Groove Networks Blew It Because It Never Concentrated On Channels
The best idea, product or program doesn't always win in this business. Products that have access to a well-defined channel have a much higher likelihood of success than those that don't.
Microsoft's acquisition of Groove Networks is an example of a company that has figured this out, buying a company that didn't have a clue how to build a channel.
Groove had a "Field Of Dreams" approach to building a channel. From where I sit, it never made the effort to bring on the talent and do the hard work needed to build a sales channel. Instead, it thought its collaborative software was so good solution providers would beat a path to its door. As a result, the company was getting no traction in the market and had to make a deal. Need I say it again? Great product innovation—something Groove has—doesn't make a successful company. It's as plain and simple as that. While it's too bad for Groove, Ray Ozzie's decision to sell the company to Microsoft should prove to be good for Groove's product. The fact is, once it's integrated into the Microsoft product set, Groove's software will be successful because of the access to Microsoft's channel.
To me, Groove is a case study in what not to do as a startup that has a solid, evolutionary product.
We are talking about a company that had everything going for it and blew it. Every startup would kill to have a founder with the rock-star status that Ray Ozzie has in this business. As the creator of Lotus Notes—which in its own right took off only after Lotus opened the product to its solution provider channel—Ozzie had an opportunity to market Groove's collaborative product offerings as the next wave and growth opportunity for the value-added channel. And Ozzie could command an audience that would listen.
Instead, the company thought little about channels and lots about product development.
At one point, Groove turned to a Boston-area college and engaged with a class of graduate students to build a channel program. It was a nice idea, even noble and exciting for the class, but a group of graduate students without real-world experience can't be expected to build a sound strategy. And even if they did, execution is everything.
Groove never figured out that it needed to spend as much effort building a viable channel as it did developing its product.
Startups that want to succeed as independent companies should look no further than Groove's failure as an example of how important it is to build a strong channel.
I talk to CEOs of startups all the time, and the ones who truly think a lot about how the company is executing in its channel strategy are the ones who I believe are much more likely to succeed.
Interestingly, I'm also hearing more from the venture capital community that they are looking closely at channel-savvy management as a criterion for investment decisions. What venture capitalists need to do is keep the pressure on management to incorporate channel strategy into everyday thinking.
Microsoft, on the other hand, has always had a laser focus on channels. It has always put exceptionally bright executives in top channel positions, and I know that CEO Steve Ballmer personally spends a great deal of time on the issue.
Groove's product now has a very high likelihood of success because Microsoft's channel and marketing engine is going to position it and make it part of the company's collaborative offering. It's the same product, of course—it just has a different emphasis now on what's important to make it successful.
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