The book Winners take all is a collection of interesting insights into how companies in the high tech sector succeed and fail. The book was written in 2006 (pre-iPhone era) so it’s interesting to see how some companies mentioned by the author (notably, Apple and Google) succeeded and how some others (notably, Symantec and Nokia) are struggling.

Winners take all

Rules

  1. Feel the (customer’s) pain. Then develop the product Focus on painkillers and not vitamins. Focus on getting regular feedback from customers. Craigslist founder Craig Newmark use to visit forums regularly and take feedback from users. Alphasmart (maker of educational PCs) focused heavily on taking feedback from the teachers.
  2. Focus, win, grow, repeat“Hedging is expensive and dilutes commitment” - Andy Groves The strategic focus is important since most high tech world is about winner takes all, not being the market leader can be suicidal. Symantec had several PC tool products in the market, the new CEO John W. Thompson cut down all to focus solely on Internet security, it acquired tech wherever needed and even sold profitable but distracting products like Visual Cafe to have a better strategic focus. Microsoft focused on one competitor at a time and won several times (defeated WordPerfect, Lotus, Borland and then Netscape, eventually lost to Intuit in personal finance though). Borland was focused on developer tools but destroyed itself by distracting itself into products like Sidekick (personal information manager), Quattro (spreadsheet software) and moving its main engineers from one project to another. Bad acquisitions like Aston-Tate and renaming company to Inprise only created more chaos. The company pretty much killed itself before regaining focus (and the original name) in 2004. Yahoo destroyed itself by not preserving its core (search) while expanding to media branding. Excite (#2 search engine after Yahoo in 1998) killed itself by acquiring ISP At-home. TI (Texas Instruments) lost microprocessor market to Intel and Motorola but focused heavily on DSP after that The ideal strategy is to focus on one product/market/competitor, build strength, become the market leader and then expand to adjacent markets/products in a similar fashion.
  3. Add value not features Features- what companies add to a product Values - what customers really want Sometimes these are not aligned with each other. “On average, only 7% of software functionality that was paid for is actually used” - Gartner. Aim for a market big enough to create business and small enough to dominate. SGI kept focusing on adding more power (feature) to its graphics design software (product) while customers found value in buying personal computers instead. Eventually, killing SGI. Detroit ( Ford, GM, Daimler-Chrysler) kept building more powerful(feature) cars while customers wanted fuel efficiency and safety (value). Swatch focused on simple, mechanical watches which customers valued (instead of digital watches with calculators and time of different cities in the world). Intel for a long time was focused on most powerful processors but realized that customers value other things (like wireless connectivity) and is refocusing on providing that value. Starmine (financial analysis software) added a new feature Smart Estimate which estimated stock price before earnings came out, the estimate was graphical - beautiful but useless for customers (quants), so, it re-engineered it to output the number instead. Before adding new features, Starmine goes to its high usage customers asking whether the feature is going to add value or not. Texas Instruments created value by first asking Nokia and then building low power DSP chips which Nokia phones used. Microsoft office assistant feature added negative value to the product.
  4. Have a story. Communicate it clearly Story creation happens in three stages - creation, struggle to achieve the goal and final success (Aristotle’s storytelling style). A company must craft a simple message. Skype - “free internet telephony which just works.” AT&T - “your world delivered.” (short but meaningless and hence not effective) Applied Bioscience - “See more genes. Use fewer samples” (rather than the more technical “Expression Array System”). The product must be positioned relative to something (existing market, process, competitor, as a niche player or as a leader). Sybase positioned itself as “unwired enterprise” (focusing on the mobile market). Intel positioned Centrino relative to its Pentium (since AMD was too far behind them to pitch as a competitor). It’s important to have useful names since names like Inprise, Enterasys just don’t remind of what they do. Name of the company can be based on the founder’s name (Linux, Dell, CraigsList, Norton, HP, Seibel), a functional name (NetFlix, SalesForce, XM Satellite Radio), evocative (Oracle, Visa, YouTube), zeitgeist - related to ongoing culture (Friendster - build on the word Napster) or acronyms (In the author’s opinion, acronyms like RSA, MP3 are much better than names like Inprise and Enterasys).
