Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Category: hardware

Is HP acquiring Palm a good idea?

To answer the question posed in the title, it definitely is if you’re Palm!

A long time player and sometime innovator in the mobile device marketplace, Palm was rapidly losing steam, market share and relevancy in the hyper-competitive Smartphone market. The company had staked its future on its new WebOS software platform and the recently release Pre SmartPhone.

 After a long period of decline due to an aging product line built on an obsolete software platform, the Palm Pre and its WebOS software was introduced to critical acclaim by industry reviewers and pundits. Had these introductions come a few years ago, they might have indeed turned around Palm’s fortunes.

 But competition in the SmartPhone marketplace has heated up to a white-hot level. After a promising early start, sales momentum of the new Pre products stalled, and this “last-stand” product introduction proved to be too little, too late. At nearly the first sign of Pre sales weakness top Palm executives began bailing out, while Telco partners quit promoting the product heavily, and it was also being dropped from the assortment of major retailers such as Radio Shack. The end was clearing in sight for this handheld industry pioneer.

In swoops HP to save what little shareholder equity was left. HP is on a roll, and in conjunction with their upward momentum they seem to be intent on acquiring everything available for sale, as well as competing in nearly every category of the technology business. This particular acquisition appears to me to be particularly high risk/high reward. It raises several key questions:

 Did HP pay too much?

Probably. The price HP is paying for Palm is about $1.2M, while most knowledgeable industry observers had placed the value below $500M. This is hard to understand for the casual observer, but you must remember that a company is worth what the highest bidder is willing to pay. Except for those on the inside of the deal-making, no one knows what the sizes of the competitive bids were. So it’s a bit pointless to speculate whether they paid more than they needed to. The better question is what is the intrinsic VALUE of Palm to a company like HP?

 A case can be made in this situation for bidding at a price that will prevent the transaction from dragging out. Software loses value quickly–especially in a fast-moving market like SmartPhones, and this is largely a software acquisition. Another big key to the valuation question is whether or not HP is able to hold together and retain the Palm team, especially the key developers. In most cases, buying a software business (which is the key asset of Palm) without the team is nearly worthless.

 Can HP compete in the SmartPhone business, and should they?

This is a huge question in my mind. Hewlett Packard is definitely becoming the 10,000 lb gorilla in the tech business. But even the biggest giants reach a limitation on resources, most importantly senior management bandwidth and market segment knowledge. IBM at one time looked much like HP today, competing actively in nearly every important technology market. Eventually IBM lost traction and did a painful restructuring focusing on services. Microsoft is huge and still dominant in software, but they’ve been far from successful everywhere they’ve invested. There are many examples in the tech business of competing in too many competitive markets at once. The often-used analogy (which still rings true) is to Hitler opening up a two front war by invading Russia. The old joke goes that had he been more focused, we might all be speaking German today. I am very skeptical of Hewlett Packard being able to win in all of the major markets they appear to be serious about at the moment.

 Can putting two losers together ever create a winner?

Not usually. I can’t think of a single high profile successful instance of this, although I’m sure it’s happened before. It usually doesn’t work in such a highly competitive market as SmartPhones, however. Palm was around 5% market share and fading fast.  HP is very successful overall, but its iPaq SmartPhone has less than .1% market share–I’ll bet most of you are shocked to hear that HP was even in the SmartPhone market prior to this deal! When there is a reason that both companies are unsuccessful, it’s very difficult to change the equation simply by combining. Mergers often create more problems then they solve, regardless of how good they look on paper.

 Having said all this, there is some synergy here. There is a belief is that one reason the Pre wasn’t gaining much traction was Palm’s precarious financial position. No one wants to carry around a phone that could soon become an orphan. The HP acquisition should help immensely on that front. Hewlett Packard certainly has the financial might, industry muscle and influence to improve the position of a well regarded platform like the Palm Pre and WebOS platform.

 Will HP be patient and persistent enough to win in SmartPhones?

To me this is the biggest question. If you asked me 10 years ago I would have said no. As a former HP employee, at one time this wouldn’t have been the type of market that I would expect Hewlett Packard to have success. But since them I’ve seen the company persevere for decades as an also ran in the low margin, down and dirty PC business, and finally push Dell out of the top spot. There was a time when Dell (and a few others) used to laugh at HP in the PC market–but that ended a while ago.

 I’m convinced that this ever more powerful version of HP can succeed in SmartPhones if they so choose. But as discussed above, even in a giant company like this, can they win so many tough fights across so many difficult market segments? That is a different question entirely–and something may have to give. They might not be able to win on all fronts.

 Bottom line

The bottom line for me is that HP can probably muscle their way into the SmartPhone market if they want to bad enough. But can they do it while they also compete with Cisco in networking, IBM in services, and Dell in PCs–just to name a few? Even for a successful industry giant like Hewlett Packard is today, I believe in the concept of “biting off more than you can chew”. That is the real risk. One thing I think for sure is that this won’t play out quickly. Only time will tell whether HP ultimately has the market knowledge, patience, tenacity and will to win in this hit-driven and brutally competitive market. What’s your take on this high profile acquisition? Post a comment to rev up a discussion.

 Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

3 Comments by admin on May 14, 2010
filed in Business Models, Corporate Strategy, Mergers & Acquisitions, Retail, hardware
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Oracle is buying Sun?

Breaking News…. Oracle buys Sun!? What’s wrong with this picture?

What’s surprising is that a very large software company is buying a very large hardware company. You often see a hardware company buying a software company, but I can’t really think of a deal that’s gone the other way around. Certainly not at this level. My practice at PJM Consulting serves all kinds of technology companies–but a focus is on software. Although every situation is different, my typical advice is for software companies to stay away from hardware, if at all possible.

This news is very interesting on several levels:

Involvement of two high profile, strong personalities in the technology business
I’m talking about Larry Ellison and Scott McNealy. Of course, MCNealy no longer actively runs Sun, but he is still Chairman and a power to be dealt with. He was allegedly the force behind the killing of the potential deal with IBM. Apparently Larry and Scott are old buddies, so maybe there won’t be a problem. But these are two very strong-minded, controversial and sometimes outrageous leaders. Even though they are long time friends, they have never before played together so closely in the same sandbox. It wouldn’t be shocking to see a few disagreements, and some public drama as a result.

Combining the Largest Revenue Database Product with the Largest in Unit Market Share
This aspect of the deal will not get as much attention as some of the others. But Oracle is the 500 lb Gorilla at the top end of the market, and the open source MYSQL is the most popular database choice at the low end, particularly in website development. This aspect likely won’t demand anti-trust scrutiny because they don’t really compete directly. But potential marketplace competition from MYSQL going up market, and Oracle bringing out lower cost solutions, is eliminated by this deal.

