Marketing Memos

Sometimes technology is wholly too complex, a fact that HP has latched onto.

In all product marketing, one pays attention to the ‘whole product’, which is the sum of all the expected outcomes from using a product (this is a combination of features, benefits, services, price points, etc.)  Whole products are different for each market, each segment and each buyer genotype. Taken as a whole, a whole technology product can be very complex, and the complexity grows as the number of targeted segments grows.

Technology isn’t for wimps.

Thus, there is often a trade-off between a whole product and the product suited for new users (who can be considered a subsegment).  Often part of a whole product is offered as another whole product, but to a market or segment that is less sophisticated than buyers in the larger group.  Another common trick is to grease the skids for implementing a whole product or provide a stripped down whole product in order to create an “ease of use/implementation” feature.

HP seems to be doing both.

Implementing cloud computing is non-trivial.  Even battle hardened geeks, armed with cases of diet Coke and enough manuals to depopulate a rain forest are intimidated.  Yet the economics of cloud computing are nearly inarguable, and thus our nerd friends geek-up and grind through implementations seemingly designed by Inquisition engineers.  In smaller companies with limited technologists resources, implementation might never happen without the aide of outside service.

This is where HP’s CloudStart appears.  In brief, it is designed to ease implementation and operation of clouds by simplifying the process.  It is a cluster of hardware, software, consulting services (heavy on that last bit) and their Cloud Service Automation tools that allegedly allow an enterprise to build a private cloud (with four ported work loads) within 30 days.  In the history of IT, a 30-day implementation of any infrastructure is unheard of, especially for something as fundamental as servers.

HP’s offering is not entirely unique.  Many companies – most notoriously IBM – have offered quick-start programs for major IT implementation.  In each the goal is the same:  to simplify the process for the buyer while locking them into a one-vendor path for implementation.  Let us ignore the latter mentioned lock-in (it is a given, like your congress critter lying to you) and instead focus on applying grease to the implementation skids.  Doing the latter in parallel with outbound marketing reinforces a single golden rule for marketers everywhere:  reduce friction.

Aside from buying water, most purchase decisions are reasonably complex.  Technology more so.  The time required to make a complex decision, and the likelihood the decision will ever be made, is inversely proportional to how simple you make it for the buyers.  Every instance where a buyer encounters confusion or doubt is a place where the sales cycle elongates and your VP of Sales’ blood pressure rises geometrically.  One of marketing’s missions is to reduce complexity in buying decisions and keep your sales exec from encountering stroke, heart failure or a drinking problem (that last one is a jest … all sales people have a drinking problem).

This is why Best Buy allows you to compare good products with crappy ones online: it quickly eliminates a point of purchase delay.

With any product, guiding the buyer to a decision is a primary marketing responsibility (one web design analysis firm refers to the lack of such marketing effort as “allowing unsupervised buyer thinking”).  The parallel with HP’s CloudStart initiative is to reduce the customer thinking required to make implementation (and thus purchase) decisions for cloud computing.  Guiding geeks to glory, if you will. SalesForce.com did this amazingly well with sales people and CRM, making their discovery, learning, trial and acquisition a snap, despite their perpetually intoxicated states.

The marketing lesson herein is to stop spewing text and data on web page after web page, and start leading buyers by the nose through the paths of discovery, education trial and adoption.  Rent a passel of prospects and watch them as they walk through your materials, and wherever they stop or have a question, fix the problem that caused it, even if it is in the product itself.  Focus on eliminating friction, diversion or rejection.  And if you sell a complex product, build a selling tools that guide buyers through the same process at lower levels.

And buy your IT geeks another case of diet Coke.  Seriously, they’re putting on weight being locked and chained in the server room like that.

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I hate religious squabbles, like one recent war of words.  I speak not of invectives thrown concerning the inappropriate placement of a proposed mosque in New York, but a string of nasty words cast upon a private discussion group debating if the iPad is a real computer.

Zealots … they are never more fierce than in geekdom.

