Marketing Memos

You would think IBM might learn from their own experience.

Organizational structure is strategic by nature.  How an organization is arranged influences other strategy, such as marketing and product development, and thus a whole host of daily activities and tactical initiatives.  Who your boss is and what her objectives are determine what you will do, such as replacing her coffee with decaf in order to encourage afternoon naps and thus allow you to get some real work done.

IBM almost went bankrupt due to their organizational structure, as their former president and resident cookie monster Lou Gerstner confided in his book Who Says Elephants Can’t Dance? Given their early and dominant lead in mainframe computers, IBM developed an organization structure that made the mainframe the center of their universe.  Everything IBM did evolved to support sales of mainframes.  When the minicomputer revolution ignited and UNIX (the original computer virus) escaped its petri dish, IBM’s intellectual inbreeding disallowed agility.  Their organization structure –software was subservient to hardware – made even suggesting alternatives heresy.  Though Gerstner did many things to disable IBM’s dementia, the single most important one was to decentralize and make all IBM divisions profit centers.

Nothing like sinking or swimming on your own to make you dog paddle furiously.

Recent IBM news should thus be disheartening to investors.  Organizational shuffling has merged software and hardware units together, with software being the overlord (and if a forced marriage was wise, software should be the top given market trends toward commoditization of hardware).  Two services divisions – technology and business – have also become conjoined twins, with tech services being the bigger brother in that particular carnival sideshow. In a statement almost copied from every start-up’s venture capital pitch, IBM’s CEO said “There are logical synergies across our services units, including the increasing value of leveraging our intellectual property in business process management and transformation projects for our clients.”

Stockholder should be scared when a CEO’s press release is littered with cliché buzzwords like ‘synergies’, ‘leveraging’ and ‘transformation.’

Granted, these internal mergers are not completely reflective of the old IBM.  There is no plainly visible central altar on which every blue suit must sacrifice chickens and Lenovo laptops.  Yet CEO Sam Palmisano has started the slow march away from decentralized entrepreneurialism to central planning … and we all know how well that worked for the Soviet Union (“Who?” asks the intern with authentic confusion).  Decentralization worked for IBM as a means to prevent going belly-up, and it worked for Hewlett-Packard before the Fiorina error, so Uncle Sam Palmisano’s decisions appears demented.

How an organization is arranged influences other strategy, such as marketing and product development, and thus a whole host of daily activities and tactical initiatives.  IBM’s recently released zEnterprise system, though not the hallmark of utter innovation, shows that hardware still matters.  Putting IBM’s systems and technology group under bit twiddlers means that hardware innovation will be limited to the needs of IBM’s software (instead of the entire software universe, which despite IBM’s thinking, is larger than Armonk city limits).  Product design is reflective of product marketing, and if hardware product marketing labors for people who peddle DB2, Lotus and Cognos, then there may well be very little IBM hardware innovation.

Which is when HP, Oracle and Dell will pounce.

The marketing lesson herein is really a management lesson.  People don’t do what you tell them, they do what you watch.  Every bureaucracy is designed to watch what employees do with some end goal in mind.  IBM’s consolidations causes employees to be watched over an artificial hierarchy of product group priorities instead of markets.  When markets matter less than internal organization, then the end will be near … again.

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Dilbert’s distrust of marketing exists for a reason.

Back when I had a regular job – during the Taft administration – my co-workers loved to drop Dilbert cartoons on my desk whenever marketing was the strip’s topic.  In one installment a customer asked Dilbert if he was lying about a product, to which Dilbert replied “No, that’s marketing’s job.”  This naturally reinforces the very stereotype that Seth Godin outlined in his masterwork All Marketers Are Liars.

The reputation of marketing people has been rightfully sullied because many marketing “professionals” destroy reputations – of their companies and themselves.  They fail to grasp both the mechanics of reputation as well as its essence.  Much has been written about the former since reputation in social media is a hot topic, yet the latter has been incompletely analyzed for high technology.  Reputation for a company and its technology products are intertwined, and failed market reputations have a number of causes.

I assert that marketing must be in charge of maintaining corporate reputation.  Marketing is not responsible for defining corporate/product reputation as that involves strategic business decisions and tradeoffs.  However, assuring the reputation is maintained and grows falls in marketing’s domain because they define the interaction with customers who in turn defines the public’s perception of your reputation.

The dictionary declares that reputation means “the estimation in which a person or thing is held, esp. by the community or the public generally.”  Thus marketing’s role is to assure the perception by the public is sufficient to achieve corporate objectives.  In order to do so, marketing operatives need to understand the elements of reputation, which are slightly more complicated than a typical Starbuck’s order (“I’d like a triple shot soy mocha, cinnamon frapomaco, extra foam, nutmeg, with a twist and a half gainer.”)  Though not exhaustive, the following short stack of basic reputation elements common to business and technology are essential and ones that marketing staff should have tattooed in reverse on their foreheads so they can review it every morning in the bathroom mirror.

