Monday, December 04, 2006

R&D v. Advertising

The technology sector is a very interesting area of the economy. It's not like other kinds of products - used by many, understood by few. And unlike most products, technology is dependent not only on public awareness but also on development. Computers are improving at a rate faster than any other product in history. If cars were computers, in the space of less than three minutes you could successfully complete an order for a Mercedes Benz that costs $3.99 and gets 1,000,000 miles per cubic centimeter of compressed air. (Sort of.)

The thing is, consumers hardly care about advanced technology. For most consumers, the most important criteria are, "Does it run fast?" and, "Does it work?" That is the image that technology companies - especially consumer technology firms - try to project. Every company wants to say about their computers, "These computers are so easy, a caveman could use them," and, "There is so much that you can do with our products." Thus, technology companies are faced with two challenges: To appeal to the public, and to build products that are one step ahead of anything a competitor can offer.

If a company builds a computer that is the best in the world - but never tells anyone about it - what good is it? If somebody builds a piece of crap - and then tells every person possible how beautiful it is - what good is it? That is the reason why firms specializing in computer-related products face such a challenge. Unlike the cola market, consumers can evaluate for themselves the quality of the product and make a conscious choice, and their preferences can change.

But once you buy a computer, you're stuck with it; not to mention that most people wouldn't be able to make a choice if they had to choose. I'm not just being arrogant. How did e-mail virii spread so quickly? People opened their e-mail attachments, unaware that it could do something. People just don't know. Many people think of computers as many people think of cars: You can use a car, but you don't know how it works. When it breaks, you take it to someone who can fix it; the same goes for computers.

Thus, firms have to not only stay ahead of the game and be able to tell people that. If a technology firm fails at the first objective, the firm loses market share in industries that purchase and depend on computers, because other firms will know which product is superior. If a technology firm fails at the second objective, the firm loses market share in consumer industries, which are just as important. In both the corporate and consumer markets, if the market finds that there is a better choice, the market will choose the better product. If neither the corporate nor consumer markets know about the product, then there is no point in producing it. Both objectives are important, and firms are continually evaluating which strategy to take: Whether to spend more resources developing a product, or more resources advertising a product.

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