Marketing Memos

Sometimes technology is wholly too complex, a fact that HP has latched onto.

In all product marketing, one pays attention to the ‘whole product’, which is the sum of all the expected outcomes from using a product (this is a combination of features, benefits, services, price points, etc.)  Whole products are different for each market, each segment and each buyer genotype. Taken as a whole, a whole technology product can be very complex, and the complexity grows as the number of targeted segments grows.

Technology isn’t for wimps.

Thus, there is often a trade-off between a whole product and the product suited for new users (who can be considered a subsegment).  Often part of a whole product is offered as another whole product, but to a market or segment that is less sophisticated than buyers in the larger group.  Another common trick is to grease the skids for implementing a whole product or provide a stripped down whole product in order to create an “ease of use/implementation” feature.

HP seems to be doing both.

Implementing cloud computing is non-trivial.  Even battle hardened geeks, armed with cases of diet Coke and enough manuals to depopulate a rain forest are intimidated.  Yet the economics of cloud computing are nearly inarguable, and thus our nerd friends geek-up and grind through implementations seemingly designed by Inquisition engineers.  In smaller companies with limited technologists resources, implementation might never happen without the aide of outside service.

This is where HP’s CloudStart appears.  In brief, it is designed to ease implementation and operation of clouds by simplifying the process.  It is a cluster of hardware, software, consulting services (heavy on that last bit) and their Cloud Service Automation tools that allegedly allow an enterprise to build a private cloud (with four ported work loads) within 30 days.  In the history of IT, a 30-day implementation of any infrastructure is unheard of, especially for something as fundamental as servers.

HP’s offering is not entirely unique.  Many companies – most notoriously IBM – have offered quick-start programs for major IT implementation.  In each the goal is the same:  to simplify the process for the buyer while locking them into a one-vendor path for implementation.  Let us ignore the latter mentioned lock-in (it is a given, like your congress critter lying to you) and instead focus on applying grease to the implementation skids.  Doing the latter in parallel with outbound marketing reinforces a single golden rule for marketers everywhere:  reduce friction.

Aside from buying water, most purchase decisions are reasonably complex.  Technology more so.  The time required to make a complex decision, and the likelihood the decision will ever be made, is inversely proportional to how simple you make it for the buyers.  Every instance where a buyer encounters confusion or doubt is a place where the sales cycle elongates and your VP of Sales’ blood pressure rises geometrically.  One of marketing’s missions is to reduce complexity in buying decisions and keep your sales exec from encountering stroke, heart failure or a drinking problem (that last one is a jest … all sales people have a drinking problem).

This is why Best Buy allows you to compare good products with crappy ones online: it quickly eliminates a point of purchase delay.

With any product, guiding the buyer to a decision is a primary marketing responsibility (one web design analysis firm refers to the lack of such marketing effort as “allowing unsupervised buyer thinking”).  The parallel with HP’s CloudStart initiative is to reduce the customer thinking required to make implementation (and thus purchase) decisions for cloud computing.  Guiding geeks to glory, if you will. SalesForce.com did this amazingly well with sales people and CRM, making their discovery, learning, trial and acquisition a snap, despite their perpetually intoxicated states.

The marketing lesson herein is to stop spewing text and data on web page after web page, and start leading buyers by the nose through the paths of discovery, education trial and adoption.  Rent a passel of prospects and watch them as they walk through your materials, and wherever they stop or have a question, fix the problem that caused it, even if it is in the product itself.  Focus on eliminating friction, diversion or rejection.  And if you sell a complex product, build a selling tools that guide buyers through the same process at lower levels.

And buy your IT geeks another case of diet Coke.  Seriously, they’re putting on weight being locked and chained in the server room like that.

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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. 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.
2. 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.
3. 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.
4. Market definition: Once established, understanding the broad market and all the segments therein allows growth planning, which leads to long-term product planning.
5. 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.
6. 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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I opened a box of Cracker Jacks and the toy prize was a cell phone.

