The Pod Squad

Yesterday, Apple hugely refreshed its iPod product line, introducing a squat nano with video, touch-screen iPod with Wi-Fi and Wi-Fi music store. Apple also reduced price of the 8GB iPhone by $200.

The problem with a successful product like the iPod is saturation. There comes a point where most people that want one have one. But through many years of marginal market share, where major buyers were die hard Mac fans, Apple honed skills of selling to the same people over and over again. Now the company is applying similar product and marketing tactics to the mass market.

Yesterday's product line refresh is a blueprint for offering more for less—and, more importantly, something better. As I explained before in my six principles for successful technology products: To displace a successful product, the new one has to be a whole lot better. Today I'm adding a seventh principle: The product must make people feel better about themselves.

Microsoft has taken a different tack. Through its integration strategy, the company has sometimes offered more, but not necessarily better and not often for lower price. Microsoft's measure for lower cost has been competing products. That strategy worked while Office and Windows gained market share, but now Microsoft is competing with its own desktop products. Microsoft's solution: Offer more and charge more, as it has done with new Office and Windows SKUs, particularly Enterprise editions.

The approach is a long-term marketing loser, because there is no emotional hook. Vista TCO studies have no emotional appeal—and even IT managers make some product decisions based on how they feel about a company, brand or product. If Jack the midsize business owner has to pay more for Vista Enterprise and extra for Software Assurance to get the operating system, how good is he going to feel about Microsoft or the partner doing the selling? Someday someone else will fill that emotional vacuum.

One successful exception is Office Student and Teacher Edition, where Microsoft essentially repackaged Office Standard for about $250 less. The student version of Office is the top-selling productivity suite at retail, according to NPD. Microsoft offered more over its then mainstay consumer offering Works, while charging much less compared to Office Standard or any other version of the productivity suite.

Microsoft had better be more concerned about offering more for less and making customers feel good about themselves—and in the process the company and its brands. Office 2007 offers a little of the latter, because many documents are easier to produce and more easily dressed up. Users can get an emotional zing from that prettier PowerPoint and the reaction making their presentation. What a wonder if PowerPoint could magically improve the presenter's speaking skills, too.

More Is Less Is More
The new iPod nano is good example of Apple offering more for less, and some feel good with it. For people looking for video in a small size and lower price, the new squat iPod nano is $149 in silver color. Apple lowered the price by $50 from the thin and tall nano, while greatly extending the features. Video is a huge feature enhancement for the lower price.

There is a place to ask for more, and it relates to helping people feel good about themselves. Apple learned from the black iPod and colored iPod nanos that people will pay more for color. Style matters; it makes people feel good about themselves and how others see them. In a brash, marketing move last year, Apple offered a black MacBook. Functionally, the notebook was the same as the white MacBook. But customers paid $150, just for the color.

People wanting a colored nano will have to pay $50 more, but in a sense it's still less. Apple boosted storage of the $199 model to 8GB, which capacity previously cost an extra $50, while adding video as a big extra. More is less is more.

The new iPod Touch is a surprise product, because the media player is really an iPhone without telephony. Starting price is $100 less than the 8GB iPhone, which price dropped from $599 to $399. The iPod Touch offers more, as in the touch screen, but for less cost than iPhone, including contractual obligation costs to AT&T. For people wanting more storage capacity, Apple redesigned the classic iPod and reduced the price of the 80GB model to $249. A massive 160GB model sells for $349.

Apple has created compelling reasons for many people who bought iPods before to buy again—and for iPhone hold outs to make the purchase. It's a good approach for an increasingly saturated market. More is less is more.

IT Managers are People, Too
But Apple also will face increasing challenges as even more people buy iPods and the media player market commoditizes. While Dell lacks Apple's design panache, the PC manufacturer has done well by offering more for less. However, commodization of the PC market—and subsequent rock-bottom pricing—has more recently hurt Dell. The key to Apple's continued iPod success or Dell's revival will be people.

Enterprises are made up of people, and IT managers are consumers, too. It's too easy for developers or manufacturers to treat either enterprises or IT organizations as amorphous inanimate things. But they are real people making real purchase decisions.

Microsoft should more seriously consider how it reaches these people in and out of the office—and that means getting more of the emotional hook, or helping customers feel better about themselves. Jack IT manager or Jane the executive may use Microsoft software at work, but they're real fun—and stronger emotional attachment—may be the iPod or iPhone they use at home. Microsoft should want those people buying Zune or its other consumer products. Zune price dropped $50 to $199 yesterday, ahead of Apple's announcement. Now the music player looks clunky compared to new iPods.

Buying decisions for the home do affect those made for the office. How much of HP corporate printer sales derive from products sold to consumers, who also happen to be IT buyers? And the marketing to one market absolutely influences purchases for the other.

Microsoft shouldn't have to be told this. Microsoft has huge advantages over Apple, such as the software's cost to produce compared to commodity hardware. The software giant can charge whatever it wants and reduce pricing the way it did with Student and Teacher Edition. But that's not enough. A new software version has to be a whole lot better than the old one, and the product must help people feel good about themselves.

Related Posts:

• NBC-Universal Spat is Good for Microsoft, Microsoft Watch, September 5, 2007
• Brand Matters, Microsoft Watch, August 19, 2007
• The iPhone Moment, Microsoft Watch, June 30, 2007
• Lessons iPhone Should Teach Microsoft, Microsoft Watch, June 25, 2007
• What Apple DRM-Free Means to Microsoft, Microsoft Watch, April 2, 2007
• MTV Gets Real, Microsoft Gets Punk'd, Microsoft Watch, August 22, 2007
• Vista Ads Are 'Lost' and Found, Microsoft Watch, February 8, 2007
• Gates & Jobs: Substance vs. Style, Microsoft Watch, January 7, 2007
• Microsoft's Music Madness, Microsoft Watch, November 27, 2006