Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Category: Software/Product Development

Google Chrome–a Strategic Platform or just another Browser?

Google’s new Chrome Browser came out a few weeks ago to quite a bit of attention. It’s big news 1) because it’s from Google and 2) it brings back memories of the “browser wars”, and seems like it could potentially signal the next big battleground in the intense rivalry between Google and Microsoft.

I’ve downloaded Chrome and played with it a bit, but this isn’t intended to be a technical review of Chrome’s merits. It seems reasonably snappy, and has Google’s typical minimalist design philosophy, including a single box for multiple functions (search, address bar, etc.). Your personal preferences will decide whether you like that or not. It has some nice features such as tabbed browsing, which theoretically should prevent one bad browser window from crashing all open browser windows–much like when Windows became multi-threaded. Nice stuff, but doesn’t really fundamentally change the browser game. But technically it’s still a beta anyway (of course just about everything is with Google), and it will evolve over time–so it’s not really time to judge it from a technical perspective anyway.

What I want to do is to examine Chrome as a strategic move by Google with respect to the software and online worlds–what does it really mean, where will it take the market, and what are its chances for success?

Let’s take a look at some of the potential ways that Chrome could affect the marketplace:

A Better Browser
Of course, PR propaganda always will say that this is the “real” reason for bringing out a new product such as this. When I was at HP we used to call this “making a contribution to the market”. Google in particular often gets sanctimonious about this type of thing, with all their “do no evil” and saving the world stuff. Does the world really need another, better browser? Not sure. Firefox and Safari, to name two, are already probably technically superior to IE, and while they’ve made some inroads in the marketplace, they still trail Microsoft by a wide margin. But history tells us that competition is a good thing, and a step forward on major platform like a browser can certainly be thought of as a gateway to allow software innovation to develop faster. Having a company like Google enter the fray should increase rate of innovation that’s possible in the online market.

An Application Development Platform
This is the position that many pundits suspect may be the major impact of Google’s move. In their introduction, Google talked quite a bit about “remaking” the browser for Web 3.0, if you will. And a fresh approach does make sense, given that Internet Explorer was conceived long before serious online applications were envisioned for the Web. With SaaS and Web 2-3-4.0 currently all the rage, having a browser platform designed from the bottom up to accommodate online software applications should be a good thing. If it’s all it’s cracked up to be, this could conceivably be a game-changer and a real threat to Microsoft. The key here is how much of the talk about re-architecting the Browser is real, and how much is hype. This will become more apparent over time as Chrome is further developed, and application developers take a look to see if there truly are features they can take advantage of to build better online apps for users.

An Additional Way To Track User Behavior
This is one of the more cynical viewpoints as to the major motivation behind Google’s introduction of Chrome. The thinking is that this is one more insidious move by Google to “big brother” your online activity. It’s no secret that Google uses web activity data they collect by various means (such as Google Analytics) to fine-tune their advertising business. Certainly owning browser could be seen as the “holy grail” towards creating a complete characterization of online activity. What else might they use this data for, in addition to fine tuning their advertising platform? That’s the question and concern.

A Way To Drive More Search Traffic And Adwords Revenue
Along the same lines as the bullet point directly above, owning the browser could be seen as the ultimate in terms of driving web traffic toward Google’s Adwords online advertising. The first thing you see upon downloading Chrome is the opportunity to switch to Google as your default search engine. How much will they do in this regard, either subtly or in a straightforward manner? As stated above, at a minimum, it gives them the opportunity to make Google the default search engine, which is critical to their base business. Only time will tell how much of a factor this is in Google’s Chrome strategy.

A “Real” Competitor Aimed At Microsoft IE To Make Them Defend Their Turf
Of all the bullet points I’m raising, this is the one I’m most sure of. Google and Microsoft are locked in one of those classic death matches for online software supremacy, and don’t miss an opportunity to tweak their arch-rival and make them sweat a bit. Going back to the application development argument above, there is a feeling that Chrome could serve as the basis for a suite of online Google apps to threaten obsolescence for Microsoft’s desktop software business. I don’t doubt that Google may try to do this. But even if from a technical and marketing perspective Chrome is only a modest success, it almost certainly will get Microsoft’s attention and cause them to expend resources and management attention on browser technology, to an extent they may not have preferred.

SUMMARY
Chrome is intriguing, but it’s too early to tell for sure what the major reason is for this Google initiative. They may not even know for sure themselves at this point. But the product, and more importantly the move itself, will likely make Microsoft react. The ensuing competition should be all good for the user and developer communities, as long as it doesn’t take us toward another tiresome and market-paralyzing “platform API” war. I’ll be following the future development of Chrome closely to see where it takes us–how about you?

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

No Comments by admin on October 9, 2008
filed in Corporate Strategy, Product Marketing/Management, SaaS, Software/Product Development
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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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High Tech Market Research for New Products

One of the biggest problems in High Tech businesses is the “technology-driven” approach that tends to predominate, especially among startups. Much of this occurs due to the fact the many founders of software and technology companies tend to come from an engineering, programming or other technical background. While a strength in creating a flow of technical innovation, this can be a real problem when companies are planning new products which they hope to find a real market for.

