Marketing Memos

Google is proving an old joke right, and in the right way.

The joke was that UNIX is the original computer virus, spreading like an epidemic to every conceivable computing platform.  Geeks used to laugh at this line … until Linux was first spotted running side-by-side on both a surplus x86 desktop and an IBM mainframe.  It then leapt onto cell phones, into routers, and I think there is a Linux application for my toaster.

It may in your next television.

Samsung – whose cell phone division likes Android in the same way sumo wrestlers like cheeseburgers – let slip that they are considering baking Android into televisions.  This is no meager moment because Samsung makes more idiot boxes than the public school system makes viewers.  In fact, Samsung make more boob tubes than any other enterprise, and is single handedly responsible for most of the traffic on Best Buy’s web site (Samsung offers 82 different sets at BestBuy.com, with Sony running a distant second with a trifling 27).

Threatening to put Android on Samsung TV’s is a significant market trend event and a significant marketing move.

With few details, we can only speculate on what an Android TV might be (but it won’t be Google TV).  Google and Samsung are wise enough to learn from other people’s mistakes, including Microsoft’s WebTV, Wink and Open TV, and thus avoid doing the same dumb things (like Google TV).  Each of those forgotten offerings was either a disaster or a mere calamity, depending on how many worthless shares of incentive stock you held.  Each product attempted to merge functions of interactive computing with the completely non-interactive purpose of television.  Each company discovered – in exquisitely painful ways – that people watch television to avoid interaction – interaction with computer, spouses, children or anything else annoying.  Thus interactive television was doomed from the conceptual start.

Which partially explains your set top box (STB in the industry lingo).  Have a look at that gizmo.  Internet ready.  USB ports on the back.  A keyboard we call a remote control.  CPUs with more horsepower than your cell phone, which is a multitasking general computer.  Your average STB has more computing power than my first four personal computers combined.  This is because the cable and satellite industry understood the power of digital media, and needed to put computers on your TVs in order to deliver goods above and beyond basic cable.

Which is why Samsung wants to put the computer in your TV.

A major shift is occurring in video entertainment media.  The old means of consumption are approaching an evolutionary epoch ahead of a rapid decline.  Once digitized, content becomes portable.  Your laptop can stream off of Hulu.com.  Netflix and Amazon can stream movies to your gizmo enabled monitors.  You can watch reruns on your iPhone, and no doubt some criminally insane zealot is developing a video watching app for a Microsoft cell phones (which shows even tiny markets attract developers).   We are steadily shifting from a nation of people who shared televised moments (who didn’t watch Johnny Carson and joke about it around the water cooler the next day) to a species that consumes content then Twitters about it to share asynchronously.

Which means broadcast television as we know it is doomed.

This is one reason Samsung is considering baking an embedded computer into your electronic baby-sitter.  Television is all about content, and content is now escaping the traditional distribution channels.  By the time a television program reaches you today the production company, television network and cable company have all eaten a piece of the profit.  Steve Jobs first figured out that digitized music needed a more direct path to consumers, and cut out the record store and wholesaler.  As musicians taught themselves digital production, they started to cut out the record companies.

Samsung will help make possible cutting out Comcast (hmmm, why did my Internet connection disappear when I typed that?)

Like many things visual, Netflix showed the way. Once broadband penetration was wide spread enough, Netflix stared streaming movies to your TV set via a proprietary box.  They could easily do the same with an Android app inside of a Samsung television.  So could Paramount pictures, who might want to cut Netflix out of the profit chain.  So could Demented Dave’s Demons, the local punk band who wants to distribute concert footage to people in Mongolia.  Samsung is accelerating a trend to flatten content distribution.  Any middle man will be on the losing end of the equation.

This includes Steve Jobs.

Shift happens, and the market for video content is shifting to a direct model.  Ignore the economic efficiencies of delivering a movie directly from a web site to a million televisions and eliminating DVD manufacturers, packaging companies and the postal service.  Do imagine the producers being able to cut the price of a movie rental in half and still double their profits.  Do imagine the long tail behind any episode of any television program being rentable from now until really jazzy trumpets start blaring overhead.  This trend is unmistakable and the largest maker of televisions in the inhabitable world and Canada knows it.

So does Google, who will be able to cross index your Internet searches, mobile locations, lunch break food preferences as well as your television viewing habits … and sell your detailed demographic profile to advertisers.

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Sometimes technology is wholly too complex, a fact that HP has latched onto.

In all product marketing, one pays attention to the ‘whole product’, which is the sum of all the expected outcomes from using a product (this is a combination of features, benefits, services, price points, etc.)  Whole products are different for each market, each segment and each buyer genotype. Taken as a whole, a whole technology product can be very complex, and the complexity grows as the number of targeted segments grows.

Technology isn’t for wimps.

