This blog first appeared as Steve Wunker's piece for Forbes
By Steve Wunker
For all the praises sung about Google’s innovation capabilities, the company seems to have a split personality when it comes to new ventures. It supports countless small experimental projects that build internal support from the ground-up and launch quickly in prototype to gauge user reaction. But it also sponsors a few swing-for-the-fences attempts to create new markets, like Android (home run) or Google’s own mobile phone, the Nexus One (strike out). Is this a good idea?
Given that the nature of demand, competition, and partners can all be highly fluid in a new market, big projects to pioneer an industry are extraordinarily risky. Not only can they spend inordinately on shaky bets, but they may lock companies into wrong approaches because high upfront costs create reluctance to invest further in adjusting losing propositions. Moreover, they can root customer perceptions of a category by focusing attention on a bold but misguided first attempt at cracking the market (think of the first mobile Internet experience, WAP). Big efforts also tend to aim for seizing a share of existing markets, because those customers are easy to identify, rather than the slower process of building a new market from new sources of consumption.
For an example of these sins, look at Google’s Chromebook laptops. The general idea has merits – a lightweight, super-stable machine that accesses all programs and files in the cloud through a browser, keeping hardware requirements very basic. The concept is really disruptive, but the execution is not. The first Chromebook to market, Samsung’s Series 5, starts at $430 and offers a first-rate keyboard, video output jack, and other attractive features. It has appeal for higher-end consumers, yet the need to be always online has enough drawbacks to make many hold off from purchasing the machine. The fear is a bit like that of driving an all-electric car such as the Nissan Leaf – will I need to use this in an environment where the neat technology has major weaknesses? For lower-end consumers, the price is higher than that of some netbooks, making the purchase decision a tough one.
New markets seldom get built this way, unless the consumer experience is so compelling and the brand so powerful that people will consider a totally new class of product (see the iPad, which demonstrates just how high a bar those criteria are to meet). Usually, new markets get their start in a discrete foothold market. A narrow base of target customers allows companies to launch quickly and cheaply with a product that can be iterated in fast cycles as demand and the industry become better understood. Mistakes happen under the radar, so when the product is ready for prime-time it hasn’t been tarred with the inevitable errors of creating something fundamentally new. Counterintuitively, the way to get big is to start very focused and deliberately small.
In fact, this is how the first netbook computers got their start. Psion, Europe’s leading PDA manufacturer, launched a product called the netBook in 1999. (Full disclosure -- I was Programme Director at Psion at the time). This machine powered up instantly, was lightweight, and ran an operating system related to Symbian. It featured its own spreadsheet program, word processor, web browser, and e-mail client. The device was terrible for someone who wanted to collaborate with others in a highly flexible way. Yet it was ideal for workforces that needed to run just a couple of programs placed on the machine by their employer, or who were creative types doing work on their own. Later on, Asus launched in 2007 what is commonly seen as the first modern netbook, a basic machine targeted at emerging markets. Both Psion’s and Asus’ products expanded from their initial niche as more was learned about the market opportunity.
Google could have followed this route with the Chromebooks. A potential foothold market would have been college students, who live in an environment with Wi-Fi everywhere. Google aims to rent Chromebooks to these students for $20 a month, which is laudable, but if the company had a sharper focus on this market manufacturers might have offered lower-cost machines that worked exceptionally well with applications college students routinely use, like Skype.
Sometimes companies have to spend big to create a new market. Satellite communications, biotech drugs, and a few other industries have very high upfront costs. Android likely falls into this camp as well, as mobile phone manufacturers and cellular carriers would not support a mobile operating system with very narrow appeal. But the computing market doesn’t work this way. Google could have teamed with a small hardware manufacturer and motivated channel partners like universities to create a truly disruptive proposition. Instead, by aiming for big markets it has delivered something more costly and complex than it needed to be, yet which stills fall short of being good enough to drive mass adoption. Rather than getting big by starting small, it may be selling small because it started too big.