PIGS (Portugal, Italy, Greece and Spain) managed to devalue the Euro through some rather reckless mismanagement (a.k.a. government).   The value of the Euro compared to other paper dropped when people weighed the risk of owning one fiat currency as opposed to another.  We can hope that George Soros was holding a pocket full of Euros when the slide started.

As the chart shows (and click on any of the graphics to see bigger, better instances) devaluation can happen instantly.  The same is sure in the technology business.  Aside from intellectual property (IP) protections via patents, there is no safety in innovation.  Creating something usable invites others to do the same.  Today’s glory product is tomorrow’s techno trifle.

Are you listening Steve Jobs?

With smart phones still a small part of the cell market, but one that is growing fast due to falling prices and increasing demand, watchers wager on the ways of Apple, RIM and Google (rumor has it that Microsoft has smart phone software, but it remains obscured by vapors).  When Nielsen – the company that likes to spy on your television watching habits – reported that Google’s Android smart phone operating system was rocketing upwards in sales, and was actually outselling iPhones, the technology world gasped in unison.  They passed out at RIM given stagnant sales, declining potential, and the poor taste Nielsen had in releasing their study the same week that Rim released a new phone and OS that offered nothing new.

(Before going much further, we must note that the numbers Nielsen proffered were through Q2 of 2010, which preceded Apple offering the iPhone 4.  Since the market anticipated i4, and slowed buying of iPhones in expectation of the new device, the numbers are somewhat skewed against Apple in the interim.  However, trends are trends and that is where this story is going).

From this jumble of numbers we see (as vividly portrayed on the chart we lifted from The Register) that Android is rising rapidly against everybody.  Aside from some added Google goodies, one cannot claim that Android is fantastically better than iOS.  Indeed, given the tight integration between iPhones and iEverythingElse, one could deride Android.  Yet its rise in popularity is eclipsing iPhones in current sales, and in less than a year Android has risen from obscurity to having half the market share that Apple enjoys.

iPhones have been devalued.

In all markets, things drift toward commoditization.  In high tech they race to that condition.  When differentiation between products is diminished, companies that win tend to have lower price, better overall value, and make their money on more than the core product (why do you think Coke sells merchandise).  Software is where devaluation to commodity status occurs most rapidly in tech, and it occurs when other motivations beside core product profit margins exist.  Linux developers don’t have a profit motive and thus changed the server operating system market forever.  Google isn’t interested in profiting from mobile phone operating systems either – they have better ways of making money and dislike being eviscerated by commodity products (hardware).

The differentiation between smart phones – in terms of core functionality – will disappear.  They all will sync with Outlook and Exchange, they all will have cameras, they all will play music, tether, have GPS navigation, Bluetooth to your dashboard, cook your breakfast, double on keyboards and wax your back … by next Thursday.  Thus price, selection and availability become key factors for buyers.  Techno lust drops to third place at best.

This is where Apple and RIM are missing the mark.  Apple is Soviet in its approach, insisting on top-down control of everything, including hardware, channels, and apps that locate new internal organs for Steve Jobs.  RIM rested on its laurels in the corporate email addiction market, and watched this thin differentiator evaporate without creating new business functionality to keep it ahead of competitors.

Google mimicked the Microsoft model.

Microsoft is huge because they purposefully let other people profit from their products.  They could have been a hardware company, and had the same success Apple did in the desktop market, which was a fraction of Microsoft’s.  Instead Microsoft worked with hardware vendors (who Microsoft knew would commoditize themselves) and made Windows ubiquitous, much to the gastric discomfort of IT support teams everywhere.  Google is taking the same approach with Android, allowing hardware vendors to make Android ubiquitous.  The primary difference is that Microsoft made money on every instance of Windows aside from the 99 out of 100 copies distributed in China.  Google is making their profit on the back side.  Front, back … irrelevant.  The issue is that Google is encouraging every hardware maker – HTC, Motorola, Samsung, Sony Ericsson, LG – and every cellular carrier to make Android available to everyone, driving prices down to commodity levels.

Which erases top-line revenues for Apple, RIM and Microsoft.  Several marketing strategy lessons can be found herein.

Force devaluation: Competing toe-to-toe with established players is a rough game.  Finding an alternate way to make money and accelerating commoditization changes the rules of the game and leaves competitors gasping.

