Marketing Expert's Corner

This article written in 2004

 

During the 40 years of the cold war, the world was politically aligned around the US and the USSR -- superpowers which held the ultimate weapon.  As this kind of geopolitics had never occurred before, an entire generation of foreign service professionals specialized in developing new theories and tactics of diplomacy.  The dean of these doomsday professionals was Henry Kissinger, who become iconified by Peter Sellers.

In an analogous way, the last couple of years has seen a change of the commercial and political landscape, making a lot of IT marketing strategy obsolete.  In Information Technology, we now live in a world of superpowers who use the ultimate weapons - M&A and open source - with abandon.  You need to leverage these guys if you want to stay relevant to the market. 

Superpowers

As I mentioned almost two years ago, mergers can be a very nice way to move your company strategy forward while giving stockholders immediate gratification.  As I noted in 2002, ten times more VC-funded companies are bought than go public.  As long ago as 1998, stock analyst Jim Pickrel said, "there are just too many damned software companies."  

The industry has taken this viewpoint to heart, consolidating steadily.  In Enterprise Software, the industry is boiling down to SAP, Oracle, CA, Microsoft and Symantec -- all steady acquirers.  In OS, middleware, and commodity tools, it's boiling down to Microsoft and open source.  In desktop software it's Microsoft and Adobe.  In games, it's Electronic Arts, Take-Two, and Microsoft.  In the Internet, it's Google, Amazon, eBay, and Yahoo.  While smaller companies have sustainable franchises, for the non-superpower it's difficult to grow market power or market share on their own.

So if the IT marketplace is playing by Superpower rules, how should you run your company?

How Small Companies Prosper Near Superpowers

What gives superpowers their market influence is not technology or breadth of patents.  While those are key assets, they don't mean power (ask Xerox).  The Big Guys' real advantages are:

  • Their stock price, allowing them to buy you or your competitor with an inexpensive currency

  • Their PR presence, which allows them to freeze markets

  • Their sales force, which gives them account control and -- thanks to broad product coverage -- the ability to do Enterprise selling profitably.

Leveraging the superpower means understanding the world from their perspective, and getting good at BigCompany behaviors like stakeholder meetings and complex approval processes.  But it also means thinking about how to play one superpower off another.

Here are specific ideas:

  • Now is a great time to be a system integrator or consultant specializing in the needs of superpowers when they acquire firms.  Every acquisition means conversions of IT systems across the board.  This creates consulting opportunities in domains like SFA/CRM, order processing, finance, business process redesign, EAI, and security.

  • Now is also a great time to be an ISV or SI specializing in migrating applications from one generation to another, or converting from one vendor to another.  Every merger and acquisition means opportunities for selling to the acquiring superpower and to its competitors.  Just think about all those JD Edwards customers who were in the middle of converting to One World, then started a PeopleSoft conversion, and now must start moving to Oracle applications.  And think about how much SAP and Microsoft would love to grab customers that fall off the Larry train.

  • Partner with the Big Guys not just for their current market prestige, but because it gets you on their radar for future M&A activities.  You can't marry if you don't date.  Real partnerships mean money is being made together:  display in their tradeshow booth, participate in their demos and benchmarks, make joint sales calls, form reseller arrangements, or even sign OEM deals.  The deeper the relationship, the more flawless your execution has to be (think about Microsoft and Intel in the very early days of the IBM PC, when they were dealing with the ultimate IT superpower).  Forget about Barney Press Releases:  partnering well takes a serious commitment of time and a good measure of perseverance.  

  • You can't start a partnership unless you can provide the superpower access to customers.  The superpower sales force will have unparalleled access at Fortune 500 firms, but they are often surprisingly un-knowledgeable about their own accounts and ill-informed about everyone else.  So, become valuable by leveraging your sales force's focus and deep account knowledge in mid-range customers.  Job One is to find common customers (or at least prospects) with the superpower, and surprise their partner and sales guys with how much you can help them with these accounts.

  • Ironically, superpowers' competence is inflexible and can't cover the whole market.  There are areas where they can't execute at all, where they can't get out of their own way.  Understand what areas your local superpower feels nervous about, and market to them how you can improve their position in the marketplace.

  • Participate in PR skirmishes.  Since superpowers can get press coverage just by burping, you can get a lot of mileage by engaging in a squabble between them.  You can serve as an ally (partner reference) or you can be a counterpoint (reaction quotes, material for side-bars on a "notable exception.")  Every open source company should be doing this, particularly when there is some sort of industry debate about pricing or business model.  For example, when Oracle buys Seibel (classic superpower play), SugarCRM can get tremendous coverage as the harbinger of future trends.  Another example happened with me and IBM.  The press loves controversy because it drives up readership.  So, engage in one:  offer yourself up to reporters as a friendly commentator on key industry events.

  • You can almost never outsell a superpower anywhere near their home turf.  They have more products, can throw in more sales reps, have a bigger playbook, and can kill you with internal politics you don't even know about.  A deal will mysteriously freeze when you thought it was at 90% probability.  So, find a way to partner with them -- to make your product solve one of their problems in competing with another superpower.   

  • Ironically, superpowers cannot usually scale down.  If you're doing something that looks small to them and you move quickly, they will not be able to respond.  If you can avoid being noticed, there's usually a bunch of opportunities that wouldn't be great business for the superpower, but will be quite profitable for you.

  • Competing with a superpower on price is usually futile.  To compete only on price is to say, "this is a commodity deal."  The superpower can play pricing, bundling, and financing games that you cannot.  Instead, compete on value, domain knowledge, and depth of expertise/service.  If the customer needs product features and support that are highly tailored to their needs, it is usually not economical for the superpower to compete.  Look at the boutique retailers at Stanford shopping center -- do you think they have any problem winning profitable customers from Wal-Mart?

  • Competing with a superpower in open source is also pointless.  They can afford to throw in endless quantities of code, engineers, and PR in a war of attrition.  Instead, participate actively in their open source or community (e.g., JCP, Eclipse) partner programs, hijacking narrow domains that aren't pivotal to them.  

What if you're caught in the middle?


Superpowers have scale and market power.  But there are usually secondary players with maybe 10% market share, but aren't really growing.  They're too big to be the nimble player that emulates the pilot fish.  What should they do in marketing and strategy?

  • Be congenitally different and interesting.  Clone or knock-off products and services won't cut it.  Innovate faster and do the kinds of things in product and marketing that the superpowers couldn't or wouldn't do.  Be like Dr. Pepper to Coke and Pepsi, or Macintosh to the PC and Linux boxes.

  • Keep your customers happy, but (ironically) don't obsess about them (and thereby limit yourself to satisfying only them).  Your goal is to have a maintenance revenue stream and active customer base that helps validate the business case for an acquirer later on.

  • Focus your product lines on a coherent thesis, to make yourself more attractive for future M&A courtship.  Sell off products that complicate your company story, dilute the focus of your customer base, or cause you be less attractive.

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