Software Company buying a Hardware Company
As I stated above, this is highly unusual, especially for companies of this size. Most established software companies have very high margins, and wouldn’t want to “pollute” their earnings with the lower margin, often commoditized hardware revenue. I can’t think of another comparable deal, looking back even into the distant past. The business models are pretty different. In hardware companies manufacturing efficiency and inventory control are major factors in business success; in most software businesses these are inconsequential factors to success. Hardware businesses tend to be more capital-intensive, while software businesses are very R&D; intensive. I could go on, but suffice it to say that the management of these businesses includes different functional skill sets. Why is Ellison interested in Sun? Just for the Java and the Solaris OS software, or is he really going to continue with the hardware business as well? Even though in some ways, Sun was a bargain at the price of just under $6B net. But if he’s just interested in the software pieces of Sun, the price looks pretty steep–Sun’s direct revenue from Java and Solaris is a pretty minimal portion of its total revenue. Ellison had a flirtation with hardware years ago with the Network Computer concept–could he really still be itching to become a fully integrated systems company?

What will Oracle Do With Sun’s Software?
To me, this is by far the most intriguing question raised by the deal. Solaris is a nice OS, and has a good installed base. But it’s never really had the same impact in the market since open source Linux came around. Java is pervasive in the computing arena, and in embedded systems as well. It has a huge impact on the Internet. It’s literally everywhere. But after trying to charge big money for Java in the early days, Sun decided to give it away. I was intimately involved in the embedded Java market in those early days. Sun initially looked like they had created a technology that could allow them to challenge Microsoft for computing dominance. I believe Microsoft was very worried at the time. But to say that Sun fumbled the ball would be way too kind. Frankly, their effort to commercialize Java was like something out of the Keystone Cops. I could detail their myriad missteps. To summarize, the biggest problem was that they were a hardware company attempting to commercialize a software product, which usually doesn’t work very well. Sun appeared not to have a clue as to what they were doing. Finally, they quit trying to directly make money at Java; they put it into open source and basically decided to give away the technology to anyone who wanted to use it. It looked to me like a way to spite Microsoft, more than anything.

What Happens to Java?
So where does that leave Oracle once they close the deal and own Java? What is their plan to leverage Java in the marketplace? Will they start trying to charge for it somehow? I think this is doubtful; there’s probably no going back on that decision at this point. I’m sure that Mr. Ellison and his team have something in mind–but I can’t imagine what it is. They’ve been very savvy at making some acquisitions that haven’t looked all that complementary, that have worked out well. So I wouldn’t bet against them. But I can help wonder if they haven’t stretched a bit too far in their minds to find synergy in this one. It reminds me a bit of Ebay’s very expensive purchase of Skype, which is now being unraveled because it just didn’t create any synergy. We shall see what happens–it should be interesting to watch this unfold.

SUMMARY
The prospective Sun-Oracle deal is one of the more interesting we’ve seen for a while. There shouldn’t be any major anti-trust issues with this deal, and it doesn’t appear that a higher bidder is likely to emerge. Watching the organizational integration (and possible divestment), as well as the interaction of the outsized personalities, should be entertaining at the very least. But most of all look for what Ellison does with Java–that’s where the real intrigue lays. Post a comment to give me your view of this deal.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on April 22, 2009
filed in Business Development, Corporate Strategy, Mergers & Acquisitions, Software/Product Development, hardware
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Structuring Channel Discounts for Software and Technology Companies

Selling through sales and distribution channels of various types is very important to many software and tech companies. Yet channel programs, and specifically discount structures, are often thrown together quickly and haphazardly, without looking at any real hard data. Let’s examine some of the key items it’s advisable to consider, when structuring a channel discount program:

Market Norms
The absolute first place to start when considering channel discounts is to survey the SPECIFIC market that you are entering. By this I mean look at similar products through the EXACT profile of channel partners you are considering selling through. For example for consumer software, retail margins of 15-18% are common, whereas for a specific VAR segments the discount norms may be in the 25-40% range. If your discounts fall too far below the market norm, your program will likely fail. If discounts are set much higher than the market norm (without good reason), your company will be leaving considerable profits on the table. It is very important to do upfront research on actual conditions in your segment–don’t just “assume”! Preferably, you want to find out what your direct competitors are offering in terms of a channel program. This may seem obvious. But in my consulting practice at PJM Consulting, instead of using objective data, I see significant numbers of companies use their own theories about what the right discount structure SHOULD be from their perspective. This often ends up being the main reason for a painful “restart” of their channel program at a later date.

Product and Pricing Strategy (Street Price)
Channel discount structures cannot be constructed in a vacuum. They are but one component of your overall product and distribution strategy. As such, they must be consistent with the overall goals you establish for the product. If you are seeking to penetrate a new market or a new channel, it may be wise to be more aggressive than the market norms to gain market share and shelf space. If your market is more mature and you are in a harvest mode on a particular product line, it may be wise to minimize channel discounts to maximize profitability. In any event, consider channel discounts early in the product planning phase as part of your overall product pricing strategy.

Type of Channel
There are many different types of partners for software and tech companies that fall into the category of “channel resellers”. Computer retail, mass market retail, Value-Added resellers (VARs), Systems Integrators (SI), Domestic Distributors, International Distributors, Manufacturers Reps–and many more. Each of these reseller types are quite different from the others, and each add different types and levels of value to your distribution systems. Yet every one that you distribute through will be competing with the others (as well as your direct sales model), at least indirectly.

Multi-Channel Pricing Equity
It’s important if you are selling through more than one channel (including direct sales) to attempt to equalize, as much as possible, the street prices charged by the various channel types. The best way to do this is to consider the costs incurred by the various types of resellers in delivering your products to the target customer. For example, a VAR that provides support, pre-sales consulting and other services may need a higher level of discount to achieve an adequate profit margin than a retailer that simply is providing shelf space might. In reality, the retailer is likely to have a lower street price, but it is important to try to minimize this gap. Otherwise the VAR who may be providing important services to a segment of your customers may be driven out of the market, and refuse to sell your product–which is not in your company’s interests. The most common practice which causes inequities in channel pricing is a volume-driven discount model. New entrants to the channel often use this approach–why wouldn’t you want to incentivize volume sales by giving the biggest discounts to the largest volume sellers? Although this may work fine if you have a monolithic reseller channel, where all the players have the same business model and offer the same value add, it otherwise will quickly cause the problems discussed here. The resellers possessing the lowest cost structure and providing the lowest value-add will quickly dominate the market, driving the high-cost/high value-add resellers away. This may be ok with you; just make sure you explicitly consider this possibility before embarking on a volume-driven channel discount strategy.

Value Added
One of the things that I recommend considering explicitly up front is: what is the key value-add that you are seeking from the channel? Is it pre-sales consulting, installation services, post-sale support, shelf space and inventory for immediate customer access, or one of many other factors? Make sure you understand what channel value-add is most important to you, and build protections into your discount structure for the reseller type who best provides this value.

