Crossing the Chasm, 3rd Edition

Geoffrey A. Moore

The gap between these two markets, all too frequently 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.

If prudence rather than brilliance is to be our guiding principle, then many heads are better than one.

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.

It is important to maintain momentum in order to create a bandwagon effect that makes it natural for the next group to want to buy in. Too much of a delay and the effect would be something like hanging from a motionless vine—nowhere to go but down.

If momentum is lost, then we can be overtaken by a competitor, thereby losing the advantages exclusive to a technology leadership position—specifically, the profit-margin advantage during the middle to late stages, which is the primary source from which high-tech fortunes are made.

The problem is that for people who are not frequent users of the system the protocols are simply too hard to remember. As a result, users do not use the features, and so companies in mature markets find it harder and harder to get paid for the R&D they have done because the end user cannot capture the benefit. Instead, they bemoan that the product has become a commodity when in fact it is the experience of the product that has been commoditized.

By contrast, the early majority want to buy a productivity improvement for existing operations. They are looking to minimize the discontinuity with the old ways. They want evolution, not revolution. They want technology to enhance, not overthrow, the established ways of doing business. And above all, they do not want to debug somebody else’s product. By the time they adopt it, they want it to work properly and to integrate appropriately with their existing technology base.

In sum, when promoters of high-tech products try to make the transition from a market base made up of visionary early adopters to penetrate the next adoption segment, the pragmatist early majority, they are effectively operating without a reference base and without a support base within a market that is highly reference oriented and highly support oriented.

We don’t want to lose market share at this critical juncture to some competitor. We must exploit our first-mover advantage and act while we are still within our window of opportunity. Strike while the iron is hot!)

What the company staff interpreted as a ramp in sales leading smoothly “up the curve” was in fact an initial blip—what we will be calling the early market—and not the first indications of an emerging mainstream market. The company failed because its managers were unable to recognize that there is something fundamentally different between a sale to an early adopter and a sale to the early majority, even when the company name on the check reads the same.

Thus, at a time of greatest peril, when the company was just entering the chasm, its leaders held high expectations rather than modest ones, and spent heavily in expansion projects rather than husbanding resources.

defining marketing is not particularly difficult: It simply means taking actions to create, grow, maintain, or defend markets.

market, which we will define, for the purposes of high tech, as: • a set of actual or potential customers • for a given set of products or services • who have a common set of needs or wants, and • who reference each other when making a buying decision.

No company can afford to pay for every marketing contact made. Every program must rely on some ongoing chain-reaction effects—what is usually called word of mouth. The more self-referencing the market and the more tightly bounded its communications channels, the greater the opportunity for such effects.

Classically, the first people to adopt any new technology are those who appreciate the technology for its own sake.

They are the ones who will spend hours trying to get products to work that, in all conscience, never should have been shipped in the first place. They will forgive ghastly documentation, horrendously slow performance, ludicrous omissions in functionality, and bizarrely obtuse methods of invoking some needed function—all in the name of moving technology forward. They make great critics because they truly care.

To reach technology enthusiasts, you need to place your message in one of their various haunts—on the Web, of course. Direct response advertising works well with this group, as they are the segment most likely to send for literature, or a free demo, a webinar, or whatever else of substance you offer.

Direct email will reach them—and provided it is factual and new information, they read cover to cover.

In sum, technology enthusiasts are easy to do business with, provided you 1) have the latest and greatest technology, and 2) don’t need to make much money. For any innovation, there will always be a small class of these enthusiasts who will want to try it out just to see if it works.

Visionaries are that rare breed of people who have the insight to match up an emerging technology to a strategic opportunity, the temperament to translate that insight into a high-visibility, high-risk project, and the charisma to get the rest of their organization to buy into that project. They are the early adopters of high-tech products.

And that is the key point. Visionaries are not looking for an improvement; they are looking for a fundamental breakthrough. Technology is important only insomuch as it promises to deliver on this dream.