Everything is a commodity: Maybe not today, but eventually.  It is great to be in a market before commoditization occurs, but once it does, you need to either play on price or avoid the market entirely.

Catching up is bad: RIMs answer to their declining smart phone fortunes is at best parity (or parody if you find similar sadness with the now missing Palm).  When the market is running far ahead of you, being equal means falling behind at a slower pace.  You have to bring something new to the market, which Rim didn’t.  People buy value, not features.  When your features only equal those in competing products, you failed to create value worth buying.

UPDATE: On 2010-08-24, Dell launched a $99 smartphone running Android (granted, this is subsidized by AT&T, but the no-contract price is $299).  This begins the drive downward, putting something as smart as Android in every pocket.

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Organizational structure is strategic by nature.  How an organization is arranged influences other strategy, such as marketing and product development, and thus a whole host of daily activities and tactical initiatives.  Who your boss is and what her objectives are determine what you will do, such as replacing her coffee with decaf in order to encourage afternoon naps and thus allow you to get some real work done.

IBM almost went bankrupt due to their organizational structure, as their former president and resident cookie monster Lou Gerstner confided in his book Who Says Elephants Can’t Dance? Given their early and dominant lead in mainframe computers, IBM developed an organization structure that made the mainframe the center of their universe.  Everything IBM did evolved to support sales of mainframes.  When the minicomputer revolution ignited and UNIX (the original computer virus) escaped its petri dish, IBM’s intellectual inbreeding disallowed agility.  Their organization structure –software was subservient to hardware – made even suggesting alternatives heresy.  Though Gerstner did many things to disable IBM’s dementia, the single most important one was to decentralize and make all IBM divisions profit centers.

Nothing like sinking or swimming on your own to make you dog paddle furiously.

Recent IBM news should thus be disheartening to investors.  Organizational shuffling has merged software and hardware units together, with software being the overlord (and if a forced marriage was wise, software should be the top given market trends toward commoditization of hardware).  Two services divisions – technology and business – have also become conjoined twins, with tech services being the bigger brother in that particular carnival sideshow. In a statement almost copied from every start-up’s venture capital pitch, IBM’s CEO said “There are logical synergies across our services units, including the increasing value of leveraging our intellectual property in business process management and transformation projects for our clients.”

Stockholder should be scared when a CEO’s press release is littered with cliché buzzwords like ‘synergies’, ‘leveraging’ and ‘transformation.’

Granted, these internal mergers are not completely reflective of the old IBM.  There is no plainly visible central altar on which every blue suit must sacrifice chickens and Lenovo laptops.  Yet CEO Sam Palmisano has started the slow march away from decentralized entrepreneurialism to central planning … and we all know how well that worked for the Soviet Union (“Who?” asks the intern with authentic confusion).  Decentralization worked for IBM as a means to prevent going belly-up, and it worked for Hewlett-Packard before the Fiorina error, so Uncle Sam Palmisano’s decisions appears demented.

How an organization is arranged influences other strategy, such as marketing and product development, and thus a whole host of daily activities and tactical initiatives.  IBM’s recently released zEnterprise system, though not the hallmark of utter innovation, shows that hardware still matters.  Putting IBM’s systems and technology group under bit twiddlers means that hardware innovation will be limited to the needs of IBM’s software (instead of the entire software universe, which despite IBM’s thinking, is larger than Armonk city limits).  Product design is reflective of product marketing, and if hardware product marketing labors for people who peddle DB2, Lotus and Cognos, then there may well be very little IBM hardware innovation.

Which is when HP, Oracle and Dell will pounce.

The marketing lesson herein is really a management lesson.  People don’t do what you tell them, they do what you watch.  Every bureaucracy is designed to watch what employees do with some end goal in mind.  IBM’s consolidations causes employees to be watched over an artificial hierarchy of product group priorities instead of markets.  When markets matter less than internal organization, then the end will be near … again.

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Every product and service may have an advantage, and it is your competitors’ job to make that advantage disappear.  In early markets everyone tries to out-invent the other fellow, and they continue this until there are a handful of nearly identical offerings that end-up competing on price and +1 differentiators.

This includes Bangalore.

