Competing with Entrenched Software & Technology Industry Giants

I was reading an article in the business section of our local newspaper recently about a new Search Engine name CUIL (pronounced Cool). I already knew about CUIL, because I had noticed that it had recently indexed the PJM Consulting website. One of their claimed differentiating factors is that they've their search index is twice as large as Google's is. In addition, they believe that they have improved the ranking algorithms, and they also present the results in a different way. The results offer fewer results per page, but more comprehensive information on each site, and often include a photo or other graphic. The premise of the article was that it may have a chance to be a real competitor vs. Google, or at least Yahoo and Microsoft, for market share in the huge search business. The founders have impressive pedigrees and come from Google on the technical side.

The article gives credence to the possibility of CUIL being a potentially serious competitor to Google, Yahoo and MS, while pointing out that quite a few companies have attempted to enter this fray, creating barely a blip in search engine market share to date.

I've taken a quick peek at CUIL--the presentation is definitely different and may be superior for some tastes. But at least at this early stage, in my quick look I wasn't terribly impressed with the relevancy of the search results. No matter how you present the data, the relevancy of the results is paramount in search. I'll be sticking with Google for now, but will keep an eye on CUIL to see how it develops over time.

Will CUIL succeed? It's of course way too early to tell. They're taking on what is arguably the most powerful technology company in the world today, attempting to compete with them in their core area of strength. So you can't say that the odds of success are high, which they rarely are for any startup. But this IS the technology business, so you've got to give them at least a puncher's chance. Like it usually is, the key will likely be how well they execute.

But execution aside, what's the best way to go about competing in the software and technology industries today? Should you just steer clear of the elephants of the industry? Many believe this is prudent, but I think it is not always necessary. After all, it wasn't so very long ago that is was nearly impossible to get a venture capitalist to fund a company that was perceived to compete in a category with Microsoft (which could be viewed as MOST categories of the software business). Yet a short time later, Microsoft is considered in many ways a dinosaur, one that is quite beatable (don't get the impression that I'm writing MS off--I'm not. Redmond may yet rise to dominate again).

If it isn't insane to compete with the giants, what are some best strategic practices that an early stage tech company can adopt to give it the best chance to survive and thrive, when entering market categories with large, entrenched competitors?. Let's take a look at a few ideas:

Make Sure that you can Differentiate - This would seem obvious for any business, but when you are going up against a huge company with a good brand--well, don't even try it without significant differentiating factors. They don't need to be product related, necessarily--it could be free and outstanding support, better price points, exceptional ease-of-use, or many other things. But don't kid yourself--you will need REAL differentiation.

Pick a Niche, any Niche--at least to start - It is important to pick a small enough niche so that you can provide that true differentiation discussed above. Your investors may want you to attack a huge market, but if you don't have that influence pushing you in that direction, pick a small area that you can have a higher chance of dominating when you're new. If you are successful in your initial niche, you can then broaden out into adjacent segments. Down the road, maybe you take on the giant "head-on"; but starting out is NOT the time for this.

Raise more money than you think you will need - Every once in a while a new company will "hit on all cylinders" from the very beginning. But in my consulting practice at PJM Consulting, I rarely see this. In fact, a good part of my practice is helping companies "pick up the pieces" after their initial business plan or execution has gone awry. No one likes to give up more equity than they need to, but things usually take longer to start working than you initially project. There are usually too many things that you don't know, until you really get into the marketplace. Plus, it's generally easier (and cheaper!) to raise a bit more money at first, than it is after that first misstep. A little extra funding in the bank can be a good insurance policy against a capital crisis early on.

DON'T try to be like them - A common mistake that I often see early stage companies make is trying to "be like the giant competitor". Sometimes this comes from an inferiority complex, and sometimes because the founders come from one of the giant companies themselves. The last thing you want to do is create a big company bureaucracy. In most ways, you want to operate VERY DIFFERENTLY from you huge, slow-moving competitor. Resist the urge to create huge amounts of process before your company size dictates it as necessary. Be very careful about hiring away senior executives from you giant competitors, unless you are certain that they also have successfully operated in an early stage company before. Stay as fast and nimble for as long as you can--that is a primary advantage at this stage of a company's development.

