August 10, 2010
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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:
- 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).
- When partners have a lock on the end customer, you have to help partners make money.
- 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).
- If the market ain’t broke, break it.
July 13, 2010
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I love it when people don’t get it – it means the market is ready to shift.
 This week the geeks at Google released a gizmo that lets average people create Android apps via a brain-dead-simple user interface. The reaction from the technical community involved hysterical laughter, deriding the tool and the alleged limitation of the applications it could craft. Uniformly they snickered noting that while Apple’s App Store is loaded with professionally honed software downloads, Google was encouraging point-and-meow apps. They used the news to lambaste Google’s Nexus One handset, which had a short life before cellular carriers started selling their own Android handies.
The technical community doesn’t get it, which means the market is about to shift.
Nexus One and the Android App Inventor served similar purposes, namely market seeding. Android was a relatively new entrant into the handset OS market, and going up against Apple, Microsoft, RIMM, Symbian and other established players. Adopting Android presented a risk to everyone – handset makers, software developers, carriers and consumers. In order to reduce risk and encourage experimental adoption, Google needed to get a handset into people’s hands. Thus they conscripted HTC to build One that showcased Android (and HTC was smart to exploit the opportunity to showcase their design and manufacturing capabilities). This assured that developers, early adopters, carriers, analysts, reporters and even competitors saw what Android could do and in turn created both desire and FUD in the market.
Google used Nexus to move Android past a market hurdle.
Apple’s most significant remaining advantage in the market is its app store (face it, Android, Symbian^3, WebOS and maybe even Windows 7 mobile-whatever-they-are-calling-it-this-week have similar/identical/good-enough capabilities at the OS level). Apple app richness is a market hurdle. To get past that hurdle requires people believing that Android is a good environment for which to build apps (and given how well the durn things are selling in the East, Asian Android apps is a redundant phrase). Android App Inventor is a simple tool for creating apps, and is the Nexus One of applications – it exists to reduce risk of discovery, and as a side effect, maybe cause a user to instigate the next great idea for an mobile application.
The reason misreading the intent of an event is an indicator of a market shift is that those slinging misguided rhetorical missiles are those of inert thinking. When conventional viewpoints prevail, unconventional thinking succeeds. Google recognizes the app market hurdle while various tech industry pundits don’t. “The goal is to enable people to become creators, not just consumers, in this mobile world,” was how the Android App Inventor project leader phrased it. “I think Google’s App Inventor tool that enables anyone to program an Android app could be profound,” opined one wag.
The unconventional thinking here is the same that drove social networks. People, the unruly bunch that they are, have more net ideas than all the professional developers combined and raised several orders of magnitude, then multiplied by the number of interns politicians sleep with (that last item being a truly staggering sum). Any of these end users may never perfect an app, but they will invent more apps that Steve Jobs has in his digital wet dreams. Android App Inventor unleashes imaginations.
The best parallel I can recall was Borland. In the early days of MS-DOS, a compiler cost a couple of thousand 1980’s dollars. Borland put Turbo Pascal onto the market for $49 and every two-bit hack started writing applications. Borland and shareware marketplaces, not Microsoft, made MS-DOS successful. Rough hacks created by hobbyists were hijacked and converted into mainstream applications. Android App Inventor follows the same path, taking it one step further by putting programmer power into the hands of every man, woman, child and highly functioning dog (though congressmen are still not yet advanced enough).
Android App Inventor is a game changer. The pundits just don’t understand the game.
June 22, 2010
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I love technology fads. If I could just think of a way to profit from the inevitable failure of enterprises trying to implement them, I could retire … to my own private island.
Social networking is more than a fad, though the surrounding hype makes it sound like one (with the possible exception of Twitter, a fad that I hope will fade fast). Social networking serves a real purpose, namely uniting people who have common connections. Facebook facilitates all types of unions from the common to the outrageous (if you can get jihadists to threaten you, then you know you have some power in the world). The secret to social media systems is that they let people decide what common connections are important and that do not occur through nominal daily activities.
Which is why most corporate social media experiments have been misguided wastes of your bonus check. Corporate life is all about getting people with common purpose together – even sales and marketing, though the bloodshed between those camps makes cleaning up conference rooms an added expense. Social networking applied to corporations has few benefits because it lacks a real purpose that isn’t already being met. While judging entrees in last year’s CODIE Awards, I was subjected to a number of enterprise-focused social networking suites that in practice produced no benefits for the enterprise or its employees. They were, almost to the last, mere playthings without tangible end-games.
Which is why Connect2health is a delightful departure (full disclosure: Private Social Networks, the makers of Connect2health, is a Silicon Strategies Marketing client).
Connect2health was designed to achieve specific things for a specific market, which according to the units-squared principle means that Connect2health is already four time more viable than any other enterprise social networking suite. Specifically, Connect2health is designed to help hospitals grow communities and thus create marketing opportunities and control brands. Hospitals – at least those in major metropolitan areas – compete, and they know that creating and exploiting a lasting brand is difficult. Sure, Kaiser Permanente knows how, but they have been mastering the trade for ages, they have more money than Moses and can establish for themselves almost any brand (except that of being the low cost provider).
