Marketing Memos

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.

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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.

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Black and white contrasts make for interesting marketing case studies.

I had a chat with Jeremy White, headmaster at CodeWeavers. Jeremy and I met years ago while I was helping push SuSE Linux into the undisputed #2 Linux distro position. Jeremy sold a product that made using the Open Source WINE emulator a livable experience. For the uninitiated, WINE emulates Microsoft Windows OS functions and thus allows Windows applications (Office, Quicken, etc.) to run on Linux.

Jeremy had a hit with Crossover Linux because even technically astute Linux desktop users had trouble configuring and managing WINE. Like way too many Open Source solutions, it was a great idea technically well executed but lovable only to über geeks. CodeWeavers made it lovable by all.

So when I saw that Jeremy had worked the same magic for Mac users I had to ring him up.

From a technology perspective, the markets for Crossover Linux and Crossover Mac are identical. The products run on a UNIX/LINUX operating system, have x86 binaries to make everything work, and launch Windows applications on the native OS. However the separate markets are as different as garden salads and baby back ribs for lunch.

“Some of the Mac customers will buy the product twice because they can’t figure out how to download it the first time,” Jeremy chuckled. The first difference between the markets is technical competency. Linux desktop owners are typically technologists first and users second. Mac owners are users … period (Well, that is not entirely true — some knowledgeable technologists own Macs for a variety of techno-bigotry motivations, mainly of the anti-Microsoft variety).

“On the Linux side, the dot-communist are a problem,” he noted. Within the Linux world — including desktop users — the majority opinion is that if a product isn’t free it isn’t worth using. Despite the fact that Crossover Linux is inexpensive and is a complement to the free WINE stack, some Linux desktop users simply refuse to pony-up the few bucks it takes to buy Crossover.

Perhaps these folks are broke, still being underwater on their stock options.

Mac users are not ashamed to spend money. Given the premium Apple demands for Macs (and iPhones, and iPods, and iEverythingElse) Mac users readily toss lucre at Jeremy. Those profits however are diminished by the extra technical support Mac users need.

The other marketing oddity between Linux and Mac users occurs during promotions. “Post a message on SlashDot and you have reached all the Linux desktop users,” was Jeremy’s claim. But Mac users, despite being heavily wired are more of traditional social creatures when making technology buying decisions. Jeremy and crew spent time at Apple stores showing their product to the resident geniuses and encouraging word of mouth promotions. This dichotomy of stereotypes — the wired Linux nerd and the socializing Mac user — creates interesting branding, PR and promotional challenges for CodeWeavers.

For essentially the same product.

There are several lessons to learn from Jeremy, and all of them are painful:

• Parallel markets exist: Often technology vendors become myopic and do not see a market that is less than a step away. Jeremy saw it and discovered the market was simultaneously larger and more profitable per customer.
• The market is defined by the customer, not the technology: The mechanical difference between Crossover Linux and Mac are small. The difference between Linux and Mac buyers is huge. Though the markets were technically similar, the approach to the customer was starkly different.
• Social promotions are primary: Both the Linux and Mac products were promoted socially. For Linux it was via online social networks where the participants rarely meet face-to-face. For Mac users more personal connections had to be fostered.

I’m hoping Jeremy can make an XP emulator that runs on Vista.

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To avoid partisan potshots, I disclose in advance that I am neither a Republican nor Democrat, nor could I be classified as a liberal or conservative. Thus my following analysis is one purely aimed at examining how brands work in presidential politics.

In other words, don’t bother commenting if the analysis annoys your personal partisan political peccadilloes. This is about marketing and not the mayhem of presidential elections.

Much has been written in the last year about the destruction of the Republican “brand”. A brand — be it for a PC, politician, or even a PC politician — is what the market (voters) think and feel about the product. Yes, politicians and parties are products that can be bought though the price is too high for the average consumer/voter.

Many Republicans felt their party no longer had a brand. Many core Republican/conservative policies appear to have been abandoned by the Bush administration. Translate this into a technology product that had for many years delivered on the core features and functions it promised to provide. Then say that the new release of the product had massive bugs that the vendor did not fix that diminished or eliminated the usefulness of those features. Some GOP members viewed their party as Windows XP users view Vista - failing to faithfully deliver fundamental value.

