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Technology Product Life Cycle
Introduction
1.0 Product Life Cycle
1.1
Product Viability Curve
1.2 Parts of a Technology Product Life Cycle
1.3 Product Pricing
1.4 When to Buy a Product
1.5 Summary
For every product that is produced there is a set of principles that govern the life expectancy of the product. This product life cycle is marked by various events and periods that constitute how the product will be viewed by the consuming public over time. With the rapid change in technology it is particularly important to fully understand the product life cycle so that the consumer can make the best use of the dollars invested in technology. This paper describes aspects of technology (computer hardware and computer software) product life cycle and shows how to obtain the highest return on investment in technology.
In the simplest terms a product's life will begin at "product introduction" and continue until the vendor no longer supports the product. For purposes of this paper, product introduction is defined as the first shipment of the "production" product to a customer(1). During a product's life, a number of milestones delineate various periods of a product's life, including the following:
Product introduction-- First customer shipment of purchased product. This is often defined as general availability.
High-volume product shipment--Vendor is manufacturing and shipping the product in high volume. Ideally, this shipping volume would be dictated by customer demand for the product.
High-volume production use--This is when the customer base adopts the product and widely incorporates it into production settings(2).
Replacement products--Vendor introduces new products which effectively replace, supersede or compete with the maturing product.
Product discontinuation--Vendor terminates the manufacturing of the product.
Product end of life--Vendor no longer offers service or support of the product.
These events occur over a period of time and define the life cycle of the product. The life expectancy of a product will vary drastically depending on the type of product (hardware vs. software) and the class of product (low-end technology vs. high-end technology).
(1)This is to distinguish from pre-production products or products that are not purchased by the customer. Some vendors ship early versions of new products to customers to provide them with advanced access to products. These early access products may not be at production quality. Additionally, product that is not purchased directly by a customer is suspect. Product bundling is common among software vendors to build customer acceptance or market share. It is not until the customer incorporates the product into "production" settings that a bundled product is "accepted" by the customer. (2)This is a key indicator of product viability; however, it is very difficult to measure. The most common industry measurement is shipping or order volume, since these are easy to measure.
1.0.1 Hardware Life Expectancy
The life expectancy of computer hardware varies depending on the nature of the hardware. For example, PC computer technology(3) is changing the fastest, and therefore, it seems to have the shortest life expectancy, while higher-end systems such as Unix workstations, mini-computers and mainframe computers will have longer lives.
A computer system's life expectancy is often determined by the amount and speed of innovation incorporated into the product. For PC class systems the life expectancy is relatively short, since newer technology is being introduced at a rapid pace, and the older hardware is dropping out of a vendor's product line. It is common for today's PC vendors to introduce new "product" or product bundles every 2-4 months. To obtain this level of product release dynamics, the change in one product generation to the next will be minor or evolutionary (e.g. changes in chip speed, or speed and size of component parts such as disk sizes and speeds). Major technological changes or innovations (e.g. chip technology, internal buses) will take a longer time to develop, and therefore, there will be larger time intervals between the introduction of products with major technological changes (e.g. PCs running Intel 80486 chips and PCs running Pentium chips). Vendors of other computer types (i.e. Unix workstations, mini-computers and mainframe computers) typically introduce new product at a slower pace and will often incorporate more technological innovation in each product introduction.
The class of hardware will also determine how long the vendor will support a product. PC hardware vendors will typically support products for only a short period of time whereas other classes of hardware (i.e. Unix workstations, mini-computers and mainframe computers) will be supported by the vendor for longer periods of time.
(3) Most PC technology would be considered low-end technology. High-end technology would include very high-performance computers typically targeted for very specialized application use.
1.0.2 Software Life Expectancy
In the case of software, the time periods are often longer between major versions. Operating systems seem to be evolving such that a major operating system upgrade occurs every 18 to 24 months. High-end application software will be typically have major upgrades every 12 to 24 months. Minor software upgrades and patches will be provided throughout the course of a product's life. These minor upgrades will likely occur more frequently in the early part of the software product's life and less frequently or not at all in the last phase of a product's existence.