As much as techies will hate this, we have to admit that programmer time is nearly a commodity.  All other things being equal, a Java programmer in San Jose is no more or less valuable than one in Bangalore.  Yet San Jose is the 91^st most expensive place to live and Bangalore is much further down the list at 165.  Thus, the commodity that is a Java programmer has price as a key differentiator, with the Indian working for less.  Cheap labor is why Silicon Valley companies have been willing to deal with twelve hour time zone differences, cultural misalignment and accents so think that old Scottish men are intelligible by comparison.

Until now.

Like any other hot product, price rises with demand.  The demand for cheap Indian IT laborers caused a demand/supply imbalance.  This caused the price of Indian programmers to rise, often at 25% a year.  Cumulatively this has caught-up with the Indians whose success is beginning to price them out of the market.

Which is where Ireland and Mexico enter the arena.

India is now outsourcing to Ireland.  An Indian IT integrator and development shop is opening offices in Belfast to exploit the local advantage, namely workers with culture and language similar to the local buyers.  Whatever relative price advantage Indian IT once had is rapidly vanishing, resulting in on-shoring.  Granted, in this instance there will be some degree of cross breeding, with low-level and non-critical tasks still being performed in India.  Yet the desire of an Indian firm to recruit locals for IT work in markets like financial services shows there is no permanent economic advantage in price.

The same story is told differently by our friends NearSoft.  They do what many Indian IT companies do – they cut code for less.  However, NearSoft sells against Indian disadvantages, bragging about more closely aligned cultures and being in the same hemisphere as their customers.  In other words they sell all the benefits of offshoring to India without any of the head-throbbing pain.

Marketing strategy has to do largely with creating real or imagined “expected outcomes” from using a product or service.  India had one clear advantage, which was price.  With the expected outcome of Indian outsourcing (less cost but worth the hassle) going away, so is India’s advantage.  Since programmers are commodities, there is nothing that India can do to change this, so they are eliminating their disadvantages in the market by buggering Belfast. All the while Mexico tries to capitalize on those same disadvantages.

Competing on price is never a long-term strategy.  Your prices will rise, your competitors prices will fall, or someone will devise better features.  Since genetically mutating Java programmers is frowned upon, there are few ways of improving the product, thus India’s price position will inevitably erode.  Always invent, even if it is just a +1 feature.  Invention, be it new products, new markets, new segments or new features is the key to creating new value.

Until everyone clones what you did and drives you to commodity status.

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That line used to be said of UNIX, but no single flavor of UNIX ever spread across so many platforms and onto so many handsets.  Those handsets, the oft predicted unified communications solution, are the new OS battleground.  In a relatively short time we have seen:

• Google issue Android and, with partners Motorola and Verizon, shook Steve Jobs so bad he nearly busted a spleen (but I hear he can buy replacement parts easily enough)
• Flush from that success, Motorola decides that owning a Linux distro might be a good long-term option and buys Azingo
• Intel bought Wind River, the leader in embedded operating systems, and one who was grooming the embedded Linux market, including handsets, a chip target high on Intel’s priority list
• HP, unhappy that Apple iPads beat them to the Slate market, and seemingly unhappy with Microsoft’s offerings for slab devices, buys Palm to own WebOS and thus bring down the cost of cranking-out hPads (and produce a device that does not require rebooting every other minute)
• And, of course, RIM created and maintains the BlackBerry OS, which has proven to be so addictive that the FDA has considered regulating it

The interesting twin market dynamics are that every hardware manufacturer wants a slick mobile operating system, and nobody wants to be beholden to a software company.  Apple, HP and Nokia own theirs, Google and Motorola leveraged Open Source for their operating system (OS-OS?) and market leader Nokia did both, buying then outing Symbian.  Microsoft is found … well, it isn’t.  The factors that are driving this market change are:

Cost: Microsoft embedded OSs go for $3-16 per unit.  If you sell a million handsets in a year, that is real money and owning and OS or leveraging a ‘free’ operating system like Linux makes economic sanity.  Given that you can retail a smart phone for under $300, eliminating 5% of the cost of manufacture is a Good Thing™.

Control: For Apple, control is everything (they won’t even cede control of any part of the user experience to Adobe Flash).  Many Windows handset vendors felt they had little control over the user experience, which was largely bad anyway.  Buying an OS or influencing Linux development makes everything possible.

