April 2006

1. Fighting with Four Swords

2. Marketing Is Reality

3. Are the Mammals Eating Your Eggs?

4. Software as a Service: the New Cargo Cult

5. New Drivers for Digital Video

6. The Rise of Product Management

7. CTIA: Thin Phones and Fat Interfaces

There are new realities in our tech world. There always are, of course. It’s part of the reason why this field is so interesting. These days it seems like a great deal of our client work is about defensive plays. The key question being "how to ward off a big competitor," or "what can we do to prevent market erosion," etc. The conversations I've been in lately prompt me to share some thinking of what swords you can use in your competitive battles.

Let me start by disclosing my bias. I think competitors are great. Not just because they cause clients to want our help (smile), but because having strong competitors forces companies to deliberately choose a set of activities and products that create something unique, something of real value in the market place. And I'm nuts about that.

To develop an effective competitive plan, you must understand the four types of swords you have in your armament, and then figure out which one applies to your situation. These types are:

Your Customer
Notice that I didn't start with the product and how you must have a better product. Making a better widget isn't a competitive strategy. But having crazy love-like affinity between you and your customers is. Do you think that many vendors can come between Apple and their Mac users? No, of course not. I take a tremendous amount of teasing for wanting to use my Mac and only my Mac. But no one will take this thing from me. That kind of passion allows a defense posture that is priceless. In the high tech field, sooner or later you will be attacked by a competitor. So don't rely on the fact they won't attack. Make sure that your customers are so in love with you and your products that the enemy can't attack.

A good example of a company that has a strong affinity for a seemingly inconsequential area of software is Intuit. Microsoft tried to enter the financial software space and the extremely strong, loyal user base Intuit had cultivated was one of Intuit’s biggest assets in that war. When AOL was trying to win the dial-up market, they were extremely aggressive with their CD-mailers. Someone at the company could have pointed out that there wasn't a person that didn't know AOL existed, but it was their relentless pursuit of each and every customer, repeatedly, that made them the dominant leader of their space and also made them very difficult to displace.

Your Offer
As soon as a competitor enters a space, the typical defense play is to look for a way to cut prices. While I can understand that price discounting is key to make sure no foothold is gained, the bottom line is that price is only an okay defense play. A stronger (read offensive) play is to advance the solution. Create a way to do something new that the customer really needs.

Keep your eye on out-innovating and adding value. Autodesk is a technology vendor that has done this well. The company was starting to lose market share and mindshare to low-end vendors. What they did was two-fold. First, they created a low-end offer that matched the competition point for point. Second, they innovated toward high-end vertical solutions that added MUCH more customer benefit then they had before. This kind of product evolution provides great armor against attacks.

Become a brand bulldog. Pick your turf carefully and then defend it with the tenacity of a junkyard dog guarding his bone. Forget about parity and go for distinction. Get clear on your brand position and make sure everyone in your company knows it and can articulate it. If your offer is truly unique and you can lay claim to it, you have a way to fight differently.

Your Ecosystem
High-tech markets don’t resonate to single point product offers. They want systems. Palm Treos are tied to mobile operators, sync software and software applications. iPods are tied to an online music store. Cisco is tied to cross-platform interoperability and standards bodies. It's the ecosystem of contracts or chains of integrated solutions that forms a competitive play.

At the Software 2006 show this month, I was reminded of the role of globalization and outsourcing in our world. Through these macroeconomic factors, we feel the growth of commoditization in almost every industry. I believe that means we need to add value in all that we do. For example, when we build and participate in value webs, value is built by a number of companies coordinating their individual capabilities to create a whole new business ecosystem. That allows you to focus on what you do best, and build a set of alliances and relationships to be different.

Palm was unbelievably good at building its ecosystem. It used both influencer marketing and developer relations strategically to build an alliance of players who were loyal and committed to that platform. Microsoft and several other players were blocked in many ways because of the value web created. [Note of Disclaimer: our key principal, Michael Mace, worked on this stuff as a VP at Palm. I have a bias and knowledge of what happened.]

Your Vision
Only you can articulate where you are going and why someone should follow you. For some reason, companies believe they need to first build a product and then talk about that. But what customers need is a reason to believe, a reason to pay attention to you. In the absence of your leadership, they'll listen to the next guy on the platform.

