Saturday, September 27, 2003
In another case of cheesy celeb marketing, Fran Drescher to be star of Old Navy ad campaign. See the posts below for why this kind of marketing is not strategic, but stupid.
In fact, may be more than stupid - not just wasteful, but harmful - by slowly turning off your audience as you join the masses of firms with undifferentiated, decaying strategies which aren't aligned with the resources you possess.
What does Fran Drescher have to do with Old Navy? Nothing. Oh wait - I forgot. These are the guys that think the consumer is a moron
Lesson: hiring has-been celebs to hawk rapidly commoditizing products does not equal marketing. In fact, it's usually a great way to waste strategic resources - in this case, Old Navy's differentiated brand.
Nice article about the credibility gap and need for authenticity in corporate communications.
Also shows the power of a user base, and how influential users in your user base can be a powerful source of authenticity to a hyperstimulated and tuned-out set of consumers - in other words, a critical strategic resource.
London Times editorial nicely describes the evolution of the UK the retail industry, with a Friedmanite stance.
Begs the eternal question: what happens beyond Wal-Mart? What happens when supply chains and distribution - and markets - are totally efficient? Will there be any room for strategic innovation, creativity, or flexibility? What will the face of the Wal-Mart killer look like?
Interesting points to ponder, especially now that many past icons of American style business are crumbling because of strategic decay and discontinuities in consumer needs as well as competitors' innovation.
Read this piece by Jonathan Zittrain about copyright law if you want to begin to understand the replication economy. I will post some comments later.
Interesting NYT article about malls (heavy with legal issues though).
"The water park and the dolphin show are only two of the attractions at the 5.3-million-square-foot mall, an extravaganza that also houses an indoor ice-skating rink; an artificial lake in which a full-size replica of a historic ship, the Santa Maria, and four submarines are moored; an 18-hole miniature golf course; a 447,000-square-foot amusement park. Not to mention 565 stores."
Now that, as much as you may hate malls, is at least an example of a simple strategy: bigger and bolder is better. It answers three key strategic questions: who are you going to serve, what are you going to serve them, and how are you going to do it. In this case, the answer seems to be, almost everyone, almost everything, and as cheesily as possible. Kidding aside, the strategy is a good one: if the people won't go to Vegas, bring Vegas to the people.
And at least it's pushing the mall industry forward - god knows the bland, boring malls that line the highways of the States and the UK could use the help.
DoCoMo will support Symbian. Or vice versa.
What does this mean? If you don't know the industry, the key point is that taking agonizingly long time to set standards stunts market development and can open you up nicely for disruption. In this case, the business models for the mobile industry has been so radically different in Japan and the rest of the world - and so have the outcomes (only Japanese firms have experienced major business success so far) - that it is in everyone's best interest to set global standards for technology and value chain issues like revenue shares.
This has taken far too long to happen - since 1998 basically - and so I think that the mobile industry is a ripe candidate to radically innovated against. Note that I mean here the reshaping of industry boundaries - so 3G is not
an example of a disruptive innovation in this context. Something like wireless VOIP based on self-organizing networks is.
MIT Emerging Technologies Conference news.
Talks a bit about Dell: "At Dell, suppliers deliver materials every 90 minutes based on what customers order. The company turns over its inventory about 100 times a year...To determine what businesses his company wants to be in, Dell looks for large markets where there are inefficiencies or high mark-ups."
Has the worm turned or am I stoned!? This is the scientific management taken to the extreme - a total focus on efficiency and cost reduction. What the hell does this have to do with *emerging technologies*? Emerging technologies should be about the opposite - discontinuity, revolution, and redefining industries. That quote sounds like a b-school case study in supply-chain management in an 80's multinational!
The rest of the technologies mentioned are pretty uninspiring. I think the third world is going to be the source for the next generation of radical innovation - Boston and the Valley have been too much infected by the commercial meme to really dream massive earthshaking dreams anymore.
