Friday, June 29, 2012

It's Tough to be "10 Times Better" Than Everybody Else

One rule of thumb used by venture capital investors when assessing technology firms is to look for an order of magnitude better capabilities, when making decisions about whether to invest in a new start-up.


The reasons are many, but the assumption always is that, while a funded start-up is gearing up for its market challenge, market leaders will respond by closing the performance gap. By the time a challenger is ready to challenge the market leaders, the potential advantage will have been reduced.


Some might argue that technology performance is not the right way to measure order of magnitude advantages, though. What matters, some argue, is not technology performance but end user experience. At least in part, that is because most users don't buy "performance" so much as "experience."


That is particularly true for software products where the "experience" is the value, not the performance, as such.

A mobile payment capability, for example, has to offer an experience that is qualitatively and significantly better than paying with cash or a credit card. It can’t be a little better. It has to be a lot better. And that means it cannot be new experience that is just seconds faster.

Slight little improvements won’t motivate change, because the current process isn't really "broken."

You might argue that Square, and other merchant point of sale services offered by Intuit and PayPal have gotten such big traction because they were those sorts of “vastly better” experiences, allowing small retailers to take credit card and debit card payments where they never could do so before, on significantly better terms.

Small merchants might also value the faster time to see funds deposited into accounts, plus increased sales volume, without significant capital investment. All of that makes the payment experience better for a merchant. Technology advantages are of relatively small value. 


The point is that it is harder than it seems to offer a new product that is really 10 times better than what exists. When that happens, though, as with payment systems that turn a tablet or smart phone into a merchant point of sale terminal adoption can be rapid. 

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