Crossing the Chasm

Marketing and Selling Technology Project

Geoffrey A. Moore

• Publisher: HarperCollins e-books
• Year: 2009
• ISBN:
  9780061795862
• Topic: Business
• Subtopic: Management
• Index: Business

Here is the bestselling guide that created a new game plan for marketing in high-tech industries. Crossing the Chasm has become the bible for bringing cutting-edge products to progressively larger markets. This edition provides new insights into the realities of high-tech marketing, with special emphasis on the Internet. It's essential reading for anyone with a stake in the world's most exciting marketplace.

PART I
DISCOVERING THE CHASM

Introduction
If Bill Gates Can Be a Billionaire

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There is a line from a song in the musical A Chorus Line: “If Troy Donahue can be a movie star, then I can be a movie star.” Every year one imagines hearing a version of this line reprised in high-tech start-ups across the country: “If Bill Gates can be a billionaire. . .” For indeed, the great thing about high tech is that, despite numerous disappointments, it still holds out the siren’s lure of a legitimate get-rich-quick opportunity.

But let us set our sights a little more modestly. Let us say, “If in the 1980s two guys, each named Mike Brown (one from Portland, Oregon, and the other from Lenexa, Kansas), can in 10 years found two companies no one has ever heard of (Central Point Software and Innovative Software), and bring to market two software products that have hardly become household names (PC Tools Deluxe and Smartware) and still be able to cash out in seven figures, then, by God, we should be able to too.”

This is the great lure. And yet, as even the Bible has warned us, while many are called, few are chosen. Every year millions of dollars—not to mention countless work hours of our nation’s best technical talent—are lost in failed attempts to join this kingdom of the elect. And oh what wailing then, what gnashing of teeth!

“Why me?” cries out the unsuccessful entrepreneur. Or rather, “Why not me?” “Why not us?” chorus his equally unsuccessful investors. “Look at our product. Is it not as good—nay, better—than the product that beat us out? How can you say that Oracle is better than Sybase, Microsoft Word is better than WordPerfect, Cisco’s routers are better than Bay Networks’, or that Pentium is better than the Power PC?” How, indeed? For in fact, feature for feature, the less successful product is often arguably superior.

Not content to slink off the stage without some revenge, this sullen and resentful crew casts about among themselves to find a scapegoat, and whom do they light upon? With unfailing consistency and unerring accuracy, all fingers point to—the vice-president of marketing. It is marketing’s fault! Oracle outmarketed Sybase, Microsoft outmarketed WordPerfect, Cisco outmarketed Bay, Intel outmarketed Motorola. Now we too have been outmarketed. Firing is too good for this monster. Hang him!

While this sort of thing takes its toll on the marketing profession, there is more at stake in these failures than a bumpy executive career path. When a high-tech venture fails everyone goes down with the ship—not only the investors but also the engineers, the manufacturers, the president, and the receptionist. All those extra hours worked in hopes of cashing in on an equity option—all gone.

Worse still, because there is no clear reason why one venture succeeds and the next one fails, the sources of capital to fund new products and companies become increasingly wary of investing. Interest rates go up, and the willingness to entertain venture risks goes down. Wall Street has long been at wit’s end when it comes to high-tech stocks. Despite the efforts of some of its best analysts, these stocks are traditionally undervalued, and exceedingly volatile. It is not uncommon for a high-tech company to announce even a modest shortfall in its quarterly projections and incur a 20 to 30 percent devaluation in stock price on the following day of trading.

There is an even more serious ramification. High-tech inventiveness and marketing expertise are two cornerstones of the U.S. strategy for global competitiveness. We will never have the lowest cost of labor or raw materials, so we must continue to exploit advantages further down the value chain. If we cannot at least learn to predictably and successfully bring high-tech products to market, our counterattack will falter, placing our entire standard of living in jeopardy.

With so much at stake, the erratic results of high-tech marketing are particularly frustrating, especially in a society where other forms of marketing appear to be so well under control. Elsewhere-in cars or TVs or microwaves—we may see ourselves being outmanufactured, but not outmarketed. Indeed, even after we have lost an entire category of goods to offshore competition, we remain the experts in marketing these goods to U.S. consumers. Why haven’t we been able to apply these same skills to high tech? And what is it going to take for us to finally get it right?

