Marketing Memos

I love technology fads.  If I could just think of a way to profit from the inevitable failure of enterprises trying to implement them, I could retire … to my own private island.

Social networking is more than a fad, though the surrounding hype makes it sound like one (with the possible exception of Twitter, a fad that I hope will fade fast).  Social networking serves a real purpose, namely uniting people who have common connections.  Facebook facilitates all types of unions from the common to the outrageous (if you can get jihadists to threaten you, then you know you have some power in the world).  The secret to social media systems is that they let people decide what common connections are important and that do not occur through nominal daily activities.

Which is why most corporate social media experiments have been misguided wastes of your bonus check.  Corporate life is all about getting people with common purpose together – even sales and marketing, though the bloodshed between those camps makes cleaning up conference rooms an added expense.  Social networking applied to corporations has few benefits because it lacks a real purpose that isn’t already being met.  While judging entrees in last year’s CODIE Awards, I was subjected to a number of enterprise-focused social networking suites that in practice produced no benefits for the enterprise or its employees.  They were, almost to the last, mere playthings without tangible end-games.

Which is why Connect2health is a delightful departure (full disclosure: Private Social Networks, the makers of Connect2health, is a Silicon Strategies Marketing client).

Connect2health was designed to achieve specific things for a specific market, which according to the units-squared principle means that Connect2health is already four time more viable than any other enterprise social networking suite.  Specifically, Connect2health is designed to help hospitals grow communities and thus create marketing opportunities and control brands.  Hospitals – at least those in major metropolitan areas – compete, and they know that creating and exploiting a lasting brand is difficult.  Sure, Kaiser Permanente knows how, but they have been mastering the trade for ages, they have more money than Moses and can establish for themselves almost any brand (except that of being the low cost provider).

When getting into the private social networking business, Private Social Networks decided to pick an industry that had a demonstrated need, apply social networking mechanics to customers in that industry, and find ways of having the product fulfill business missions.  Stated succulently, Connect2health helps hospitals connect patients, families, friends, doctors, nurses and administrators online together with the express purpose of centering healthcare around the patient.  The backend that excites hospital management is the ability to market to the patients, their families, their friends and everyone else who connects into the application.  This amplifies and targets hospital outbound marketing, inbound talent, and for the non-profit hospitals, donations.

More importantly though is that by creating long-term customer connections, in an industry that normally connects only for the duration of hospitalization (and the funeral if it is a lousy institution), this is a brand defining tool.  Patients bring in new people, demographic profiles develop, connections are kept long after patients are discharged, and the hospital (who owns the data) can continue to establish and expand their brand to these people.

Where enterprise social networking plays have gone astray was not providing concrete benefits.  Most of the vendors in this space talk in vague generalities about “synergies of connected teams” and other effluvium written by junior marketing people who have never had P&L responsibility.  Social networking companies that identify and address specific needs of specific industries and create specific payoffs will make some serious cash.  Expect to see some players become “specialists”.

That is if they can keep up with Private Social Networks.  Hospitals are only the first segment in their sights.

Share this on social sites:

Hide Sites

“There is no market there,” I said to the entrepreneur, who left in a huff.

Sure, I might have been wrong, but that is unlikely.  The entrepreneur may be one of those storied Silicon Valley visionaries whose acute sense of the needs of certain buyers is so profound that he soon will buy a small third world country with his spare change, but that is just as unlikely.

The first need every company has is a market.  The first question is always “does a market exist?”  After all, without willing buyers no amount of product design, cost reduction, hard work or plain dumb luck will make a company successful.  This then brings to the fore the nature of identifying viable markets, a task Silicon Strategies Marketing routinely performs for our clients though we have to deliver bad news more often than we like.

There are two primordial paths to market conceptualization:

Intuitive: An organic process whereby an individual or small team acquires via passive absorption insights into buyer needs, market gaps or pervasive trends that create a “Eureka!” moment.

Quantitative: Process where measurements of market dynamics, buyer expected outcomes and competitive pressures show available product opportunities and positions.

The two are not mutually exclusive.  Visionaries should (though rarely do) commit to quantitative analysis to confirm a viable and profitable market exists for their vision.  Jobs and Wozniak likely did little market dynamics research before presenting their bosses at Hewlett-Packard a notion about personal computers.  They had a vision about desktops and found ways to make that happen.  Steve Jobs is still in that line of work – visualizing things that ought to be (except Adobe Flash).  Other founders have a vision, but gather market research to keep from burning through grandma’s retirement money on a wild scheme.

Quantitative market identification lacks the visionary aspect.  It is a top-down, numbers focused examination of what is occurring in market places to identify what is missing.  I recently conducted research for a company specifically to identify what they and all their competitors had missed – where the market wanted something that had not yet been conceived (and it looks like we found it).  Quantitative market identification is science while intuitive market identification lies between the brain and the soul.