Components of Discounts
It’s not always necessary (or wise) to offer a single, monolithic discount level for resellers. How you structure your discounts components should be closely tied to your product and pricing strategy–what you are trying to accomplish with your overall channel strategy. For example, if you are trying to manage your street price at a certain level, it can be dangerous to offer a large discount to certain types of resellers who may pass that discount on as a lower street price. Yet this segment of resellers (for example, retailers) may be an important, high volume channel for your product type. In this case, it may be wise to offer additional, conditional discount for activities that you value. Again as an example, to keep your street price up but incentivize a high level of activities through retail, you could offer a high level of added discount for approved co-op marketing activities. A segmented discount structure driven by costs and value-add, rather than volume, is often the most effective structure to maximize multi-channel sales. This will also limit discount-driven reductions in street price, which ultimately can severely reduce profit levels and incentives to sell for both the vendor and all channel partners–if not properly controlled.

SUMMARY
Creating a Channel Discount Strategy and structure is NOT a theoretical exercise. It should be primarily a tactical exercise based on a realistic view of market conditions, and include collection and analysis of objective market data. While what you hope to accomplish with your discount strategy is important, the overwhelmingly most important factors in creating your discount strategy should be what is happening in your segment of the channel–and what will work best for your company. Try not to create a structure based on what you’d like to see with respect to the channel. Focus on creating a pragmatic, workable strategy upfront, to avoid an unsuccessful channel entry and painful restructuring that results. If you are new to the channel game, seeking outside assistance may help you avoid experiencing one of these painful false starts that happen frequently in the channel.

That’s my view of how best to create a channel discount structure. I welcome you to post a comment with your own thoughts on this important technology management decision.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on September 8, 2008
filed in Distribution Channels, Pricing, Product Marketing/Management, Retail, VARs, enterprise software, hardware, sales
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Integrating the Marketing and Engineering Functions at Technology Companies

In most tech companies, Product Marketing and Product Development/Engineering are managed separately. There is usually a VP over the Product Development function and another over the overall marketing function, which usually includes future product marketing/planning.

While this is certainly an appropriate way to organize a tech company, there is a great danger in one are when it comes to these separate operating “silos”: the planning of new products.

I have a particularly strong opinion on this topic, with an extensive product marketing background and also having worked as a product developer earlier in my career (albeit in a non-tech business).

With respect to current products, the silo approach isn’t much of an issue. The day-to-day activities of the marketing and engineering departments are very different, and can be managed separately quite successfully.

It’s in the future product area that things can get messy. Product Marketing and Product Development both have a key role to play here, if the company is to optimize the process of planning, developing and introducing the best new product possible. The problems is that at every level, from the VP-level down to the engineering project managers and marketing product managers, the product marketing and engineering functions are often staffed by individuals with very different world outlooks when compared to their direct counterparts in the other department.

Inevitably, if care isn’t taken, these very different personality types can lead to some pretty intense conflicts. I’ve been a soldier, captain and general in this war–and let me tell you, it isn’t pretty. The battlefield often is a company’s strategic plan, which ends up in a trampled mess. I have seen this battle play out regularly in the companies that I have worked for as an employee, as well as at many of my clients in eight years as a consultant at PJM Consulting. It sometimes gets so ugly it paralyzes a company, putting it at a severe disadvantage vs. competitors who have less of a conflict.

THE “WRONG” WAYS TO HANDLE THIS POTENTIAL PROBLEM

Unfortunately, most CEOs that I meet are not all that in tune to how damaging these conflicts can become.

Often they will ignore or deny the problem, thinking it is a responsibility to be handled at the VP level.

Another strategy that I have seen companies put in place is to extract the product planning function from the marketing department, and put it under engineering. This will often greatly reduce or eliminate the conflict, but it akin to throwing the baby out with the bathwater. As I said earlier, both marketing and engineering have a key role to play in product planning. This strategy effectively removes the voice of the customer, which is a key role that the marketing department should be playing in any successful software or tech company. As much as product developers think it looks easy, they almost never have the mentality or experience to accurately read markets or customers. Almost no one is great at everything; monitoring and reading markets, and technical product development, are two very different skill sets. Having both mentalities involved in a positive way leads to far better products in the end.

Finally, if they happen to have come from one side of the battle or the other, CEOs sometimes “take sides” in the battle–predetermining the winner. The problem is there is never any real winner in this battle–and the only certain loser is the company and its shareholders.

A CEO can choose to let Marketing have the upper hand–and this may work out adequately in commodity products where there is very little engineering differentiation. In any other circumstance, results will likely be sub-optimal.

Or he can let Engineering win and dominate the planning process–which is a very common occurrence in early stage, technically-driven software and tech companies. But this generally only works well for products made by engineers, built for engineers (the early days of Hewlett Packard are an example of this strategy working successfully). For every company that has used this approach successfully, there are probably hundreds or even thousands that failed in large part because of it.

Ultimately, to make sure that this conflict and its dire consequences are to be avoided, there is one key thing that needs to happen:

IT IS THE CEO’S RESPONSIBILITY TO PREVENT, RECOGNIZE AND FIX THIS PROBLEM.

So what steps can a software or tech CEO take to be on the lookout for this problem–and more importantly, what can they do to prevent it from developing?

*It’s all about relationships: closely monitor the personal relationship between VP-Marketing and VP-Engineering
*Make sure that the VPs are monitoring the relationships below them
*Make sure they are both VPs are open and honest with you about the relationship between departments
*Plan activities which allow engineering and marketing counterparts to get to know each other as “people” outside of their project activities
*Be careful that you don’t inadvertently make decisions or set up policies that reward or tolerate politics
*Design goals and MBOs to reward the two departments for working together
*Don’t ever allow one department to “get ahead” by blaming the other–tie them together as much as possible
*Hire marketing personnel that can talk the language of engineers
*Screen product development hires who will interact with Marketing for the not uncommon attitude that engineers are “superior” human beings
*Encourage the marketing department to get product developers in front of customers
*Watch out for arrogance when screening potential new hires for either department that will interface with the other –arrogance is usually the trigger which starts the battle rolling

SUMMARY

Marketing/Engineering conflict over the product planning process is a common problem that is often overlooked by tech company CEOs. A certain amount of creative tension can exist between the two departments, and be totally healthy. All too often, though, this tension turns into a bloody fight which is destructive to the company’s prospects. It is not “fait accompli”, however. It can be minimized and even prevented by a watchful and proactive CEO.

