Sunday, November 7, 2010

Proximity to market

I've heard of CEOs delivering pizzas and Jolt Cola to software developers. I know about companies that have sent flowers to developers' families, with apologies for keeping them away from home on nights and weekends. I've even seen a company treat the entire development team to a week-long Caribbean resort vacation, all-expenses-paid.

Why this largess? Believe me, it's a lot more than just an outpouring of TLC to the folks who design, write and test code.

No, it's all about time. Specifically, time-to-market. Companies see value in prodding, cajoling and rewarding development teams for shipping product and hitting a deadline. The thinking goes that faster-to-market equates to competitive advantage.

I'm not convinced that time-to-market, and specifically first-to-market, always conveys much advantage over the long term. There are plenty of examples where the second or third vendor into a market eventually walks off with the lion's share. Think Microsoft in desktop applications or Google in search.

Proximity-to-market more important that time-to-market

Time-to-market is probably even less important for software-as-a-service (SaaS) companies. What matters more for them is proximity-to-market.

"Proximity-to-market" refers to the ability of SaaS providers to stay close to customers so as to be in a position to accurately read and analyze customer needs and to respond quickly.

The SaaS model presents providers with at least two significant proximity-to-market advantages:

1. The ability to observe customer behavior closely

A hosted SaaS solution provides the vendor an opportunity to know precisely how the customer uses it. The provider can directly observe, for example which features are being used, which are neglected, and which cause customers to review the "support" FAQs? On-premise solution vendors can try to accumulate this same information by observing behavior or through customer surveys, but it's more difficult and less accurate.

2. The ability to respond quickly

SaaS providers that follow agile development methodologies typically have the ability to respond rapidly to signals from customers. They can develop new features or fix existing ones. Moreover, they have an effective mechanism to deliver these enhancements quickly and without significant disruptions. SaaS vendors typically don't face the long development cycles and upgrade issues that confront on-premise vendors.

SaaS providers should leverage these proximity-to-market advantages. Stay in touch with customers through moderated forums or social media networks, analyze customer support requests, track usage patterns, and use whatever other means you have to observe customer behavior and sentiment. Analyze and prioritize the information, and feed it to the development team. It goes well with pizza.

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