Products first out of the gate are rarely the money makers, despite the myth that innovators with breakthrough ideas will get rich (The Product Innovation Myth). Another iteration of the same product with a minor or major improvement is more likely to experience profitability. Top-selling drug Lipitor, for example, was the fifth drug in its class. Well recognized as the leading search engine, Google was not the first of its kind but instead a variance on Alta Vista and other search engines that came before it.
If investments in innovation automatically resulted in profits, Microsoft would be performing better than Apple, but it has not in recent years. In 2010, Microsoft spent more money on research and development than any other company has ever done for one year, and its annual R&D budget is at least double that of Apple’s. Yet, it has not had a “hit” to the same extent as Apple, which has recently had great success with iPhones and iPads. Relative to Apple and Microsoft’s historical results, Microsoft has been underperforming.
In fact, most products that have dominated their categories over the past decade are missing originality. What they had on their side was at least one tweak, or sidestep, that was effective enough to expose them to a larger customer base than the predecessor product. The successful ones built upon the original idea and went beyond its core feature. Companies can also make a sidestep to their own version of a product by changing just one feature or the price. Some airlines have been more successful than others in recent years, for example, by offering some minor services for free that their competitors do not.
Moreover, the most successful products in recent years have had both a sidestep and a “twist.” Twists take advantage of the fact that people will want a product because everyone else is using it.
An example of a company that has used a twist successfully is Facebook, which was able to take away MySpace’s status as the premier social-networking space because, eventually, more people joined Facebook. And the more people who are registered on Facebook, the more the site satisfies the needs of all the people who have signed up to catch up with old friends and current acquaintances all in one place. The Facebook product itself is continually improved by its consumers. The more products like Facebook are used, the better they get and the better they perform, in terms of adding new customers and generating revenue.
Breakthrough products often fail because they are brand-new. When people are unfamiliar with a product, most of them will be reluctant to take a chance and invest their own money to try it. Moreover, at first, these new products tend to be more expensive since they took so long to create, develop, and sell. The price may be too high for consumers to make the leap and try something that is unproven in the marketplace. If consumers do not believe the “price/performance” curve is in alignment, they will not buy. To maintain momentum of a product and to ensure it can go far in terms of adoption and sales, companies have to keep track of this price/performance metric.
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