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Open letter: why goliath usually wins.

TO: John Paulson

President, Springboard Software

Dear John,

When you dropped by last week to show us the new Macintosh version of Springboard Publisher, we were pleasantly surprised. It's no secret that the original Apple II incarnation of springboard Publisher was a product so slow and clumsy that it was virtually useless. This time, however, your developers seem to have done a first-class job: they've created a spirited, friendly, and disciplined product that (assuming no hidden flaws) should be taken seriously by the desktop publishing market.

But Springboard Publisher still lacks one key feature--a workable marketing strategy. You told us Springboard positions the product as a low-cost, easy-to-use alternative to PageMaker, a notch or two up from high-end word processors. You admitted that such a position is likely to confuse many of your target customers--but you're confident that desktop publishing is such a huge market that you'll still be able to tell your story to enough buyers to capture a respectable share of the market.

We sincerely hope you're right. Unfortunately, however, we suspect you've fallen for one of the software industry's most pervasive fairy tales: the David and Goliath scenario. According to the way the script is usually written, a feisty little upstart takes on an industry giant (in your case, Aldus), tosses a few pebbles, and escapes with a flock of valuable customers. After a few years of low-budget "guerrilla marketing," Goliath crumples to his knees and David takes over.

The trouble with this strategy, John, is that it overlooks a basic economic principle of the software business: Small market shares are almost never profitable. in almost every niche we've seen, one or two Goliath-like companies typically end up controlling 40% to 60% of total sales dollars--but they collect 80% to 90% of the profit dollars. What David gets are fringe customers that Goliath doesn't particularly want: those who are hardest to service through normal sales channels, or who make the most extravagant demands for hand-holding, advanced features, and pricing concessions.

Admittedly, some industry giants are vulnerable. But you happen to have chosen a niche where the resident Goliath, Aldus, is about as tough as they come. The PageMaker brand name has become virtually synonymous with desktop publishing; retailers love the product; and the company is extraordinarily well-managed, cash-rich, and technically aggressive. You may steal away a few marginal customers from a company like this--but the real question is whether you'll ever squeeze any profit from those sales. somehow, we doubt it.

So what's the alternative?

Well, one possibility is to find a specialized niche of your own, one where you have an edge over more generic solutions. You might, for instance, repackage Springboard Publisher as a "Home office Publisher' or an 'Academic Publisher," with special-purpose templates, clip art files, and other features that Pagemaker lacks. If you pick the right niche and do your homework on features that customers value, you'll have a fair shot at becoming the mini-Goliath of that niche. And, most importantly, you'll have a product that captures a high share of profits as well as sales.

Another strategy you might try is to look for alternate marketing channels where springboard Publisher can become a major-league player. Aldus certainly has a lock on conventional software resellers, but we suspect there's room for a product that sells primarily through private label deals with software catalogs, through mass merchandisers (your new affiliates at Spinnaker can tell you about this world), or through educational marketing channels (where the Springboard name is already well respected).

If you look closely at these alternate channels, moreover, you'll often find they reach very distinct groups of buyers, who may not even know about the products that are the best-sellers in other channels. In effect, each channel represents a fresh chance to develop a position of market leadership. (A case in point: By developing specialized DeskMate versions of their products for Tandy's 7,000 Radio Shack outlets, a few savvy companies--including Symantec, Intuit, and Lotus--have now opened up a new channel to small business buyers, many of whom ignore conventional PC resellers. Since the software selection in most Tandy stores is strictly limited, these DeskMate products will have effectively no competition.

We could ramble on about other ways to create alternative niches for Springboard Publisher, but we assume you get the point. One caution, however: Don't cheat. If your goal is to become the Goliath of a specialized niche or marketing channel, the biggest risk of all is making a half-hearted effort to build a product that genuinely serves that niche. You can't just take a generic product and put a few new stickers on the box; you have to build a true product from scratch, thinking through all the necessary decisions about packaging, prices, distribution methods, and relationships with customers. If you shape that product clearly and imaginatively for a well-defined niche, you'll probably end up with a profitable market leader. If you venture forth with fuzzy positioning, however, Goliath will eat you alive.
COPYRIGHT 1989 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:written to John Paulson, pres of Springboard Software
Publication:Soft-Letter
Date:Jun 15, 1989
Words:833
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