Marketing Memos

Being a marketing consultant, I am often caught in the intersections of market movements. Some weeks different clients will call with different issues, that are exactly related.

It’s been several of those weeks.

Three of our clients called concerning their products, their partnership with IBM, and how to shift their sales focuses to leverage partner strengths. All these calls reminded me that we are in the middle of a largest change in the IT business the industry has ever encountered, and not many vendors get it.

In previous white papers and blogs postings, I have virtually shouted about the nearing commoditization of enterprise information technology (EIT). There are forces of economics at play that defy resistance, which is futile (even for Microsoft). Only a handful of firms have grasped this and maneuvered to thrive in the new reality.

One tactic for survival is to change your point of value (POV). Traditionally, IT vendors have sold features, functions and benefits (FFB). This was well and good when bright engineers at competing vendors could dream-up new features and functions, an in those rare technology firms that had caffeinated marketing departments that could translate those into statements of benefit. Way back then, FFB’s were the POV (m-o-u-s-e).

But, no exciting differentiator was better than what CxO’s really wanted – namely bland sameness. Exhausted from decades of vendor lock-in, the market demanded that technology become a commodity. Hence the shift to UNIX, then the shift to WinTel/LinTel architectures, and ultimately to Linux everywhere (“Linux – the Universal Operating System” a catch phrase we fed to SUSE, and one inherited by Novell).

So in a world where you are now forced to sell either commodity products, or exotic niche technologies, what do you do? There are many answers, but it always helps to watch the big guys . . . and they don’t come bigger than IBM.

Back in the 1980’s, IBM realized that this market shift was going to hammer profit margins on hardware and eventually on software. So IBM did three things.

• First, they ramped up on services, which have nice, fat margins and would experience greater demand as IT struggled to create new competitive advantages.
• Second, they forced their competitors into a box by accelerating the rate of change toward Linux, commodity hardware – places to where neither HP nor Sun could afford to switch (the cute aside here is that once people are happy with commodity hardware and Linux, they start thinking more about software, which is where IBM held the lead and HP/Sun could not hope to develop products fast enough).

But, the important part was “going vertical”. When services become more important than products, the service you provide requires deep knowledge of your customer’s line of business. You need to understand their value chain, where they make money, where they waste money, and how your products and services can help them.

You cannot do this without focusing on industry verticals. Period. Get used to it.

And, that is what IBM did – shifted their marketing and sales focus to industry verticals. And then they extended that strategy further by refocusing their competitor-killing Linux and Java efforts around industry verticals too. Think for a moment about the chain of value being created:

1. We’ll sell you the same hardware and Linux as anyone else
2. But we’ll tell you how to get the most value from it, because . . .
3. We know your business as well as you

IBM has shifted their POV away from where their competitors make money, and into a place that requires a lot of new expertise to compete. More importantly, IBM has aligned themselves with what the market had been demanding for decades – that the infrastructure be a commodity and that the value of the relationship was focused on improving the customer’s business.

Oracle too has validated this new reality, though they see money yet to be made in supplying enterprise application software (we’ll see what folks like SugarCRM think about that). Oracle is also realigning on industry verticals, and buying their way into being an application vendor who also sells databases. Larry ain’t dumb.

So how will HP and Sun compete? As of today, they aren’t.

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I like bashing Microsoft as much as the next guy, and perhaps a tiny bit more. And like my neighbors, I cannot look at any Redmond activity without a healthy does of cynicism.

So when I read that Microsoft is working to improve interoperability with Linux, I immediately telephoned Hades for a ski report.

Since Linux is the biggest threat Gates & Co. have ever faced, creating any form of compatibility with the penguin would be absurd. But Microsoft grew much of its empire though a process called “embrace, extend and extinguish“. The process is straight forward:

1. Find a threatening technology
2. Public adopt it, all the while looking like a noble knight
3. Extend the standards that are the base of the technology in ways that make Microsoft’s “mutant variant” a superset, causing code written for Microsoft platforms to become non-portable or inoperable elsewhere
4. Kill competition via mass incompatibility

Internet Explorer (IE) is a case study. The extensions in IE and ActiveX programmatic (problematic) capabilities make many web sites unusable on other browsers. I once encountered a problem with Bank of America (a major Microsoft customer), whereby if you had a merchant account with BofA, you were required to use IE to control your own account.

Given Microsoft’s history of calculated destruction, establishing a department to create interoperability with Linux is completely out of character. In this case, it appears that the effort was, in part, to stem their own bleeding. The key passage from the article was:

“The team spent a lot of time improving how Linux systems can talk to Microsoft’s Active Directory . . . Getting authentication to work correctly with Active Directory is not simple. It’s often fragile . . .”

In short, Active Directory (AD) is a roadblock for Microsoft. Not widely acclaimed, and loved only by the Butterfly Legions, AD ( which also stands for “attention deficit” - coincidence??? ) is not gaining market share, and has been a major motivator for Microsoft Exchange 5.5 customers to defect to (better) products like Open-Xchange and other alternatives.