Innovation: If you do not have the ability to alter or extend the OS, then you have limited ability to extend the user experience – just ask anyone who waited an eternity to get copy/paste on an iPhone.  Having access to the OS source code means you can either mandate or influence core functionality.

The customer: People like what they know.  If you create a good daily user experience early in a product relationship, then the customer is more likely to stay with you in future purchases, especially if you have special lock-ins that make switching difficult. Owning or manipulating the OS makes this more likely.

Unclear is if the recent OS buying binge will soon abate.  Some of the alternate handset makers – Samsung, HTC, etc. – who have played the field might see the wall writing and hedge their bets by buying a mobile OS, or become specialists in one or more of the open varieties.  The real question is which strategy will win in the long term.

Don’t bet on Apple.  Walled gardens keep people out as well as in.

Don’t bet on Windows because their partners aren’t.

Don’t bet on WebOS because HP will not have the market breadth to make it a widely known and loved OS (and, as RTE, MPE and HP-UX have shown, operating systems are not HP’s strong suits).

Don’t bet on Motorola/Azingo because Moto is not a software company and lacks the creative energy to enhance Linux.

Place a side wager on Symbian because it is better than most people think and might be a dark horse.

Bet big on Android.  Google is driven, creative, knows how to lead and Linux has the power of an ecstatic developer community.  And being the original computer virus, it will handily port everywhere while stuff like Blackberry OS, iPhone OS and WebOS don’t.  Change often comes from the inspired or frustrated masses and Google can channel that into Android, as can their partners who have the skills and the motivation to make it happen.

UPDATE: A few hours after this blog was posted, a report hit our desk showing that Android OS is now selling faster that iPhone by seven market share points.  Double down?

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I have a cartoonist friend who is makes a good living drawing web cartoons.  He wishes a fast and speedy death to newspapers, believing that their business model is older and less lovable than Charles Foster Kane.  He sees no reason that any business built on the daily delivery of dead trees should continue.

Some newspapermen reluctantly agree.  I spent part of Sunday afternoon with two reporters for a local newspaper group, which despite the efficiencies of consolidation admit that they live from fiscal quarter to quarter.  They have no idea how they are going to survive.  The cynical observation “Trying to be a first-rate reporter on the average American newspaper is like trying to play Bach’s St. Matthew’s Passion on a ukulele,” may be outdated.  We have to substitute the uke with a kazoo.

Newspapers are failing in our wired and wireless 24-hour news cycle nation.  People are fully accustomed to getting their news, sports updates, and even their comics in an on-demand mode.  Even in the day when afternoon papers existed, news was always several hours old.  This is unacceptable in a world where news happens all the time and has become a form of entertainment for many.  Between major advertisers finding better buyer recruitment online, and with Craig’s List eliminating classified advertising income, there came a huge mismatch between falling revenues and high fixed costs for papers.  Something has to break, and if Chapter 11 filings are any indication, it is the newspapers themselves that are breaking.

Sure, many papers have tried to make a move to digital, though their approach has been universally unsound.  Local news web sites do not take advantage of online opportunities.  They fail on many fronts to deliver to what Amazon.com has conditioned people to expect.  Newspaper web sites are little more than static pages with click ads, and enjoy the same roaring financial success that the Kitty Kat Korner blog does.

So it is odd that Steve Jobs, a man who has made life difficult for so many industries, may rescue newspapers.

Not Steve per se, but the whole growing Kindle, iPad, Slate hardware class.  The fact is that people like newspapers, books and other traditional media formats.  They just don’t like the limitations that dead tree delivery requires.  When you can fit all of your semester’s college text books into a manila envelope – by first putting it on a Kindle – then you have fundamentally changed the nature of the media.

Newspapers haven’t figured this out yet.  They are not yet fully aware that they need to make several related yet fundamental changes to their business model in order to thrive in the new digital reality.  It isn’t just going electronic: it is about maximizing the user experience, which is really what product design is always about.  Here are the big steps newspapers need to take in order to survive and stay relevant.

Save the trees: The cost and delay factors of newsprint are no longer viable.  Going to an all electronic distribution system will be a brave new world, but a highly cost effective one.