That’s my take on a common issue which is rarely discussed out loud. Have you had your own issues in this area? Post a comment to add to our discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on July 8, 2008
filed in General Management, Marcom, Operations, Product Marketing/Management, Software/Product Development, hardware
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Channel Pricing Strategy for Software and Hardware Products

Pricing software products is always a difficult exercise. With high product development costs, but near zero costs of goods sold, there are many different strategies that people have followed successfully (and not so successfully!) over time. Pricing hardware products is a bit simpler because there is generally a significant cost of goods sold that acts as a governor on pricing behavior. But even with hardware, technology markets are dynamic and fast moving. And it’s a complex enough topic when all sales are going direct–once you bring channels into the picture, it only gets worse.

CHANNEL CONFLICT
The biggest concern most companies have when pricing for multiple channels is channel conflict. I have seen many companies who actually AVOID selling through channels for fear of the pricing implications it brings. They are afraid of a channel undercutting their direct sales force in price, and channel conflict in general, which arises as a result of different prices being presented to customers from representatives of different channels. But this doesn’t have to be so; with a savvy understanding of the implications of pricing actions. This comes from both experience, and “paying attention to what actually HAPPENS in the marketplace. If you price properly and run your channel programs well, you can sell successfully via multiple channels–with these channels living in relative harmony.

VALUE-BASE CHANNEL PRICING
I’ve written about value-based pricing before, in the context of the perceived value of a product, as seen by the end-user, being the guidepost for pricing actions. A similar concept exists for channel discounts. Rather than taking a simplistic approach and give the greatest discount to the channel players that move the most product ( a destructive strategy–more on that later), it’s important to measure how much “value” a particular channel provides both you and your end-user customers. Look at things like 24/7 support, inventory & product availability, technical expertise, credit services, and the like. In this case, it is helpful to let the cost of delivery of each of these attributes be your guide to the value they provide.

VALUE-BASED CHANNEL DISCOUNT STRUCTURE
For example, you may figure that the cost of a VAR providing 24/7 support to end users (meaning YOUR company doesn’t have to) is equal to 5% of the list price of the product. And the inventory held by a retailer (again, meaning YOUR company doesn’t have to hold it, at a cost) is equal to 2% of the list price. And so on and so forth. Using this value-based method, you can calculate the actual costs borne by your partners in delivering marketplace value, and use this as a guidepost in building your channel discount schedules for various types of channel partners. This value-based channel pricing approach is not well-known, and seldom considered; most people seem to figure the only value worth extra discount is sales volume. If you use a value pricing approach, you actually have a chance to build a multi-channel strategy that “clicks on all cylinders” by providing discount structures that are equitable based upon cost and value associated with each channel.

LIMIT VOLUME DISCOUNTS
If you choose the “more volume=greater discount approach, your multi-channel strategy is a house of cards which will soon collapse around you. One channel will quickly grow to dominate, and the other channel types will soon quit selling on your behalf, and wither away.

THE GOAL IS TO MAXIMIZE SALES THROUGH ALL CHANNELS
Again, the key is to not let one channel dominate. Ideally, you would like all channels to be presenting prices to the end customer that are equal. In reality, that pretty much can’t happen without price fixing (which some folks may be able to get away with, but that’s another story….). But you should strive as much as possible to have end user pricing equity for all channels. But this is where the counter-intuitive part of this discussion comes in to play. Most people pricing high tech products have a tendency to price based upon the volume of product a particular channel player can move. It seems logical–why wouldn’t you want to incent and reward a partner with better margins if they are selling more products?

While this appears logical, it is actually penny-wise and pound-foolish. In fact, it is usually catastrophic to your plans to maximize sales through multiple channels. Let’s look at a simple case of how this often “breaks” a multi-channel strategy for a common case: a vendor selling through both retailers and VARs.

A SIMPLE EXAMPLE
Retailers provide a vendor with a point of purchase holding inventory, where their customers can go to immediately purchase a product. VARs often don’t hold inventory, but provide other services important to the vendor and some customers, such as tech support, training and integration with other software and hardware products. Each may have an important role to play in the overall strategy to maximize vendor sales.

But the retailer will usually be a high volume partner, with the VAR less likely to be a volume outlet (although the VAR CHANNEL, in total, may hold great promise to move volume). If you structure your pricing by volume, the retailer will get better discounts. Because individual VARs generally have higher costs spread over lower product volumes, they actually need HIGHER discounts to stay even in pricing potential to the Retailer. This situation is exacerbated by the fact that retailers tend to be volume-oriented, usually accepting a relatively small, fixed margin on everything they sell. If you provide discounts based upon the volume that a partner moves, what will happen is inevitable: The retailer will take over your channel business, because the VARs will be “squeezed out” by the relatively low prices charged by the retailer. They won’t be able to make a profit on your products, so they will ignore the business, and you will lose the opportunity to realize significant sales through the large (in aggregate) VAR channel, especially those customers that desire the service and support they supply. I am oversimplifying this situation, of course, because VARs are more interested in the service revenue that a product can pull, than they are in product margins. But I have seen this scenario play out many times and kill product sales through VARs channel that might otherwise generate health sales through that channel. This can be a heavy penalty for naïve technology product managers who are charged with pricing their products and moving them through multiple channels, but who don’t fully realize the consequences of their actions.

SUMMARY
Pricing seems pretty simple on the surface–when channels are involved, it’s anything but. It’s important to fully think through the downstream effects of your pricing policies when multiple distribution channel are involved. Let me know if you have questions, or you own channel pricing stories that you’d like to share.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

No Comments by admin on November 23, 2007
filed in B2C, Corporate Strategy, Distribution Channels, Pricing, Product Marketing/Management, enterprise software, hardware
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Steve Jobs, the iPhone and Apple Strategy – have we seen this story before?

Apple computer and its red-hot iPhone have dominated the business news recently. By all accounts, with good reason. I haven’t had the opportunity to play around with an iPhone yet, but the early reviews have been very positive. Initial interest demand has been high, especially given the usual amount of mystery and intrigue woven by Mr. Jobs and the folks at Apple.

For a first-time entry in to a large, competitive business such as cell phones–you’ve got to be impressed. Yet I’ve got this vague feeling of familiarity when it comes to this story–I somehow feel that I’ve seen it and heard it all before….

THE RETURN OF JOBS

Apple Computer since the return of Steve Jobs from the hinterlands has felt a lot like the Apple from Jobs initial run at Apple. He’s restored the company’s attitude, and dominates publicity, product direction and what feels like nearly every little detail about the company. Not bad for what is roughly a $20B company. It speaks to how strong and impressive Mr. Jobs’ personality and skill set really is. He has done a tremendous job bringing Apple back from the brink, and it appears that they may be headed to heights that weren’t even approach in his first tenure at the company.

There are many reasons that Apple and Steve Jobs, over a long period of time, have proved to be an interesting story. There are the breakthrough products, invention of new categories, tremendous highs and lows in financial results, strong, eccentric personalities, and boardroom intrigue–all multiplied when Jobs is factored in.

