5 ms·

It doesn't have to be a network-effect business for customers to prefer the popular product as a "safe" choice.

by spolsky 17y ago

donw 17y ago
This prompts the question, if you're entering a field that has a 'safe' choice, how do you position to compete? I'm sure there were other bug-tracking systems available when FogBugz was being developed, yet FogBugz has stuck around and is perceived as being a 'safe' product now -- perhaps because of Fog Creek's longevity?
- staunch 17y ago
  1) Create something significantly better than the safe choice has. 2) Convince a few well respected companies to take a chance on you. 3) Use that social proof to get everyone else to follow their lead. 4) Profit.
  - megamark16 17y ago
    Just to add a little to your excellent advice: #1 could be an intangible improvement over existing offerings, such as better customer service, better (or no) contract terms and/or pricing, etc. Something that's been talked about here before is offering localized versions of popular services, such as the dating sites tailored to the local culture of Japan (or was it China?) due to the large difference in the way that dating work over there as apposed to western countries. This could make #2 much easier to accomplish, if your offering is a better match for a specific subset of possible customers, but I guess that's the definition of finding a niche market, huh?
- inerte 17y ago
  Marketing will say it's a brand position problem. Development will say it needs features done this way. Sales will say you need costumer X. Lawyers will say you need patents. Every role has an opinion, because they think the solution lies on what they know how to do best. And you know what, they're all right. The problem is how to find out who's more right than the others so you can allocate resources properly and coordinate the changes.
johnrob 17y ago
I think your statement might be self-contradictory. If having more users (by itself) can bias a new user, then the product being sold has a network-effect. EDIT: I think the term I (and we) are looking for is positive feedback loop. That's ultimately why network effects cause a race to grow the fastest.
btilly 17y ago
Network effects tend to be substantially overestimated. For instance Metcalfe's law is widely cited, but more careful analysis of actual behavior suggests that n*log(n) tends to be a better scaling estimate than n^2. Moving on, be careful about moving to a sales force driven strategy. When you're selling with a sales force you have to cover the overhead of an expensive sales process. This is one of the big reasons why a lot of software is priced low enough that someone can pay for it with a credit card, and lots of software priced over $50,000 but very little between those two numbers. Also once you go down the enterprise software route the quality of your sales process matters more than the quality of your software. A good read on that is http://lists.canonical.org/pipermail/kragen-tol/2005-April/000772.html http://lists.canonical.org/pipermail/kragen-tol/2005-April/0.... I'm not saying that this is a bad strategic move or the wrong strategy for your company. But you should be aware of the consequences.
- alexgartrell 17y ago
  I did an internship at a largely sales-driven company (Everyone gets an email when someone closes a big sale), and it suuucked. Especially when everyone was really anxious and uneasy because Customer X wanted his bug fixes Right Now. Unfortunately, you attract top sales talent with big money, and they get lethargic if the big money doesn't come from commissions, and they tend to over-promise to make the sale. This can piss off the developers and makes it not "a place developers want to work". You definitely have to maintain a balance. The idea that comes immediately to mind is profit sharing. When Joe closes the big deal, everyone gets commission. Even if it's not a significant amount, it'll let your developers continue to feel valued. At least that'd make me happier (Edit: Assuming I were in that situation).
- megamark16 17y ago
  Thanks for the link, that was a good read! Reminds me of my days at a mid sized regional bank. The amount of money they spent on implementing "Portals" was outrageous, and included licensing, training, consultants, and opportunity costs (which were huge if you consider what they could have done with all of the developers, testers, and sys admins that were otherwise tied up in the project). I don't think they've implemented Portals yet.
gcheong 17y ago
A social proof business?
shabda 17y ago
Every business is at least some network effect, in case of bug tracking, We convince every new client we sign up to use Unfuddle unless they have a very strong preference for any other. I am sure I must have sold >5 new clients to Unfuddle this way, and those people sold Unfuddle to a few more contractors who to few more clients who to ...
- gojomo 17y ago
  'Network effect' has a distinct meaning above and beyond 'positive word-of-mouth'.
  - shabda 17y ago
    Sure. But how " I recommened to 5 people, who recommended to 5*(avg no of ppl influenced) * (decay factor people), who to 5*[(avg no of ppl influenced) * (decay factor people)]**2 ... " not a network effect as long as [(avg no of ppl influenced) * (decay factor people)] > 1?
    - gojomo 17y ago
      Now you're conflating 'network effect' with things like 'viral loops' or population dynamics. Again, they're distinct. 'Network effect' is the term to use when you're emphasizing that each new adopter increases the value of the installed base. A 'decay' factor doesn't usually come into such analysis. To say that any product with enthusiastic users has a 'network effect', because the users tend to influence other potential customers, robs 'network effect' of its specific meaning.
      - adw 17y ago
        In business, up to a limit, money has a network effect. More money, especially more revenue, lets you move faster and take more risks. Only true up to a limit, okay, but disposable income is agility.
        17y ago
JustAGeek 17y ago
I agree. And oddly enough, 37Signals does, too, even they don't seem to know it. :P Go to http://highrisehq.com/ http://highrisehq.com/ , scroll down a bit until you see the second large green button, there you can see the text: "Thousands of small businesses and entrepreneurs manage over 15,000,000 contacts with Highrise." If it doesn't matter how many people use Highrise, why that text then? Well, because this fact is indeed important, as the blog says "As long as there’s a sound business behind the product, she doesn’t care about anyone else." That's of course correct but a lot of people use the amount of other people using the product as a way to determine how sound of a business there is.

