Marketing Memos

Intersections cause collisions, but also opportunities.

A basic marketing strategy is practice to find the intersection of what customers want to achieve (expected outcomes) and where the market is not providing that solution. Alternately, one can look for places where different technologies can, for the first time, be combined and create previously unavailable value.

Smart phones are now ready to facilitate SoLoMo.

The three raging factors in markets and marketing today are SOcial, LOcation-based apps and MObile. The real-time enabled combination of these three may well be the next major moment in consumer technology and marketing. The ability to reach people in tight geographical clusters, who are sharing an experience or looking for one, will be an exciting market in which to pitch.

Social is about sharing. As witnessed by Facebook posts, it is the moment in which the user has the impetus to share that is important. What one is thinking, feeling and experiencing is what they wish to share. To a limited degree Facebook and Twitter enable such sharing since you can Tweet and post from your handsets. But it lacks location services that enable bridging the people in or near a location (after all, why not share what you and another 25,000 people at the Rolling Stones concert are experiencing).

The other weakness is the asynchronous nature of current social media. Most people open Facebook during lunch or after a day’s work. Some folks browse Twitter weekly (which rather defeats the purpose). Real-time enablement of interaction between near-by individuals, especially when it pulls people in from slightly larger distances (say drawing people into a hot night club from the competing bars on that block) creates new interaction potential (mostly pleasant).

More interesting yet to marketers might be the ability to pool information about people clustered geographically. Merging big data pools of demographic and psychographic information, combined with location identification of individuals could provide real-time promotional opportunities (which will take a real-time arbitrage so the demo/psychographics enable the right advertisers). What if in real-time a common profile of a particular Rolling Stones concert attendee was a 70 year old man (this time is coming) that prefers bourbon? No bother selling ads space to Dr. Pepper.

Like social media a few years ago, this is a largely undefined area for experimentation. On the marketing end, the ability to create highly local participation, or to market to people sharing a location at the same instant, offers the marketer some unique targeting opportunities.

Which means Google (local, Android, Plus, ad trafficking) has all the necessary tools to make this happen now.

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When the earth quakes, you either endure the trauma, relocate or eventually get swallowed by a gaping hole that appears beneath.

Markets often have tectonic transmutations whereby old terra firma is relocated. This occurs with alarming frequency in technology markets – the upper rings of Hades are littered with tech companies that did not move quickly enough (you have long teeth if you remember names like Ashton-Tate and VisiCalc). Yet fault line spotting is a rare sport in high tech, and even catches change makers by surprise.

One massive market plate is on the move, and television as we know it is about to disappear.

Commodity broadband is making highly selective, on-demand video entertainment a reality. In the bad old days (last year) one consumed video entertainment by subscribing to ever expanding channel bundles packaged by cable and satellite companies.  The economics of broadcast television – where producers, networks, cable companies and affiliates all got a piece of the action – caused prices to rise and competing providers to package bulkier sets of networks. We long for simpler times when there were 57 Channels And Nothin’ On, not 999 channels with even less worth watching.

The same companies who made residential broadband affordable also provided the means for Hulu, Netflix and Amazon to entertain you, without rigid schedules and no packages of unwatched programming that rivaled food for a chunk of the family budget. Now cellular providers are entering the same space, making video entertainment an always-on and on-demand experience. Who cares that you missed The Simpsons on Sunday when you can replay that episode whenever and wherever you are, and pay nothing or very little (I survive on a $100/year Netflix habit while my neighbor pays that much per month for cable).

This shift is forcing cable and satellite companies to unbundle channel packages. After years of raising rates 6-10% a year, cable companies are facing an a la carte future. But unbundling is only half the shift, the part that frees customers from the unwanted expense of renting unwanted programming. The other half is on-demand viewing of all content types. Cable and satellite companies have offered on-demand movies, but customers are now acquainted with on-demand everything. Want to see last night’s Colbert Report, reruns of All In The Family or even live concerts? It is all available and you don’t have to pay your cable company a dime more than your monthly internet connection fee.

Cable companies may devolve into mere broadband providers as the market eliminates many middlemen (as I write, independent producers are getting their materials online in near-direct distribution arrangements, promoting via social media). Cable companies didn’t see the shift they themselves created, and built no replacement. Unbundling channels is a delaying tactic, but one that will not stop the inevitable downhill slide.