Instant news updates: Because people have shown a willingness to be wirelessly connected, newspapers need to push news down to the devices on a regular, constant basis (or at least allow a total newspaper download on demand) and that the news be just that – the latest breaking details and updates.  A commuter should have the equivalent of an up-to-the-minute morning paper on their iPad when they leave the office and sit on a subway train.  This alone might make newspaper subscription models viable again.

Targeted advertising (location based too): Advertisers are abandoning newspapers because they have better options.  When you can target ads to desired demographics and measure success, who would want the hit-and-miss of major display advertising in a pulp paper media?  But if an advertiser could target individual newspaper readers, that changes the value proposition.  If you are a 90 year old woman and your newspaper carries ads for motorcycles, either the advertiser wasted their money or you are one cool granny.  Newspapers should be able to deliver their constant news updates with advertising that targets the individual subscriber, so that granny sees ads for walkers and your teenaged son sees the motorcycle ads.  Toss in location based ads and you increase advertiser options.

Customized content: Most of the daily newspaper is waste paper, except in households with a lot of very different people.  I have met men who toss everything but the sports pages, women who only read the human interest section, and news junkies that only scan Section-A. In the modern age it will be viable to send all that content to every reader every hour, but premium content can be delivered on an ala carte basis.  This creates a value-add for newspapers and valuable new content for consumers.

Combined these changes address newspaper costs, enhance newspaper revenues, bring advertisers back to the press, and expands choice and goods to consumers.  Which is why so few papers will take the plunge.  There is a lot to do here, and though it is all a mere matter of software, there are enough moving pieces to be problematic.

There is an open market opportunity here.  Many newspapers have adopted content management systems for their online editions.  Some even use Open Source alternatives.  Extending these systems for reformatting, packaging, customizing and ad-targeting to subscribers is not the ugliest PRD ever written.  But the various disciplines combined are.  With the slate market fragmenting, and with content warlords like Steve Jobs making it tough for anyone wanting not to be imprisoned in walled gardens, the device-side coding will be cumbersome.  Ad targeting with load management is a science and best left to experts.  So it may take an entrepreneur aggregator to make all of this occur.

But, that is why Gawd invented Silicon Valley – to solve these pesky problems.

The marketing lesson here is almost Zen like.  Occasionally the universe pushes you in the right direction.  You just have to be pliable enough to float, like a loose piece of newsprint on the breezes of market momentum.  Instead of fighting to preserve the old model, brave newspapers need to do a complete conversion to the 21^st century and rake in the rewards.

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Dictators have some common but not commonly endearing traits.  They tend toward being monomaniacal, focused fiercely on their perception of order.  Anything or anyone that denies the beauty of their utopian vision challenges authority, and can later be found swinging from trees without needing to use their arms or legs.

Jobs is trying to string-up Adobe, and in the end might make Apple look like Il Duce on his last day.

For folks fond of the Silicon Valley geek gladiators – visionary founders who see business as war and as life – the latest rattling of cyber sabers comes from Apple and Adobe, with Apple’s insistence that Adobe Flash be banished from Jobs’ walled garden of iEverything.  Certain slurs have been sounded, including an odd instance by Jobs proclaiming that Adobe Flash was bug ridden.

Jobs is obviously not a Windows user, for he does not know the true meaning of “buggy.”

Such bogus blusters are convenient covers for real issues.  Flash currently commands a huge share of the Rich Internet Application (RIA) market by virtual of antediluvian virtualization.  Long ago, Flash did what people wanted, which was to add value to surfing the web while eliminating cross platform/browser/religious sectarianism.  Want to watch videos cute kittens or suicidal teenagers on motorcycles, or listen to the latest excuse for music coming out of Nashville on the web, regardless of if you are on a PC, Mac, Linux, minis, odd ducks, occasional mainframes, virtual desktops or smart phone?  Adobe Flash made it happen by bundling it for free into everything.

Except iPhones and iPads.

Therein lay Apple’s finest error (aside from the Newton).  As any performer will attest, you give the audience what they want.  Putting Snoop Dogg on stage at a cotillion is an error.  So is creating an information/media device that does not deliver information/media.  Since so much of the world’s content is and will for the foreseeable future remain in Flash, and since Adobe is not sitting still in extending Flash for ever better uses, banning it from hardware is inane.  It goes directly against what the audience (market) wants and thus gives them the motivation to consider alternate venues.