Remember the movie, American President? It's the pre-West Wing work of Aaron Sorkin. In it, an advocate and aide to the President comments on the lack of leadership being demonstrated by the current administration:

"People want leadership, Mr. President, and in the absence of genuine leadership, they'll listen to anyone who steps up to the microphone. They want leadership. They're so thirsty for it they'll crawl through the desert toward a mirage, and when they discover there's no water, they'll drink the sand."

While this is certainly great dialogue about politics, it also applies to high-tech.

Customers want you to articulate why they need to follow you.

So for your vision, don’t leave things unchallenged, don’t be a target for the bully, and give your customers and advocates a vision that includes why they should choose you. The absence of your voice on the podium leaves a vacuum. Don’t let that happen. Fill the auditorium with the sound of your vision and direction. And don’t wait until you have your product management team all lined up. Vision is vision because few people have it. And the only way to develop vision is to force yourself to articulate it and develop it further. -NM

Marketing is Reality

In a recent meeting with a client, we brainstormed on what to do about an upcoming product announcement by Microsoft. The new Microsoft product will substantially increase the competitive pressure on our client, and in typical Redmond fashion the press and analysts have been briefed about it for months. Even though the product won't ship until this summer, our client is in effect already competing with it.

Articulate Your Strategy
The client has a great strategic response to the Microsoft product – visionary, it makes sense, and it'll yield products that are well-differentiated and easy to sell. We encouraged the client to start briefing analysts on its new strategy, but we got a lot of push-back. "We can't talk about it until it's built into a product," they said.

This is a common belief among high tech companies. Strategies, directions, and philosophies are just marketing fluff, and therefore should not be discussed until they're delivered in physical products.

Customer Comprehension Leads to Commitment
While it's hard not to admire any company's commitment to substance over style, we think a refusal to market your strategy ignores the way most people buy technology products. It's very rare today for a customer to make a one-off purchase of a tech product. A company buying corporate software is obviously making a commitment for many years, but even a consumer buying an iPod is entering into a long-term relationship with Apple. When people make these commitments, they want to know what they'll get over time. In many cases, the road map for the future is the clinching argument that gets them to buy today, or prevents them from defecting to another vendor.

In this sense, marketing is reality. It determines whether customers will stick around long enough to let you deliver the great new products you've planned for them. A company that refuses to aggressively market its planned direction is selling only half a product, and is at a huge disadvantage to a competitor like Microsoft that knows how to discuss the future. -MM

Are the Mammals Eating Your Eggs?

Clients ask us lots of questions, but with the world buzzing about Web 2.0 and software changing in some pretty significant ways, one question that clients should ask but never do is, “Is my company becoming a dinosaur?” Maybe it’s because people don’t want to know, or perhaps Rai Wasner, a former colleague, had it right years ago when he said that life can be pretty good for the last dinosaur as you seem to have the whole swamp to yourself.

Once you stop innovating, you’re stuck in the status quo, and if—really when—the world changes, you’ll be unable to adapt. Your company’s name will be added to the corporate “Where are they now?” file.

As a public service, Rubicon Consulting has compiled a list of signs that your company may not be as nimble and innovative as it needs to be to defeat challenges from upstart competitors.

Your company might be a dinosaur if…

1. It feels entitled to its market.
2. It finds $20 million opportunities too small to be worth going after.
3. It buys innovative, small companies, and then screws them up.
4. It grows revenue by reducing margins.
5. Routine decisions must be reviewed by Legal even though it is neither operating under a consent decree nor in a regulated market.
6. It is slow to adapt to changes in the market.
7. It is more worried about the internal implications of decisions than their impact on the market.
8. When considering buying an innovative company or technology, Engineering says, “We can build a better one.”
9. Growing at the same rate as the S&P 500 is seen as success.
10. It is afraid to communicate with its customers out of fear about what they’ll say.

While the last dinosaur can go on living for a long time, it’s a very poor long-term business strategy, and probably not what the investors have in mind.

However, take heart in knowing that unlike the real dinosaurs it is never too late to change. If the tired old IBM of the early 1990s can reinvent itself as a successful services company, so can yours. -BL

Software as a Service: The New Cargo Cult

The big buzzword at April's Software 2006 conference was Software as a Service. What does it mean, what impact will it have, and what should companies do about it? Former Oracle exec Ray Lane, now a venture capitalist, listed the key attributes of hot new software companies. They included software that's viral (anyone can download it and try it out), that generates value for an end user (so they'll have an incentive to install it), that doesn't require any data entry or training (so users can work with it instantly), and that generates immediate value (he called it "value first, pay later").