For start-ups seeking funding, one is an easier pitch than the other.  Put yourself in a VC’s richly appointed leather chair and imagine a young Jobs-like visionary pitching a previously inconceivable notion about a computer in every home in an era when a lot of home didn’t have a television (back before satellite dishes became the official West Virginia state flower).  Tough sale?  Yes, unless you had market surveys that showed the number of potential customers, their price sensitivity, and a marketing ROI plan, in which case a VC might break a finger trying to write a check fast enough.  Conversely, if you identified your market via quantitative means then you might not need or want to dilute your shares just for VC cash infusion.

Let’s take two examples.  Apple was a visionary approach.  Jobs and Woz saw a market though there was likely very little in the way of structured market research that did (or could) substantiate the future of desktop computing.  It took working at HP and Atari and hanging out at a computer club for them to triangulate a future nobody else could.

Though I have no inside information, I suspect SeaMicro – who came out of stealth mode this week – had a quantitative epiphany.  They basically reinvented servers by challenging all the assumptions about those boxes.  Examining how servers are used and how they are inherently inefficient, the SeaMicro founders likely justified revising corporate backbones by looking at market realities, quantifying demand and ROI, then designing a machine based on merging trends in technology (low cost, low wattage CPUs) with trends in demand (virtualized server farms) and customer-side cost/benefit analysis.

The best path may be the validated visionary approach, and hence the one most often practiced.  Vision is an odd creature – not everyone has it.  Yet people who are subjected to a specific market day in and out, who see data or hear what buyers have to say have their vision because they have non-quantified analysis.  Visionary risk is reduced by quantification.  Quantification can also eliminate the need for visionaries.

The marketing lesson is pretty simple:  Vision is great but has huge risk.  But don’t let risk detour you.  Be smart enough to reduce the probability of failure early on in your start-up by quantifying what you are making, for who you make it, why it matters and what it is worth to the buyer.

Now that’s visionary!

Share this on social sites:

Hide Sites

I am overly fond of quoting Peter Drucker who said “Business has only two basic functions – marketing and innovation” and everything else is merely administrative labor.  But you have to give the man credit for stating a truth as succinctly as could possibly be done.

The effect of marketing on innovation must be understood.  Unguided innovation has created many interesting, amusing and completly unprofitable technology products that caused tons of venture capital to evaporate (often through excessive and misguided marketing budgets).  Similarly, marketing occasionally identifies untapped markets, and is the seed for new and successful products (unless the market research was flawed, in which case see the preceding outcome).  Thus, marketing is both a creator and regulator of innovation.

This subject is often not understood my entrepreneurs and even CEOs of major corporations.  Inbound marketing – the more interesting half of the profession – is all about understanding markets, buyers and competitors and serves as both a regulatory governor and catalyst. Let’s break-down the two halves of the schizophrenic condition know as marketing strategy.

Our first case is where innovation has occurred organically, often in the alleged mind of the entrepreneur.  In their own ad hoc way, entrepreneurs perform market research:  they observed some part of some market, witnessed a gap between what people want to achieve and how products failed to help buyers do so, and attempted to create products that bridge the gap.  Often such products fail because:

Market size: The market is very small or the people who want the product have no budget or buy authority.

Whole product: The entrepreneur does not completely understand the needs (expected outcomes) of his market, or tries to bridge so many segments early on that he never creates a whole product for any one buyer.

This is where marketing’s regulatory function comes in.  Marketing must validate that markets exist and describe to engineers what the market requires.  The innovation may have occurred organically, but marketing ties the germ idea to a trellis (segment alignment) and waters the roots (whole product definition).  Market research thus helps expand/refine product definitions and confine the product concept to viable segments.  It regulates and nurtures innovation to conform with reality.

The flip side is where inbound marketing discovers the market need.  While performing market research (typically qualitative) certain trends may emerge.  Silicon Strategies Marketing recently performed a “deep interview” series with key buyers in one market in order to measure branding issues, and in the process kept observing a negative similarity among all the respondents.  Observing this similarity of responses led to the identification and development of a new product.  Thus, marketing was like a structured entrepreneur and identified a need/gap in a market.

A recurring management problem is that CEOs often do not understand this half of marketing’s job.  This is especially true with innovators and out-of-the-box leaders with myopic (or megalomaniacal) vision.  Market research decreases the probability of failure by reining in the unfounded expectations of the innovation, or expanding the vision to meet market requirements.  Visionaries don’t understand the value of marketing’s innovation contribution because in their eyes the original concept is perfect.  In reality it isn’t.

