Digital products development: going behind the scene of product development - the benchmarking of...

Benchmarking DigitalProduct Development Costs

2015 Report

IT’S HIGH TIME FOR BENCHMARKS

Clayton Christensen warned companies in the late 90’s of The Innovator’s Dilemma: placing too much emphasis on customers’ past and current needs rather than anticipating their future needs. The digital age accelerated the consequences of this scenario, as consumer demands and expectations rapidly outpaced the ability for many large companies to respond.

Time and time again, nimbler and more customer-focused organizations entered the market with digital o�erings, grabbing market share from established players. The phrase “Kodak Moment” has now become synonymous in business with tumbling from industry leader into bankruptcy.

To avoid a similar fate, virtually every single brand today has entered, to at least some degree, the digital product development business, whether it’s designing an ecommerce shopping experience for mobile apps, bringing supply chain management capabilities to tablets in a warehouse, or simply maintaining a website for investor relations. But little is known about digital product development costs from industry to industry, and across organization sizes.

That’s unfortunate because, as it turns out, building digital products is quite a bit di�erent than building physical products. The proportional costs of building and planning are reversed, di�erent skills and capabilities are required, and scaling takes on an entirely di�erent meaning. Despite seemingly infinite new startups popping up continuously, it’s estimated that more than 90% fail, and mostly because of self-destruction rather than competition.

Before we can discover the best practices for planning and spending with regard to digital product development, we first need to benchmark costs across industries and organization sizes. Some of the questions we sought to answer in this report include:

What team members and resources are required to build digital products? What products, services and methodologies do products teams need? How do companies budget for new features and user research? How much does it actually cost and how long does it take to build a digital product?

To answer these questions, and more, we surveyed product managers from numerous industries and company sizes.

Benchmarking Digital Product Development Costs 2

https://en.wikipedia.org/wiki/The_Innovator%27s_Dilemma

https://s3.amazonaws.com/startupcompass-public/StartupGenomeReport2_Why_Startups_Fail_v2.pdf

http://www.forbes.com/sites/chunkamui/2012/01/18/how-kodak-failed/

The Benchmarking Digital Product Development Costs

2015 survey was conducted by Alpha UX and MindGrub

between July and October 2015. The objective of this survey was

to understand the budgeting process and costs associated with building digital products across industries. More than 100 digital product managers

completed this survey.

Alpha UX // Mindgrub Benchmarking Digital Product Development Costs 3

SURVEY METHODOLOGY

What do they do?

Who are they?

RESPONDENTS


<50 employees

51 - 500 employees

501 - 2,000 employees

28%

2,001 - 10,000 employees

> 10,000 employees

27% 18% 11%16%

Other

Health Care

Manufacturing

Services

Technology6%

8%

15%

22%

49%

We actually had more than 20 industries represented in this survey, but simplified many of them into four encompassing categories. Respondents from technology companies were the most common, but services and manufacturing made up a sizeable segment, further illustrating the prevalence of digital product development across industries.

Company Size

Industries

Our respondents hailed

from recently formed

startups to some of the largest

organizations in the world.

For our first foray into benchmarking the costs of digital product development, we made sure to capture data from companies large and small. We focused primarily on US companies and USD ($) so as not to overcomplicate the data with varying prices, exchange rates, and salaries.

Alpha UX // Mindgrub

Without industry benchmarks, it’s difficult to outline and determine a reasonable investment in digital. What are the costs involved? How long does or should it take to build a product? Should digital products be built in-house or with an agency? And do these factors vary across company size? Now that you have a better understanding of the product managers we surveyed, we’ll analyze some of the above questions.


THE PRODUCT DEVELOPMENT LIFECYCLE

More than half of our respondents spend more than $50,000 per month to build a digital product. But the aggregate spending may be misleading as we can see when we break down monthly costs by company size.

Monthly costs

$

$ $

$$

$

$

$0 - $10,00011% $

$10,001 - $25,00016% $

$25,001 - $50,00022% $

$50,001 - $100,000

24% $

>$100,000

27% $

How much does it cost?


As you might expect, larger companies generally spend more money on a monthly basis than startups and smaller companies. Furthermore, as project durations increase, complexity and therefore costs do as well.


How long does it take?

>25 months

13-24 months

7-12 months

4-6 months

1-3 months

9%

36%

24%

24%

7%

Project duration

For the overwhelming majority, it takes 4-12 months to builda new product.

Monthly costs breakdown by company size

Monthly costs breakdownby duration of project

> 25 Months13-24 Months4-6 Months 7-12 Months

80%

75%

70%

65%

60%

55%

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

1-3 Months

> $100,000$50,001 - $100,000$10,001 - $25,000 $25,001 - $50,000<$10,000

> 10,0002,001 - 10,00051 - 500 501 - 2,000<50



There is a prevalent notion that large organizations cannot innovate as quickly or e�ectively as nimble startups due to increased layers of communication and other established processes.But how does duration vary by company size? Are bureaucratic hurdles insurmountable or can deep pockets overcome the nimbleness of the more scrappy startups?

Despite what one might expect, there is no strong correlation between company size and time to market. Next we’ll analyze how spending di�ers depending on whether an organization uses in-house development teams as opposed to agencies.

