for email, search engines, browsers, and internet service providers.

Email Client Competition

It is hard to compete in the market for email clients (the applications people use to read their email).  Usually people will describe this market as “very competitive” – meaning that there are some products that dominate the market.  What people really mean is that it is “very hard to compete” in the email client market.  Take a look at this market data from fingerprint.

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The graph shows the percentage of emails that are read in each email client by consumers (blue, on the left) and business users (red, on the right).  Yahoo! Mail, Outlook, and Hotmail clearly dominate this space.  Almost three million emails were analyzed  to produce this market-share data.  The emails were opened by people, and fingerprint determined which email clients people used to read the emails.  It would definitely be hard to compete in this market with the introduction of a new email client – but is this market competitive?

Definition of Competitive and HHI

The United States government classifies markets based on degrees of competitiveness – competitive, moderately concentrated, and concentrated.  They use an objective measurement, the HHI (Herfindal – Hirschman Index, sometimes called the Herfindal Index), to determine the proper classification of each market.

Calculating HHI

To calculate the HHI for a market, you take the market share captured by each company and square it.  Then you add up those values to determine an HHI value.  

A pure monopoly market is one where a single company has 100% market share.  The HHI calculation for that market would be 100*100 = 10,000.  That is the highest possible HHI value, reflecting the complete absence of competition.

A market with 100 competitors, each holding 1% of the market would have an HHI = the sum of 1*1 for each of the 100 competitors = 100.  That is an incredibly low HHI value, reflecting an almost purely competitive market.  [At this point, you are probably wondering, "How do I find out the market share of the 99th largest company?" - don't worry, you won't need to.  We'll cover that later.]

The US government has declared that markets be classified based on the following ranges of HHI values:

• HHI below 1000 – a competitive market.  There are no dominant competitors in this market.
• HHI between 1000 and 1800 – a moderately concentrated market
• HHI above 1800 – a concentrated market.  There are one or more dominant competitors in this market.  Higher HHI values translate into fewer, more dominant competitors.

Anecdotally, the HHI values for the consumer and business email client data (shown in the graph above) are 2254 and 2650, respectively.  While Yahoo! Mail, Outlook, and Hotmail collectively dominate both markets, Outlook and Hotmail dominate even more (relative to Yahoo! Mail) in the business email client market.  The HHI shows this distinction with a 400 point (20%) difference between the two markets.

The US government uses this data to establish context – is a company operating in a concentrated market – one that promotes collusion, or is the company operating in a competitive (as in “free market”) market?  The government also uses HHI values as a litmus test for determining if a proposed merger might be anti-competitive.  If combining the market share of two companies results in an increase in the HHI calculation for a market of more than 100 points, then the move will raise anti-trust concernts.  I am not an anti-trust lawyer, but my interpretation is that if a merger does not raise the HHI value by more than 100 points, that would be evidence that could be used to argue that the merger is not anti-competitive.  

You can get useful insights about a particular market from the HHI value, that may guide your strategy for growing your market share, and apply them as part of your prioritization strategy.  Since it is an index that ranges from 0 (for an infinite number of competitors with effective zero market share) to 10,000 (for a pure monopoly), a difference of a few points between two HHI values does not yield a lot of insight.  A difference of hundreds or thousands of points does yield insight.

Avoiding Analysis Paralysis

One challenge you face is knowing when to stop gathering market share data, in order to calculate the HHI for a market.  I gathered a couple hundred data points in a dozen different market analyses, and determined that there is a reasonable stopping point, where additional leg work does not yield additional insight.  I’ve combined those findings in the following chart:

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As you record market share data, each new competitor adds to the total market share already analyzed.  That value is captured on the vertical axis of the chart above.  The horizontal axis shows how much the HHI value for any particular market will increase by gathering one more data point.  When adding the data for one more competitor has little or no impact on the resulting HHI calculation, you can stop gathering data.

There are two distinct curves present above – the lower one represents a competitive market (HHI = 223), and the upper one represents multiple concentrated markets (HHI values ranging from 2254 to 6753).

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By the time you’ve addressed more than 50% of the market share, additional analysis increases the calculated HHI value by less than 0.1% (per additional competitor).  In one market I analysed, the top 20 competitors combined had just under 50% market share.  Including the next 50 competitors in the analysis increased the HHI by 2% (from 219 to 223).  You can’t gain any insight from that difference in value.  A good rule of thumb is to only look at the top 10 competitors, or however many it takes to capture 50% market share.

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In a concentrated market, once 90% of the market share has been calculated, the incremental increase to the HHI value by adding additional competitors is also negligible.

Looking at Trends

One powerful way to apply HHI measures for a market is to look at the trends of the market – is it growing less competitive or more competitive?  Specifically, are dominant competitors gaining market share, or losing market share?  Having this insight can tell you who’s products are succeeding, so you can focus your analysis effort.  The following diagram shows how competitiveness has been trending for the last five years in the web browser and search engine markets.

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The lines represent the HHI values (downward sloping blue line is for web browsers, upward sloping red line is for search engines) that indicate the competitiveness (or concentration) of the two markets over the years 2005 – 2009.  The inset on the left shows market share data for web browsers from 2005-2009.  The inset on the right shows market share data for search engines from 2005-2009.

The HHI values for both markets indicate that they are both very concentrated – with a small number of companies controlling each market.  From reviewing the HHI values, you can see that the web browser market is gradually becoming more competitive and the search engine market is becoming less competitive.  Both markets are dominated by a handful of companies.

A Competitive Market – Internet Service Providers

The internet service provider (ISP) market, unlike the others we’ve looked at, is very competitive.  The HHI value for the ISP market is 223.  A pie chart of the major competitors shows that there is no clear dominance by any one provider.

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As a column chart (to be consistent with the other charts here), the same ISP Mar 2009 market share data looks like the following:

 [larger image]

There is not a set of clearly dominating ISPs – this is a competitive market – based on just looking at share data.

Danger

However, there’s a big danger in just looking at the numbers.  Internet service providers, while competitive in aggregate, generally have dominant market share for any one physical region of the country.  Rogers does not offer internet services in Texas, and Comcast does not offer them in my neighborhood.  So, from an end-customer’s perspective, this competitive data is almost meaningless.  It still serves as an example of a very competitive market, in contrast with the email client, web browser, and search engine markets we also reviewed.

Conclusion

Understanding the problems that plague the customers in your market is critical to being a successful product manager.  Understanding your competition (and their solutions to the problems) in your market is also very important.  The HHI value provides a metric for measuring competitiveness in particular markets.  Your approach to competing in a particular market will be different, depending on the nature of the competition in (and competitiveness of) your market.

Note that this is a primarily red ocean analysis – a blue ocean analysis is a focus on finding ways to redefine your market so that competition is irrelevant.  You can read about the differences in Blue Ocean Strategy, which is this month’s Smarter Product Managers book club book, created by Cindy Alvarez on the Booksprouts site (you may need to create a free account to view the page).  Analysis of the existing market is still required in order to define a new market – you just apply your insights in different ways.

*

Our previous article looked at the economics of a Freemium business model.  One element that is key to making a strategy that involves “free” work financially is growing your user base.  One way to get that growth is through a word-of-mouth marketing campaign.  This article looks at different elements that characterize or affect the successfulness of a viral product – from a product management perspective.

Word of Mouth

We wrote about the dynamics of how to maximize your word of mouth a couple years ago.  Essentially, you create a product and a situation where people want to tell other people about your product.  Ideally, your customers (free or otherwise) will like your product so much that they want other people to use it – not just know about it.  Word of mouth is a double-edged sword however, so you have to be careful about the propagation of bad word of mouth too.

Word of Mouth Marketing

People in marketing, PR, and corporate communications talk a lot about viral marketing.  Viral marketing is when you create a message that is implicitly viral, causing exposure for your product.  This is different than viral product management, which is when you create a product that is self-promoting with similar dynamics to a viral marketing campaign.  A great example of a viral message is the Mentos / Diet Coke videos.

But this phenomenon was viral because of the message, not because of the product.  This article focuses on product management – the things we do to make a product self-propagate, not the explicit marketing we do to get awareness.  You can think of the product management as implicit marketing – a feature or capability may have a direct impact on your word-of-mouth.