The marketing lesson is that you must watch for fundamental changes in technology that fundamentally change your markets, or conversely create those technologies and predict where the earth will open. Failure to do so means watching everything get swallowed and ground between moving plates.

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I would not want to be an HP employee this week. Well, actually I have not wanted to be one since Bill and Dave went to the big database in the sky.

Last week, in rapid fire, HP said they will likely get out of the PC/laptop business (either through an Agilent-like spinoff or outright sale), killed their newborn webOS phone and slab business, and bought a relatively obscure software company for a huge premium. Their stock dropped about 30% and HP aficionados are still staring, jaws agape, in disbelief.

Change is the only thing of permanence, and that applies doubly in the high tech business. Tech companies are the most agile known, and many have completely reinvented themselves when faced with undeniable market shifts. Others change because better opportunities exist. HP’s newest CEO, Leo the Lively, knows that software companies make significant margins (Oracle has an overall margin of 30%) on peddling well organized electrons. Leo wants HP to change in that direction. Reportedly, HP’s PC business has profit margins of 7%, though their volume through retail channels makes them the #1 vendor. Though HP’s PC volume and revenues were impressive, sales of consumer PCs and laptops have been plunging (around 23%) and the profit HP earns from PCs and laptops would soon enough be unworthy of staying in that business. So like IBM before them, they seek to exit the soon-to-be unprofitable.

They’ll continue gigging consumers for overpriced ink cartridges, which appears to be a damned (and) good business.

Oddly, they are also scrapping their webOS product line, dumping Touchpads and “Palm” phones. Though they never received respect or respectable reviews, the main catalyst for declining consumer PC sales are slabs and smart phones. HP is wisely shuttering the declining PC business, but have simultaneously aborted their newborn in the one consumer market that has growth potential. Combined, it makes Leo look like a consumer luddite, lacking desire to peddle products to the proletariat.

Which likely makes Steve Jobs smile. He knows how to market to mobs.

Change for change sake is a rarified form of idiocy. I don’t accuse Leo of blindly altering HP’s fabric, but the timing and lack of commitment to product lines makes Apotheker look like a banana republic dictator, changing rules, laws and strategy at personal whim as opposed to long range product planning and revision. Given that HP’s Touchpad was introduced a mere 53 days ago, it was never given a complete chance in the market – no version 1.1, no second generation, nada. It is bizarre for a first entry into a relatively untapped market to be a sacrificial lamb on the altar of ambition.

Today’s market strategy lesson is a two-fer. First, any strategy should not be implemented in ways that cause people inside and outside of your company to lose faith. Stockholders bailed and HP employees, on a private discussion forum, are confused and a bit ashamed. It is better to build your new strategy and have it well-anchored before you jettison the old one. Secondly, it is bad policy to display executive knee-biting as part of the transformation process. For HP execs to bravely proclaim that killing off a seven week old product line based on a $1.2B investment (the Palm acquisition) was wise is unwise. To do so while paying an 80% premium for a software company that is not destined to become a center post of a software strategy simply begs for Leo to don a clown nose.

Change has to have a purpose and a plan. You may not be able to disclose the plan, but causing investors and employees to doubt you have one while hacking away parts of the current strategy is like a politician saying “Trust me, I’m with the government.” It lacks faith-building substance.

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I’m glad I don’t watch feminine hygiene product commercials these days.

Not that I ever enjoyed them. They just often plopped into television programs that might have had a significant female audience. In the desperation that is mass advertising, marketers know that a great deal of the ad spend is utter waste, such as when pitches for FDS appeared in my bachelor pad. The folks at Preparation-H realize that they sell to a specific demographic, and a growing minority at that. For every anxious prospect reached via a network television show, they are selling to twenty people who are suddenly slightly disgusted. Though you can reduce misspent budget by pouring through demographic viewership data, there is always a great deal of zero return in mass media.

Thankfully mass media may be dying.

Ubiquitous broadband allows for individualized content and advertising targeting. This is nothing new – that was the original commercial glory of the Internet. But the intersection of streaming video and people abandoning television (I dumped all mine last year) is leading headlong into pinpoint ad placement and even customized advertising (which may in turn lead to customized programming). Four-year-old Hulu.com is already raking in a half billion advertising bucks each year, and are pioneering targeted video entertainment. Video ad targeting, in the Hulu sense, offers marketing people many bright alternatives.

