Marketing Memos

Advertising is only part of Google’s gain with mobile phones.

Much has been made about Google’s mobile advertising potential in deploying Android, their free Linux-based mobile operating system. Google will indeed make a(nother) boatload money through advertisements on cell phones. But this is only part of the Google strategy. The other components should worry competitors more.

Let’s stipulate a few things in order for the market dynamics to be clear:

• Mobile devices are the prophesized unified communications portal (servers be damned).
• Due to constant availability, mobile devices will become the first option for most people for discovery and use of information.
• Unifying the end user experience while roaming and at the desk creates commitment by the customer/user.

Therein lay the competitive threat from the G-Phone. For years now Google has created end user services (search, maps, photo galleries, office apps, more). The services are generally cost free for the users. These applications have mobile counterparts and most (soon all) are bundled on G-Phones.

In other words, Google built the backend to mobile services before offering mobile phones.

Contrast this with Apple and the occasionally-on Mobile Me. Apple delivered a fancy handset and later added server-side applications that crashed often enough to cause the news media to suspend their Apple Adulation long enough to question if massively scaled server operations were Apple’s forte. Alternately Google has built an empire on centralized services and now is creating the mobile experience to extend it.

Sure, Google gave away mobile apps all along and you can run any of those apps from nearly any mobile handset (thanks to Google testing those apps using the services of another Silicon Strategies Marketing client DeviceAnywhere). But Google prioritizes access to these applications by bundling them onto G-Phones. Since the unit cost to handset makes for G-Phone system is zilch, handset vendors have a great incentive to adopt Android, put G-Phones in the hands of their customers and thus make Google apps the defacto mobile standard.

Slick.

Now here is where things get a bit scary … scary enough that the Federal Trade Commission will eventually investigate. Once enough people adopt Gmail, Google Office, Picasa, etc. for their application of default, Google track almost every moment of your life (turn off the cell phone camera when you and your sweetheart go to bed). Google will have a direct intelligence spread superior to the U.S. government.

Perhaps the CIA will be more interested in Google than the FTC.

Google has executed a classic blocking maneuver that will feed their core advertising business. By making mobile and desktop a contiguous environment they drive a wedge between users and all application competitors. All things being equal, who wouldn’t want to use the same apps in the office and in a restaurant? Microsoft can’t compete because they won’t give away Window’s Mobile to handset makers or port mobile apps to non-Windows handsets. Symbian will not compete as there is no central server backbone for applications.

Slick.

After the markets finish sinking, buy Google. Their mobile advantage will take Google stock even higher.

Bookmark to:

Sometimes the only way to win a market is to break it.

Markets tend to stagnate. Solutions become entrenched due to offerings being well understood and being good enough. To enter such markets with the same class of product is an elegant and expensive form of corporate suicide. When faced with such situations you need to invent products and services that not only add value but shatter the current market precepts.

Think of Genghis Khan as a new and different product and the Xia Dynasty as the established market.

Call it creative destruction or disruptive technology. The marketing principle at play is that offering the same product as everyone else means you offer nothing at all and that you will eventually compete on price. That is the definition of a commodity and that is a lousy way to make a living.

A case in point of shattering a stagnant market is the start-up Security Mentor. Long ago (when I was young and Taft was in the White House) I was a designated security officer for a classified computing facility. Part of my job entailed educating a small squad of computer users on secure use of systems and data. Quarterly I would conduct all-hands briefings which mainly consisted of reminding them not to do stupid things with classified data and alerting them on new dangers (for example, 3.5″ floppy discs became available during my tenure, and the ability to smuggle data out of a building in one’s shirt pocket became a real issue).

Today enterprises are doing much the same thing. They hire security consulting companies that make periodic visits to conduct mandatory seminars. Employees typically learn dozens of security tips, remember one or two, then proceed to forget the rest and in the process expose their companies to financial ruin.

Clearly there is room for improvement, but the current vendors — the security training firms — do not want to break the mold. Face-to-face training is what they know, where their experience lies, and frankly it is the only way they know how to make a buck.

Enter Security Mentor, a company prepared to disrupt the status quo. In examining the security training market, they saw some fundamental weaknesses:

• Recurring expense (repeat training sessions)
• Lack of sustainable value (employees forget what they are taught)
• Lack of consistency (instructors change)
• Lack of validation (did the employee learn or did they sleep through the class)
• Lack of reinforcement (no repetitive exposure to education)
• Disruption of employee work routine to attend classes

The market status quo is crummy.

Security Mentor did what I call a Circuit City Shuffle. Long ago (when I was young and you could buy a new Hudson automobile for $500) Circuit City discovered and may have perfected the market disruption process. Then known as the Wards Company, they surveyed to discover what consumers hated about buying televisions and radios. They got an earful — limited selection, lousy repair services, mom-and-pop retailers with high prices and on, and on, and …

The situation was so bad I’m surprised Milton Berle didn’t starve to death from lack of viewers. So Circuit City engineered each of the negative aspects out of their operations, added a few new values, enchanted consumers, built a strong brand and became the darling of the New York Stock Exchange for a long time. They then repeated that processes with the used car market and invented CarMax.

