A fair question for potential clients to ask any consulting firm would be, “What are the advantages to us of your particular methodologies, models, approaches, skills, tools, and modular services? That’s what we really care about.” This short article answers that question in terms of clients’ contracts with providers of design and development services, and the actual design and development projects themselves.

Final Notes

There is one thing clients want that neither the usual approach nor our approach can satisfy. Clients want to know up front how long the project will take and what it will cost. However, nobody can tell them with any accuracy at all, because nobody knows what the project will entail before work has started on it. When a client accepts a fixed bid from a company to do the whole design and development project, it’s a fiction. There will inevitably be change orders, delays, cost overruns, and disputes, because nobody can promise to produce a result that hasn’t been completely specified. Hence, the contracts are full of loopholes. It’s like asking an architect for a price on a house that hasn’t yet been designed.

Although our modular approach cannot fully solve this problem, the time and cost of the project can be more and more accurately estimated as each modular service is completed. This increasingly accurate estimate is still far better than the complete guesswork offered by the usual approach, which never becomes reliable until the project is completely finished. For example, after completing the two initial research and decision analysis services, time and cost for the rest of the project (which is nearly all of it) can usually be known within 40%. By the time the design is finished and agreed to, the client will know exactly how long the rest of the project will take and exactly how much it will cost. In the meantime, clients are never required to commit to anything more than the next step in the process, so risk is drastically reduced throughout the project.

In sum, the first advantage to clients is a contract they can rely on that specifies guaranteed results in a guaranteed time for a guaranteed cost, honored without disputes. The second advantage is a project that proceeds smoothly, with minimal frustration or conflict, producing an efficient, cost-effective, high quality result as promised, on time and within budget.

It’s an exciting time to be designing and developing online products. As explained in our article, “A Rare Opportunity,” we have entered the third generation of Internet and mobile technologies. These leaps in technical capabilities are only just starting to be applied in the invention of a vast range of new online products.

Even more recently, a fourth generation is arriving, based on a major expansion of media and their uses. Phenomena such as social networking and media convergence are changing how people and groups communicate. New communities are arising, based on common interests and purposes. The fourth generation opens up tremendous possibilities to expand the ways people access online applications. This, in turn, makes it practical for companies to offer their online products to new categories of customers and dramatically increase the size of their existing customer base. It is also an opportunity to build new communities of customers for their benefit and the company’s.

Because of these dramatic, generational leaps in technology and media, companies are starting to change their priorities. Most now rely primarily on their websites and only secondarily on online products/applications. This order is being reversed. More and more website functionality is being converted to stand-alone online applications that can be used on mobile phones and other mobile devices.

What Are Online Products?

Before considering what companies stand to gain from developing and selling online products, let us clarify what they are, what categories they break down into, and how they relate to a company’s other products, services, and functions.

Online products are software applications and/or information for customers. They may also include various communication functions, either interpersonal or intragroup. They may be offered on the company’s website or as a client-server application. Customers may run them on mobile or non-mobile devices like PCs.

From the perspective of the company who develops and owns them, they are thought of as products. From the perspective of its customers/users, they are thought of as applications, information, or a combination of both.

Many are a translation of an offline product or service, whether software or not, into an online form. Others are entirely new products. They can be stand-alone applications or a kind of accessory or complement to another online or offline product or service.

A related kind of online application is one for internal use by a company’s own staff. While much of this article applies to that case as well, there are significant differences. Therefore, this case will be treated in a separate article to follow.

It can be useful to understand the relationship between online products and the functions of its line departments. The function of a company’s production or manufacturing department is production. Its output are called products. This is so whether those products are hardware, software, or a mixture of both. To the company that owns them and sells them (even if by subscription), online products are just a kind of product. The department that develops and maintains them is functionally (although perhaps not in the organization chart) just a branch of the company’s production department.

The function of a company’s service-providing department (like the consultants in a consulting company or lawyers in a law firm) is to perform services for customers. It does not really have “things” for output, as products are to the production department. The work its staff do is the actual performance of its services. When such services are translated into online versions, or new online-services are developed, such services supplement or replace some of the work of the service-providing department. The company is still likely to think of the online version as a product, rather than as a service for sale. Customers are still likely to think of them as applications and/or information that they purchase or subscribe to. Therefore, even though they may have begun life as an offline service, it still makes the most sense to refer to them as online products.

