Marketing Memos

In a presentation I’m giving at Software Business 2007 on the topic of “How the Software Business is getting Crazier”, I talk about why growing your business from top-down, as is the tradition in the software world, may not be the best approach.

In the good old days (which were about a decade ago) most B2B firms started vending their technology to enterprises. This made a great deal of sense given that:

• Technology was expensive to develop, and thus expensive to buy
• Fast payback on development from early-adopters was essential to maintain fiscal life-support
• Only enterprises were sophisticated enough to implement most technology
• Marketing and distribution costs were significant

But a lot has changed in a mere decade.

• Software is cheaper to build due to more developers, better tools, Open Source models, etc.
• Software design has been simplified to the point that nontechnical people can implement many/most products
• The Internet greatly reduces distribution costs even to the lowliest of customers

The point is that building from the top-down is not your only option, and may not even be the best one. The main reason a top-down approach may be disadvantageous is that any structure that carries all of its weight at the top is inherently unstable and will fall.

In the software trade, this may well be Oracle.

As a case example, let’s look at MySQL. Their founder, Marten Mickos, referred MySQL’s strategy as a “grow rich slowly” one. The process, much like Linux before it, was to take the low ground first, and build up from there.

One advantage of a bottom-up approach is that it makes your product the lowest common denominator, and the common reference for everyone. Second, it builds an impregnable foundation which is nearly impossible to destroy (bottom-heavy as opposed to top-heavy).

The major problem with the bottom-up path is that it requires patience, and the software industry is based on a get-rich-quick mentality. Everyone start-up CEO dreams of selling-up then selling-out, and stuffing their empty pockets within a few years (now down to a few months due to Google and XenSource perception disruption).

If you face this decision matrix, ponder the maturity of your market. The more mature it is, the more likely a bottom-up strategy is better because the brand loyalty and switching costs of unseating incumbent vendors is too high. If the leaders in the market are not addressing the needs of the lower ends, you have green field.

Do note that marketing to smaller companies can be less pleasant than prison rape. Entry-, small- and mid-sized firms are under educated on business tech, don’t recognize the value of disruptive technologies, and present many headache-inducing support challenges. But if designed well and made easy to evaluate (this is where SaaS has clear advantages), your products can find traction, adoption, and dominance via a bedrock market foundation.

Just ask Oracle. More than 33% of Oracle customers now use MySQL too.

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If you are reading this then you are either a newcomer to Marketing Memos (welcome) or managed to find us after we migrated to a new blogging engine. Our apologies to everyone who had to recalibrate their RSS feeds — the new engine gave us a surprise and would not allow us to redirect the old link as we had anticipated.

I wanted one last time to shamelessly promote a talk I’m giving at Software Business 2007 next week on the topic of “How the Software Business is getting Crazier.” It will be a fast-paced chat  about how software vendors have too many options and opportunities, and how you must carefully segment and prioritized everything.

See you there!

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The good folks at Gartner shocked me recently when they reported that SaaS was eating a larger hole in enterprise budgets, now accounting for about $4.2B in spending, and growing at a 22.3% clip.

Many folks, myself included, predicted some enterprise SaaS uptake, mainly filling in areas where IT was backlogged or where renting services was faster and cheaper than implementing something behind the firewall.  By this criteria, any SaaS offering that supported:

• Smaller groups of people — not enterprise wide
• In distributed areas
• Where collaboration was required

Would be a hit.  Sure enough Gartner observed “SaaS adoption is highest in applications that support simplified,
common business processes or large, distributed virtual workforce
teams.”  This explain how SalesForce.com can attract enterprises — CRM is not a universal, corporate-wide function.  But people who need access to CRM data are far-flung, especially sales folk who know the desk clerk at the Butte Holiday Inn better than they know their own wives ( what happens in Butte stays in Butte … thankfully ).

Most interesting in Gartner’s blurb was this little gem:

“Ease of use, rapid deployment, limited upfront investment in capital
and staffing, plus a reduction in software management responsibility
all make SaaS a desirable alternative to many on-premises solutions,
and they will continue to act as drivers of growth.”

