In 1991, Geoffrey A. Moore published a marketing strategy for companies offering high tech products during the early startup period. Since it’s publication, Moore and his publisher’s hopes of selling 5,000 copies was trumped by over 300,000 copies sold (Moore). Eighteen years after its publication, Crossing the Chasm has established and maintained the status of a classic marketing strategy book for startups with high tech, discontinuous products. Crossing the Chasm contains a marketing strategy that is appropriate for today’s startup companies. It offers a marketing approach that addresses the hurdles that a startup must overcome to achieve mainstream adoption of their innovative products. Several companies have attempted to implement Moore’s Chasm Model with mixed results. Through an examination of the companies that failed and succeeded when using the Chasm Model, it is arguable that the Chasm Model is an effective marketing strategy for a startup company offering a high tech, discontinuous product.

An Examination of a Company That Followed the Model

Documentum Inc – Document Management System

Documentum Inc. was in a fantastic position when their enterprise-level Document Management System software was released. Its venture capitalist investors were advocating towards a marketing strategy that would target the entire mainstream market (Lal and Lanagan 7). At the time, all of Documentum’s competitors were marketing to the entire mainstream market (Lal and Lanagan 6). Documentum’s new CEO, Jeff Miller, had a difficult decision to make when he ultimately chose to follow Moore’s Chasm Model and focus on a vertical market segment opposed to a horizontal market strategy.

Documentum followed the Chasm Model’s target market selection process exactly as prescribed by Moore. Documentum not only adopted the Chasm Model as their Marketing Strategy, but also paid to have Geoffrey Moore’s Chasm Group provide consultation to the company and assist in identifying potential market segmentations for the company to target. After the analysis, the following five market segments were suggested: Insurance Policy Documentation, Aircraft Maintenance Documentation, Pharmaceutical NDA, Chemical Regulation Management, and Telecom Manufacturing (Lal and Lanagan 8).

From their market segment analysis, Documentum chose to target the Pharmaceutical NDA as their niche market. The business process they chose to target was the labor intensive task of preparing a new drug application for the Food and Drug Administration (“History of Documentum, Inc”). A new drug application consisted of hundreds of thousands of pages, which cost pharmaceuticals a considerable amount of money in labor required to compile and organize the application. Documentum saw an opportunity where their software could help shed off time and expenses associated with this business process.

With a clear vision of the beachhead to attack, Documentum made changes to their document management system software to add customization to support the FDA application process. After these changes were made, the company began to shop their product around to big pharmaceutical companies like Merck and GlaxoSmithKline. Merck and GlaxoSmithKline became adopters of the product and other pharmaceutical manufacturers soon followed.

From 1993 to 1994, Documentum increased revenues by from $2M to $10M, with revenues from pharmaceuticals accounting for 70% of their total revenue. From this strong position in their beachhead market, Documentum was able to continue its domination over other vertical market segments successfully (“History of Documentum, Inc”). The ultimate mark of success happened when EMC ended up acquiring Documentum for $1.7 billion in December 2003. Documentum followed the Chasm Model and was rewarded heavily for their decision to do so.

An Examination of Companies That Fell From the Model

Linden Labs – Second Life

In 1999, Linden Labs, creator of Second Life, was founded by Phillip Rosedale after his move from Real Networks to focus on the development on his vision for Second Life. He imagined a virtual world that would immerse its customers in massively multiplayer interactive environment. In 2003, Second Life launched and immediately was faced with skepticism that demand would be low for its virtual world without a story or game supporting the user experience (Eisenmann and Wagonfeld 1). When the company approached the chasm, it attempted to follow the Chasm Model, however, did not shown that it followed Moore’s marketing strategy as it is prescribed in his book.

Over the first five years of Second Life’s operation, Linden Labs has seen a total of 16.8 million unique avatars created. Of these 16.8 million, only 941,000 had logged into the virtual world in the last 30 days. 522,000 had logged into the world in the last seven days (Eisenmann and Wagonfeld 3). These findings troubled Linden Labs, who realized after investigation that only 10% of newly registered customers were logging in on a weekly basis after the first three months. Lack of growth was becoming as serious concern, with half the average user registrations happening in 2008 compared to 2007. This data indicates that Second Life had approached the chasm and needed a marketing strategy to gain entry into the mainstream market. Second Life’s usage hours were increasing strongly, but was projected to decrease due to a drop in growth rate.

