We’re running a business, not a technology company (part 2)


I want to continue with the this topic a bit. In the part 1, I made a few points:

  • Product management must focus on optimizing for business success not simply technological leadership.
  • This must be done by addressing market needs better than other competitors.
  • A lot of what we deliver to customers may not be considered truly innovative, but is needed to address the way they need to use the product.
  • Technology can change much faster than people’s ability to accept that change.

I want to spend a bit more time exploring this, as it does raise some points of discussion.

Last week when I was in California, I rented a Toyota Prius at the airport. It was my first time driving the Prius, and I will admit that, it took me a couple of minutes to figure out how to actually get the car in gear. First time I drove a car that had a power button in the dash.

Click image to enlarge

Once I figured that out, I drove the car for the duration of my trip and was amazed at how little gas it used. I’m pretty sure it averaged well over 50 mpg.

Now, the hybrid engine in the Prius is truly innovative. Toyota introduced the Prius 10 years ago (initially only in Japan). But the rest of the car is pretty standard: doors, windows, steering wheel, gas tank, mirrors, cup holders, radio etc. It’s not a perfect car, but it’s a pretty good 4 door sedan and it get excellent gas mileage. And given the price of gas these days (over $4 per gallon in California), it will likely have a great future.

Now compare the success of the Prius, with the the complete lack of success of a the Honda Insight. The Insight was actually the first hybrid car introduced in North America (1999). It preceded the Prius by about 6 months. It also had better gas mileage than the Prius, with an EPA rating of 70 mpg. But the Honda Insight sold only about 18,000 units total in the US. The Prius has sold over 1,000,000 units worldwide.

While there is no single reason for the lack of sales of the Insight, the styling of the Insight, the fact that it was only a 2 door hatchback (vs. a 4 door sedan for the Prius) are certainly a big factor. The Insight didn’t look like a “normal” car was something that was said of the vehicle.

The point here is that while one car, the Insight, was first to market and had what appeared to be technical superiority (much better gas mileage), the fact that it didn’t fit well with how people wanted to use the vehicle made it less successful than the Prius, which fit people’s vision of what they wanted in a car. It wasn’t simply the technological innovation of the hybrid engine (or high gas mileage) that was key, but all the other aspects of owning and driving a vehicle that they wanted.

Saeed

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10 responses to “We’re running a business, not a technology company (part 2)

  1. Saeed,

    In two words – Design matters. Case in point, iPod was the 70+th MP3 player – enough said. What they did was innovative design. (I may be wrong on the number 70+ for iPod, but it sure was not the first one, or not even in the first 25)

    Gopal

  2. Saeed,

    Your didn’t point out that Honda also introduced the Civic Hybrid which also undoubtedly cannibalized sales of the Insight. Sales of the Prius didn’t take off until after the had a body redesign away from the ugly Echo to the current version that looks like an elongated CRX. Since the Insight also is derived from the CRX, I would dispute the assertion that the Insight was “ugly”.

  3. Gopal,

    Agreed. Design matters. As does Marketing, Positioning, Channels, Competitive Advantage and a whole lot more. The combination of technology + all these other business value points is what makes the iPod successful.

    While the design of the iPod certainly was different, so was the marketing. As I said “1000 songs in your pocket” will resonate with a lot more people than “4GB of RAM for your MP3s”. Additionally, Apple did what no other vendor did. They created iTunes Store.

    While others could possibly copy aspects of the iPod (though I’m sure Apple has lots of patents on things like the thumbwheel), by entering into resale contracts with the various record labels and locking out other devices, Apple created a sustainable advantage that other vendors couldn’t compete with. Now they’ve extended that to videos, movies, TV shows, radio shows etc.

    Meanwhile other vendors such as San Disk and iRiver have failed to even compete on the marketing side. I see ads for the San Disk Sansa in electronics retailer flyers, and it is priced well under the iPod, but I have no idea how well it works or why I should buy it. It may in fact be technically superior to the iPod, but people would rather spend the same money for an iPod Shuffle as compared to an almost similarly priced Sansa that can hold much more music and has a colour screen.

    Saeed

  4. Dennis,

    Thanks for the comment. As I mentioned, there is no single reason for the lack of sales of the Insight. And while I’m no fan of the CRX design, I didn’t call the Insight “ugly”. The comment about a “normal” looking car was taken from a list of the cons people had given about the Insight. I don’t remember where I read it though.

    The 2004 (I believe) redesign of the Prius was certainly a big factor in its success. The old Echo body certainly was ugly. One of the intangibles about the redesigned Prius — and it is a good lesson to remember — is that not only did people want to drive fuel efficient cars, they wanted to be SEEN driving fuel efficient cars.

    This is where the redesign of the Prius gave a distinct competitive advantage over the (basically) equally fuel efficient Honda Civic. I drive a regular Honda Civic. If I was driving a hybrid Civic, no one would know unless I told them or they were driving right behind me and saw the word hybrid on the back of my car.