Word of Mouth Product Management

As a product manager, when you need or want a viral vector by which you grow your customer base, you can either rely on word-of-mouth marketing (see above) or focus on making product management decisions that encourage the same communication dynamics (see below).  At a high level, you simply need to create a product that your customers want other people to start using, but they have to want it “enough.”

iPhone Market Data

Pragmatic Marketing likes to remind us that our opinions, while interesting, are irrelevant.  Greg Yardley of Pinch Media shared a really interesting analysis on ad-supported versus for-a-fee iPhone apps that came out a couple weeks ago.

This presentation is an analysis of the economics of publishing an iPhone application as a for-a-fee product, or as an advertiser-supported product.  [Hat tip to Andrew Chen.]  What is most relevant to viral product management is the graph on slide 26.

[click for larger version]

What the graph shows is that the top 10% of ad-supported applications break away from the other 90% in terms of usage.  The reason (in that presentation) for looking at the data was for measuring the CPM (cost per thousand impressions) based revenue for applications, in comparison with the charge-for-the-application model.  At the end of the day, the free version makes sense, but only for the top 5% of applications, according to Pinch Media.  For the rest of the field, a for-a-fee application will probably generate more revenue.

What is glaring in that data is that the applications in the top 10% (the discrete red line at the top of the graph) are not the same as the other applications.  Something is different that causes users to want to use those applications a lot more.  As a product manager, I believe that those applications have crossed the suck threshold.  In other words – they are a pleasure to use.  What Pinch Media’s data also does not show is how viral the applications are.  In other words – do the top 10% (in repeat usage per user) applications also have the fastest growth (in user count), and if so, is it by word of mouth.  

My premise is that the applications that are most pleasurable to use are the ones that can achieve viral growth.  These are the applications that you want to tell other people about.

Pleasurable Products

As a user-centered product manager, you are spending some of your time on customer delight features and capabilities.  These are the things that wow a customer, and cause them to want to tell others about your product – simply because it is cool and useful.  You’re also spending time on the more is better features and usability concerns that make a product a pleasure to use.  You keep making it better, because there is clear ROI to increasing your user base, and improving usability makes it more likely that people will tell other people about your software.  Eventually, your product will be good enough that people will start telling everyone, and your growth will start to climb.

One of the dangers of this incremental product growth strategies is that you catch a case of featuritis.  Very rarely will you hear people clamoring to remove features from your product.  You’re more likely to hear a steady stream of “one more thing” requests.  Too many features can make it hard for people to learn how to use your product.  There’s a threshold of user tolerance for features.  Too few or too many features, and your product will be unpleasent to use.  Above that limit, the product is a pleasure to use.  Kathy Sierra coined the term suck threshold, to mark this delineation.

The following diagrams are from an earlier article on featuritis, and build on some great ideas from Kathy Sierra.  These focus on the holistic “how good is your product, from a user perspective” question, and take a Kano-analysis approach to looking at ways to improve your product.

You can improve the curve for any particular product by improving the user’s experience with “more is better” features.  You can either improve usability or performance (or both) and change the shape of the curve above.

Given the above dynamics, and Malcolm Gladwell’s concept of a Tipping Point, where things discontinuously change, there will also be some threshold by which your product is so pleasurable to use, that people will feel compelled to share it.

Since 90% of the applications didn’t appear to tip in Pinch Media’s analysis, I’ll show the default tipping point as being out of reach – at least until you do something about it.

Two Modes of Viral Product Propagation

There are two primary human-nature mechanisms by which a product will propagate virally – altruishm and selfishness.

• Altruism – You should use this product because I love it and you will too.
• Selfishness – You should use this product because If you use it too, it will be better for me.

If your product falls below the suck threshold, I don’t believe you can sustain any form of viral growth.  Sharing a product recommendation builds on trust, so sharing something that people won’t like will erode that trust.  I believe this is a self-correcting behavior, and what little sharing may occur will be short lived.  A product that gets shared because of altruism needs to not only be better than good, it has to be so good that you’ll go out of your way to tell people about it – with no expected benefit for yourself.  [Note: other than the self-reinforcing positive feeling you get from being altruistic.]

Leveraging Altruism as Viral Mechanism

Altruism is an interesting viral dynamic.  If you make your product so good that people feel compelled to tell their friends about it (or blog or tweet about it), you’ve got a great product.  Product management decisions to achieve this are easy in that you only have to make the product fantastic for your users.  At the same time, your product management decisions are difficult, because you have to make your product good enough to cross the tipping point.  The iPhone, Synergy, Sherwin Williams paint (when the first local store opened in Austin, the owner was stunned by how much demand was out there), Tweetdeck (a Twitter client), and GMail are all examples of this.  Additional users / customers don’t make the experience any better for the current users, but people still rave about it to their friends and associates.

Leveraging Selfishness as Viral Mechanism

The are two ways to leverage people’s inherent selfishness when developing products.  The first (and harder) is to define capabilities or features for the product where the customer’s experience is better when more people use the product.  Twitter (and Facebook and other social media applications) take advantage of this.  If you’re using Twitter as a broadcast medium, then the more people who are out there to listen to you, the more value Twitter has to you.  So you encourage people to use it.  On the reverse side, if you’re looking to Twitter as a source of good information, the more people who are out there sharing information, the more valueable this channel is to you.

The second, and easier way to reward customers for encouraging other people to use your product is to explicitly reward them.  Affiliate programs, finder’s fees, account credits, or other compensation can be given to existing customers, in exchange for signing up new customers.  A software as a service variant of this would be a program that rewarded you with credits to your account for every customer you refer, for as long as both of your accounts are active.  People can get your product for free if they encourage enough other people to sign up.

Both of these selfishness-model variants, to be sustainable, need to be leveraged to promote a product that is actually good.

The altruism model won’t work if your product is not better than good, but actually exceeds a tipping point.

Conclusion

You can create viral messages or videos that spread awareness of your product tangentially, or you can create programs that encourage people to promote your product, or you can create products that promote themselves.  As product managers, if your business model relies on viral growth, you can either take ownership and create viral products, or cross your fingers and hope for viral promotions.

*Attribution [CC 2.5 attribution: bullhorn photo - seesix]

Ever scratch your head and wonder why you can use your favorite application for free?  How can a business actually make money (and stay in business) when they offer their product for free?  This article looks at the freemium business model, to see when it makes sense for a company to offer it.  The freemium model is one where the company offers two (or more) versions of a product.  The basic version is free to use.  You have to pay for the premium version.  The goal of this article is to answer the product management question, “Should you create a freemium business model?”

Economics of a Freemium Business Model

One way to look at the freemium business model is to look at it per user.  A user will either use the free (basic) version, or for-a-fee (premium) version.  

By definition, a freemium model is where one user is faced with a choice – do I use it for free, or do I use it for a fee?  

We will look at how to encourage users to move from the free version to the for-a-fee version later.  For now, we’ll just look at the impact of that choice.

Billing Peter to Pay for Paul (Freemium)

Every free user gets benefits, for free.  Every for-a-fee user pays for the benefits of the product.  The customers who pay for your product also cover the costs you incur when providing the service for free to other customers.

As a company, you have to look at your aggregate user base to analyze the economics.  Some percentage of your users pay for a product (premium), and another percentage do not (free).  What makes this interesting is asking the question – “What percentage of your users will pay when a free version is available?”  Basecamp, from 37signals just celebrated its 5th anniversary, and serves as a good illustrative example.  Note that 37signals expressly does not share this information, so we have to speculate.

• In a 2006 interview with Ryan Carson for ThinkVitamin; Jason Fried, owner of 37signals, indicated that it was “more than 0.87%” – we’ll call that 1%.
• In a 2009 interview with Brad Spirrison for MidWestBusiness.com; Fried indicated that 90% of revenue comes from subscriptions to web applications.  Spirrison points out that 37signals earns $40,000 monthly from their job board – so we’ll estimate $360,000 per month from subscriptions.  We can sanity-check our 1% estimate.  Fees for 37signals products range from $24 to $149 per month.  If the average paying user pays $36 per month, then there would be 10,000 paying customers – 1% of a million.  We could tweak the numbers (the average might be lower, there may be more than a million users, etc).  But this data is consistent with a 1% conversion rate.
• Jed Christiansen did an analysis about a year ago where he estimated ~ $5,000,000 per year, with numbers very consistent with the Spirrison interview.  Jed built his estimates up from the usage stats that 37signals reported (links at Jed’s article), and some assumptions for converting from usage to number-of-users.  His estimates would put conversion somewhere around 0.5% to 1%.  He provides a spreadsheet of the model too, if you want to tinker with it.