Everyone has a tendency to focus on what they know best; that’s just human nature. Folks spend more time on the issues that they enjoy, are more comfortable with, and are more confident about their ability to make good decisions on. Things that don’t fit into this category tend to be put off, or given short shrift.

The result is often products are well thought out from a technical viewpoint–but much less well so from a “meeting market needs” perspective. While both are important, the market perspective is absolutely critical initially. So what’s the right approach to product planning-oriented market research?

When Should The Research Should Be Conducted?
The answer to this is early, often and forever. The earlier you start prior to design or coding, the more time you will have to obtain the most accurate picture of the market that’s possible. Sometimes there are practical limitations to how early you can start–Trade secrets and patent filings, for example, or the lack of a prototype which may be considered crucial to receiving realistic market feedback. Within these limitations, get out and begin interacting with the marketplace as soon as practical. And don’t ever stop. Markets, especially the software and technology variety, are like living organisms. They are constantly growing and changing. What may be true in the early phases of a market could change dramatically over even a short period of time. Companies tend to develop an internal “common sense” that is used in making decisions, which is based upon past inputs. When doing Product Planning this can very dangerous in a dynamic market.

Who Should Do The Research?
The best way to do this research is what I often refer to as the “two-headed monster” approach: one marketing person, and one technical person. Not a lone wolf if you can help it, and please–no committees. Most often, this would be a Product (Marketing) Manager along with the Engineering Project Manager who will lead the actual development of the project. In the smallest startups, it might be the technical founder and the “business” founder, for example the CEO and CTO, or CEO and VP Marketing. The Business/Marketing manager should be in the lead for this task, but it’s important to note that both camps have a role to play in this endeavor. There are two different perspectives on market feedback, and well as two different priorities in questions to ask. Having both parties involved (assuming there isn’t a dysfunctional relationship) usually leads to the most complete and risk-reducing result. In addition, it often eliminates arguments over priorities later in the process after coding starts (and schedules inevitably begin to slip) If only one can be available, it should be the Marketing side–working closely with the Product Development/Engineering lead to make sure their input is included in the process.

How Should The Research Be Conducted?
This is a really broad question which of course depends heavily on the situation. How much do you have available to you in terms of money and other resources? If you’re in a big company, you may be able to commission some objective research. If you are a startup with modest resources, it usually is an ad hoc exercise of visiting and interviewing potential customers.

What’s most important to keep and open mind, and eliminate your own biases and pre-conceived notions. This exercise needs to be a search for the truth, not an attempt to validate your own theories. Also, make sure that you are talking to the right people. If you are planning a market-creating breakthrough product, you really need to be talking to Early Adopter types, not the guy or gal that only buys after everyone else they know. If you are introducing a product that is very similar to other products in an already large market–but maybe at a lower cost–by all means, talk to those mainstream buyers and even the late adopters. Use the current market phase to guide who to get input from.

It’s great if you have the money to do some formal secondary research, but be careful about confusing formality with accuracy. For example, I know of large companies that spend huge amounts of money on Focus groups, while their Product Managers only reluctantly talk to actual potential customers directly. I find this very dangerous (you might say stupid!). Particularly with breakthrough technology, you tend to find a “garbage in, garbage out” phenomena with professionally managed focus groups. But there is that formal, professional looking report that appears very convincing in the aftermath. They can be great if constructed properly, but I have seen a lot of money spent for a very bad result. If the focus group wasn’t run properly, or the technology is very revolutionary, the results can be total garbage covered in a beautiful wrapper. I always advise that there is a good amount of old-fashion ad hoc research–talking directly to customers–to be used as a sanity check, if not the main research technique. There are exceptions, of course. If you are doing incremental product research, where the product is well-understood and the changes are evolutionary, objective research methods such as surveys may be a great way to get a quick and definitive read on the market’s reaction.

How Do You Know When You’re “Done”?
This really depends on what you are doing, but my general answer is that “you will know when you are done when you get there”. It’s important to not put an absolute time limit on the research, if it is at all practical. In some cases in the real world, this isn’t possible, of course. Sometimes you just have to go with the information that you have gathered up to a set point in time, along with your market common sense, intuition, and gut feel. With incremental product releases, waiting may not be possible or necessary. But if you can avoid it, especially if starting a new company, division, or business area, resist the temptation to “go with what you have”, if it just doesn’t’ feel right. In my experience, when you’ve “done enough” research to begin serious product planning–it’s obvious. You will feel very comfortable with regards to the clarity of the current market snapshoot, and feel you’ve really nailed the wants and needs of the market as it relates to the new product opportunity. Try not to get “antsy” and move forward because you’ve reached the original market research end date on your theoretical timetable. Resist that temptation and keep working until you are CONFIDENT that you are there, unless other factors just won’t allow it.

Summary And Conclusions
Make sure that you do sufficient market research before you begin building products; product development on a developer’s gut feel is most often a prescription for failure. There are a few high profile companies which have entered our folklore that were lucky enough to start that way, but usually this approach will quickly empty your pockets, rather than make you rich.
Include both Marketers and Technologists in the Research if at all possible. In summary:

*Marketing should take the lead on market research for new products
*Always make sure you talk to at least some customers directly and informally
*By wary of formal market research results, if not supported by an informal research “sanity check”
*Make market research a continuous company function
*Don’t stop an individual product-oriented market research project until y
ou are comfortable that you’ve got the correct answer.