The key point is that, in contrast with the technology enthusiast, a visionary focuses on value not from a system’s technology per se but rather from the strategic leap forward such technology can enable.

As a buying group, visionaries are easy to sell but very hard to please. This is because they are buying a dream that, to some degree, will always be a dream.

First, visionaries like a project orientation. They want to start out with a pilot project, which makes sense because they are “going where no man has gone before,” and you are going there with them. This is followed by more project work, conducted in phases, with milestones, and the like. The visionaries’ idea is to be able to stay very close to the development train to make sure it is going in the right direction and to be able to get off if they discover it is not going where they thought.

That is, whereas for the visionary the deliverables of phase one are only of marginal interest—proof of concept with some productivity improvement gained, but not “the vision”—these same deliverables, repackaged, can be a whole product to someone with less ambitious goals.

It is important, therefore, in creating the phases of the visionary’s project to build in milestones that lend themselves to this sort of product spin-off.

visions. In fact, in terms of communications, typically you don’t find them, they find you. The way they find you, interestingly enough, is by maintaining relationships with technology enthusiasts. That is one of the reasons why it is so important to capture the technology enthusiast segment.

Visionaries are the ones who give high-tech companies their first big break. It is hard to plan for them in marketing programs, but it is even harder to plan without them.

The basis for reform is the principle that winning at marketing more often than not means being the biggest fish in the pond. If we are very small, then we must search out a very small pond, a target market segment that fits our size.

The biggest problem is typically overly ambitious expectations combined with undercapitalization—or, as my grandmother used to put it, when your eyes are bigger than your stomach.

(“Pioneers are people with arrows in their backs”),

the “leading edge” of technology is all too often the “bleeding edge.”

it. The word risk is a negative one in their vocabulary—it does not connote opportunity or excitement but rather the chance to waste money and time. They will undertake risks when required, but they first will put in place safety nets and manage the risks very closely.

and held back from investing in video until Cisco made telepresence a household word.

When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get. In other words, they are planning on living with this decision personally for a long time to come.

Pragmatists tend to be “vertically” oriented, meaning that they communicate more with others like themselves within their own industry than do technology enthusiasts and early adopters, who are more likely to communicate “horizontally” across industry boundaries in search of kindred spirits.

This last point is crucial: Pragmatists want to buy from proven market leaders because they know that third parties will design supporting products around a market-leading product. That is, market-leading products create an aftermarket that other vendors service. This radically reduces pragmatist customers’ burden of support. By contrast, if they mistakenly choose a product that does not become the market leader, but rather one of the also-rans, then this highly valued aftermarket support does not develop, and they will be stuck making all the enhancements by themselves. Market leadership is crucial, therefore, to winning pragmatist customers.

And when they find something that works for them, they like to stick with it. Thus these folks are on Macs when everyone else is on Windows, then they are on Windows whenever everyone has switched back to Macs. They still use BlackBerrys, and they work just fine for them.

Thus, the company may be trumpeting its recent success at early test sites when what the pragmatist really wants to hear about are up-and-running production installations. Or the company may be saying “state-of-the-art” when the pragmatist wants to hear “industry standard.”

This is an incredibly destructive exercise during which not only the baby and the bathwater but all human values and winning opportunities are thrown out the window. Nonetheless, it happens.

That’s it. That’s the strategy. Replicate D-Day, and win entry to the mainstream.

To put it simply, the consequences of being sales-driven during the chasm period are fatal. Here’s why: The sole goal of the company during this stage of market development must be to secure a beachhead in a mainstream market—that is, to create a pragmatist customer base that is referenceable, people who can, in turn, gain us access to other mainstream prospects.

So, if we want market leadership early on—and we do, since we know pragmatists tend to buy from market leaders, and our number-one marketing goal is to achieve a pragmatist installed base that can be referenced—the only right strategy is to take a “big fish, small pond” approach.