Thus, there is often a trade-off between a whole product and the product suited for new users (who can be considered a subsegment).  Often part of a whole product is offered as another whole product, but to a market or segment that is less sophisticated than buyers in the larger group.  Another common trick is to grease the skids for implementing a whole product or provide a stripped down whole product in order to create an “ease of use/implementation” feature.

HP seems to be doing both.

Implementing cloud computing is non-trivial.  Even battle hardened geeks, armed with cases of diet Coke and enough manuals to depopulate a rain forest are intimidated.  Yet the economics of cloud computing are nearly inarguable, and thus our nerd friends geek-up and grind through implementations seemingly designed by Inquisition engineers.  In smaller companies with limited technologists resources, implementation might never happen without the aide of outside service.

This is where HP’s CloudStart appears.  In brief, it is designed to ease implementation and operation of clouds by simplifying the process.  It is a cluster of hardware, software, consulting services (heavy on that last bit) and their Cloud Service Automation tools that allegedly allow an enterprise to build a private cloud (with four ported work loads) within 30 days.  In the history of IT, a 30-day implementation of any infrastructure is unheard of, especially for something as fundamental as servers.

HP’s offering is not entirely unique.  Many companies – most notoriously IBM – have offered quick-start programs for major IT implementation.  In each the goal is the same:  to simplify the process for the buyer while locking them into a one-vendor path for implementation.  Let us ignore the latter mentioned lock-in (it is a given, like your congress critter lying to you) and instead focus on applying grease to the implementation skids.  Doing the latter in parallel with outbound marketing reinforces a single golden rule for marketers everywhere:  reduce friction.

Aside from buying water, most purchase decisions are reasonably complex.  Technology more so.  The time required to make a complex decision, and the likelihood the decision will ever be made, is inversely proportional to how simple you make it for the buyers.  Every instance where a buyer encounters confusion or doubt is a place where the sales cycle elongates and your VP of Sales’ blood pressure rises geometrically.  One of marketing’s missions is to reduce complexity in buying decisions and keep your sales exec from encountering stroke, heart failure or a drinking problem (that last one is a jest … all sales people have a drinking problem).

This is why Best Buy allows you to compare good products with crappy ones online: it quickly eliminates a point of purchase delay.

With any product, guiding the buyer to a decision is a primary marketing responsibility (one web design analysis firm refers to the lack of such marketing effort as “allowing unsupervised buyer thinking”).  The parallel with HP’s CloudStart initiative is to reduce the customer thinking required to make implementation (and thus purchase) decisions for cloud computing.  Guiding geeks to glory, if you will. SalesForce.com did this amazingly well with sales people and CRM, making their discovery, learning, trial and acquisition a snap, despite their perpetually intoxicated states.

The marketing lesson herein is to stop spewing text and data on web page after web page, and start leading buyers by the nose through the paths of discovery, education trial and adoption.  Rent a passel of prospects and watch them as they walk through your materials, and wherever they stop or have a question, fix the problem that caused it, even if it is in the product itself.  Focus on eliminating friction, diversion or rejection.  And if you sell a complex product, build a selling tools that guide buyers through the same process at lower levels.

And buy your IT geeks another case of diet Coke.  Seriously, they’re putting on weight being locked and chained in the server room like that.

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I hate religious squabbles, like one recent war of words.  I speak not of invectives thrown concerning the inappropriate placement of a proposed mosque in New York, but a string of nasty words cast upon a private discussion group debating if the iPad is a real computer.

Zealots … they are never more fierce than in geekdom.

The group in question is an invitation-only cluster of former gurus involved with a now obsolete mini-mainframe system.  Each member is brilliant yet more opinionated than a lame-duck congressman.  Aided in part by a member journalist who once covered that mini-computer beat, and who now chronicles everything Apple, the group exploded into strings of sneering over the viability of the iPad for people who want to do work as opposed to consume content.

I think it started with a dig about USB ports.  Who knows.  The rhetorical blood flowed regardless of who fired the first stray round.

One segment of this group maintained that the iPad was not ‘good enough’ for people who wanted to do ‘serious work’, two concepts that are completely personal in nature and thus entirely subjective.  The marketing jockey of this group (me) noted that the iPad was designed for the content consumption market, and that anyone wanting to do more with it might need to look elsewhere (yes, it is my job to pour gasoline on smoldering embers).  The discussion rapidly devolved into one camp who maintained the iPad was an expensive toy and others who felt Gawd himself shat it.  Each team grabbed whatever proof points they could to bolster their case and slay the other side’s perception.

Perception is the game.

Political advisors often echo the age old sentiment that “perception is reality.”  If the majority of the population believes the sun will rise in the west, it will … until it doesn’t.  If you think “they are out to get you”, then you will behave as if they actually are (and even if you are not paranoid, they may still be out to get you).  What the market believes is what your brand will be, and this shapes people’s preferences.