There you have my thoughts on market research for product planning purposes. I’d love to hear yours as well.

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

1 Comment by admin on March 10, 2008
filed in B2C, Pricing, Product Marketing/Management, Social media, Software/Product Development, market research
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Strategies for a Technology Market Slowdown

Is the world economy slowing down? What are the implications for technology companies?

Recently, technology stocks (along with the stock market in general) have tanked. There is a credit crunch that shows no signs of abating, and inflation is rearing its ugly head in some markets, and political gridlock seems to be the order of the day.  Is the economy headed for a “double dip” recession–taking technology businesses down the drain with it?

I don’t think so, but I’m not in the business of forecasting such things. Tech stocks are often affected more severely than average in an economic downturn, which affects technology industry investment and ultimately tech growth rates.

So what should you do if you’re the CEO of a software or hardware tech business?

Be Prudent, But Don’t Panic
Now’s certainly not the time to stick you head in the sand, and hope the economy doesn’t get any worse. It almost certainly will; but more importantly, how will it affect your company? That’s what you need to ponder. Is your product a “must have” or a “very nice to have”? Obviously the “nice-to-haves” will have a tougher time in a declining economy, and should plan accordingly. So take the time to analyze you situation, and make a forecast for your own business, based up the unique circumstances of your market and company. Remember, hope is not a strategy.

Look For Opportunities to Outflank Weaker Competitors
For strong players, declining economies can be a great time to pick up market share from weaker competitors. If you have the resources and can do it safely, now might be the time to run a promotion, or selectively increase your marketing. It’s counter-intuitive to most managers’ instincts. But weakening the competition during a downturn can lead to stronger growth when things turn back upward.

Slow Near-Term Expense Growth, But Don’t Compromise Long-Term Initiatives
In most cases, companies will want to carefully monitor, and possibly cut back on their spending. You want to make sure that you don’t put your company in jeopardy, by have expenses out of sync with flat or declining revenues. But try your best to keep intact the initiatives that are critical to long-term growth. You must continue to think long-term as well as short term, assuming you don’t get in a situation where your survival is at stake. Cut back on advertising and office space if you’re seeing a slowdown–but make sure you don’t cut the product development project which will lead to growth 18 months hence. These can be tough decisions, but they really separate the long-term successful CEOs from the flash-in-the-pans. Almost anyone can manage when times are good.

Limit The Growth Of Your Staff
While prudent spending can be wise during a downturn, aggressively increasing the size of you staff usually isn’t. There are always exceptions, of course, but adding too much staff can really bloat your fixed cost structure, in a manner that limits your management flexibility. Unfortunately, many companies are often most aggressively adding staff at the end of a growth cycle–just in time for the downturn. If this leads to layoffs, it can have a devastating effect on your company’s morale.

Although layoffs are sometimes necessary, they are always painful and hurtful to the company culture–unless the company culture is already of the “Attila the Hun”, cutthroat variety. The founders of one of my former employers, Bill Hewlett and David Packard, ran HP for many years with a rule of thumb that limited staff increases to 25% of revenue growth. This helped them avoid the natural inclination to hire someone new every time a new task was identified. I believe was an important factor in many years of smooth growth–without layoffs. This particular metric might not be right for your company, but something similar could prove to be a useful damper on excessive hiring.

Make Sure That You Have Money For A Rainy Day
While it’s no time to panic, it IS time to make sure that you have the financial resources necessary to comfortably cruise through a downturn.  Availability of funds and terms will only get worse if the  stock market heads down further and the credit crunch continues. Also, make sure that you have available the largest line of credit possible with your bank. It may cost you an extra few thousand dollars a year, but its excellent insurance, if you are surprised on the downside. If you’re in startup mode and financing yourself on credit cards and home equity lines–maximize your future access to these as well! Whatever your sources of funds, make sure now that you’re financially well prepared for whatever the future holds.

Be Poised For The Next Upturn, Whenever It Happens
I mentioned earlier that you should try your best to keep long-term initiatives alive. In that same vein, your thought processes should CONSTANTLY be focused on the next upturn, in all of your decision-making. Again, this assumes that your survival isn’t in question. For example, while massive hiring isn’t usually wise during a downturn, you want to always be open to unique opportunities that may not come along often. Say there is a talented executive available, only because of the downturn. If you can safely afford him or her, snap them up now, before a competitor grabs them. Or retain a talented consultant to position yourself with a new technology direction or market segment when growth inevitably climbs. Downturns often present opportunities to improve your business when the next growth cycle occurs. But you need to be “looking ahead” and making good decisions now, to take full advantage of the upturn when it finally does.

Summary
Once again, now is not the time to panic. But it is an important time to plan. Anyone that can predict what will happen with an economy should go to the nearest casino–no need to waste your time with a software or technology company! So I suggest that it might be wise to do a “best-most likely–worst” 2 year forecast now, and try to plan as best you can for the two extreme cases. Post a comment and let me know your thoughts on how the economy and the tech industry will fare in the coming months.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on January 14, 2008
filed in Business Development, Corporate Strategy, Financing, General Management, Mergers & Acquisitions, Software/Product Development, Startup/Early Stage
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Negotiating and Working with Large Technology OEM Partners

The Holy Grail for many software and technology companies, especially the early stage type, is the big deal. Everyone is looking for the big deal, the one that will fund the company’s early activities, provide market credibility and momentum in the marketplace. Of course, if it goes well, there can be nothing better. Many times the big deal takes the form of an OEM partnership with a much larger company. But often when these deals do happen, they end up fitting in the category of “be careful what you wish for”.