But the thing that I’ve always found most interesting about Apple has been its corporate strategy.

APPLE CORPORATE STRATEGY

Lets first give Steve Jobs and his strategies their due; he’s done a whole bunch of things right. It’s hard to imagine where this company would be if they hadn’t brought him back for his second tour. But like most strong personalities, along with his myriad strengths–he’s got a few quirks as well. Some might argue these quirks are actually weaknesses. I’ve always thought that his biggest weakness was being a “control freak”. Some might argue that this is actually reflective of strength, indicative of a strong leader who is forcing a change in the status quo to his vision. At times it appears so.

For example, the original Mac was a great triumph at first. It set a new standard for PC usability and industrial design, and was a huge seller in the beginning. But in creating the Mac, Apple also:

1) Didn’t use standard (Intel) chips, but more expensive ones from weaker competitors
2) Was a relatively “closed” system
3) Couldn’t be upgraded much at all
4) Kept Prices and margins high, unsustainably so with hindsight

A SUSPECT BUSINESS MODEL?

Maybe most interesting of all from a strategic perspective, is Apple’s choice of a business model. Apple has always been an innovator in software, with most of its differentiation coming in this area. (At least this is true since the Mac was introduced–the original Apple hit product, the Apple II, was pure hardward innovation.) Yet the company has always tried to make its margin selling hardware devices, bundling in its software with its hardware, mostly for free. I believe that this closed, single vendor, hardware/software bundled system approach can be the right strategy in creating a new market. It allows a pioneer to control the user experience, while realizing larger margins and profits in the short run to support innovation. But as markets grow big, that approach which works so well in the beginning often becomes an albatross as other players enter a larger market, and figure out how to take cost out of the system. These strategic choices (flaws?) were some of reasons that ultimately led the Mac platform to be a distant also-ran in the PC races (although one with a rabid core following), even though it had a large advantage in technology and a healthy market share initially.

iTUNES AND THE iPOD

Interestingly, Jobs followed a similar basic strategy with iTunes and the iPod. He innovated with cool, hip industrial design, a classically simple but elegant user interface, and (maybe most importantly) broke the logjam with the Record labels on downloadable songs–for the first time creating a site with a truly wide selection of mainstream songs, downloadable without hassle. He once again has kept this a pretty closed system, not allowing other devices to download to iTunes, or other music sites to feed the iPod–although he has shown signs of opening this up recently. Once again, pricing is pretty high, relative to competitive “systems”. Apple has so far been able to keep a comfortable lead in the online music space–but using a timeline which is required to measure markets of this scope–one must remember, it is still very early in the game.

My feeling about this “closed system approach” that Jobs favors, is that in consumer electronics and computing, it often works very well for a while–but then backfires as the market grows and matures. Technology commoditizes, and markets eventually lean toward openness–which provides greater choice and lower costs to users. Jobs waited way too long with the Mac, and retreated on the strategy when Apple belately tried to open up the platform, just as he returned for his second run with the company. Apple may be headed toward open PC computing again with the new MacTel platform, but in my opinion, that ship has likely sailed long ago. It would be a long hard pull for the Mac to once again compete as a mainstream PC platform. Of course Steve Jobs is nothing if not audacious, so I wouldn’t put it past him to try.

iPHONE STRATEGY – GOOD & BAD

This brings us to the iPhone. Apple has been up and down during it’s corporate life, more often than a cat with nine lives. Right now, Apple is definitely riding on a high. When you take a look at this iPhone recent introduction, there is a whole bunch of familiar Apple/Jobs strategy going on. You see the innovation pointed at a major market that is populated by major players, but a relatively poor user experience. In this case it’s the poor user experience of the cell phone industry, just like PCs and downloadable music, which were frustrating to consumers when Apple innovated in those markets. The innovation is out of the old Apple playbook: led by cool industrial design, and a breakthrough, simple but elegant user interface. All of this, along with typically brilliant Apple PR, has led to the iPhone “mania” that is reminiscent of past Apple introductions. The iPhone sure looks like a big hit at this point, and no doubt will be in the short run.

But will Apple and Jobs be able to sustain the iPhone momentum, like they have with the iPod/iTunes to date, or will the initial success fade like it did with the Mac? While Jobs is now a more seasoned, and even more successful electronics industry icon, I would argue that there still may be a few of the old flaws in his game. The price point Apple introduced the iPhone at is very high, relative to most cell phones with a similar level of capabilities. The phone was introduced with a battery that can’t be upgraded by the user, something that has been standard in the cell phone market (and most portable consumer electronics) for many years. iPhone owners will have to send the product away to get the battery changed–who can go days without their phone? This is an incomprehensible mistake in strategy, in my opinion.

And finally, and most importantly, Apple chose the most “closed system” approach of all–the iPhone with only be available on one Cell Phone network, AT&T;, for at least 5 years. I find this part of the strategy astounding. First of all, it seems to me to be completely unnecessary and yielding few benefits to the company. It appears that Apple did this to have leverage in their cell phone partner negotiations, all
owing them to retain control on some items, and keeping their prices high. I think Apple is being penny-wise and pound foolish here. The have a hot product; now is the time to establish the Apple brand as the preferred high end supplier of smart phones. But they can now accomplish this in only a segment of the huge cellular audience, for completely artificial reasons. Shutting out the bulk of the market in this fleeting time of major advantage, for bit higher margins and control on a few areas that most cell phone manufacturers do without? It’s hardly worth in my opinion.

Also, the Cellular Network Operator partner they have chosen is very suspect. While AT&T; is the biggest wireless operator in the US market and a fine company, they are behind in the game technologically in the wireless Internet part of the cellular market–the very aspect in which the iPhone shines as a mobile device. So the wonderful new features brought to wireless web access by the iPhone will slow to a crawl on the inferior AT&T; data network. It may be like running a great graphical user interface over a dial up modem–frustrating. If all you do is sit and wait for the network, it won’t matter much how slick or intuitive the device UI is.

FLAWS IN APPLE’S iPHONE GAMEPLAN?

My feeling is that there may again be some major flaws in this most recent Apple strategy. This may again cause the company to give up an early lead, in a market in which they’ve contributed true innovation. I’m not privy to all of the information that Apple management is, of course. And it’s always easy to second-guess from a distance, after the fact. So it’s quite possible that I’m just missing something, and dead wrong in my take. Plus, the whole picture of Apple’s market entry hasn’t been revealed yet. For example, I haven’t seen or heard anything about Apple’s partnering strategy with Cellular operators outside the US, but I am very interested to see how this compares to the US strategy. Will the strategy be similar or very different internationally?