The group in question is an invitation-only cluster of former gurus involved with a now obsolete mini-mainframe system.  Each member is brilliant yet more opinionated than a lame-duck congressman.  Aided in part by a member journalist who once covered that mini-computer beat, and who now chronicles everything Apple, the group exploded into strings of sneering over the viability of the iPad for people who want to do work as opposed to consume content.

I think it started with a dig about USB ports.  Who knows.  The rhetorical blood flowed regardless of who fired the first stray round.

One segment of this group maintained that the iPad was not ‘good enough’ for people who wanted to do ‘serious work’, two concepts that are completely personal in nature and thus entirely subjective.  The marketing jockey of this group (me) noted that the iPad was designed for the content consumption market, and that anyone wanting to do more with it might need to look elsewhere (yes, it is my job to pour gasoline on smoldering embers).  The discussion rapidly devolved into one camp who maintained the iPad was an expensive toy and others who felt Gawd himself shat it.  Each team grabbed whatever proof points they could to bolster their case and slay the other side’s perception.

Perception is the game.

Political advisors often echo the age old sentiment that “perception is reality.”  If the majority of the population believes the sun will rise in the west, it will … until it doesn’t.  If you think “they are out to get you”, then you will behave as if they actually are (and even if you are not paranoid, they may still be out to get you).  What the market believes is what your brand will be, and this shapes people’s preferences.

Which is why Apple products sell so well.

Apple has mystique, which my dictionary defines as “a framework of doctrines, ideas, beliefs … endowing the person or object with enhanced value or profound meaning.”  In other words, brand based on perception.  When iPods were still new I encountered a grown man in a Best Buy store who demanded an iPod.  When I asked him why not a different MP3 player, he had no reason.  He knew nothing of the technical specifications, competing price points, or even what restrictions the iPod might place on his music listening existence.  But he knew he wanted one because it was “cool.”

Like Mojo Nixon said, You Can’t Buy Cool.

This brings us back to the iPad and market perceptions.  It may be unfair to think the iPad cannot be made to do useful work.  The growing stable of apps offer some tools for office-like productivity, and there is even a smattering of apps for geeks (though these seem largely restricted to cheat sheets for programming languages and some iPad-specific modeling gizmos).  But given Steve Jobs death grip on the iPad experience – almost Disney-like in its wonderland fixation – a perception exists and grows that iPads aren’t going to serve buyers who need anything above content (when I tried to find a separate email client to install on my girlfriend’s iPad, none could be had and Apple discussion groups pointed to a prohibition against such software).  This perception will keep certain buyers from acquiring an iPad.

And LG knows this.

Faster than a congressman can say “kickback”, LG noticed this market perception and cast FUD concerning iPad dysfunctionality.  A VP-level LG spokesdroid said “It’s going to be surprisingly productive.  Our tablet will be better than the iPad.”  Granted, for a product that has not seen daylight, these claims are as vaporous as Britney Spears brain.  But the fact that LG has seized upon the perception of what iPads cannot do shows how one can take perception and through PR try to make it reality.  “Honey, give the kids the iPad to watch movies during the trip to grandma’s.  I need the LG-Android so I can finish a proposal for work.”

Perception then is a weapon, either to make sales for yourself or prevent sales for your competitors.  Image caused Apple to sell 13 million iPads in under five months. Image also caused LG to try choking Apple’s sales flow until their Android pad enters the market.  Members of my techno guru group used either evidence to support their prejudice about the iPad.

The marketing lesson is that perception is imperative.  A brand undefined or undefended will cause sales to suffer.  Applied against a competitor, it can cause their sales to suffer.  Steve Jobs’ crew knows branding and we can expect a backlash as more Android slate vendors (Acer, Toshiba, Motorola, etc.) jump on the iPad perception pig pile.

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Being 100% sure of anything is not only impossible, it is durn expensive.