This feels reasonable – 100 free users for every paying user.  Even if that number is wrong, the rest of this article holds true, but it sometimes helps to have a number to think about.

The Left Hand Doesn’t Know What the Right Hand is Paying (Not Freemium)

This is the situation where a user gets a product or service for free, and a different user gets a different product or service for free.   Technically, this is not a freemium model – the same user does not choose between the two options.  User A chooses between free-product-A and not using anything.  User B chooses between for-a-fee-product-B and not purchasing anything.  User A has no interest in product B and vice-versa.  A company may offer a free product or service using this business model, and it may make sense – but it is not freemium, because the same user is not choosing between the two different products.  A company may also use a freemium business model, but augment it with this business model.  The following examples are examples of this model, listed here to avoid miscommunication:

• A company can offer a product for free to (primary) users, then charge advertisers (secondary users) to display ads to the primary users.
• A conference may offer the opportunity to speak/present (for free) to lecturers, then charge attendees to listen to the lectures.
• A government may offer waivers on corporate or property taxes to a company to build a new facility, then levee payroll taxes against the employees for the priveledge of working there.
• A shopping mall may host free events (like christmas pageants) to the general public, then charge the retailers for rental space in the mall.

In each of these scenarios, the users who get the free product or service are not choosing it relative to the paid product or service.  Different users are targeted for each.  The first model (advertizing supported products) is easy for everyone to identify, but all of the examples share a commonality.

Freemium Product Costs and Prices

Isolating the freemium business model from other revenue-generating opportunities, you can see that finding a profitable model can be tough – you have to control costs and set prices correctly.  Assuming our data from above is representative (and I don’t know if it is), if 1% of customers are paying customers, then each paying customer has to cover the costs of 100 customers to have the possibility of being profitable.

Quick Cost-Model Refresher

From a management accounting standpoint, for a given product, there are two types of costs.  

• Fixed Costs – these costs are the same for the company, no matter how many users there are – additional (incremental) users add no incremental costs.
• Variable Costs – these costs are the same per user – incremental users add incremental costs.
• Total Costs – the sum of fixed and variable costs.

There are also two important ways to look at profitability – overall, and per product sale.

• Total Profit – The sum of all product sales minus the total costs to make and sell the product (including overhead).
• Contribution Margin – The difference between product (or service) revenue and the variable costs to make and sell the product.

When the total revenue from product sales exceeds the total costs to make and sell that product, the product is profitable.  From a decision-making standpoint, the contribution margin needs to be positive. The number of products that need to be sold for the company to be profitable is the fixed costs divided by the contribution margin.  Here’s an example (using a software as a service pricing model):

• Your business has $10,000 per month in fixed costs.  
• Your product has a variable cost of $0.10 per month per user.
• 1% of your subscribers pay for their subscription, 99% subscribe to the free version.
• You price your product at $20 per month per user (per unit subscribed).

That looks like a hell of profitable product – some people will pay $20 for something that costs you a dime.  But looks are deceiving.  You have to cover the costs of the free subscribers, and you have to cover the fixed costs of making and selling your product.

 [click for larger image]

You have to get to 100,000 subscribers (1,000 paying customers) just to break even.  This takes much longer than you would expect when selling dimes for $20!  Even a 25% per month growth rate can’t help you early on.

 [click for larger image]

The exponential growth does start to compound, but it delays break-even.

The reason this happens is that you have to pay for 100 free-account subscribers with the revenue from each paying customer.  The contribution margin is the key here, and three things have to be true or you shouldn’t have a freemium business model.

1. You have to have a contribution margin that is positive, when taking into account the ratio of free users to for-a-fee users.
2. You have to have a sufficiently large user base (number of users – more precisely, paying customers) to cover your fixed costs.
3. You have to lower your costs (if (1) is not positive or high enough) and grow your user base (if (2) is not large enough) fast enough to get profitable before you run out of funding.

Growing Your Customer Base

There are a two ways to grow your customer base – traditional marketing to grow your customer base, or word of mouth marketing to grow your customer base.  If you’re relying on word of mouth marketing, there are two different dynamics that drive word of mouth [thanks to Jonathan Berkowitz of Thinktiv.com for this insight!] – altruistic and selfish.  

Altruistic – This product helps me, it will help you too.  You should use it.

Selfish – It helps me if you start using this product.  You should use it.

Discussion of the two different word-of-mouth patterns will have to wait for the next article.  I’ll update this one with a link to that one when it is written.

[Update: Viral Product Management is now posted!  Thanks all for the great attention to this one so far.]

We just wrote about the importance of understanding your non-customers.  That doesn’t mean you should neglect your current customers.  If you do, you’re in world of trouble.  Even if you don’t abuse your customers, maybe you’re taking them for granted.  You’re losing some of them every year.

Them Behaving Badly

Never anger a man with a megaphone*.  Saeed has a megaphone, thanks to his consistent writing, his audience, and the dynamics of word-of-mouth.  Let’s look at how a public discussion spiraled into disaster for them, the company who sells a product that Saeed critiqued.

The first post (yes, there are more than one) presented a critique of a design characteristic, and a suggestion for future products.

Hey boys and girls at APC, here’s a rather undelighted customer and a real customer problem. Curious toddlers can turn off your devices in the blink of an eye! Your home/office solutions team needs to take that into account in their next generation product.

Turns out, someone posted an excerpt from the blog post onto the APC forums.  And that’s where the trouble begins.  The response from APC was defensive and critical of the complainant.

I had a discussion with a couple of APC Escalation folks yesterday, and in no way shape or form can this be defined as a “fatal design flaw.” If it were, obviously OTHER UPS companies wouldn’t use this design and try something different to give them an upper hand. But since they do – that becomes negated.

And it gets worse from there.  Time to slow down, crane your neck, and try not to swerve into opposing traffic as we watch this one unfold.  Saeed’s follow-up, How NOT to communicate with customers, includes a critique of the response.  After the detailed critique, Saeed puts it in a product management perspective.

As a Product Manager, I can’t help but look at this response and think, “What a missed opportunity!”

Instead of responding the way he did, Kevin should have either escalated this to a Product Manager or Product Marketing manager, or had the insight to understand that for a customer, the most important letter in UPS is U for UNINTERRUPTIBLE.

And the parallel thread on the APC forum continues (as someone else links to Saeed’s response).  Here’s where The Notorious K.M.P., and yes, that’s the ID he chooses to use on the forum, puts the nail in the coffin.

I suggest he take it up with other UPS manufacturers as well, who’re going to tell him almost the exact same thing.

At this point, Saeed pushes-to-talk yet again in How to LOSE customers!.

I will absolutely take this up with other UPS manufacturers. I doubt they’ll tell me to address the problem using “duct tape”. I doubt they’ll insult my child as Kevin did. I doubt they’ll use faulty logic and irrelevant examples.

Thanks for the advice Kevin. Tell your bosses you’ve not only lost a customer, but also that hundreds of people now know why.

Wow.  I guess we’re helping hundreds more people hear about it.  There is value in this – we, as creators of products, and people with customers, can learn from this.

Lack Of Criticism Is Bad

Carnegie Mellon Professor Randy Pausch recently passed away, which you’ve probably all heard already.  And you’ve all seen the link to the inspiring 104 minute video of his last lecture.  If you haven’t watched it, you should.  You should also watch his commencement charge (speech), for an inspiring 6 minutes.  Btw, Professor Pausch’s legacy, alice.org, shows the power of focusing on problems, not implementing features or applying technology.  But that’s a topic for another article.  I think we should add product manager to his list of titles.

In his last lecture, Randy points out one of the lessons he learned about receiving criticism.  When you’re making mistakes and people are critical, you should embrace the feedback.  It is a sign that those people haven’t given up on you yet.  When you’re making mistakes and no one is telling you, that’s when you should worry.  That is when people have given up on you.  That is the last place you want to be.

And that’s where APC has ended up, at least with Saeed, thanks to Notorious’ comments.

Don’t let that be your company, when you are getting negative feedback from customers.

A Bucket With A Hole In It

When I took differential equations in college, we were given a problem that made the power of differential equations very obvious.  We were presented with a bucket, which we were filling with water.