Not a smart phone, but a commoditized flip phone that handled voice conversations, kept a contact list and something that resembles a calendar.  A cell phone so fancy that two decades ago we would have taken a human life to obtain one, but today is so feature free that we might give it to a child so some day he can tell his kids how hard he had it.

Markets change constantly, but often products change faster than the markets that support them.  Take the cellular carrier market … please.  Given that the domestic customer base is saturated, carriers are in a constant struggle to keep customers locked into their networks and find new streams of revenue.  Yet they must also help finance your newer and more sophisticated cell phones in order to bring you (back) into their fold.  This is why a $600 smart phone costs you only $200.  The carrier makes back the money they spent on your handset by getting a guaranteed two years of revenue from you via the contract you signed.  Expanded continuing revenue also partially explains why they charge a mandatory network data fee for the newer and fancier phones (that and they want you to grow addicted to having data on demand 24 x 7 x 365 x everywhere and thus in the future perceive it as a necessity and not a luxury).

Despite a slate of new monthly charges for owning a cell phone, the industry has not changed much in decades.  Carriers subsidize handsets, pads and slates, earning their money on the backend.  This creates competition between hardware makers to gain favor and deals with carriers who erect barriers to customers using unlocked phones.  This game is fixed and the carriers are not interested in changing it much.

Which is why Google is breaking the system.

Anytime all competitors are content with the status quo, a great marketing strategy is to break the status quo.  We disreputable marketing types call this changing the rules of the market.  In a mature market you can gain first mover advantage by changing the rules.  The problem is that the more complex the market, with incestuous economics, numerous players and relationships, changing the rules is non-trivial.  Despite making a lot of cheap unlocked phones possible, Google found that Android by itself could not break the carrier subsidy model.  The carriers want money, and are unwilling to relinquish any tool that have for making more.

So Google is breaking the system in smaller chunks.

The hot part of the mobile market is apps.  Apple has a 3-to-1 advantage over Android in the apps department, though many of Apple’s 200,000 extra apps are of questionable commercial value.  This temporary Apple advantage is an Achilles heel since, from a functional level, Apple doesn’t offer much over Android.  Breaking Apple’s status quo of being an app leader is as important as getting more Android phones into people’s hands (though at their rate of growth, Android phones may dominate the market before the 2012 presidential election is over).

Google is breaking the system by changing the revenue model.  You know, that thing that is so important to the carriers.

According to reports, Google may share app revenue with carriers.  Currently carriers get glitch from the roughly $75M Apple earned from apps (another $175M went to developers).  With smart phones making about 5% of the market, this small-but-growing-like-a-virus market means real money down the road in just raw app sales, not to mention in-flow revenue opportunities.  Currently, Apple’s app share would contribute less than 2% of AT&T’s wireless services revenue, but 2% now beats 0%, and once smart phones make up the other 95% of the cell phone market, that number rises to 35% of services revenue.  Multiply this again by the growing roster of apps and their usefulness (sans meowing cat apps) and app revenues may well rival service revenues for the top-line.  Now multiply this revenue engine with pads and slates, many new flavors of which arrive this holiday shopping season.

Non trivial treasure.  Google knows it.  Verizon knows it.  AT&T knows it.  Apple knows it.

Given this new revenue stream, carriers have motivation to promote Android handsets.  Since they will be able to buy such handies from everybody (Motorola, HTC, LG, Demented Dave’s Cellular Designs, etc.) they in turn will focus on promoting the Google/Android brand as opposed to any specific manufacturer’s product.  By breaking revenue model, Google is also breaking the partner loyalty model, another Apple advantage.  AT&T may still sell iPhones … to 5% of the market.  They will sell Androids to the other 95%.

Several marketing lessons are intertwined herein:

1. First, in any market where partners own the customer relationship, odds are they will not give it up (i.e., allow unlocked phones to cheaply enter the space).
2. When partners have a lock on the end customer, you have to help partners make money.
3. If your competitor owns the partner relationship, you have to find ways of helping the partner profit that also hurts your competitors (in this case, robbing Apple of their app and partner-promotional advantage).
4. If the market ain’t broke, break it.