13-24 Months4-6 Months1-3 Months

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

<50 employees

>10,000 employees

2,001-10,000 employees

501-2,000employees

51-500 employees

Project duration breakdown by company size

7-12 Months >25 Months



Team sizes and makeups for in-house teams varied so drastically, it became impossible to illustrate them in a single graphic. Instead, we tallied respondents who reported that their teams had the makeups shown in the graph. Interestingly, although “being innovative” seems to be an edict from the C-suite, only 11% of product teams have a C-level executive actively involved. But don’t confuse that with a shortage of resources. 33% of product teams surveyed have more the one product manager, while 76% have more than two engineers.

11%c-suite

33%> 1 PM

40%QA

47%UX/UI

76%> 2 engineers

Who builds it?

14%

84%Use in-house teams

Use an agency

2%Blend

80%+ develop

products in-house.

Product Team Contains:Agency vs in-house development


In terms of costs, you could look at the breakdown in one of two ways. One might interpret this chart to mean that agencies are used primarily for low-budget, non-critical projects, while organizations use in-house teams, which are predominantly more expensive, for core product development. Or, and possibly also true, agencies o�er the capability to build products more cost-e�ectively.

Project duration however does not appear to di�er between in-house teams and agencies. More research is needed to better understand the types of projects each undertakes, and the methodologies each uses to limit costs and waste.

15% 5%10%30% 20%25%35%40%45%50%45% 55%50%30% 40%35%25%20%15%10%5%

>25 Months

13-24 Months

7-12 Months

4-6 Months

1-3 Months

>$100,000$50,001 - $100,000$25,001 - $50,000$10,001 - $25,000$0 - $10,000

10% 5%15%20%25%30%35%30% 35%25%20%15%10%5%


Project duration breakdown by in-house

Monthly costs breakdown by agency Monthly costs breakdown in-house

Project duration breakdown by agency



TOOLS & METHODOLOGIES

As digital product development becomes more prevalent, a wealth of tools, services, and methodologies have emerged to support the discipline. In this chapter, we’ll take a look at some of the most popular ones.What exactly are these tools, services and methodologies? How do they budget for product development?

What tools are used?

Project management, collaboration, and cloud o�erings dominated the list of most commonly used tools. Two design and prototyping tools,

Axure and Photoshop, also made the list.

Monthly spend on tools

24%I don't know

15%>$10,000

12%$5,001 - $10,000

19%$2,501 - $5,000

17%$1,001 - $2,500

13%$0 - $1,000

Most Commonly Used Tools


$0 - $1,000 I don’t know$1,001 - $2,500 $2,501 - $5,000 $5,001 - $10,000 >$10,000

> 10,000employees

2,001 - 10,000employees

501 - 2,000employees

51 - 500employees60%

55%

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

< 50 employees


About half of respondents spend between $1,000 and $10,000 on tools per month.Interestingly, 24% of product managers reported that they were unsure how much they were spending monthly on tools. When we looked at the data, this was more prevalent as companies got larger, which could mean that resources are shared across the organization for access to tools and services.

Perhaps the most concerning data in the report has to do with how organizations budget for digital product development. Apparently using many of the holdover methodologies from budgeting for physical production, more companies either have no defined process, don’t budget, or use a ‘best guess’ than companies that budget iteratively. This is unfortunate because one of the many di�erences between digital products and physical products is that digital products can be validated and built iteratively, enabling product teams to gain feedback and fold it into a new version as they go. Being able to budget iteratively is critical for allocating resources and even being able to kill a product without wasting resources when it becomes apparent that users don’t want it.

What methods are used for budgeting?

$$$$in-houseprocess

agencyquote

we don't budget

historicaldata

no definedprocess

I don't know

iterative engineeringestimate

2% 2% 5% 5% 6% 6% 9% 12% 54%

bestguess

Budgeting process

Monthly tools spend breakdown by company size


C-Suite

Finance

Training

Legal

Quality Assurance

Sales

Marketing

Departments a�ected

20%

13%

5%

4%

3%

3%

1%


RAMIFICATIONS OF A FAILED PRODUCT

We know that most new products fail...but what are the ramifications? What is at risk? Aside from product teams, what other departments are affected? And what contributes to failure?

One of the most overlooked ramification of a failed product launch is that product teams

aren’t the only ones impacted. Other departments, most predominantly marketing and sales, often dedicate considerable time

and resources as well, so it’s imperative products teams be diligent in validating and

ensuring that products are built to meet customer demands.

Note that this is just the percentage that agreed to speak with us (although many more may have launched a failed product), and that a large portion of respondents are working at established organizations.

How many products fail?

Reported Failed Product

Launch Did Not Report Failed Product

Launch

40%

60%

Who gets impacted?

Reported failed product launches


“There was nothing that was done to validate the product concept before launching. The general manager for the business unit came up with the idea and we had to execute on it, regardless of whether we thought it was a good idea or not. This was the ultimate reason why the product failed.”

“I practice Lean and use extensive prototyping but my company doesn't formally embrace this approach; we have an informal agile process and overall product strategy tends to get lost in lieu of releasing endless features defined by customer or internal requests. It's the danger of poorly executed Agile brought to life.”

“We were prescribed the product requirements in advance and as a result did not do proper due diligence in advance of the build.”


“The failure stemmed from other departments unwillingness to contribute resources and energy to change outdated practices. It was their lack of inertia that created the lackluster result.”

There are many factors that can contribute to failure, including an inability to acquire customers, running out of budget, or building something that people don’t actually want. Not all of our respondents were willing to talk about their failed products, but a few o�ered insight into what went wrong.

What causes products to fail?

https://www.cbinsights.com/research-reports/The-20-Reasons-Startups-Fail.pdf


Date post:	21-Mar-2017
Category:	Technology
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