• The bucket had a hole in the bottom, through which the water was constantly draining.
• We were constantly adding water at a fixed rate.
• The water drains out the hole faster when the water (in the bucket) is deeper – because the water pressure is higher.

The problem we had to solve: determine how full the bucket would be.  As it turns out (and no we won’t do the math here), the bucket maintains a fixed level of water in it.  The faster you pour water in, the higher the water level, but (within reason), you never overflow the bucket.  Because the higher the level of water in the bucket, the faster the water gushes out the hole in the bottom.  So it reaches an equilibrium point where the water is gushing out just as fast as we’re pouring it in.

I remember this problem mostly because my intuition was always to make the hole smaller, not to pour more water in the bucket, if I wanted to raise the level of water.  I felt like I was wasting a lot of water with “pour it in faster” and it would be better to make the bucket leak more slowly.

It turns out that if you have an established customer base, you’re losing customers just like that bucket is losing water.  And my intuition again says that you’ll reap more rewards by making that hole in the bucket smaller.

Customer Defections

Kristin Zhivago, author of the book, Rivers of Revenue and the Revenue Journal, recently posted an article, Gone!  The Reasons Customers Leave.  [ Thanks Gopal for the link, and your comments about the importance of "courtesy, professionalism, and respect" to keeping customers].  Even when you think your customers are happy, some of them are still flowing out through the hole in your bucket.

About 5% of all customers I call – who were believed to be satisfied – reveal to me during the interview that they are looking for a better vendor and are talking to competitors. This is the typical ratio for the companies that try to take care of their customers, companies run by the types of CEOs I work for. In companies where the CEO is not so nice, the ratio is higher.

Kristin Zhivago

Kristin has some great thoughts about how to make the hole smaller.

The best thing you can do when money gets tight is to look at your own customer base, and examine how your own customers are being treated. Find out – by interviewing customers and employees – who treats customers the worst, and fire them. Let everyone know that that kind of behavior will simply not be tolerated.

That will definitely make the hole smaller.  There’s more stuff in Kristin’s writings, including her latest article on proactive customer service, so go check it out.  While it is important to keep finding new customers, you should also prevent defections.  So an approach that involves both stopping destructive behavior, and introducing constructive behaviors makes the most sense.

Conclusion

Creating the right products (and creating them right) is not enough.  You also need to find new customers and keep current customers happy.  The services you provide (including stuff like call centers and customer service, not just “services” products) are also products.  They affect the success and satisfaction of your customers, and will impact your word of mouth.

*[I'm sure I have mangled somebody's great quote at the start of this article, but I can't find the source to attribute the quote.  If anyone knows, please comment below.  Might be bull horn, pulpit, or microphone instead of megaphone.  And I think it is a reference to journalism, maybe in Hearst's day?  If those clues help...]

A lot of people stand up a variation of “If you build it, he will come” (from Field of Dreams) as a copy-writing hook for whatever they are about to tell you about creating products/services/whatever.  We’re no better.  We’re going to tell you that there is a big difference between the people who buy your product and the people who use your product.

If you build what he thinks he wants, he will come.

Actually, we need two catchy quotes.

If you build what he actually needs, he will come back.

For good measure, let’s plug my recent article in The Pragmatic Marketer, Maximize Your Word of Mouth Marketing: Turning Users Into Fans with a gratuitous quote.

If you build it right, he’ll bring his friends.

These quotes (the first two) highlight the differences between buyer personas and user personas.

Personas Are Not Personas

It can be incredibly confusing to anyone not already entrenched in product management or marketing, to hear someone talk about personas.  The buyer persona is a very different person than a user persona.  Understanding one influences how you sell a product, understanding the other is key to getting insights about how people will use your product.  There’s a bit of a catch-22 here – you have to sell the product (even free products have to be “sold”) before anyone ever uses the product.  And if you sell someone a product they hate, you’re worse off than if you never made the sale.

If you want to “test out” of the rest of this article, here’s the crux:

• A buyer wants a product that has capabilities that match his mental model of what is required to solve valuable problems.
• A user needs a product that solves her valuable problems.

Peony Problem

You are part of a booming florist business that has a problem.  Your profitability is too low on the flowers you sell.

One of your store managers, Eunice, looks at what you pay for flowers (very little), and what you sell them for (a lot).  She also determines that overhead (rent, salaries, etc) costs are reasonable.  However, Eunice notices that you throw away half of the flowers you buy.

[Note: Check out our article on defining problems to see how and why to create an Ishikawa diagram like this one.]

Your company policy is to throw away flowers after you’ve had them for 2 days, because they wilt as soon as your customers get them home if you don’t.

Amaranth Analysis

Eunice also reviews orders and purchases of flowers – there’s no regularity in ordering.  The average number of flowers purchased every day is about the same, but the individual amounts vary wildly.  If you ordered fewer flowers, you would save on waste, but you would lose out on some sales, and risk damaging relationships with loyal customers.  She decides that the solution isn’t to just order fewer flowers (you need that inventory on hand), but to make the inventory last longer, so that you can have the same amount on hand, but order fewer flowers.  Eunice gets approval from the owner of the florist to purchase a walk-in cooler for storing the inventory, and then asks Fiona, the head of operations, to make it happen.

Brenda runs operations.  She handles accounting, and ordering of supplies, payroll, all the things that keep the business running.  She doesn’t know flowers, but she knows the flower business.  Brenda now has a problem – she needs to purchase a walk-in cooler.

Eunice is your user.

Brenda is your buyer.

This is the important distinction.  Eunice has a problem that is solved by using your product.  Brenda has a problem that is solved by purchasing your product.

Helping The User

If you’re a product manager, you already know how to help Eunice the user.  You define a user persona and her problems and goals.  You prioritize those problems, build a product roadmap, and make sure your software process benefits from the user persona you’ve defined.  Of course, don’t overdo your persona development.

But what do you do with a buyer persona?  If you apply product management first principles, you recognize that the buyer has a problem (Brenda needs to buy a solution for Eunice’s problem).  So, create a solution for that problem.  Marketing experts might not think about it that way, but that’s what they do.  They understand the perceptions in the minds of buyers, and design marketing campaigns – and influence product development – to make sure there is both a product and a campaign that addresses the buyer persona’s problems.

Helping The Buyer

Shaun Connolly sums up his approach with two quotes from a recent article:

For both proprietary and commercial open source software, the Product Manager needs to focus on creating a product that people will actually buy! Plain and simple.

For any new product offering, one of the first places I focus is on understanding and documenting the Buyer Personas. After all, how the heck are you going to create real value for customers if you don’t know who’s buying? User personas, while not the same, are also useful to understand.

Product Managers: Chief *Holes or Value Creators?, Shaun Connolly

Shaun is definitely stressing the importance of one side of our catch-22, getting that initial sale.  Note that Shaun also links to a good article by Gopal Shenoy, Build Products That Customers Will Buy…

OK, so what is a buyer persona?  Adele Revella has an entire blog dedicated to buyer personas (and an article devoted to answering the question “what is a buyer persona?”

Don’t Confuse The Buyers With The Users

Adele has a great article lambasting some marketing work that Microsoft has done for their CRM product – apparently posting videos of their buyer personas, and treating them as if they are user personas.  Adele is being gracious, I think, in suggesting that the mistake was merely in sharing the buyer personas externally, when they should be for internal use only.  I suspect that this team has mixed the concepts, since the “buyer persona” Adele uses as an example is describing her problems as a user.

In any case, it is disheartening to see anyone have (and share!) such a disparaging and condescending idea of who their users and/or buyers are.

When Your Buyers ARE Your Users?

David Meerman Scott just posted an article, How well do you know your buyer personas?, where he shines the spotlight on Kadient, a SaaS (software as a service) company.  Kadient helps sales people manage their sales collateral (RFPs, white papers, proposals, etc).  David’s article is the latest in his theme of the importance of focusing on buyer personas.  He and Kadient share a couple buyer persona examples for us.  As it turns out, the personas they shared happen to be both buyers and users.  There are probably also buyer-only personas that they could have picked, but this choice is great.  It acknowledges for us that your buyer can also be your user.

Considering that Adele’s article just warned us not to mix them up, consider this as a corrolary to the maxim – Don’t confuse buyers and users, except when they are the same person.