The replication economy wars begin in the third world: India may ban covers of popular new songs (via BoingBoing.)
I hope policy makers in the third world can see that adopting replication laws like those that exist in developed markets are going to be the kiss of death for their information industries.
In Egypt, you cannot get any music
from the US or European major labels for two reasons. First, because of draconian copyright laws which make replication a crime. Second, simple economics means that the prices the idiotic record industry wants to charge poor Egyptians are so high that the result is zero demand
There are many other countries like this, which are effectively locked out of simply buying goods
, because the strategies of the businesses that sell them are narrow, greedy, and focused solely on the short-term.
The same phenomenon is going to exist in India at the micro-level if this law passes. The very poor will simply not be able to consume pop music, because the (cheap) cover versions they once could afford will not be available.
Of course, once consumers like this get so alienated with greedy industries, as soon as they can afford to get connected and download a copy of Kazaa, you know what happens next.
Strategic decay: the problems wireless susbscribers might face with single-number portability.
Every strategy decays. Entropy exists at the firm-level too. The obvious signal of such strategic decay is when your strategy is so far out of alignment with your market that your customers begin to not like you and switch in droves to your competitors. Then you try and impose all sorts of shady switching costs, which makes them not like you even more. Finally, your strategy falls apart, and your industry gets reshaped by somebody else - a radical innovator and risk-taker.
The old school telcos essentially helped build the wireless ones, by employing such customer-unfriendly tactics that there was no love lost when their market started to decay. If the wireless network operators or service providers can't see this, and use the same tactics to stall the provision of simple services customers want - like number portability - they are opening an even wider gap for VOIP visionaries like Skype to completely deconstruct their industries.
The wrong strategy for a network market, part 676:
Yahoo blocks 3rd party IM clients.
Note to Yahoo management: Remember all that stuff they taught you in b-school about expanding the pie
? Remember all that stuff about locking in
your user base? Remember all that stuff about users deriving network externalities? Remember all that stuff about path dependency and increasing returns and winner-take-all markets? Your strategy is almost going to ensure that your users migrate to other networks, Trillian exploits the above mechanisms, and you get slowly frozen out of the market in which you killed your own first-mover advantage. Nice one!!
Here'a an idea for a strategy: if Trillian is going to reduce you to a commoditized bitpipe, how about innovating with the strategic intent of co-opting Trillian, leveraging the massive competences you already have: integrated portal technology, intuitive usability, huge user base, and brand.
Lesson: Don't cut off your nose to spite your face. Your competitors will love you for it.
Friday, September 26, 2003
Radical, recombinative innovation: digital jewelry from Nokia.
It may look stupid to us now, but this is the kind of radically innovative strategy that is diametrically opposed to the one below. Nokia is extremely
good at running all sorts of these little innovation experiments in massive parallel - searching a huge space fast, and at a low cost. And thus, usually discovering combinations of resources and capabilities that lead to much cooler products than their competitors offer.
Digital jewelry is kind of like the AIBO - seen from a strategic viewpoint, it is a unique, well-differentiated combination of resources Nokia has that lie at the intersection of appropriability (Nokia's ability to make money on this), scarcity (Nokia's unique ability to do this well), and demand (whether or not people want it). There are many other possible combinations of resources that meet this 'fitness' criterion - Nokia's talent is finding them better than it's competitors, by searching fast, in parallel, and recombinatively. Get it?! Good. Now do it in your
Magnum PI returns.
"The proposed project also joins a growing list of upcoming flicks based on classic TV series, including the Dukes of Hazzard and Starsky and Hutch."
OK, let's get one thing straight: retro-cool is NOT a strategy. Especially not now that everyone is doing it. Strategy is about doing things differently and better than your competitors. It's about leveraging unique resources to create unique and compelling value propositions, which can then be used to extend and stretch resources for the future. It's about harnessing combinations of resources and capabilities to provide a mechanism for radical innovation and reshaping industry boundaries.
