The 3 sided product problem

This post is also on Huffington Post. The first item ever sold on eBay was a broken laser pointer. Startled that someone had bid for the broken item eBay’s founder, Pierre Omidyar, contacted the bidder to ask whether he understood that the laser pointer for which he had bid $14.83 was in fact broken? The bidder responded: ‘Yes, I’m a collector of broken laser pointers’. It was late September 1995. Omidyar realized that he was onto something big. By the end of the next year the value of all goods sold on eBay had reached $7.2 million.

This, however, is a trap for entrepreneurs. The market appears to have a niche for anything – but this is illusory. There is a three sided problem that can derail a product. I spoke last night at a startup event and introduced a few thoughts on what these are. Microphone problems prevented me from making my point as well as I would have liked, so here, in text, are the three sides to the product conundrum.

Side I: Technologies are not products.

If you build it, they may not come. Invention is only part of the solution – or to put it in the words of Dave McClure, an angel investor, ‘your solution is not my problem‘. Many, many startups have the problem of founding inventors whose faith in the value of their technology prevents them from adequately defining what the product is, or what problems it solves for customers. Back in the late 1970s Apple was one such example.

The arrival of a new generation of Intel and Motorola chips in the 1970s prompted a wave of ‘homebrew’ garage startups/hobbyists to tinker with personal computers. Until then computers had been large, corporate machines, and geeks were enthralled by the possibilities of ‘personal’ computing. Among them were Steve Jobs and Steve Wozniak, the founders of Apple. They produced the best of the early PCs: the Apple II, in 1977. Good as it was, the Apple II was still a relatively niche technology for geeks. The Apple II was not yet really a ‘product’.

Separately, with no connection to Apple, two entrepreneurs named Dan Bricklin and Bob Frankston created something that made the Apple II into a truly great product. They created a piece of software called VisiCalc – the first spreadsheet – and it worked initially only on the Apple II. Companies realised the value of the spreadsheet, bought VisiCalc, and bought Apple II machines to run it on. VisiCalc sold just under three quarters of a million copies over the next six years. Jobs and Wozniak, despite how great their technology was, needed Bricklin and Frankston to make their offering into a product. And here is the first side of the 3 sided product problem: even the best engineering does not a product make.

Side II: Business can be blind to the product within a technology.

The second side of the 3 sided product problem is that business may not necessarily understand the promise of an invention, no matter how great the potential product may be. Consider Chester Carlson. In 1938 Carlson invented what we now know as the photocopying process. He shopped his invention for six years until 1944, when a research institute finally agreed to develop the idea with him. Then after a further three years, in 1947, almost a decade after his initial tour with the invention, he signed a deal to build a photocopy machine with a small company that made photo paper. Finally in 1959, over two decades after Carlson’s invention, the first Xerox machine finally appeared on the market. Fortune Magazine would later call the first Xerox “the most successful product ever marketed in America measured by return on investment”.

Once it became a commercial powerhouse, Xerox proceeded to repeat the mistakes of its fore-bearers. When Chester Carlson had toured companies with his invention, none had properly understood the idea of a copier in every office. Xerox, keen to stay ahead of the game, spent substantial sums in its own R&D. Xerox’s PARC research center pioneered many of the technologies that came to dominate computing. Computers with graphical user interfaces and office networks etc. Xerox HQ, however, failed to appreciate the enormous value of what its engineers had built. Xerox management invited Steve Jobs to take its technology – the Xerox Alto was a PC so advanced that Apple’s knockoff only arrived on the market over than a decade later, and immediately prompted a revolution in the consumer PC business. Xerox also watched as one of its finest researchers, Robert Metcalfe, left to commercialize Ethernet networking.

Side III: Context can kill.

Even if you leap over these two traps, have a great product that consumers and/or business understands, timing and context are everything. In 1997 Andrew Weinreich set up, the first social network in the mold of Facebook. The site was successful, but one very significant problem held it back. All interactions, everything that a member could know about any other member, were limited by the fact the site was pretty much text only. Nobody had digital cameras in the late 1990s. Hendy’s Law, a Moore’s Law for digital cameras, showed that digital camera prices would only come down to consumer level in the early 2000s – too late for The problem got so acute, Weinreich told me when I spoke with him, that the board considered hiring hundreds of interns whose sole job would be to open envelopes posted in by users, and manually scan and digitize users’ profile photographs. Friendster had no such problems when it arrived in 2002. ( had already folded in 2001.) So, even when the technology and the product are sound, the context can be wrong.

These, it seems to me, are the three sides to the product problem. On a personal note, right now I am working to find a great technology, with the right context, that needs to become a product. Any ideas, let me know.

One thought on “The 3 sided product problem

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s