One of Kadient’s combination buyer + user personas is Anya.  Check out David’s article for the full details.  One thing David shares with us is Anya’s goals.  Remember from our example with Eunice and Brenda – Eunice (the user) has goals to solve problems with her work, and Brenda has the goal of solving Eunice’s problem.  With Anya, she has both user-goals and buyer-goals.

David’s example captures both, but it might be tricky to tease them apart.  As a buyer, Anya is trying to match a mental model of what will work.  As a user, she has specific objectives.  Here’s the goal section from Kadient’s persona:

Anya needs to bring in the numbers every quarter, to remain secure in her position at the top of the sales performance chart. To do this, she knows that if she can spend less time doing administrative duties and looking for information and creating materials for her buyers, she can work more opportunities and maximize her face-time with customers. The service offerings she sells change frequently, and she knows she needs to be armed with the latest, most accurate messaging and content.

Breaking it down into two goals, half-buyer and half-user:

• Buyer Goal: “she knows that if she can spend less time doing administrative duties and looking for information and creating materials for her buyers”
• User Goal: “she can work more opportunities and maximize her face-time with customers”

And

• Buyer Goal: “she knows she needs to be armed with the latest, most accurate messaging and content”
• User Goal: “The service offerings she sells change frequently”

This is a buyer persona example, and the buyer goals are explicit – “She knows..” is a clear indicator of her mental model of what she believes she needs to solve her problems.  That is the key information for properly marketing to Anya.

The user goals are not crisply defined, but support a statement from Anya’s “bio” – “Anya wants to ensure she always remains at the top of the team.”  One way she could do that is by maximizing face time with customers and working more opportunities (as a means to close more sales).  Anya also acknowledges a nuanced goal – her service offerings change frequently – and those changes presumably can negatively impact her ability to sell.  It is ok, for a buyer persona, that the user goals need a little more inference.  But that’s ok – the team at Kadient will be using this persona primarily to sell their services to Anya, not to design them.

Ideally, your buyer’s mental model of the needed solution will align well with the user’s problems.  That isn’t guaranteed, even when the buyer and the user are the same person.

Summary

• Buyer personas make purchases when products appear to address their internal view of what the problems are.
• User personas love products when those products solve the real problems.
• Don’t confuse buyers (who need to buy products to solve user problems) with users (who need to solve their own problems).
• When buyers and users are the same people, acknowledge the buyer-goals distinctly from the user-goals.

Microsoft has a product called Zune that is a competitor to the Apple iPod. They just recently announced their second release – the new version of the Zune. Since Apple already dominates that market, Microsoft qualifies as a follower – how are they approaching the introduction of a new product to compete with an 800 lb. gorilla?

The iPod Product Family

There are several different iPods in the market, each targeting a different subset of the mobile entertainment market. Apple has audio and video players with different form factors, designed for different usage patterns. Those different designs have resulted in a feature-based market segmentation. That isn’t really a good way to think about the market – you should think about how the devices are used, not how many songs they hold. Nonetheless, when measuring the market, people look at the features as a means to segment.

Microsoft’s Early Approach

The product manager for Zune gave an interview on Windows Weekly – a TWiT network podcast with Paul Thurrott – several months ago. The product manager mentioned that they were targeting the Zune to achieve 10% of the 30 GB audio player market. I may be mis-remembering the details, but at the time I thought it was an oddly narrow target. The product manager wouldn’t talk in much detail, understandably, about the upcoming features that were planned for the next Zune. In the interview, they discussed how quickly the Zune came out.

At the time, I thought “OK, we’ll see what they have for the next Zune,” and I moved on.

The New Zune

The second generation of the Zune was just released, with new models and features. I read a commentary somewhere that said you’ll recognize the pricing model, because it is the same as the iPod. The Zune has models that are competitively priced with the iPod Classic products.

Tom Merritt, on Buzz Out Loud, commented that he understands the Zune strategy – first, come out with a player that is not as good as an iPod – then in the next release, make it “just as good” as the iPod. The third release will be better than the iPod, and the fourth one will be an iPod killer. He argued that Microsoft used a similar approach with Internet Explorer. Tom’s comments caused me to remember the earlier interview with the Zune’s product manager.

A Good Strategy?

This may be an excellent strategy. The ultimate success of the Zune will probably be influenced more by Microsoft’s ability to market the product than the relative merits of the Zune when compared with the iPod – but we can still learn from it. Here’s a generalized recipe that can be extracted from what Microsoft has done. Keep in mind that this is a strategy for entering a red ocean market, already dominated by a market leader.

1. First, segment the market. Pick one segment, and deliver a product that has only the must have features for that segment. This is your first release
2. Second, improve the product, delivering enough more is better features, and some surprise and delight features – for that segment. Release again.
3. Third, differentiate your product, so that it is more desirable to that segment than your competitor. Release again.
4. Finally, start tackling additional market segments.

Segmenting

Segmenting the market makes a lot of sense – Microsoft doesn’t have to be all things to all people. They don’t have to match all of the features of the iPod. They only have to match the features that are relevant to that market segment. Enough to start to compete. And with incremental improvements, they can potentially take over that segment.

Iterative Development

Having a smaller target allows Microsoft to not only release a first-version of the Zune with fewer features, it allows them to release more quickly. They don’t (yet) have to worry about a portfolio strategy – they can target a single user segment, and focus on delighting them. With enough distinctive capabilities, they can potentially differentiate their product from the competition.

Here’s a fairly harsh (and valid) critique of the first generation Zune, in comparison with the iPod. What the article doesn’t do is look at the strategy we’ve defined – it evaluates revision 1 against the “end game”, and the Zune comes up short. That’s a risk of introducing an initial “not a winner” product. But how much money are you losing if you wait until you think you can win before releasing the first one? Don’t get caught in a blender, segment your market analysis.
Every situation is different – you have to balance perception versus early sales. Will a first-gen product hurt future sales if it isn’t “ready to win?” If so, then you shouldn’t release it. But if it is a winner for some, or at least a competitor, it may make sense. I don’t think Microsoft will have trouble overcoming a poor reputation for the first release of the Zune. I wasn’t paying attention at the time, but I’ve heard Tom Merritt and others allude to how “crappy” the first iPod was. Doesn’t seem to bother anyone now.

Moving Targets

Apple will certainly present a moving target in the iPod by adding new features or improving existing ones. Microsoft will have to either predict and match the new features – in an endless battle of keeping up with the Jones’, or they will have to introduce new features that cause Apple to respond. Apple has “first mover advantage” and dominates the market. But Microsoft has a “second mover advantage” – they are able to learn from Apple’s investments in earlier products too.

There are two examples of features that show both Apple and Microsoft trying to redefine the “must haves” for the market. Apple just released the iPod Touch – an iPod with a touch-screen interface. And the interface is indeed very slick (I played with one over the weekend). People (in the targeted market segments) might decide that this is a significant differentiator, or they might not. The jury is still out.

Microsoft introduced the ability to squirt a song from one Zune to another. This “social networking” element would ideally allow people to share music, temporarily, with other people – who would then buy the music for themselves. There was a painful joke that the only squirting that was happening was on the Microsoft campus in Redmond, because that was the only place you were likely to get close enough to another Zune owner to squirt anything. Aside for that, the songs were over-protected with DRM (digital rights management, aka copy protection). A squirted song could only be played three times, and had a limited shelf-life. Once either limit was reached, the song was deleted from the recipient’s Zune. With the new version of the Zune, the calendar-based shelf-life has been removed (although you are still limited to X plays of the song).

We’re looking forward to watching both products evolve in the battle. Consumers win when there’s competition like this – so for now, even as a happy iPod shuffle owner, I’m rooting for the underdog. Yes, there is irony in calling Microsoft an underdog.

Different Business Models

There may also be advantages for Microsoft in having a different business model for their music player. Apple has certainly benefited from the iPod to iTunes to Apple computer “closed platform” linkage. While iTunes is available for non-apple computers, there is an implied linkage, and analysts believe a causal relationship that drives Apple computer purchases by iPod owners.

Microsoft is probably just trying to be a player in a profitable market.If you want to look at market share analysis for the Zune and iPod, and for PCs and Macs, read this article, instead of relying on the hazy data above. Those guys are way better at it than we are, and there’s a lot of conflicting data out there – this article seems very credible.

Conclusion

This article really isn’t a prescriptive one, as much as it is an exposure of a strategy writ large – pick a segment of the market, release iteratively, and attempt to displace the 800 lb gorilla. We’ll see if it works.

