Marketing Memos

The server business is getting more interesting by the minute.  Last
week several news stories dropped from the sky to paint a hideous picture of
where the market and Sun are heading.

First, we learned that
Sun was
helping to port the Ubuntu Linux distribution to their T1 architecture. 
It is encouraging that Sun belatedly recognizes the need to be a complete part
of the Linux market shift, but this is both too little and too late. 
Ubuntu may well be a fine Linux distro, but the market long ago selected the two
top contenders — Novell and Red Hat — and it is doubtful that any organization
needing T1 power will peg their fortunes on Ubuntu.  Perhaps Sun is using
Ubuntu’s team to do the heavy lifting that the big dogs don’t want to do.

And why wouldn’t Novell or Red Hat want to port Linux to T1?  Because
the demand is not there.  Years ago

Linux was ported to SPARC, and except for a handful of people repurposing
old Sun servers, there was near zero demand for that distro.  Since that
time the market has matured, buyers have made strategic decisions about which
Linux they will run and on what boxes, and nothing aside from an outstandingly
good value proposition will change that.

Which might happen anyway.  Last week we also learned that server

consolidation is an increasingly strong factor in the market.  If the
market accepted the T1/Ubuntu offering, it would do so to create a fairly
massive consolidation machine.  But that is a big leap of faith when a
small set of less pricey Intel/AMD servers would work as well.  This market
direction seems to be validated by the fact that server revenues are flat, but
shipment volume is rising, which matches the commodity server value proposition. 
IDC does note that low priced servers volume grew while mid-tier and high-end
server sales dipped.

Lost in much of this data is the tidbit that

Sun servers are making a tiny comeback, with server sales rising 7.6%. 
Since I can’t bribe anyone at Sun to open their internal books to me, I have to
speculate that most of this rise comes from their entry into the Opteron market. 
The low end server market grew 6.3%, nearly matching Sun’s rise. 

The one amusing conundrum here is Sun’s spin on the UNIX market.  They
gleefully note that according to Gartner, Sun is the #1 shipper of UNIX systems. 
Yet in the same week IDC notes that UNIX shipments fell 8.7%.  This makes
sun the captain of a slowly sinking ship.  Sure, it’s great to be in the
crows nest, but eventually the water will reach you.

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Nobody ever accused Dell of being stupid.  Dell’s second test of retail waters shows this may not be an eternal truth.

Dell is faced with two ugly facts.  First, though wildly successful in
direct marketing of personal technology, and corporate sales of business
technology, they have left money on the table.  When Dell opted not to
aggressively pursue store-front retail of PC’s, HP, e-Machines/Gateway, and
others swooped in to claim as much shelf space as they could, and reaped the
profits and consumer mindshare therein.

The other hard fact is that none of Dell’s consumer technology has any real
differentiation.  This has been part of Dell’s strategy from birth, as they
have always waited for technologies to mature, demonstrate market traction, and
then become commoditizable.  This allowed Dell to be good at what they do,
namely highly efficient manufacturing and distribution.

But between HP et al eating the low hanging fruit, and Apple’s retail outlets
growing by 45% and earning nearly three times what Best Buy does per square
foot, Dell saw opportunity and necessity. 

The problem is that Dell sells a commodity.  Sure, they could slug it
out with HP and battle for shelf space by igniting price cutting wars.  But
that is a self destructive catastrophe for which Dell is too smart. 
Instead, they saw an opportunity that was well demonstrated by Apple retail
stores.

Apple retail employees are not in the business of selling gizmos.  They
sell a consumer electronics  experience.  They differentiate their
products not by feature and price, but by subjecting innocent bystanders who
wander into their outlets to the total Apple electronic lifestyle.  People
don’t buy an iPod – they buy wonton dancing in the streets.  They don’t buy
Macs, they buy sharing their home movies with the known universe.

Dell is inching toward the same goal.  Having had their products
misrepresented by Sears (the former great retailer in a perpetual state of
decline), they wanted to assure that Dell products were properly showcased, and
that people leaving a Dell store held the felling that Dell products would make
them happier, if not smarter and more attractive to the opposite sex.  As a
Dell representative said they want customer to "touch and feel" the products.

But Dell has missed a major fact of retailing, and unless they address this,
their new storefront plans will go up in smoke like an
overly hot laptop. Dell is not carrying inventory in the stores. 
Customers finding a cute laptop, or a Super Sized plasma TV, will encounter a
built-in delay as the best they can do is wander over to a terminal and order
that product online.

Yep, you read that right.  Look, touch, then go online and go home empty
handed.

