Technological, economical and usage breakthroughs: the case of the VCR

If you ask someone about the origins of the video tape recorder, you will most likely get answers such as JVC, Panasonic and the VHS standard. An older audience would probably remind of Sony and the Betamax. This selective memory is quite consistent with Michael Schrage theory about innovation : “innovation isn’t what innovators do ; it’s what customers and clients adopt.” A variation could read : “People don’t remember the invention, they remember when the invention became adopted by the public.”

So those who remember JVC and those who remember Sony as inventors of the video tape recorder are both wrong. The whole story is worth telling because it provides a good illustration of the different breakthroughs which go along with an innovation.

In 1951, Charles Ginsburg, a studio and transmitter engineer at a San Francisco area radio station received a call from Alexander M. Poniatoff, founder and president of the Ampex Corporation in Redwood City, California. Mr. Poniatoff believed Ginsburg could help him with an important project. Ginsburg’s mission was to develop the first broadcast-quality videotape recorder (VTR), which he did : the Ampex VRX-1000 (later renamed the Mark IV) videotape recorder was introduced on March 1956. The machine sold for $50,000 (approximatly the equivalent of today $424,000…). It was on that year that the video tape recorder became a reality ; ie. the technological breakthrough happened more than 50 years ago.

The video tape recorder would remain a purely professional machine for the next two decades. In October 1969, Sony introduced its “Color Videoplayer”, which can be considered as the prototype for the U-matic format, introduced in Japan in September 1971. The two initial U-matic products were a video cassette player, the VP-1100, which had a price tag of 238,000 yen (approximatly the equivalent of today $2900), and a video cassette recorder (the first VCR) the VO-1700, priced at 358,000 yen (approximatly today $4,400). Not exactly mass market products.

The Betamax format was announced by Sony on April 16th 1975. The first Betamax product was the SL-7200, a VCR combined with a TV set for a price tag of $1295 (approximately today $4,200). Less than one year after, the VHS (Video Home System) format was launched by JVC. Sony’s philosophy was focused on quality, whereas JVC was focused on lowering the price. The first JVC machine, the HR-3300, was priced at the equivalent of today $3,100. I won’t expand here on the “format war” (VHS versus Betamax) as a lot has already been written on the topic, but it might be worth noticing that Betamax cassettes were limited to one hour versus four hours for the VHS format (in the US, enough for an entire football game). In October 1977, RCA launched the VHS Selecta Vision VCR in the US with a $4 million advertising campaign. By the summer of 1979, VHS was already outselling Betamax by a margin of two to one in the US.

The economic breakthrough came at the beginning of the 80s. From an average US price of $800 in 1978 (today $2,100), VCR prices went down to $426 in 1987 (today $660) ; the actualized price had been slashed by almost 70%! It is quite interesting to notice that it took 30 years for the concept of video tape recorder to shift from technological breakthrough to economical breakthrough. Not surprisingly, the usage breakthrough came along the price fall : In 1980 less than one percent of all U.S. households owned a VCR ; by 1987, this number had raised to 50%.

The VCR life span as a mass market product, however, was only approximately 25 years. In November 2004, Dixons retailer stopped selling VCR because of the ever greater success of DVD readers and recorders. Nobody use VCR anymore.

For a trip at the origins of VCR, and for the fun, visit “Total Rewind”, the virtual museum of vintage VCRs, at :

Book review: ‘Crossing the Chasm’ or why don’t people buy your revolutionary product

It’s an unfortunate thing that Geoffrey Moore is not so much read these days. Moore has written essential things about marketing new technologies that are as true today as they were ten years ago. In particular, in his book “Crossing the Chasm”, Moore discusses why most companies fail at marketing disruptive technologies. If your job is to market new technologies, it’s a very bad idea not to read the book.

In the book, Moore makes  the following observation: when a company introduces a revolutionary product,
it usually enjoys an initial success with sales with a few key clients, but just when all signs suggest that take off is imminent, sales stall and the product eventually fails on the market. The same story happened, and continues to happen, to countless startups with brilliant products. Why is it so hard to sell revolutionary products?

To answer this question, Moore looks at the well-known technology life cycle. According to the underlying theory, your revolutionary product is first bought by the techno-enthusiasts. These are the guys who buy any new technology, whatever it is, because their passion is to get their hand at unproven technologies. There are
not many of them, they have no budget, and indeed they think they should get the stuff for free, but they prove invaluable in testing the technology and providing feedback. But nobody listens to them, so once you’ve sold the product to the few who are likely to, you’re back to square one. The next in the list
are the strategic (or early) adopters. Those have an entirely different motivation: they buy innovative technologies because they want to gain a competitive advantage. They were the first buyers of SAP, and they bought the first PCs when corporations thought they were just toys.  It is with these guys that you will close the first sales, and start the first pilot projects during which you will improve the product. They are your first source of revenue, your first reference, but their projects are never-ending and you can find yourself completely trapped with a totally specific product if you don’t learn how to say no at one point, unless you want to become a service company.