When getting into the private social networking business, Private Social Networks decided to pick an industry that had a demonstrated need, apply social networking mechanics to customers in that industry, and find ways of having the product fulfill business missions. Stated succulently, Connect2health helps hospitals connect patients, families, friends, doctors, nurses and administrators online together with the express purpose of centering healthcare around the patient. The backend that excites hospital management is the ability to market to the patients, their families, their friends and everyone else who connects into the application. This amplifies and targets hospital outbound marketing, inbound talent, and for the non-profit hospitals, donations.
More importantly though is that by creating long-term customer connections, in an industry that normally connects only for the duration of hospitalization (and the funeral if it is a lousy institution), this is a brand defining tool. Patients bring in new people, demographic profiles develop, connections are kept long after patients are discharged, and the hospital (who owns the data) can continue to establish and expand their brand to these people.
Where enterprise social networking plays have gone astray was not providing concrete benefits. Most of the vendors in this space talk in vague generalities about “synergies of connected teams” and other effluvium written by junior marketing people who have never had P&L responsibility. Social networking companies that identify and address specific needs of specific industries and create specific payoffs will make some serious cash. Expect to see some players become “specialists”.
That is if they can keep up with Private Social Networks. Hospitals are only the first segment in their sights.
April 28, 2010
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Just keep reminding yourself that Compaq was an odd deal too.
Today Hewlett Packard palmed Palm for whopping $1.2B, or about 1/10th of HP’s petty cash. This was newsworthy for many reasons including the fact that Palm’s struggling handset line will now join HP’s struggling handset line (bet you forgot that HP makes cell phones – so did the rest of the market). In a world where RIM owns the corporate market, Apple owns the consumer market, Microsoft hasn’t helped HP’s market, and Google/Android are changing the rules of the market, this marriage seems slightly more absurd than half of Hollywood hook-ups.
The deal is not without upside. First, the market for mobile is not yet saturated. Especially on the low end, there is plenty of green field. As unlocked handsets become more prevalent and popular, HP can use its retail savvy to shove cell phones into public ears. I can almost here the cashier at Wal Mart saying “Would you like some printer cartridges with that?”
Interestingly, Todd Bradley is a top executive in HP’s Personal Systems Group and was also a former CEO of Palm. In announcing the acquisition, Bradley noted that Palm had a lot of intellectual property, some 1,650 patents. These alone might be worth the acquisition as it allows HP to license and monetize the investment, or choke the life out of competitors. HP is not immune to litigating, though it is not their forte.
Otherwise the only item Palm brings to the table is a mobile OS, one so innovative and exciting that the market didn’t even bother to yawn. In an industry where driving component cost down while improving the user experience is 90% of the battle, incorporating the Android OS makes much more sense, as recent mobile market share data shows. Some speculate that HP wants a private OS to spread across handsets, slates and device types to be named later. But buying Palm for this is like buying a deceased nag to run the triple crown.
Odds of winning are about the same.
All in all this appears to be an insider deal, were former Palm executives working in HP are overly optimistic about alleged synergies and product potentials. But as far as technology companies go, HP has successfully merged other entities and made a buck or two. The Compaq merger worked despite many misgivings (I had my doubts, but the dual brands and economies of scale in standardized PCs let HP take top honors away from Dell). But HP has had its share of acquisition and partnership failures too (DEC via the Compaq deal is nothing, and outside of HP-UX nobody uses Itanium, much to Intel’s chagrin).
From an outside perspective, the market dynamics look oddly promising. The smart phone market is growing at nearly a 40% CAGR clip and mobile data is almost the new norm. But smart phones as a percent of all cell phones are still relative small –around 10% of all handsets according to some 2009 data and projections. So perhaps HP is merely betting the long game – that by acquiring Palm and getting WebOS in shape, HP can catch the break of the new wave.
The problem is that HP needs to add something that the competition has not or cannot. Palm has failed, and HP’s mobile bread is currently buttered by Microsoft, who is losing market share faster than Steve Ballmer is losing hair. Assuming that HP cannot add magic (and, face it, they don’t do that very often), then they will have to compete on price. Perhaps Palm’s IP combined with Compaq’s mass manufacturing prowess will shove deeply discounted smart phones into the market. Given the bargains you can get on consumer edition HP and Compaq desktops and laptops at every office supply store on the planet, this might well be where HP is heading.
There is no marketing lesson today. Just stunned wonder.
UPDATE: Perhaps I spoke too soon. HTC announced that they are going to run and run hard with Android in an attempt to saturate the smart phone market. They have a head start and will likely beat HP to the wave crest. The marketing lesson is that if you see a hot mass market ready for exploiting, so do your competitors. If they have a faster and cheaper approach than you, expect to lose.
January 28, 2010
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Oracle, as always, has a good game plan, though they have not thought out everything under the Sun.