Steve Jobs has contributed greatly to the development of the worldwide computer and electronics business. He has had many great successes, and also fallen a few times. He is an iconic figure who isn’t afraid to take a stand. Apple has ridden Job’s strategies to great heights several times; and also to great depths a time or two as well. Along the way Steve Jobs has provided a wealth of controversial material for columnists, writers, commentators and anyone else with an opinion. I am fascinated to watch as his strategy for this latest chapter, the iPhone, plays out in the marketplace.

So there you have it–that’s my take. Post a comment and let me know what your own thoughts are on Mr. Jobs, Apple and the iPhone.

Phil Morettini
PJM Consulting
www.pjmconsult.com

2 Comments by admin on July 23, 2007
filed in B2C, Business Models, Corporate Strategy, General Management, Software/Product Development, hardware
tagged , , , , , , , , , , , ,

Software vs. Hardware

Much of my consulting practice centers on working with early stage software companies. But I have substantial hardware market experience in my background, and I do take on consulting assignments with hardware companies.

So what are the differences and similarities between successful software and hardware businesses?

Capital Requirements
One of the larger differences is that software companies generally require much lower capital to reach profitability and continued growth. This is primarily because of the lack of need to invest in expensive semiconductor development tools, semiconductor masks, manufacturing plants/equipment, manufacturing engineering personnel, unfinished goods inventory, higher cost of finished goods inventory, etc. So except for startups backed by substantial institutional capital, it’s much easier to startup software companies compared to their hardware counterparts.

Margins
Another important area where software companies have an advantage is in margins—both in the area of typical gross margins, as well as the potential for higher net margins. This is primarily due to the negligible cost-of-goods-sold for most software companies.As a result, it easier for software companies to get to profitability, and if a large market is found, sustain profitability. Remember, throughout this article I am talking “on average”. There are hardware businesses with excellent gross margins (dominant semiconductor companies come to mind) as well. But in general, this is an area where the advantage goes to software.

Pricing
The big difference here also is related to product cost. The major difference comes down to product cost, which in the long run creates a floor for anyone who would actually like to make a profit. While optimal pricing of hardware or software should be based upon a value-based approach—with market segmentation as the key However, I rarely find this to be the case in my consulting practice—whether the company markets a software or hardware product.

In the hardware business, you tend to see a lot of simple pricing models that are cost-based. For software businesses, the negligible product cost can be the other end of the proverbial double-edge sward when it comes to pricing. In a competitive market, you may see competitors in software markets literally “give away” the initial product, and rely on the upgrade stream to make a profit downstream. This can strain the profitability of the entire segment, and in severe circumstances, can suck all the profit from the market. You see this scenario most often started by weaker competitors, or in markets where switching costs are high. While hardware pricing can be even more competitive generally, it is less likely for a weaker competitor in a hardware market to introduce a “zero-margin” program. This is because it is often tougher to hang onto a customer in the second generation (if the market has commoditized), and the market leader often has a gross margin advantage—making it an ill advised maneuver other than as an attention-getting, short-term promotion.

Distribution
The advent of the Internet has created a major difference in distribution between software and hardware companies, where there was very little difference in the past. It has made direct distribution much more practical for small software companies, in markets where a simple download is practical. For those companies which aren’t direct-only, distribution is similar for hardware and software companies. Traditional distribution through third parties tends to be very similar, although higher inventory costs are still a burden that hardware companies need to manage more closely, both for in-house finished goods and those held by the channel.

Defensible Strategic Advantage
This is an area in which software and hardware markets have both similarities and large differences. Both hardware and software companies value patents as a form of providing a sustainable competitive advantage. But in my opinion, the inherent malleability of software makes patent protection less useful in software than in hardware. It is easier to “find another way” of accomplishing the same end result when you are dealing strictly in software code. It’s also easier to segment in software markets, creating a targeted, niche version of a software product for a specific segment, nipping at a market leader without drawing their fire. It’s much harder for a small hardware company to differentiate itself this way. On the other hand, the market leader that establishes itself and creates a large volume business, creates the important competitive advantages—cost efficiencies and brand recognition are the huge, defensible advantages. So I believe this point comes down to scale—in software markets, it’s easier for a small competitor to overcome the scale of larger competitors, and develop a niche strategic advantage. While in hardware, the large competitors can use scale to create the ultimate competitive advantage.

Localization Requirements
This is an area in which hardware companies normally have an advantage. They usually have simpler user interfaces, and sometimes utilize symbols extensively in their interfaces, greatly reducing translation requirements into local languages. Hardware companies do have to deal with some physical differences in standards, such as electrical—but these have stabilized over time, and are often handled in the standard product.

Conversely, software user interfaces are usually language intensive and more complex, with thicker user manuals. This requires software companies to live with higher localization costs and longer lead times to market worldwide. The exception to this is complex software sold to highly technical users, where English is often used as the standard language.

Potential for Dominance
I’m going by mostly by empirical evidence here. It seems that there have been a lot more hardware companies who have dominated there respective businesses, for a longer period of time than in software. For every Microsoft (and there’s really only one of those!) it seems there are many more examples like Intel, Cisco, IBM, HP, Dell, etc. Hardware markets tend to commoditize more easily, but with standardization on a couple of leading brands. It’s hard to make money in the long run in hardware unless you are one of the top two or three players. Large hardware markets are also relatively larger in revenue than large software markets, allowing market leaders to more fully utilize their profit and cost advantages over competitors, by spreading marketing costs over large product volumes. So if you’re looking to build a truly dominant company, the odds are greater in hardware—although you probably are still better off heading to Las Vegas, and putting your life savings on roulette red!

There are many more ways to contrast and compare hardware and software companies, but I will end it here. What other points would you add? As usual, post a comment or send me an email message.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

1 Comment by admin on February 9, 2006
filed in B2C, Business Models, Corporate Strategy, Distribution Channels, Financing, Product Marketing/Management, Software/Product Development, hardware

Big S, little m

Don’t worry; this isn’t going to be an article about Sado-Masochism! Well, come to think of it, that term may apply to what some founders and senior managers in startups are doing to themselves and their companies. What I’m referring to is the VP who gets hired to manage both the Sales and Marketing functions. Oftentimes this turns out to be a job we call “VP-SALES & marketing”. Thus the phrase “Big S, little m”. The position is usually offered to a crack sales guy or gal, who also happens to have a marketing title somewhere in their job background.

JUST GO GET THE ORDERS

To high tech insiders the meaning is clear. The anointed candidate will be expected to go out and beat the bushes for customers, and bring in new orders quickly. Oh, and by the way, Mr. VP, you’ll also be in charge of producing data sheets and attending a few trade shows. You know, all that marketing stuff!

In most of these cases, I would recommend that anyone being approached for a job like this run in the other direction as fast as possible. These positions are usually classic “traps”. The attitude is “We’ve got a great new technology; all we need is someone to go knock on a few customer’s doors and bring the purchase orders back to headquarters”.

