Tapping a market: build versus buy
When managing digital products, build versus buy is one of the biggest dilemmas that a product manager can face.
Just recently, social media analytics firm Sprinklr acquired Dachis Group, and Sprinklr CEO Ragy Thomas was quick to cite speeding up the product roadmap as a key reason for the acquisition.
“The addition of Dachis Group brand analytics, content optimization, and employee advocacy capability gives us the best end-to-end social infrastructure for enterprise brands and accelerates our product road map by 12 months. Together we can create an unprecedented amount of value for our clients.”
Having previously worked in the industry, I certainly understand the warp speed pressures that social media analytics firms face. There simply isn’t enough time to build everything that a customer needs to monitor their brand in social media.
Sprinklr could have spent the time and resources necessary to build out features on their products, or create new product lines. But ultimately, that would leave them always one step behind; because in that same time frame, its competitors would be further down the path. And by acquiring Dachis Group, they not only speed up the roadmap, but also acquire an entire customer base [hopefully] already loyal to the Dachis brand and products.
Does this translate into the non-digital world? (Yes, obviously.)
The craft beer market is certainly in its boom years. According to Technomic’s 2014 Special Trends in Adult Beverage Report, craft beer production in 2013 was up 9.6% while overall beer production dropped 1.4%.
In my opinion, craft beer fans want three things:
- Higher alcohol content
- More intense flavor
- A connection to the brewery
It’s [relatively] easy for a large brewer like MillerCorrs or Anheuser Busch to create a beer with higher alcohol content or more intense flavor.
But, for me, the brewery and the brand itself is just as important as the beer. Visiting a brewery is an experience. When you go to Dogfish Head, you get an understanding of how off-centered they are. When you go to New Belgium, you get an understanding of their eco-friendliness.
Several years ago, I had the opportunity to tour the Heineken brewery in Amsterdam. It was the most out-of-this-world brewery experience I’ve had. But I left not knowing what Heineken stands for or what their brand means. And I’m pretty sure I haven’t bought a single bottle of Heineken since (in stark contrast to Dogfish Head and New Belgium).
Large brewing companies are noticing this trend. They’ve observed the behaviors of craft beer drinkers, and because it is a lucrative customer base (according to Nielsen, 58.9% of craft beer drinkers have annual income above $75,000), they’re now working on how to tap the market. (See what I did there?)
Look at Anheuser-Busch (A-B). In March 2011 (relatively early on in the craft beer boom), A-B bought Goose Island, a hugely popular Chicago-based brewery whose delicious IPA has a wonderful relationship with this author. The Goose Island brand stayed. The beers they brewed stayed. Much like Instagram and Facebook, the relationship is more about scale, distribution and resources. Goose Island already built a powerful brand with loyal customers. And now they could keep doing what they do best: brewing beer. A-B is there to provide the resources needed and to keep a buttload of the cash.
Year over year sales of Goose Island are up 70%. Which means it’s time for the encore. In February 2014, A-B followed up by purchasing Long Island-based Blue Point Brewing Company, under the same model.
These have been smart moves. A-B realizes it’s difficult to create a great-tasting beer AND build a new brand separate from some of its flagships. While they certainly could risk product development costs (*ahem* Bud Light Platinum), it’s a safer bet to acquire brands that are already established.
So the next time a product opportunity presents itself, don’t just make a decision as to whether or not to build the feature or the product. Decide whether it makes sense to do it yourself, or partner with someone who’s already done it successfully.
