Executive MBA Program Blog

Product Commercialization - Imperative for Growth

Posted by Robert Boehner on May 19, 2016 9:09:21 AM

A few months ago, I blogged about Apple and its product commercialization efforts.  Robert BoehnerApple’s market capitalization, which was approaching $1 trillion just before I wrote the blog, reflected investors’ expectations that CEO Tim Cook would continue to exploit Apple’s innovation capabilities and introduce a steady stream of “WOW” new products.  The hallmark of Apple’s strategy under Steve Jobs was the creation of new product categories such as the iPod, iPhone, and iPad.  Just as important was Apple’s creation of a digital eco-system including iTunes, apps on iPhone and iPad, and iOS.

In the blog I cautioned that Apple’s innovation engine seemed to be stalled.  There were expectations that a pending press conference would include new product announcements that would again jump-start Apple’s growth engine. 

The Apple watch was announced at that event.  Its acceptance has been underwhelming.  Apple also announced a series of incremental improvements in existing products: bigger brighter screens, more memory, better cameras, new apps, etc.  The announcement disappointed analysts and investors reacted immediately.  In July of 2015 Apple’s stock price was over $130; it dropped to just $94 in January 2016.

The news got worse.  On April 14, 2016 Apple announced that its revenue declined 13% year-over-year – the first quarterly sales drop since 2003.  The key reason for the decline was a 16% decrease in iPhone sales and slowing sales in China where revenue declined 26%.  (The iPhone accounts for over 50% of Apple’s revenue and about two-thirds of its profits.)

Analysts expressed considerable disappointment with Apple’s results and with the firm’s forecast for the rest of 2016.  Many analysts wondered if the world had seen “peak Apple” – if Apple would struggle to regain the extraordinary product leadership position that Steve Jobs created. 

Apple’s stock price declined precipitously – from $112 on April 14, 2016 to $93 on May 9, 2016. 

Apple will recover – it is too adept at innovation to allow its performance to languish.  But the message from investors is clear: in the modern, high-technology economy, market valuations respond clearly to a firm’s success at new product commercialization.

Another formerly high-flying company is feeling the same pressures as Apple: Twitter.  In the second quarter of 2015 Twitter’s share price was $52.  On May 9, 2016 it was $14.24.  The decline was driven by Twitter’s earnings announcements in February and in April 2016.  Twitter announced disappointing earnings, tepid user growth, and pessimism about its prospects for the rest of 2016.

Why the sharp decline in Twitter’s valuation?  Two answers: [1] Twitter’s user base is not expanding; and [2] It has not figured out how to monetize its business model. 

In February, Twitter reported that it had 320 million users.  That’s the same number of users as in the third quarter of 2015 – in other words, Twitter had zero user growth.  Excluding international text messaging SMS customers, Twitter users actually declined by 2 million.  Users increased only slightly in the April report.  What is driving low user growth?

Again, the answer is simple: Twitter has done little to improve its user experience.  In its earnings announcement press release, Twitter indicated that its major user issues “include, but are not limited to…the development of, investment in and demand for its products, product features and services, expectations regarding the growth of its monthly active users, advertiser base, and ad engagement.”  So, other than the fact that it delivers an unsatisfactory user experience, it’s failing to add users, its advertising base is declining, and users are not engaged in its ads, everything is fine.  Things might not improve soon.  Twitter mentioned in the same press release that there is the risk that “Twitter’s strategies, priorities, and plans take longer to execute than anticipated.” 

The Twitter message is the same as it is for Apple: in the technology space, product is everything and if the product isn’t right, the market punishes you.  As with Apple, Twitter’s stock price responded clearly to its failures at new product commercialization.

Twitter’s founder, Jack Dorsey, is back as the company as CEO; he says he understands the problems and he will fix things.  Twitter said that it is “confident that, with disciplined execution, [our] growth trend will continue over time.”  The “confident execution” should focus first on the basics of managing new product commercialization with an emphasis on the user experience and creating an advertising-driven business model.

Read about RIT's Online Executive MBA Program curriculuum which includes courses in Managing Technology, Innovation and Research and Managing New Product Commercialization.

Topics: innovation, strategy, commercialization