If you want to find a market to exploit, examine it from the customer pain-and-dread perspective first.  Has enterprise software traditionally been difficult to use (often), slow to deploy (always), capital intensive (typically), and costly to maintain (yep)?  No wonder SasS is finding traction — it eliminates the primary disgruntling elements.

Oddly, Circuit City and CarMax are good examples of how this marketing principle works.  When Circuit City evolved out of an outfit named WARDS ( and not Montgomery Wards I’ll add ), they decided to look at the consumer electronics retail industry, and asked people what they hated about it.  What people disliked was small selection, lack of sales support, poor customer service, high prices.  Circuit City engineered all of that out of their offering.  This is why Circuit City grew so rapidly throughout the 1980’s — because people liked shopping there.  And yes, Circuit City sells a lot of TVs.

CarMax, a company conceived and born from Circuit City, did the exact same thing — surprise.  They asked people what they hated about buying a used car, and the people noted small inventories, slimy and pushy sales people, haggling, no warranties for “lot lemons”, etc. CarMax engineered all of this out of their business model, providing huge lots, hundreds of cars, pre-inspections and warranties, etc.  And yes, they sell a lot of cars.

Anyone marketing high-tech should start with the approach, because high-tech is especially prone to navel-gazing product introspection.  High tech also tends to focus on the feature/benefit side of product creation and not customer experience deficit reduction.  Enterprise traction for SaaS is almost an accidental byproduct of serving the needs of the masses who reflect and articulate pain better than Global 2000 organizations.  For all the marketing mavens in the audience, the take-aways are these:

• Survey broadly
• Ask what people hate in open-ended fashion
• Deep interview to discover “why” they are unsatisfied
• First eliminate your corporate procedures that create customer unhappiness
• Design products with pain reduction in mind

This is why SalesForce.com, WebEx, and other SaaS players are the CarMax’s of the high tech world.

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So long SCO!  You’ve been a pain in the IT industry’s arse, and your departure is too late in coming (though it was easily predictable ).  We can only hope that Darl McBride will find help in an affordable sanitarium (it has to be affordable because his stock options ain’t worth squat any longer).

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We may have encountered the second sign of the server apocalypse this week when Sun decided to ship Windows on their x86 based servers.  Expect raining frogs and lakes of fire next.

Lead by the acerbic Scott McNealy, Sun had a history of whipping Microsoft … at least rhetorically.  Microsoft beat Sun senseless in the early years when Sun primarily made technical workstations.  Microsoft made Windows PCs a viable and cheaper alternative to Sun’s UNIX workstations for engineering, and sent Sun scrambling up the performance slope, making bigger and badder UNIX servers.

This may have been Sun’s original marketing mistake.  Everything commoditizes over time, including hardware.  Intel (and later AMD) commoditized the expensive part of the computer (the CPU and FPU).  It was only a matter of time before they did the same to servers.  Since Sun abandoned everything aside from top-end servers, they backed themselves into a marketing corner.  Going back to commodity servers and desktops would require capitulation and stealing market-share, which is expensive and unlikely.

A while back Sun and Microsoft publicly laid aside open hostilities, signed a nonaggression pact of sorts.  Their proposed collaborationsnever produced much aside from “thou shall not sue” covenants, and mainly kept one another from tossing more lawyers onto the fire (hmmmm, now there’s a captivating thought).

Now Sun’s capitulation is near complete.  Not only ave the conceded that Intel and AMD are the owners of the small- and mid-tier server markets (by building overpriced x86 servers) they have now agreed to bundle Windows onto these boxes at the factory.  Sun does this not because they want to, but because they are missing the enterprise preference to have “one throat to choke.”  Sun CEO and ponytail devotee Jonathan Schwartz confessed “We can do business with 100% of the marketplace now. That’s not something we could have said a few years ago.” 

That’s why the pay Jonathan the small bucks.

But it will be a little too little and a little too late.  Sun was AWOL on defending the broad set of enterprise needs, behind the curve on x86 and Linux, and their new Windows pact is little more than promises to bow to whatever stranglehold Microsoft is planning for virtualization.

That’s OK though.  Sun still has 34,000 employees they can lay off as the carnage continues.

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