Software life expectancy is further complicated since for some classes of software the vendor will actually support multiple versions of the product. This is particularly true of operating system and high-end application software (e.g. major DBMS software from Oracle, Sybase, IBM, Informix). It is not uncommon for these types of software to be supported by the vendor for a period of 12 to 24 months after the introduction of a new major release. Vendor support of these older software releases will often include patch releases on reported problems.
For
less critical or low-end applications (i.e. word processors, spreadsheets),
product releases may occur every six months, and the vendor support for
older products may terminate with the introduction of the new version
of the product. It is common among personal productivity application software
vendors to only support the "current" version of the software.
1.0.3 Degree of Change
Another factor in a product's life is the degree of change and the amount of time that it takes customers to integrate the new technology into their production computing environments. Products with a high degree of change will often take longer to gain a high degree of user acceptance, since it is often harder for companies to integrate the new technology (e.g. software will need to be re-written to take advantage of the new hardware/software).
1.0.4 Tolerating Change Within Your Environment
Any change carries risks, the larger the amount of change or innovation the greater the risk. These risks often translate into disruption of services or system down time. The amount of disruption that can occur can be quite large depending on the amount of change and the speed with which your organization and the vendor can address the problem that caused the disruption.
Since production environments by their nature need to be stable environments and do not tolerate disruption of services, it is common that any new product targeted for production use will need to be fully tested and evaluated to insure that it works properly in a production setting. Products with a high degree of change/innovation will need the greatest amount of testing.
In some environments (e.g. engineering environments, test environments) the risks and disruption associated with change can be tolerated. In these environments the personnel and the internal support groups are typically prepared to handle the integration and testing of new technology and have learned to minimize the impact of any disruption on other more critical environments.
The
responsibility of assessing the risk associated with new technology products
in today's market is clearly on the purchaser. The vendor is primarily
interested in selling the product. Some vendors will help prepare users
for the change; however, they will not be able to fully assess the impact
of new technology on the purchaser's environment. Therefore, regardless
of how good the vendor is at preparing its customer base for any change,
it is up to the customer to assess the risk and determine when to integrate
the product in the targeted environment.
A technology product life cycle can be plotted as a product viability curve over time. The figure below shows a product viability curve and how it relates to the product life cycle.
FIGURE 1 (to come) Technology Product Life Cycle#
The shape of the product viability curve is dependent on a number of factors. The first factor is where the product starts on the product viability axis. This product viability start point is determined primarily by the amount of innovation and risk the product is perceived to have by the customer base. Products that are evolutionary, offering incremental change over previous products, will typically have a high start point, and therefore, the curve shape will be flatter. Products with a high degree of innovation or change over pervious products are considered more revolutionary. These highly innovative products will have higher risks and therefore will have a lower start point, and the product curve will be shaped accordingly.
Another major factor in the shape of the product viability curve will be the degree of customer acceptance of the product. This acceptance can correlate to the customer orders of the specific products. A better indicator of customer acceptance of a product is the degree to which a product is in use by customers in production settings. Unfortunately, obtaining accurate information on how a product is being used is very difficult or impossible and often over-shadowed by the glut of marketing data on a product's usage. Vendors often bundle products or look for other ways of getting product out to prospective customers. It is clear in the software industry that market share is a vital aspect of a vendor's strategy; therefore, if they can state that they have shipped millions of copies of a product, there is a perception that the product must be good and of production quality. However, too often this is just marketing hype. If a product is bundled with some other product, it is not clear how many people actually use the bundled product and how many people don't. What is most important is what vendors often can't or won't tell you:
- How many users are using the software in production settings on a regular basis
- How many bugs are being reported against the product
- How fast are these bugs being fixed
- It is these factors that determine a product's viability and the degree of user acceptance of a specific product.
