Marketing Memos

Apple is pushing people to populate their phones with installed applications while Google, IBM and Microsoft are urging folk to remove apps from desktops.

This is not nearly bizarre as it sounds.

The success of Apple Apps for iPhones is slightly more phenomenal than the second coming. The universe seems consumed by the desire to have useful and useless apps installed onto their handsets. Sure, most of the iPhone app rush comes from the rush of playing with a new toy, proving once again the only difference between men and boys is the price of their data plan.

Yet this month shows that the desktop is slowing turning into little more than a SaaS suckling tool, whereby apps are delivered online. Google may have led the pack with early availability of desktop apps-on-tap, but now IBM and Microsoft have tap danced onto the stage.

(The mental visual of Steve Balmer and Sam Palmisano doing a vaudeville soft-shoe act is highly amusing)

IBM’s offering seems to offer what the market would seriously not consider. Big Blue and Ubuntu (say that ten times real fast) have teamed to push applications from a Linux cloud to a Linux desktop via a Lotus leaf. Ignoring the narrow niche of combined technologies, the requisite once-and-future Linux desktop is a momentum killer. Swapping XP for Windows7 will be hideously painful, but slightly less so than a migration to a completely new desktop OS and application package.

Which is unimportant. $3 per user per month is the real news story.

Marketing clouds parted when the rental cost of the solution set was mentioned. Good, bad or indifferent, SaaS apps have caught the attention of application vendors for a number of reasons, the most motivating of which is that steady, predictable revenues streams are far preferable to the old model. Sure, support revenues were the underlying motivation for many software plays, but the agony of product release and upgrade support programs coupled with associated spikes in revenues and expenses made maddening money flows.

Which is one reason Microsoft is chasing the same market.

Though unavailable until next years Office 2010 release, Microsoft is readying a web version of Office. Though pricing and options are not yet known, Microsoft has in the past licensed server-side solutions in creative ways (for example, many ISPs supply SharePoint on a per head rental basis). If Microsoft’s web apps are sufficiently adept, many enterprises might opt for the technical and budgetary convenience of serving applications via a browser than installing every bit on every lap-and-desktop in an organization. Microsoft would certainly approve of monthly/quarterly/annual rental fees since a steady flow of greenbacks makes wallpapering Bill Gate’s den a simpler process.

The question is if enterprises will bite.

Part of technology marketing is knowing how IT technoids work, or would work if they had the nerve to assassinate their end users. After costs considerations are sacrificed, IT’s primary motivation is pain avoidance. The two greatest sources of pain for IT staffs are end user stability and systems stability. Ignoring that no end user is mentally stable, the topic turns to their computing environment stability. Web sourced apps have a number of end user stability advantages, including the inability for end users to augment the program with unlicensed software (a.k.a. malware) and the uniformity of having all users executing the same program and revision.

There will be fewer bald and bleary-eyed IT admins if web apps become the norm.

But no enterprise shop can go 100% web application. One Forrester Research analyst noted that “Our own research shows that a good portion of information workers rarely use all of the tools in their Office arsenal.” True, but there are power users and road warriors aplenty, and they likely can/will not switch to web apps. Web office applications are (likely) less feature soaked than their binary buddies, but are unlikely executable from a back seat somewhere between Baoji and Baoshan.

This creates a conundrum. Since enterprises have invested mega money into desk-lap-top maintenance systems, would they double their drudgery in order to rent apps? Since upgrade cycles for lap-desk-flat-top applications is about five years, and that the average upgrade cost for a bulk buyer of Microsoft Office suites is around $150, the breakeven costs (ignoring maintenance infrastructure and ulcer medications) is about $2.50 a month per user.

Which is where IBM got their $3/head price.

Web hosted applications may be the wave of the future, but current moment will retard any inevitability. There is a lack of marketing connection at play – a lack of urgency, a dearth of desirability, and a shortage of savings.

It is insane to declare web apps DOA, but one wonders why outfits like IBM and Microsoft sense getting products to market is necessary. I think their main motivation may be less demonstrated enterprise demand and more Google’s goading.

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Lock-in as a marketing strategy is alive, well, and unfortunately growing.

For dot-communists and those raised in the era of Linux, vendor lock-in is the art of keeping customers captive. By making people commit to a technology, and thus raising the pain of switching away from said technology, vendors cause customers to linger even when they do not want to. I know CIOs who for decades have blustered against Cognos and being locked into stiff annual license fees for PowerHouse, Cognos’ ancient 4GL.

Yet they pay the fee every year knowing that rewriting thousands of lines of PowerHouse code is pretty pricy too.

Another variation of vendor lock-in is commonly called upgrade robbery. I encountered such a scam this week when I noticed my ancient (circa 2003) smartphone buttons started to stick. In order to upgrade to a newer smartphone, AT&T insists that I buy $720 worth of wireless data that I do not need or want. My options are to switch carriers (who currently require the same data plans), or buy an unlocked phone for which AT&T may or may not automatically add a data plan for using. More maniacal still is that mandatory data plans are designed to condition cellular subscribers into using data services. Thus, at the end of a two year data engagement, the luxury of wireless data will have become and necessity.

Pretty pricy phones.

Amazon also has a bit of a lock-in with their popular Kindle ebook reader, though their version of lock-in is somewhat friendlier. The data format for Kindle books is proprietary, and Amazon is in no hurry to openly license the format to competing hardware makers. Buying an Amazon ebook means only owning Kindles for reading it, which if you are a typical bibliophile or literary pack rat means you have one and only one upgrade and replacement path – Amazon lock-in.

Pretty pricy e-paper.

Oddly, lock-in rarely lives long, with Cognos being an obvious exception. Customer lock-in is a strategy that invites competition, either with competing proprietary products, or more insidiously with open technology. Just ask Steve Balmer if Linux has caused Microsoft any problems in the market (and if you want to see Steve toss another chair, ask him if Vista caused Microsoft any problems in the market).

Already we see cracks in the each of the lock-in strategies. AT&T and their enabler Apple are repeatedly prodding Google to go nuclear, and recent rumors indicate Google may break the upgrade lock-in mechanism. Google is allegedly entering the hardware business and launching their own phones, to be available unlocked and at retail. Since G-phones are just as slick as iPhones, and since their open source souls allow for a broader range of potential applications, this is a market changing event. In the short term AT&T, Verizon and other lock-in experts will likely gouge customers slipping an unlocked G-phone onto their networks.

And that will be a mistake.

Smaller and hungrier carriers have already adjusted their voice plans to compete with the confusing and costly packages offered by the likes of AT&T and Verizon. Smaller carriers already offer flat-rate, unlimited voice plans and are earning sufficient revenues to expand their coverage maps (the chief differentiator of the major carriers). With over 70 GSM carriers in the U.S., the potential for competition is huge – vendor lock-in is thus a poor long term strategy.

This is where Google aggravates this situation. Currently, unlocked phones are a small business (albeit growing). Amazon sells unlocked phones, but has a special FAQ page due to the confusion factor and a general lack of iPhone-level lust for unlocked gizmos. A Google phone on Wal-Mart shelves with Google-simple instructions for swapping SIM cards will change the demand side of the equation. This will help the smaller carriers and tempt one of the major carriers to drop the data plan requirement.

Likewise, Barnes and Noble is teaming up with Adobe to promote open standards in ebook data formats, directly attacking Amazon’s Kindle lock-in and opening the ebook reader market to manufactures everywhere.

So when should a vendor employ a lock-in strategy? It depends on how much of your soul you are willing to give the Devil, but it does have a place in growth strategies. In new markets where you are taking large risks by inventing and promoting new product concepts, lock-in may be necessary to temporarily forestall competition and to guarantee some degree of recurring revenue. Amazon’s Kindle is a good example. Though not a new concept, Amazon was attempting to popularize ebooks and needed to assure that consumers would come to Amazon to buy the books as well as the reader. Publishers also need some assurance that the market would not be confused by too many products spread over too many vendors.

But lock-in is short lived – aside from mainframes and Cognos PowerHouse – and should not be a strategy on which to pin all future hopes. Amazon should have moved toward an open document format with the Kindle II, which in the short run would have cannibalized hardware sales while solidifying Amazon as the place for ebooks and growing the ebook market.

I’d have more to say, but I want to spend some time browsing unlocked phones on Amazon.