Segment. Segment. Segment. One of the other benefits of this approach is that it leads directly to you “owning” a market. That is, you get installed by the pragmatists as the leader, and from then on, they conspire to help keep you there.

in truth, mainstream customers like to be “owned”—it simplifies their buying decisions, improves the quality and lowers the cost of whole product ownership, and provides security that the vendor is here to stay. They demand attention, but they are on your side.

For all these reasons—for whole product leverage, for word-of-mouth effectiveness, and for perceived market leadership—it is critical that, when crossing the chasm, you focus exclusively on achieving a dominant position in one or two narrowly bounded market segments.

So, because of the dynamics of technology adoption, and not because of any niche properties in the product itself, vendors of disruptive infrastructure must also take a vertical market approach to crossing the chasm even though it seems unnatural.

Yogi Berra got it right: “If you don’t know where you are going, you will wind up somewhere else.”

this is a straightforward market-entry problem, to which the correct approach is well-known. First you divide up the universe of possible customers into market segments. Then you evaluate each segment for its attractiveness. After the targets get narrowed down to a very small number, the “finalists,” then you develop estimates of such factors as the market niches’ size, their accessibility to distribution, and the degree to which they are well defended by competitors. Then you pick one and go after it.

Target customer characterization is a formal process for making up these images, getting them out of individual heads and in front of a market development decision-making group. The idea is to create as many characterizations as possible, one for each different type of customer and application for the product.

The italics immediately above are meant to answer the single most asked question of the Chasm Group: Can’t we go after more than one target? The simple answer is no. (The more complex answer is also no, but it takes longer to explain.)

challenged”—if it were easy, someone else would have done it. Indeed, the fact that it is hard will create a barrier to entry in your favor once you have stepped up to the solution.

Big enough to matter, small enough to lead, good fit with your crown jewels.

For selecting the target market segment that will serve as the point of entry for crossing the chasm into the mainstream market, the checklist is as follows: 1. Develop a library of target customer scenarios. Draw from anyone in the company who would like to submit scenarios, but go out of your way to elicit input from people in customer-facing jobs. Keep adding to it until new additions are no more than minor variations on existing scenarios. 2. Appoint a subcommittee to make the target market selection. Keep it as small as possible but include on it anyone who could veto the outcome. 3. Number and publish the scenarios in typed form, one page per scenario. Accompanying the bundle, provide a spreadsheet with the rating factors assigned to columns and the scenarios assigned to rows. Break the rating factors into two subtotals, showstoppers first, then nice-to-haves. 4. Have each member of the subcommittee privately rate each scenario on the showstopper factors. Roll up individual ratings into a group rating. During this process discuss any major disagreements about scores. This typically surfaces different points of view on the same scenario and is critical not just to getting the opportunity correctly in focus but also in laying the groundwork for a future consensus that will stick. 5. Rank order the results and set aside scenarios that do not pass the first cut. This is typically about two-thirds of the submissions. 6. In a 400-degree oven, bake . . . (Oops! Wrong book. Sorry.) Repeat the private rating and public ranking process on the remaining scenarios with the remaining selection factors. Winnow the scenario population down to, at most, a favored few. 7.

“I have always found you get a lot more in this world with a kind word and a gun than you do with just a kind word.” —Willie Sutton

For a given target customer and a given application, create a marketplace in which your product is the only reasonable buying proposition. That starts, as we saw in the last chapter, with targeting markets that have a compelling reason to buy your product. The next step is to ensure that you have a monopoly over fulfilling that reason to buy.

They are perfectly used to cobbling together bits and pieces of systems and figuring out their own way to a whole product that pleases them. In fact, this is in large part the pleasure they take from technology products—puzzling through ways to integrate an interesting new capability into something they could actually use. Their motto: Real techies don’t need whole products.

