Innovation or optimization?

Innovation or optimization? Product people are probably familiar with the frustrating feeling of a marginal, incremental progress of their product in the later stages of its lifecycle. Sure, optimization is necessary, but wouldn’t it be more efficient to take the very people who work on it and let them work on something new, presumably exploiting the wonders of a new killer feature?

The pain
For any given product, or a feature of an existing one, as time passes, innovation tends to naturally decay, slowly turning into optimization.

The symptoms of phase 3 are usually pretty vivid: for any new experiment, the metrics move by a fraction of a percent and the tradeoffs are getting more and more difficult.

Sounds like the perfect time to come up with the next million dollar idea! Reminiscent of the VC model where 9 out of 10 ideas would fail but the one that would succeed would pay for it all, this approach is adopted by notable firms. Google has no problem killing or freezing prominent products such as Google Code, Google TV, Google Talk, Reader, Helpouts, Bump, Glass, Currents, Flu Trends — just to name a few. This kind of innovation is a part of a company culture — fail fast and free up resources for the next potential unicorn. Keep developers’ excitement up.

But wait, isn’t the same Google meticulously optimizes its search, bidding and personalization algorithms? Obviously, without optimizing on its core competencies, a firm would soon lose its competitive advantage in the market.

Expand the pie!
Ok, so now we have come full circle — innovation or optimization? Apparently not every firm is Google and the famous “That which is allowed to Jupiter is not allowed to an ox” is unfortunately usually the case for the smaller players who can’t afford to do both. For most companies, the team that is working on optimizing its product is also the one responsible for innovating within its domain.

Let’s go back to basics in order to find our answers. Let’s assume we have a product that resonates with some customers. It has its core, the main value proposition — the direct answer to the customer pain it was supposed to address. It also has a few obvious additional features that made it through the “MVP” firewall.

Some people love it, so the product starts making money and sure enough — competitors start showing up pretty soon. So the team meticulously polishes the core, making it highly available, easily maintainable and fantastically scalable. The next year the team works on adding some clearly missing or closely related features. At this point, it’s already a bit of a catch-up game with the competition.

After a year, the product has reached its 95% of value creation. The amount of effort needed to get to 96% is comparable to those put into creating the first 95%. The only way to truly evolve is to push the boundaries within which the product exists — this would provide the natural space to expand further.

How to expand? 
Here’re a few examples based on a simple management consulting framework used for solving growth problems:

  • A new segment of users (like Match.com’s Tinder, designed for younger population than Match’s dominating 40+ segment, or Google’s YouTube Kids/Music/Gaming — for self-explanatory segments)
  • A new geography (e.g. Netflix’s expansion into Japan in 2015 and to the rest of Asia this year)
  • A new market (e.g. Video content on Spotify or Amazon’s AWS) — when companies leverage their competitive advantage in one field (be it relationships with labels or internal IT infrastructure) and applying it in another.

Ideally, there would be a synergy between the core product and the new development (e.g. Amazon’s Echo, while a respected product by itself, also makes it easier for the customer to perform shopping — Amazon’s main competency. Google Home, on the other hand, highlights its unique feature of understanding follow-up questions, since its synergy with Google lies in search)

Ok, so let’s summarize the above:

Why innovate?
- The chance to find the next big thing, the million dollars idea
- Company culture — keep people excited and engaged
- Synergies that make the sum of the parts greater than the whole.

Why optimize?
- Maintain thought-leadership as a competitive advantage in the market
- Very low risk. It works for sure, let’s just make it works a little better
- No surprises, predictable and easy to forecast ROI

When to chose one over the other?
Depends on two main variables:

1. The phase of your product:
- Pretty much polished? Expand the pie and invade into neighboring domains with innovative features.
- Still working on the core? Optimize to make it delightful to use.

2. The phase of your company:
- If your company is a small startup, then you just can’t afford certainty. You must take risks simply because all low-risk/high-reward ideas are by definition obvious (that’s why they are low risk) and hence are implemented by established players.
- If you’re in a bigger company, optimizing on your core competency is probably best. Innovation might come from high-synergy acquisitions of players who do their stuff better.

Good luck!