Version 4/17/06
Support Material: Hackers, Hits and Chats
Keyterms: alpha and beta; average cost; bug; diffusion process; learning curve; lock-in; marginal cost; marketing mix; news reader; patch; podcasting; rss; word of mouth

Product Development

This section explores the new product development process, and is an extension of the product material.

New Product Development Process

A typical new product development process would be managed under a command and control structure by the company developing the new product. The internet is enabling businesses to engage new product development in different ways, which includes engaging customers in the process and reaching out to other businesses who depend on the success of the product for their own product development process (note, for digital products there are many examples of co-dependancies of one company's product suite and other companys' products).

Engaging other related businesses: Examples of the latter include how a company like Microsoft engages its developer community with its new product development process (Channel Nine and its myriad bloggers are examples). It is important for a company like Microsoft to not only develop products that are well received by OEMs and final consumers, but also those companies which will design products that work with the Microsoft product suite. Having a strong developer community will extend the utility of the Microsoft platform.

Engaging customers: The co-creation process with final customers manifests in many ways. We have discussed the open source concept as one example of engaging developers in the process of creation. There are also many examples of proprietary, non-software products being created in this fashion, thanks to the availability of the internet for communications. Companies are recognizing that the collective knowledge of their customers includes valuable insights into the development of new products. Beoing's World Design Team and Jones Soda illustrate two examples. The former engages customers' feedback into the design process. The latter provides customers some sense of ownership in the creative process of packaging and labeling. Both examples rely on a small, but passionate, segment of their audience, that are so invested in the product they are willing to spend time helping 'create' the product (Cherkoff: lead customers).

Will Wright Presents Spore... and a New Way to Think About Games

Digital products are now increasingly launched in alpha and beta forms to get quick feedback from customers which can then be used to further develop the product. For web-based products this essentially means incorporating the feedback from users directly into the web-site to improve the user experience. For software this means releasing patches to the user-base to include bug fixes. The former process is clearly more painless and allows companies that are web-based (think Google: Google Blog Search is still in beta) more flexibility in terms of launching products in beta form, and leaving them in beta form for a period of time. Releasing commercial-grade software (unless open source within the open source community) requires significant internal testing before releasing to the broader user communities. That being said Internet Explorer 7, which is under development, has had many beta version releases along with beta versions of Windows Vista, which is also under development.

It is interesting to explore the critical differences with the issues related to the New Product Development processes of:

Diffusion Process

The diffusion process explores the rate of acceptance of new products, and new technologies, by the marketplace. The process presumes you can categorize consumers by their penchant for adopting new products. The classification is as follows:
  1. innovators (2.5%)

  2. early adopters (13.5%)

  3. early majority (34%)

  4. late majority (34%)

  5. laggards (16%)

At this stage RSS and Podcasting are clearly at the early stage of this diffusion process (innovator), where as blogging has shifted to the early adopter stage. The success of these technologies not only relies on the acceptance of innovators, whose use may then send a strong message to early adopters that these are useful technologies, but also on related technologies that may help them become a standard. For example RSS will likely accelerate along the diffusion curve once a news reader is part of the standard web browser (this is expected for Internet Explorer 7.) The bundled reader will likely not shift current users from the feature-rich reader they are using (bloglines for example), but will introduce new users to the phenomenon of subscribing to and reading RSS feeds.

The diffusion process for any product or technology platform is typically an S shaped curve. The shape of this curve is likely impacted by the connected nature of the internet and the word of mouth capabilities. Thus positive word of mouth has a technology move from innovator to early adopter stage more quickly and to subsequent stages while negative word of mouth will kill the technology much earlier than in a less connected time.

The actual adoption process consumers go through is:

  1. awareness

  2. interest

  3. trial

  4. evaluation

  5. adoption

At each of these stages tactics as a marketer can change. Given the cost structure of digital products (very low marginal costs) it makes sense to perhaps give away a version of the product in the 'interest' stage to move customers to the 'trial' stage. Once at the trial stage it is important to try to create lock-in such that the customer then moves to the 'adoption' stage and uses the product any time the need for that type of product arises.

distinguish between a fad and an innovation

Ultra-Mobile PC's (UMPC)
(origami) Origami Project
Price point ranges $599 - $999
Who are the target audience(s) ?
price points likely to decrease as competition takes place among hardware vendors, average costs are lowered and learning curve is scaled.

look at some successful product launches. why did fail ? rss; MySpace

Product Life Cycle Issues

  1. introduction

  2. growth

  3. maturity

  4. decline

example: MySpace and the use of celebrities in the introduction stage to accelerate to the grwoth stage

Managing innovation throughout the life-cycle
web-based products (google) constant innovation

pc-based software - version upgrades, need to cannibalize previous versions; compatibility issues (backwards)

sources: Diffusion of Innovation Theory; DEMOCRATIZING INNOVATION; Co-Creation (Prahalad Ramaswamy)