TARGET YOUR OEM PARTNERS CAREFULLY
This is where it all starts, good or bad. It’s important to pick compatible partners. Companies looking for large OEM partners are often blinded by the potential of what the OEM can do FOR their business. They often fail to pay any attention at all to what the OEM might do TO their business!

Can the partner cause severe channel conflict? Will they tie the small company up in endless meetings, procedures and negotiations? Do they have a corporate structure and culture so foreign to your way of doing business, where you end up pulling your hair out from frustration–unable to accomplish even the most simple business objective without moving mountains? Sometimes with large companies, its difficult even figure out who you need to speak with–let alone get a prompt, unambiguous answer.

Get to know your partners well before you sign a deal. It’s tempting to rush in before “they change their mind”, but the actual relationship is critical to potential success. It’s like dating before a marriage–no matter how attractive the partner is, you need to make sure you can live with them later on.

NEGOTIATE FROM STRENGTH
I don’t like to do deals with people that are sure they have the upper hand. If they think they can push you around–they almost certainly will. Usually one partner needs the other to a greater extent, but you want to try to avoid dealing with partners where you have no leverage at all. It generally doesn’t’ turn out well. Make sure that you negotiate a deal that you can live with. Above all, you need to have a “line in the sand” that you won’t cross–and be prepared to walk away if the negotiations cross that line.

This can be a painful and difficult thing to do when you are seeing big “dollar signs” in your eyes–and fear if you stay strong, you might blow the deal. But remember, you have something that the other side wants as well–or they wouldn’t be talking to you. If you don’t know what your minimum successful deal looks like, and you aren’t prepared to walk, you may sign a deal that you will regret. Not to mention tying up your time and resources, which might have been used working with a more compatible partner.

WORK ON EVEN TERMS
Once you’ve negotiated a deal that you can live with (and hopefully prosper with!), it’s time to get to work with your partner. Try to keep things as fair and even as possible in the relationship. Of course, it’s important to be accommodating to your partner, and respect the differences in operational procedures. Big OEMs will usually move slower than you, be more process-oriented and structured, and include more people in the relationship. All of this is fine, but it needs to be tempered so that the larger partner doesn’t “swallow all of you available resources whole”. It can easily happen if you don’t guard against it. They have more resources than you (but will always think they are busier!) as well as more process-driven requirements that need to be met. But don’t be afraid to draw the line at a reasonable point, and remind them that you have fewer people and resources available. Suggest a phone meeting instead of flying three people across the country–ask that they come to your place, rather than always trekking to their headquarters. Propose that one of there folks spearhead writing that joint position paper, instead of some scarce resource in your company–you get the picture. Sometimes larger companies will smother you without even knowing they are doing it–don’t be afraid to remind them that you need to do business a little differently.

KNOW WHEN TO SAY “NO”
If you’ve tried everything you know, politely, to keep the relationship equitable and reasonable–but it just isn’t–don’t be afraid to say NO. I meet many smaller company executives in my consulting practice whojust don’t feel they can do this with a larger partner. They’ll talk tough in internal meetings, but when back in discussions with the partner, the tough talk turns to submission. They just feel like the partner is too important to their business to risk ever offending them in any way. That attitude is a prescription for servitude for your company. I’m not suggesting being unpleasant; in fact, when standing up to a larger partner, it’s critical to be calm, polite and non-defensive. But by all means be firm in delivering the message of what your business can, cannot–and won’t'–do. If you don’t, what could be a profitable relationship can turn very sour.

HAVE REALISTIC EXPECTATIONS
The last point I’d like to convey is that it’s important to have reasonable expectations in partnering with large OEMs. Many companies go into these deals believing they will be “company-makers”. In my experience, this rarely happens. Understand what the OEM can do for you, and build your business model around the most conservative projections of their performance that’s possible.

Companies usually turn to OEM products from partners to fill niches that they don’t fully understand, or don’t feel would pay back–if they invested in developing it themselves. It is very rare for products licensed or resold from partners to get anywhere near the push that internally-developed products do. Be realistic about this, and you won’t be disappointed. If revenue exceeds your conservative expectations, you’ll be overjoyed.

SUMMARY
That’s my condensed advice on working with the big software and technology OEMs of the world. This is a common activity for many companies–what’s been your own experience? Post a comment and let me know your own view.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on December 14, 2007
filed in Business Development, Corporate Strategy, Distribution Channels, Software/Product Development, Startup/Early Stage, enterprise software, sales
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System Integration vs. Product Development

I’ve recently engaged on assignments with two new clients. Both of them have businesses selling to large, blue chip customers. Customers of the size that are used to “having it their way”; as a result, getting a deal with them often includes the need for a lot of customization.

The interesting thing about these two clients is how they perceive and approach that need to customize.