I attended Oracle’s outbound communication extravaganza concerning the completed swallowing of Sun. In the time from initial purchase to the final approvable by European Union regulators, Oracle has been busy deciding what parts of Sun to keep (pretty much everything), how to integrate to company (interestingly) and where to create real market value (specific). In an event short on surprises – unless Larry did something quirky, which I missed by having to leave early – OraSun changes the game, which is the entire point of marketing.
Aside from seeing “Sun” positioned over “Oracle” on all the event branding (the last time this will undoubtedly occur), the basic market strategy of the merger can be summarized as “We are your IT hub, we are specializing the center of your operations, and don’t look at that man behind the curtain labeled ‘cloud computing’.”
The first and recurring OraSun gestalt was that Ellison owns a stack, from iron to apps. They are not kidding either. Ignoring technology religion, Oracle now provides a solution for servers, storage, virtualization, middleware, databases, applications and the management of the two major strata (systems/apps). They may have nothing in the networking realm, but they will next year when Oracle buys Cisco (that was a joke, but I heard you gasp).
This is an interesting turn of events. As one OraSun exec noted, the IBM of the 1960’s offered head-to-toe solutions, insinuating that Oracle was the IBM of the new millennia. Given how close to financial death IBM came to in the 1980s, we should add an Outlook entry for 2030 and retake Oracle’s financial pulse.
History is its own recycling bin.
OraSun’s marketing strategy is to be one-throat-to-choke for the hub of datacenters. They rightly recognize that mission critical work is both ill-suited to cloud computing and that by tightly cross-tuning the OraSun stack, they will create a market domineering solution set. Much of OraSun’s presentation spun tales of how the database, Solaris, SPARC and flash-enhanced storage are being co-designed. The end goal is to assure that the OraSun stack is inarguably the most technologically effective data hub. HP can’t compete as their Itanium solution is rapidly evaporating and their database offering almost isn’t. IBM has a shot, but with fat margins in services, declining acceptance of DB2 and a post-Gerstner reluctance to centralize authority, they likely will not challenge the throne.
OraSun positioned themselves very well.
Oracle’s (wo)men in black – black suits and white shirts were the corporate executive uniform – repeated the manta of removing the systems integration task from the datacenter. Oracle’s messaging was pointed like a revolver at CIOs and CTOs, claiming that systems integration is a major headache for these folks and that no other vendor offers all integrated points. Granted, Oracle artfully ignored some plumbing products necessary to even a data hub (routers and network management), but their point was compelling assuming that the top of the stack – applications – met customer needs.
One OraSun spokesperson was somewhat defensive on the subject of cloud computing. Obviously Oracle understands the issue and also understands that they do not have a clear market advantage at present. He struggled with the concept of saying “grid” computing is “cloud” computing before tossing up a hit-piece slide on VMWare, which does own the cloud space. For now it will be an uncomfortable stare-down: OraSun is willing to own and dominate the hub of the data center on specialized Sun hardware, and let VMWare handle less-critical cloud computing with generic hardware.
For now.
Since OraSun gives away virtual machine solutions, they have the ability to buy cloud management tools that lost to VMWare and integrate those into OraSun systems management utilities. After Sun is completely integrated into Oracle and together they dominate the datacenter hubs, expect Larry’s Legions to make a cloud play. The market exists, is important, complements OraSun’s virtual desktop products, and is acquirable. OraSun is merely talking-it-down for the moment.
Heads-up VMWare: Larry will gun for you next.
The prelude is a hiring binge. OraSun is vacuuming the salesperson market and adding 2,000 head to their global sales squad. Ellison understands his “unified stack” position in the market is unique but not impenetrable. Alliances will be formed and cloud computing offers some alternatives to raw central-server and grid approaches. OraSun’s mission is to move as many customers to their combined solution as quickly as they can, because the switching cost of disengaging from a stack as complete as OraSun’s will be huge. Lock-em’ in rapidly while working out the cloud initiative, then dominate the remainder of the datacenter market.
OraSun’s wildcard was not as wild as expected. No real news was released about MySQL aside from OraSun integrating controls for their infrastructure management tools into the almost universally popular and largely free DBMS. This is less of a commitment than a loss leader. MySQL has invaded the enterprise in much the same way as Linux did. It is not ready to be in the mission-critical hub, but it needs to be managed more effectively than most current tools permit. By adding MySQL to the OraSun infrastructure management suite, Oracle is blocking alternatives and thus avenues of escape for customers.
From a marketing standpoint, Oracle shows once again that old lessons should not be ignored. They have taken the enduring one-throat-to-choke market demand and amplified it. CIOs – aside from the rightfully paranoid ones – will be hard-pressed to argue against adopting Oracle. Marketing is first and foremost about identifying and satisfying needs, and OraSun is aggressively doing just that.
Let’s see if the scheme works. Oracle likes buying successful companies, but Sun was nearing fiscal death when Larry swept in. Larry’s also trying to buy one of the worst basketball teams on the planet, so maybe he has simply run out of good investments.
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