This is where belief systems enter into marketing. People often believe things about a brand that are not true. But when faced with continuing failure to deliver on a branded value proposition, people quit believing in the brand. In this election cycle we see two brand battles raging. The GOP had lost its brand and is now actively redefining/reclaiming it.

Let’s look at each starting with the Democrats. Obama — like any candidate — needs to keep the trust of all classes of people. He set forth a brand which spoke broadly and elicited an amazing amount of response for a candidate with relatively little history. Bowling badly or making three-point buckets spoke well to the working classes who hold the keys to certain battleground states. But Obama’s “guns and religion” statement while raising funds in a San Francisco “Billionaire Row” mansion shattered that believability and damaged his brand value in those markets. Blue collar and Blue Dog Democrats indicate they may sit out this election based on brand misalignment. His selection of Biden did nothing to help regain those voters.

McCain’s team managed to something that any marketing strategist would love to achieve. They managed to find a brand and value proposition that was broadly popular, that matched the existing brand essence of the candidate, and located a running mate who brought additional authenticity (real or imagined) to the new brand. In other words, GOP marketing strategists scored a trifecta on brand management.

Let’s circle back to the Silicon Strategies Marketing copyrighted definition of a brand: a brand is what the market thinks and feels about your product. McCain had for years developed a reputation as both a maverick and a reformer. In fact the media made so much of this McCain value proposition that it became “knowledge” instead of “belief” among most Americans. The market of voters thus “thought” McCain to be a reformer. Adding Palin to the ticket — exploiting her highly personal “small town, common sense” brand — emotionally reinforced the ticket’s reformer brand. GOP strategist realigned the original “small government” GOP brand to the existing McCain/Palin brands. Then they used this to co-opt Obama’s “change” brand, simultaneously strengthening the GOP brand and weakening the Obama brand.

Polls indicate the plan worked very well.

Obama can only counter this in two ways:

• Try to destroy the McCain brand, which can only be done through negative attacks. This is a bad move because Obama based much of his brand on being a nice guy, rising above “politics as usual”. Going negative would be to destroy his own brand.
• Create a more authentic Obama brand: This is tough because many of the mistakes his campaign made (hijacking the presidential seal, mass rallies in Berlin, the “guns and religion” sound bite) has reduced the public perception that Obama is “authentic”. Even San Francisco’s eccentric former Mayor Willie Brown — a Democrat to the end — thinks “Obama still appears overscripted. Too perfect.“

Here are the basic branding lessons to learn from this year’s election cycle:

1. Be faithful to your brand: The Republican’s learned the hard way that the moment you stop “walking the walk” buyers/voters vanish. The GOP got lucky in finding a new brand that worked in the 11th hour.
2. Do not invent a brand that is not authentic: Obama learned that you cannot talk “small town” in Scranton then disrespect “small town” in San Francisco.
3. Represent your brand at every touch point: You receptionist should reinforce your brand. McCain picked a running mate that reinforced his.

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I recently read an interview with Chunka Mui, a fellow with the interesting job of studying business failure. Mui’s book Billion Dollar Lessons may become the next management “must read”.

His basic premise is that execution is irrelevant if your strategy is not good. Indeed he notes quite accurately:

If you have a plan that’s fatally flawed, perfect execution can get you into more trouble because you dig yourself in deeper and faster.

This explains 99% of the dot-com bust.

My analogy to Mui’s point would be that of driving. If you do not know where you are going, stomping on the accelerator peddle just sends you spiraling off a cliff quickly. This is one of the many reasons we focus on marketing strategy at Silicon Strategies. Marketing is hard work and during execution it can be very expensive. It is worth every company’s time (even start-ups) to invest in marketing up-front and avoid the cliffs.

All that having been said, any smart CEO must accept the fact that sometimes the best thought-out strategy is wrong. Some things are overlooked, some seemingly innocuous assumptions end up being world-class dumb and even market measurements (surveys, et al) can be misleading.

This is where agility during execution is important especially in fast moving technology markets. If measures show that goals are not being met, either the execution is poor or the strategy was wrong. When this happens have a good look at execution and seek obvious failings.

If none are found, take everyone who is emotionally wed to the strategy and lock them in a closet.

Then have everyone else and review all the assumptions and measurements that lead to the strategy and see if anything is (now) obviously incorrect. Absent that, examine the basic demand assumptions and business model. You will have found something wrong with the marketing strategy and can fix it … if you are brave.

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