Again, the strategic adopters are not many, and there lies the problem leading to the growth stall. You will
sign big projects, but never ever think that this is kick-starting growth. There are only so many of them… After a few projects, the source dries up, and you are again back to square one.

The real money lies with the next group: the mainstream buyers. This is an entirely different lot. They
only buy completely mature products that present zero risk for the company. A typical mainstream buyer is the IT manager of an insurance company. He couldn’t care less about innovative technologies and cool stuff. Any new stuff is by definition a headache, and a potential source of problems, not to mention costs.

A common assumption is that you can convince the mainstream buyer with your successes with strategic
buyers. Moore’s luminous insight is that nothing could be further from the truth: between the strategic adopter and the mainstream buyer, there is nothing. No continuity, hence the notion of chasm. After a few successes with lonely strategic buyers, you have to cross the chasm to reach the mainstream buyer. For him, the strategic buyer is not really a valid reference. In fact, the mainstream buyer buys on only one criterion: the reference. He only buys from the leader of the market, because he doesn’t want to take any risk, which
means that as long as there is no leader on the market, as is often the case on emerging markets, he will not buy. He forms his opinion by reading the professional press -as conservative as it can be- , by talking to peers in other companies. If John has chosen Product X and is happy, then I can consider buying X, rather than Y which nobody knows. The result: as long as you are not the leader, you won’t sell anything to the mainstream buyer, which means 95% of the market is out of reach. This is of course a catch-22: because, by definition, as long as you don’t sell to them, you won’t become the leader.

This explains what happens to the usual start-up. When the new product is introduced, it triggers excitement among the techno-enthusiasts. This is the cool stuff of the moment. Blogs and bulletins boards talk about the product. After a big effort, the sales force lands a few big contracts with strategic adopters, usually some R&D managers. First revenues, first references. That’s usually when number crunchers start plotting a straight line of revenue growth, and eagerly send it to anxious investors. Big mistake. Because after selling to the few strategic buyers around, there’s nothing much to sell, and certainly not to the mainstream who are horrified by this new stuff that threatens their existing view of the world.

To move on to the next step, you need to convince them. Usually, they are business unit heads, a very
different population from R&D managers. The kind that ask for you last three annual reports (but we’ve only been around for 9 months!!!), how many people you have in the quality department, and if you’re able to have a dedicated 24/7 support line for their Tokyo office. Of course, you’ve none of this, so the buyer is put off. You’re just to much risk for him. How many real deployments do you have, and I’m not talking pilot projects here? None, Sir, you would be the first! Ah, being the first, the absolute no-go for a mainstream buyer… He’ll just wait until you’re the leader of the market, because then there will be no risk.

So what is the solution? Very simple… in theory: become the leader, and come back to him. How to do that? Simple, and brilliant answer from Moore: reduce your market until it is no more than a micro-niche, because it’s always easier to be a big fish in a small pond than a small fish in a big pond.

Once your market is reduced, which means that you have carefully micro-segmented it and selected the best segment, you can target similar clients, members of the same group. For instance, the retail banks in the northwestern part of the US, or the Rap music fans in New-York. If you target similar clients, a successful sale to one client can be leveraged to sell to the next one, whereas a sale to a bank will be useless as a reference to sell to a car manufacturer. So the golden rule is: focus, focus, focus. The counter-intuitive approach consists, therefore, when the going gets tough after the initial successes, not in running all over the place trying to sell to anybody, but rather to sit down and select just one segment, and put all efforts to conquer it.

The segment will of course be chosen based on what has already been sold, by determining which sale to a
strategic buyer can be leveraged to sell to a mainstream buyer – that can happen. Once this is done, approaching the next mainstream buyer will be a bit easier. With this approach, the micro-segment can be conquered. The strategy consists then in choosing the next segment to conquer the same way, such that
the first segment can be used as a reference. After a few iterations, the micro-segment gradually coalesce into a real segment… of which you are the leader.

In summary, Crossing the Chasm is a very insightful analysis of radical innovation marketing, which
identifies the difficulties, explain the causes and suggest very effective solutions. No wonder the book is a best seller, and a bible of high-tech marketing.

The book on Amazon.