In my previous two articles, I explained why a company should worry about having more than one product and how a software product company can diversify its portfolio. In this article, I will talk about managing a product portfolio.
When you have two or three products, it is reasonably easy to manage your product portfolio. However, when it comes to about 4 or 5, it is interesting to have some tools to help. Imagine Locaweb, with over 35 products, between active and discontinued products, or Google, with over 250.
At Locaweb, we use the BCG matrix. BCG Matrix is a graphical analysis tool developed by Bruce Henderson in 1970. In 1963, Bruce Henderson founded the American Business Consulting Company Boston Consulting Group (BCG), of which he was chairman until 1980 and chairman of the board until 1985. It is not a new tool, but it is very useful, as you will see in a moment.
Its goal is to support product portfolio analysis based on the product lifecycle concept. It is used to assist in resource allocation decisions across different products.
It is made up of two axes. On the Y-axis is represented the growth of the market, and on the X-axis is represented the participation of your product in this market.
This divides the matrix into four quadrants:
Placing the technology adoption S curve in the respective quadrants of the BCG matrix, we will have the bets as the moment of innovation, the stars as the moment of growth, the dairy cows as the maturity of products, and the dogs as the products that do not cross the chasm between the early adopters and the early majority.
A relevant point to note is the distribution of products in the different quadrants. At Locaweb, we have a huge concentration of bets because, as many methodologies exist to develop better and better products, the truth is that many products still do not cross the chasm and become dogs. That’s why it’s important to test new product ideas quickly. Later I will show a simplified version of Locaweb’s BCG Matrix.
From the company’s resource standpoint, we should allocate them as follows:
That is, for each phase of the product, your investment in development, operations, and marketing will be different.
During the betting phase, you should allocate your efforts as follows:
When the product is no longer a bet and becomes a star, the points of concern change:
Eventually, your star could become a cash cow. At this point, you should direct your efforts as follows:
When a product turns into a dog, either by not crossing the chasm or after maturity (as seen in the End of life article), effort and investment allocations should be adjusted as follows:
A relevant point to observe is the distribution of products in the different quadrants. At Locaweb we have a large concentration of bets because, although there are several methodologies to develop better and more accurate products, the truth is that even so, many products do not cross the abyss and become pineapples. That’s why the importance of testing new product ideas quickly. Below I will show a simplified version of Locaweb’s BCG Matrix.
The first example is Google. First of all, I need to make it clear that:
Well, caveat made, let’s go to the BCG matrix. I did not include all 177 active products plus 79 discontinued products because it would be too much to see. I selected some products in each quadrant to give you an idea. Some bets:
Among the stars, we can mention YouTube, where Google is the market leader and still growing fast. Besides YouTube, there is also Android, which came to compete with iOS and today already has a relevant position in the market.
Google’s big cash cow is Search with AdWords ads. Google completely dominates the search ad market, and if you do a Google search (!), you can find some stories talking about the growth of that market of around 15%.
Finally, some discontinued dogs are Google Wave, the “real-time” email-killing collaboration system; Google Health, which allows people to store and manage their medical information in one place; and Google Reader, an RSS newsfeed reader.
Now, something I can talk about with more authority, Locaweb. We used the BCG matrix; some of our products are in the following example. I preferred not to put all the products to make it simpler, but in our BCG matrix, we had over 25 products.
As bets we had in 2015:
Our stars are Cloud Server and Email Marketing products, whose markets are growing fast. Our cash cow is our first product, Website Hosting, and a dog we discontinued in 2015 is WebChat.
2019 update: Jelastic was discontinued since it didn’t cross the chasm. Traycheckout grew to become Yapay, a star in Locaweb’s product portfolio, as well as Eventials is now a star.
So now you not only know why you need to diversify your product portfolio and how to diversify it, but you also know how to manage a product portfolio with several products. The BCG matrix, while an old tool, is very useful for understanding at what stage your product’s life cycle is and what kind of investments and efforts to make in each product.
We have used the BCG matrix at Locaweb since 2012, and it’s a really useful tool. Each quarter, we revisit our BCG matrix to understand if any movement is necessary and reallocate our efforts and investments.
In the next chapter, I’ll talk about the option of not diversifying – that is, focusing on one product – and looking at the advantages and disadvantages of each strategy and when each strategy is most appropriate.
I’ve been helping companies and their leaders (CPOs, heads of product, CTOs, CEOs, tech founders, and heads of digital transformation) bridge the gap between business and technology through workshops, coaching, and advisory services on product management and digital transformation.
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