Strategy is NOT about being so creatively and analytically bankrupt that you have to reach back into your own vaults and send stale products back to the market. Especially when these stale products aren't based on unique resources. Every media conglomerate has a ton of shows just like Magnum PI.
Now looking at the historical and cultural elements that made these shows hits and trying to use those as innovation drivers would be strategically interesting. That's how revolutionaries created media that is radically innovative, like CSI, GTA Vice City, and Resident Evil. But watching Magnum pull up in a 70s Ferrari with a bad Hawaiian shirt and big fat stache is NOT that kind of recombination. It's just a braindead rehash. The firms that want to devote precious resources to this are going to pay the price - because the real innovators will walk away with the market.
Lesson: Retro-cool is usually the death of innovation under another name.
of course, you're gonna ask: how come the return of Doctor Who hasn't incurred my wrath? Because I'm confident the Beeb will produce an innovated, evolved Doctor Who. If he shows up in the same crap Tardis and fighting the same crap Daleks from the 70s, we'll know it was a retro-cash-in. And the Beeb will have MASSIVELY squandered a key part of a critical resource.
Then again, the Beeb doesn't have to worry about cashing in. That's why it can produce some of most innovative TV in the world consistently.
Levi's closes last US plants. What do you expect from a firm that has lost any semblance of strategy, and just as important, lost it's grip on innovation?
I love jeans. Levi's started putting out an innovative new line a few years back called Levi's Vintage Clothing. LVC was not just another marketing gimmick - it was a real brand-builder. They focused on reproductions of vintage clothes as close to authentic as possible - using top quality materials and hand-done finishes.
LVC's jeans were absolutely phenomenal, and caused quite a stir in the world of cool. Why? They represented Levi's leveraging their most critical strategic resource: 100+ years of jeans-making history, and all the skill, knowledge, and love that went into those jeans. Most importantly, people were actually willing to pay a premium for wearing levi's
- for buying into the authentic history of the Levi's brand.
What happened? First, the line was incredible hard to get in the US, because of the standard marketeer's totall wrong assumption that American men all want to look like Jerry Seinfeld. Note to marketers: we don't
want to look like dorks with bad jeans. Then, for some reason (my guess is corporate inertia), the creativity got sucked out of LVC, and worse still, the innovation which was supposed to trickle down into their cheaper mass-market lines stopped doing so.
This was sad to watch. LVC represented one of the few really good integrated brand and innovation strategies I have seen in a *long* time. Unfortunately, corporate strategy was out of alignment with it, and so the axe is dropping on Levi's.
The point is that innovation, even when brilliantly strategized and excuted, must be supported across the firm by a coherent corporate strategy. Otherwise, it will most likely flounder and fail - like the sad case of LVC: a brilliant product line, but ultimately an underutilized strategic resource.
Lesson: Dockers is the anti-future. Don't Dockers your strategy.
The irony is that Dockers is a classic business school case about marketing and innovation. Yes, b-school is almost totally detached from the real world. Cases like this are a big part of why most MBAs get the creativity and coolness sucked out of them. When we covered the case in b-school, Dockers was presented as one of the greatest fashion innovations in recent years. I spat my coffee into my lap.
Take a lesson from the ultra-coolness of these ads. 'Strategic marketing' can result in so much jargon that creativity and excitement gets lost (and consumers tune out fast). These old comic book ads have both in spades.
Nice article at Groklaw about information asymmetries in investing in tech ventures. Points out some of the ways that VC's didn't have fully get SCO's business model, IP, industry structures, and risk factors - largely because of the technical complexity. Also talks about business models, or lack thereof - more evidence for my hypothesis that actual business models are in very short supply these days.
"If ever there was a situation illustrating the importance of CEOs and financial analysts comprehending tech, this story is it."
"I think computer science 101 needs to be taught in business school. Maybe a refresher course in ethics would be good too."
"Now, there's a business model. Destroy your competitor's reputation so they feel they have to buy you to shut you up."