Potential Benefits for Companies

Online products, whether offered on a company’s website or as a client-server application (usually run on mobile devices) have two ways of producing benefits for the company that develops and owns them. The first way is by expanding the functionality of existing offline or online products or services.

For example, Weber’s “On the Grill” mobile application complements their grill products by enabling owners to look up recipes on their mobile phones while grilling outside. Another example is a mobile application that expands the functionality of BrightKite’s social-networking website. Since the mobile phone knows where you are (via GPS), your friends can find you and more easily meet up with you. It can also tell you about shops, restaurants, and events happening near your location.

The other way that online products can product benefits for their company is by making access to existing online products or services far more convenient. They can be accessed while away from your desk, office, or home, merely by pulling out your phone.

For example, a bank’s mobile application to access its website from your phone can be more convenient when you’re not at your PC than calling the bank or going to a branch. A mobile calorie-counter application is much more useful than the same functionality on the company’s website, but only accessible from a PC, because it can be accessed when you’re in a restaurant deciding what to order. With calorie information about everything on a huge range of restaurants’ menus, you can just look up the item on your phone before ordering.

The benefits to companies from these two types of capabilities of online products—expanding functionality of other products or services and making access to online products or services more convenient—are indirect, but very significant. They can greatly increase the appeal to customers of the other online or offline products or services, both by satisfying more of customers’ aims and by satisfying their other aims better. This can result in major competitive advantages, leading to increased usage and increased sales.

In addition to these indirect benefits, online products can generate sales revenues themselves. Mobile applications are not usually wildly profitable, although there are exceptions. Website applications, however, can be very profitable. One type is an online version of an offline software application. For example, Intuit’s “Turbo Tax Online” is a very profitable online version of a successful desktop application. (Successful online products do not have to be applications of this size or complexity, however.) Another type is part of Travelocity’s website—the parts that function as an application used by its customers to buy tickets, book hotel, and reserve car rentals, for example.

How to Invent Them

Given the untapped potential of 3-G technology and 4-G media for developing new online products, many companies are eager to invent new ones for sale to their customers. However, several obstacles have prevented most companies from capitalizing on this opportunity.

There are three cases of inventing new online-products, each with a different level of challenge. First, if a company merely wants to translate one of its existing offline products or services into an online form, there is no invention problem. Second, if they want to invent a new online-product to complement an existing online or offline product or service, the challenge is greater. But the third case—an entirely new, separate online-product to sell—presents substantial invention problems.

In the second or third case, most companies don’t know where to begin. Such invention is generally regarded as the exclusive province of “geniuses” or of sheer luck. Lacking such a genius in-house, and not knowing of any geniuses available to be hired, companies usually give up, because they can’t afford to flail around for an indefinite period of time, hoping for luck to strike.

Other companies try to solve the invention problem by relying on market research for ideas. This is rarely successful, because market research isn’t really geared to this kind of problem. It often steers companies in the wrong direction, trying to satisfy the wrong aims of the wrong categories of customers. It rarely results in the kinds of creative innovation required to invent a successful online-product.

Yet a third approach is to start with some brand-new technology and look for a way to turn it into something profitable. This is really backwards: a solution in search of a problem. It’s very hard to create a successful new product in this way.

Another problem companies face in these cases is making sure they’re fully aware of and making the best use of all the emerging technology and media capabilities that would help them. Other problems include highly uncertain costs, schedules, and forecasts of sales and revenues.

A final problem is a pervasive myth that the only way to succeed in launching a new online-product is to do it extremely quickly. The idea is that, because technology is advancing so rapidly, and because becoming established as the first product in a category is important for becoming the standard that attracts early adopters, nothing matters except speed. While these points are valid, they are not the whole story. Rushing to market usually leads to doing a quick and dirty job of product innovation and development, producing a poor-quality product, which does little to establish it in the market. It’s noteworthy that neither Apple nor Google—two companies that have had great successes in inventing new products—never work in this way.

