Marketing Memos

A smart(ass) marketing professionals can find opportunity in adverse situations. So in an effort to atone for my occasional (perpetual) jabs at Microsoft and Vista, I offer the following observations of two bad realities that Microsoft can leverage for future success.

First off is a news story that likely increased Steve Balmer’s scotch intake. Sales reports concerning Microsoft’s “client revenues” (i.e., operating systems) are dismal with Vista being the worst of their offerings. Despite being the defacto OS on nearly every new laptop and desktop sold domestically, client revenues grew a measly 2% in the last quarter. This dismal sales rate occurs despite PC sales being up as much as 12%.

Many factors are responsible for this. Naked hostility to Vista is one. Asians adopting Linux is a growing threat to Microsoft. People opting for the cheaper and more resource-friendly XP is another factor.

Theft is a problem too. Or at least it was.

Microsoft is raising the wrath of certain Chinese PC users who have taken full advantage of that country’s nonexistent intellectual property (IP) enforcement. These folks happily buy illegally burned copies of Windows from street vendors for about $1 a copy, barely more than the cost of CD duplication. So Microsoft has activated “Genuine Advantage” control mechanisms, which are an advantage only to Microsoft. The validation engine inside of Windows disables computers with unlicensed copies of Windows.

Some Chinese computer users are ticked. One enraged thief with limited cognitive capabilities said “Microsoft has no right to control my hardware without my agreement,” missing entirely that his computer now works exactly as it should when there is no licensed operating system installed. Another ex-PC users astutely noted “If the price of genuine software was lower than the fake one, who would buy the fake one?”

It is tough to sell software for less than a buck a copy, but Microsoft is trying to leverage China’s demand by lowering prices on their software. They dropped the price of Vista in China to $73. I’ve used Vista and by my estimation that price is about $74 too high (someone needs to compensate me for all the extra hardware I had to buy).

Herein lays the opportunity for Microsoft. Globally they should enforce the licensing on XP and not on Vista. In other words they should encourage theft of Vista in the short run, until such time as the suffering masses of humanity have acclimated themselves to the new OS. Once enough people have been forced by circumstances and unconscionable frugality to adopt Vista, then others will reluctantly pay for the operating system in order to achieve compatibility with the rest of the word.

Face it — nobody in their right mind would pay for Vista now, so Microsoft might as well give it away to seed the market.

Bookmark to:

Are ponytails about to go out of vogue at Sun?

Despite impressions, I don’t actually enjoy thumping Sun and its current management. I’m not nearly mean spirited enough to take pleasure in such meaningless potshots. But Sun’s varied strategies (if I may misuse the word) have never made sense and never mapped well to long-term trends. And some Sun decisions — like changing their stock symbol to “java” - are just plain dumb.

These decisions show in Sun’s share price. The market votes with dollars and the dollars are flowing out from Sun, both in revenues and stock.

Sun announced more losses and at a free fall velocity that would make Newton rethink his calculations. Analysts had forecast a loss of around a penny a share and Sun in fact lost 25-35 times that much. It is the third quarter in which Sun earnings fell below analyst estimates, a rate of loss that made all analyst simultaneously suck air.

Sun suffers because they either don’t read market tea leafs well, or on the few occasions in which they do, they get overly excited about their discoveries. Sun’s few market innovations revolve around making proprietary monster multi-threading CPUs which in turn create monster monolithic servers. Trouble is the industry has and is showing a growing preference for clusters, clouds and virtualization … using standards. Sun zigged left as the market slowly and predictably drifted right.

Silicon Strategies Marketing was contacted by Sun earlier this year and we discussed their Sun Ray thin clients. The thin client concept has been around for ages but never gained traction. I advised Sun that over the long term thin clients were a losing market because standardization and competition constantly drove down desktop/laptop prices, open source was reducing the cost of applications, PC’s were commodities whereas Sun’s thin clients had proprietary elements, and that CIOs already had significant infrastructure management investments and thus a high switching cost. Sisyphus has an easier job than selling Sun Rays.

Sun lost their collective minds when they did discover growing markets and hot products. In relatively short order Sun overpaid for StorageTek and MySQL. Storage is indeed a hot market as we humans collectively continue to horde bits. But Sun dumped $4.1 billion on the acquisition, a price that exceeds Sun’s current quarterly revenues by about 25%. At the time Schwartz said Sun would be “a consolidator in the industry” which showed an utter incomprehension about the market and the dynamics of storage. Too many players, too many options for storage, capacity/price competition out of control. Zeus would have a tough time consolidating the storage business.