Hopefully, most of those reading will recognize that this is a recipe for a very unhappy outcome. The founders and senior management will be unhappy with revenue and profits, the VP will be unhappy because he’s likely to get fired in 9-12 months. The other employees will be depressed and talking about how “Sales & Marketing” is the weak link in the company. And the investors, of course, will be very, very cranky.

Why does this occur? It often occurs when the key senior decision makers (CEO, CFO, Founders, etc.) don’t have a background or appreciation for the difficulty of the sales function. And it’s even more likely to happen when there is no key decision maker with a background in Marketing. The decision maker’s attitude often includes an over-confidence in the role that superior technology plays in the overall success of a company.

IS TECHNOLOGY ENOUGH?

Certainly having a defensible technological advantage is a major factor in the success of a high tech company, especially when that company is in startup mode. The problem arises when management believes this is enough to “win”. How hard is cold calling and knocking on doors for a sales force with an unknown company name? Not to mention an unproven product, which may solve a problem the customer may not yet know exists? I’ll give you a hint—it’s really, really hard!

Likely there is a lack of understanding of the crucial role marketing plays in establishing a new product in the marketplace. There may be a view that marketing is some theoretical, squishy function that is a waste of money, or maybe something that has value but the company just can’t afford. Management thinks, we’ll introduce the product, sell a bunch and build the marketing function later. Unfortunately, that thinking is as backwards as can be, and will usually lead to the unhappy results discussed earlier in this article.

Why IS marketing so important, and why is it such a critical mistake if it isn’t a major part of the new product process? It’s because marketing is crucial in every phase of introducing and growing the revenue of new products, from conception until end-of-life. In the beginning, an engineer may come up with a great new technology that appears to allow someone to do an existing task better. Or maybe it allows someone to do something that wasn’t even possible before. But that’s really just the beginning of the product development process. Product engineers aren’t trained to closely match customer needs with the features of this whiz-bang new technology. Often they think it’s easy – you just go ask the customer what he wants! But customers often don’t tell you the truth; sometimes they lie, and sometimes they don’t even know what they really want (this is the topic of a future column). And even if they tell you the truth, it’s important to make sure that what these customers are telling you is representative of your entire target market segment. This is a task that looks intellectually easy on the surface, but for a lot of reasons, it’s very difficult to get right.

Sometimes companies do get it right even without an experienced, professional marketing function in place. Let’s assume for a moment that they do. There’s still a very long way to go before those purchase orders start pouring in. The product must be positioned properly, relative to the direct and indirect competition in the market. It needs to be priced so that the market is willing to take a close look, but not so high or low that it retards the product’s long-term profit potential. Will it be distributed only through the company’s direct sales force, or should we court VARs, distributors, retailers or OEMs? What kind of pricing can we offer those partners without creating gray markets or channel conflicts? And please, let’s not forget about creating a bit of demand for those poor guys and gals in the sales force. Cold calling really does suck! It’s not good for anyone, the sales reps or the company’s profitability. It will “burn out” your sales force in no time.

Marketing programs that generate hot leads, or even complete sales, are much more cost-effective than relying on highly paid (but beleaguered) sales reps to do their own inefficient “door to door” marketing. And how should we generate those leads? Via PR, Advertising, Direct Marketing, Partnering, Search Engine Optimization, Paid Search Engine Ads, Trade Shows? The Marketing folks are the strategic quarterbacks of the organization who should be driving the answers to these questions—as well as executing the strategy within the required parameters.

IT MIGHT WORK—BUT DON’T BET ON IT

So does “BIG S, little m” NEVER work? Well, in some cases it not only works, it is even appropriate. Take the example of a semiconductor company selling a very niche chip to a vertical segment. They might have only 50 potential customers. In this case you REALLY CAN go ask the customer what he wants, and easily ask enough of them that you will end up building products that will apply to your entire target segment. With respect to lead generation, the target market is so small that traditional outbound marketing programs don’t make sense anyway, and that “door to door” marketing by your sales force might work just fine.

But I propose to you that this example scenario is the classic “exception that proves the rule”. In many, if not most cases, “BIG S, little m” will lead to failure – or at the very least, suboptimal performance. That’s my view—as always I’m very interested in hearing yours.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

No Comments by admin on June 2, 2005
filed in Business Models, Distribution Channels, General Management, Marcom, Product Marketing/Management, Startup/Early Stage, VARs, enterprise software, hardware, sales

The High Tech House

So, looking around for a really big opportunity that isn’t yet being served? Look no further than the High Tech house.

Yes, I know, all the big computer and consumer electronics companies are investing billions in the market for pumping entertainment content via fat pipes into and throughout the home. And no doubt, this is becoming a very large market that will ultimately be huge. But that’s not what I’m talking about. I believe that there is an even larger, but more mundane opportunity for software, semiconductor and electronics companies that has been largely ignored.

This new concept has been alluded to and talked about in theoretical, general terms by futurist speakers at trade shows and TV sound bites for many years. So in that sense it’s not really new. But little has been done in terms of actual investment in companies and product development to attack this potentially enormous market. So what exactly am I talking about? Do you remember several years back all of the snickering about the Internet Toaster?

Let’s call this the Internet Refrigerator market.

What’s so compelling about this potential new market segment vs. the home entertainment opportunity that nearly every monster high tech company is already chasing? Well, of course, the first attractive thing is that not everyone is chasing it yet! As far as I can tell, very few are. The second thing that pops up when considering this potential market is that there should be an attractive payback available to the customer. That’s something the entertainment space will never be able to say—it’s sexy, fun and high profile—but it’s looking to take a share of the already stretched consumer wallet for discretionary purchases. Thirdly, all of the technology necessary is already inexistence. In the most recent study on broadband penetration this year, Nielson/Netratings found that 56% of US homes connected to the Internet are now using a broadband connection. Worldwide, almost two thirds of all Internet connects are broadband. The broadband world has arrived, and it’s time to start utilizing it for something other than simply surfing the World Wide Web. And finally, this concept should yield substantial benefit the US and world economies by driving costs out of some of the most labor intensive, inefficient tasks in modern western society. Yes, I said substantial economic benefits. Curious yet? Read on!

I’m proposing that all of the major systems and appliances in our high tech homes be Internet-enabled and connected to our home network. Let’s look at the benefits of this concept using an example of our Internet Refrigerator.

The Problem

This example is an amalgamation of similar experiences I’ve had many times since reaching adulthood. You’re employed full time at a job that you drive to 15-45 minutes away from your house. If you’re married, your spouse also is likely similarly employed these days. A major appliance such as your refrigerator breaks down—and of course it’s outside of the warranty period (they plan it that way!). You either call the store you originally purchased the appliance from, or if you’re the thrifty type, shop around for a lower cost independent service provider. What happens next? Mostly frustration, if my experience is typical.

