Marketing Memos

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.

Bookmark to:

Hide Sites

The mighty fall, upstarts rise, and nothing is guaranteed.

Comscore published their periodic post of positioning between portable platform providers (tell me when you get sick of my constant alliteration … it won’t stop me, but I do like the feedback).  Of interest are instances where major players are advancing, retreating, or showing signs of stagnation.  In Comscore’s latest totable techno tout sheet we see:

RIM:        42.1% rising slowly (+1.3)
Apple:      25.4% stagnant (-0.1)
Microsoft:  15.1% falling fast (-4.0)
Google:     9.0% and rising fast (+5.2)
Palm:       5.4% and sinking (-1.8)

Most noteworthy and yet most predictable is Microsoft’s plummeting while everyone else is either growing or staying steady.  Microsoft’s mobile operating system has been derided, insulted, defamed and dismissed by many, for sound reasons.  Unlike competing platforms, one routinely needs to buy a new handset whenever Microsoft releases a new OS (I say this with my tongue buried deeply into my cheek given that I carried a Windows Mobile 4 phone for seven years, much to the chagrin of my carrier).  A friend of mine who works for Microsoft complains he has to reboot his smartphone hourly.  Rumors have it that Windows Mobile 7 will fix all that … just the way Vista fixed XP security issues and with the same smooth migration path available from XP to Windows 7 desktop.

Google’s rise up the ranks is also predictable given market dynamics.  A certain sector of every technology market wants portability, not wishing to be tied to any vendor.  With Microsoft unable to provide stability, features or upgrades, with RIM being perfectly proprietary and with Apple … well, being Apple and iPhones being the center of a walled garden that rivals Eden … the Android OS was an obvious choice for free range geeks.  Given that Android 2.x is well crafted, that Google added some excellent back-end features, that HTC seems to adore the OS, and that Verizon promoted Droids to death, Google’s rising fortunes are to be expected.  My prediction is that they will continue this pace for a least a few more years, perhaps to a market dominance point.

Most interesting from a market dynamics perspective are RIM and Apple.  Being the big dog and specializing mainly in email junkie codependence, RIM has less growth opportunity than the other vendors.  Yes, they remain competitive, but the core of their market advantage – being perpetually plugged into email pipelines – is not well protected.  All smartphones can do email, and people who do not need spam pushed down into their handsets at all hours do not need Crackberrys.  Thus, the market share upside for RIM is capped given their current whole product strategy.

Apple, however, is oddly immobile.  For all the iHype, iPhones are now stuck.  A unique and perverse set of market forces are at play, conspiring to keep iPhones at their current position.  First, the anti-lock-in crowd wouldn’t own an iPhone even if Steve Jobs was included as a toy prize (if his personal fortune was part of the deal, there might be room for negotiation).  As other vendors provide similar or even superior features, iPhone cachet will fade.  Take the Nokia 5800 Navigator for example, which is arguably a better utilitarian handset for a fraction of the price.  Unless you are an app addict, the iPhone offers no stellar competitive advantage.  Finally, the financials of iPhones, and most higher-end handsets, are driving the unlocked market, which is oddly where Android is well positioned.  It is no wonder that Apple is slightly declining in market share and will stay sluggish until they launch across all major carriers.

Let’s not bother discussing Palm … it is too painful.

Since we do discuss strategy at Marketing Memos, what we are witnessing here are some common strategic marketing moves and mistakes by the various parties.

Trends: One trend in the smartphone market is toward unlocking handsets.  It is an inevitable trend that will affect handset makers and carriers alike (get ready to abandon mandatory data plans AT&T and Verizon – those days are numbered).  When there is a trend you can either ride the trend, fight it, or pray that you maintain your market share.  Apple and RIM are fighting it, Google is riding it, and Microsoft has bigger problems.  One point for Google.

Saturation: Though we are not their yet, the smart phone market (at least in North America) is rapidly saturating.  Chasm theory tell us that within a couple of years, only late adopters and laggards will be left.  Selling to slowpokes (all other things being equal) requires dropping prices or finding mass market plus-one features others overlooked.  Again, Google is altering the landscape by basically giving away the OS, and having it developed with Open Source efficiencies.  This starts the downward price spiral and makes retailing unlocked handsets even more practical.  Two points for Google.

