Tip To Microsoft and Verizon: Think Better. Much Better.

Includes: AAPL, MSFT, VZ
by: Yankee Group

By Carl Howe

Two news items Wednesday caught my eye: first, that Microsoft had developed two new lines of Zune music players to compete with the iPod, and second, that Verizon was introducing a touch-screen phone made by LG in November to compete with the Apple's/ATT's iPhone. And while I admire the hard work of both companies, I"m afraid I have bad news for both: both products are doomed. Why? Because they are too much like the products they are trying to replace.

See, the problem with imitating a market leading product is that you give the prospect no reason to buy your product instead of the lower-perceived-risk dominant vendor. Said another way, marketing a me-too product, by its very nature, increases awareness of both the new product and the market leader. Unless the upstart company provides significant -- I repeat significant -- differentiating value to the buyer, the competitor ends up promoting the market leading product as well as their own. And since the market-leading product already has established its value proposition before the competitor showed up (if they hadn't, they wouldn't be the market leader), they are more likely to make the sale.

For example, take a look at Engadget's comparison chart between the new Zunes and the Apple iPods they compete with. The striking impression you get from the table is that the products are nearly identical, with similar list prices, capacities, form factors, and colors. With so many items in common, how can Microsoft claim that the Zune is so much better than an iPod? The anwser is that it can't, at least not in a simple and easy to understand way.

Verizon has more in its favor, since its network is itself a differentiating factor to its prospects. But I challenge any Verizon salesperson to successfully sell the new Voyager handset without uttering the words, "It's like an iPhone, but it has...." The product is just so derivative and similar, that comparisons will be irresistible to most ordinary people, and that comparison will just continue to validate the iPhone's lead, even if the LG device sells well.

Back in the olden days of computing, there was a mantra that said that to successfully compete with IBM (the market leader at the time), your product had to be 10 times better or you'd never get in the door. Today, too many companies are ignoring that mantra and trying to sell "just as good" instead. Regardless of how necessary it is for those companies to compete with the market leaders, me-too isn't good enough. To win, they have to be better -- lots better.

Full disclosure: the author owns Apple stock.