1.2 Parts of a Technology Product Life Cycle
As the above chart indicates, the product life cycle for a technology product can be divided into four basic segments or product phases:
- Introductory Phase
- High-Viability Phase
- Product Phase-out
- End-of-life Phase
1.2.1 Introductory Phase
When a technology product is first introduced, there is a period of time when the product is an unknown entity and needs to be fully tested in production settings to insure that it functions properly and meets the stated goals and objectives. Technology in this phase is often referred to as "bleeding edge." For hardware technology, the introductory phase can coincide with the ramp-up period between the first production shipments and the time when customer demand requires high-volume shipment.
The amount of time which constitutes the introductory phase is dependent on a number of factors:
- Risk (perceived and actual) associated with the new technology
- Extent of integration, customization or change required to incorporate the product into production settings
- Nature of the technology and the software to support the new technology
Products that are evolutionary (e.g. changing the speed of a computer chip) will have a nominal introductory phase and have little or no risk associated with the use of the new product technology; therefore, the product will start higher up in the product viability curve.
These evolutionary products are typically very short lived. This is exemplified by the current rapid product change in PC technology over the last several years. PC product offerings are being replaced by vendors every two to four months. The newer products are basically evolutionary in nature (centering on faster chip technology and the integration of faster and larger disks and other peripherals) since the interfaces to these newer products are basically similar to the predecessor technology. When the interfaces are not the same, then there is a higher risk of incompatibility.
Products which have a high amount of innovation and new technology will have a higher risk factor and a longer introductory phase. It is advisable to take the time to properly assess these products before integrating them into critical production environments. Alternatively, the purchaser could wait for others to assess the new products and then allow time for the vendors to sort out the various bugs and compatibility issues.
Companies that are integrators of new products which have a high degree of technological innovation run higher risks of problems. A classic example of this is the problem with floating point calculation on the early Pentium chip. The early Pentium chips had a bug in the floating point microcode that caused it to generate erroneous data during certain types of calculations. It was several months before the bug and the corrective action were clearly identified by Intel. The early adopters of this technology had to deal with this problem by swapping out the Intel Pentium processor chip in order to correct the bug. Although this particular incident received wide press coverage, it is unfortunately a reasonably common occurrence with highly innovative technology. Therefore, it is highly advisable for most companies to manage the risk associated with the introduction of new technology by waiting some period of time before integrating this new technology.
The
exception to this rule is for companies that are able to contain the risk
or when the benefits of this new technology far outweigh the risks. Companies
that are early adopters of highly innovative or revolutionary technology
are effectively becoming the guinea pigs for the technology. The advantage
to these companies is that they are then positioned to take full advantage
of the technology sooner, which can be a competitive advantage. As the
evaluation proceeds, the company can assess the risks associated with
the technology in the context of their operational needs. Again, in the
case of the Pentium processor, many users never ran into the floating
point problem, and therefore, the risk to these users in using this technology
was relatively low.
1.2.2 High Viability Phase
As a product matures and more companies evaluate the technology to assess its viability, the risk associated with the new technology is greatly reduced. This often is about the time that the vendor is capable of delivering the product in high volume. Companies that purchase soon after the introductory phase has ended and while the product viability curve is still on the upswing are at the leading edge of technology.
In some cases (e.g. core software) it may be three to six months or even longer before a new, highly innovative product reaches this point. Typically, the vendor has had the opportunity to release a number of patches that address the problems which have been identified to date.
It is
during this period of high viability that the product is most attractive
to a company. This is because the technology is relatively stable by this
time, and there are well-defined track records on maximizing the cost/benefit
ratio of the product while containing/managing any risks. Companies that
purchase the product early in this period will derive the most benefit,
since the product is likely to have the longest life expectancy, and they
have avoided the risks associated with the introductory phase.
1.2.3 Product Phase-out
A major milestone in a product life cycle is when the vendor releases a new product targeted to the same user base as the current product. It is typical that as a product matures a vendor will introduce a product that is targeted to replace the existing product. This new product will include some level of innovation.