This sounds a lot like consumer software, which is a little strange for an enterprise conference. And in fact when Lane listed some of the most important of these new enterprise apps he listed several tools that most people think of as consumer – Skype, instant messaging, and Google Desktop (plus of course SaaS poster child Salesforce.com).

This idea of a blurring between the consumer and enterprise worlds wasn't discussed heavily in any of the presentations, but it lurked in the background all over the place. The selling and marketing model changes profoundly if you're trying to get an online service deployed virally in companies via end users, as opposed to selling down through IT managers. Most of today's enterprise software companies don't have a clue how to sell this way, and it makes them extremely uncomfortable.

SaaS is Different
It's easy for companies to underestimate the depth of the changes required to make SaaS work. In addition to a very different sales and marketing model, SaaS requires a completely different engineering structure and processes. Even the existing code base must be rewritten to support delivering it as a service. Because these changes are so wrenching, it's very tempting for companies to make more superficial alterations and convince themselves that what they've done is good enough for now. They'll add a web interface to their product and offer a hosted price option (carefully tailored not to cannibalize the current product line), and then they'll wonder why the new initiative fails.

Substance Trumps Superficial
The situation is reminiscent of the Melanesian cargo cults that proliferated after World War II on some Pacific islands. After the war ended and the soldiers went away, islanders tried to make the cargo come back by imitating the superficial features of the soldiers – they painted uniforms on themselves, marched in groups, and built things like air strips.

Companies trying to implement SaaS by copying its superficial features are basically technology cargo cults. Unless they make the fundamental changes that SaaS requires, they're going to get about as rich as those island natives, marching around in the hot sun and wondering when the airplanes will arrive. -MM

New Drivers for Digital Video Editing: A Personal View

My experience over the past year with digital video (DV) makes me wonder if the market is changing in important ways that are perhaps not being picked up by the market. Like so many parents, I bought my first camcorder after the birth of my first child. My wife and I took lots of video the first few years, and I spent many, many, many hours turning the first couple of years into a decent—but not great—movie. By the time my son turned six, I had four years of partially edited video and was falling further behind even though we were taking less video and I had better software. Suddenly, a year ago I started taking a lot more video and within days turned it into dozens of five to eight minute videos kids and adults love to watch.

I don’t have a whole lot more time on my hands, so what changed? Hint: the difference is not the fabulous editing software now available for consumers, nor any of the snazzy little DV cameras on the market. It is more fundamental than that.

It’s the camera that makes all the difference. It’s my ultra-compact, mid-price digital still camera that also takes video.

My nice analog camcorder has been on the shelf since the day I bought my Canon SD400. The Canon is not an expensive camera, but it takes unlimited 30 frames per second 640x480 video (near DVD quality) that is double the resolution of the camcorder. Better yet, it fits in a shirt pocket, so it is easy to have on hand. Not only does it take better video, it’s easier to use than my camcorder.

Editing Software Can’t Make a Bad Director Good
What does this mean for the consumer video editing market? The big problem with consumer video—and it is a really big problem—is that no amount of fancy software can fix badly shot video. In fact, I think that traditional camcorders encourage people to take bad video. Trying to edit bad video is painful, VERY time-consuming and, perhaps most importantly, ultimately fruitless. Because editing is so difficult, people never move down the learning curve and the category fails to live up to its potential. Sound familiar?

The latest generation of digital still cameras won’t turn an Ed Wood into a Cecil B. DeMille, but they do make it easier to capture and edit the good elements needed for success. More importantly, they help people move down the learning curve to the point where they are encouraged by initial successes and they actually get better. There are several factors at work:

• Limited storage
• Discrete files
• Easier import

Limited storage is an enabler. You don’t have to think when you have a two-hour tape; but you do have to think when you’re limited to 10-20 minutes of capture. While I don’t storyboard out my kid’s birthday party, I do find myself composing shots and giving thought to the finished video while I have the camera in hand. Since I am taking lots of short shots, it‘s easy to experiment with a few, and I’m learning to take better video each time I fire up the camera.

SD card media is easy to import into my workspace. DV cameras were a big improvement over analog capture cards, but popping an SD card into my computer is easier still. Since I never bought a DV camera, I went straight from time-consuming analog capture to SD card. Wow!

Discrete files make organization easy. I think the impact of this one is undervalued. Having my video “pre-chunked” into small, logical segments makes organization, review and composition of the final video much easier. I get better results with less frustration.