Faddism: All fads die, and if one doesn’t, then it is not a fad (kinda like food and nookie – they never go out of style).  Handsets provide utility, be it playing games, watching videos or posting onto Facebook.  I hear you can even make telephone calls with some handsets.  Once all features desired by all major market segments are available on all mobile OSes, we will achieve a commodity state in handsets.  There is now a horse race to see who can capture the greatest lasting mindshare of the most market segments.  Apple has the fanboys, RIM has road warriors, Microsoft has lost, and Google own the technoids though their eyes are set upon the broad consumer market.  Since Google will make their money tangently via advertising, since their app market will help to create the whole product, and since they are driving down the retail price of unlocked handsets, I would wager that Google will quickly surpass Apple in total market share.  Three points for Google.

Sure, there are some wildcards to play.  Nokia bought Navteq and now bundles GPS software and maps on their phones, reducing you gizmo collection by one.  For all the jokes, the latest Symbian OS works well, the tactile feedback screen it more usable by broader audience, and Ovi Maps is an interesting value add.  Google requires you buy wireless data to use GPS.  Nokia says you can ignore data because the maps are built in.

The marketing lesson is that markets change, and you must always beware of change agents with different business plans than you have.  Apple, RIM and Microsoft want to make money on software and hardware.  Google wants to make money by owning the experiences of everybody and feeding their advertising engine as a byproduct. This eliminates their software profit motive and thus creates a direct threat to the three top competitors.

If you see a familiar but desperate looking face on a street corner giving away handsets, be sure to say hello to Balmer for me.

Bookmark to:

Hide Sites

BMW and Enzyte may have too much in common.

While reviewing course materials for the CEO Marketing Boot Camp, I got a case of giggles. In the class we mention how BMW does branding. BMW has a legendary brand that was anything but accidental. In fact most readers can recite the BMW slogan from memory and yet never question it. That is how good BMW is at defining and communicating their brand – they have us all educated and convinced.

The BMW slogan is interesting to marketing experts because it never mentions automobiles or technology (and BMWs are technology products). BMW claims to provide the “ultimate driving experience.” Ultimate means the best. Driving is a largely male oriented passion. Experiences are what we live for. So BMW offers a greatly enhanced male life, just like Enzyte claims.

I’m sure the people at BMW are not happy about this comparison because the rest of the jokes write themselves.

BMW’s branding is only part of their marketing success, which is matched by their automotive engineering success. BMW’s marketing and innovation are well paired. Peter Drucker, the father of modern management once said “Business has only two basic functions – marketing and innovation.” Everything else is administrative work. In Silicon Valley, we have more innovators per square inch than we have square inches to spare, and most innovators fail. They only have half of the success equation.

Having sat-in on too many funding pitches, the absence of marketing expertise among founders (the innovators) is often painfully obvious, and has been the reason for many funding rejections. This is an endemic aspect of start-ups – that visionaries lack go-to-market strategy skills. This is not in and of itself fatal if the founders can recruit good marketing people or otherwise find sage advice, and then follow it. However, visionaries are blinded by vision. Their initial observations about market opportunities keep them from examining the full scope of go-to-market issues or unpleasant market realities. Founders are often reluctant to release control over the marketing function yet do not possess enough marketing strategy savvy to guide their organization.

The end result is fairly predictable. These visionary-led start-ups find initial traction with early-adopters, who are also visionaries and risk takers. After that initial success, the start-up stalls. Revenues plateau or decline, the company burns through what little cash it has, and the visionary solution vanishes or is cloned by someone else. If the start-up is funded, investors will often insert members of their cabal into the organization and attempt to instill marketing strategy discipline from above. In desperate circumstances VC’s find ways to eject the founding visionary.

This “investor patch” is notoriously ineffective. Founders fail to follow advice or control because their vision is limited to the set of circumstances that lead them to invent. They cannot see the forest of marketing strategy because they are climbing the tree they originally discovered. It is a little like love. Try explaining to a child what being in love is like and you will create a bored or confused kid. But once they grow up and experience love, they understand the broader and more detailed aspects. Visionary founders are like these confused kids – they do not have enough perspective to comprehend what they need to do.

This is the visionary entrepreneur’s handicap. Successful founders either have significant (albeit high-level) grasp on the major functions of marketing strategy, or they have the guts to recruit and trust experts. Most founders don’t do either, and thus most start-ups fail. I find this state of Silicon Valley affairs to be perplexing. Technology innovators are not ignorant people. They have worked long and hard to achieve deep understanding of their technologies, yet rarely labor at understanding marketing strategy. They may read one of the Chasm books and proclaim themselves well prepared. This is akin to reading a book on the basic mechanics of a parachute and then lobbing yourself out of an airplane. The results are amazingly similar either way.

Peter Drucker was right – an organization must innovate and market. In a start-up, where early decisions define survivability, and where the money to hire full-time strategists simply does not exist, the marketing savvy of founders is critical. Venture capitalists know this, and VCs send portfolio CEOs to school to assure that daily marketing disciplines are being lead from the top. VC’s are happy when one-in-ten of their investments pays off – but they would be happier if ten-in-ten did. Hedging their bets by building better CEOs is the primary path to achieving better investment odds.

Bookmark to:

Hide Sites

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.

Bookmark to:

Hide Sites

Who would have thought Microsoft could be cool?

Not Microsoft the company, the product line or substandard tech support. No, Microsoft marketing is cool because they engineered a reverse promotion campaign that leveraged a competitor’s positioning, used it to attack their weakness and amplify a Microsoft strength all in one sweep.

That’s cool.

Anyone with a pulse is familiar with the great ad campaign designed by Apple, pitting a dowdy looking actor as a generic PC, and a young hipster (Justin Long in real life) as a Mac. Justin played the Mac role as low key, friendly, effective, peaceable and, in a sub dude way, cool. Justin was also the voice of Alvin in Alvin and the Chipmunks, so we have to subtract three ‘cool points’.

For a company built primarily on image and vendor lock-in, Apple did a great job. Their ads were memorable and also provided a method for serially picking on the weaknesses of Windows. They made being a Mac cool and being a PC a crime against humanity. Combined with the everlasting Windows Vista fiasco, the campaign seriously damaged Microsoft sales, brand and market mindshare.

Microsoft used judo.

Like most take-down martial arts, judo recommends using your opponent’s weight against them. Don’t bother hitting a 260 linebacker in the face because it might merely amuse him. Instead let him charge you and then help him convert his forward momentum into downward momentum. Once he in on the floor and you are standing over him you can then either run like hell or execute a ‘ground-and-pound’ attack.

Microsoft grounded and is pounding Apple.

Take the basic premise of the Apple ads, which paraphrased is “Macs are cool and PCs are a headache.” These concepts were communicated by actors as proxies for operating systems and hardware. In the process Apple made ‘PC’ a dirty word, which was their intent. They wanted to position Macintoshes as the un-PC. Apple’s ad campaign was so successful, that they created momentum.

Microsoft responded with their “laptop hunter” ad campaign, and in doing so Microsoft used Apple’s momentum against them, changing the basic conflict between Apple and Microsoft. Apple said Macs are cool, but Microsoft said PCs are smart. The average consumer knows they will never be cool, so being smart is an attractive option.

Let us itemize things Microsoft marketing did to judo Apples ads:

• Apple used actors – Microsoft used real people in real stores (Fry’s no less).
• Apple picked on Windows weaknesses – Microsoft promoted their strength, namely getting more bang for the buck (smart consumerism).
• Apple only sold against Windows, not promoting their strengths – Microsoft buyers are shown listing their required features and “getting what I want” for less.
• At the end each of those real consumers says “I’m a PC”.

Central to all of this is that Microsoft took Apple’s momentum in creating a negative “I’m a PC” stereotype and used it to sell Windows market strengths. When paired with allegedly real consumers shopping, comparing and choosing PCs, Apple’s momentum becomes Microsoft’s momentum. Using real consumers also eliminated the advertising advantage Apple obtained with actors (and given that Justin stared in such epic cinematic endeavors as Happy Campers and Idiocracy, we can take him only so seriously).

In promotions, perception is everything. Apple had a good start by amplifying dissatisfaction with Windows weaknesses, but they did not capitalize on their own momentum by shifting the focus of their ads to Mac strengths. Microsoft was able abscond with that momentum and used it to sell Windows market strengths with more authenticity.

The genius was that they did not stand toe-to-toe with Apple and slug it out. They hijacked Apple’s efforts and picked their pockets in one smooth move.

That’s smart and cool.

Bookmark to:

Hide Sites