TCS Daily

Alpha Companies, Beta Products... and Solving the Innovator's Dilemma

By Dominic Basulto - February 9, 2005 12:00 AM

While "beta" releases within the software industry have been around forever, the way that companies view these beta releases is starting to change. Typically, software companies test products prior to commercial release, allowing a small community of beta testers an opportunity to find bugs, glitches and flaws before rolling these products out to a wider audience. However, some of the most talked about product releases of the past twelve months -- Skype, Firefox, MSN Search and Gmail, just to name a few -- were actually dressed-up beta versions masquerading as final product releases. It's not just small, understaffed start-ups that are releasing imperfect products, it's also the alpha companies -- the dominant, entrenched companies like Microsoft, Yahoo, Amazon and Google. At a time when many software releases already do not perform up to expectations, why are companies increasingly viewing the beta release as the final commercial release?

Google has been among the guiltiest of this practice, seemingly releasing new products every few weeks and keeping them in beta stage indefinitely. Somewhat implausibly, Google still considers Gmail, Google Groups and Google News as 'beta' applications. In the first week of February, the Chicago Sun-Times took Google to task for this practice, exhorting the company to "bag 'beta' labels and proclaim new products." According to the article, Google was "cheapening" the adjective 'beta' by using it to describe any product for which the company did not wish to take full responsibility: "If it falls short, it doesn't count. It's just a beta, you know?"

There are a number of ways to explain why so many alpha companies are releasing beta products earlier and more often than ever before. Intense pressure to meet product release deadlines is one factor, of course. Moreover, hyper-competitive market segments like Internet search are forcing companies like Microsoft, Yahoo and Google to use beta releases as a type of "place-holder." If Company A knows that Company B is developing a new search function, why not rush a competing search product to market in beta release so that consumers think twice about using Company B's product? In this case, Company A is using a beta release to signal that it is reserving its position in the Internet search market.

Another possible explanation is that alpha companies are increasingly viewing beta releases as low-risk ways of experimenting with market-transforming technologies. Put another way, the most intelligent, most aggressive companies -- the alpha companies -- are willing to release products that are somehow second-rate or inferior to currently existing products when they realize the potential for these beta products to become category killers over time. That's a 180-degree change from what one would expect from America's best-managed companies. After all, we assume that rational, profit-seeking corporations only release products after they have passed through a rigorous product development cycle. Incremental changes are then made to these products at carefully-planned intervals.

Sound familiar? It's a variation of the "disruptive technology" argument proposed by Harvard Business School's Clayton Christensen in his best-selling business book of 1997, The Innovator's Dilemma. Christensen claimed that the reason so many successful, dominant companies were being upstaged by rivals with low-end, inferior technologies was due to one simple reason: mature, well-managed corporations do not release unproven products to their largest, most important customers, who usually can not use the inferior, unproven technology anyway. Instead, successful companies focus on making incremental improvements to market-leading products already in production. By the time big alpha companies realize that beta technologies are actually market-transforming disruptive technologies, though, it's too late. The disruptive technology gains market share so quickly that the former market leader is left playing a desperate -- and fruitless -- game of catch-up.

Slowly but surely, corporations are starting to change the way that they do business. If they are unable to release beta versions of products, corporations are at least learning the value of treating consumers as co-developers. They are learning the importance of transparent product development cycles and the importance of keeping their ear close to the ground for news of groundbreaking new technologies. By releasing early and releasing often, companies can tap into the combined intelligence of the Internet community. Even companies like Microsoft (itself certainly no fan of the open source software movement) are taking steps to emulate some of the advantages of the open source development model, in terms of getting closer to the end-user and building a sense of community around new product releases.

Not all corporations, of course, are willing to view markets as conversations. Reactionaries will always jealously guard their proprietary secrets and launch legal attacks against anyone even daring to lift up the hood and take a peek inside. In order to get their beta technologies off the ground, though, some alpha companies are looking to tap into vibrant communities of enthusiastic users. Wary of being burned by small upstarts with their disruptive technologies, alpha companies are embracing beta product releases as a way of getting the inside track on new market-transforming technologies. In the process, they may finally be able to solve the Innovator's Dilemma.

The author is a TCS contributor who writes frequently about technology markets and venture capital.



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