Marketing Expert's Corner

This article written in 2002

 

This newsletter is a departure from the usual, digging a little deeper into an issue that effects marketing and business development at high-tech firms.  

My basic point here is that it may just be time to retire that McKenna Pyramid.  I'm taking a bit of a risk here:  literally billions of dollars have been made following McKenna's guidance, which has historically been some of the best science in Marketing.  But clients are finding that these strategies aren't working reliably, and Best Practices means you call things into question.  So here goes.

Pyramid Power Influences Markets

When a vendor introduces a new product concept, tries to change the rules, or creates a new market category, they need to influence the market in a leveraged way.  Regis McKenna invented the market infrastructure pyramid to clarify how credibility is built, buzz is started, and word-of-mouth reinforced in IT markets.  McKenna's idea was simple yet profound:  customers are part of an ecosystem, and they are more influenced by colleagues, press, analysts, and gurus than they are by vendors.   Vendors have the lowest credibility precisely because they have something to sell.

By seeing the market as a network of influencers, a small innovator could have a large influence on the market.  Marketing campaigns could be organized as a series of messages tailored to build credibility at each level.  With carefully orchestrated communications and events, perception and credibility could reverberate, building a frenzy of attention.

Regis' pyramid and Apple's Macintosh put each other on the map in the 80s, and these principles became the core of IT marketing in the US.  Over 15 years, they became the standard playbook which everybody got pretty good at following.  If you're a large player (public or with $200 M sales) the pyramid still works despite its long usage.

But for smaller companies, the pyramid has become a frustrating theory, a catch-22.  For startups, using the pyramid has become more expensive yet less effective at getting the message out due to these issues:

  • The web really did change everything.  Information is now ubiquitous and easy to access, and vendors find it much more difficult to control information.  So, decision makers don't have to rely on proxies as much--undercutting the influence of analysts, gurus, and pundits.  BLOGs and Google make it pretty easy to discover a consensus opinion.

  • The trade press imploded.  This is the web changes everything, part 2:
    - advertising $$ moved from print journals to the web,
    - readership dropped, despite heroic efforts to inflate circulation
    - page counts declined by 50%, and weak journals folded. 
    Because reporter turnover increased and more free-lancers are used, vendors have to spend more time educating the reporters before they can get decent coverage. Even worse, most journals essentially gave up on editorial calendars, reducing vendors' ability to influence the ink.

  • Ink itself became less influential....the web changes everything, part 3. The on-line zines, blogs, and portals -- all with daily updates -- do a better job of reporting news and timely opinion pieces. The longer cycles of print journalism relegate the medium to customer stories or examples of IT's business impact. The press agenda doesn't really focus on vendor-specific articles unless the products are already pervasive.  (In many journals, IBM or MS get more mentions than all startups combined.) So ink isn't as effective for small companies trying to influence readers.

  • Communities went virtual, moving to cyberspace. This is the web changes everything, part 4.  Dynamic communities of interest can develop on the web in just a few weeks.  Peers now directly interact and develop consensus without mediators, gurus or pundits.  Customers can now "look sideways" for answers, rather than to a different level of the pyramid.  Colleagues' opinions and customer word of mouth become amplified to being the voice of the community.  This extreme case of participatory democracy means that the other layers of the pyramid have less direct impact on customer opinions.

  • The market matured, and the magnitude of product "debates" decreased. As the IT market became more homogenous (the chip wars are over, same with the UNIX, RDBMS, GUI, ERP wars), the strategic consequences of any one decision decreased. Why pay attention to expensive pundits when mistakes aren't as costly as they used to be?

  • The perception of risk reversed: customers are much more concerned about thelongevity risks of small players than they are of "missing a wave of innovation" by sticking with a large vendor.  Since the large vendors have much more leverage through the pyramid than small vendors do (because they can afford to build a stronger market infrastructure), the startup climbs a steeper "credibility hill".

  • Central IT and its gurus lost all power. In most customers, IT today is a service organization with way less than 50% of the purchasing authority. In big companies, the real spending goes on in the business units (e.g., most web sites are owned by marketing, sales, or operations).  So, the influence networks built up around central IT (e.g., analyst firms, advisory councils, CIO forums) are no longer pivotal. 

  • Because spending decisions are in the business unit, customers now look at business value vertically.  The VP of Supply Chain for a Telecom company is going to care a lot more about the business impact of Cisco's outsourcing than they are about the particular features in a software package.  So, the VP cares about deployment references from his immediate peer group, with ROI measured in their industry's business processes and stated in their terminology.  This VP won't respond to a generic SCM report or article.

  • The SIs and partner vendors now sound like Bogart's famous line, "I don't stick my neck out for nobody."  Partners and System Integrators used to be an important part of the pyramid, as their recommendations were viewed as impartial and significant.  But for most small vendors, partners and SIs will do little more than write a "Barney" press release.  The partners reinforce you only for as long as there's a joint sales cycle and immediate money on the table for both sides. Because there is essentially no loyalty, the influence provided by partners is not consistent and doesn't last.

I don't mean to paint a completely bleak picture: each of these influence techniques is still valuable.  But you have to work the market and measure progress in new and different ways.

What Does Work Today

  • Move money away from traditional ink (particularly industry analysts and advertising) that doesn't work well enough for small companies.  For all the reasons stated above, it's harder to get ink and positive analyst reports...and even when you do it doesn't lead to leads.  Spend the savings on keeping your web site content up-to-date, clear, and complete. Then, get your search-engine scores higher, making sure you're focused on the right search engines or directories for the communities you're trying to reach.
  • Work the pyramid you know, but work it differently.  Focus on deployments, customer references, and ROI.  The business impact of using your technology is more credible than any amount of flogging technology for its own sake.
  • Work little pyramids, specialized by vertical. At the top of these pyramids are customers and their colleagues (e.g., Airport Managers), below them are the vertical web sites or zines (e.g., IATA.org) and below them are the implementers that deploy their specialized information systems (e.g., Bechtel's or Accenture's transportation practice).  Honing your domain expertise increases your impact.
  • Do community-of-interest marketing. This is marketing directly to and influencing individual members of a community, along the lines of open source and viral marketing.  Here, the web (or cyberspace in general) replaces the pyramid, and the vendor is a member of the community he is trying to influence.  Find someone who has experience working the on-line communities, and knows how to get community 
    leaders (e.g., alpha-geeks) to reinforce a vendor message

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