The latest crop of consumer and prosumer DV editing software makes the editing process easier and less technical, but they don’t do anything to help consumers advance beyond the cycle of “garbage in, garbage out” due to poor incoming video. As a result, the consumer DV editing market trails perhaps only the pen-computing market in the number of times it has failed to meet expectations.

Am I a typical consumer when it comes to digital video? No, and I don’t claim to speak for average consumers. Video editing will remain a niche market for some time, as even editing well-composed video consumes large amounts of time. That said, I think the three factors above have the potential to dramatically change the DV editing market and open it up to the next level of potential. –BL

The Rise of Product Management

We're seeing a rising tide of interest in the art and science of product management. The product manager is the person who translates customer requirements into product features at the start of a development process, and who translates the features back into customer benefit messages at the end. As the point of contact between market reality and engineering reality, a product manager is the linchpin who can make a product into a market success – or doom it to irrelevance. But product management isn't well understood within many corporations. They often fail to give product managers the support, training, and empowerment they need to succeed.

Product Management = Compelling Innovation
Globalization and product management makes product management more important than ever before. Efficient and low-cost companies in other parts of the world, some of them government subsidized, now have much greater access to markets in the first world. Many of these companies specialize in the rapid, low-cost production of generic copies of successful products. A company based in the developed world can't win just by making a good product at a reasonable price. To survive, western companies must innovate – and they must make sure their innovations are compelling enough that customers will pay extra for a non-generic product. Making that happen is the essence of product management done right.

What Product Managers Aren’t
Unfortunately, at many high tech companies the product manager often gets pulled into the middle of the development process as a problem-solver. When there's a risk of a schedule slip or a conflict over resources, the product manager often ends up attending meetings and researching options, which eats into the time available for their core tasks. We've worked with companies where the product managers are so overburdened that they can no longer truly lead their products. They can't do the up-front work necessary to define a winning product strategy, or the back-end work to make sure it's marketed properly. The result is inevitably mediocre products that don't hit their sales goals, and product lines that aren't well differentiated from their competitors.

To get consistent and insightful leadership from product management, a company needs to take several steps. Failure in any one of them can cause the process to fall apart. The steps are:

• Create a corporate culture in which product management can succeed. Engineers must be willing to take the lead from product managers on feature decisions.
• Support product managers with information and peer groups that can help them succeed, especially timely and flexible market research.
• Train product managers to listen properly to three key audiences – customers, competitors, and their own executives. The trick is not to produce what customers ask for, but what they need.
• Hire product managers and engineers who can work together. It's better to hire "B" players who work together well than "A" players who won't cooperate.

There's a lot more to good product management than the basics we've listed here. Contact us if you want more information. -MM

CTIA: Thin Phones and Fat Interfaces

The recent CTIA show in Las Vegas was awash in new mobile phones. If you didn't make it to the show, here's one highlight and one lowlight:

The highlight: Thin is in. The hot-selling Motorola Razr kicked off a thickness-reduction craze among mobile phone companies. Motorola now has several thin phones, and Samsung has copied them and in some cases created even thinner devices.

The biggest loser in the slim-down campaign is Nokia. Dominant in most of the world but an also-ran in the US market, Nokia has been investing heavily in trying to build up its American presence. But just as Nokia missed the trend to flip phones several years ago, Nokia missed the trend to thinness. As a result, its new phones feel thick and plastic compared to the sleek metallic wafers coming out of Motorola and Samsung.

The lowlight: User interface (again). There seems to be a general rule for mobile phone interfaces: the more sophisticated a phone's hardware is, the more impenetrable the user interface will be. The interfaces of many mobile phones seem to be designed according to the same principles as Las Vegas casinos – the glitzier the better. Why use easily understood words to label a function when you can substitute a cute color icon? And why use just a static icon when you can have it bounce around and animate when the user selects it, or better yet have several more icons pop out of it to the accompaniment of a sproingy sound effect?

What the phone industry doesn't understand is that the interface needs for a mobile data device are very different from the interface needs of a traditional mobile phone. A phone that does just voice and texting can have a fairly playful interface because it's only doing a couple of things and the user isn't too likely to get lost. But the goal of a data device interface must be first and foremost to be usable. If people can't figure out how to find the data service, or how to use it, the whole purpose of the device is defeated. That means as the phones get more sophisticated, the interfaces need to become more simplified. Right now the interfaces are going in the opposite direction. -MM

Thanks for reading,

The Rubicon Team