Marketing Memos

Apple is pushing people to populate their phones with installed applications while Google, IBM and Microsoft are urging folk to remove apps from desktops.

This is not nearly bizarre as it sounds.

The success of Apple Apps for iPhones is slightly more phenomenal than the second coming. The universe seems consumed by the desire to have useful and useless apps installed onto their handsets. Sure, most of the iPhone app rush comes from the rush of playing with a new toy, proving once again the only difference between men and boys is the price of their data plan.

Yet this month shows that the desktop is slowing turning into little more than a SaaS suckling tool, whereby apps are delivered online. Google may have led the pack with early availability of desktop apps-on-tap, but now IBM and Microsoft have tap danced onto the stage.

(The mental visual of Steve Balmer and Sam Palmisano doing a vaudeville soft-shoe act is highly amusing)

IBM’s offering seems to offer what the market would seriously not consider. Big Blue and Ubuntu (say that ten times real fast) have teamed to push applications from a Linux cloud to a Linux desktop via a Lotus leaf. Ignoring the narrow niche of combined technologies, the requisite once-and-future Linux desktop is a momentum killer. Swapping XP for Windows7 will be hideously painful, but slightly less so than a migration to a completely new desktop OS and application package.

Which is unimportant. $3 per user per month is the real news story.

Marketing clouds parted when the rental cost of the solution set was mentioned. Good, bad or indifferent, SaaS apps have caught the attention of application vendors for a number of reasons, the most motivating of which is that steady, predictable revenues streams are far preferable to the old model. Sure, support revenues were the underlying motivation for many software plays, but the agony of product release and upgrade support programs coupled with associated spikes in revenues and expenses made maddening money flows.

Which is one reason Microsoft is chasing the same market.

Though unavailable until next years Office 2010 release, Microsoft is readying a web version of Office. Though pricing and options are not yet known, Microsoft has in the past licensed server-side solutions in creative ways (for example, many ISPs supply SharePoint on a per head rental basis). If Microsoft’s web apps are sufficiently adept, many enterprises might opt for the technical and budgetary convenience of serving applications via a browser than installing every bit on every lap-and-desktop in an organization. Microsoft would certainly approve of monthly/quarterly/annual rental fees since a steady flow of greenbacks makes wallpapering Bill Gate’s den a simpler process.

The question is if enterprises will bite.

Part of technology marketing is knowing how IT technoids work, or would work if they had the nerve to assassinate their end users. After costs considerations are sacrificed, IT’s primary motivation is pain avoidance. The two greatest sources of pain for IT staffs are end user stability and systems stability. Ignoring that no end user is mentally stable, the topic turns to their computing environment stability. Web sourced apps have a number of end user stability advantages, including the inability for end users to augment the program with unlicensed software (a.k.a. malware) and the uniformity of having all users executing the same program and revision.

There will be fewer bald and bleary-eyed IT admins if web apps become the norm.

But no enterprise shop can go 100% web application. One Forrester Research analyst noted that “Our own research shows that a good portion of information workers rarely use all of the tools in their Office arsenal.” True, but there are power users and road warriors aplenty, and they likely can/will not switch to web apps. Web office applications are (likely) less feature soaked than their binary buddies, but are unlikely executable from a back seat somewhere between Baoji and Baoshan.

This creates a conundrum. Since enterprises have invested mega money into desk-lap-top maintenance systems, would they double their drudgery in order to rent apps? Since upgrade cycles for lap-desk-flat-top applications is about five years, and that the average upgrade cost for a bulk buyer of Microsoft Office suites is around $150, the breakeven costs (ignoring maintenance infrastructure and ulcer medications) is about $2.50 a month per user.

Which is where IBM got their $3/head price.

Web hosted applications may be the wave of the future, but current moment will retard any inevitability. There is a lack of marketing connection at play – a lack of urgency, a dearth of desirability, and a shortage of savings.

It is insane to declare web apps DOA, but one wonders why outfits like IBM and Microsoft sense getting products to market is necessary. I think their main motivation may be less demonstrated enterprise demand and more Google’s goading.

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Lock-in as a marketing strategy is alive, well, and unfortunately growing.