    The redesigned Prius, with it’s unique look, became the symbol of “green” driving and everyone from ordinary people to movie stars wanted to be associated with it. The Prius virtually became an eco-friendly brand.

    As for the hybrid Civic, it might have cannibalized the anemic Insight sales a bit, but even it does not have stellar sales. Here’s a link to some recent Honda America sales numbers. Scroll down to the table.

    As you can see, in November 2007, only 3238 hybrid Civics were sold. If you look to the right to the Year to Date numbers, for the first 11 months of 2007, there were 29,352 hybrid Civics sold in the US. That is only up slightly from 28,845 for the first 11 months of 2006.

    The Prius sold over 180,000 units in the US in 2007 which is roughly 6 times the Civic hybrid.

    Saeed

  5. I agree that the Prius has some cache (You really need to see the “Smug Alert” episode in Season 10 of South Park). Despite the fact that fewer Civic Hybrids are sold compared to the Prius, sales are growing substantially. Toyota also produces way more cars overall compared to Honda. In California I’m seeing the Civic Hybrid selling for above list while the Prius is selling at list now that all the HOV stickers are gone. This indicates to me that Honda needs to ramp up production of the Hybrid. Finally even though they all look the same on the outside, Toyota offers the Prius in a variety of trim levels (leather seats, etc) whereas the Civic Hybrid only comes in one basic package. In any case expect to see more hybrid models on the market; I’m holding out for a Subaru Hybrid.

  6. Great post! I think the point about meeting customer expectations is important. For some products, customers expect certain things. You can make it “fancy” with bells and whistles, but it it doesn’t fit what the consumer sees as “normal,” it is less likely to succeed.

    The key is finding a way to successfully integrate innovative design with “normal” design, as well as proper marketing in order to make sure that consumers see how great the product is.

  7. Dennis,

    Not to turn this into a debate, but based on the numbers in the link I cited, Civic hybrid sales were basically flat in the US in 2007 relative to 2006. Even with a great November 07, the 11 month totals are only about 2% higher in 07 than in 06. This is a very small increase, given the increase in interest in the market. Prius sales, in comparison, were up over 68%.

    Honda definitely needs to market their hybrid products better, and IMHO, take a lesson from Toyota and create a branded hybrid line, vs. simply the product line extension of the Civic. While it may reduce costs in simply extending the Civic product line, it doesn’t help market presence nor, apparently does it make sales grow. And Toyota is now unveiling their 3rd generation hybrid engine.

    Making comparisons with the iPod, the Prius is certainly the dominant market leader and looks like it will stay that way unless someone can disrupt their momentum. Honda should be able to do that, but it’s not clear they have the strategy in place.

    Saeed

  8. Miranda

    Thanks for the comment. A big part of success is understanding that the “product” is the entire experience and not simply the technology or the physical commodity that is sold.

    Apple provides a mobile entertainment experience, not simply a portable music/video player.

    Saeed

  9. BTW, here’s a great article on Toyota and Innovation

    http://www.newyorker.com/talk/financial/2008/05/12/080512ta_talk_surowiecki

    Saeed

  10. Hmm. There’s an interesting parallel (which Saeed alluded to in his second comment) between the Civic Hybrid and the Prius and software development which is the issue of feature vs. product differentiation.

    A separate product didn’t work well for Honda (the Insight), so they opted for the route of adding hybrid technology as a feature in one of their best selling models. This limits their risk, but also limits the upside reward if there was a boom. There can be endless debate about whether the lack of success of the Insight was design-related, market timing, poor marketing, or some combination, but clearly Honda was hedging their bets by going with a feature rather than a product the 2nd time around. You could also argue that Honda may have seen less value (or more risk via cannibalization) in creating a purely hybrid model, since they already had the Civic, which when using a gasoline-only engine gets pretty impressive MPG (36 vs the 45 for their hybrid version).

    Conversely, Toyota chose to create a separate product that while based on an existing vehicle, was it’s own product. The original was not a huge success, but with the design make-over of the 2nd generation Prius, the product gained a lot more traction and saw the cars fly off lots. Again, one could debate whether design was solely responsible or if there were other factors at play such as the difference in fuel costs and environmental awareness when the Prius was released vs. the Insight.

    With the success of the Prius, Toyota has started capitalizing on the cache of the hybrid by adding that as a feature to other product lines (Camry, Highlander and the Lexus LX, GS, and RX all offer hybrid options).

    In software, Product Managers sometimes have to evaluate a feature or capability to determine if it is better suited as a feature for an existing product or as a stand-alone product. There are trade-offs for each choice and it’s much easier and cheaper to add a feature than to create new products, but too many features that are ancillary will make the product bloated and often leads to mediocrity (or worse).