Inventing new online-products doesn’t have to be so difficult or risky. By taking full advantage of the expertise resident within the company, as well as drawing on the creativity and experience of outside experts in new-product innovation, the need for geniuses or luck can be practically eliminated. If good-quality research is done into who the potential customers for the product could be, plus what they want that the company is willing and able to help them accomplish, the field of potential products is greatly narrowed and clarified. Then it is much easier to invent a range of online products to meet these objectives.

The candidates then need to be evaluated carefully for how well they would satisfy customers’ aims, benefits to customers, competitors, marketability, and sellability. The costs, time, technical feasibility, and risks of developing, marketing, selling, and supporting the product also need to be estimated accurately. Parts of the product might be available in off-the-shelf packages that could be used as is or customized for the new product. Finally, sales revenue, market share, and effects on the company’s reputation and sales of its other online and offline products and services should be estimated carefully.

If approached correctly, even inventing completely new, stand-alone online-products should be a viable possibility for many companies, and inventing ones that complement existing online or offline products or services should also be well within their capabilities.

A chance to seize an opportunity offered by a generational leap in technology only comes around once in a decade or two. An opportunity presented by a major shift in media form—such as the introduction of the telephone, radio, television, or the Internet—is rarer still.

Those who recognize such opportunities first, have the vision to see how to capitalize on them, and are able to bring the necessary resources and skills to bear usually end up dominating their markets. Others who wait to follow the leaders usually end up playing supporting roles.

Right now is one of those rare times. A new generation of Internet-based technologies has emerged at the same time as a major shift in media forms, producing an exceptional opportunity for those who are willing and able to take advantage of it.

The Evolution of Connectivity: Four Generations

The new technologies make it possible for connectivity in the information-technology field to move into what could be called its third generation. The first generation was intra-company, using a company’s own local-area network, for example. Not surprisingly, the lead department for this generation was the IT department.

The second generation—the one still most used by companies—was between companies and their customers, suppliers, and other external stakeholders, using the Internet. Its main focus was marketing: advertising, branding, getting the company’s message out. Its secondary focus was online sales, whether of online or offline products and services. Its third focus was customer service and support. It also enabled intra-company communication outside the office. The lead department for this generation has usually been the marketing department, which has tended to slight the other important business benefits that websites could provide.

The third generation—only recently coming into use—is made possible by emerging Internet and mobile technologies. Some of the most important, newest ones are smart mobile-devices, Rich Internet Applications (RIA), GIS-based maps and cameras with superimposed dynamic information. These technologies are making it possible to translate many offline products and services into online products/applications that companies can sell to their customers at lower cost and higher volumes. They also open the door to a vast range of new online products—yet to be invented. In addition, new, far more powerful tools and utilities can be created for company staff and accessed over the Internet, contributing to improved performance and reduced costs. The main focus of this new generation is product development, whether for PCs or mobile devices, for customers or staff. No company department has yet led the way for third-generation development.

At the same time, what could be called a fourth generation is also appearing, based on a fundamental shift in media and their uses. The phenomenon of social networking—e.g., Facebook, Twitter, LinkedIn—is fundamentally changing how people and groups communicate. Old media, such as radio, TV, and newspapers, are threatened. People around the world are communicating directly with each other about everything, bypassing the established gatekeepers. Whole new communities are arising, based on common interests and purposes. The possibilities being opened up by these new media, their convergence, and the uses to which they are being put are practically infinite: entirely new categories of products/applications, new ways of accessing and using these applications, new categories of customers and other users that can be reached, and communities that can contribute to as well as benefit from a company’s products and services, to give but a few important examples. No department or outsourced profession has taken the lead in fourth-generation development either.

Untapped Potential

Most companies have barely scratched the surface of third and fourth generation technologies and media. Few are up to speed on more than a bit of the capabilities and applications they offer. As a result, few company personnel and, surprisingly, few professionals in this field, fully understand the role that websites and online products/applications can now play in their companies. Many still implicitly view websites as primarily marketing tools to broadcast company messages to their customers (primarily a one-way form of communication), not unlike TV ads, except with better targeting and lower cost.

Instead, the right perspective is to regard a company’s website as a kind of virtualized company: a frame for virtualized forms of functions otherwise performed by most of its line departments: marketing, sales, shipping, and support. In this way, the functions performed by people in these departments can be complemented, supplemented, or even replaced by online versions modeled on the way an ideal person would do them.