A Tale of Two Companies

Company A views customization somewhat as a pain and distraction, something to be controlled–I am assisting them with creating a standard solution offering menu outlining the “Base” offering, with a list of options available at an added cost. They really want to discourage certain customizations, absolutely won’t do some things that will be asked, and want to make sure that they charge dearly for items that they find painful. They have the classic mentality of a product company; they want to do the amount of customization necessary to make a large sale to this important customer–but NO more than they have to.

Company B, which also considers itself a product company, has a very different mentality about customization. They welcome it, pride themselves on it, and position themselves to these potential large clients as someone that can quickly bring solutions to the client, customized to their desires. They want their big account reps to be scouring the big accounts for unique pain points or opportunities, which might fall within the company’s core capabilities, enabling them to propose a customized solution. In fact, up till now, their product development approach has really been to find out what individual accounts want–and build it for them.

So which of these two business models is the best way for technology companies to go?

System Integration Business Models

Advantages:
*More flexible and able to change with shifts in the marketplace
*Not as capital-intensive due to less “betting” on upfront product development
*Easier to grow business organically with internally-generated capital than in a product business

Disadvantages:
*Less risk due to lower upfront investments
*More competition; System Integration is an “easier-entry” business
*Generally lower operating margins
*Growth is less scalable than a product-oriented company

Product-Focused Business Models

Advantages:
*Provides greater opportunity for strategic advantage and resulting fast growth
*Less competition if a product/brand/technology differential advantage is created
*Can scale much quicker if a hit product is developed
*Higher operating margins if product is successful
*Usually more marketing-driven and less labor-intensive
*If creating a very large company is the goal, much easier to raise outside capital

Disadvantages:
*Much more risk of “crib death”, resulting in complete capital loss if first product has problems in development or marketing
*Harder to “get over the hump”; success is harder to come by, and success often happens as a step function after a difficult startup period

First of all, I want to emphasize that there isn’t necessarily a “wrong” approach with either of these business models. You can make a lot of money pursuing either model. Both of the companies I have used as models have managed to attract blue chip customer which would be the envy of any company. What we are really talking about here is the difference between a classic product-driven company and a system integrator.

Company A is that classic product-driven company. They customize when they have to, but also have a point where they will say “no”.

Company B also self-identifies itself as a product company, and in fact they have built their business around a small number of standard offerings. But as their core strategic advantage they really are utilizing relationships, the ability to customize beyond what standard product companies (especially larger ones) are willing to do, as well as to react very quickly to customer requests. They’ve built a very nice business doing this, but have some frustrations as well. They are highly dependent upon a small number of major accounts for virtually all of their revenue, and have the major revenue/profit swings that are associated with this type of business–up one year, back down the next. They also are in constant fear that a larger company will come along and “take away” their marketplace, because they’ve continuously failed to create new products which build upon a core offering which is very dated technologically. The core offering appears long-in-tooth and vulnerable. This company is very account-focused, and the lack of a market focus has kept them from being able to create additional, broadly marketable products which provide them with a strong proprietary advantage (and causes a lack of sleep at night!)

Company A understands who they are and what they want. That doesn’t guarantee success, but it makes it much easier to build a plan that everyone agrees on. At that point success or failure usually depends upon execution, unless the plan is awful. If failure ensues in this scenario, more times than not, the problem is in execution. Company B’s biggest problem is that they are floating right in the middle between the two business models. They are trying to leverage both of these business models, and struggling with execution, in some ways with both.

SUMMARY
It isn’t impossible to combine these two business models successfully. I’m sure that many of you can’t point to several examples of such a very successful compromise. In fact, many technology companies combine both of these models to some extent, with good success. But I find that usually, a company identifies itself primarily as a product company first, or a systems integrator. That identification is their strategic focus, and takes precedence when prioritizing the use of always scarce assets.

The secondary business model is usually utilized on an opportunistic basis. Product companies integrate and customize as needed to get a big deal. Integrators create “products” to fill the needs of a big account, and sometimes happily find they are saleable to other accounts. Occasionally, these “products” prove so widely saleable that they are spun off into a separate product company, or the integrator changes its focus into becoming a full-blown product company.

The most important thing, in my opinion, is to understand who you are, and what you are trying to accomplish strategically. It’s the company’s that are trying to leverage both business models at once, without one model taking the lead, that gets itself in a heap of trouble. That’s my opinion–what’s yours?

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on September 21, 2007
filed in Business Models, Corporate Strategy, Financing, Operations, Software/Product Development, Startup/Early Stage, VARs
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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

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

Business Models in the SMB Market

The SMB market is typically a very popular topic for hardware and software companies. Every one wants to sell to the Enterprise market; as a result, competition is fierce and standards are very high. If you get to the Enterprise market early, with an innovation that creates a new category, you can find success if you are truly making a contribution to the market. But late entries into a market segment, as well as early stage companies competing with larger, established companies, often have a very tough go of it. In these situations, attention often turns to the Small and Medium-Size Business, or SMB, market.

And why not? At first blush, the SMB market appears to be huge, as well as underserved. It looks like a perfect haven for an early stage or turnaround company with a solid product, but not quite enough differentiation, brand name, or marketing muscle to push out the big boys in the Enterprise space. So the decision is made to focus on SMBs.