With any other outfit, this action would be inexplicable.  In Apples case the motivations are clear and the outcome could be disastrous.

Apple makes money on media (I hear they are in the hardware business too).  Apple has sold 10 billion files on iTunes, mainly for $1 each.  Assuming Apple gets a tiny sliver of that, we are still talking an amount of money large enough to impress everyone outside of congress.  Songs are just the tip of the digital goods iceberg.  iPads are book reading, movie watching, photo snarfing gizmos, and each content category has a very profitable backend.  The Internet changed the cost of delivery equation, improving music margins, books bonuses and video valuations.

Content is King, but Jobs wants the crown.

To control content, Jobs must own the means of distribution.  Hence, pesky interlopers like Flash must be eliminated.  Flash connects the content provider directly with the content consumer, cutting Apple out of the loop, which for someone who sold 10 billion songs is clearly unacceptable.  Thus Apple acolytes are assaulting Adobe.  You can have the cool new gizmo, but you can’t have Flash.

Unless Google makes the cool new gizmo.

This is where business models make or break empires.  Apple is heading down the IBM-like highway to Hoboken (which is like Hell, but without the ambiance).  Before Gerstner rescued IBM from itself, they had the monomaniacal mindset: everything was for the Grand Scheme with the marvelous mainframe in the center of all that was virtually holy.  Any IBMer who dared deny the sanctity of VM/CMS was banished to field sales, or to tech support for cardinal sins.  IBM was less than a year from bankruptcy thanks to their inflexibility concerning what the market wanted.

They preached to the pulpit – they didn’t play to the congregation, much less the heathens.

Now Jobs and Company are worshiping at the same altar, and the heretics at Google and the old priests at Microsoft are ready to exorcize a snake from the garden.  Microsoft has a tablet in ready mode, and by stealing (again) some Apple innovations, will serve the market with something cheaper … and with Flash.  Google is porting Android to tablets and will indirectly offer even cheaper options than Microsoft (because Google makes their money through service, not software) … and the GooglePad will have Flash.  Fifteen years of content will continue to flow everywhere, including Google and Microsoft pads.

But not to iDevices.

The marketing issue at hand is never to deny your market.  Apple will eventually suffer if they keep content from customers.  After all, we own gizmos to achieve things, be it making phone calls, watching movies, playing games, or impressing the cute red head at the bar.  Fail in this fundamental mission and the market will eventually turn to vendors that deliver.  Flash is only one instance where Apples “our way or else” mentality will be its undoing.

Erecting barriers never works in the long run.  Walled gardens are more wall than garden, as everyone who escaped AOL will attest.

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That includes Microsoft.

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Between Tiger Woods’ early morning mishap and certain global warming scientists being exposed as frauds, we have seen two well established brands bite bullets. Nobody believes that Tiger Woods was out for a 2AM joyride and happened to lose control of his car while leaving his driveway. His squeaky clean image is tarnished, and though not debilitating to his multi-million dollar income, his personal brand will not carry him as smoothly as before.

Certain scientists lost much more when email and computer modeling code was hijacked and disclosed to the public. In less than three days the word “climategate” – which had not previously existed – has 13.4 million references in Google whereas “global climate change” and a mere 0.5 million. Those emails and comments in source code show that “scientific consensus” never existed, was straggled at birth (i.e., the peer-review stage), and that Al Gore’s Nobel Prize might be recalled (I made that last one up, just to goad Gore’s goat and make Al nervous). These scientists have no future career though they may have future cellmates. The brand of “concensus science” no longer exists and the brand of “global climate change” is now negative.

Brands are interesting abstractions. The concept of a brand is simple, and Silicon Strategies Marketing articulated it best when we wrote:

Branding is making the market think and feel what you want it to about you and your products.

The hard part of branding is making up your mind about what the market should think and feel. The harder part is making it stick. Companies fail at branding because they do not know or properly delegate the three roles of brand management:

• It is marketing’s job to define the corporate brand, though it typically happens accidentally and largely based on founder’s biases.
• It is the CEO’s job to make everyone in an organization aware of what the corporate brand is and why it is important.
• It is every employee’s job to live the brand.