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I was unsurprised by Adobe’s Omniture acquisition.

Until I saw the price they paid.

Adobe is sitting on stacks of cash. As is routine with tech companies, cash fat firms buy other outfits during recessions when acquisition prices are normally lower. Omniture was not suffering, so Adobe’s $1.8B buy may be the right price to pay for this strategic move. I asked my acquaintances in both Adobe and Omniture about this … and they wisely said nothing, forwarding me links to official press releases.

I obviously need sneakier friends.

The stock market didn’t think it was a good short-term move. Despite beating the street’s estimates on quarterly earnings, Adobe shares dropped more than 6% on the announcement. Perhaps short-term selling of Adobe stock is warranted because their software sales revenues continue to suffer during the recession. But in the long term Omniture’s less volatile SaaS revenue streams will compliment and amplify Adobe’s Wall Street value.

This is a marriage that should have happened long ago. The enterprise value of analytics is undeniable. It is also an integration nightmare, with many sloppy and incompatible ways of extracting traffic data and many forms of user interaction that are not (yet) measurable at all. Merging the lead source of web creativity with serious business analytic capabilities will soon enough offer a seamless and automatic integration of the two.

Automatic is the key word.

Adobe tools will soon make web analytics a de facto reality. Web engineers and content creators will invisibly have analytics hooks embedded in their work. When management decides to track web activity, all things being equal, they will buy analytic services from Adobeture because (duh) it is already enabled. Adobe is in effect turning every Dreamweaver, Creative Suite and Flash animator into an Omniture sales person.

The other strategic issue that the media missed is microanalytics. Omniture has always been impatient with the state of analytics, venturing from web into mobile and into very tiny parts of the web experience. This is where Adobe will leverage Omniture in a way Omniture could not risk doing it alone. Adobe will be able to generate analytics tags within all Adobe web elements. AJAX calls, Flash files, Cold Fusion back-ends, PDF files. The richness and lower level of detail that will soon be available to marketers will provide very precise insights into web behavior.

This has interesting implications for the market. First, Adobe has by and large been the favored environment for creatively minded web workers and for many enterprises. Integrating Omniture doubles there strength therein. People will have to argue against management to not adopt Adobe for maintaining their web presence.

In turn this means few enterprises will opt for another analytics vendor. This puts great pressure on the few remaining players. Google will own the bottom of the analytics market and Adobe will own the top. WebTrends may get squeezed out completely.

Most important though is how in the long run this will affect marketing. Real-time analytics combined with authoring and host-side tools will allow for instantly aggregating and simultaneously individualizing visitor activity. Hypothesize for a moment that you can tell not only what web page a visitor viewed, but what Flash movie he watched, which part he rewound to, if he stopped watching before the call to action, and what lines in a PDF he copied to his clip board. This level of precision, especially if tied to real-time server-side functions, gives marketers more control over the user experience and better ability to guide them to a specific action.

I’ll wait for Adobe sock to settle, then I’m adding a few shares to my long-view portfolio.

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It is always fun to see a market tipping point at the moment it occurs.

Samsung, the Korean tech titan, is rumored to be exiting the hard drive business for ultra thin notebooks, switching instead to solid state drive (SDD) production. It appears that Hitachi, Fujitsu, Seagate and Western Digital have abandoned that market as well, leaving Toshiba alone to peddle electricity sucking spindles for your groin warmer.

When five out of six primary players leave a market, you know that market is toast.

Intel is accelerating the switch. They report that as soon as next month they will double the density of their SSDs, pumping in a hefty 160GB into the small form factor. Since SSDs are a relatively new market phenomenon, and since work has only begun on how to bundle more bits into the drives, we can expect Moore’s law to switch from CPU cycles to SSD saturation.

Amazingly, this is occurring without a single dollar of Federal stimulus money.

Markets change and technology markets change fast enough to make blinking a hazard. Given the inherent advantages to SSDs for laptop users, and the gurgling price/capacity wars, we can expect most new business laptops to come with SSDs within a year or two, and most new consumer laptops soon thereafter.

With markets changing at that speed, marketers have an added headache, namely calling the point for abandoning old technology. It is never easy to decide when to abandon a market or strategy, but it is part of the CMOs role. In the technology business it takes gamblers’ nerves. Exit too soon and you leave behind a viable cash stream. Switch too late and you are on the bottom of the compost heap in terms of market share and revenues.

The primary indicator to making this decision is when a new solution set presents customers with one or more benefits while eliminating former deficits. Laptops now outsell desktops and that gap will widen rapidly. When laptops were twice the price (or half the performance) of desktops, only road warriors and people who enjoyed typing with pencil erasers would own one. When the price/performance gap between laptops and desktops became more or less none, buyers started switching. The new benefit (having your computing power wherever you went) was important and the old deficit (high price or low performance) went away.

Sure, this sounds basic, but how many CMOs include this criterion on their monthly product line review check list? Fewer than presidential cabinet members with tax problems (well, that’s unfair … there are way too many of the latter).

SSDs are now following laptops, figuratively and literally. The new benefits are significant – less battery drain, less fragile, more reliable and cooler on your private parts. The only deficits – price and capacity – are falling fast. Thus we are at the edge of a market demand shift.

Now, if Intel or Samsung would thank me for pointing out their advanced thinking by sending me an SSD for my HP 6530b laptop …

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Seems everyone is aiming for the desktop. Some are drifting slowly, trying to grind away Microsoft’s dominance. Others are planning a full frontal assault.

Yes, Larry Ellison is in the latter category.

The slow motion mob is of course Linux. Nearly a decade ago I was helping SuSE peddle the first competent Linux desktop distro. The Microsoft hurdle was steeper then than now, and we knew advising CIOs to conduct forced march migrations was folly. But CIOs were interested in researching alternatives, clearly disgruntled at being held captive by Bill Gates and his nerdy desperados.

We advised a piece meal approach. Since our study of CIO attitudes concerning Linux showed that they wanted their IT staffs to be Linux literate, we suggested migrating just IT to Linux desktops (sans Microsoft support teams who both needed Windows on their PCs, but would also attempt CIO assassinations if they were forced to use anything else). This way all developers, administrators and support teams would be become intimate with Linux in very personal ways. Once IT staffs achieved guru status, CIOs could plot expanding Linux desktops to other end users (transactional users first, power users and stodgy CIOs last).

It seems this is about as far as they got. On average firms deploying desktop Linux at all have done so to 20% of their staffs (some very aggressive firms have hit the 80% mark, which likely skews the results upward). These numbers suggest that where Linux desktops were taken seriously, the IT staff and some transactional users have been given a Microsoft alternative. Technologically speaking, that could have been done a decade ago. Thus it appears that migration momentum may have choked at that threshold.

Which is where Larry Ellison enters the picture, eye patch on and cutlass raised in the air. In buying Sun, Larry bought Java. Java is the closest thing to ubiquitous following Windows, Flash and lying politicians. This includes JavaFX, the Java solution for Rich Internet Applications (RIA). Given growing demand for Internet based applications and server-side application hosting, and given the inherent restrictions of stateless XHTML (AJAX not withstanding), RIA is an important piece of the puzzle.

Just ask Adobe, who is currently Flexing its muscles in that market.

Newsworthy then are Ellison’s Java plans, which included ‘suggesting’ to the Open Office crew to use JavaFX as the interface for future editions of the leading Microsoft Office alternative. Larry ‘suggested’ this approach in much the same way as Pol Pot suggested people become farmers and join the Communist Party. If executed well, employing JavaFX in Open Office would make the application suite richer, more flexible, more usable, runnable from the web and executable on smart phones … all in ways that Google Docs are not.

Ellison wasn’t kidding when he said that Java was “the single most important software asset we have ever acquired.” It gives him competitive keys to the desktop.

And it is proprietary, just like Microsoft or Adobe.

For all the thunderous press that the “opening” of Java received, many key components are still owned and controlled by Sun Oracle. Plans Sun may have had to open JavaFX are likely now being nailed to a cross. Larry loves it when Open Source from third parties hammers the competition, but has shown only occasional desire to let Oracle code be opened itself. JavaFX – as a tool for driving a wedge between Microsoft’s application suite dominance and thus its desktop OS dominance – may well be a key technology in charge a market landscape, and thus worth protecting.

Though I bet Larry might release JavaFX if Adobe Flex takes too much of a lead.

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