First off, no one can make it out on a service call for three days (there’s a reason for this—these are highly inefficient businesses). You still don’t even know what’s wrong with your Fridge, and by the way—the food is starting to rot. In addition to having to wait three days, no one will give you an actual specific “appointment” these days. Most often they give you the dreaded “4 hour window” appointment. Oh, and by the way, there is a minimum charge of $65 just to come to your house. No guarantees, no refunds even if they can’t fix it. But what can you do? You swallow hard, eat out for the next 3 days (at added expense to your budget and waistline) and wait for your appointment.

The day of the appointment finally comes and you head home for your 4-hour window, much to your boss’s consternation. Four hours come and go, and of course no one shows up. You call the service company, and as usual, “they’re running late”. (This happens because these inefficient service companies are in such demand that don’t need to have a customer orientation, and utilize very little technology to optimize their business). So you wait an additional hour for them to get there, and then another hour to diagnose the problem. Pretty much a whole day of work productivity shot—I hope that you weren’t getting paid by the hour! But it gets even better. Upon diagnosing the problem, the repairman says “It’s $200 for the part and $150 for the labor. Unfortunately I don’t have the part available in the truck—I’ll have to order it.” Great! Now you’re scheduling another appointment with a 4-hour window—you get the drill at this point. It’s pretty ugly. In this modern world, there’s got to be a way. And I believe that there is.

The Solution

What if that refrigerator was instrumented and outfitted with a cheap microcontroller, embedded web server software and Ethernet or WI-FI Port? Well, especially with all of the broadband households now online, you could make major changes to this productivity-sapping service fire drill.

The first thing you would do under this new scenario is to call up your preferred service provider and explain the problem. After granting them access to the Refrigerator’s IP address using the “Home Network Console” software on your PC, the service provider would run a diagnostic software program on your Fridge. With luck they could diagnose the problem right then and there. Maybe all that’s required is a minor tweaking of the appliance setting that can be done remotely or by you, and only a small service charge is due. Even if it’s a failed part, the service provider could check their parts inventory immediately and order the part if it’s out of stock. Only when the part is available would a service truck be dispatched for a quick installation.

Think of how much service technician time would be saved. Or how much gas saved, fewer trucks on the road, not to mention the productivity regained by the hapless customer waiting at home. The service providers would become much more efficient, allowing them to provide better service, at lower prices, using less techs. Customers would be thrilled and have added productivity in their own jobs. And I believe that the first Appliance manufacturers offering this capability would have a huge advantage and an opportunity to quickly gain market share while enhancing their brand as “cutting edge”. This opportunity applies to just about every capital purchase in the home: Refrigerators, Washers & Dryers, Home Entertainment, Furnaces, Air Conditioners, Stoves, Dishwashers, etc.

Some of you may think this sounds great but it’s too futuristic and not realistic. Yet as I mentioned above, all of the necessary technology exists today. When you think about it, this idea is really just an extension of the software being installed in most modern computers which allows control and problem diagnosis remotely by an IT professional. And the campaign for acceptance of this concept could piggyback the huge investment by companies pushing entertainment and communications products/services over broadband pipes, which is already in process.

Who and When?

So why hasn’t this happened yet? Why is this being ignored, while everyone dukes it out over home entertainment? It’s hard to say because it could really be the proverbial “Next Big Thing.”. But again, it’s not very sexy. And the Appliance manufacturers are not technology-driven companies, and as a result don’t’ innovate or adopt new technology very quickly. But this is going to happen, it’s j
ust too big. It is only a question of when. So what’s it going to take? Maybe it will be a smaller appliance manufacturer who needs an edge to compete, and is nimble and more willing to innovate and take risks. Or it might possibly occur when a network/systems management software company looking for a way to grow, decides to extend their core competency from B2B to B2C by approaching appliance manufacturers with market-ready software. Or an embedded software or silicon company that sees the opportunity to extend their microcontroller or embedded web server from the industrial world to the enormous consumer market.

When will it happen? I don’t know. I expected it to be well underway by now. But sometimes, big ideas are slow to catch on. With this one, I’m convinced it’s just a matter of time. Will your company be the one to capitalize?

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on May 19, 2005
filed in B2C, Business Models, Corporate Strategy, Software/Product Development, enterprise software, hardware

Apple Computer

Apple Computer–one of my favorite topics in Corporate & Marketing Strategy. This is a company that apparently is even more hardy than felines–they seem to have already used up more than 9 lives. Apple has so many boom-bust cycles, and has been given up for dead multiple times. Today they are again on top of the world. They have had many fits and starts on the strategy front, with many failures, managerial changes and restarts. But the most interesting part of the Apple story to me, is the influence of Steve Jobs.

He was there and drove the strategy leading to the initial boom of the Apple II and original Mac. Lauded as a marketing mastermind and entrepreneur deluxe. Then when the Microsoft/Intel duopoly overcame (and almost buried) Apple, he was discredited and widely scorned for “missing the window” by following a “closed” business strategy, with standardization and commodization of PC technology all the rage. Now he has ridden back on his horse as the saviour when Apple was yet again on it’s “relevancy” deathbed, and has succeeded in turning the company around, yet again. Truly an amazing feat. The most interesting part to me, is that at least on the surface, he is following exactly the SAME proprietary product strategy, and the same marketing and distribution strategy that appeared to fail in his previous regime. So what’s changed? Or has anything changed?

It is very possible that Jobs hasn’t learned the big lesson, and is simply following the front part of the technology adoption curve like he did early on with the Mac. He may “run out of steam” once again, as Apple tries to make the jump from the techies and early adopters of “cool” technology to mainstream buyers that require a completely different value proposition. Has the ipod “crossed over” in to the mainstream yet? Has Jobs wised up, and will he be able to pull off his proprietary approach this time by making a few adjustments to his marketing model?

It will be fascinating to watch. There are a few signs he has learned. Apple has recently come out with more aggressively priced products at the low end both on the Mac and ipod line, instead of just skimming profits at the top and leaving the low end exposed. And he has even been able to private label the ipod to HP (which is amazing), while retaining the service revenue streams in that deal. If he can keep pulling deals like that off, he may succeed this time. But his closed, proprietary approach tightly links the ipod/Mac/iTunes very closely Will he alienate mainstream buyers by shutting out these practical buyers desire for “choice”, leaving big holes in the market for competitors? We shall see. It is a great story and will be a telling marketing case study to watch play out. I’d love to hear what you think.

Phil Morettini
www.pjmconsult.com
info@pjmconsult.com

No Comments by admin on March 10, 2005
filed in B2C, Business Models, Corporate Strategy, General Management, Promotion, Software/Product Development, hardware