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Changing markets for Real Time Comms
The challenges with real time communications can be boiled down to simple needs and wants.Chris Koehncke
In the past months, I’ve talked to companies in the real-time communications marketplace. This includes companies selling “unified communications” otherwise known as telephone systems, file storage, video, messaging/chat, enterprise social networking and a host of others that I can’t put into a nice category.
For all their dissimilarity, they have one common element. They seem worried. They worry that there is a shift in how you and I will communicate and what tools we will use to communicate with. More importantly, they’re worried whether they’ll still be playing when that day arrives.
I urge them to first recognize the category they are in. But it’s not about whether they sell IM, UC, PBX’s, enterprise social media or file storage. It’s more basic.
It’s about whether they are in the WANT and NEED category.
I like NEED category products because it’s an execution play. NEED companies don’t have to create the market or generate demand. Needs are the classic “I have a problem and I NEED a solution.” For example, I need an office phone system so I can open my new facility. I’m going to buy it from someone. The question is from who?
Traditional PBX firms (Cisco, Avaya) are battling with newer cloud communications companies (RingCentral, switch.co) thinking the world has changed. The new guys are arguing it has. But it hasn’t. It’s about shifting the delivery method. Same product, different packaging.
NEED companies are more about features, pricing and channel. The emphasis is on the channel. Some great telephone stuff never got traction. Mitel had some cool features while Nortel focused on channel. Nortel won and Mitel stumbled along. In recent time, Microsoft, which has a great channel , was able to win 16-18% market share just by showing up in the UC market. Was Microsoft Lync game changing? Who cares, it didn’t have to be.
It doesn’t have to be an old market space either. Twilio is growing offering developers the ability to send an SMS from their application (one example). I’m a developer, I’ve written an application and NEED to send an SMS. I have a problem and I need someone to solve it. Twilio showed up with the features, easy pricing, and a direct low friction sales model. Twilio didn’t create the demand to send the SMS, it responded to the need.
Uber is the same, “I need a taxi“, Uber offered a better response than the traditional hailing a cab. But they didn’t create the NEED.
With a NEED product, you know someone is going to do something. Thus, all you need to do is position and if you hit the right buttons you will win your fair share. It’s about execution and channel.
The downside to a NEED category is you’re not alone. There will be competitors and they’ll focus on pricing, channel and features. So as much as Uber wants to be the only choice, my guess is with time other competition will emerge. Why? Because Uber isn’t a WANT product.
WANT companies is where the big money is. However, the barrier for a WANT product is higher and the risk of failure higher still. While I may have needed a mobile phone in the past (which Nokia and Motorola competed to provided). I WANTED an iPhone.
You may NEED a watch, but you WANT a Rolex.
But being a product people WANT isn’t enough. You have another hurdle. Not only must I really WANT something, I have to want it bad enough to actually do something about it. (A NEED product doesn’t have this hurdle).
How many times have you seen some product/service you thought was cool, wanted it, but for some reason didn’t buy it? The inability to inspire a user to take ACTION on a WANT product is often a slow and miserable death. Smart management sits and wonders what they’re doing wrong. The Nest Thermostat is an excellent example. While you may WANT it, my guess is most of us (me included) haven’t bothered to go get one. Why? Because Nest needs you to not only WANT the product to but go take the ACTION to buy it.
User experience is important if the product is in the WANT category. You didn’t need a Roku or Tivo, yet they were fun to play with and you loved these little boxes. You WANTED a Roku!
Dropbox is a company is also in the WANT category (at least today). It just works, stays out of the way and seems never to trouble you. I’ll bet every time you use it you think “wow Dropbox is really great”. People WANT Dropbox much more than the alternatives. Gmail is another WANT product. We all NEEDED email (remember those disgusting ISP solutions) but we WANTED Gmail.
WANT companies are dangerous. They can carve out such a large market share, they don’t leave much oxygen for competition. Dropbox has > 400 million users and continues to grow. Gmail has > 900 million active users. Just try and name the nearest competitor to Gmail. Exactly.
Whereas a “me too” NEED product stands a chance, the odds of getting a toehold in an existing WANT category product is nearly impossible. Alternatives to Dropbox, like Google Drive and Microsoft’s OneDrive (or whatever they’ve named it this week) struggle to take share at any meaningful rate
To play this game, you have to understand the category you’re in and what direction you things are moving. Products can move about.
The Verizon FIOS DVR is slow and ugly, something only a mother could love. Verizon/Comcast struggled to sell when DVR’s were in the WANT category (you wanted a Tivo). It wasn’t until you decided that you needed a DVR did it become a NEED product. Verizon/Comcast applied their channel and pricing power to inflict pain on Tivo.
Tivo continues to be a $100m a year business, but it’s a shadow of the entire DVR marketplace. Verizon/Comcast killed your WANT of the DVR and turned it into a basic NEED.
Unfortunately, when a product moves from a WANT to a NEED often this means a new WANT category is created. While the cable operators were battling for the DVR space from Tivo, they didn’t see the shift to Roku, Chromecast or Firestick.
History is trying to repeat itself, as television sets natively embed much of Roku functionality for free. Expect a similar outcome. Roku will struggle to sell, TV’s will embed it and a new unexpected WANT will emerge. Witness Verizon renewed on-demand services push.
On the reverse is Slack versus Hipchat. If you did a feature matrix of Slack versus Hipchat, you’d see they were quite similar. Hipchat positioned itself as NEED, a perfunctory no frills messaging client, enterprise IRC. You needed messaging and Hipchat worked fine so they got users.
Slack entered and positioned messaging as a WANT. The analogies to the previous examples continue. Slack was well executed, looked great, was fast and friendly. Hipchat got passed on the autobahn in a whoosh of air.
So what should you do?
As you look at your own business, you need to give thought to:
(1) What category product/service am I in today?
(2) Is the category subject to inverting?
NEED companies rarely can build a WANT product. They’re just not geared to doing that. So save your money trying. Here’s where it makes sense to acquire your way into the market. However, the catch is you have to acquire the primary WANT company. Acquiring someone who was trying to be WANTED and failed, won’t help your cause or your pocketbook. Thus the WANT acquisitions tend to be pricey and not for the faint of heart.
The good news is that WANT companies usually have a defined shelf life. It’s hard to be the ‘cool kid’ for long periods of time. So sometimes simple survival may be a real accomplishment.
If you’re a NEED product and find yourself competing with a WANT, you only have one real option. Change the rules of the game.
The combo platter is a popular dish. Pile everything into a single product, stack it high (get good distribution) and price it cheap. You can only play the combo platter if you have an existing business, though.
Microsoft is playing this game with Office 365, where they put every category service into a single bundle and sell it for such a low price you’d be crazy to buy it elsewhere. They’re hoping the WANT will become a simple NEED, thereby killing off Gmail, Google Apps, Dropbox and others in a single shooting. This strategy is quite solid, but execution will be key.
Hipchat should not worry about competing with Slack and instead, promote security and their on-premise solution and integrate it deeper into Confluence and Jira. Atlassian shouldn’t spend much time worrying having tons of integrations, as it’s a race they can’t win. Key will be having the integrations that matter.
Dropbox is a clear example of a WANT on the verge of becoming a NEED. Dropbox is thus under the gun to try and ‘up’ the game another notch. Unfortunately, this is at best, a medium term fix. They won’t go out of business, but the risk of them becoming the next “Tivo” is quite real.