It doesn't have to be a network-effect business for customers to prefer the popular product as a "safe" choice.

by spolsky 17y ago

It doesn't have to be a network-effect business for customers to prefer the popular product as a "safe" choice.

donw 17y ago

This prompts the question, if you're entering a field that has a 'safe' choice, how do you position to compete? I'm sure there were other bug-tracking systems available when FogBugz was being developed, yet FogBugz has stuck around and is perceived as being a 'safe' product now -- perhaps because of Fog Creek's longevity?

staunch 17y ago
1) Create something significantly better than the safe choice has. 2) Convince a few well respected companies to take a chance on you. 3) Use that social proof to get everyone else to follow their lead. 4) Profit.
- megamark16 17y ago
  Just to add a little to your excellent advice: #1 could be an intangible improvement over existing offerings, such as better customer service, better (or no) contract terms and/or pricing, etc. Something that's been talked about here before is offering localized versions of popular services, such as the dating sites tailored to the local culture of Japan (or was it China?) due to the large difference in the way that dating work over there as apposed to western countries. This could make #2 much easier to accomplish, if your offering is a better match for a specific subset of possible customers, but I guess that's the definition of finding a niche market, huh?
inerte 17y ago
Marketing will say it's a brand position problem. Development will say it needs features done this way. Sales will say you need costumer X. Lawyers will say you need patents. Every role has an opinion, because they think the solution lies on what they know how to do best. And you know what, they're all right. The problem is how to find out who's more right than the others so you can allocate resources properly and coordinate the changes.

johnrob 17y ago

I think your statement might be self-contradictory. If having more users (by itself) can bias a new user, then the product being sold has a network-effect. EDIT: I think the term I (and we) are looking for is positive feedback loop. That's ultimately why network effects cause a race to grow the fastest.

btilly 17y ago

Network effects tend to be substantially overestimated. For instance Metcalfe's law is widely cited, but more careful analysis of actual behavior suggests that n*log(n) tends to be a better scaling estimate than n^2. Moving on, be careful about moving to a sales force driven strategy. When you're selling with a sales force you have to cover the overhead of an expensive sales process. This is one of the big reasons why a lot of software is priced low enough that someone can pay for it with a credit card, and lots of software priced over $50,000 but very little between those two numbers. Also once you go down the enterprise software route the quality of your sales process matters more than the quality of your software. A good read on that is http://lists.canonical.org/pipermail/kragen-tol/2005-April/000772.html http://lists.canonical.org/pipermail/kragen-tol/2005-April/0.... I'm not saying that this is a bad strategic move or the wrong strategy for your company. But you should be aware of the consequences.

alexgartrell 17y ago
I did an internship at a largely sales-driven company (Everyone gets an email when someone closes a big sale), and it suuucked. Especially when everyone was really anxious and uneasy because Customer X wanted his bug fixes Right Now. Unfortunately, you attract top sales talent with big money, and they get lethargic if the big money doesn't come from commissions, and they tend to over-promise to make the sale. This can piss off the developers and makes it not "a place developers want to work". You definitely have to maintain a balance. The idea that comes immediately to mind is profit sharing. When Joe closes the big deal, everyone gets commission. Even if it's not a significant amount, it'll let your developers continue to feel valued. At least that'd make me happier (Edit: Assuming I were in that situation).
megamark16 17y ago
Thanks for the link, that was a good read! Reminds me of my days at a mid sized regional bank. The amount of money they spent on implementing "Portals" was outrageous, and included licensing, training, consultants, and opportunity costs (which were huge if you consider what they could have done with all of the developers, testers, and sys admins that were otherwise tied up in the project). I don't think they've implemented Portals yet.

gcheong 17y ago

A social proof business?

shabda 17y ago

Every business is at least some network effect, in case of bug tracking, We convince every new client we sign up to use Unfuddle unless they have a very strong preference for any other. I am sure I must have sold >5 new clients to Unfuddle this way, and those people sold Unfuddle to a few more contractors who to few more clients who to ...

gojomo 17y ago
'Network effect' has a distinct meaning above and beyond 'positive word-of-mouth'.
- shabda 17y ago
  Sure. But how " I recommened to 5 people, who recommended to 5*(avg no of ppl influenced) * (decay factor people), who to 5*[(avg no of ppl influenced) * (decay factor people)]**2 ... " not a network effect as long as [(avg no of ppl influenced) * (decay factor people)] > 1?
  - gojomo 17y ago
    Now you're conflating 'network effect' with things like 'viral loops' or population dynamics. Again, they're distinct. 'Network effect' is the term to use when you're emphasizing that each new adopter increases the value of the installed base. A 'decay' factor doesn't usually come into such analysis. To say that any product with enthusiastic users has a 'network effect', because the users tend to influence other potential customers, robs 'network effect' of its specific meaning.
    - adw 17y ago
      In business, up to a limit, money has a network effect. More money, especially more revenue, lets you move faster and take more risks. Only true up to a limit, okay, but disposable income is agility.
      - 17y ago

JustAGeek 17y ago

I agree. And oddly enough, 37Signals does, too, even they don't seem to know it. :P Go to http://highrisehq.com/ http://highrisehq.com/ , scroll down a bit until you see the second large green button, there you can see the text: "Thousands of small businesses and entrepreneurs manage over 15,000,000 contacts with Highrise." If it doesn't matter how many people use Highrise, why that text then? Well, because this fact is indeed important, as the blog says "As long as there’s a sound business behind the product, she doesn’t care about anyone else." That's of course correct but a lot of people use the amount of other people using the product as a way to determine how sound of a business there is.