Marketing Memos

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August 18, 2010

Research Riddle

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^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.
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.
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.
Market definition: Once established, understanding the broad market and all the segments therein allows growth planning, which leads to long-term product planning.
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.
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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July 21, 2010

Disreputable Tech

Dilbert’s distrust of marketing exists for a reason.

Back when I had a regular job – during the Taft administration – my co-workers loved to drop Dilbert cartoons on my desk whenever marketing was the strip’s topic. In one installment a customer asked Dilbert if he was lying about a product, to which Dilbert replied “No, that’s marketing’s job.” This naturally reinforces the very stereotype that Seth Godin outlined in his masterwork All Marketers Are Liars.

The reputation of marketing people has been rightfully sullied because many marketing “professionals” destroy reputations – of their companies and themselves. They fail to grasp both the mechanics of reputation as well as its essence. Much has been written about the former since reputation in social media is a hot topic, yet the latter has been incompletely analyzed for high technology. Reputation for a company and its technology products are intertwined, and failed market reputations have a number of causes.

I assert that marketing must be in charge of maintaining corporate reputation. Marketing is not responsible for defining corporate/product reputation as that involves strategic business decisions and tradeoffs. However, assuring the reputation is maintained and grows falls in marketing’s domain because they define the interaction with customers who in turn defines the public’s perception of your reputation.

The dictionary declares that reputation means “the estimation in which a person or thing is held, esp. by the community or the public generally.” Thus marketing’s role is to assure the perception by the public is sufficient to achieve corporate objectives. In order to do so, marketing operatives need to understand the elements of reputation, which are slightly more complicated than a typical Starbuck’s order (“I’d like a triple shot soy mocha, cinnamon frapomaco, extra foam, nutmeg, with a twist and a half gainer.”) Though not exhaustive, the following short stack of basic reputation elements common to business and technology are essential and ones that marketing staff should have tattooed in reverse on their foreheads so they can review it every morning in the bathroom mirror.

Delivering on the promise: Everybody makes promises. With technology the basic promises are that it will deliver some features, cause some expected outcomes to occur, and works reliably enough that your tech support staff will not require extra medication (and given some recent tech support interactions I have had, I fear some support teams are over medicated). Failing to keep these basic promises is a fast path to fiscal oblivion.

Exceeding expectations: Merely meeting customer expectations give them no reasons to discuss your reputation. Under delivering will, though in ways slightly less pleasant than attending confession after a Vegas bender. However, exceeding expectations, even slightly, creates positive reputation and one that people will communicate to future customers.

Timeliness: Great products or service delivered late might as well have not been delivered at all. Lack of timeliness is frustrating to customers, so you have to deliver within what they think is reasonable (no matter how unreasonable) or at very least within your promised timeline. I once told Nokia the battery on my new cell phone didn’t hold a charge. The department in charge of replacements took over a week to call and tell me they would send a replacement. In that week Nokia’s reputation in my alleged mind fell, and I quit recommending their products.

Consistency: I’m an Oakland A’s fan because they consistently disappointment me. Sure, it would be better if they won, but at least I know what to expect of them. Consistency has value because customers know what to expect. You can set expectations low as long as you meet or exceed those expectations consistently (in fact, there may be danger in setting expectations low and occasionally exceeding them by a wide margin, because customer may expect such surprises in the future).

Let’s put these four precepts into practice using Microsoft Vista as an unfair example.

The promise of a better and simpler operating system was broken.
If failed to meet expectations by a large margin.
It was very, very late.
However, it maintained Microsoft’s consistency in disappointing the market.

One out of four ain’t bad. Oh wait, it is! Perhaps this explains Microsoft’s faltering reputation. Let’s try a different technology for contrast. The iPad would be appropriate:

The promise of a “wow” device that redefined the relation between man and media was met.
It was beyond the public’s expectations, which for Apple are pretty high anyway.
It was delivered on time.
It arrived in a manner and style consistent with the public’s expectations.

Four out of four is a good score, and explains why Steve Jobs can afford to buy a new liver yet Steve Ballmer can’t acquire hair plugs.

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June 8, 2010

Marketing Innovation

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.

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June 1, 2010

Ballmer Bye-Bye?

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.