"We believe the aforementioned contractual cure would be upheld by the court and mandated upon IBM, and would then wreak havoc on IBM's large corporate customers bringing serious injury to IBM's business reputation and customer relationships, unless the matter is settled prior to trial. We believe the business risk to IBM is too high. Therefore, we believe IBM will settle the case prior to trial"
Why i-bankers shouldn't be venture capitalists, part 476:
Regarding Microsoft's move to cancel it's free chatrooms: '"Our assessment is that Microsoft sees little economic value in maintaining a free, anonymous service," Credit Suisse said in a report to its clients'.
Wait - you mean like Google does with Blogger, it's website, Froogle and Google News? You mean like Amazon does with all of the cool toys on it's website, like it's collaborative filter? You mean like every major newspaper in the world does on the web? You mean like the samples cosmetics companies hand out in department stores? You mean like Microsoft itself
does with Hotmail?
Services like these allows firms to build several critical resources and capabilities. The first is is a locked-in user base. Firms can do tons of cool things with locked-in user bases. The second is an innovation capability. These services are like real-time experiments (think Google Labs), which let firms try out new ideas on real users. Just as important they create an external pull
for innovation from the user base itself - keeping the firm in touch with market signals. Finally, services like these allow firms to leverage and stretch their existing competences, building new ones to compete for the future.
The i-banks' advice amazes me most of the time. Their view of business is not even based on economics - it's purely based on finance. They sorely need to spend some time in the real world of business.
The quote is from here.
Nintendo is going to enter the Chinese marketplace using a DRM death star strategy - a compact delivery device which can download content from kiosk-based terminals. Pricing is a little steep for the Chinese market.
So you're wondering: how come I am constantly saying that DRM death-star strategies are doomed when Nintendo makes them work? The answer is simple - Nintendo doesn't
make them work. They work in spite of
Imagine the counterfactual for a second - a Nintendo without DRM. We can do that by looking at Sony (whose DRM is laughable). It's market penetration would increase massively overnight. The entire third world plays Sony almost exclusively, because PlayStation games can be copied, and then sold locally at prices that make sense. For example, in Egypt, only the rich can afford to play GameCube - games cost 300 Egyptian pounds. PlayStation games (ripped) cost 10 pounds. The average Egyptian lawyer's annual salary is 7000 pounds.
Now what about piracy in primary markets? Sure, Sony faces replication of it's games in the USA and Japan. But here's the crucial link: because it has a massively larger installed user base (partially driven by replication), more producers produce PlayStation games (because it's potentially more profitable), and the platform
is more succesful (and, possibly, the average
rate of replication is reduced compared to a DRM death star platform). The platform, as a whole, because of this kind of well-thought-out platform strategy, is not hurt, but actually helped
Lesson: In many platform markets, a DRM-light strategy makes more
strategic sense a DRM death star strategy does, because it doesn't hurt your bottom line, and grows a critical resource instantly - a locked-in user base, essentially for free
Corporate communication could take a few glances at what Tessa Jowell has to say about the British government's excessive reliance on spin.
"Our language has become excessively technocratic, focusing on the processes of change rather than the values that motivate us. Candour, flexibility and kindness are the building blocks of trust. Rebuilding trust will take time and conviction that change is necessary. Just saying sorry now and doing nothing different will not do."
Does this sound like most businesses you know? Communication is such a simple thing that I can't even call it a tactic. It's just common sense. Lie to your consumers enough of the time (McDonald's, Kraft, Tyco, the list is endless) and they will eventually catch on - and the trust you have lost is a strategic asset that is gone, most likely, forever
David Ogilvy's first rule of marketing was that the consumer is not a moron
. That holds true for strategy as well: the consumer is not a moron - in fact, she is already tuned out because of the kind of corporate mega-spin she's heard for years now. Leaves a big market gap, doesn't it?
Skype is a new P2P VOIP platform from the guys that made Kazaa. For you non-techies, this means a decentralized network which lets people have voice chats over the net. What's new and great about this? Apart from the fact that telcos should start getting being very, very afraid of the replication economy reducing their resources and capabilities to nothing in a matter of months?
