So, I got this call from Amy Katz yesterday. We were both driving from yada to yada (sorry, destinations are confidential). We got into a lengthy discussion about business models. And where the world is heading.
Amy led the conversation. The more I listened to her, the more I was reminded of Apple -- around the time Steve Jobs returned to the company in 1996. At the time, Apple had dozens of SKUs across dozens of product categories. Apple was bleeding billions of dollars and in danger of going bankrupt. The way Jobs saw it, Apple had two problems.
- Bad products...
- ...With too many bad versions of each bad product spread across too many categories.
Sure, Windows 95 was disrupting Apple. But Apple was also disrupting itself.
Start From Scratch
Instead of getting bogged down in an overly complex discussion of Apple's R&D and supply chain, Jobs assumed Apple was starting from scratch -- rallying around acquired software (his NeXT platform) to rebuild MacOS. Then, he boiled down the journey forward into a simple grid that looked something like this:
Next, Jobs and the design team started to think about simplified products that they could plug into that grid. Instead of having 20 variants of a product, Apple typically introduced only one or two. By the time Apple Stores debuted in 2001, the company had a streamlined product portfolio that carried high margins.
The lesson: Lots of folks talk about Apple's great design, engineering and marketing. But don't overlook Apple's commitment to simplify the buying process. Instead of overwhelming you with dozens of options, Apple sold you on a product category (consumer PC = iMac), and then made your decision easy because it only had a few options in completely new sub-categories (Lime, Strawberry, Blueberry, Grape, Tangerine).
Where You Fit In
Now, apply that example to your business. Even if you don't have world-class products, you can speed the buying process by trimming back on all the different options and levels of services.
Does the world really need...
- A platinum, gold, silver, bronze, and tin support level?
- Or is it wiser to simply offer a paid model (you get world class-support because we love you) and unpaid model (here are our support forums for your use; they're quite good because we really appreciate you buying our products)?
The Cloud: Big Missed Opportunity
When the world shifted from physical products to cloud services, that was a prime opportunity to really simplify your product offerings. Some companies got the message -- introducing very simple free and paid options.
Others complicated the conversation -- such as Microsoft introducing far too many SKUs when it originally launched Office 365. Microsoft was caught looking backward, trying to connect the dots between complex on-premises software licensing schemes and new cloud subscription models.
Frankly, Microsoft's focus was on shareholders and revenue protection. Steve Ballmer was likely thinking, "how do we map our existing revenue stream to the cloud model?" As Microsoft customers expressed confusion about all the different cloud subscription models, the company gradually simplified things a bit... but frankly it's still too complex:
Don't make Microsoft's original mistake. Don't look back. Don't force-fit yesterday's buying model (tiered client-server software licenses) into today's model (cloud). Instead, blow up your legacy models. Simplify the buying process for customers. And spoil them with great customer service along the way.
And if you're a startup... which grid would you build your business around? A simple free and paid level? Or the SKU complexity of Office 365?
Don't thank me fore this blog. Do thank Amy Katz. I sort of synthesized our lengthy call into this blog entry. At some point down the road, perhaps we'll build our own next-generation product and service grid for customers... time and focus permitting.
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