What’s Wrong With This Decision?

There is nothing wrong with this decision, per se–if it’s done with eyes open, for the right reasons. But too often, it is done to run away from a problem (the inability to penetrate enterprises), rather than run to a great opportunity. A lot of times, companies see the SMB market as easier turf; simply a larger, less competitive market than the Enterprise market. Major problems can result from this type of mentality, and I see it quite often in my consulting practice. Companies that enter the SMB market from this perspective usually aren’t fully prepared to do what it takes to be successful, in what is a very different type of market than they may be familiar with. So where are the land mines in the SMB marketplace?

What’s Not Obvious in Marketing to SMBs

The first thing to consider is that customer needs are often quite different. A lot of this depends upon what technology and market segment you are in, and whether your product is aimed more at the “S” (small) segment, or the “M” (medium) segment of the SMB space. For example, if you are selling a single user productivity tool which is useful staff accountants, you may not see much difference. If on the other hand you are marketing a company wide, networked application of some complexity, the differences may be huge. Like everything in technology marketing–the devil’s in the details. Every situation needs to be evaluated closely, and treated differently on its individual merits. The most important thing is TO NOT ASSUME THAT THINGS ARE THE SAME BETWEEN SMBs AND ENTERPRISES IN YOUR CATEGORY. Do the work, evaluate the situation–don’t assume. Assumptions, without verification, are what get you burned in this transition. Below is a list of some of the major differences in the SMB market:

IT Departments are small and less of a factor–if they exist at all.–In Enterprises you may be dealing with persnickety CIOs that want thing just so. In SMBs, if there is a CIO at all, he will be looking for an off the shelf SOLUTION that will “just get the job done”. Or you may end up struggling to figure out how you can sell your complex solution, to a company that has NO IT DEPARTMENT AT ALL.

There is less money to spend–It’s harder to make money with big ticket hardware and software, let alone customization and expensive services. Your products better have value – and margin – right out of the box.

Ease-of-use is even more critical–There probably is no training department or other corporate staff, and people are busier overall. If they can’t figure out how to use it quickly, you’re going to have a hard time selling it.

There is much less time available to purchase products–Even the sales process may be compressed, in terms of how much time the prospect spends reviewing your marketing literature, or talking to your sales people. The actual TIME ELAPSED during the sales cycle could be EVEN LONGER due to lack of time available to the prospect, but the INTENSITY of the purchasing engagement is often much less.

How Do You Need To Structure Your Business Model Differently?

Lower prices– They just can’t, and won’t pay the same prices that you can get in the Enterprise space, in most cases. So you’d better come into this segment with a price and value proposition that makes sense to these price-sensitive customers.

Marketing vs. sales–The SMB market is more marketing intensive, with respect to marketing/sales ratios, than the Enterprise market. There are many more customers; the average sale amount is much lower, and much less face time available for direct sales. While in many respects Enterprises are the most demanding customers in the world, you’ve got to be a better marketer to succeed in the SMB space than you need to in the Enterprise world.

Low cost sales force– With much lower average sales amounts, and much less time available on the customer side, it is usually impractical to have a large, high-cost field sales force. Inside sales forces are the general rule in this market. If you have a product that demands customization and hands-on support, VARs are a good adjunct to consider. The more they are taking orders generated from marketing, and the less they are cold calling prospects, the better.

Better usability and reliability– You’ll need many more units being sold to get to the same level of Enterprise revenue, across a much larger customer base, with much less (if any) maintenance revenue to fund a large support staff. Your product better work when it’s installed and better be very easy to use over time. Unless you have a highly customizable solution and are using VARs as a channel, SaaS is a great platform for delivering software to this market.

Little or No IT support–The good news is that there is no prickly IT committee or staff that you have to “go through” to sell to the real users. The bad news is that if even the littlest thing goes wrong, there’s no one internally at the customer to pick up the slack–you’re going to hear about it directly from the user–over an over again.

Summary

The SMB market is actually a simplistic catch-all phrase for a large, heterogeneous group of markets. But it is a useful abstraction, as a starting point for understanding how to penetrate and thrive in B2B marketing to smaller companies. I hope this short introduction is useful–feel free to pitch in and post a comment adding to this topic.

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

1 Comment by admin on June 10, 2007
filed in Business Models, Corporate Strategy, Distribution Channels, Pricing, Product Marketing/Management, Software/Product Development, Startup/Early Stage, VARs, sales
tagged , , , , , , , , , , ,

Open Source Software Business Models

Open Source has been gaining ground for quite some time. Some would say, using the example of Linux, that Open Source has Microsoft and the rest of the traditional software giants on the run. No doubt that open source software has had a major impact on the economics of the software business, across many different market segments.

But is it a good model to use in your software business–if you are actually interested in making money?

Not Generally My Cup of Tea–But Let’s Take Another Look

I will admit that my feelings toward open source business models have always been lukewarm, at best. Maybe there’s a bit of dinosaur in me. But the idea of putting into the public domain the code that you’ve sweated to produce, at great emotional and financial expense rubs me the wrong way. It trikes me as fundamentally opposed to the basic nature of capitalism and the entrepreneur.

Like just about everything else in business, however–the devil’s in the details. Using Open Source methods has been shown a number of times that it can be a competitive weapon in the software business–when used thoughtfully and strategically.