Primarily that Skype's strategy is solid. VOIP has been around for a while and not taken off- for a few very simple reasons that are often overlooked by the jargoneering MBAs that have tried to 'exploit' this technology: crap user interface, dropouts, crap sound quality, time lags, firewall problems. All in all adding up to a less than stellar value proposition.
This created a nice big gap in the market which Skype is going to fill. According to my buddies that are using it, it is nothing short of fantastic. Lesson: many tech ventures are by definition differentiated and rich in protected resources. They stumble because what they offer users is a crap product or service from which they derive little or negative value: bug-ridden, unintuitive, and most importantly, not what they promised users they would deliver.
It's interesting to note that the most succesful tech ventures of the last few years have exploited EXACTLY these kinds of market gaps - intuitive usability etc leading to a higher-quality user experience. By no means were Hotmail, Google, Amazon and Ebay first-to-market in a meaningful sense or faced any lack of competition. But one thing they did right was give consumers as much or better than they expected
Amazon creates a search engine division to compete with Google. This group's strategy is to focus on e-commerce search. Will they be able to outcompete Google? I doubt it, since I always thought Amazon would eventually have to buy into Google's technology (and they did).
Is this a decent tactical move? Well, it's time that Google faced some serious competition. It also lets Amazon extend and stretch one of it's most underperforming resources. But ultimately I don't think that search is a core competence that Amazon needs to sustain it's advantage. Rather, Amazon's advantage is built around selection, personalization, flexibility, and reliability. So in the end I suspect that this is the wrong kind of resource-building: Amazon would be, I think, better off innovating to directly influence the competencies above.
Of course, this tactic is part of a larger strategy - the shift to a 'services' firm, where Amazon sell's it technology platform. It's technology will largely allow firms who don't already have them to build the competencies mentioned above (which are great competencies to have). I don't see why buyers wouldn't still buy Google's search platform, unless Amazon's technology can offer them some kind of radical
innovation - which is pretty hard to imagine just now. So adding a search resource to such a strategy doesn't add much - Amazon platform proposition is already
well-differentiated and compelling enough without it.
The article also claims that Google's revenues are expected to be close to $1 billion this year. I find that *very* hard to believe. My gut estimate is in the low hundred millions.
Thursday, September 25, 2003
Rumour mill: Google may buy Friendster.
The happy side:
Friendster has a fairly risky business model - after the Beta, people will (hopefully) pay for some services. Now add Google to the equation and you begin to see that the uber-Google power could, like it did for Pyra Labs, subsidize these services in exchange for all of sorts of things with value to Google - contextually targeted ad space, integrated users, etc.
That is a nicely organic little business empire that Google is building - and one which has massively self-reinforcing resources and competences that have not even begun to be utilized in any significant way yet.
The dark side:
Google and Friendster are both (allegedly) funded by some of the same people. These people are starting to realize that Friendster will NEVER make money on it's own. How to recoup some of their investment? Simple, sell it to Google, and keep the money in the family.
Of course, this polarization is stupid. Friendster adds value to Google, can't make money on it's own, and is generally cool, so this is a good deal for all involved (if there's any truth to the rumour!!).
I am also consistently amazed that VC in Europe is so retarded that they will NEVER fund anything as cool as Friendster or Google. More on this later.
Imitation strategies: Sharman (makers of Kazaa, one of the major P2P clients) files a counterclaim against the music and fim industries alleging 'copyright misuse, monopolization, and deceptive acts and practices'.
Leaving aside the rights and wrongs of the case, this is a great tactic by Sharman. I normally am not a fan of litigation as a tactic, but in this case they have two vital elements of success on their side: surprise and momentum. The music and film industries are already facing a massive backlash - giving Sharman's move instant momentum. The counterclaim is surprising because the music and film industries have traditionally been the ones to use litigation as a critical tactic.