It isn’t just about finding customers anymore. You have to build fans. Take a look at the dynamics of word of mouth marketing and how they can cause your product to succeed. This article includes tips and references for helping you move through each stage in the cycle of fans, maximizing opportunities for word of mouth marketing for your products.

Conclusion

This is one of our longer articles. Here’s the conclusion from the end of the article. Read on to find out why this stuff is true, and find a ton of great supporting references and links to some fantastic marketing blogs.

Word of mouth is critically important to the success of your product.

• Your product’s exposure comes from propagated reputation, aka word of mouth.
• Word of mouth comes from fans who are encouraged to share (even when all you have is the absence of discouragement).
• Users become fans when they are converted by the greatness of your product and your company.
• When your software is adopted by customers, they become users. As long as it is easy for them to get started.
• You get customers by sharing your message in a way that gets them interested.
• The whole process starts when your target audience is exposed to your message.

For those of you who want to read the whole thing – here it is.

The Cycle of Fans

Stacey Douglas turned us on with his article at Undocumented Features, The Adoption Cycle, where he points us to Geno’s article at Brains On Fire, Cycle of a Fan, the original source of the (larger version of the) diagram above.

The Church of the Customer picks up on Geno’s diagram, and identifies it as another view on the ideas in their articles on evangelism, where they represent a loyalty ladder that shows how customers become repeat customers, evangelists, and ultimately owners.

They also identify a great article by David Armano, where he classifies people as being users, customers, audiences, etc. David uses this classification to clarify and define market segments, in order to better communicate an understanding to stakeholders, etc. He makes the point that labeling should not subvert user-centric design (which should be built with personas). The style of David’s visualization of labels may have inspired the look of Geno’s diagram, which introduces the concept of the evolution of the fan as a recurring cycle.

The Evolution of the Fan

Stacey provides a couple real-world examples, and Geno describes the lifecycle of a person as they are initially introduced to a product, become customers, and ultimately propagate their positive experiences through word-of-mouth. And Geno describes it as a circle, which captures the message effectively that the additional introductions that you get from word-of-mouth kick off more cycles for more people, who tell more people, etc. If your product can effectively move all the way around the circle, this is a cycle of growth.

The Other Side of the Coin

Jennifer Laycock extends Geno’s idea, and focuses on the social-networking elements of evangelism. She made me laugh with this quote: “social media is mostly just word of mouth on crack.” Steroids might fit better than crack, but her message is more memorable. Remember – memorable is better than pedantic when it comes to marketing. Jennifer also wakes us up with the shocking realization that this positive cycle could just as easily be a negative one – and coins it as the Cycle of the Detractor.

The Funnel

Business analysts often use the funnel as a metaphor for the sales pipeline. The top of the funnel represents unqualified potential sales, and as you move through the sales process, you also move down the funnel – with fewer sales at each stage. Qualification reduces the number of potential sales. Initial contact only happens with a subset of qualified customers. Only some of them are interested, some of those people engage in the sales process, and only some of those ultimately purchase. This is simplified a little, read a more detailed explanation here.

We can use the same metaphor when thinking about the cycle of fans and word of mouth marketing.

Exposed and Interested

Your marketing efforts will expose people to your product. The better you distribute your message, the more people will be exposed to product. Think about all of the dot-bomb companies that bought super bowl ads in 2001. Lots of exposure. However, the funnel narrows immediately to only those people who are interested in your product.

This is where targeted marketing makes a difference. How many people who saw ads for an online wedding registry site during the super bowl were actually interested? There is a massive drop-off from exposed to interested people if your product isn’t exposed to people who are likely to be interested. David Meerman Scott writes a great blog, Web Ink Now, that provides tons of great guidance for marketers, like this and this.

This is also where good marketing copy makes a difference. You have a target audience of people likely to be interested in your product, and willing to listen to your message. But you have a lousy message. Your pipeline will still drop off dramatically. Seth Godin writes a lot about getting people’s attention. He uses a purple cow as a metaphor. How many people slow down when driving by a field of cows to look at one of them? What if that cow were purple? More people would slow down.

Brian Clark writes Copyblogger, also providing fantastic insights into how to get people to listen and purchase.
OK, now that your overt marketing is complete, you have customers.

Turning Users Into Fans

Once you get purchases, you get users. At least for a few seconds. You have to make sure that your software is usable. And that means that it is usable for new users – the first ones to drop out of the funnel. How many times have you downloaded a trial version of software, installed and launched it, and been almost offended by the inadequacy of the product? You probably already validated that the software had the capabilities you needed, or the features you thought you needed. So what turned you off? The product was unusable.

The funnel narrows. And you lose some users of your product.

You have to make a product that is initially usable. And you need to understand the learning curve that your users must climb to become proficient at using the software. With this understanding, you can help your users transition from newbie to expert (or at least competent) user.

Most of your users will be competent. Users don’t spend very long being new. They quickly want to walk across the bridge, in hopes of doing more. But only a very small percentage will invest the time and energy to make it all the way across the bridge and become experts. Most users will reach a level of competence and stay there.

If you don’t design features for those competent users, they will be in the canyon of pain, instead of enjoying the view from the bridge of competence.

User Centered Design and Bridging the Canyon of Pain

So now competent users have adopted your product. The funnel has narrowed some more.

How do you get your users to become converted? You need to delight your customers. Part of this is achieved through prioritization, some delight comes from product design, and part of it is achieved through customer service. Make these folks happy, and they’ll start recommending your product. And don’t forget the expert users – even though they are fewer in number, they tend to be more active vectors of good and bad product reviews.

Encourage Sharing and it Propogates

Encourage people to talk about your product. Give it away for free, like Seth and David and many others. When I like something that is free, I will tell more people about it than when I like something that costs $100. This low barrier to exposure will get the word out that you have good stuff. And some of those people will come calling for the stuff that makes money for you. Some people will share the message because they want to, regardless of what you do. Other people just need a nudge. Those people should be encouraged.

With the internet, it is very easy for people to informally share their opinions with many more people than before. This effect is usually referred to as being viral because word spreads so quickly and somewhat unpredictably. People make comments in forums, write articles for blogs, and otherwise promote your product – it is more than just a casual conversation with a handful of friends.

And when the message gets out, it gets propogated. And that just feeds back into your funnel. Or maybe you want to treat them as a bunch of second-order funnels. I don’t know that one is better than the other.

Conclusion

Word of mouth is critically important to the success of your product.

• Your product’s exposure comes from propagated reputation, aka word of mouth.
• Word of mouth comes from fans who are encouraged to share (even when all you have is the absence of discouragement).
• Users become fans when they are converted by the greatness of your product and your company.
• When your software is adopted by customers, they become users. As long as it is easy for them to get started.
• You get customers by sharing your message in a way that gets them interested.
• The whole process starts when your target audience is exposed to your message.

The cycle of fans rings true, but to really take advantage of it, you need to think about what you do at each stage. You have a great product, so focus on the message. Or vice versa. You can make many smart moves along the way that have a compounded affect on your word of mouth marketing. And you’ll improve the power of your funnel.

Pragmatic Marketing runs an annual survey of product managers. We looked at 440 results from the 2006 Product Manager Survey to uncover the trends in how different product manager roles are defined. The survey involved questions breaking down the allocation of time to different activities. In this article we look at how those activities varied for product managers, product marketing managers, segment / market managers, and technical product managers.

Previous Analyses

For most people, the first thing they want to do is understand product manager compensation data. That article included an analysis of gender bias in product manager compensation. We quickly followed with another article that provided details on product manager compensation versus company size. In response to reader questions, we took a look at product manager staffing levels. In that article, we tried to determine how many product managers to have for X products.

Now that we know how many product managers to hire, what should we have them do?

Product Manager Role Details

The role of a product manager is strategic. There are six areas of activity that are critical to product management.

The six areas

1. Market Research
2. Product Definition and Design
3. Project Management
4. Evangelize the Product
5. Product Marketing
6. Product Life Cycle Management

Product Manager Role Definition

Within those six areas are a number of activities, and respondents to Pragmatic Marketing’s survey provided a lot of data about what they do on a weekly basis. The survey asked product managers how much time they spent on each of seventeen different activities.

