Ocean Optics: Miniaturized Spectrometers – A tiny solution looking for big problems
Ocean Optics make spectrometry measurement easier and more accessible than ever. Given a myriad of possible applications, how can they find the right customers and the right problems to solve?
Miniature Spectrometers:
Spectrometers, in general, were instruments that measure the intensity of light at different wavelengths (or frequencies). It can potentially be used for color, light measurement, chemical identification and measurement etc. In 1989, a typical spectrometer is about the size of a car, and costs a similar amount or much more. During a project sponsored by NASA, the founders of Ocean Optics Inc. (OOI) invented the world’s first miniaturized spectrometer, about the size of a modern mobile phone, and at a price similar to that, too, with just slightly inferior performance. This creation liberated spectrometry from exclusive, high-end laboratories, to much broader use in research and industry.
After completing the NASA project, the company faced the challenge to commercialize the technology. As the world knew little about spectrometry at that time, just like the personal computers in their early days, no-one could think of any real use for it. As a result, simply putting up the product for sale will not draw any customer interest.
Developing the Business Model
A technology without known applications simply has not completed its value creation process. OOI began to bridge the gap by searching for potential uses, and educating the market about (affordable) spectrometry.
After many years of development, two business approaches were developed: academic and industrial. Academic approach target research institutions, where users were highly capable of developing their own spectrometry systems for their own purposes. To these users, an OOI spectrometer is like a piece of LEGO, offering flexibility, adaptability and low cost, compared to larger instruments. Such users use the products for a variety of purposes, and became usage experts on their own. One the other hand, industrial approach targets customers who would like a ready-to-use system, that is stable, customized, and replicable. Such customers typically use spectrometry as a qualification/examination step in their manufacturing process. To this kind of customers, OOI has to offer bespoke design service, incorporating its spectrometers into turn-key solutions for the customer.
Operational Model
In order to serve these two types of customers, the sales team were split into two types, too. The academic sales team focus on choosing the right spectrometer and configuration for the customer, and ask customers to mention product names in their publications. This way it generates goodwill and exposure in the academic community. As OOI becomes the standard in laboratory-based, accessible spectroscopy, it is able to charge a price premium for each sale.
The industrial sales team works closely with a technical development team. This squad understand the customer’s needs in depth, and take on months-long projects to develop custom hardware and software, growing the spectrometer into a full solution. The customers are charged lower price for the spectrometers, as they often purchase in larger volumes, but higher margin is obtained on the development process, and whole-system sales.
Manufacturing is the backbone of the company, as these instruments had to be made with precision and quality. The business model and nature of spectrometry caused the products to have countless possible configurations. High volume, repeat orders seldom occur. Thus, products are generally produced on a per-order basis, with only a few common configurations available off-the-shelf.
Software package was another revenue stream. As the products and analytical tools are custom-made, the company sells individual copies of the OceanView software, on top of the products. The proceeds support a software R&D team to keep expanding the capabilities of the tools.
Sources: writer and company website: www.oceanoptics.com
Interesting read.
I’m curious to hear if you think the focus on two distinct customers with very different needs is actually distracting for the company. It seems their business and operation model are dual-pronged. I suspect the two customer groups’ product needs are very different (e.g., advanced systems for academics, vs. more simple, low-tech solutions for industrials), and thus requires a lot of additional effort to serve each – i.e., there is limited overlap in the capabilities needed (the salesforce, for one, is clearly duplicated). To what extent do you think such a dual approach generates value vs. distracts the company from pursuing a single customer set more aggressively?
Hao, thanks for writing the article about Ocean Optics, Inc! You mentioned that the commercialization of this product was difficult, so I’m curious to know whether their segmentation of customers (academic vs industrial) was instituted early on or whether there were changes made to the sales organization through time. The product offering seems to be quite differentiated, so is there a significant difference in operations for these two customer segments? In addition to the sales force, what other operational considerations impact the business strategy or value proposition of the company?