Poor Use of Open Source

Let’s first examine a typical example of what I consider a misuse of the Open Source model. It often goes like this: Technical founder with a crack programming team, and little marketing money or expertise, decides that they are going to use Open Source to inexpensively roll out their new product in the market. Being programmers, they love the idea of Open Source from a user perspective, and so have a strong belief that the market they are aiming at will love it as well. Unfortunately, they aren’t trained as marketers, and don’t think the situation completely through.

Here are some of the negative things that can happen:

1) Since the company is releasing the initial product as Open Source, they are not quite as diligent as possible with QA of the code, as well as other “commercial product” polishing activities. Basically the product is rushed to market. The product isn’t well-received, costing them the one opportunity that you have, to make a good first impression

2) Open Source tactics are used prior to developing a proven business model: “We’ll release a free, Open Source product, and have so many users, we can figure out how to make money later”. This is reminiscent of the old “eyeballs” business plans prevalent just before the Internet bubble burst in 2001. It’s very important to have a solid idea of what the Open Source release is going to gain you, and what the steps are that will to allow you to capitalize on the wide attention. Ultimately, you need to monetize SOMETHING. There are ways to make money with an Open Source model: customization, training, training, premium versions–but in many instances, these won’t really support a serious, mainstream core software development effort–if you are also interested in profits.

3) The company has done some thinking about the business model issue, and has decided that there will be a free, Open Source version released initially to seed the market. The follow on product will be commercial/paid with added features, with the hope that the large user base from the free version will upgrade to the more attractive premium version. But without expert marketing analysis, balancing how much to “give away” in the free version, and how much to “hold back” for the premium version, can be quite tricky. If you don’t get the balance right, the potential revenue stream can be greatly reduced.

4) The company is in a market segment that highly values order and traditional business practices–in this circumstance, using an Open Source model could seriously devalue your product, in the eyes of your target prospects.

Good Use of Open Source

The other side of this story is that when implemented thoughtfully, Open Source can be a major strategic weapon in certain markets. Let’s look at some scenarios of how an Open Source strategy might be implemented more shrewdly:

A) When entering a new market against a huge, strongly entrenched (but slow and stodgy) competitor, where it will be difficult to get traction with traditional marketing methods. This is Open Source used as a Guerilla tactic.

B) In markets where the availability of Source Code REALLY IS IMPORTANT. This may be for reasons of integration, or for reasons of business continuity (for example, a bank application) where they would require source escrow anyway.

C) Having a free Open Source version for one type of small volume customer (internal developments), but to redistribute the code for commercial purposes, there is a royalty/fee. This is using the Open Source model only partially. MySQL has used this model very successfully for quite a while.

D) Formulating a well thought out, hybrid business model ahead of time. For example, a free Open Source version is made available to seed the market. Backed by extensive research and marketing planning, a paid premium version is made available, with just the right features at just the right price, creating huge upgrade numbers with minimal marketing expense.

E) An Open Source product is created for a particular market segment, with data backed by research that this segment will require and pay for substantial levels of integration, customization and/or support.

Summary

That’s my view of the good and bad in Open Source as part of a commercial business model. Used well, it can be a major weapon–when the situation calls for it. But if used blindly by companies just following a trend toward the newest thing–it can be the “Business Model of No Return”.

Drop me a note or post a comment with what you think.

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

3 Comments by admin on March 29, 2007
filed in Business Models, Corporate Strategy, Software/Product Development, Startup/Early Stage, enterprise software
tagged , , , , , ,

Windows Vista – What will it mean for Microsoft?

As everyone who hasn’t been secluded in a cave for the past couple of weeks knows by now, Microsoft recently announced release of its new Windows Vista operating system to its large business clients. I’m sure that the timing of this announcement has been well thought out-and who am I to question it, really?

But on the surface at least, it’s pretty curious.

CURIOUS INTRODUCTION STRATEGY

First of all, they didn’t shipping the consumer versions first, even right before the Holiday shopping season, the period during which the bulk of the annual volume of PRACTICALLY ALL RETAIL PRODUCTS is sold. This is a huge hit to Microsoft’s sales, as well as their retail partners, system manufacturer partners, peripherals manufacturers, etc. Really, its a major hit to the whole Windows eco-system, because Windows upgrades drive upgrades of everything else.

In addition, they DID ship it to their large customers–right as the Holiday Season started. First of all, these large customers are notorious for lagging in terms of Hardware and Software upgrades of any sort. They are large, and everything takes them a while to do. But they also need to test and modify custom internal applications, and with something as fundamental as a major OS upgrade, IT shops really want to wait and make sure most of the bugs and issues are worked out, prior to undertaking massive upgrade conversions. I’ve seen estimates that this customer class won’t start upgrading until the 3RD Quarter of 2007. It seems like a delay of a few weeks wouldn’t make much of a difference.

So what was the hurry? Beats me. Again, on the surface, it seems like a case of misplaced priorities. Sure looks like I would have put every man possible on getting out the consumer versions, and saved the Enterprise versions for later. But I’m sure that there are good reasons that and outsider like me is not privy to, why this wasn’t desirable of possible. I’m guessing that Microsoft would probably say that the consumer versions have more testing/QA required, and it just wasn’t possible to get the consumer versions on the shelf by the Holidays, no matter the resource allocation. They’ve already missed several Holiday Seasons with the extreme delays on Vista, so what’s one more, anyway? So I’ll give them a pass on this one.