One of the hard and fast truths about retail is that it is a game of instant
gratification.  People go into stores with the desire to leave them with
goodies in hand.  Circuit City has that wall of TV’s not only to offer
customer’s a huge selection, but also to build the sense of anticipation in
taking one home.  In fact, Circuit City once had a brand of mall-based
stores designed to illicit fast purchases of jazzy and pricy consumer
electronics gear.  That chain was called "Impulse" as in "impulse buying
habits".

We can predict the behavior of Dell storefront customers.  They will
look, they will ask, they will think about it for a moment, then walk out of the
store with a "Well, let me sleep on it" response.

There is more to experiential marketing than a chaste electronic experience. 
There is the nearly orgasmic sensation of walking out of a store with a
cardboard box full of hopes and dreams and lifestyle choices.  Perhaps Dell
is simply testing this new relationship before committing to the ultimate acts
of retail carnality.  If not, this experiment will make their Sears debacle
look like a game of spin
the bottle against the Rape of the Sabines.

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It sucks to be Bill Gates.  He’ll have to dry his tears with all those
$1,000 bills.

The Microsoft desktop monopoly is under assault from many different fronts,
yet has remained impervious due mainly to a global addiction for Microsoft
Office.  Even I, a big fan of Open Source and with a cache of Open Source
clients, uses Microsoft Office almost exclusively.

Market momentum is caused by two elements.  First is the belief among
people that a product or technology is the best alternative, which leads to
initial adoption.  The second phase of momentum is high switching costs
that prevent people from abandoning their current solution for something that
might otherwise be preferable.

Microsoft Office has maintained dominance in part due to the high switching
costs.  These cost are not in software licenses (after all, you can install
Open Office for nothing).  The switching costs are intellectual and content
based.  Forcing humans who have grown accustomed to Microsoft Office menus,
short-cut keys, and behavioral quirks is damn difficult (though that can be
mandated if other factors are otherwise equal).

That leaves content as the last strand binding users to Microsoft Office. 
A huge amount of organizational intelligence is held captive in Word documents
and Excel spreadsheets.  Unleashing that, and assuring the data is
transportable into other office worker applications is an important milestone.

Which is why Microsoft is fitfully resisting the efforts of the

OpenDocument  format.  Should the market demand data
interchangeability via a neutral standard, Microsoft loses the inherent claim to
fostering productivity.  Other office applications, add-ins, and
alternatives will rise to create new functionality faster than Microsoft can. 
Every activity that pulls users away from a completely Microsoft desktop
experience will reduce their dependence on Microsoft, reduce switching costs,
and reduce Microsoft’s momentum.

The next reduction in Microsoft Office’s momentum came when the Open Source
community

developed a plug-in for Microsoft Office that allows those applications to read
and write OpenDocument formats.  This allows current Microsoft Office
users to migrate data from proprietary Microsoft formats into OpenDocument. 
If sufficient quantities of data are relocated, then switching costs for
deploying other applications suites drops, and Microsoft Office momentum is
halted.

This result is not inevitable, nor will it be quick.  Microsoft has
already started counter initiatives with their
Open
XML proposal, that appears to be a non-starter, and some attempts to
influence OpenDocument itself.

The marketing lesson herein is that like life, the market always finds a way. 
IT was content to suffer Microsoft Office licensing fees given a lack of
alternatives.  But like a Darwinian nightmare, the bog couched up a genetic
mutant that competed for Microsoft’s food supply (customers).

Microsoft’s response must be Darwinian as well, adapting to the new ecosystem
order.  Fighting OpenDocument will result in the limited food supply being
unevenly divided, and all species going hungry.  Microsoft needs to adapt
and grow from this new mutant — to use it as food.  In short, Microsoft
must embrace and extend OpenDocument.  Microsoft is famous for this tactic,
and no doubt will repeat the process.

That having been said, there are no guarantees for even Microsoft.  This
blog entry is a case in point.  It was composed using a Microsoft Office
application . . . and will be spread to readers everywhere via a Linux server,
running an Apache web server suite, and processed by PHP.

Microsoft’s current mote is not deep enough.

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I’m surprised that anyone is surprised that sales and marketing don’t get
along.  You would have greater success in forging a bond between cannibals
and fat missionaries.  At least one has a taste for the other.

Most humans have differing perspectives, based on their needs and goals. 
The perspective of a homeless bum differs significantly than that of a
politician (the only similarity being that both have their hands in your pockets
whenever you walk by).  These different perspective prevents sales from
understanding the benefits provided by marketing, and prevents marketing from
understanding the urgency of sales.

The primary differences in perspective between sales and marketing are these:

1) Sales is short-term focused (making quarterly quota) and marketing is
long-term focused (brand, loyalty, . . . ).  

