Microsoft, Yahoo and Knowing Your Product

Jeff Staddon has commented in his post Microsoft’s Yahoo Blunder that Microsoft’s acquisition of Yahoo represents a poor investment. He points out that the fundamental business model of Microsoft (as a software vendor) is incompatible with the advertising based model that Yahoo is built on.

One cornerstone of your business model is understanding what you are selling. Microsoft sells software. Yahoo sells advertising. Another fundamental is knowing your end customer: who is the final buyer in the supply chain and how does your product get to them? Without understanding these two things everything you do, from sales through to ongoing support, will be weighed down by an uncertainty of purpose.

What are you selling?

In my experience many companies do not know what their product is. I find this to be especially true for IT service organisations. As an example imagine a company that supplies payroll software to retail companies and specialises in tailoring it to their customers’ needs using their highly skilled and experienced team of developers. Is their product:

  • The payroll software?
  • The company’s ability to analyse requirements and design a technical solution?
  • The tailoring of the payroll software?
  • The skills and experience of their developers?
  • Their ability to project manage the implementation of an end-to-end solution?
  • Their 24/7 support of the system once it has been implemented?
  • The proven track record of their software in the retail sector?
  • The training services they offer?
  • A managed service/hosting of the application?

Of course what the product actually is depends on who the end customer is. Some customers may need a fully-fledged service whilst others may only want to purchase an un-tailored software application. That’s why it is impossible to think about your product without considering your customers.

Who are you selling to?

When you consider who you are selling to you must think about who is at the end of the supply chain. In the example above you might think the potential customer is another company’s IT department. In fact the real end customer is the wider business that needs the payroll system. That is where the funding is coming from. Remember that in this case the IT department is an intermediary. Their needs will be predicated by the needs of the business they serve.

Know your customer and know yourself

If you understand what you are selling and who you are selling to then many things become easier, including:

  • Satisfying your customers
  • Devising a strategy for your product
  • Selling your product
  • Finding new customers and markets for your product

So to summarise (and ruthlessly miss-quote Sun Tzu in The Art of War): “If you know your customer and know yourself you need not fear the contents of a hundred year end balance sheets”

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2 comments so far

  1. jeffspost on

    Excellent post. I’ve been thinking about an interesting parallel: once a company (any company, in any industry) has developed a strong customer base and understands that base, it is very difficult (if not impossible) to branch out and reach a new customer base. The huge majority of what is termed “growth” among older companies is really no more than tiny adjustments that carefully avoid threatening the basic relationship between companies and their core customers.

    On the other hand, perhaps reaching different groups of customers within an established company is a bad idea. It would lead to confusion which may result in failing both the old and the new customer! It seems that the path most often used today is to let old companies serve old customers and let startups build the new markets.

  2. daviddaly on

    I agree with you Jeff. I think there are two key factors that hold back larger/established companies when it comes to developing new markets.

    One is a loss in agility. Making changes to a product that’s “out there” can seem harder than writing something from scratch. But, as you highlight, the loss in agility is not just related to development practices but also a mindset that develops and says “this is what we do, let’s not rock the boat”.

    The second (which is related) is an increase in risk averseness as a company grows. Initially this seemed counterintuitive to me: surely an established company is in a better position to take risks? But now I see that it makes some sense: “if you ain’t got nothing you got nothing to lose” (excuse the Dylan quote!). Startups are prepared to take huge risks with the hope of a large payback in the medium term. Most larger companies with established products are unwilling to countenance the same level of risk on any of their projects.


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