Finding Qualified Professionals

Because these third and fourth generations of connectivity are still so new, perspectives, knowledge, skills, and methodologies have not caught up. Relevant education and training is hard to come by at universities or elsewhere. Psychology, sociology, anthropology, and ethnography contribute little to this new field. Disciplines that are more helpful to practitioners include information theory, communication theory, organization science, and decision analysis.

As a result, finding qualified professionals to do anything other than the actual coding work is very difficult. Yet bringing the right perspectives, knowledge, skills, and methodologies to design and development projects for websites and online products is essential to their success. The earlier the step in the process, the harder it is to find people qualified to execute it well.

The Track Record

Twelve years of experience in the Internet design and development field has shown us that 80% of such projects—most of the ones not done by innovative startups—are, to put it bluntly as an insider, just done wrong. This is true regardless of which parts of the projects are done in-house and which are outsourced.

Although insiders are reluctant to let their clients in on our dirty little secret, the truth is that the track record for these projects is terrible. Many are cancelled. It is normal to go through many expensive change-orders, experience delay after delay, suffer serious quality problems, and go way over budget. These projects are not often managed the way projects in other fields like construction are, although they are usually more complex and therefore require even more sophisticated project-management skills and methods. For most of them, it would be generous to say that they benefit from any real project-management at all. The result can easily be a website or application that works adequately and looks nice, but doesn’t really satisfy its users or do much for its company’s business.

The Top Nine Reasons for This Poor Track Record

1. Perspective: wrong perspective on the true role of websites, online products, & communication functions for companies. A limited IT or Marketing perspective, instead of the right understanding of the Internet’s potential, married to a clear business-focus. These projects, after all, should only be done for the sake of worthwhile ROI for the company.
2. Research: not investigating the business reasons & goals for the project, to ensure that the project produces them. Not doing the right kind of research into the right questions, & making sound, well-informed decisions at each step of the project, including whether or not to proceed.
3. Planning: little or no planning at all. Relying on trial & error. Thinking that planning is either not possible or counterproductive (e.g., inhibits creativity). Poorly-chosen or ill-defined project-objectives. Relying on the design work to reveal the purposes of the project. Leaving “strategic” planning to design agencies or company personnel without the skills to do it right. Working from a plan that just isn’t detailed enough to do an adequate job guiding people’s work at each step in the project. Beginning design work, such as UI or visual design, without adequate specifications, or beginning coding without adequate designs.
4. Budgeting: setting budgets before planning, setting objectives, & making sound decisions. Then being stuck with an unrealistic budget for a project that isn’t fully understood.
5. Methodologies: critical steps done in the wrong order. Steps omitted. Conflating user-interface design with visual design.
6. Product development: inability to come up with innovative product-concepts without relying on geniuses or sheer luck, since no research into business objectives or user aims was done to provide the right foundation for innovation. Product development geared toward the wrong user aims, usually identified from demographic market-research. Product development done backwards: concepts/technologies in search of ways to profit from them. Merely copying the competition, as a common way of trying to cope with these challenges, which is no way to capture the dominant market-position.
7. Non-modular services: companies have to buy the whole service or nothing. Thinking they have to get one firm to outsource the whole project to—a myth propagated by design and development firms, which is really the result of poor or unclear methodologies that do not allow for modularization. Leads to the using the wrong people for parts of the project. No pausing for decision points & reevaluating whether to proceed, how, and with whom.
8. People: lacking the requisite perspectives & skills for their part of the project. The people doing this kind of work usually come from IT, marketing, or graphics design backgrounds. They rarely understand how companies really work and what online- solutions to their problems must entail. They rarely have the skills to do effective planning and project-management. They are only really set up to execute assignments given to them—not to research, innovate, make decisions, consider business needs, or define objectives. These critical first steps are therefore left to their client or business analysts, who may not know enough about the latest technology and its potential applications (such as how to virtualize various business functions) to do an adequate job of these things either.
9. Project-management: unskillful, haphazard, and sloppy. Ineffective communication and collaboration among members of the outsourced project-team and between that team and client staff.

Future articles in this blog will discuss solutions to these nine problems and ways to make these kinds of projects far more successful.