Security Mentor has done something similar. Their product delivers automated security training in small chunks suited to the time-crunched work lives of the typical employee. These security snippets are delivered with a frequency that keeps security at the forefront of each employee’s alleged mind, unlike quarterly trainings that allow the urgency of security awareness to dissipate between torture training sessions. Recurring topics and tactics in security also reinforce and make permanent the security lessons, much the same way as repetitive advertising on television keeps inane product jingles in your brain 20 years later (Hold the pickle, hold the lettuce, special orders don’t upset us). And being web/Flash based, there is the ability to capture records on which employees have failed to view their requisite security training content and tack corrective action.

Like Circuit City and CarMax before them, Security Mentor has analyzed a market, itemized the weaknesses therein, built a product that eliminates all those weaknesses and adds some new value as well. This is a structured approach to breaking into a market and one that greatly enhances their probability for success. From a marketing strategy standpoint, their product design process is superb.

Bookmark to:

Well, that didn’t take long.

Assuming that rumors based on odd leaks are at all accurate, Microsoft may have learned that their Vistas are limited, and that certain competitive pressures cannot be ignored.

Microsoft has heard the market concerning XP’s expiration. It would be hard to ignore this considering that the market has been screaming at the top of its collective lungs. Though covering their mistakes in much the same way that cats do, Microsoft has agreed to let XP live on until 2010. Microsoft claims that only XP Home will be available on “low-cost” PCs. The definition of “low-cost” is vague and gives Microsoft both wiggle room for defining which computers are allowed to ship with XP preinstalled. It also allows for some leakage of this preferred OS into the gray markets and to force Vista onto beefy machines and protect what is left of their brand image in the PC OS market (an image that Apple has successfully trashed).

The new 2010 XP expiration date is more than coincidental. Windows 7, the next Microsoft OS, is expected to be released that same year (of course, given the delays in Vista’s arrival, we should assume 2010 is optimistic). Assuming that Microsoft is learning harsh lessons from their blunder (Vista), this timing allows them to extend XP availability and deter defections to Mac and Linux until a better Windows is available. After all, the switching cost to Mac or Linux is non-trivial.

One of the defects of Vista is its lack of modularity. The monolithic, out-sized kernel and the inbred stack keeps Microsoft from reacting quickly to market changes and providing real and valuable new features. Linux has a tiny kernel and since all functionality outside of the kernel is modular, you can add just as much extra capability to Linux as you need. That is why Linux is rapidly finding its way into embedded devices. Macs are based on UNIX and Apple took the same modular approach. We see Apple releasing updates to their OS much more frequently that Microsoft (major earthquakes come slightly more frequently than Microsoft operating system releases, which means there must be some mystic connections between all forms of disasters).

To understand the marketing downside of the non-modular Vista approach, consider two markets: minimal laptops and servers. Vista’s only claim to fame is the new GUI (which a lot of people hate). The GUI requires a lot of overhead and most of it seems to be baked into the kernel. Thus Vista is not good for minimal laptops and forces laptop buyers to purchase a much more powerful and pricey system than they would otherwise. As for server administrators, they don’t need, want, or crave a sleek and consumer focused GUI — they would gladly rip the Windows Presentation Foundation out of the box … if they could.

Contrast the recommended systems requirements between Vista Premium and Linux. 1GHz vs. 0.4GHz processor, 40GB disc vs. 7GB, 1GB vs. 0.25GB memory.

Microsoft evidently is feeling the pressure. Rumors about Windows 7 indicate they are moving toward a more modular architecture, nicknamed MinWin. Some of the rumors indicate the kernel might consume as little as 40MB of memory, which is hefty compared to some competing operating systems, but surprisingly lithe compared to Vista and well within the specification of low-end machines.

More importantly, it allows Windows 7 to swap non-kernel components to meet the specific needs of different users (imaging swapping the entire GUI without a reboot). Recall that Linux is rapidly becoming the OS of choice for embedded systems. Little wonder considering you can make a Linux footprint incredibly tiny and bolt-in only the services and applications necessary. A Vista kernel can’t compete and this forces Microsoft to offer a completely different operating system for the embedded market.

The Windows 7 kernel switch allows one Microsoft OS to be embedded, run without a GUI on servers, on low-powered micro laptops, desktops and high-end game machines … and all on commodity hardware.

But that’s not the god news for Microsoft.

Linux runs on everything. On ARM-based cell phones, x86 boxes, x64 machines, PowerPC servers, and IBM mainframes. Vista runs on WinTel chips. This dichotomy is a tribute to the Linux micro kernel approach.

Could Windows 7 run on a mainframe? On an IBM mini? On a SPARC machine? On an ARM?

Bookmark to:

Carly Fiorina’s time at Hewlett Packard and Louis Gerstner time at IBM proved that decentralized management of product lines in a large company is the only sane management strategy.

Lou took an ailing and heavily centralized IBM, and saved it from extinction by decentralizing its product categories. Carly took a healthy, decentralized HP and tried to kill it through heavy centralization.

Now AOL, the perennial poster child for developmentally disabled technology, has seen the light and is decentralizing (while some of their executives face jail time) .