Which is why Apple products sell so well.

Apple has mystique, which my dictionary defines as “a framework of doctrines, ideas, beliefs … endowing the person or object with enhanced value or profound meaning.”  In other words, brand based on perception.  When iPods were still new I encountered a grown man in a Best Buy store who demanded an iPod.  When I asked him why not a different MP3 player, he had no reason.  He knew nothing of the technical specifications, competing price points, or even what restrictions the iPod might place on his music listening existence.  But he knew he wanted one because it was “cool.”

Like Mojo Nixon said, You Can’t Buy Cool.

This brings us back to the iPad and market perceptions.  It may be unfair to think the iPad cannot be made to do useful work.  The growing stable of apps offer some tools for office-like productivity, and there is even a smattering of apps for geeks (though these seem largely restricted to cheat sheets for programming languages and some iPad-specific modeling gizmos).  But given Steve Jobs death grip on the iPad experience – almost Disney-like in its wonderland fixation – a perception exists and grows that iPads aren’t going to serve buyers who need anything above content (when I tried to find a separate email client to install on my girlfriend’s iPad, none could be had and Apple discussion groups pointed to a prohibition against such software).  This perception will keep certain buyers from acquiring an iPad.

And LG knows this.

Faster than a congressman can say “kickback”, LG noticed this market perception and cast FUD concerning iPad dysfunctionality.  A VP-level LG spokesdroid said “It’s going to be surprisingly productive.  Our tablet will be better than the iPad.”  Granted, for a product that has not seen daylight, these claims are as vaporous as Britney Spears brain.  But the fact that LG has seized upon the perception of what iPads cannot do shows how one can take perception and through PR try to make it reality.  “Honey, give the kids the iPad to watch movies during the trip to grandma’s.  I need the LG-Android so I can finish a proposal for work.”

Perception then is a weapon, either to make sales for yourself or prevent sales for your competitors.  Image caused Apple to sell 13 million iPads in under five months. Image also caused LG to try choking Apple’s sales flow until their Android pad enters the market.  Members of my techno guru group used either evidence to support their prejudice about the iPad.

The marketing lesson is that perception is imperative.  A brand undefined or undefended will cause sales to suffer.  Applied against a competitor, it can cause their sales to suffer.  Steve Jobs’ crew knows branding and we can expect a backlash as more Android slate vendors (Acer, Toshiba, Motorola, etc.) jump on the iPad perception pig pile.

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Being 100% sure of anything is not only impossible, it is durn expensive.

Market research is a common conundrum for every business.  In a perfect world where coffee is always fresh, all women are drop-dead gorgeous, and government obeys, a businesses would buy plenty of primary research to be completely certain about their marketing decisions.  Not only would such circumstances stuff obscene amounts of money into my own pocket, but the risk side of the businesses risk/reward equation would drop to zilch and assure huge rewards.

Sadly, complete research would cost a fortune and never be complete.  Even Oracle has to guess once in a while, rolling multi-million dollar dice on limited research and a hunch.  Former Joint Chief of Staff Colin Powell – who led the rescue of Kuwait – once said something like “I research until I have 60% of all critical information, then I go with my gut.”

Most start-ups operate on 1% … or less.

This is the toughest part of raising a business from diapers.  Before funding (and even afterwards) the amount of cash available for research is limited.  Yet investing in research greatly reduces the probability of failure.  CEO’s of struggling tech start-ups need to invest in many things, but often scrimp on understanding their market, segments and buyers to the fullest rational extent.  This lack of insight causes their business to burn through cash in trial-and-error market outreach, which rather defeats the purpose of the CEO’s original frugality.

CEO’s need to invest in market research in incremented fashion, and in an order that is counterintuitive.  The pieces of information required are most commonly in this order:

1. 1^st segment whole product: Most products start niche, and in order to survive they need to achieve dominance in one key segment.  Knowing what constitutes a whole product for a chosen segment will help assure shorter sales cycles and sustaining revenues.
2. 1^st segment genotypes and motivations: In almost the same breath as above, knowing who actually influences a purchase decision and what their motivations are is critical to promotions.  You can have a whole product and still sell it in a way that attracts nobody.
3. Branding and messaging: Spending a few quid to perfect corporate and product messaging and your brand sets the stage for blocking competitors in your first segment and making you more buzzable.
4. Market definition: Once established, understanding the broad market and all the segments therein allows growth planning, which leads to long-term product planning.
5. Competitive positioning: Competition research, combined with your market definition map, shows which segments should be assaulted and in which order to effectively maneuver past competitors and ultimately surround them.  This is the key to market dominance.
6. Repeat 1-3 for each new segment: Those who do a good job in their first segment will be condemned to repeat it for every segment thereafter.  The process never stops – competitors, shifting markets and market lifecycles keep changing and this makes your marketing research life a living hell (which is why Silicon Strategies Marketing is in business – so your life can be less hellish).

