Reference no: EM133769789

Question

Once upon a time, there was a small software company built around the idea of new innovative voice-recognition algorithm. This algorithm was much more efficient than those used in applications offered to the market by competitors-it was user-independent, allowed to shorten dramatically a setup period (period when a user "teaches" software his/her voice pattern), and could be developed into a language-independent version (i.e., interface working with exotic languages and dialects). The evident superiority of the algorithm over all existing product and prototypes prompted the company to develop its own set of applications and invest heavily in the marketing and sales network-they believed that given the proper marketing effort it would be easy to get people to switch to the new product and recruit new adepts of voice-recognition interface. The early years seemed to support the plan-sales were growing exponentially, every new application or release developed dominated the market, and the company further expanded its sales by educating customers on merits of using voice-recognition interface and tapping into new niches previously unexplored by competitors. The company's astonishing success attracted the attention of the software development giants who had never considered voice-recognition software a viable commercial venture. The giants did some R&D and, influenced by the multimillion-dollar revenues of the new entrant, geared up its focus on development. While the small company expanded its marketing efforts and built up its network of users, the big and mighty competitors developed and launched even better products-and were able to sell these products at much lower prices. After all, they had deeper pockets and were able to promote their voice-recognition software and effectively persuade users to stick with them by making switching costs too high. New players who entered the previously unattractive market caught the small company off-guard-sales quickly flattened out, effectively limiting the company to selling upgrades to its existing "install base." Management attributed this development to the lack of proper sales efforts on the part of the company and boosted its sales and marketing budget. Retaliation failed, however, as sales turned south despite the cash influxes. Users were becoming increasingly price-sensitive, and the competitors' offering strongly appealed to them as great bargains. And so the small company could not count on unlimited customer loyalty anymore because its install base was shrinking every day. Soon the small company ran out of cash trying to turn its sales around, but its revenues never were increased, and within a year the company had to declare bankruptcy.