  5. It’s a risky world. Sell confidence User of a new product takes a lot of risks, especially, if s/he is introducing it to its enterprise, the risks are financial (what if the product fails?), technology (what if technology is outdated?), standards risk (what if this does not become the winning standard? as Blu-ray lost), execution risk (what if the seller fails in execution?), company risk (what if seller disappears? like Pandesic, an Intel-SAP joint venture disappeared), legal risk (will product comply with regulations?), PR risk (Benetton had a bad PR due to adding RFID tags to its products). Given these risks, its important to sell confidence, some popular ways of doing that is to have third-party product testing, getting (current) customers’ testimonials, gaining endorsement from opinion leaders, serving “tough” customers, giving financial product guarantees like money back or free trial, being standard-agnostic, having experts in technology in the company and most importantly, being a leader in the space.
  6. Convert Champions not deals LinkedIn succeeded by finding its value proposition (recruiter will join LinkedIn if potential candidates are there, they will join if startup founders are there, they will join if VCs are there, so they targeted VCs, it tried to create value of VCs by providing it a platform for diligence of potential investments, they ended up being the champion of the platform). The idea is to focus on finding champions, who could be industry analysts, bloggers, experts or industry leaders, once they vouch for your company, the chance of success increases significantly.
  7. Choose the right partners. Manage them with Clarity. F5 networks (application delivery network products for making Internet-based applications faster) was struggling in 2001 but made huge success by building good alliances. The idea behind the partnership is to develop interdependence where both companies benefit. BodyMedia (maker of wearable technologies) partnered with Roche Diagnostics and Apex Fitness group and reach customers of these companies. Partnership could be to create a whole product (by combining different products from the partners), to make a joint venture to enter a new market, to gain market share (works only if cost of switching is low, HP and Compaq joined hands but still lost to Dell in the PC market since the cost of switching is low), to protect the competitive position (In 2005, Google bought 5% of AOL for $ 1B to ensure that AOL uses Google search). Success to a good partnership is clarity of relationship, goals, communication mechanisms, IP rights, terms of commitment and management structure.
  8. Design products and services that are easy to adopt. Skype vs Vonage - Cost of trying Skype was low, just download, install and use. Cost of trying Vonage was high since it required a complete replacement of existing telephone hardware. For a long time, Vonage failed to acknowledge Skype as a competitor since they belonged to different categories. Competition does not always stem from the same category (eg. Kodak was decimated by digital camera companies not analog). Apple launched iPod pretty late in the market (there were many mp3 players at that time) but won the market by providing a whole product where downloading-and-installing music from the internet was easy, other players only focused on the hardware ignoring the software part. XM Satellite Radio was far superior to radios but National Association of Broadcasters lobbied for rules which made XM Satellite radio expensive to operate (free radio spectrum for radios as well as no requirement for paying a royalty to performers - both denied to Satellite radio). Segway could have succeeded but failed miserably due to laws banning its use on pedestrian walkways. The book mentions the adoptability matrix which is useful for evaluating the product before building it.
  9. You are doing well. Congratulations. Now change or die Apple reinvented itself by focusing on music. MicroPro (largest software company in 1984, maker of WordStar) killed itself by ignoring competition from Word Perfect. Ashton-Tate was largest Database seller in 1986 but became bloated and eventually sold to (mismanaged) Borland. DEC was focused on minicomputers and eventually lost to PCs. Out of the top 10 PC software companies, Microsoft is the only one which exists today. Kodak lost it to the arrival of digital cameras while Canon kept itself alive by changing its strategy. IBM lost its edge in the PC industry and came back with a focus on services. Changes are painful, the reaction to change is usually denial, bargain, anger, despair and acceptance (in the order). The author recommends that companies should look beyond their categories for competitors (Microsoft denied Internet and Netscape initially), keep an eye on new business models (SaaS-based Salesforce killed Siebel), watch for convergence (broadband + NetFlix killed BlockBuster), evolution of value chain (shifted from PC makers to OS to Internet).

All in all its a great read.