When do you update a mature product? When it is more profitable to update it than to let it ride. This question was recently asked at Ask a Good Product Manager, and we have our own take on the answer.
The Question
At Ask a Good Product Manager, the following question was posed:
Question: How do you decide to release a new version of a product?
My question is specific to products used by almost everyone in the world — products like Windows, MS-Word, Adobe Reader. For such products, how does product manager decide for the next release of such products?
Notice that these products are already at a level that almost everyone using it is more-or-less satisfied with them. For example: Having released Microsoft Office 2003, how would the product manager decide that we need Microsoft Office 2007?
For the record, we are fans of both Nick (who answered) and Jeff who started the site. A good product manager would check out all of the good questions and answers there. We just have a different approach than the answer that was given.
The Bottom Line
The bottom line, as they say, is the bottom line. So that’s where we start.
You release a new version of a mature product when it is more profitable than not releasing a new version.
It’s all about ROI (return on investment). Just as you use ROI to prioritize which features go in a release, you should use ROI to determine when to release, and if there should be a release at all. You can identify problems that are being experienced in your market or a new-to-your-product market segment. You have to determine how much incremental revenue your company will get through sales, directly as a result of solving those problems. This sales number is relative to the sales you would get if you did nothing.
You also have to figure out the cost of implementing (define requirements, design, develop, test, deploy, train) solutions to these problems. Note that you won’t include the costs that you would otherwise incur (support, maintenance, etc). Those are sunk costs, and you will have them no matter what you choose to do. These are your incremental costs of doing the new release.
If your incremental revenue exceeds your incremental costs, then there is a positive ROI associated with putting out a new release. That alone is not enough to green-light the project. You have to consider the opportunity costs. You could very well invest in something completely different, and make even more money. Wouldn’t you rather do that? So your ROI needs to exceed your hurdle rate, which reflects the opportunity cost of doing something else.
To sum up, your return on a new release needs to exceed your hurdle rate. The return is a function of incremental revenue and incremental cost.
Nick offers some good advice in his answer about not building a product that is too complex, making sure you understand your users, and the possibility of removing features in a new release. But all of those tactics are in support of the strategy: make more money. [Note: a charitable organization might use ‘do more good’ as an alternate to financial utility measurement.]