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“There is no market there,” I said to the entrepreneur, who left in a huff.

Sure, I might have been wrong, but that is unlikely.  The entrepreneur may be one of those storied Silicon Valley visionaries whose acute sense of the needs of certain buyers is so profound that he soon will buy a small third world country with his spare change, but that is just as unlikely.

The first need every company has is a market.  The first question is always “does a market exist?”  After all, without willing buyers no amount of product design, cost reduction, hard work or plain dumb luck will make a company successful.  This then brings to the fore the nature of identifying viable markets, a task Silicon Strategies Marketing routinely performs for our clients though we have to deliver bad news more often than we like.

There are two primordial paths to market conceptualization:

Intuitive: An organic process whereby an individual or small team acquires via passive absorption insights into buyer needs, market gaps or pervasive trends that create a “Eureka!” moment.

Quantitative: Process where measurements of market dynamics, buyer expected outcomes and competitive pressures show available product opportunities and positions.

The two are not mutually exclusive.  Visionaries should (though rarely do) commit to quantitative analysis to confirm a viable and profitable market exists for their vision.  Jobs and Wozniak likely did little market dynamics research before presenting their bosses at Hewlett-Packard a notion about personal computers.  They had a vision about desktops and found ways to make that happen.  Steve Jobs is still in that line of work – visualizing things that ought to be (except Adobe Flash).  Other founders have a vision, but gather market research to keep from burning through grandma’s retirement money on a wild scheme.

Quantitative market identification lacks the visionary aspect.  It is a top-down, numbers focused examination of what is occurring in market places to identify what is missing.  I recently conducted research for a company specifically to identify what they and all their competitors had missed – where the market wanted something that had not yet been conceived (and it looks like we found it).  Quantitative market identification is science while intuitive market identification lies between the brain and the soul.

For start-ups seeking funding, one is an easier pitch than the other.  Put yourself in a VC’s richly appointed leather chair and imagine a young Jobs-like visionary pitching a previously inconceivable notion about a computer in every home in an era when a lot of home didn’t have a television (back before satellite dishes became the official West Virginia state flower).  Tough sale?  Yes, unless you had market surveys that showed the number of potential customers, their price sensitivity, and a marketing ROI plan, in which case a VC might break a finger trying to write a check fast enough.  Conversely, if you identified your market via quantitative means then you might not need or want to dilute your shares just for VC cash infusion.

Let’s take two examples.  Apple was a visionary approach.  Jobs and Woz saw a market though there was likely very little in the way of structured market research that did (or could) substantiate the future of desktop computing.  It took working at HP and Atari and hanging out at a computer club for them to triangulate a future nobody else could.

Though I have no inside information, I suspect SeaMicro – who came out of stealth mode this week – had a quantitative epiphany.  They basically reinvented servers by challenging all the assumptions about those boxes.  Examining how servers are used and how they are inherently inefficient, the SeaMicro founders likely justified revising corporate backbones by looking at market realities, quantifying demand and ROI, then designing a machine based on merging trends in technology (low cost, low wattage CPUs) with trends in demand (virtualized server farms) and customer-side cost/benefit analysis.

The best path may be the validated visionary approach, and hence the one most often practiced.  Vision is an odd creature – not everyone has it.  Yet people who are subjected to a specific market day in and out, who see data or hear what buyers have to say have their vision because they have non-quantified analysis.  Visionary risk is reduced by quantification.  Quantification can also eliminate the need for visionaries.

The marketing lesson is pretty simple:  Vision is great but has huge risk.  But don’t let risk detour you.  Be smart enough to reduce the probability of failure early on in your start-up by quantifying what you are making, for who you make it, why it matters and what it is worth to the buyer.

Now that’s visionary!

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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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