When marketing clearly defines and documents the desired brand, it becomes easier to communicate. People will parrot anything that they instinctively agree with. Employees will ape a corporate brand if they know what it is and it is not abjectly inaccurate. But none of this happens if marketing fails to define it with precision and reduce it to a simple, repeatable concept.

Even CEOs need help. Often the CEO sets the brand based on the boldness of his leadership. Take Larry Ellison and Oracle. Their brand image in the technology market place is not pretty, but it is effective. Larry set the brand early and reinforced it vigorously. Call it what you like – “evil empire”, “death star”, “the matrix” are all common Silicon Valley pseudonyms for Oracle, even among Oracle employees. But the brand is consistent and if nothing else oozes strength.

The point is that the CEO must carry the ball to the employees every day of their working life. When Bill and Dave drafted the HP Way, they established an enduring brand (that temporarily succumbed to a succubus). The HP Way was a simple set of rules for employee behavior that in turn created the HP brand. Bill and Dave did their job and marketing’s job too.

Employees, when given simple and clear branding, will live it. Circuit City – back when it was a healthy and growing concern – had a brand based on customer service, and that brand was broadcast throughout the company and in the house organ. So clear was the message that one newsletter article told of a Circuit City deliveryman who hauled an upright freezer a mile down the road to the customer’s house after his truck broke down. He was not going to let the Circuit City brand fail that customer.

In the technology biz, brands are largely left to rot. Tech companies have the misfortune of being founded by technologists, who view the world as a rules-based logic engine. They often believe that features and benefits drive every decision, and they could not be more wrong. Even iron cast CIOs have emotional functions that need to be nurtured during a sales cycle. Since part of selling is having a clear, believable and beneficial brand, your brand will make or break sales.

Let me give you an example. I was chatting with an old techie buddy of mine who mentioned putting in an order for 100 new X64 servers the day before, and that he ordered from HP. I asked him why HP and he said he simply believed they made the best hardware available. I probed a bit more and discovered that he had not read one comparison report nor did he have a lot of experience with IBM, Dell or any other vendor. HP’s brand made the sale.

If you are a CEO and you cannot repeat your internal band statement, give us a call. It is never too late to get this right because eventually your competitors will.

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Sure, chess is a universal emblem for strategy, because you cannot win the game unless you think strategically – or unless you are IBM and build a computer that simply grinds through all possible moves in order to predict all possible outcomes of every game. The hidden aspect of chess is that it is played on a board divided into conquerable places, and the goal it to dominate space by taking it one piece at a time.

In other words, segmentation.

Market segmentation is like chess in that chasing the wrong segment with the wrong piece is a catastrophe in the making. Many chess strategies work like great market segmentation strategies, by taking the space/segment next to the one you already own and have well defended.

Like SalesForce.com is doing.

SalesForce started life with the right strategy, namely attack just one issue and dominate the field. CRM (the software solution, not the corporate philosophy) was ripe for the taking because it was always somewhat detected from other centralized applications. This allowed SalesForce to worm its way into enterprises. Now that they dominate the outsourced CRM industry, the only way for them to grow is to find another segment. Since they campaign against licensed software installed behind corporate firewalls, their segment strategy has to evolve outside of traditional CRM.

The question: what is an adjacent segment?

Next to selling to a customer, supporting a customer is key to any business. Fail at either and you die and painful fiscal death. Thus SalesForce has picked customer service – which is an extended function of managing the relationship with customers (CRM) as their next conquest. Stated more simply than Marc Benioff did – because his marketing team is chasing ‘cloud’ buzz – SalesForce now offers knowledge bases, community support and a Twitter tie-in.

Benioff was right in guessing outsourced support systems might be the next billion dollar opportunity. More to the point, support is the fraternal twin to sales. Both are linked directly to the customer and are interrelated. It is easier for SalesForce to extend their current offering into a compatible or dependant segment than to enter a completely new market (for example, Benioff would have been bonkers to launch an ERP offering or the next MMOG). It is also a more successful strategy because people involved in the current segment have connections to people in the new segment.

