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Customer Barrier Management: A Source of Asymmetric Advantage

A few years ago, I was asked by my then employer, a provider of SaaS-based storage services, to attend an IT trade show in London in order to get a sense of what the competition was up to and gauge attendance in case we wished to exhibit the following year. While picking up some marketing collateral at a booth, I managed to get into a conversation with a competitor sales engineer, who spotted the name of my company on my name tag. It was a pretty interesting discussion. He was a very passionate fellow who knew a lot about the business and had some truly visionary ideas about where the industry was heading. During the course of our conversation, I mentioned that although it was very difficult (at that time) to convince organizations to store their electronic data in our system, I felt that, once they overcame their concerns and signed up to our services, they would likely be customers for a long time, if only because of the sheer volume of data under management and the cost and complexity of moving to another provider. My interlocutor took exception to this viewpoint. He was angry! “Why would you want to lock your customers in?” he demanded, ” Is it the policy of your organization to hold its customers hostage? At my company, we are working to make it easy for clients to seamlessly transition away from our service!”  I walked away, bemused. “Why would any company want to make it easy for customers to leave them, potentially for another competitor”, I thought.

It might have been more appropriate to ponder whether software superpowers ‘hold their customers hostage’. I assure you that they do. They not only make migration  from their systems difficult by holding data in proprietary formats, they also erect barriers to competitors’ attempts to integrate or interoperate with their offerings. Think of the way that Microsoft Outlook natively rejects third party plug-ins, advising users via a dialogue box that ‘poor system performance is due to the [Salesforce, NetSuite, Mimecast] add-on’ and enquiring whether it should be disabled. Another example of the use of such tactics is the way that Apple’s iTunes software works with the iphone but not with Android phones, making it challenging to switch mobile phone platforms if users want to take their music with them. This kind of “Customer Barrier Management (CBM)” is a wellspring of asymmetric advantage for software superpowers. It is not only not an accident or an afterthought, it is core to their product strategy. After all, locked in customers are a source of continuous revenue and growth for the superpowers, not to mention an inaccessible area of the market for their competitors.

I am not suggesting that practicing CBM obviates the need to deliver value; aspiring superpowers must ensure that their offerings are ‘best-in-class’ and established players must continuously invest in the development of value-added features. No force on earth will compel potential customers to buy or stick with subpar products. I am merely recognizing that the most successful software businesses jealously defend their client bases from competitors by making migration and, in some cases, interoperability, next to impossible.

Both startup software businesses and single category players looking to expand into new markets (or resegment existing ones) can benefit from this approach by ensuring that all future PRD’s are asymmetric (meaning they both customer barriers and distribution though cooptation of superpower momentum are baked in to product design). Although serious consideration must still be given to how the product must function if it is to address customers’ needs, it is also important to think about how to architect the system in a manner that locks clients in. Failing to address this element of product development might well be an invitation for competitors to coopt the market long before a chance of superpower-dom is a reality.

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Posted by on October 29, 2010 in Technology

 

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