The
length of the product phase-out period is determined
by two factors:
- The length of the introductory phase of the new product
- The point when the vendor terminates manufacturing the current product(4)
For marketing reasons, a vendor may not explicitly indicate a product phase-out since this can be a potentially disastrous event to company sales. However, as new product is introduced, customers can usually determine whether the products are targeted to similar customer needs and requirements.
(4) This can be a self-fulfilling prophecy. If the customer orders drop off, then it will become less profitable to maintain the product. To preserve customer orders of existing products, vendors are careful about how they introduce new/replacement systems.
1.2.4 End-of-life Phase
The end-of-life phase is bounded by two events. This phase starts when the vendor no longer manufactures or sells the product, and it ends when the vendor no longer supports the product. This period can be quite long because of contractual obligations with the government and other large customers. Vendors are often required to provide service-level support for a product long after it is no longer available. However, even though the product is "supported," doesn't mean that the vendor will be able to change or fix any problem. In the case of hardware products, what the vendor will do when a hardware problem occurs is to swap out components with re-manufactured components. In the case of software, the vendor may state that the problem is fixed in a newer version of the software, therefore requiring an upgrade.
The
bottom line is that this phase is designed to provide customers with enough
time to move into newer technology.
Pricing of technology products is difficult to model since there are many factors which determine product pricing at any point in time. Some of the major factors that dramatically impact price include the following:
- Competition
- Inventory levels
- Changes in technology and manufacturing
A relationship may also exist between where a product is on its product life cycle curve and its price. It is not uncommon for a vendor to reduce the price of a mature product in order to drop inventories prior to discontinuing the manufacturing of the product. If a vendor drops the price of a mature product, it is advisable to fully evaluate where the product is in its life cycle and the true value of the price reduction relative to the viability curve of the product.
Purchasing
a product late in its viability curve will mean that the customer will
need to have a pay-back period that is equal to or less than the life
expectancy of the product. Since most companies depreciate technology
purchases over a three- or five-year period, it is typical for the pay-back
period to be equal to the depreciation period. If the product is mature,
it may be a vendor "supported" product for a period less than
the depreciation period. This means that for a mature product to be a
solid investment, the pay-back period should be very short, or the customer
needs to be comfortable with the prospect of using the product after the
vendor has stopped or reduced the level of support on the product.
Any purchase decision on technology products should be driven by the business requirements for the product. However, once the need for a technology product(s) is determined, the next step is determining which product to purchase. At this point consideration should be made as to where the products fit on their respective viability curves.
1.4.1 Software Products
In selecting a high-end or core software product such as a database or an operating system, in addition to the product selection the purchaser may also need to choose which version to install. As mentioned earlier, for some critical software packages a vendor may have two or more versions under active support. The most innovative may still be in the introduction phase and may be quite risky to use in production settings. Older versions may be more stable but may also require a conversion task in the future in order to migrate to the newer version. If the more innovative version is consistent with the stated direction of the vendor (e.g. it is clearly the future direction of the product), then the older product will have a finite life expectancy, since it is in its product phase-out period. It is not unusual for the product phase-out period of a highly innovative software product to last six, twelve or more months before the vendor will start reducing support. This makes sense since a highly innovative release of a major software package (e.g. a DBMS) often requires a significant conversion effort and therefore has a very long introduction phase. The real key to the length of time an older product will be supported is driven by the stability of the product and the market acceptance of its customer base.
A low-end
software product such as a word processor or spreadsheet application may
have a very short phase-out period, and the vendor may drop support of
the product almost immediately upon release of the new product. In these
situations the vendor is driving the migration to the newer product version.
1.4.2 Hardware Products
When purchasing hardware products, it is important to realize that purchasing computer hardware also means that there is significant software involved. A core part of a computer is the operating system and other low-level software that runs on the system. This software is often 'bundled" with the hardware. When purchasing a PC-class system, the purchaser will need to select the operating system which will run on the PC, since it is purchased as a separate item. In the case of workstation class hardware such as Sun Microsystems, the operating system, a Unix derivative called Solaris, is bundled with the system. However, Sun offers the option of running different versions of Solaris on the system. This becomes particularly significant with major operating system versions.