WILL MICROSOFT REMAIN DOMINANT?

But the bigger question here, besides the nitpicking about timing, is what will Windows Vista mean to Microsoft in the longer term? Will this launch, much hyped by the company for what seems like forever, be a point of inflection for their fortunes–refreshing their sales momentum, and restoring their dominance? Yes, I realize that the guys in Redmond aren’t exactly on the way to bankruptcy at this point. Microsoft remains a cash machine, enjoying outsized margins, generating enormous profits, and remaining a feared competitor for MOST of the software industry.

But it does seem like the company has slowly lost a bit of its edge the last few years. People in the industry retain a healthy respect for them, but it’s not quite the same. It wasn’t too long ago that VC’s were designing their portfolio’s around NOT competing with Microsoft. If you put a company together that was going to compete with them head-on, you risked being laughed at, and having your spouse nervously requesting that you see a psychiatrist. For quite of while, going out of your way trying to compete with them just WASN’T DONE.

That has all changed.

VISTA HELPS MICROSOFT, BUT WHAT IS WORKING AGAINST ITS CONTINUED DOMINANCE?

1) The OS is still important, but the Internet and Web-based application development has changed the landscape considerably. While the OS is still extremely important, instead of being a POSITIVE competitive weapon that Microsoft controlled to provide advantage for their own applications, it has come to be perceived as a high-cost security problem that has left the company on the DEFENSIVE. The application platform of choice for end user interfaces going forward appears to be the Web, for a lot of reasons that we won’t go into here.
2) Even on the OS server side Microsoft is under attack, with “free” Linux providing a much lower cost solution with greater stability and security–according to many large corporate IT shops.
3) The Web has evened the playing field for the competition. Like most large companies, Microsoft has struggled to keep up with the changing rules of the game. They have been a step or two behind for a while, but have always been able to catch up in important new markets, using the fast follower approach. But with a continuously lessening advantage from their near-monopoly platforms, it’s getting harder for them to come from behind and dominate markets. Google is currently kicking their butts in Search–the most high profile example.
4) The final major threat is the advent of advertising-driven business models, which threaten to put a large dent in the classical paid licensing model that is a huge cash cow for Microsoft. It is always hard for the large, entrenched leader to obsolete their revenue model/streams.

I believe that Microsoft is struggling greatly with these issues.

Finally, the fear of the company just isn’t there anymore. People will still tread carefully in their footsteps, but the company is definitely going to be facing increasing competition by upstarts using novel approaches in the coming years. This will stretch the company that much further, as they are required to respond to competitive threats across a much broader landscape than in the recent past.

HOW GOOD IS WINDOWS VISTA-THE PRODUCT?

What about Windows Vista the product? How good is it? I haven’t gotten my hands on a copy personally, but everything I have read to date leads me to believe that it is a solid–but fairly pedestrian at this point–step forward for the Windows OS. One major IT magazine’s analysis was that the code is solid, and it should prove to be a good platform for improving security in the long run. There is also wide belief that it will help IT shops manage their PC assets more easily and cheaply. But others have stated that everything Vista enables concerning an IT shop could today be implemented by a well-run IT department with Windows XP. This is hardly a ringing endorsement after 5 years, and many slipped intro dates. While it may be fundamentally better for security, Microsoft has a huge problem with the Windows OS, no matter how well they design and code security changes. Any system can only be “hardened” so much. With such widespread use, Windows has a big target on its back from every hacker in the world. Also, as the OS becomes more naturally complex and sophisticated in capability over time, that many more holes open up for people to attempt to exploit. I believe it is ultimately a game Microsoft cannot win.

From a consumer’s perspective, the sexiest new feature is the 3D user interface, which requires a very high end graphics subsystem. But the problem here is that for most people, this is projected to be a $500-700 upgrade. Again, systems and peripherals manufacturers will love it because it pulls hardware sales–but the new hardware requirements should slow adoption by consumers.

Of course, much of the fancier improvements to the Longhorn project had to be dropped as the coding slipped. So I’m sure there are many incremental improvements that will occur in Vista in the coming years. But remember, this was billed by Microsoft as a great leap forward, for many years. It looks at this point like an incremental upgrade–not a revolutionary one.

THE BOTTOM LINE

So what’s the bottom line for Microsoft with its new Windows Vista OS? It’s always very dangerous trying to predict the future in high tech. The law of unintended consequences looms large, and those consequences usually aren’t readily appare
nt until much later. But if I had to project today, I’d say that Vista will provide Microsoft with a nice short and medium term sales boost. But I also believe that it will do nothing to slow down the powerful forces already in motion, that are slowly eroding the Microsoft near-monopoly, and may eventually make it simply a “mortal” company again.

That’s how I see it–post a comment and let us know your view.

Phil Morettini
PJM Consulting
www.pjmconsult.com

3 Comments by admin on December 16, 2006
filed in B2C, Business Models, Corporate Strategy, Product Marketing/Management, Software/Product Development
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