Demographics targeting: Hulu knows I am a male, and thus shows me advertising that leans toward a male perspective, pitching products from muscle cars to beer (they missed on that last one since I’m definitely a whiskey man). This saves 50% of ad dollars, but so does the fact that Hulu knows I am mumble-mumble years old, and thus might soon need to see those Preparation-H spots.

Aggregation: Video targeting also leverages aggregation of viewer information. If I watch reruns of Archer, Hulu can see what other Archer watchers prefer in advertising content and make an educated guess as to what ads I might get value from.

Self-selection: Hulu allows people to say if an ad was useful to them. Over time this paints an interesting profile of a viewer, narrowing or expanding what interests them and thus what commercials might sell one viewer some product. Combined with aggregation, this makes initial ad spend very effective and thus very affordable.

Interstitial: The ads one sees at the start, middle or end of a program might change based on the content of the program. You can do that with today’s television, but the ad change might not be best for all audience (advertising Kleenex at the end of a tear-jerker movie might do well for some female viewers, but scoffing males would not add any brand of tissue to their shopping list).

Mobile/desktop/set: The ad that runs can change depending on the environment and location of the viewer. If technology reported that a male viewer was in a suburban area and watching on a plasma TV, ads for pizza delivery would do well. Conversely, if a female viewer was watching on a cell phone at a bus stop during her afternoon commute, ads from Monster.com that suggest a better job awaits would be profitable.

The net (pun intended) take-away is that television is dying, and none too soon. Radio may go the same route. People need asynchronous content, tailored to their preferences, and without meaningless commercials. Marketing managers need to be more frugal with their advertising spend. The two needs are creating an undeniable trend. Now if Hulu would just remove those Budweiser ads from my Family Guy time …

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Even SMBs have inertia.

I have been waiting for a solid uptick in cloud services adoption by Small and Mid-Sized Businesses (SMBs).  Yet a recent report from Microsoft indicates that SMBs are not yet adopting SaaS and cloud services at a blistering pace.  Then again, given Microsoft’s rapidly plunging market value, maybe their survey sample included only Microsoft loyalists … both of them.

According to 3,258 respondents representing companies with less than 250 employees, fewer than 40% plan on paying for cloud services in the next few years, though this is a full 10 points higher than in Microsoft’s previous poll. They also report that those SMBs with their heads in the clouds are doubling the number of services which they rent.  The analysis suggests that cloud adoption will be gradual and, given SMB investments into non-cloud infrastructure, a hybrid model will persist.

In the absence of established infrastructure, small businesses have little need for in-house server-side software.  Nearly every business function that once required start-ups to have their own server racks are now outsourcable.  Need tons of servers and bandwidth for your web sites?  Turn to Amazon, Rackspace and others.  Need cross-platform office applications? Google and Microsoft are ready to deliver.  Need an ERP system?  NetSuite is as close as your browser.  Anyone starting a business does not need an IT department, server room or the dull headaches induced by overhearing IT geeks reciting Monty Python scripts to one another.

SMB cloud adoption will happen, and as the Microsoft survey shows, it will occur over time.  Established SMBs need to engineer services into their mix, and since SMBs typically do not have large and experienced IT staffs, conversions will be slow and painful (those words – slow and painful – are signals to entrepreneurs looking for a new market).  New SMBs can adopt SaaS and cloud services today, but given their start-up status, time is required for them to grow and contribute meaningfully to the cloud’s critical mass.

For SaaS and cloud services vendors, the future is bright.  SMBs have always been the toughest market to crack given the cost to sell, ROI on sales, low customer skill levels, etc.  SaaS was custom made for getting SMBs productive in a hurry while dropping the expense of recruiting them.  This model will continue as cloud vendors streamline common application installation and consultants change business models to bridge any remaining gaps.

The channels will not do as well.  Anyone in the business of helping SMBs adopt technology, and making a buck on hardware and software reselling, will suffer in style.  The economics of SaaS and clouds for SMBs is unbeatable, and continuing refinement of end-user interfaces for even infrastructure services reduce, perhaps even eliminate the value provided by the channel.  Where there is less value, providers either compete on price, change their offerings or starve.

Markets change, sometimes overnight and sometimes over time.  But they always change. In this case the once seemingly uncrackable nut of the SMB space is breaking.  It was broken by addressing an SMB pain point (lack of IT sophistication) and cutting out middlemen.  The only losers are the latter.

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