Recognize the giant's execution weaknesses and beat them there - Analyze the large competitor's business, and try to create your differentiation where they are weakest. It could be faster customer service, better channel relations, better ease-of-use, etc. If you concentrate your differentiation where they are doing the poorest job, it will accentuate the difference to the marketplace, and you will have a better chance of your advantage being recognized.

Focus, Focus, and Focus - This advice can be viewed as the culmination of the points above. Make sure that you don't try to do any more than you can do EXCEPTIONALLY WELL at this stage. You can always expand your focus later. Remember, there is a good chance we would all be speaking German, if Hitler hadn't prematurely opened up a second front with Russia in World War II. The tech landscape is littered with companies that followed an analogous strategy, with similar disastrous results (Novell and Netscape are two former high-flyers that immediately come to mind).

SUMMARY

As an early stage company entering a market where a major company or two are the known leaders, make sure that you don't "bite off more than you can chew". You can always expand your focus after initial success. Contracting your focus is usually quite a bit more painful, and many companies don't make it through that transition. That's my advice on how to attack a large, entrenched competitor. As usual, I'd be interested in seeing your comments.

Phil Morettini
PJM Consulting
www.pjmconsult.com
pm@pjmconsult.com

Which Online Advertising Platforms Should You Include in Your Marketing Mix?

I often write about online marketing, as many of my regular readers know. A frequent topic of mine is Pay-Per-Click (PPC) advertising, also known as Cost-Per-Click (CPC). Occasionally, people will refer to this marketing vehicle as Search Engine Advertising. What you're hearing this called more and more is "Google Adwords".

HAS GOOGLE ADWORDS "BECOME" ONLINE ADVERTISING?

Of course, its kind of like asking for a "Coke" when you want a soft drink, or "Scotch Tape" when you are seeking sticky-backed tape. It's the age old story of a brand DEFINING the category itself, and usually happens when a product becomes dominant in a market segment.

The conventional wisdom these days is that Google has basically won the Online Search Engine-based advertising wars, so don't even bother with any of the other advertising platforms out there. This topic is the very reason for Microsoft's recent offer to buy Yahoo for a gazillion dollars; they are motivated to do this because Google is so far ahead that they don't appear able to catch up on their own. This raises the issue of two also-rans in a market, combining to take on the market leader--which usually ends in disaster--but we'll leave that for another discussion…

Back to the main question, should you focus your online advertising energy and budget strictly on Google Adwords, or broaden your campaign to other platforms? I have an opinion, of course, and I'd like to illustrate that opinion with my own pragmatic advertising experience, as well as some more theoretical marketing theory which has served me well across a variety of markets. Let's start with the theory, using an experience from my past to illustrate my viewpoint.

MARKET NICHES: HIT'EM WHERE THEY AIN'T

As markets develop, conventional wisdom usually instructs you to "get on the bandwagon" of the market leader, and don't waste your time "where the action isn't". Back in the 90s when I was running a systems & network management software business, Novell Netware had the overwhelming share of the Network Operating Systems business--roughly a 70% share. As a result, most of the companies in our general space focused on making their add-on products compatible with the Novell platform. They ignored two other competitors: Microsoft LAN Manager and Banyan VINES. There were almost no add-on systems management products available for these two platforms. We ported our applications to these two platforms, with excellent payback. Not only were we able to make easy sales to the customers of these two NOS vendors due to lack of competition, these secondary platform vendors supported our efforts to a much greater degree than Novell, where we were one of many. In addition, it turned out that while Banyan (and too a lesser extent LAN Manager) had much higher market shares in the coveted Fortune 1000 market than they did the market as a whole. Many large companies also had mixed networks containing two or more of these NOS platforms--we had a major strategic advantage in these large accounts, due to our cross platform support. The first lesson here is that sometimes it really pays to segment a market a bit differently. In some cases, in segments important to you, the market leader isn't nearly as dominant as overall market share data would lead you to believe. The second take-away is that smaller market segments are often DRAMATICALLY less competitive, allowing you to efficiently grow revenue without huge marketing outlays to "get above the noise".