It is the purpose of this book to answer these two questions in considerable detail. But the short answer is as follows: Our current model for how to develop a high-tech market is almost—but not quite—right. As a result, our marketing ventures, despite normally promising starts, drift off course in puzzling ways, eventually causing unexpected and unnerving gaps in sales revenues, and sooner or later leading management to undertake some desperate remedy. Occasionally these remedies work out, and the result is a high-tech marketing success. (Of course, when these are written up in retrospect, what was learned in hindsight is not infrequently portrayed as foresight, with the result that no one sees how perilously close to the edge the enterprise veered.) More often, however, the remedies either flat-out fail, and a product or a company goes belly up, or they progress after a fashion to some kind of limp but breathing half-life, in which the company has long since abandoned its dreams of success and contents itself with once again making payroll.

None of this is necessary. We have enough high-tech marketing history now to see where our model has gone wrong and how to fix it. To be specific, the point of greatest peril in the development of a high-tech market lies in making the transition from an early market dominated by a few visionary customers to a mainstream market dominated by a large block of customers who are predominantly pragmatists in orientation. The gap between these two markets, heretofore ignored, is in fact so significant as to warrant being called a chasm, and crossing this chasm must be the primary focus of any long-term high-tech marketing plan. A successful crossing is how high-tech fortunes are made; failure in the attempt is how they are lost.

For the past decade and more, I, along with my colleagues at The Chasm Group, have watched countless companies struggle to maintain their footing during this difficult period. It is an extremely difficult transition for reasons that will be summarized in the opening chapters of the book. The good news is that there are reliable guiding principles. The material in this book was born of hundreds of consulting engagements focused on bringing products and companies into profitable and sustainable mainstream markets. The models presented here have been tested again and again and have been found effective. The chasm, in sum, can be crossed.

Like a hermit crab that has outgrown its shell, the company crossing the chasm must scurry to find its new home. Until it does, it will be prey to all kinds of predators. This urgency means that everyone in the company—not just the marketing and sales people—must focus all their efforts on this one end until it is accomplished. Chapters 3 through 7 set forth the principles necessary to guide high-tech ventures during this period of great risk. This section focuses on marketing, because that is where the leadership must come from, but I ultimately argue in the Conclusion that leaving the chasm behind requires significant changes throughout the high-tech enterprise. The book closes, therefore, with a call for new strategies in the areas of finance, organizational development, and R&D.

This book is unabashedly about and for marketing within high-tech enterprises. But high tech can be viewed as a microcosm of larger industrial trends. In particular, the relationship between an early market and a mainstream market is not unlike the relationship between a fad and a trend. Marketing has long known how to exploit fads and how to develop trends. The problem, since these techniques are antithetical to each other, is that you need to decide which one-fad or trend—you are dealing with before you start. It would be much better if you could start with a fad, exploit it for all it was worth, and then turn it into a trend.

That may seem like a miracle, but that is in essence what high-tech marketing is all about. Every truly innovative high-tech product starts out as a fad—something with no known market value or purpose but with “great properties” that generate a lot of enthusiasm within an “in crowd.” That’s the early market. Then comes a period during which the rest of the world watches to see if anything can be made of this; that is the chasm. If in fact something does come out of it—if a value proposition is discovered that can predictably be delivered to a targetable set of customers at a reasonable price-then a new mainstream market forms, typically with a rapidity that allows its initial leaders to become very, very successful.

The key in all this is crossing the chasm—making that mainstream market emerge. This is a do-or-die proposition for high-tech enterprises; hence, it is logical that they be the crucible in which “chasm theory” is formed. But the principles can be generalized to other forms of marketing, so for the general reader who can bear with all the high-tech examples in this book, useful lessons may be learned.

One of the most important lessons about crossing the chasm is that the task ultimately requires achieving an unusual degree of company unity during the crossing period. This is a time when one should forgo the quest for eccentric marketing genius, in favor of achieving an informed consensus among mere mortals. It is a time not for dashing and expensive gestures but rather for careful plans and cautiously rationed resources—a time not to gamble all on some brilliant coup but rather to focus everyone on making as few mistakes as possible.

One of the functions of this book, therefore-and perhaps its most important one-is to open up the logic of marketing decision making during this period so that everyone on the management team can participate in the marketing process. If prudence rather than brilliance is to be our guiding principle, then many heads are better than one. If marketing is going to be the driving force-and most organizations insist this is their goal—then its principles must be accessible to all the players, and not, as is sometimes the case, be reserved to an elect few who have managed to penetrate its mysteries.

Crossing the Chasm, therefore, is written for the entire high-tech community—for everyone who is a stakeholder in the venture, engineers as well as marketeers, and financiers as well. All must come to a common accord if the chasm is to be safely negotiated. And with that thought in mind, let us turn to Chapter 1.

1
High-Tech Marketing Illusion

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As the revised edition of this book is being written, it is 1998, and for this time we have seen a commercial release of the electric car. General Motors makes one, and Ford and Chrysler are sure to follow. Let’s assume the cars work like any other, except they are quieter and better for the environment. Now the question is: When are you going to buy one?

The Technology Adoption Life Cycle

Your answer to the preceding question will tell a lot about how you relate to the Technology Adoption Life Cycle, a model for understanding the acceptance of new products. If your answer is, “Not until hell freezes over,” you are probably a very late adopter of technology, what we call in the model a laggard. If your answer is, “When I have seen electric cars prove themselves and when there are enough service stations on the road,” you might be a middle-of-the-road adopter, or in the model, the early majority. If you say, “Not until most people have made the switch and it becomes really inconvenient to drive a gasoline car,” you are probably more of a follower, a member of the late majority. If, on the other hand, you want to be the first one on your block with an electric car, you are apt to be an innovator or an early adopter.

In a moment we are going to take a look at these labels in greater detail, but first we need to understand their significance. It turns out our attitude toward technology adoption becomes significant—at least in a marketing sense—any time we are introduced to products that require us to change our current mode of behavior or to modify other products and services we rely on. In academic terms, such change-sensitive products are called discontinuous innovations. The contrasting term, continuous innovations, refers to the normal upgrading of products that does not require us to change behavior.

For example, when Crest promises you whiter teeth, that is a continuous innovation. You still are brushing the same teeth in the same way with the same toothbrush. When Ford’s new Taurus promises better mileage, when Dell’s latest computer promises faster processing times and more storage space, or when Sony promises sharper and brighter TV pictures, these are all continuous innovations. As a consumer, you don’t have to change your ways in order to take advantage of these improvements.

On the other hand, if the Sony were a high-definition TV, it would be incompatible with today’s broadcasting standards, which would require you to seek out special sources of programming. This would be a discontinuous innovation because you would have to change your normal TV-viewing behavior. Similarly if the new Dell computer were to come with the Be operating system, it would be incompatible with today’s software base. Again, you would be required to seek out a whole new set of software, thereby classifying this too as a discontinuous innovation. Or if the new Ford car, as we just noted, required electricity instead of gasoline, or if the new toothpaste were a mouthwash that did not use a toothbrush, then once again you would have a product incompatible with your current infrastructure of supporting components. In all these cases, the innovation demands significant changes by not only the consumer but also the infrastructure. That is how and why such innovations come to be called discontinuous.

Between continuous and discontinuous lies a spectrum of demands for change. TV dinners, unlike microwave dinners, did not require the purchase of a new oven, but they did require the purchase of more freezer space. Color-TV programming did not, like VCRs, require investing in and mastering a new technology, but they did require buying a new TV and learning more about tuning and antennas than many of us wanted to learn. The special washing instructions for certain fabrics, the special street lanes reserved for bicycle riders, the special dialing instructions for calling overseas—all represent some new level of demand on the consumer to absorb a change in behavior. Sooner or later, all businesses must make these demands. And so it is that all businesses can profit by lessons from high-tech industries.

Whereas other industries introduce discontinuous innovations only occasionally and with much trepidation, high-tech enterprises do so routinely and as confidently as a born-again Christian holding four aces. From their inception, therefore, high-tech industries needed a marketing model that coped effectively with this type of product introduction. Thus the Technology Adoption Life Cycle became central to the entire sector’s approach to marketing. (People are usually amused to learn that the original research that gave rise to this model was done on the adoption of new strains of seed potatoes among American farmers. Despite these agrarian roots, however, the model has thoroughly transplanted itself into the soil of Silicon Valley.)

The model describes the market penetration of any new technology product in terms of a progression in the types of consumers it attracts throughout its useful life:

As you can see, we have a bell curve. The divisions in the curve are roughly equivalent to where standard deviations would fall. That is, the early majority and the late majority fall within one standard deviation of the mean, the early adopters and the laggards within two, and way out there, at the very onset of a new technology, about three standard deviations from the norm, are the innovators.

The groups are distinguished from each other by their characteristic response to a discontinuous innovation based on a new technology. Each group represents a unique psychographic profile-a combination of psychology and demographics that makes its marketing responses different from those of the other groups. Understanding each profile and its relationship to its neighbors is a critical component of high-tech marketing lore.

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Table of contents

• Dedication
• Contents
• Preface to the Revised Edition
• Foreword
• PART I
• PART II
• Acknowledgments
• Conclusion
• About the Author
• Credits
• Copyright
• About the Publisher