Pragmatic’s Activity List

Each respondent was asked if they spent less than an hour, less than half a day, a full day, or more than a day on each of the following product management activities:

1. Researching Market Needs
2. Preparing Business Case
3. Writing Product Requirements
4. Writing Detailed Specifications
5. Monitoring Development Projects
6. Writing Copy for Promotional Material
7. Approving Promotional Material
8. Creating Sales Presentations and Demos
9. Training Sales People
10. Going on Sales Calls
11. Visiting Sites (Without Sales People)
12. Performing Win/Loss Analysis
13. Planning and Managing Marketing Programs
14. Measuring Marketing Programs
15. Work with Press or Analysts
16. Creating Original Content For Customers
17. Creating Original Content For Employees

Survey Results By Activity

Here’s the breakdown of time spent by activity for all survey respondents.

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Each activity has a row in the table. To read the table, each column represents the amount of time spent on the activity. The headings represent the exact text presented in the survey. From left to right, the columns represent

• The name of the activity as described in the survey
• “Under an hour” spent per week
• “Under a half a day” spent per week
• “A full day” spent per week
• “More than a day” spent per week

The numbers in each cell are the number of respondents that selected that level of effort for each activity. When a cell represents more than 25% of the respondents, the text is colored red and marked in italics.

For each activity, the level of effort that had the greatest number of respondents is also bold with a gold background.

The results show a fairly even distribution of activities in each product manager’s week. The areas that received concentrated attention were

• Researching Market Needs
• Writing Product Requirements
• Monitoring Development Projects
• Creating Sales Presentations and Demos

Very consistent with the elevator pitch (30 seconds or less) description of what a product manager does. And all but the last one (sales-support) are identified as strategic activities. More than half of the respondents spent a day or more monitoring development activities, though. That seems a little high. Perhaps a more detailed analysis of the data will shed some light.The survey data asked people to describe their titles too. Next we evaluated the levels of effort by title.

Product Management Titles

The survey results included data from people who identified their titles as being most like one of the following:

1. Product Manager
2. Product Marketing Manager
3. Segment/Industry/Market Manager
4. Technical Product Manager

Here are the same tables, but filtered to include only the responses by title.

Product Manager

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The data for respondents with the title Product Manager is very consistent with the overall group data.

Product Marketing Manager

Product marketing managers have a very clear focus on sales and marketing support. They spend as little time as possible monitoring development activities. They also don’t appear to be sacrificing a subset of the marketing activities – their effort appears to be relatively evenly distributed.
[larger image]

Segment / Industry / Market Manager

[larger image]

There were very few product-line manager responses in the data, but the areas of distinction are that they spend more time on preparing business cases and approving promotional material. They also spent far more time planning and managing marketing programs. This is good – these are the activities best leveraged across products.

Technical Product Manager

[larger image]

Technical product managers spend much more time on inbound activities like monitoring the development team. They also are more heavily involved in writing detailed specifications. They still have healthy levels of market research and writing requirements. And they minimize the time they spend on outbound activities like sales and marketing support.

Conclusion

The levels of effort are generally reasonably well distributed across the many activities identified in the survey. Further, the roles that have distinct focus (inbound, outbound, multi-product) spend their time appropriately.

Marketing is as foreign to most software developers as flying is to fish. We’ve found a list of ten truths of marketing, and we’re secretly sharing them with the developers who hang out here. Shhh. Don’t tell anyone in marketing.

Marketing 101

John Dodds wrote Marketing 101 For Geeks, where he shares 10 observations about marketing that might make sense to geeks and coders.

Here’s John’s list with our comments:

1. Marketing is not a department. A great way to segue into the conversation – as an engineer, the first visual I always have of a marketing department is the one from Dilbert (Scott Adams draws marketing people as if they are at a perpetual cocktail party).
2. Marketing is a conversation.* This is hard for developers. Conversation requires two-way communication. That’s a truth. But good marketing pre-empts questions and answers them. Imagine the reader having a conversation with your copy (marketing materials): “I wonder what this is?” “oh.” “I wonder how we could use that?” “oh. cool.” “where can I get it?”
3. Simplicity does not negate complexity. A clear, easy to understand message is what coders might call “incomplete,” “over-simplifying,” or “simplicistic.” The secret that marketers keep to themselves is that this clear message is what opens the door – making it possible for customers to (eventually) understand and appreciate the power of a product that might be described with greater complexity.
4. Think what? not how?. As cool as it might be that your search engine uses a trie data structure, what potential customers care about is the fact that you can search a billion documents in a tenth of a second. This secret seems to be the reverse of a simple definition of geek – “someone who cares about how it works more than what it does.”
5. Think will not can. Featuritis is the condition of having too many features. Even the swiss army knife eventually became too large to slip in your pocket. We have to focus on what users need to do, and not everything that could possibly be done.
6. Only you RTFM. Think about the obvious ways to use a product. Intuititive user interfaces have affordances. They don’t require people to read the manual. And the manual should be written to help people accomplish their goals- not as a description of the functionality.
7. Technical support is marketing. Every touch-point with a customer is a marketing opportunity. Remember, we market not just by purchasing ads and putting up booths at conventions. We market by word of mouth.
8. You’re not marketing to people who hate marketing. Remember the disdain you had when you started reading this list? Well, we’re not marketing to people who hate marketers. People want to know how to solve their own problems. They want to know how they can use our products to help. And they like the people who tell them.
9. You’re not marketing to people who hate technology products. The people who get our message are the ones who are technology-agnostic (see #4 above). They neither love nor hate the product. But they love solutions.
10. Marketing Demystifies. Remember the conversation from #2? As the conversation progresses, we enlighten our customers, and eventualy they develop an understanding of what they can do with our product. And from this, they develop a desire to buy our product.

*John’s original point #2 was really an anti-jargon point. We thought the conversational part of his point should be stressed instead.

Conclusion

Don’t let them know, but we’re on our way to understanding how this stuff works.

There are three main models for selling software. You can hire a direct sales force. You can spend a lot on marketing and advertising. You can let your users sell the software for you, a technique commonly known as viral marketing. There’s a catch with viral marketing – users have to like your software.

Viral Marketing

We wrote an article in 2005, Ideavirus – Marketing By Word of Mouth, where we talked about a presentation by Seth Godin.

Some really key points he makes -

• The idea vectors from user to user (slide 29)
• The more you give your idea away for free, the more valuable it is (slides 32-33)
• Build the mindshare first, then monetize. “get cash now!” cripples the spread of your virus (slides 36-40)
• Seth gave his book away instead of selling it – 200,000 downloads the first two weeks (slide 55).

Seth may be the authority on viral marketing today. When he combines his work with Malcolm Gladwell, we get a great extension of the idea virus concept:

Seth Godin spells out the virus analogy. Someone uses a product or service and raves about it to his friends and associates. This is called sneezing. Some people only sneeze occasionally. Some people sneeze all the time. Some sneeze quietly, some loudly. Some sneeze to a small crowd and some sneeze to a huge gathering.

Karl Palachuk

Its the sneezers that spread the virus. But what makes people want to share?

Compelled To Share

People want to share the virus when they love the product. Gladwell talks (I think in The Tipping Point, but I don’t have it in front of me right now) about how some people are predisposed to sneezing. They will tell us all, good or bad, about the products that generate enough emotion for them to feel compelled to spread the word.

This sounds pretty scary – customers telling everyone about our product. What if our product sucks?

BazaarVoice, a company in Austin, issued a press release a while ago – “Positive Online Reviews Outweigh Negative Reviews 8 To 1.”

Analysis across a diverse set of products and services indicates that positive reviews outweigh negative reviews 8 to 1, with an average rating of 4.3 out of 5 stars across all live Bazaarvoice clients.

[...]

“We are seeing a ‘Rating J-Curve’ across many clients in diverse industries,” said Sam Decker, vice president of marketing and products at Bazaarvoice. “The distribution looks like a J on a graph, where you see a low volume of 1 star reviews, fewer 2 and 3-star reviews, and a huge jump in 4 and 5-star ratings. While surprising at first, this finding agrees with third-party studies that suggest word of mouth is much more positive than we often assume.”

Sam Decker (Who also has a great blog)

If you’re still gun-shy, even though we know the odds are in our favor, there are ways to make our software not suck.

• Getting Past The Suck Threshold – Understanding the Suck-Threshold
• Goal Driven Documentation – Helping Users Cross The Threshold
• Goldilocks and the Three Products – Manipulating The Suck Threshold

Comprehension Through Contrast

There’s a great visual in an article at 37signals titled In-store good or at-home good? that puts this all in perspective, when compared to traditional marketing approaches. The article sites an analysis from the Harvard Business Review.