A key aspect of segmentation strategy is to choose segments in which customers talk to one another. Sales people talk to support people and need feedback from support databases (log a problem ticket for a customer and your account manager had better know about it). Thus SalesForce.com’s “Service Cloud” – a lousy name because it confuses the customer – is a good segment move not only for its adjacent proximity to sales and CRM, but because communications channels between SalesForce’s existing customers and Service Cloud’s target customers exist and are active.

Now, if we could just get Marc Benioff to show a little excitement.

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Like VMWare.

With the introduction of vSphere, VMWare initiated a strategy for the next evolution of IT infrastructure management, namely the cloud. At product launch VMWare showed it already paid attention to a whole product strategy. By engineering APIs and other bolt-in points, partnering software vendors could complete the cloud whole product definition. For example, VMWare is not a security software vendor and never should be. But virus and intrusion protection are on ITs worry list. So VMWare had to facilitate cloud-ready options for security. They designed their product so other vendors could become part of VMWare’s whole product definition.

Whole products are one aspect of dominating markets. The other essential elements to inviting FTC scrutiny include establishing partnerships with the top players in target segments and convincing the media that the race is over.

Whole product, whole ecosystem, whole mindshare.

Let’s put ourselves into the buyer’s cubicle for a moment. When evaluating any products – especially in new markets for complex technologies – you worry about three things: will it do everything I need, does it work with other stuff I use, and will the primary vendor have the strength to support me?

Whole product, whole ecosystem, whole mindshare.

VMWare’s whole product angle we covered, but it is worth noting that vendors are gleefully announcing participation. Via VMWorld, we see CA offering current and future software support within the vSphere framework. IBM, BMC and a long string of second tier players made announcements as well. No other virtualization or cloud management vendor has shown partner participation as broad or as deep. None of this is accidental. VMWare designed vSphere so others could profit by participating, and in doing so attracted said participation.

The media was perhaps the easiest to encourage due in no small part to the utter lack of competitive threat from Microsoft and Citrix, the only other virtualization solution with bucks and traction. Reporters live to “tell interesting stories” (that, by the way, is a copyrighted phrase, so be sure to cite Silicon Strategies Marketing if you repeat it). In the trade press, interesting stories mainly revolve around hot new concepts or who is flexing the most muscle. Since VMWare had established a cloud-focused whole product and was showing runaway strength for whole ecosystem, the press pretty much had to tell their story, the unwritten headline being “VMWare has taken the early and impenetrable lead in cloud management.”

Whole product, whole ecosystem, whole mindshare.

In short, with malice and forethought, VMWare wrapped tentacles around the market. The squeezing has begun. Red Hat almost did this in the early part of this century, but made one fatal mistake which Silicon Strategies Marketing capitalized upon while running SuSE Linux’s marketing strategy. Red Hat failed to think ahead. Part of our strategy for SuSE was to have them talking about the next item on the CxO’s forward planning list while Red Hat was talking about the previous one. While Red Hat was babbling to bitheads about Linux being cheaper, SuSE was chatting with CIOs about Linux leading to skill set consolidation. When Red Hat was touting a more efficient kernel, SuSE was talking to CIOs about strategic partnerships with IBM and Oracle. SuSE may still be #2, but can you name the “also ran” Linux distro vendors in 2001?

VMWare is not doing a Red Hat. While their tentacles are just beginning to wrap fully around the market, and when Citrix and Microsoft feebly toss out press releases to annoy the media, VMWare started talking about the next steps. They brought forth solutions to fill open holes in the market – cloud management application suites and SMB freebes. vCenter was introduced to automate cloud application management, capacity planning, recovery, charge backs and a rack full of other common infrastructure management issues. They also offered-up VMWare Go to seed SMB markets, providing a fast, easy and free way for smaller organizations to begin virtualizing. In the long run this will secure market wide mindshare and cause anyone moving up the IT admin food chain to have brand preference and experience with VMWare technologies.

I wax on and on about this not because I own VMWare stock and have some insane scheme to bump up the price (I do own some shares, and would appreciate it if you bought tons of it yourself). I bring all this up because it is extremely rare to see a company define, organize and instantly dominate a new market. vSphere and its tentacles are so well orchestrated as to be scary. VMWare knows the opportunity ahead in cloud computing and made sure they secured the three things necessary to dominate their new market.

Whole product, whole ecosystem, whole mindshare.

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