Market research is a common conundrum for every business.  In a perfect world where coffee is always fresh, all women are drop-dead gorgeous, and government obeys, a businesses would buy plenty of primary research to be completely certain about their marketing decisions.  Not only would such circumstances stuff obscene amounts of money into my own pocket, but the risk side of the businesses risk/reward equation would drop to zilch and assure huge rewards.

Sadly, complete research would cost a fortune and never be complete.  Even Oracle has to guess once in a while, rolling multi-million dollar dice on limited research and a hunch.  Former Joint Chief of Staff Colin Powell – who led the rescue of Kuwait – once said something like “I research until I have 60% of all critical information, then I go with my gut.”

Most start-ups operate on 1% … or less.

This is the toughest part of raising a business from diapers.  Before funding (and even afterwards) the amount of cash available for research is limited.  Yet investing in research greatly reduces the probability of failure.  CEO’s of struggling tech start-ups need to invest in many things, but often scrimp on understanding their market, segments and buyers to the fullest rational extent.  This lack of insight causes their business to burn through cash in trial-and-error market outreach, which rather defeats the purpose of the CEO’s original frugality.

CEO’s need to invest in market research in incremented fashion, and in an order that is counterintuitive.  The pieces of information required are most commonly in this order:

1. 1^st segment whole product: Most products start niche, and in order to survive they need to achieve dominance in one key segment.  Knowing what constitutes a whole product for a chosen segment will help assure shorter sales cycles and sustaining revenues.
2. 1^st segment genotypes and motivations: In almost the same breath as above, knowing who actually influences a purchase decision and what their motivations are is critical to promotions.  You can have a whole product and still sell it in a way that attracts nobody.
3. Branding and messaging: Spending a few quid to perfect corporate and product messaging and your brand sets the stage for blocking competitors in your first segment and making you more buzzable.
4. Market definition: Once established, understanding the broad market and all the segments therein allows growth planning, which leads to long-term product planning.
5. Competitive positioning: Competition research, combined with your market definition map, shows which segments should be assaulted and in which order to effectively maneuver past competitors and ultimately surround them.  This is the key to market dominance.
6. Repeat 1-3 for each new segment: Those who do a good job in their first segment will be condemned to repeat it for every segment thereafter.  The process never stops – competitors, shifting markets and market lifecycles keep changing and this makes your marketing research life a living hell (which is why Silicon Strategies Marketing is in business – so your life can be less hellish).

Bottom line for budding entrepreneurs is that you need to research, but do so in an order that allows minimum investment at each stage, and in an order that assures success.  If Collin Powell had waited for a complete set of information Kuwait would be part of Iraq and Sadam Hussein would still be smoking stogies in one of his palaces instead of fertilizing crops in Tikrit.  But Powell did enough research to win.

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I opened a box of Cracker Jacks and the toy prize was a cell phone.

Not a smart phone, but a commoditized flip phone that handled voice conversations, kept a contact list and something that resembles a calendar.  A cell phone so fancy that two decades ago we would have taken a human life to obtain one, but today is so feature free that we might give it to a child so some day he can tell his kids how hard he had it.

Markets change constantly, but often products change faster than the markets that support them.  Take the cellular carrier market … please.  Given that the domestic customer base is saturated, carriers are in a constant struggle to keep customers locked into their networks and find new streams of revenue.  Yet they must also help finance your newer and more sophisticated cell phones in order to bring you (back) into their fold.  This is why a $600 smart phone costs you only $200.  The carrier makes back the money they spent on your handset by getting a guaranteed two years of revenue from you via the contract you signed.  Expanded continuing revenue also partially explains why they charge a mandatory network data fee for the newer and fancier phones (that and they want you to grow addicted to having data on demand 24 x 7 x 365 x everywhere and thus in the future perceive it as a necessity and not a luxury).

Despite a slate of new monthly charges for owning a cell phone, the industry has not changed much in decades.  Carriers subsidize handsets, pads and slates, earning their money on the backend.  This creates competition between hardware makers to gain favor and deals with carriers who erect barriers to customers using unlocked phones.  This game is fixed and the carriers are not interested in changing it much.

