July 2007

Do you have a better chance at winning a lottery than developing a successful internet application?

Short answer appears to be – yes, buy that ticket. However, there are steps you can take to improve your chances. Some are obvious, but I cannot find many developers really pursuing these obvious strategies within the few markets that I have explored thoroughly.

We all know about the few great successes in the web market place, Amazon, EBay, YouTube etc. Handful of them, maybe a dozen have made it big. There are a lot more companies that have carved themselves a niche in web application market place allowing them to provide value to their customers and shareholders – nothing spectacular though – maybe a couple of thousand companies in North America. What is common to all these companies is that they are near monopolies or very dominant in their niches. Examples of such products include www.schooldude.com or www.turnitin.com. However, vast majority of web applications never make it far out of the gate – there are at least 100 competing products for SchoolDude ™ in CMMS market place… Web application development is a winner takes it all market – each niche has room for one product.

Why isn’t there more competition – thus more companies being successful developing internet based products? Applications are easy to copy, sorry, I mean develop, customers can find the competing products easily as there are no geographical barriers and it is relatively easy to compare the products – all these factors lower the entry barriers for competitors. However, success breeds success, the most important factor for many clients in choosing a product is the experience of the vendor and experiences of vendor’s clients using the product. These features of the market necessitate high quality and completeness of the solution. The leading vendor will achieve unbeatable advantage by providing a slightly more complete solution with higher perceived quality. Price is secondary consideration to both vendor and the client, however, the market leaders tend keep the prices sufficiently low (which is easy with the high sales volume) in order to deter the competitors from entering.

Oddly enough, it seems almost impossible to find an application that would really cover all aspects of client needs in particular industries. I looked into CMMS and FM applications from the viewpoint of facilities department. My client will need multiple applications from different vendors to serve their needs. Is it that the product cycles are so fast that developers cannot deliver complete solutions or that competition is so fierce that development funds do not stretch for features and modules that have lesser demand? I think that point is reached where providing the better mousetrap gets lost in the volume of offerings – all easy approaches, niches and ideas are offered and pursued by the vendors – but not in a same product. Everyone is offering the bare necessities and one or two differentiators – required, but less used features. That is a mature market with near perfect competition – thus the market leader becomes monopoly quickly by offering better product at a same or lower price. All of the other competitors just cannot afford to offer complete solutions nor develop better products in this market.

So if you want to develop new web application and have a killer idea for it (sorry to say, but someone else has already solved – and better - the same problem, if there is need for your product). There are three things you can do to improve your odds to become commercial success.

1. Make your application part of bricks and mortar business or personal service offering. Provide a solution for the common problems over the net, but back it up with a physical product or service for the cases where standard approach doesn’t work ie. provide consulting or sell real stuff. This approach gives you geographical advantage or advantage inherent to your physical product, thus you can limit the competition.

2. Provide value to customer that your competitors cannot do. This could be know-how or other Intellectual Property that is very difficult to copy or proprietary to your company and provides real, easy to understand financial value to your clients. Again you are limiting the competition and giving yourself advantage.

3. Deliver EVERYTHING that your target client may need in a modular fashion – now, not in the future releases. And make sure that your product is of high quality and developed with deep, thorough understanding of the client needs. This is very difficult to do, but achieving this will quickly launch you as the new monopoly holder in your market place.

Or of course you can cook up an innovative solution for an unmet social need and sell it for billions of dollars – there are one or two of those successes a year… There are 52 lottery draws a year.

Peter Isotupa, President

Isotupa Consulting Inc.