Falling behind in technology is a bad idea. But getting out in front isn't always so smart either.
A German company called Vitaphone recently brought out a new cell phone with only three buttons, each intended to allow an elderly user to speed-dial an emergency contact. It's a clever idea with a potentially big market. But what I like about the phone is that its main appeal is that it has less, not more, functionality than everything else on the market. The three-button cell phone also got me wondering: Is it a high-tech product?
The answer, of course, is something along the lines of "sort of." But you don't hear much about sort of high-tech stuff. Instead, most things are pigeonholed as either high-tech or low-tech--a false duality that ignores the fact that to thrive, nearly all businesses need to reside in a zone best characterized as medium-tech.
We all know that companies that resist new technologies risk giving their competitors the edge in creating better, more efficient products and services. No one wants to be left behind because of a dumb or shortsighted tech decision. Unfortunately, many entrepreneurs overcompensate for these fears and wind up underestimating the risks that are part and parcel of technology or assuming that technology is a business solution in its own right. A simple example: In 2002, Mercedes proudly led the auto industry into the brave new world of computerized brake systems that could take over stopping duties from the driver in an emergency--a feature that no one remembered asking for--and then less proudly announced a recall of the complex, failure-prone system the next year.
The challenge is how to avoid getting in unnecessarily deep with technology without entirely neglecting it. That's easier said than done, notes Henry Lucas, a professor of information systems at the University of Maryland's Smith School of Business. Lucas points out that even seemingly routine technology chores, like installing a computerized billing system, can turn out to be knotty, and more complex efforts can disintegrate into costly nightmares. "Any project involving technology becomes high-technology if you haven't done it before," he says. The trick, he contends, is to manage technology risk the same way loan officers and mutual fund managers manage financial risk--by spreading it around. Think of your technology decisions as a stock portfolio. "You probably want to end up with a technology portfolio that's risky in some areas but less so in others," Lucas says.
That's been the approach of Mall Radio Network, based in Natick, Mass. The company pipes music and advertising into some 70 shopping malls nationwide, charging advertisers $2,500 a month for one spot played twice hourly and sharing the revenue with mall owners. As a business, it's not exactly rocket science. But it does involve a few thorny technology challenges. For one, the company needs to ensure a clear, crisp sound in malls with crummy in-house audio systems. Using dozens of high-quality speakers does the trick, but installation costs end up running four times the cost of the speakers themselves. Wireless speakers would save the company several hundred thousand dollars a year in installation costs, but there aren't any that sound good enough. Mall Radio CEO Ken Levine thought about having the company develop its own wireless speakers, but it soon became clear that the development costs might exceed savings. He stuck with wiring.
On the other hand, Levine decided to go high-tech when it came to developing a system that monitors ambient noise throughout malls and automatically adjusts music and ad volume to compensate. "That was our biggest technology risk. But nobody else has that capability and we felt we needed it," says Levine. "Usually we try to mitigate technology risk. We feel a lot safer knowing that if we have a downfall it won't be the technology." The question of risk came up again with another facet of the volume-control system. To get clear, consistent sound throughout a mall, Mall Radio divides each property into a maximum of 16 different zones, each of which covers about 30 stores and has its own volume control. But Levine could not find an off-the-shelf system with more than six separate controls. Again, Levine played it safe, shying away from the risk of developing his own system and simply doubling up on the $2,000, six-zone units.
Even so-called high-tech companies can take a safer, medium-tech approach to some aspects of the business. One example is eStara in Reston, Va., which provides e-commerce websites with a "click-to-call" capability that enables consumers to communicate with a live agent through their PCs in real time. Say a visitor to the website of eStara client Continental Airlines looks to be close to purchasing a ticket but tries to leave without buying. At that point, an eStara button pops up, inviting the prospect to talk to an agent. If the prospect bites, eStara takes over and makes the audio connection--resulting in a sales conversion rate some 50% higher than merely providing an 800 number to call.
When the company was founded in 1999, it needed two key technology ingredients, says COO John Piescik: software that would connect the consumer's PC to eStara, and systems to route those connections through the phone network to the client. In the latter case, eStara decided to outsource the task to a big telecommunications carrier. The connection software was another story. Piescik and his team looked at a number of existing packages. But they all took far too long to download. So they decided to develop a more compact, proprietary system in-house.
"Sometimes you have no choice but to be innovative," says one CEO. "But if it's not high-impact, and you can buy the technology somewhere else, that's the way to go."
To do so, eStara went to the trouble of acquiring a software developer that was already working on similar technology. A year later, eStara had a software program 5% the size of others, making the push-to-click experience a fast one. Now the company is enjoying its 19th straight quarter of revenue growth and has been profitable for two years. "Sometimes you have no choice but to be technologically innovative," says Piescik. "But if it's not high-impact, and you can buy the technology somewhere else, that's the way to go because you've got enough to worry about already if you're running a business." Another advantage to avoiding riskier and more expensive technology goals: Venture capital firms and angel investors may love novel technologies, but most have a very limited stomach for technology risk. By keeping its own goals modest, Piescik says, eStara was able to raise, and make do with, $17 million in venture funds.
Another way to stay safely medium-tech is to do what Vitaphone did and focus on less feature-rich versions of high-tech products, says Kermit Patton, a researcher at SRI Consulting Business Intelligence in Menlo Park, Calif. But that's no simple task. A clever enough marketing twist, as with the emergency cell phone, may occasionally do the trick, but more often getting customers to jump at a less advanced product requires a sharply lower price tag--and lowering the cost of a high-tech product can be a technology feat in and of itself. "A simpler product that appears lower-tech may hide a lot of high-tech content," Patton says. He notes, for example, that a lot of high-powered R&D continues to go into producing a $100 computer.
For that matter, Vitaphone isn't placing all of its bets on a three-button cell phone. It's also throwing some high tech into the mix, producing phones that integrate a GPS chip so that emergency response crews can pinpoint a caller's location, and even a built-in heart monitor for a fast reading in the case of a cardiac event.
Come to think of it, the latter might come in handy for business owners who are about to be informed about the latest budget and deadline overruns in their own big technology projects.
David H. Freedman, a Boston-based writer and Inc. contributing editor, is the author of several books about business and technology. (email@example.com)
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