Marketing Memos

Nobody — especially marketing professionals with education and experience in survey techniques — should give much credence to self-selected surveys.

In this case, I’ll make an exception.

The Linux Foundation asked the world at large if they were using Linux on the desktop. The numbers have started to trickle in, and though any top-line figure on penetration is suspect, how the numbers divide is not and provides some interesting insights.

Of all Linux desktops in production among 20,000+ responding companies, most were in small businesses. This is primarily due to the fact that there are many more small businesses than mid-sized or large firms, so the number of Linux desktops in use among small businesses is not surprising.

What is surprising is that small businesses are adopting Linux desktops at all. Conventional wisdom has been that small businesses needed to standardize as much as possible, be able to obtain hand-holding support, would avoid any solutions requiring sophisticated IT staffs, and would follow the Microsoft herd.

Conventional wisdom fails in unconventional times.

Like life, the market finds a way. There are no insights in this survey into how conventional wisdom was broken. Linux certainly has become stupid-level-simple to install and configure. It has proven itself to be very stable, meaning there is little after-installation support required. And some studies have show that local support outfits (what we used to lovingly refer to as neighborhood hacker shops) are all Linux savvy, and may be providing what little support is necessary.

One marketing reality is that when all other needs (software, support, ease of use) are met, then price rules. What we may be seeing is that desktop Linux is now able to fulfill most/all baseline needs of even the smallest and least tech-ready companies, and that price is now the primary decision driver. This is pure speculation on my part, but the fault lines seem obvious given that the survey also found that 64% of installed Linux desktops were not being used by engineers — that normal information workers were the end users.

Does this mean Steve Balmer should be looking over his shoulder? Not yet, but Forrester thinks Microsoft’s date with Linux destiny is approaching. Forrester notes that Vista, Microsoft’s latest and fattest OS, may be driving enterprise-level inquiries about Linux as an alternative. Since large companies have to make commitments to technology on wholesale levels, and market milepost like Vista invite such decisions (which explains the anemic 2% adoption rate for Vista thus far). Vista may be its own worst enemy.

My reasoning for why Microsoft’s dominance days are drawing closer is that the traditional adoption path has been up-ended. Small companies are adopting before large ones. This puts a chink in classic Chasm theories, and indicates the beginning of another Grow Rich Slowly market model. If Linux desktop adoption follows the path of MySQL, then they will create a defensible position in the market. Once this foundation is laid, addition of new capabilities will make Linux desktops more and more acceptable to enterprises, and more of their employees with have Linux desktop experience from previous jobs or even from home use. The snowball effect will be measurable.

Steve Balmer does not need to cash in his options just yet, but I’m now watching the short-sell ratio on MSFT every day.

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I don’t often beat on Microsoft or their executives. After all, they are a strong marketing organization and good people to do business with once you suppress your gag reflex to the smell of sulfur leaking out from under Steve Balmer’s office door.

But when I see a Microsoft executive spinning out of control, then I ample reason for rhetorical target practice.

Bill Hilf, Microsoft’s Windows Server GM, said something in an interview with Info Week that defied historical evidence, rational thought, and deepened even my suspicions about Microsoft’s marketing integrity (yes, I know, they have none). To wit:

When people buy commercial software, really what they’re buying is a guarantee … there’s someone you can call up, and if things go really bad someone’s liable if something doesn’t work. … One of the challenges of open source and really the challenge with the open source business model is: it’s hard to replicate that ecosystem of accountability and that guarantee.

Perhaps we can forgive Bill an innocent mistake, given that he is relatively new on the Microsoft campus and has not experienced the recurring wrath from customers, torches and pitchforks in hand, who resent the non-guarantees they have received. Some instances over the ages from various news reports:

• Users of PhotoDraw were abandoned, and all the intellectual property they have created cannot be migrated to another graphics editing program because of the undocumented and proprietary file format.
• Longtime FrontPage experts who have relied on Linux server extensions cannot get version 2003 capabilities unless they switch to Windows hosting.
• Vista users cannot (out of the box) restore backups made on XP using the ever popular ntbackup utility, and even the work-around causes massive headaches.

So if we forgive Bill this one lapse of insight, then perhaps we must forgive the other, wherein he crookedly claims that the Open Source model does not provide an ecosystem of accountability. His claim is odd to my ear … I have yet to hear of a Linux user who cannot edit old graphics files, use new features on existing architectures, or restore their backups.

Hilf’s assertion centers around the hot-line — who are you going to call when something doesn’t work. But he ignores the more pertinent notion that the degree of support you need is inversely proportionate to the problems causes by the product. Phrased less politely, people need to buy Microsoft support because Microsoft gives them more problems with which to contend.

There are two marketing angles in my missive, and both affect brand acceptance:

Performance: Detroit made crappy cars in the 1970’s, and Japan stole the hearts of American drivers by not. In the long term, people adopt solutions that perform. When Microsoft makes a bad product or provides limited support, people seek alternatives such as Open Source. Today, Linux has the brand cache of Toyota, while Microsoft’s brand resembles that of the Ford Pinto.

