ghost@aladdin.com (L. Peter Deutsch) (12/08/90)
Disclaimer: the opinions expressed in this message are my own, and
are not based on any confidential information.
Ralph Johnson's recent posting touched on the chicken-and-egg problem
for getting new technologies established. Here is how I think of the
two strategies for this.
The "bottom-up" strategy starts by making the technology available at
low prices, or free, or bundled with something else that's
established. Examples of this are Smalltalk/V, HyperCard, and NFS.
Once enough people have incorporated the technology into their lives,
the vendor can start raising prices, offering add-ons for additional
money, or using the draw of the technology to get people to buy other
things.
The "top-down" strategy starts by charging a lot for the technology,
and going after just those people who can see that it is the best (or
only) solution to their problems. Examples of this are
Objectworks\Smalltalk (now), NeXT, and many CASE companies.
The "bottom-up" strategy, if it works, produces larger eventual
returns, because it goes from smaller to larger profit margins, and
establishes a large installed base faster. It's also much easier to
get third party developers to buy in, because they too can price
their products affordably. The problem is that it's very hard for a
startup to field a bottom-up product, because the vendor has to
survive for possibly many years with very little revenue from the
product. If the "top-down" strategy works, and the technology is
good, it can produce larger initial returns, because its market is
much less price-sensitive; on the other hand, it's much harder for a
vendor to consider ever moving down from the top (towards smaller
profit margins) than up from the bottom.
I would say, based on their historical pricing, that Digitalk has
taken a "bottom-up" strategy. I would assume, given the recent price
increases, that ParcPlace is pursuing a "top-down" strategy. Either
one can produce a viable business, just of different sizes and
markets.
L. Peter Deutsch :: Aladdin Enterprises :: P.O. box 60264, Palo Alto, CA 94306
ghost@aladdin.com ; {uunet,sun,decwrl}!parcplace!aladdin!ghost ; (415)329-0264
"Implementation is the sincerest form of flattery."