From the case study analysis by Thomas Eisenmann and Alison Berkley Wagonfield, the authors described the details of Linden Labs application of the Chasm Marketing strategy. In their case study, Linden Labs demonstrated that, with the exception of selecting an appropriate niche market to target, they clearly covered all of the bases in following Moore’s marketing strategy. There was speculation about the appropriate market segmentation to target, however, it does not appear that Linden Labs decided to target their attack to any particular market segmentation. Customer segmentation analysis had never been completed by the company (Eisenmann and Wagonfeld 4), which is a strong indication that their marketing approach did not place a heavy emphasis on following Moore’s niche market targeting approach as prescribed.

Centra Software – eLearning and eMeeting

Centra Software is another example of a company who failed to prescribe to Moore’s Chasm Marketing strategy. In 1997, two years after the company’s creation, Centra’s flagship product, Symposium, was released. Centra was a pioneer in the eMeeting and eLearning marketplace, but quickly was challenged by competitors offering similar products such as WebEx and IBM. Despite the competition, Centra was the market leader for it’s delivery platform product, holding about 50% of the total revenues for the past three years over IBM, Mentergy, and Interwise (Deighton and Poullquen 3).

It was always the goal of Centra Software to become the leading eLearning and eMeeting product provider to Global 2000 corporations. In selecting the appropriate niche market to target for its marketing strategy, Centra Software chose to continue to focus on Global 2000 corporations, with a special emphasis on the top 200 companies within the Global 2000 (Deighton and Poullquen 1). This type of market segmentation failed Centra failed because, unlike Moore’s niche market characterics, Centra’s market segmentation did not make up a vertical industry or market. The Global 2000 is simply a list of the 2000 largest and most successful companies throughout the world. Global 2000 companies cover a wide variety of industries, from oil companies to financial institutions. This resulted in being able to focus in on a market segmentation, however, prevented Centra from creating a unique value proposition that would be strong for a particular vertical market. The result was that Centra’s market segmentation choice was not a traditional fit according to the Chasm Model.

The result of Centra’s choices was that they had to challenge a number of competitors head on with highly competitive companies with on-the-market products competing. Centra also was troubled by their distribution strategy weaknesses and their challenges when making adjustments. WebEx, one of their most serious competitors, was generating nearly all of its sales through telesales (Deighton and Poullquen 3). This approach was working very well for WebEx, and Centra found themselves troubled by their lack of a telesales force. Sales over the telephone would allow Centra to reach Global 2000 corporations quicker and cheaper than its existing field sales force could provide. Despite their best efforts to augment their distribution strategy, Centra’s case study findings showed their distribution strategy was not working smoothly to maximize sales.

According to Paul Gudonis, Centra Software’s President and CEO hired in July 2003, Centra was failing was due to it’s sales force fighting WebEx and Microsoft for the sale of Centra’s product as a general-purpose online meeting solution (“Centra Software: Lessons Learned?”). This explanation provided by Gudonis confirmed that the company had failed to focus their product to address a specific market segment. Centra’s salesforce was attempting to sell their product to a variety of companies with different business processes and different needs. This finding is a clear indicator that Centra Software did not follow the Chasm Model’s prescription to target a market segmentation.

Conclusion

The case studies of Documentum Inc., Linden Labs, and Centra Software all provided an interesting view into the actual implementation of Moore’s marketing strategy into their company’s Go To Market strategy. If Linden Labs and Centra Software’s mistake of selecting an inappropriate market segmentation could have been avoided, the Chasm Model would have probably led to greater adoption of their products by the early majority. Documentum Inc. provided a strong, real world example that the Chasm Model can be highly effective in gaining entry into the mainstream market. From the study of these company’s target market selections and their ultimate level of success, there is sufficient real-world evidence that the Chasm Model is an appropriate marketing strategy for today’s startups looking to offer high tech, discontinuous products.

Bibliography

“Centra Software: Lessons Learned?” Baseline Magazine. Ziff Davis Enterprise. 13 January 2005. Web. 11 December 2009.
“History of Documentum, Inc.” Reference for Business. Web. 6 December 2009. .
Deighton, John, and Laetitia Poullquen. “Centra Software.” Harvard Business School Cases (2002): 1. Business Source Complete. EBSCO. Web. 6 Nov. 2009.
Eisenmann, Thomas R., and Alison Berkley Wagonfeld. “Linden Lab: Crossing the Chasm.” Harvard Business School Cases (2009): 1. Business Source Complete. EBSCO. Web. 6 Nov. 2009.
Lal, Rajiv, and Sean Lanagan. “Documentum, Inc.” Harvard Business School Cases (2002): 1. Business Source Complete. EBSCO. Web. 6 Nov. 2009.
Moore, Geoffrey. “Geoffrey A. Moore on Crossing the Chasm.” April 2002. Web. 7 December 2009.