Nine out of ten funded start-ups never succeed.  The percentage for unfunded start-up failures is higher.  Yet check the boards of any tiny tech company and you will not see a marketing strategist listed.  My conversations with VCs indicate that lack of marketing perspective is the bane of the losing part of their portfolios.  In all cases there was innovation but no marketing to guide it.

Poor Peter is moaning in his crypt.

Share this on social sites:

Hide Sites

Is it time for Steve Ballmer to bail?

I don’t pick on Steve for the fun of it – not entirely at least.  I bring up the dreaded discussion of putting a new captain at the helm because after a decade with Ballmer as skipper, the good ship Microsoft is foundering, leaking between nearly every plank.  In an era where everything changed, Microsoft did not change fast enough and has failed to catch the rising tides.

Apple has not capitalized on everything and yet Apple now has a market cap larger than Microsoft (which we can take with a few drops of sea water since Apple’s forward P/E ratio is more than 50% higher than Microsoft’s, showing that navigators see better odds with Jobs on the investment horizon).

Drucker wisely noted that “Business has only two basic functions – marketing and innovation.”  High tech is uniquely a product of both.  Inbound marketing leads to innovation, or at very least appropriately channeling innovation.  Since technology markets are in perpetual change, and since the Internet has accelerated change, the key goal of marketing becomes tracking change and anticipating where this will cause money to flow.

Microsoft missed almost every change of the last decade.

By “missed” I don’t imply they ignored it.  They simply failed to capitalize on the change in a timely manner, with a great product, or both.  Here is a short list of huge opportunities that Microsoft flubbed:

• The web: Microsoft owned and then lost ownership of the web experience.  Their half-conceived attempts to create a rich Internet application infrastructure was eclipsed by Adobe (Flash), Sun (JavaScript) and other software.  Even the iconic Internet Information Server – an IT product for Microsoft’s core buyers – was effectively eradicated by Open Source (Apache).
• Search: Like Microsoft and desktops, Google understood that owning the most fundamental product in a market is a good grounding strategy.  Microsoft should have owned the search space, but every attempt was late and occasionally weird (like Live Search).
• Smart phones: Smart phones are portable computers with built-in telephony.  It is the closest thing to a desktop aside from pads/slates which are just now hitting market demand.  Microsoft should have owned this space, but they missed the opportunity by not uniquely bridging their established dominance in desktops.  Apple created something flashy while Microsoft should have bundled in email, desktop document tools and other office accoutrements.
• Pads: Same as above but with a much sadder ending.
• Music devices and music: Content has never been Microsoft’s forte, so missing this opportunity might be understandable.  Where as Jobs knows content (iTunes, Pixar, etc.) for Microsoft it is an afterthought.  Owning the desktop in most households should have lead to a more complete and pre-packaged audio experience.  Zunes don’t meet the market and unlike a MacBook, iPod, iTunes combo, Zune does not deliver an experience that people want to talk about.  Zune is a buzz kill.
• Clouds: Cloud computing will be the new norm, and one that Microsoft failed to engineer out of fear of losing control of the data center.  The future of the cloud space will be mainly VMWare and Linux, and rightly so as they strive and succeed in fulfilling the new whole product definition for data centers.

This roster covers only the opportunities Microsoft missed.  The list of things Microsoft simply screwed-up is long as well, and has such monumental errors as Vista, security and MSNBC (seriously, have you seen the ratings on that channel – I’ve never seen negative Nielsens before).  Vista, the next edition of Microsoft’s XP bread-and-butter was a bummer.  Lousy security is like owning a dog that invites burglars into your home.  And littering a news channel with blatant activists contradicts the definition of “news”.

It seems that under Ballmer, when Microsoft was not screwing up they were taking all eyes off of the ball.

I don’t think Microsoft’s board is going to oust Ballmer immediately.  Yet stockholders have the convenience of leaving at a whim which causes stock prices to drop and the remaining owners to demand action.  Innovation and marketing require vision and leadership, and Ballmer has ten years of misfires that indicate he does not lead on these two fronts.  Steve Jobs can see a market and conceive products for that market.  Ballmer, though perhaps good at operations is not the visionary that Gates was or Jobs is.

As the Greek’s say and know, the fish rots from the head down.  It may be time to make some fish head soup at Microsoft.

Update 2010-06-07: News from the All Things Digital conference indicate that the tech world is marginalizing Microsoft.  To quote from the news report:

They allowed the conversation to be focused mainly on competing products: Apple iPad, Google Android, Google Apps, Google search. Since these products have exposed weaknesses in Microsoft’s own offerings, it was unlikely to work out well.

Not good.  Not good at all.

Share this on social sites:

Hide Sites