Therefore, the purchasing of hardware needs to include both hardware and software considerations. Again, the degree of innovation of the hardware or its core software will dictate the product's risk level. If the hardware innovation is evolutionary and runs the same operating system as older hardware, then there is probably little or no risk in using the new hardware. When there is a high degree of innovation or technology change in the hardware product, then by definition the operating system will need to be different, since the low-level software that talks to the hardware would have changed, even if the user does not perceive any change. With any major hardware innovation there is a degree of risk which needs to be assessed.
It is advisable to be cautious in approaching the purchasing of innovative hardware (and the associated operating system software) since problems may be burned into firmware or into microcode and require a hardware replacement to fix. If your company is to be an early adopter of technology, then it is advisable to be prepared to fully test and evaluate the new hardware prior to deploying it to production systems. As the hardware matures and customer acceptance is high, then the risks will be considerably lower.
Another
factor which will determine the viability of new hardware is the availability
of peripherals and add-in software. These issues will often determine
the schedule as to when a new product becomes viable. If a critical software
package does not work on the new hardware product, then not only is it
advisable to wait on customer acceptance to be high for the hardware product,
but the purchaser should wait until the critical software has proven to
be viable.
1.4.3 Rules of Thumb for When to Purchase Technology Products:
- Delay use of newly released products until they have been proved viable and are deemed stable by the customer base.
- Donšt be confused by vendor shipping statistics, since these can be very misleading. A common technique among some vendors is to bundle shipments of software with other product (e.g. new computers come with bundled software). If the installed base of users is not using the products that are bundled or are replacing them with older (more stable) versions, then what is shipped or bundled with the product is immaterial. What is material is what the user base is using to perform "production-quality" work.
- If business demands early adoption of technology, be prepared to fully evaluate the technology and manage risk areas associated with this new technology before using it in critical production environments.
- Move to new technology in production environments during the high viability phase of the product's life cycle.
- Older products will have shorter viable life spans. Give your business enough time to plan and deploy product on the newer technology. Being caught on the down side of a technology curve can be more disruptive in the long run.
- Plan for product obsolescence. Since all products have a finite life expectancy, it is important to build computing strategies and budgets that allow for the graceful migration to newer technology.
A good example of this is the Year 2000 "problem." The programming issues related to Y2K have been known and discussed in the computer industry for over 20 years. However, because this has not been a priority in most businesses, the issue has often been overlooked when software products were being enhanced. Now, in 1998 it is becoming a "crisis" issue for companies who have not made this a priority. Products and technology will become obsolete. The pay-back period for the company should be within the high-viability time frame.
All products have a finite life expectancy. Understanding where the product fits on its product viability curve can be very helpful when making technology purchases. There are numerous dimensions on a product life cycle including the type of product (software or hardware) and the technology level of the product (i.e. low-end technology vs. high-end technology).
In general, the safest time to purchase a product is while a product is in its high-viability period. To obtain the longest supported life from the product, buy while it is still on the upswing and gaining in customer acceptance but after the introduction period.
Regardless of when a product is purchased, it is important to understand the risks related to the level of technological innovation or change within the product. These risks need to be fully evaluated prior to being placed in environments which need a high degree of stability.
Companies that are committed to being early adopters of technology can have the added benefit of the extended life expectancy and may experience the benefits of technology sooner, thereby giving them a competitive advantage. However, significant risks are associated with being at the bleeding edge of technology. Companies that are successful early adopters have invested in insuring that they have fully evaluated the risks and learned to contain them before using these technologies in critical environments.
Finally, since any technology product will eventually become obsolete, it is important for a company to plan for technology obsolescence and be prepared to move to newer technology before a product is obsolete.