The generic product, the product you ship, is a key part of the whole product, make no mistake. But once there are more than one or two comparable products in the marketplace, then investing in additional R&D at the generic level has a decreasing return, whereas there is an increasing return from marketing investments at the levels of the expected, the augmented, or the potential product.

Pragmatists will hold off committing their support until they see a strong candidate for leadership emerge. Then they will back that candidate forcefully in an effort to squeeze out the other alternatives, thereby bringing about the necessary standardization to ensure good whole product development in their marketplace.

It soon becomes clear to even the most optimistic product marketing managers that they cannot go after all markets at once, that at minimum they have to sequence and prioritize opportunities, and that each opportunity has very real support costs.

The second rule is, remember the fish-to-pond ratio principle from the prior chapter, and target a market segment that is big enough to matter, small enough to lead, and a good fit with your crown jewels. Here small enough to lead means, in part, too small for the much bigger incumbent to spend a lot of time focusing on. Big fish have

As you can see, nothing in the whole product is a showstopper from the point of a competitor seeking to neutralize Aruba’s differentiation, but taken as a whole, for a large competitor who has much bigger fish to fry, it takes more focus to accomplish this outcome than it is worth.

With large partners, try to work from the bottom up; with small ones, from the top down. The goal in either case is to work as close as possible to where decisions that affect the customer actually get made. 6.

In sum, the pragmatists are loath to buy until they can compare. Competition, therefore, becomes a fundamental condition for purchase.

So, coming from the early market, where there are typically no perceived competing products, with the goal of penetrating the mainstream, you often have to go out and create your competition.

In the case of Box, by calling out Microsoft as its market alternative, it makes clear that it is going after the same use cases and the same budget inside the enterprise. At the same time, by calling out Dropbox as its product alternative, it makes clear that its disruptive innovation is radical ease of use.

In light of these cautionary tales, let me just close this section with a word of warning. If you try out this exercise of choosing the competition, and have trouble finding either a single, clear market alternative, or a credible second vendor leveraging your type of disruptive technology, this is a clue. It means that you are probably not ready to cross the chasm.

People are highly conservative about entertaining changes in positioning. This is just another way of saying that people do not like you messing with the stuff that is inside their heads.

When most people think of positioning in this way, they are thinking about how to make their products easier to sell. But the correct goal is to make them easier to buy.

Think about it. Most people resist selling but enjoy buying.

Here is a proven formula for getting all this down into two short sentences. Try it out on your own company and one of its key products. Just fill in the blanks: • For (target customers—beachhead segment only) • Who are dissatisfied with (the current market alternative) • Our product is a (product category) • That provides (compelling reason to buy). • Unlike (the product alternative), • We have assembled (key whole product features for your specific application).

This point leads directly into communications strategy for crossing the chasm. Not only do you have to develop this kind of evidence of whole product support; you also have to make sure that everyone hears about it.

The number-one corporate objective, when crossing the chasm, is to secure a distribution channel into the mainstream market, one with which the pragmatist customer will be comfortable. This objective comes before revenues, before profits, before press, even before customer satisfaction. All these other factors can be fixed later—but only if the channel is established.

But there are much headier rewards closer at hand —the freedom to be your own boss and chart your own course, the chance to explore the leading edge of some new technology, the career-opening opportunity to take on far more responsibility than any established organization would ever grant. These are what really drive early market organizations to work such long hours for such modest rewards—the dream of getting rich on equity is only an excuse, something to hold out to your family and friends as a rationale for all this otherwise crazy behavior.

As a form, it is as precise and conventional as a love sonnet—and just as likely to get one into trouble.

You simply cannot spend your way into the hearts and minds of technology enthusiasts and visionaries.

To leave the chasm behind, to cross it and not fall back into it, involves a transformation in the enterprise that few individuals can span. It is the move from being pioneers to becoming settlers.

Let’s deal with the moral issue first. And let us take as our starting point that casting aside people, dislocating their lives and threatening their livelihood, is immoral—even if businesses and governments routinely do so with abandon.