They contrast the imact that the number of features has on two different personas. The buying persona, and the using persona.

• The buying persona perceives more value (at the time of sale) from having more features.
• The using persona experiences more value (over time) from having fewer features.

This is the basic premise of the more is less argument. We can step back and generalize this a bit.

Software that is more usable grows in value to users over time

Usability Sells Software

The buying persona is the target for marketing and advertising. She is also the person that a direct sales force tries to convince to buy our products. That’s why marketing is always asking for more features. They want products that appear to be more valuable, because perception sells.

But buyers aren’t sneezers. Rarely does a friend call and say “I just bought this, and I haven’t used it much, but you have to get one!”

The idea virus is vectored by users. And users grow to like the product more and more over time. And the usability of the product has a major influence over how well they like the product. The more usable it is, the more word of mouth marketing we get.

Mike Mace provides us with some great insight about market research – helping us to avoid ‘the gap’ and ‘the blender’. The gap is a reflection of the inability of most customers to innovate. The blender is the loss of useful market information into a homogenized input that pushes only the lowest common denominator – again stifling innovation. We have to avoid the blender and the gap to get useful data from our research.

We know we need to base our product decisions on data, not opinion. How do we avoid the common pitfalls of misinterpreting the data.

The Gap

The gap, simply put, is the possibility gap between a customer’s perspective on what is and a product vision of what could be. Mike argues that customers are so focused on what is wrong with their product that they will respond with only incremental improvement suggestions. We won’t find innovative new ideas by asking customers what they don’t like about their current products. As a curmudgeon giving directions would say, “You can’t get there from here.”

The Blender

When surveying a large group of people, such as all customers in the market for our product, the feedback that we will see is that the items that get the greatest response are the items that get a response from the most people. The counter-intuitive notion is that these may be the least valuable features or capabilities. These only represent those things that are at least mildly beneficial to the most people – a lowest common denominator.

Mike points to the fact that the most successful products aren’t the ones that have bland, somewhat useful, wide spread appeal. They are the products that are loved by a minority. He uses the Blackberry and Treo as great examples – the vast majority of cell phone users have no interest in the features they provide. The minority that cares about email love both products – and both products succeed remarkably.

Avoiding The Blender

To avoid the blender-phenomenon, we need to get a more precise classification of the audiences in our target markets. Market segmentation is what we need to do. Mike points out that this is generally applied, and easy to do, when discussing existing markets. The SUV buyers, for example, were not a segment until after someone bought an SUV. The luxury SUV buyers weren’t a segment until someone bought a luxury SUV. So how do we define segments before segments exist?
Personas

By focusing on the creation of personas, we identify the personal goals that would provide useful segementation for a new market. When reading Mike’s list of three groups of cell-phone users, we can see how persona identification would have led us to a similar conclusion (emphasis mine).

When you do that with advanced phone buyers, three groups emerge. One group gives high ratings to all communication-related features — e-mail, instant messaging, built-in fax, etc. Basically, they’re communication junkies, and they’ll pay extra for a communication-enhanced phone. These are the people buying RIM Blackberries and Palm Treos today.

The second group gives high ratings to information-related features — large memory, document display, databases, etc. These are people in information-intense jobs who need a mobile memory supplement. Think of a doctor looking up drug dosage information on the go, or a lawyer trying to find a case reference in court.

The third group responds best to entertainment-related features: music, video, games, and other ways to have fun. These entertainment-focused users tend to be younger than the others, and don’t want to give up their electronic lifestyle even as they enter the job market.

Thanks Mike, for a great article!

Conclusion

There is an interesting point in this analysis – that for a product to succeed, it does not need to be perfect for everyone, it only needs to address the needs of a subset of people in the market. Several people have written that for a product to really succeed, it must be both hated and loved. We can interpret this to mean that a product targets one segment of the market (who loves it) to the exclusion of another segment (who hates it). Most people hate minivans, but the people who love them really love them. A persona-based approach to segmenting the market will help us identify these collections of like-minded individuals.

Web Ink Now has a great article and analysis of the gobbledegook that passes for marketing messages. They’ve done an analysis of over 50,000 articles during the first nine months of 2006. Not only have they identified many of the most ridiculous terms, they’ve ranked them (or stack-ranked them, as a former employer would say) based on frequency.

The Goal of a Marketing Message

A nebulous goal that leads to inaction is “find customers” or “sell product.” That may be the high level goal of marketing, but it is no more useful than using the goal “Make more profit” would be in defining a software product.

Shotgun Approach

Using platitudes like cutting edge and user-friendly is like shooting at a distance with a shotgun. Maybe, just maybe, you’ll hit someone – but you’re kidding yourself if you think it was anything but luck. The gobbledegook that David Meerman Scott at Web Ink Now identifies is the worst kind of trite meaningless jargon. Finding customers is about persuasion, and requires us to target individuals with a sniper rifle (prolonging the firearm metaphore).

Sniper Rifle

A marketing message should be a targeted communication, with a specific persona or audience in mind. Learn from David and Seth and the host of other people who know this stuff a lot better than we do!

Enjoyable Read

In addition to the great article, there is some serious data eye candy in the graph of the top twenty trite terms. The top three:

1. Next generation
2. Flexible
3. robust

Go to David’s article to see the rest of them.

Jeremiah Owyang, a Silicon Valley Community Manager writes about the difference between product managers and product marketing managers.

I typically view that Product Marketing Managers are ‘outbound’ and are responsible aligning the product with the market/customer. The could/should deliver the requirements to the Product Manager who will build the requirements into the development or engineering cycle.

Jeremiah Owyang

A good discussion thread has started on the post too, including a link to pragmatic marketing’s survey results on breakdown of responsibilities. Jump on over to Jeremiah’s post and join in the discussion (or post here, of course). From the survey results, it seems that both product managers (PM) and product marketing managers (PMM) commonly have product strategy responsibilities as their primary focus. Technical product management falls to the PM, while marketing and sales support fall to the PMM.

This data supports the perspective that PMM is more outbound while PM is more inbound.

Jeremiah makes a good point that with startups and small companies, specialization is an expensive luxury. In a technology or software startup, the founders often set product strategy – at least initially. I think that making the distinction between PM and PMM in a small company is pretty irrelevant. Regardless of title, both sets of responsibilities will fall on the same person. As the company grows, the opportunity for specialization becomes realistic.

Perhaps the best argument for dividing responsibilities based on an inbound/outbound focus is to support future recruiting. While there is a lot of variation in the industry – that does seem to be the most common differentiator. And it is certainly the easiest to explain to recruiters (as a candidate or as a company).

More of this meme:

• brainmates’ recent interview with PM Cristine Prufer
• Our earlier article on how reporting hierarchies drive task-prioritization for PMs
• Michael Shrivathsan defines the product management role
• Ken Norton tells us how to hire a product manager – and by inference implies a role definition

More great stuff from Kathy Sierra at Creating Passionate Users. Kathy contrasts the traditional budget-busting marketing promotion approach (one of the classic 4Ps) with a nickel-and-dime approach to inspiring and educating users and customers. We’ve talked about the importance of persuasion in the new Ps. Kathy’s stuff resonates as always.

Traditional Promotion vs. Inspiration (Persuation)

Kathy lists several promotion activities from the old school ideas they teach in marketing degree courses and contrasts them with low-cost ideas designed to inspire users, and thereby inspire people to purchase our products or purchase more of our products – because they want to be inspired too. A couple of our favorites:

• Showcase product features vs. Showcase user accomplishments
• Promotional contests vs. User awards
• Keeping the barrier to entry high, vs. Freely sharing information, knowledge, tips and tricks

Marketing by Teaching

The main message here is that to teach well, we have to be inspired. And inspiration leads to better products. Teaching users how to use our better products helps them cross the suck threshold, and makes them happy. And happy to use our products. The happier they are, the more passionate they become (the theme of Kathy’s writing). Passionate about our products.

While in the past, those who out-spent (on ads, and big promotions) would often win, that’s becoming less and less true today for a lot of things–especially the things designed for a younger, more-likely-to-be-online user community.

Kathy’s education post includes a dozen links that let you drill down into different elements of her area of expertise.