Then Sun acquired MySQL, the dominate force in free database software and the only company in modern times to make Larry Ellison rethink his career options. Sun dumped about another billion on MySQL, a company that makes free software — there’s a revenue enhancer for you. Since tangent income is all anyone can hope to make on Open Source, Sun was paying a billion dollars for name recognition and a comparatively tiny $50 million revenue stream. Assuming flat revenue growth (a state Sun wishes they could achieve) that is a 20 year ROI.

And then comes a recession. Personally I love recessions. The marketing strategy consulting business picks-up when the economy goes south. For Sun this the recession will a boat anchor tossed to a drowning man. Their hardware is not price competitive in an era of bargain hunters, and their famous software (Java and MySQL) are free, which will indirectly create more support-oriented costs for Sun as more of IT scavenges for cost cutting opportunities.

No, I don’t like hammering Sun and their management. But Lord they make it so easy on me.

Bookmark to:

Woe be to technology marketers in the next year … or two … or three.

Despite overly optimistic projections by some analyst firms, the tech industry will sink into recessionary doldrums like everyone else. With dropping stock prices, slowing revenues, and more picayune buyers, marketing strategy will again take the lead in leading tech companies through tough time (I know — Silicon Strategies Marketing had their best years to date in the dot-bomb era). The situation is so sire that I will be giving a talk on how to market technology during tough times at Software Business 2008 at the end of October.

The damage has already started. Everyone in Silicon Valley with a pocket full of stock options is crying nightly in their collective beers as they watch the information technology index, the NASDAQ and the S&P fall faster than the price of disc drives. The indexes have slid 40% in 2008 and 20% in the last month or so. Sales are now freezing if not contracting and even techies in the booming Asian market are turning their decade-long buying spree into a more miserly mode.

How should technology marketing strategy change during a recession, especially a global one? You’ll have to come to Software Business 2008 to hear me discuss this in detail. For now understand that all buyers reevaluate the value/cost ratio of each purchase. You can reduce their cost, but doing so cuts your revenues and makes your survivability more difficult. Thus you have to focus on increasing value.

But your product road map is set nearly in stone and during a recession you cannot hire-and-build your way to solvency. The key is to get a better grasp on the concept of value and how your target market perceives that value. Where most technology companies go wrong is not articulating value. Value is an abstract that derives both from the logical (ROI, time-to-market, etc.) and emotional (success, fame, glory, etc.) sides of the brain. Those wanting a better picture into the concept of value should read Silicon Strategies Marketing white paper True Value.

During recession, the very concept of value in the minds of buyers (B2B included) changes. Knowing how organizations change their perception of value is important. The good news is these changes are very predictable and your responses are easily mapped.

The bad news is that you’ll have to be in San Francisco on October 30th to find out the details.

Bookmark to:

People have often accused AMD of having a split personality. Now it is official.

AMD is cleaving, dividing itself into two companies. One entity (to still be called AMD) will design chips. Its fraternal twin will be named The Foundry and will manufacture chips. Naturally the former will feed the later though this sibling separation will allow more creative mixing of technologies and partners (i.e., The Foundry will be allowed to manufacture non AMD designs and AMD will license IP rights to other fabs).

As interesting as this conjoined-twin separation may be, the doctor performing the surgery is more so. The Advanced Technology Investment Company (ATIC) was created by the government of Abu Dhabi who acquired a lot of the United States wealth via oil. In a limited way some of that money is coming home, though ATIC will invest heavily in updating Foundry fabs in Dresden. ATIC also assumes a large hunk of AMD debt, leaving leaner the design half of the company — a mere $1.7 billion in debt as opposed to their current $3.6 billion load. Part of that debt reduction is due to direct investment in AMD by Mubadala Development, another Dhabi outfit.

All AMD had to do was surrender majority control of The Foundry. ATIC will have 55.6% of The Foundry.

From a management perspective, this may have been both unavoidable as well as a success factor. Manufacturing chips is a moneyed business. Chip fabs ain’t cheep and operational costs are significant. With margins on chips small and shrinking, the manufacturing side of AMD was more of a drain that a profit center. Being a chip designer without the drag created from manufacturing may give AMD enviable freedom to innovate.

Like they did with Opteron.

Let us not forget that Opteron changed the entire chip market. I was consulting to SuSE Linux at the time, and SuSE was a day-one partner with AMD, having pre-ported Linux to Opteron. So was Microsoft who blessed AMD’s 64-bit instruction set, leaving a bewildered Intel and HP crying in their Itainium brand beer. To compete with AMD, Intel eventually had to license AMD’s 64-bit instruction set, a pleasant new revenue stream for AMD.

I won’t predict that AMD will again revolutionize the CPU business, but I can’t help but believe that shedding their manufacturing side will make them more agile.

The marketing lesson today? Only that doing what you do well and not being distracted by other “opportunities” is important. AMD once knew how to challenge the market status quo and may soon do it again.

Bookmark to: