Marketing Memos

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.

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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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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.

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Many clients have come to me complaining that they hit a plateau – that sales and profits had quit growing. We have helped many of our clients identify the barriers they faced and navigate to new levels of success.

Others remained stuck, mainly because they were too stubborn to listen.

It is common for start-ups to hit seemingly invisible plateaus. Like a rock climber on a virgin cliff, they cannot see their way around outcroppings and boulders, and they aren’t agile enough to dodge eagle droppings hurtling in their direction. In nearly every case, these plateaus are artificial and solvable, though the very genius that launched the company is often the plateau itself.

I offer as example one client we initially engaged six years ago. Silicon Strategies Marketing performed some primary (and I dare say groundbreaking) research into the psychology of their targeted buyers. Throughout the research, one variable was clearly a game changer – a clear path to recruit new customers, both within divisions of existing clients and within new enterprises.

Six years later they still have not executed on those findings and are at about the same revenue level (the fact that the recession has not materially reduced their revenues indicates that our rebranding effort worked well for them).

Start-ups plateau for a number of common reasons, all of which can be fixed but often are not. The main plateau points are:

Visionary blindness: Often it is the company founder, CEO and president who are the biggest impediments. The boss was the original visionary, and (s)he perceived the product and the market in one specific way. Indeed, their company’s early success may be attributed to their specific market vision. The problem is that once they have met the limited market/product vision the founder had, he retards or restricts expansion. New segments, competitive threats and key trends may well go unanalyzed because they fall outside of the visionary’s view. When a CEO shoots down every staff recommendation because of his “experience”, he is the problem.

Segment saturation: Despite common wisdom and endless preaching, many start-ups never segment their markets wisely. Start-ups routinely wander into one segment, accidentally growing a whole product solution for that segment alone. They never exploit adjoining segments, much less carefully plan the necessary steps to do so. People and companies enjoy comfort, and expanding into unfamiliar territory is uncomfortable. Too often organizations will try to grow their already saturated segment. Competitors who do know how to map and invade segments will eventually create permanent plateaus for the original innovator.

Marketing myopia: Products, competitors and markets change. Continuing to market to the same people in the same way over time is deadly. Like humans, marketing people get lazy. They lose the drive to take chances and innovate their campaigns. There is a long history of companies that kept innovating products but quit innovating marketing, and thus never even expanded even their installed base.

SuSE Linux in North America had flat revenues when Silicon Strategies Marketing began advising them on marketing strategy. In the late 1990s, having flat revenues in the Linux business was preposterous. Red Hat was growing at quantum speed in North America, and SuSE was doing well in Europe. But in North America, SuSE sales were stagnant. They had plateaued in a high growth market.

SuSE’s suffering came from their inability to understand their regional market position and how to work around it. In both Europe and North America, techies were dragging Linux into the enterprise. In North America, Red Hat had the commanding respect and loyalty of the techie caste. For years SuSE had attempted to tempt North American techies as they had in Europe, and with zero success. Red Hat’s lead in mindshare was too steep and SuSE’s management could not see past their original, techie-focused strategy.

We changed SuSE’s strategy on two fronts: who they sold to and what they sold. More fundamental shifts in product marketing strategy could not be made. But the net effect is that sales went from flat to 5,000% growth in two years.

While Red Hat continued to promote to techies, SuSE switched gears and started courting IT executives (see Silicon Strategies Marketing premier paper from that era on what CxOs Think about Linux). Research told us that executives had intellectually bought into Linux as a strategic infrastructure element going forward. It was our job to convince CxOs that SuSE was the better choice.

Since executives are paid to think strategically, they were already thinking several years down the road. So instead of aping what Red Hat was saying (Linux saves money, and Open Source is better) we caused SuSE to talk about how Linux was part of IT’s long-term strategy, which included human resources issues, technology consolidation and commodity infrastructure. When SuSE demonstrated to CxOs that they knew what CxOs were thinking, those executives put SuSE on the short list. SuSE also sold IT execs on strategic partnerships, showing that major vendors like IBM and Oracle were our friends, which was a major selection criterion for CxOs.

The net effect was that if bitheads in an account could not convince executives of the technical superiority of Red Hat over SuSE (which did not exist) then the IT execs mandated SuSE. Red Hat continued to sell to the bottom. Recognizing that boulder, we maneuvered around it and sold from the top.

SuSE was lucky. At a critical juncture they found a new strategy (and also found a great PR firm whose media strategy complimented Silicon Strategies Marketing’s marketing strategy). Many start-ups are not so fortunate. They continue courting their original markets segments with their original product, using their original outbound marketing to fulfill the founder’s original vision.

And they die.

The marketing lesson is fairly simple. If your company has plateaued, then one or more people in your organization – perhaps your CEO – are seeing only the rocks in front of their faces, and not the chute that leads them further upwards. If you are stuck, get an outside opinion. It does not have to be an expert outfit like Silicon Strategies Marketing (though any other choice is obviously substandard), but it has to be a disinterested outsider who can look at markets, segments, buyer genotypes and promotions without the distortion of dangling from the same rope as your executives.

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I skated through OSCON last week, stumbling over a great deal of bad marketing, lousy messaging, and a squadron of 20-something kids who could not keep their elevator pitch under 30,000 words.

T’is the nature of start-ups and other enfeebled entities.

However, a few outfits either had such interesting products or refined messaging that I would put them into the “watch these guys” category.

Top on the list was click2try. The first marketing lesson today is the company name. Though not 100% intuitive given what their product does, their name nearly creates instant cognition. A well thought-out company or product name can be the difference between cold and hot leads.

What click2try does is host a cloud where end users can create a private instance of software they wish to test drive. Users get a certain number of hours of free test time and the joyous experience of having the software installed, configured, ready and of having the whole stack saved in between sessions for instant reload with all configuration tweaks and data retained. End uses can buy extra time if their demos run long.

What impresses me about click2try’s business plan is that they have three separate revenue streams. End user play time is one stream. The other is commercial software vendors who don’t want to set-up their own demo clouds. They invest less, get started faster and get better results by outsourcing. click2try also offers a white box version of their cloud to vendors that want to bring demo cloud headaches in-house.

Literally, click2try earns money coming and going, from both vendors and buyers. Slick.

Slicker still was their presentation. Tom Callaghan was the click2try’s pitchman at OSCON. Tom and click2try know how to present, and by present I mean get people from a state of ignorance to a state of appreciation in a logical order. Their booth art gave you and idea of what they did (first step, grab the buyer’s attention). Tom delivered a well thought out elevator pitch that I’m guessing was under 18 words (second step, creating understanding and interest). The elevator pitch allowed anyone to understand the click2try gestalt and then ask questions peculiar to their own needs (which, when answered as well as Tom did, creates appreciation – third step).

The marketing lesson herein is that you must guide prospect from ignorance to appreciation quickly, and this is oddly done with well crafted baby steps – good display and copy, precise elevator pitch, ready answers to all common questions. If you cannot achieve this, you will fail.

Another cloudy contraption at OSCON was Twilio. They provide telephony services in a cloud with a tasty twist. Their cloud telephony platform is programmable, either as a service from Twilio engineers or by the customer. When customers call you, they dial a number in the Twilio cloud. The cloud pings your server where your code (PERL, PHP, Ruby, nobody cares) makes decisions, queries databases, or wakes the boss – whatever you are talented enough to code. Your server then sends instructions back to the Twilio cloud for telephony action. In short, low risk, low cost, completely programmable/integratable outsourced telephony.

The marketing angles are multi-fold. The weakest angle is that it is a cloud service, and thus very scalable. Most companies don’t grow so fast that their PBX boxes run out of horsepower, so floating on a cloud has limited market appeal. The actionable bit is that Twilio works with whatever technology you are already using. Running LAMP? You’re good. A Microsoft shop? Twilio can handle that … providing your Windows servers are not blue screened. Running a half breed HTTP stack on your G-Phone? It will fly.

Twilio’s floor pitch, though not as perfect as click2try’s, was good. Better still is their web site where they rapidly take visitors from curiosity to cognition … providing you make one unguided click. In their “how twilio works” page is a simple, effective Flash animation that describes the value proposition better than what is on their home page. I’m sure the simple fix will become apparent to them shortly.

Last on my list is Appko, which is a ham-handed abbreviation of “Application Company.” Contrast this name with click2try. Which company name more quickly communicates what they do and what they deliver? Appko may be a clumsy name, but it is one step ahead of Twilio.

I’m kinda found of Appko because they are executing on an idea I had years ago but lacked the gumption to launch. They preload a server with Open Source versions of the primary applications you need to run a business and a navigation wrapper around all of them. Order the box, plug-in two internet cables (external net, internal net) and get busy. They bundle and support major Open Source server-side applications. You can build/host a web site, facilitate employee collaboration, perform some HR functions, and more. When I coughed up the idea years back, I considered calling it “Business in a Box.” Not a great name, but it got the point across.

Appko confuses their customers a bit by calling their product “Appko CRM”, then explaining that the product does email, collaboration, document management, e-commerce, HRM, ERP, and other business functions far beyond CRM. One of the rules of marketing is to eliminate confusion. The best early sales pitches are the plainest. click2try did this well, Twilio did pretty good, but Appko’s pitch creates confusion from the opening line. Happily, this is easy to fix.

Appko’s target market is the SMB, heavy emphasis on S. Commonly these corporations lack anything resembling an expert IT staff. Typically Ma and Pa recruit their self-taught, geekish offspring to engineer their IT infrastructure. Finding, evaluating, installing, configuring, testing and then implementing a package of applications is so far beyond their capabilities that most never try. Many are turning to SaaS vendors for point solutions or NetSuite for a more integrated package.

Appko may have a long-term advantage in the market if they can broker or build integrations between these popular Open Source apps. The customer would receive a private, behind-the-firewall suit of tools with knowledge that the data is portable since the code is public. Appko benefits by investing next to nothing in software development, though they better be careful about support pricing (SMB’s are notorious tech support time wasters, bless their pointed heads).

I hate bottom fishing markets, but they are large and largely untapped. Appko is tapping them. They need to create buzz, mainly because all other forms of SMB promotion are cost prohibitive. They need to segment the SMB market and pick a juicy slice, adding tools that add delight to buyers in the segment. And they gotta get their pitch tighter, a process they can kick-start by talking to the folks at click2buy.

……….

Three companies with three unique products that have promise. One had a well thought, well honed presentation and a great name. Another had an odd name but respectable presentation. The last had an awkward/explainable name, but no smooth pitch. All other things being equal, on who would you bet your venture dollars?

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