MY OWN EXPERIENCE WITH THE MAJOR ONLINE ADVERTISING PLATFORMS

I run PPC advertising campaigns for several of my clients. Let me make something clear right away--there is no comparison between these three advertising platforms. Google Adwords is the clear winner, hands down. It's not close. Adwords is both by far the most robust and easiest to use, which is quite a statement. Adwords is a great piece of software, which Google is constantly evolving and improving. You can do almost everything you want and there is excellent online help if you do have a question. If you ever really do need a live person, help is available, even if you are spending a modest amount on advertising with Google. It is a pleasure to work in Adwords. Plus the fact is that by far the most volume of searches is available on this platform.

Yahoo Search Marketing (formerly Overture) comes in second place. This is the original search advertising platform. It's not nearly as robust as Adwords, but the recent major upgrade at least brought the software into the modern ages--it was pretty stagnant for a very long time, allowing Google to surge into a commanding lead. The basics are covered, and it's pretty intuitive--although if you are used to working in Adwords, the subtle differences can drive you a bit crazy. And there are a few things that are simple to do online in Adwords, that you have to call and request over the phone to make happen in Yahoo's platform--but at least they are very nice about it.

And then there is Microsoft AdCenter. What can I say about Microsoft; it is the typically excruciating experience dealing with them. They dominate most markets they are in, and have that arrogant way of dealing with you that only a monopolist has. When you have 90% of the OS or word processing market, you can get away with lousy support, vendor-centric policies and non-intuitive software. But they are a distant third in this market, and they aren't gaining on anyone. So these weaknesses stick out like a sore thumb. This is the newest platform. The software isn't all that hard to use, but in Microsoft fashion they have created some of their own conventions in opposition to market terminology, and the application doesn't always behave in a way you would expect. Add in the unbelievable support mentality, not to mention the fact that they are a distant 3rd in traffic, and you realize why they are last among the major platforms. As an example of their attitude, when I decided to look at Microsoft's offering, I wanted to import my Adwords campaigns into Adcenter to save a BUNCH of time, which the Help function stated that I could do. Makes a lot of sense for a new user, right? Well, I couldn't figure out how to do it in the software, so I called Adcenter support to ask how. I was told that I needed to be spending at least $11,000/month to have access to that feature! There's a classic catch 20--not allowed to import all your campaigns into a platform (which will enable you to spend money in that platform), until you're spending over $100,000/year. Brilliant market penetration strategy! Whoever is making decisions at Microsoft has no idea how to compete--which I guess isn't surprising for a monopolist. No wonder they are trying to buy Yahoo….

SUMMARY AND RECOMMENDATIONS

Adwords is clearly the best platform, so why bother with the other two? Remember the discussion about niche markets above. Although Adwords is by far the best, as a result, it's also the most fiercely competitive of the three--meaning costs are high and margins are sometimes lower. It really varies by market segment, but in some segments, Yahoo Search Marketing and Microsoft Adcenter are neglected, leaving excellent bargains on important keywords. I am currently running a campaign on Adcenter for a client in a very niche, technical market, which isn't supposed to be well suited for MSN search traffic. This campaign is doing VERY well. So the moral of this story is don't pick one--use all three, as long as you're making money on each of them. This is the beauty of PPC marketing, after all. It is quite easy to test to see if it will work for you, and objectively track your results.

That's my take on the three major search marketing platforms--I'd love to hear yours. Post a comment so everyone can benefit from your own experience.

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