Credibility: When Microsoft allows an senior manager to utter nonsense in public — verbiage that rapidly shows a lack of understanding about their market, their customer motivations, and reality in general — then Microsoft’s credibility suffers. Credibility is a foundational element to all brands, and after Hilf’s interview, they have less than ever.

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I love watching markets, because they are at times very predictable (which doesn’t explain why I lost my shirt investing in alpaca futures back in the 1990’s).

Presently we witness market consolidation in various technology sectors. IBM, Oracle and SAP are pillaging every available Business Intelligence (BI) vendor who survived the initial market shake-out. And Mark Hurd, HP’s chief, is predicting an ongoing slew of mergers and acquisitions as part of a broader technology market consolidation. Even my broker thinks the technology market is ripe for thinning the flock (let’s hope his predictions about tech are better than those llama fleece demand).

At the risk of repeating myself yet again, all markets consolidate over time. When first invented there were dozen of telephone companies, and eventually there were but a few. When cellular phones were whelped, there were a dozen domestic carriers, and they have merged and purged down to a handful. Same for automobiles — have your heard from Packard, Edsel, or Stanley Steamer of late? Thankfully llamas merge from time to time and create more woolly clothing factories.

Consolidation applies to technologies, and for many of the same reasons reasons. What motivates monster’s like Oracle, HP, IBM and SAP to buy companies can be distilled to several common factors:

Market maturity: When a market matures, it means there is less innovation and risk. Products tend to homogenize. Thus the risk of entering a market drops, making acquisitions safer. Since a technology company needs to create a whole product set for their customers, waiting for market maturity helps the acquiring company to buy instead of build, and to buy when the risk of utter failure is reduced.

Competitive threat/advantage: When a competitor has technology that completes their whole product set, you may be forced into buying similar technology.

Lack of market entry/options for partnering: To provide technology as a product/service, you can either buy (acquire/merge), build or partner. But when a market matures, partnership opportunities decrease. If the cost or time to build is large, and no partnerships are available, then acquisition is the only alternative.

The BI market over which SAP, Oracle and IBM went nuts is a case study. Despite recent Open Source BI entries, the market had anointed three front runners (my casual observations and some old research from General Electric indicate that every market can support no more than three gorillas). Thus, the BI market was mature. With all three of the pan-tech players competing to add value at the application level, and none having significant BI products of their own, a buying spree was bound to happen. It was more predictable than a sheered llama.

So if you are investing or merely predicting markets for the fun of it, watch for those signals:

• Demand by customers for single vendor solution sets
• Mature markets that multi-discipline gorillas do not have
• Competitive threats/advantages by rapidly acquiring technology.

When these conditions are met, companies will merge faster than two naked llama.

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Google’s announcement of their mobile platform sucked all the wind out of both the mobile and open source markets this week … and it is only Tuesday!

I won’t argue the good news. The mobile operating system market is so disjointed that it makes Pakistan politics look well ordered by comparison. The dysfunction is due to the primary proprietary plays (Windows and Symbian) not opening the stacks enough to allow significant innovation on the application front. Google’s choice of Linux will drive not only adoption of G-phones, but of all Linux-based handsets, and thus a thriving ecosystem.

This is a cascade event.

Obscured this week was a little discussed news report on the antithesis of unrestrained capitalism, namely government. In particular, a report showing that the U.S. Federal government is adopting Open Source almost as fast as it is gobbling my tax dollars. I sure hope their IT savings from Open Source results in my tax rate being lowered. I’m also hoping to win the lottery and be elected planetary emperor. I suspect I’ll be disappointed on all three fronts.

The survey was conducted by a group with selfish interests, namely the Federal Open Source Alliance. Giving them the benefit of doubts and assuming the survey was not rigged, we see 50+% of federal agencies already using Open Source, and 71% believing in the benefits. This is a continuation of trends noted in the past, but now with majority support. This is beyond any tipping point stage and into the run-away scenario.

Interesting yet unsurprising was that 88% of the respondents in intelligence agencies thought Open Source brought operational benefits. This is interesting because of the long and arcane history of security certification systems government has inflicted upon the industry in order to assure that secrets remain secret (well, except for those leaked by nefarious congressional critters). What makes it unsurprising is the active participation of various “spook” agencies in bullet-proofing Linux.

Most telling though is the difference between the aggregate Federal IT mindset and those who have actually dabbled in Open Source. While 71% of the D.C. geeks believe in Open Source benefits, 90% who have deployed Open Source have the same beliefs. In other words, trying is believing.

For the market in general, this means little. Though the government spends a ton of (my) money on IT, it influences little of IT outside of their own shops. However, if government adopts Open Source on the desktop, they may well have a huge public impact as their external miscommunication (i.e., spreadsheets, word processing documents, etc.) must be contended with. If Federal IT loves and believes in Open Source in general, they will eventually try it on the desktop. It has already occurred on the small scale (cities) and overseas, but a big American deployment will begin the cascade.

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