Bottom line for budding entrepreneurs is that you need to research, but do so in an order that allows minimum investment at each stage, and in an order that assures success.  If Collin Powell had waited for a complete set of information Kuwait would be part of Iraq and Sadam Hussein would still be smoking stogies in one of his palaces instead of fertilizing crops in Tikrit.  But Powell did enough research to win.

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I opened a box of Cracker Jacks and the toy prize was a cell phone.

Not a smart phone, but a commoditized flip phone that handled voice conversations, kept a contact list and something that resembles a calendar.  A cell phone so fancy that two decades ago we would have taken a human life to obtain one, but today is so feature free that we might give it to a child so some day he can tell his kids how hard he had it.

Markets change constantly, but often products change faster than the markets that support them.  Take the cellular carrier market … please.  Given that the domestic customer base is saturated, carriers are in a constant struggle to keep customers locked into their networks and find new streams of revenue.  Yet they must also help finance your newer and more sophisticated cell phones in order to bring you (back) into their fold.  This is why a $600 smart phone costs you only $200.  The carrier makes back the money they spent on your handset by getting a guaranteed two years of revenue from you via the contract you signed.  Expanded continuing revenue also partially explains why they charge a mandatory network data fee for the newer and fancier phones (that and they want you to grow addicted to having data on demand 24 x 7 x 365 x everywhere and thus in the future perceive it as a necessity and not a luxury).

Despite a slate of new monthly charges for owning a cell phone, the industry has not changed much in decades.  Carriers subsidize handsets, pads and slates, earning their money on the backend.  This creates competition between hardware makers to gain favor and deals with carriers who erect barriers to customers using unlocked phones.  This game is fixed and the carriers are not interested in changing it much.

Which is why Google is breaking the system.

Anytime all competitors are content with the status quo, a great marketing strategy is to break the status quo.  We disreputable marketing types call this changing the rules of the market.  In a mature market you can gain first mover advantage by changing the rules.  The problem is that the more complex the market, with incestuous economics, numerous players and relationships, changing the rules is non-trivial.  Despite making a lot of cheap unlocked phones possible, Google found that Android by itself could not break the carrier subsidy model.  The carriers want money, and are unwilling to relinquish any tool that have for making more.

So Google is breaking the system in smaller chunks.

The hot part of the mobile market is apps.  Apple has a 3-to-1 advantage over Android in the apps department, though many of Apple’s 200,000 extra apps are of questionable commercial value.  This temporary Apple advantage is an Achilles heel since, from a functional level, Apple doesn’t offer much over Android.  Breaking Apple’s status quo of being an app leader is as important as getting more Android phones into people’s hands (though at their rate of growth, Android phones may dominate the market before the 2012 presidential election is over).

Google is breaking the system by changing the revenue model.  You know, that thing that is so important to the carriers.

According to reports, Google may share app revenue with carriers.  Currently carriers get glitch from the roughly $75M Apple earned from apps (another $175M went to developers).  With smart phones making about 5% of the market, this small-but-growing-like-a-virus market means real money down the road in just raw app sales, not to mention in-flow revenue opportunities.  Currently, Apple’s app share would contribute less than 2% of AT&T’s wireless services revenue, but 2% now beats 0%, and once smart phones make up the other 95% of the cell phone market, that number rises to 35% of services revenue.  Multiply this again by the growing roster of apps and their usefulness (sans meowing cat apps) and app revenues may well rival service revenues for the top-line.  Now multiply this revenue engine with pads and slates, many new flavors of which arrive this holiday shopping season.

Non trivial treasure.  Google knows it.  Verizon knows it.  AT&T knows it.  Apple knows it.

Given this new revenue stream, carriers have motivation to promote Android handsets.  Since they will be able to buy such handies from everybody (Motorola, HTC, LG, Demented Dave’s Cellular Designs, etc.) they in turn will focus on promoting the Google/Android brand as opposed to any specific manufacturer’s product.  By breaking revenue model, Google is also breaking the partner loyalty model, another Apple advantage.  AT&T may still sell iPhones … to 5% of the market.  They will sell Androids to the other 95%.

Several marketing lessons are intertwined herein:

1. First, in any market where partners own the customer relationship, odds are they will not give it up (i.e., allow unlocked phones to cheaply enter the space).
2. When partners have a lock on the end customer, you have to help partners make money.
3. If your competitor owns the partner relationship, you have to find ways of helping the partner profit that also hurts your competitors (in this case, robbing Apple of their app and partner-promotional advantage).
4. If the market ain’t broke, break it.

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