2) Sales meets customers daily and individually, whereas marketing may
only meet customers infrequently and often in aggregate (focus groups).  

3) Sales is completely outbound in their focus, whereas marketing needs
inbound information about customers.

The common touch point is customers.  This tie that binds
(and gags) both sales and marketing is the one element around which both camps
can rally.  But for harmony to reign, both side have to give.

Yes . . . give.  I know this is a painful suggestion, and requires both
sales and marketing to drop their dominion over the other, but it can and does
happen.

How marketing can give:

1. Marketing should understand that sales people are under perpetual
   pressure to perform.  What sales wants from marketing are tools that
   help keep the pressure off.
2. Marketing must arm sales with tools that help them adapt to
   individualized sales situations, not one-size-fits-all messaging.
3. Marketing need to think "quality", as in "quality leads".  There is
   nothing that hurts sales enthusiasm more than having to churn through a huge
   stack of poorly qualified leads, looking for one gem.  Quantity is
   useless, and quality is gold.

How sales can give:

1. Sales must give marketing information in the form that marketing can
   use.  It may seem slavish to keep CRM entries up-to-date, and guide
   customers to satisfaction surveys, but this information is essential for
   marketing to help sales down the road.
2. Sales needs to understand they are part of the inbound information flow,
   and not the last word.  Marketing gets input from many different
   sources, so sales should add to the conversation, not dominate it.
3. Sales should stick to the provided messaging and give feedback on what
   does and does not work.  Too often sales edits the market messages and
   does not help marketing refine messaging through feedback.  This
   hinders marketing direct promotions, and cripples other sales hands.

Yet, the most important element of giving should come from top management, in
the form of giving sales and marketing the mandate and time to work together. 
So little time is invested in structured communications between these split
corporate personalities that a company looks schizophrenic to their customers
(like when the advertising copy provided by marketing says "ABC" and the
self-edited sales presentation says "XYZ" ).  Top management should ensure
that the marketing and sales chiefs are next door neighbors, and see one another
more often than they see their own spouses.  And this guided sharing of
goals, perspective, and information should be enabled through lower ranks as
well — say between field sales people and marketing project coordinators.

And if that doesn’t work, top management could always give more . . .
they could give sales and marketing a swift kick in the  . . .

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Momentum is a dangerous drug.  Like any narcotic, it distorts one’s perception and leads to poor decision making.

(Yes, I’m getting ready once again to pony whip Sun Micro)

Not long ago, the good folks at Gabriel Consulting Group surveyed 197 corporate UNIX customers to determine their perception about the Big Three UNIX vendors – IBM, HP and Sun.  IBM came out on top, Sun came out on bottom, and this echoes a change in fortunes for UNIX server shipments.  GCG asked IT buyers about their experiences with and perceptions of the major system vendors, and polled on a range of topics including:

• Raw Performance
• Processor Performance
• Observed Performance
• Operating System Features
• Operating System Quality
• System Management Suite
• Partitioning/Virtualization Suite
• RAS Features
• Overall Technology
• Technology Futures

In the Roaring 90’s Sun might have well outscored the others, but today sits on the bottom of the list.  This is truly amazing given HP’s internal struggles through the Carley years, the Itanium debacle, their seeming lack of market navigation, and HP’s perennial inability to effectively market IT wares.  You have to screw-up bad for HP to outsell you.

This is why momentum is a two edged sword.  Momentum is great in creating a brand image of strength.  People side with winners, and this includes technology buyers.  For example, most techies will happily admit that SuSE Linux works better out of the box and provides IT less grief than Red Hat.  But Red Hat gets most of the sales in part because they are perceived as the market winner.

But momentum can blind a company to changes in the market, and changes in customer perception.  Momentum can be attributed to many things, but rarely is it attributed to permanent market preference.  Brand preference is built on customer loyalty, which is created through much more than just products.

Brand preference becomes more critical as your market becomes more commoditized.  When the differences between your products and those offered by competitors are minimal, customer loyalty and brand preference will determine who wins the sale.  Sun was the "dot in dot-com", and later was the "dot in the dot-bomb."  They sold well into an explosive market when times were fast and money flowed like liquor at a congressional caucus.  But without building underlying brand loyalty, those sales vanished when times got tougher, money became scarcer, and new alternatives became available.

I asked a few random techies what they thought IBM, HP and Sun stood for as technology companies.  Many thought IBM was their business partner.  HP loyalist claimed HP simply had the best engineering.  But none of this handful of techies could describe what Sun Micro was or why they were different or important.

If you don’t create your brand, the market will assign one to you.  And if they don’t bother to assign you one, then you have no brand value what so ever.  And that is the beginning of negative momentum – the grand slide toward oblivion.

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