Which is why Google is breaking the system.

Anytime all competitors are content with the status quo, a great marketing strategy is to break the status quo.  We disreputable marketing types call this changing the rules of the market.  In a mature market you can gain first mover advantage by changing the rules.  The problem is that the more complex the market, with incestuous economics, numerous players and relationships, changing the rules is non-trivial.  Despite making a lot of cheap unlocked phones possible, Google found that Android by itself could not break the carrier subsidy model.  The carriers want money, and are unwilling to relinquish any tool that have for making more.

So Google is breaking the system in smaller chunks.

The hot part of the mobile market is apps.  Apple has a 3-to-1 advantage over Android in the apps department, though many of Apple’s 200,000 extra apps are of questionable commercial value.  This temporary Apple advantage is an Achilles heel since, from a functional level, Apple doesn’t offer much over Android.  Breaking Apple’s status quo of being an app leader is as important as getting more Android phones into people’s hands (though at their rate of growth, Android phones may dominate the market before the 2012 presidential election is over).

Google is breaking the system by changing the revenue model.  You know, that thing that is so important to the carriers.

According to reports, Google may share app revenue with carriers.  Currently carriers get glitch from the roughly $75M Apple earned from apps (another $175M went to developers).  With smart phones making about 5% of the market, this small-but-growing-like-a-virus market means real money down the road in just raw app sales, not to mention in-flow revenue opportunities.  Currently, Apple’s app share would contribute less than 2% of AT&T’s wireless services revenue, but 2% now beats 0%, and once smart phones make up the other 95% of the cell phone market, that number rises to 35% of services revenue.  Multiply this again by the growing roster of apps and their usefulness (sans meowing cat apps) and app revenues may well rival service revenues for the top-line.  Now multiply this revenue engine with pads and slates, many new flavors of which arrive this holiday shopping season.

Non trivial treasure.  Google knows it.  Verizon knows it.  AT&T knows it.  Apple knows it.

Given this new revenue stream, carriers have motivation to promote Android handsets.  Since they will be able to buy such handies from everybody (Motorola, HTC, LG, Demented Dave’s Cellular Designs, etc.) they in turn will focus on promoting the Google/Android brand as opposed to any specific manufacturer’s product.  By breaking revenue model, Google is also breaking the partner loyalty model, another Apple advantage.  AT&T may still sell iPhones … to 5% of the market.  They will sell Androids to the other 95%.

Several marketing lessons are intertwined herein:

1. First, in any market where partners own the customer relationship, odds are they will not give it up (i.e., allow unlocked phones to cheaply enter the space).
2. When partners have a lock on the end customer, you have to help partners make money.
3. If your competitor owns the partner relationship, you have to find ways of helping the partner profit that also hurts your competitors (in this case, robbing Apple of their app and partner-promotional advantage).
4. If the market ain’t broke, break it.

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The phrase “It’s just money” makes less sense when you compare the U.S. dollar and the post-Greek Euro.

PIGS (Portugal, Italy, Greece and Spain) managed to devalue the Euro through some rather reckless mismanagement (a.k.a. government).   The value of the Euro compared to other paper dropped when people weighed the risk of owning one fiat currency as opposed to another.  We can hope that George Soros was holding a pocket full of Euros when the slide started.

As the chart shows (and click on any of the graphics to see bigger, better instances) devaluation can happen instantly.  The same is sure in the technology business.  Aside from intellectual property (IP) protections via patents, there is no safety in innovation.  Creating something usable invites others to do the same.  Today’s glory product is tomorrow’s techno trifle.

Are you listening Steve Jobs?

With smart phones still a small part of the cell market, but one that is growing fast due to falling prices and increasing demand, watchers wager on the ways of Apple, RIM and Google (rumor has it that Microsoft has smart phone software, but it remains obscured by vapors).  When Nielsen – the company that likes to spy on your television watching habits – reported that Google’s Android smart phone operating system was rocketing upwards in sales, and was actually outselling iPhones, the technology world gasped in unison.  They passed out at RIM given stagnant sales, declining potential, and the poor taste Nielsen had in releasing their study the same week that Rim released a new phone and OS that offered nothing new.

(Before going much further, we must note that the numbers Nielsen proffered were through Q2 of 2010, which preceded Apple offering the iPhone 4.  Since the market anticipated i4, and slowed buying of iPhones in expectation of the new device, the numbers are somewhat skewed against Apple in the interim.  However, trends are trends and that is where this story is going).

From this jumble of numbers we see (as vividly portrayed on the chart we lifted from The Register) that Android is rising rapidly against everybody.  Aside from some added Google goodies, one cannot claim that Android is fantastically better than iOS.  Indeed, given the tight integration between iPhones and iEverythingElse, one could deride Android.  Yet its rise in popularity is eclipsing iPhones in current sales, and in less than a year Android has risen from obscurity to having half the market share that Apple enjoys.

iPhones have been devalued.

In all markets, things drift toward commoditization.  In high tech they race to that condition.  When differentiation between products is diminished, companies that win tend to have lower price, better overall value, and make their money on more than the core product (why do you think Coke sells merchandise).  Software is where devaluation to commodity status occurs most rapidly in tech, and it occurs when other motivations beside core product profit margins exist.  Linux developers don’t have a profit motive and thus changed the server operating system market forever.  Google isn’t interested in profiting from mobile phone operating systems either – they have better ways of making money and dislike being eviscerated by commodity products (hardware).

The differentiation between smart phones – in terms of core functionality – will disappear.  They all will sync with Outlook and Exchange, they all will have cameras, they all will play music, tether, have GPS navigation, Bluetooth to your dashboard, cook your breakfast, double on keyboards and wax your back … by next Thursday.  Thus price, selection and availability become key factors for buyers.  Techno lust drops to third place at best.

This is where Apple and RIM are missing the mark.  Apple is Soviet in its approach, insisting on top-down control of everything, including hardware, channels, and apps that locate new internal organs for Steve Jobs.  RIM rested on its laurels in the corporate email addiction market, and watched this thin differentiator evaporate without creating new business functionality to keep it ahead of competitors.

Google mimicked the Microsoft model.

Microsoft is huge because they purposefully let other people profit from their products.  They could have been a hardware company, and had the same success Apple did in the desktop market, which was a fraction of Microsoft’s.  Instead Microsoft worked with hardware vendors (who Microsoft knew would commoditize themselves) and made Windows ubiquitous, much to the gastric discomfort of IT support teams everywhere.  Google is taking the same approach with Android, allowing hardware vendors to make Android ubiquitous.  The primary difference is that Microsoft made money on every instance of Windows aside from the 99 out of 100 copies distributed in China.  Google is making their profit on the back side.  Front, back … irrelevant.  The issue is that Google is encouraging every hardware maker – HTC, Motorola, Samsung, Sony Ericsson, LG – and every cellular carrier to make Android available to everyone, driving prices down to commodity levels.

Which erases top-line revenues for Apple, RIM and Microsoft.  Several marketing strategy lessons can be found herein.

Force devaluation: Competing toe-to-toe with established players is a rough game.  Finding an alternate way to make money and accelerating commoditization changes the rules of the game and leaves competitors gasping.

Everything is a commodity: Maybe not today, but eventually.  It is great to be in a market before commoditization occurs, but once it does, you need to either play on price or avoid the market entirely.

Catching up is bad: RIMs answer to their declining smart phone fortunes is at best parity (or parody if you find similar sadness with the now missing Palm).  When the market is running far ahead of you, being equal means falling behind at a slower pace.  You have to bring something new to the market, which Rim didn’t.  People buy value, not features.  When your features only equal those in competing products, you failed to create value worth buying.

UPDATE: On 2010-08-24, Dell launched a $99 smartphone running Android (granted, this is subsidized by AT&T, but the no-contract price is $299).  This begins the drive downward, putting something as smart as Android in every pocket.

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