However, this new Microsoft lab has a lot of boxes, a lot of manpower, and the task of finding where Windows and Linux do not work together. Given the (in)famous Microsoft FUD campaign so inappropriately calls “Get The Facts”, one has to wonder to what ends this research will lead. Some of the more obvious possibilities include:

1. Looking for any and all remotely possible patent violations.
2. Widely documenting incompatibilities to extend FUD.
3. Discovering architectural flaws in Open Source that allow Microsoft to develop future incompatibilities into their products (i.e., an upgrade that breaks SAMBA).

Paranoid? Well, you are not paranoid if they really are out to get you.

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This blog is being written on the expo floor at LinuxWorld in San Francisco. I’m going to take a little time to shamelessly promote two Silicon Strategies Marketing clients exhibiting here, not because they are our clients, but because they have something unique and valuable to offer IT.

First is Open-Xchange, a dual-source outfit, ala MySQL. Open-Xchange is a LAMP-based groupware product. What makes OX special is not that it is Open Source, but that it exceeds the functionality of the top-selling groupware servers, and at a fraction of the cost.

OX goes beyond messaging and simple shared resources, and adds other stuff teams need to share including basic document management, knowledge management, and project management. And all these features are very elegantly stitched together to create a simple end user experience.

The other OX plus is that everything can be accessed through a web interface. Though Outlook and Evolution type clients are fully supported, the web interface is juicy enough to make even jaded folks like myself enjoy using the product. Highly recommended.

Our other innovative client is Virtual Iron. Virtual Iron has taken virtualization to the nth degree, while preserving the sanctity of your software investment. Whereas tools like VMWare and Xen can divide one box into many smaller logical boxes, Virtual Iron can do that while also globbing many physical boxes into one huge virtual computer (which could then be divided into many smaller virtual servers if desired).

Though cool from a technology standpoint, the real benefit to IT is rapidity. New servers can be created, destroyed, expanded, contracted, split, and merged on demand. Hardware resources can be shifted between different virtual machines on the fly, and while Linux et al is running. This all saves on hardware budgets, staff time, and more. None of your software needs to be special - it all sees a single, huge x86 SMP box, so everything works out of the shrink wrap.

Virtual Iron is not for everyone, but organizations that are changing rapidly and launching new initiatives will benefit from what Virtual Iron calls a “dynamic IT infrastructure.” Business agility is the name of the game.

And since this is a marketing blog, I must heap praise on MailFrontier for some funny and clever promotions. They slapped stickers above urinals in the Moscone Center bathrooms that read “This probably isn’t the best place to sell you penis enlargement. Neither is your email. We can take care of that.” I have no idea what they did in the lady’s room.

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The words “free” and “sex” are the most often used words in product promotions. Sadly, those words rarely appear together.

Sun of late has been using the “free” word as if constant incantations were the path to salvation. But their new found mantra is both unfounded and foolhardy.

Sun, like all vendors, is facing the reality of a new commodity market. Servers, storage, and operating systems (i.e., Linux) are rapidly losing differentiation - which is precisely what the market wants. Vendors are scrambling to find profits in a world where the single, obvious source of differenteation is price.

IBM took the lead by growing their services group, and driving the commoditization of the common server stack (both an attack anda defensive maneuver). They also protected their proprietary market segments by assuring that Linux became part of the environment - by running Linux in partitions on i- and z-Series servers. Dell continues their success by driving commoditization via efficient manufacturing. HP . . . well . . . HP has not yet decided what to do.

Sun has decided to Dance a Little Sidestep.

Though Sun appears to be giving away everything from Solaris to Java to the kitchen sink from the employee lounge, Sun continues to hold trump cards. According to many different thoughtful analyses, Sun’s “free” offerings come with worrisome restrictions. A cynical person would assume that Sun either has deep control issues, or an ulterior motive.

Business is about balancing risks and rewards. The rewards Sun offers are cheap software that in some cases offers great benefits to IT (Java is a winner, though free Solaris has no significant added value over Linux). But the costs may not be fully stated - “free” may not be “free”. The question every IT manager is asking is “Will Sun ever throw their trump cards?”

It would be pure speculation. But the downside risk is potentially serious.

According many opinions about Sun, they reserve the right to terminate licenses with a future revision, terminate licenses if and when a patent dispute erupts (as it may over Linux), and other trump cards. There exists a real potential that at some future date, Sun could seek income from licensed technology that was “free”. This creates an immeasurable downside potential for any IT shop - a risk few CIO’s are willing to take.

In the mean time, Sun is doing little to create value either in or above the commodity layers of the stack (unlike Oracle who foresees the commoditization of DBMS software and is “moving up the stack” buying application vendors). Their low- and mid-tier hardware is unexciting, their high-end servers are rapidly losing ground to cluster and grind systems running on x86, and their software portfolio (outside of Java) is not exceptionally compelling. And unlike IBM, their consulting services are not focusing on agnostic solutions sets, not promoting commodity alternatives.

The bottom line is Sun isn’t responding to a changing market in ways that create trust and brand value. Their marketing directions create thin veils of openness without delivering on that promise. Some have said that “a brand is a promise kept.” If the promise is not believed to begin with, then there can never be a brand. And without a brand, you have built-in failure.

The Sun may truly be setting.

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