Nice one Sharman. Lesson: imitation strategies can change the game - especially when punishment tactics are involved, and when the other party is asleep at the wheel.
Thanks Hasbro. Now all you MBAs can play the beer game infinitely many times, you cheap bastards.
Kidding aside, this is a cool tactic. It is probably not that meaningful in isolation, but lots of similar tactics can give a firm a massive advantage by building a resource I've talked about below - a loyal user base. It's also cheap to do cool things like this (although it takes a mindset fundamentally different from that of many businesses). Lesson: do cool things for the people that consume your goods - they'll remember them.
The online ad creators are apparently big fans of Red Queen races. Since pop-up killers are a dime-a-dozen these days, say hello to the Ooqa-ooqa - a 'branded browser with custom-built contextual tools'.
Ummm...hello? People hate invasive ads
. Absolutely detest them. Why? Because they derive negative
value from such tactics. So why on earth would they find any value in
being 'branded' without their consent? Of course, the answer is: they don't, and won't. Google or someone else will make a branded browser killer, and the arms race will continue.
If you have a net marketing budget, for God's sake don't waste it on this nonsense. Buy something that people will watch and remember - something that will let you build a strategic resource.
Lesson: Red Queen races are a great way to waste valuable resources - and let someone else build resources that are valuable and protectable (like a loyal user base. remember those?!).
Ok, I have been of two minds about the music and film industries regarding filesharing. Today is when I have decided they have lost their marbles.
Tactics like this - night-vision goggles in movie theatres and 'an hourlong class for fifth through ninth graders on the history of copyright law and the evils of online file sharing' are seriously off base. You cannot build a business on coercion and brainwashing (contrary to popular belief). A business model is just that - a model
. When reality diverges seriously from the model, you had better get a grip on reality - not try and adjust reality to the model.
Of course, the music industry shows no sign of understanding any of this. In fact, they are going to most likely attempt to keep prices up.
Lesson: great strategy is at least half economics, at least half understanding and responding to shifts in consumer needs, and at least half harnessing (preferably discontinuous) innovation. Yes, I know that's three halves - the point is that whole should be more than the sum of the parts. Think of what video did for the film industry - when they got their strategy (kind of) right.
Economist article talks about targeting fat people. the argument is that fat people are not losing weight, so there is money to be made in providing goods and services that meet their needs better (like big seats). This is very bad business advice. The fat-people firms (McDonald's, Kraft, etc.) have taken a beating lately - clearly, the market is sending a signal that people want to be thinner, not that they want to stay fat. If anything, the fat-people firms took too long to reconfigure their strategies to account for this, and now face massive competition that will be easier to co-opt than outcompete (i.e. McDonald's buying a stake in Pret-a-Manger). Lesson: Ignoring clear market signals is generally not good strategy - unless you have a clear means to reshape industry boundaries.
In fact, here's another article from the same issue that talks about consumer desire to be thin - and how the fashion industry, in a typically strategically braindead move, is naming big sizes smaller (i.e. a 12 becomes a 10), instead of doing something tactically meaningful - like actually focusing on how to help consumers either look thinner or succeed in losing weight. Lesson: Unless you're on Fox News, semantics generally does not create value
Businessweek article about a wireless iPod as the DRM death star - a vehicle for 'everywhere internet audio'. This is like the last post - missing clear market signals. Business model concerns aside, people have clearly shown that they derive benefits from trading files that are above and beyond the simple economic gain of dowloading free music. Anyone music fan that has spent time on a P2P network knows why - file-sharing at it's best is like a massively intelligent collaborative filter. A strategy centred around a DRM death star scheme locks users out of these benefits
- and will be easily outcompeted by a strategy that can provide users exactly those benefits.
I will admit that this strategy does allow users convenience, which is a major intangible benefit that the record industry does not understand right now. Another point to consider is that pricing such a scheme would be impossible - it is a natural monopoly, and has massive potential for pricing abuse (thus creating no incentive for users not to fileshare).