Delivering on the promise: Everybody makes promises.  With technology the basic promises are that it will deliver some features, cause some expected outcomes to occur, and works reliably enough that your tech support staff will not require extra medication (and given some recent tech support interactions I have had, I fear some support teams are over medicated).  Failing to keep these basic promises is a fast path to fiscal oblivion.

Exceeding expectations: Merely meeting customer expectations give them no reasons to discuss your reputation.  Under delivering will, though in ways slightly less pleasant than attending confession after a Vegas bender.  However, exceeding expectations, even slightly, creates positive reputation and one that people will communicate to future customers.

Timeliness: Great products or service delivered late might as well have not been delivered at all.  Lack of timeliness is frustrating to customers, so you have to deliver within what they think is reasonable (no matter how unreasonable) or at very least within your promised timeline.  I once told Nokia the battery on my new cell phone didn’t hold a charge.  The department in charge of replacements took over a week to call and tell me they would send a replacement.  In that week Nokia’s reputation in my alleged mind fell, and I quit recommending their products.

Consistency: I’m an Oakland A’s fan because they consistently disappointment me.  Sure, it would be better if they won, but at least I know what to expect of them.  Consistency has value because customers know what to expect.  You can set expectations low as long as you meet or exceed those expectations consistently (in fact, there may be danger in setting expectations low and occasionally exceeding them by a wide margin, because customer may expect such surprises in the future).

Let’s put these four precepts into practice using Microsoft Vista as an unfair example.

• The promise of a better and simpler operating system was broken.
• If failed to meet expectations by a large margin.
• It was very, very late.
• However, it maintained Microsoft’s consistency in disappointing the market.

One out of four ain’t bad.  Oh wait, it is!  Perhaps this explains Microsoft’s faltering reputation.  Let’s try a different technology for contrast.  The iPad would be appropriate:

• The promise of a “wow” device that redefined the relation between man and media was met.
• It was beyond the public’s expectations, which for Apple are pretty high anyway.
• It was delivered on time.
• It arrived in a manner and style consistent with the public’s expectations.

Four out of four is a good score, and explains why Steve Jobs can afford to buy a new liver yet Steve Ballmer can’t acquire hair plugs.

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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.

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Market advantages are like puppy love.  They don’t last.

Every product and service may have an advantage, and it is your competitors’ job to make that advantage disappear.  In early markets everyone tries to out-invent the other fellow, and they continue this until there are a handful of nearly identical offerings that end-up competing on price and +1 differentiators.

This includes Bangalore.

As much as techies will hate this, we have to admit that programmer time is nearly a commodity.  All other things being equal, a Java programmer in San Jose is no more or less valuable than one in Bangalore.  Yet San Jose is the 91^st most expensive place to live and Bangalore is much further down the list at 165.  Thus, the commodity that is a Java programmer has price as a key differentiator, with the Indian working for less.  Cheap labor is why Silicon Valley companies have been willing to deal with twelve hour time zone differences, cultural misalignment and accents so think that old Scottish men are intelligible by comparison.

Until now.

Like any other hot product, price rises with demand.  The demand for cheap Indian IT laborers caused a demand/supply imbalance.  This caused the price of Indian programmers to rise, often at 25% a year.  Cumulatively this has caught-up with the Indians whose success is beginning to price them out of the market.

Which is where Ireland and Mexico enter the arena.

India is now outsourcing to Ireland.  An Indian IT integrator and development shop is opening offices in Belfast to exploit the local advantage, namely workers with culture and language similar to the local buyers.  Whatever relative price advantage Indian IT once had is rapidly vanishing, resulting in on-shoring.  Granted, in this instance there will be some degree of cross breeding, with low-level and non-critical tasks still being performed in India.  Yet the desire of an Indian firm to recruit locals for IT work in markets like financial services shows there is no permanent economic advantage in price.

The same story is told differently by our friends NearSoft.  They do what many Indian IT companies do – they cut code for less.  However, NearSoft sells against Indian disadvantages, bragging about more closely aligned cultures and being in the same hemisphere as their customers.  In other words they sell all the benefits of offshoring to India without any of the head-throbbing pain.

Marketing strategy has to do largely with creating real or imagined “expected outcomes” from using a product or service.  India had one clear advantage, which was price.  With the expected outcome of Indian outsourcing (less cost but worth the hassle) going away, so is India’s advantage.  Since programmers are commodities, there is nothing that India can do to change this, so they are eliminating their disadvantages in the market by buggering Belfast. All the while Mexico tries to capitalize on those same disadvantages.

Competing on price is never a long-term strategy.  Your prices will rise, your competitors prices will fall, or someone will devise better features.  Since genetically mutating Java programmers is frowned upon, there are few ways of improving the product, thus India’s price position will inevitably erode.  Always invent, even if it is just a +1 feature.  Invention, be it new products, new markets, new segments or new features is the key to creating new value.

Until everyone clones what you did and drives you to commodity status.

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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.

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