For dot-communists and those raised in the era of Linux, vendor lock-in is the art of keeping customers captive. By making people commit to a technology, and thus raising the pain of switching away from said technology, vendors cause customers to linger even when they do not want to. I know CIOs who for decades have blustered against Cognos and being locked into stiff annual license fees for PowerHouse, Cognos’ ancient 4GL.

Yet they pay the fee every year knowing that rewriting thousands of lines of PowerHouse code is pretty pricy too.

Another variation of vendor lock-in is commonly called upgrade robbery. I encountered such a scam this week when I noticed my ancient (circa 2003) smartphone buttons started to stick. In order to upgrade to a newer smartphone, AT&T insists that I buy $720 worth of wireless data that I do not need or want. My options are to switch carriers (who currently require the same data plans), or buy an unlocked phone for which AT&T may or may not automatically add a data plan for using. More maniacal still is that mandatory data plans are designed to condition cellular subscribers into using data services. Thus, at the end of a two year data engagement, the luxury of wireless data will have become and necessity.

Pretty pricy phones.

Amazon also has a bit of a lock-in with their popular Kindle ebook reader, though their version of lock-in is somewhat friendlier. The data format for Kindle books is proprietary, and Amazon is in no hurry to openly license the format to competing hardware makers. Buying an Amazon ebook means only owning Kindles for reading it, which if you are a typical bibliophile or literary pack rat means you have one and only one upgrade and replacement path – Amazon lock-in.

Pretty pricy e-paper.

Oddly, lock-in rarely lives long, with Cognos being an obvious exception. Customer lock-in is a strategy that invites competition, either with competing proprietary products, or more insidiously with open technology. Just ask Steve Balmer if Linux has caused Microsoft any problems in the market (and if you want to see Steve toss another chair, ask him if Vista caused Microsoft any problems in the market).

Already we see cracks in the each of the lock-in strategies. AT&T and their enabler Apple are repeatedly prodding Google to go nuclear, and recent rumors indicate Google may break the upgrade lock-in mechanism. Google is allegedly entering the hardware business and launching their own phones, to be available unlocked and at retail. Since G-phones are just as slick as iPhones, and since their open source souls allow for a broader range of potential applications, this is a market changing event. In the short term AT&T, Verizon and other lock-in experts will likely gouge customers slipping an unlocked G-phone onto their networks.

And that will be a mistake.

Smaller and hungrier carriers have already adjusted their voice plans to compete with the confusing and costly packages offered by the likes of AT&T and Verizon. Smaller carriers already offer flat-rate, unlimited voice plans and are earning sufficient revenues to expand their coverage maps (the chief differentiator of the major carriers). With over 70 GSM carriers in the U.S., the potential for competition is huge – vendor lock-in is thus a poor long term strategy.

This is where Google aggravates this situation. Currently, unlocked phones are a small business (albeit growing). Amazon sells unlocked phones, but has a special FAQ page due to the confusion factor and a general lack of iPhone-level lust for unlocked gizmos. A Google phone on Wal-Mart shelves with Google-simple instructions for swapping SIM cards will change the demand side of the equation. This will help the smaller carriers and tempt one of the major carriers to drop the data plan requirement.

Likewise, Barnes and Noble is teaming up with Adobe to promote open standards in ebook data formats, directly attacking Amazon’s Kindle lock-in and opening the ebook reader market to manufactures everywhere.

So when should a vendor employ a lock-in strategy? It depends on how much of your soul you are willing to give the Devil, but it does have a place in growth strategies. In new markets where you are taking large risks by inventing and promoting new product concepts, lock-in may be necessary to temporarily forestall competition and to guarantee some degree of recurring revenue. Amazon’s Kindle is a good example. Though not a new concept, Amazon was attempting to popularize ebooks and needed to assure that consumers would come to Amazon to buy the books as well as the reader. Publishers also need some assurance that the market would not be confused by too many products spread over too many vendors.

But lock-in is short lived – aside from mainframes and Cognos PowerHouse – and should not be a strategy on which to pin all future hopes. Amazon should have moved toward an open document format with the Kindle II, which in the short run would have cannibalized hardware sales while solidifying Amazon as the place for ebooks and growing the ebook market.

I’d have more to say, but I want to spend some time browsing unlocked phones on Amazon.

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