AOL — which lost the ISP wars by failing to add value in broadband, and whose Time Warner appendage lost the portal wars by failing to provide appetizing content — is now decentralizing their content components to the point of debranding — jettisoning the AOL name. Given the tarnished AOL brand image, debranding their targeted web properties is essential lest the fractured pieces of the empire carry the lingering stench of failure.

AOL is creating new — and re-branding old — web properties that are largely devoid of any reference to the centralized AOL moniker. By making each web property (product) a separately branded entity, each site can create its own identity and appeal to highly targeted markets. This amplifies the appeal of each, making the properties stronger.

(This is a lesson Yahoo may take to heart - weakness in one business may create a weak brand image for all other components. Hence Yahoo’s reluctance to be acquired by Microsoft lest Yahoo products suffer even more brand debasement.)

Herein is where branding in large organizations is problematic. If one or more products/divisions are strong, there is the potential for that brand strength to carry into the other divisions. For example, HP’s strength in printers has led many people to buy their often unreliable laptops.

But the reverse is true. I used to manage large HP data centers, and had problems with their proprietary MPE operating system — for a while it crashed too frequently for mission-critical work. During that period I rushed to visit a relative in intensive care, and I was not happy to see her hooked-up to a number of HP medical monitoring devices. The weakened MPE brand created in me a negative prejudice for their medical products.

In web properties — where the subject matters presented on a web site may be audience specific (say teenage boys vs. geriatric women) — decentralized branding is essential. Contrary to common belief, segregating the brands does not eliminate potential synergies.

Take SourceForce.com (formerly VA Software) who has a number of technology industry web sites, on which they sell a ton of advertising. They reap significant synergies from different web properties that have at best sporadic cross traffic. The branding needs for their IT manager’s web site is very different than their Linux junkie web site.

Take two of AOLs newly branded properties — Asylum, a site for young men, and WalletPop, a site devoted to personal finance (a topic with which young men are largely unfamiliar). Pulling both of those under the torn AOL umbrella would do neither property any favors. But allow each to tailor the entire brand to their members is favorable … and thus smart.

The marketing issue here is multifaceted. First, you must decide if there is any real cross-over between the product areas. If so, a unified brand might do you some good. If there is no cross-over, then odds are the unified branding will not help in the slightest and may actually hurt.

Second, does the parent brand offer any specific advantage? HP has a strong overall technology brand, and it generally helps all of their product categories. AOL does not, and thus the AOL brand may hurt the individual web products.

Finally, top management has to have the strength to let go. Decentralizing and allowing subordinates make both strategic and tactical decisions about the decentralized products and brands takes guts. But the bigger and more diverse your company is, the more important decentralising will become.

Bookmark to:

I recently gave a talk at the Software Licensing and Marketing (SLAM) conference where I painted a dower and gloomy picture for technology marketing this and next year.

Seems I may have been overly optimistic.

Though not yet officially proclaimed, we are in a recession. If my wet cocktail napkin math is any good, we will in this recession for quite some time — well into next year. Oddly though, in the earliest quarters of this recession some multi-national tech companies (Oracle, IBM, etc.) reported amazingly good sales growth.

And this will be a short lived phenomenon as the recession spreads.

Dig into their numbers. For example, IBM recently reported an 11% sales growth. But if you subtract the effects of the falling U.S. dollar, IBM’s sales grew a mere 4%. Granted, any real growth in the early part of a recession is a Good Thing™. But for an industry giant like IBM to slip to a 4% growth rate indicates the beginning of a downward slide.

That recessionary slide is going international.

We live in a global economy. Unlike any other time in human history, a major change in fortunes in one locale will impact economies everywhere. Thus tech companies that are currently doing well abroad will soon not be doing so well anywhere. The temporary influx of cash will rapidly diminish as the dollar finds a floor and the U.S. recession spreads like an Asian flu.

Satyam may be the leading indicator.

Satyam has routinely experienced growth rates of 45% or more a year. But for fiscal 2009 they recently scaled back their expectation by 40%. And this is a preliminary pull-back and will get worse. With oil inflationary pressures raging unabated, with Europe and the Americas reducing corporate spending, and with hyper wage inflation in India, the situation for Satyam is likely to get darker than a certain hole in Calcutta.

For tech marketeers, this means the number of recession survival options is dropping faster than a college girl’s top during Mardi Gras. U.S. is down, Europe is pulling back, and now Asia is sliding.

What makes this period exceptionally worse for tech is that we are at the end of one of our industry’s very predictable cycles. During good economic times customers go on buying binges, acquiring all forms of new technology, including stuff that they don’t really need. The market then goes from this binge phase to a period of technology indigestion, where customers quit consuming and try to integrate everything they have bought.

The current indigestion phase has arrived at the same time as the recession. Ouch!

Expect to see a lot of small tech companies with promising wares to be gobbled-up in the coming year. Many will simply die, but others will find acquisition exits to avoid becoming corporate corpses.

For the rest of you, Silicon Strategies Marketing has some tactics and strategies for surviving a recession. Give us a call and write us a check … we’ll be glad to help.  There may be a recession, but we have decided not to participate.

Bookmark to: