JCL Blog

Could This Possibly Work for Amex and HP?

“I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.”

-Steve Martin

I try to make these posts positive.  The world has enough negativity without me adding to the stinking pile.  However, not long ago I got the most unbelievably dumb direct mail piece from American Express. Not wanting to go negative, I held my tongue.  

Today, I got an equally rediculous piece from HP, and here I am -- joining the screaming hoard!  

That is right, American Express sent me a 30 inch long remote control speedboat!  To buy an equivalent item on Amazon?  $30+!  

Any company doing a direct mail campaign where the item shipped is over $30 must have over $50 invested by the time it hits my door -- particularly with the custom box, shipping...  Any company spending that kind of money per item, must have done their targetting homework... right?


I am already an American Express customer!  One would think that before sending this list off to the mailing house, Amex would have done a quick compare to the current customer list.  

Hmmm... maybe they were targetting current customers specifically.  After all, the name and address matches exactly to my statement.  Why would anyone spend that kind of money to reach out to their current customers?  I have no idea.  American Express must have one talented advertising agency.

According to AdAge, Ogilvy and Mather New York is the agency of record for American Express, who is the 9th largest advertiser in the country with an annual budget of over $2 Billion.  These guys must be super smart -- do you think this campaign could possibly work?

HP and BBDO - Just Keeping Up

Not to be left out, HP sent me a remote control Ferari.  Now this is a bit more modest, less that a foot long, and probably in the under $20 price range.  Also, we are an on again, off again HP customer and partner, so getting in front of us could make a difference in our purchasing habits.  Lower cost, more upside... but I still have a hard time believing that this campaign could even pay for itself.  Incidentally, HP's ad budget is only $1 Billion.

I didn't respond to either and my kids looked at the plastic crap and shrugged.

What on earth will the big spenders think of next?


Technology That Changes The Game

It was a relatively short time ago that computers were produced in the dozens, cost millions of dollars, and were run by the phone company, the government, and a few very big businesses.  The most technological thing that a small business had was a cash register.

In an office environment like a law firm or an accounting firm, there were typists, and a copy machine, and the only cloud application was the connection to AT&Ts big computer (the phone).  In some cases professionals had specialized tools -- I for example had my HP12C programmable calculator.  I never programmed it to do anything though.  Amazingly, HP still sells that very calculator - 30 years later.

Then came the PC and voicemail and email and mobile phones and well, we all became computer operators plus whatever our jobs had been before that.  Now we spend so much time staring at the screen that we feel like computer operators all of the time -- so it is no wonder that we sometimes forget that we have actual jobs to do.  Facebook even relieves us from having to pull away from the computer to waste time at the water cooler.  

We have become much more productive despite the time we have to spend getting our machines to work for us.  Since the introduction of the PC, GDP per capita in the US has grown from $27,000 to $47,000 per year.  And that is the average for the entire country.

Keep in mind that workers that use PCs have done much better than the rest of the population, so the productivity has more than doubled for PC users. Advances in technology drive our economy and our ever improving quality of life.  This is an easy argument to make when you consider that penecilin was an advancement in technology.  A bit harder in the context of nuclear weapons. 

These advances in technology have provided for us so much extra time and money that we don't know what to do with it all.  Most of us have more than one computer plus a phone with computer like computing power plus maybe a tablet too.  

There are two types of advances in technology: incremental things and game changers. New computing capacity that reduces the time to run a report from a giant database is incremental.  New sensors that report every person's location, everything they purchase, and many of the things that they think and say into a giant database is a game changer.

The incremental things we get from technology are gains in efficiency that make one business more productive than another.  Game changers are new capabilities that just could not be done before and that completely change the business environment.

As the cost of compute cycles comes down the incremental functions will blend into the background and deliver less and less profit to their makers -- so look out HP and Dell.  Game changers will become the whole game and command more and more of the profits.  And as always the pace of change will be accelerating.  Very few companies have the will to change their own game.  Apple did it with the iPhone and now generates half of their revenues from a product they introduced only 5 years ago.  Google did it to the advertising industry -- but it remains to be seen if they can do it to themselves.  Microsoft is in the process of trying to change their game with Windows 8.  Will they be able to do it?  



Big Pain Equals Big Gain

Everyone in our solar system knows about the pain going on at HP.  I would not be surprised if even a few extra terrestrials know about HP’s roller coaster ride of CEOs, acquisitions, write downs, re-orgs, lay offs, and other painful stuff.

The tendency of course is to write off a company with this much trouble.  Why work for, work with, sell to, sell with, or even write blog posts about a company that seems to put its business plan in the blender before deciding what to do each morning?  

Well, because with this much pain there is enormous opportunity for gain.  In the fifteen years we have been helping big technology companies market through their partners we have been involved in many conversations with HP.  Most of those conversations have included a significant thread about how HP does things and about how there was no chance the way HP did things was ever going to change.  

Well, things are changing now!

On every measure except market capitalization, where even Facebook has a bigger valuation, HPQ is pretty big.  Seventy three years of history, over one hundred billion dollars in revenue, and 350,000 employees.  Add to this HP’s tens of thousands of business partners that sell their hardware, software, and services all over the world and I would not be surprised if the HP ecosystem was more than a million people strong.

No matter what experts say about the rapid pace of change inside technology companies, every company in every industry avoids change and HP and the technology industry are not immune.  Right now, the move to the cloud and BYOD is moving the pieces around the technology industry chess board and presenting a once in a decade opportunity to companies willing to change big.

So all of the planets are lined up and HP is Jupiter.  

If I were HP, this is what I would want to do with my influence:

  • Make it UNBELIEVABLY EASY to work with HP
  • Set a new TRANSPARENCY standard
  • Establish HP in the CENTER of the ecosystem
  • Make each change FOUNDATIONAL

Clearly these measures build on each other.  Each will have an impact on its own.  With a little luck the compound impact could change the whole industry.

Oracle and IBM: Making Tracks in the Enterprise Market

The papers love to report on the consumer end of the tech industry.  All the while, a great deal of business is being done on the enterprise side.  Admitedly, the consumer angle is tough to resist because if I had put Apple on this chart it would be up 373% in this same time period.  So it is easy to see how journalists get drawn to Apple and the consumer business.  

This chart shows how the big enterprise players have performed over the past 5 years:

(click on the chart to go to Google Finance for a larger view)

Microsoft and HP, the two companies that are drawn to the consumer flame but also have a majority of their business in enterprise computing, have not done as well as Oracle and IBM -- who are completely focussed on winning the enterprise marketplace.   Microsoft just acquired Yammer - which shows a focus on business computing, but they also introduced the Surface, which is aimed back at the consumer.  

Now would be a good time to show the focus that Oracle and IBM have shown.  


Chris Anderson's List

Chris Anderson also spoke at the HP Discover event last week where he presented an inspiring list of the things the young people now entering the workforce want / expect.  He was careful to point out that with considering the current reality that these things can be delivered through employee owned devices (phones) that the new creative class will get these things whether employers deliver them or not.

Top 10 expectations of the new creative class:

  1. Mobility...work anywhere but still have hallway conversations and other serendipity
  2. Openness...don't even try to hide the truth or even spin it
  3. Technology is a personal statement...what is your tech saying about you?
  4. Featherweight apps...do one thing very well...less is more
  5. Cloud first...they don't care how hard it is to get there from here...they are already there
  6. Sync...Dropbox...ambient communication that just works
  7. Social Media...Dunbar limit hits media.
  8. Unstructured in a structured way...Evernote
  9. Security, trust and scale matters...gmail 2 step verification 
  10. Blurred lines forever...wherever you go, there you are.

Sounds awesome to me.  Where to I sign up!  Hire the new creative class!

One HP is a lofty goal for the new CEO

From one end of the financial spectrum to another... HP had its annual meeting last week where Meg Whitman introduced her plan to combine the PC and Imaging divisions.  HP has been through a great deal in the past 10 years and getting back to stable ground is not going to be quick or easy.  And it does not seem like the press is going to give the new CEO much latitude.  Here are a few of the headlines:

MarketWatch:  H-P’s latest move draws skepticism

WSJ:  CEO Whitman Tells H-P’s Workers ‘Everything Is on Table’ in Overhaul

Reuters:  HP creates PC-printing power, Wall St waits and sees

This is in the context of their ongoing "One HP" initiative, which strives to unify a company that has been operating as fragments for decades.  In recent years growth by acquisition is one of the few things that the many HP CEOs have agreed on.  The HP acquisitions page on Wikipedia tells the whole story.  The revenue and head count growth is dramatic.

Whitman is right to identify the disparate nature of the company as a big problem.  Employees that joined the company over a decade and three CEOs ago still refer to themselves as Compaq people.  Same with employees from 3 Com, 3 Par, Mercury Interactive, EDS, and most recently the employees from the $11 billion acquisition of Autonomy last year.

The list has so many multi billion dollar deals on it that it seems unlikely that one company could be made of the resulting tangled mess. The aim behind combining the PC and Imaging divisions is more likely to convince the employees in the PC division that the persisting story about a spin off is not going to happen and that they should get back to work.

We all remember how big the Compaq deal was when it was announced.  I had forgotten that there were 53 other deals in that decade!  The company grew from 100,000 employees to over 300,000.  Nothing is impossible, but making One HP out of this will be quite a challenge. 

Apple Wins Again as the World Moves to Tablets

Last week Apple championed the post PC era with the launch of the iPad Third Generation.  HP shot back that the PC is not dead.  I think both views can exist at the same time.  

Anyone who has found themselves in the role of family tech support person has been wishing for the post PC era for a long time.  In fact, most PC users have used remarkably few features of the PC.  Word processing, email, the web, and maybe a spreadsheet.  They don't care about where their files are located, how the machine works or stays healthy, have never installed anything, or backed anything up.  They are just not interested in the PC at all.  As soon as these people got smart phones their PCs go days or weeks without being touched.  Some overwhelmingly large percentage are these non PC users -- and for them the PC was a necessary evil -- they just wanted to send the email.  So Apple is right.

Anyone needing to connect to a corporate network, or that uses databases, or that builds things (web pages, databases, programs), is going to need a PC and because they are the type of person that loves new technoligy they are probably going to want a tablet too.  So HP is right.

According to Gartner, there were 93 million PCs shipped in Q4 of 2011.  According to Apple, they shipped 15 million iPads in Q4 of 2011.  They were just shy of HPs share (17 million) of the PC market.

Up until now, the iPad has been an extension of the users technology portfolio.  From now on, the number of users with just an iPad (or other tablet) is going to go up fast.  So Apple is going to win big and if Microsoft can get to the party with Windows 8, Microsoft will win big too.  The people selling PCs like HP and Dell are going to see their marketplace rotate significantly -- and probably decline.  All HP and Dell need to do is come to market with amazing Windows 8 tablets later this year.

It is going to be interesting.

Free HP OfficeJet Pro L7580 – slightly used, may not work

I have had this printer for a few years and it has worked pretty well.  Some time ago I stopped using the scanner because it was quite slow and I could not stand to have the bloated HP software on my pc.  Nevertheless, the machine has continued to print with only the driver installed on my PC – so it has been good enough.

Today however the device reached the end of its time with me.  Despite the fact that I use it quite regularly and replace ink cartridges a few times a year, today the printer informed me that my ink cartridges had expired.  Clearly this is a ploy to sell more ink cartridges.  The printer gave me the option to print anyway, but I had to agree that it would void my warranty.  So it is either an attempt by HP to sell more ink, or lower its warranty exposure, or both.  Either way, as a customer I really don’t like being treated this way.  I went ahead and pushed OK, but the printer still would not connect back to my PC.

I do have a second printer in the house, an Epson, that all of the sudden I like a lot more than the HP.  So the HP is out.  I probably won’t buy another HP product.  I will definitely never call HP to tell them.  Customer lost for life. 

It happens that today a friend asked me what type of computer to buy.  I did not recommend HP.  I also related this story, probably another customer lost – maybe also for life.

Increasingly customers expect the products they buy to work.  If a replacement can be had for a few hundred dollars it just does not make sense to spend the time and effort required to get support and repair it.  If HP is monitoring complaint calls, or unresolved support incidents as a way to measure its customer satisfaction, I will not show up on any of those measures.  Silently and precipitously however, the company is losing customers.  Some may never return.

The first US based person to put their shipping information in the comments section of this blog post will get the printer.  I will pay the shipping to anywhere in the US.  I would also gladly send it back to HP – so if you are listening HP – just let me know.

Last Mile to the Channel Partner

Just like with other networks, the Last Mile connecting a Partner Network to its Partners is expensive and complicated.

All channel partner programs have infrastructure designed to manage the relationship with partners.  From the simple to the sophisticated, this infrastructure accomplishes a variety of critical tasks including registering partners, enabling them with sales materials and support, delivering leads, tracking performance, managing certifications, and many other functions.  These processes and systems are in effect a network of sales and marketing people and PRM/SFA databases and applications.

To function, all networks must reach their customers and a partner program network is no different.  The link between the network and the customer is called the last mile, and just like with a phone network, the last mile is the most challenging because the investment required to reach a new partner is uneven, and in many cases will never pay off.  Extending the phone network to the last farm on the road will never make financial sense – that is why the FCC has made the phone company provide service to everyone.

Companies have tackled the last mile problem with their channel partners in three distinct ways:       

  • Invest everywhere and dominate the market (Microsoft)
  • Invest heavily in obviously high value partners (HP)
  • Make the partner come to the network (Google, Amazon)

These differences are logical when taken in the context of gross margins.  Microsoft and other software companies have the highest gross margins, so they can spend much more than everyone else.  HP and the hardware companies have much lower margins, so they have to be more careful to invest only where they know it will generate additional sales.  Google and Amazon and other similar businesses have many more partners, and their transaction size is much smaller – making anything other than a fully automated approach hard to justify.  It is just not possible to cater to the individual needs of partners if there are millions of them.

As the technology industry evolves and these companies move into new markets, they will have to adapt to new margins and transaction sizes.  This will be much easier for companies working up the list, than those working down the list.  Those with skills developed in low margin and small transaction sized businesses will have to learn to invest more in the last mile – learning to spend more is enviable compared to those who have to learn to spend less.

Matchmakers You Can Trust

Just about any 17 year old American male will tell you that finding a date to the prom is a difficult and humbling experience.  Similarly, employers will tell you that finding a good employee is nearly impossible.  Buyers of IT products and services will echo the sentiment:  It is much harder than one would think to find and procure the technology a business needs to remain competitive.  Ironically, if you talk to the other half of each of these matches you will find quite a different perspective.  The Difference is enough to make you wonder if your grasp on reality is starting to slip away. 

Girls start planning on being asked to the prom 6 months before it even enters the consciousness of boys.  Even in this down economy, four million jobs change hand in the US – every month.  And companies spend millions of dollars trying to find their next customer.  For the past fifteen years the most successful companies on the web have aimed to do the matchmaking in these examples.  Online dating sites like match.com, eharmony.com, and some would say the entire porn industry have set out to capitalize on the first matching challenge.  Monster.com was one of the first Internet companies to buy a Superbowl ad, and Google, Bing, eBay, Amazon.com and now Groupon get paid quite well to connect would be buyers with would be sellers right at the very time the buyer wants to buy.

So successful internet business equals:  find an area where matchmaking needs to be done and have at it.  If you think you are late to the game, think again.  This internet thing is just getting started and there are many more untapped opportunities than tapped ones.  Yes indeed, Classmates.com, Facebook, and Yelp have all been invented already.  However, no one has even started to work to match enterprise technology buyers to enterprise technology sellers.  We all have lists of markets we would like to see better matchmaking tools on the internet.  Doctors to patients, kids to educational tools, scientists to research subjects, and even people to movies as the million dollar Netflix challenge demonstrated are all up for grabs.  For now, let’s focus on enterprise IT match making.

There are many things that stand in the way of solving this problem, but none as big as the lack of trust.  Trust has been eroded between the buyers and sellers of enterprise technology through repeated over promising and under delivering of products and services to the point that even the historically accepted measure of ten times better is no longer sufficient to get a business buyer to make a change and buy something new.  In the technology industry this phenomenon is sometimes labeled vaporware – software that has been promised to customers that does not even exist.  The risks for the buyer are quite large and even larger without vendor trust – and this slows down the adoption of new technology significantly.

Adoption of new technology is the key to increases in productivity and increases in productivity drive our economy and increase our standard of living.  Therefore one of the things standing in the way of our economic recovery is trust.

Successful matchmakers employ three simple tactics to get right at the trust issue:

  1. Make money on the success of the match:  A business model built on making the match between technology vendor and technology user, instead of making the sale of technology, aligns the interests of the parties and turns the matchmaker into a trusted advisor.
  2. Be transparent about how money is made:  A matchmaker advocating for a particular solution will always be suspected of doing so selfishly.  Full disclosure of how the matchmaker gets paid will drain away this suspicion.
  3. Demonstrate deep and wide knowledge:  It is natural to sell what you know and stay away from what you do not know.  Demonstrating a detailed understanding of all of the products in the category will validate the trusted advisor status.

The two most trusted matchmakers in business IT are Accenture and Deloitte.   IBM is a giant in the IT matchmaking business, but is also pushing its own technology.  At one time EDS, Perot Systems, and ACS were on this list -- until they were acquired by HP, Dell, and Xerox -- which changed their motivation from matchmaking to selling their own technology solutions. 

This will be a very interesting area to watch in the years ahead as new companies flood in to fill the trusted matchmaker void created by this consolidation.

Who Is Driving Technology Sales: The Consumer or the Enterprise?

Even though a significant majority of technology purchases are made by businesses, the consumer is rapidly gaining a meaningful position in the market.  According to Gartner, in 2010 businesses will drive 72% of technology purchases.  The iPhone/iPad revolution is largely driven by consumer purchases.  As these devices are introduced into the enterprise computing environment, IT professionals are developing strategies for managing them.  Forward thinking technology marketing people are presently working to understand how these changes will impact IT purchasing decisions in the enterprise.

Here we examine the arc of this revolution and make an attempt to help marketers position themselves for the evolved technology marketplace.

The Cost of Selling is High for the Enterprise and Low for the Consumer

Maybe it is cheap to sell to the consumer because consumer products are cheap, or maybe consumer products can be offered cheaply because it is cheap to sell them.  Either way, it costs much less to sell to the consumer than the enterprise, and in some cases the cost of customer acquisition is approaching zero.   Alternatively, over on the enterprise end of the spectrum, we find companies like Salesforce.com – whose largest expense is for customer acquisition.  For 10 years SFDC has spent over 50% of their gross margin on sales and marketing – and this year they will spend over $700 million.  Ten times as much as it will cost them to deliver their services.  Right behind Salesforce.com are Oracle, IBM, HP and Microsoft each spending over 20% of their gross margin on Sales and Marketing. 

When it comes to selling the approaches cannot be more different, consumer companies like Google sell by getting their customers to act as their own salespeople (filling out a form on the web), quite a contrast to Salesforce.com and the others who are seeking business customers by blanketing the earth with salespeople and partners.

Getting to Market:  To Advertise or Not To Advertise

Even companies with buckets of money must select a go to market strategy and concentrate their resources in what they believe are high value activities.  There are as many opinions about which strategy works best as there are CMOs – but just about all CMOS will agree that resources must be concentrated in high value activities consistent with their strategy.  Anyone spreading their resources thinly over too many activities is doomed.  The decision tree starts with advertising.  There are companies like Apple and Dell that go big on advertising and PR and companies like Microsoft and HP that invest their resources in building partner ecosystems.  A completely different third approach is lowering prices so far that solutions sell themselves.  Google and Craigslist price their services at 1/10th of their offline competitors.  Prices this low promote themselves – a $3,000 car or a $1 movie ticket would not require advertising or salespeople – the newspapers would write about it and the message would spread virally.

Let Someone Else to Pay

There is no charge for using a search engine or web service like Twitter or Facebook.  Using a free product does not make you a customer however.  The customers of these companies are the advertisers, and their payments for advertisements make it possible for companies like Google, Twitter and Facebook to offer valuable services for no charge to those benefiting from them.  No monetary charge would be a little more accurate.  The truth is:  those not paying for a service are not the customer, they (or their data) are the product being sold to someone else.  This is where the gulf between consumer and enterprise gets interesting.  Individuals are much more willing to give up their data in exchange for a free service.  Enterprise data is almost always a strategic asset and therefore most businesses are reluctant to trade their data for services.  Salesforce.com’s clients are businesses and they pay for the service because giving up their data to be sold to a third party would undermine their viability.  Google gets right up to the line on this one because they are selling the data they have about their customers to third parties – and many of their customers are businesses.  Admittedly Google is not going to one client and saying they will sell the content of another client’s searches or emails.  They will however allow one client to present advertisements to a targeted audience that is likely to include its competitor’s customers or employees.  This is evidence that the gap between consumer and enterprise buying habits is closing.

Mixing it up:  Put the Blender on Whip

Twenty years ago, with the exception of a few intrepid door to door salespeople, the consumer went to the store and salespeople called on businesses.  Then Amazon.com brought the store to the consumer’s home, and Dell cut out the salesperson by giving businesses the ability to serve as their own salespeople over the phone and web.  The consumer and business buyers including those in the technology market had been oil and water, and they were about to get poured into the blender.  When the first killer app for the consumer oriented Mac turned out to be the business oriented use case of desktop publishing – it was like hitting the chop button on the blender.  Employees connecting their home computers to corporate networks, enabled largely by broadband deployment, was the equivalent of the stir button. Social media tools like MySpace, Friendster, LinkedIn, Facebook, and Twitter turned the blender up to puree.  And as we are learning in our one question survey this month, the iPhone and iPad have cranked the margarita making machine up to whip and the water and oil have emerged as thick as chocolate mousse.  With consumer tech and enterprise tech all whipped up together, selling technology now takes on a combination of enterprise selling and consumer selling tactics. 

Enterprise Marketing Must Change

Right now there is a great deal of energy being invested by enterprise marketing people in social media.  This is important, but not the only area where the enterprise / consumer collision is impacting the market.  We will never know if the big brains at Apple developed their iPhone/iPad strategy with an eye on the enterprise market.  Intentional or not, their shiny new devices are changing the marketplace and buying patterns significantly.  Starbucks is moving to HTML 5 and away from dot net as a result.  Flash is being marginalized.  And products like those from Parallels that tie the new environment together, are ramping fast.  Enterprise marketers need to free their minds from a focus on making the things they have always done more efficient and start experimenting to develop new strategies that are effective in this new marketplace.

On the Horizon

As participants in technology marketing for the enterprise, these are the trends we expect to see accelerate as a result of the blending of the consumer and enterprise markets:

Social Media:  Clearly social media will be central to these changes, both driving and being driven by the marketplace evolution.  The key to social media is authenticity.  They key to authenticity is flexibility and IQ.  Companies with intelligent and autonomous actors on social media platforms will win.  It does not hurt that the highest value customers are the early adopters of social media.  100 years ago, when telephones had been deployed in 10% of the households, companies realized that the early adopters of the telephone were on the high end of the socio-economic ladder and should be treated as such.  Once telephones achieved 98% penetration, and the overwhelming majority of phone calls came from average customers, companies shifted their approach from high investment in high value customers to cost containment.  This is why a Comcast customer can get a high quality response from @comcastcares, and not from the Comcast call center.  Comcast knows the demographics of their social media savvy customers.  It will be some time before social media is democratized.  To Do:  Get smart people into the social media game.

Computer Operators:  Before the computerization of the telco central office, switching was done by telephone operators.  An operator could manage approximately 200 telephone lines.  We now have 180 million land lines and over 200 million mobile lines in the US.  If we had to rely on manual switching – we would now require 1.9 million telephone operators.  Thanks to automation we only have 22,000 telephone operators now and none of them are switching calls.  In the early days of the computer an operator with significant training was required to run the device.  This continued during the early days of the PC.  The devices were complicated enough that every user was essentially a trained computer operator.  It has only been in the last 10 years that computers could be operated without the barrier of significant training.  The iPhone and the iPad are revolutionary in that they require no specific training at all.  A child can pick one up and figure out how to use it.  Many businesses now operate without a single IT resource on staff.  Computer operators are not dead however, they have shifted to managed IT service providers, web service operators, and application developers.  This trend will continue to accelerate.  Business will be less technically aware and will purchase services from specialized service providers.  The service providers will have all of the computer operators and accordingly will increase in sophistication and technical capabilities.  This will split the marketplace into the sellers of the services and the sellers of the underlying technology.  The services will be purchased by people with business needs and a low level of technical sophistication.  The underlying technology will be purchased by people with an extremely high level of technical sophistication.  To Do: Market services by business use case and technology by engineering merit.

Partners Migrate to Service Sales:  The bifurcation of technology into unsophisticated (technically that is) buyers of services and very sophisticated buyers of the underlying technology will force a split in sales and marketing strategy.  The big technical deals will get bigger and will be increasingly sold using internal salespeople.  This will shrink the high end of enterprise technology sales and marketing done through partnerships. Who is going to sell servers to Amazon.com?  IBM, Dell, HP, and others will be competing for that deal directly.  Who is going to sell desktops to the law firm?  Channel partners.  Historically those partners have been companies.  Of course because partnerships are relationships, and relationships are between actual people, the reality has always been that the success of these partnerships depend heavily on the relationships between the people inside the companies.  For fifty years, people have been getting more and more mobile, a trend that has been accelerated by the latest economic challenges, and facilitated by social media tools.  Technology companies that are able to shift their thinking from partnering with companies to partnering with people will jump well ahead during this transition.   To Do:  Orient partner programs to individual people that sell services.

In the years ahead businesses will remain the most significant source of revenue in the technology industry. Businesses will however increasingly behave like consumers when purchasing service offerings. They will be looking for cost effective solutions to their most pressing needs, and they will be buying those solutions on short lead times and with relatively low technical sophistication. Vendors and solution providers that position themselves for this change will win in the transition.

Facebook is the Paris Hilton of Tech

Smart phones, tablets, TVs, app stores, Twitter, and Facebook (and the movie) sure seem to get the bulk of media attention.  HP now has over $114 billion in revenues, the largest part generated selling to the enterprise, but their consumer products get all of the coverage.  IBM has 400,000 employees and also generates nearly $100 billion in revenues – rarely ever mentioned – because it is focused on the enterprise.  Microsoft, well Microsoft just never gets mentioned.  See my post the other day on the Pew Study.  If Larry Ellison wasn’t pulling stunts with the Americas Cup or Mark Hurd, no one would ever cover Oracle in the media.

Real work is being done hardening networks against cyber terrorism, lowering total cost of computing, developing and enforcing enterprise standards, safeguarding large amounts of sensitive data, and developing industry specific solutions.  This work is done with rarely a mention in the press.  My explanation:  enterprise computing is complicated, hard to understand or explain, and most of all it is boring.  To Journalists, Facebook is Paris Hilton.  Write about either of them and your web site gets hits.  Write about lowering energy consumption in data centers and you might as well be covering anything having to do with sub Saharan Africa’s problems.

We really have not had big coverage of business tech issues since Y2K – over a decade ago.  Could it be that we are due for a surge in enterprise coverage?  It may make sense to think for a minute about events that could cause this to happen and how it might impact the technology industry.

Here are three things that could bring enterprise computing closer to the center of technology media coverage:

  1. A Big Security Event:  Let’s hope it never happens, but if a big section of the power grid goes down, or all of the credit cards become inoperable, or a cyber attack crashes the stock market, the media will start to pay attention.
  2. Follow the Jobs:  If big tech starts hiring again and makes a dent in the unemployment rate it will be a big story.  Unfortunately, this probably is a result of the changes we would like to see instead of the cause. 
  3. Someone Connects the Dots: Google and Facebook are largely considered consumer businesses.  They are however, big enterprise operations in their own right however.  The media could latch onto the fact that Google’s network of data centers, gigantic databases, and all of the infrastructure required to run its business is cool and worth paying attention to.

What would change and why should we care?

  1. The Money Follows the Media:  A lot has been written lately about how the VC business is changing.  The story is that the investment exits are not there and new tech start ups don’t need as much money to start.  It is true that someone building for the Apple App store does not need to raise much if any venture capital, and may never go public.  Venture capital is needed just as much now as ever before.  The VCs do seem to follow the media, so if the media goes enterprise, maybe the VCs will too.  Thomas Friedman would sure be happy if we started funding green tech instead of another Twitter clone.
  2. Exports Up:  Technology innovation is something we can do well and we can export.  Enterprise computing is harder to knock off than a movie or an iPhone. If we build more capacity in our big business computing services – we could export it.  Companies like IBM, HP, Microsoft, Oracle, and others are already doing this in a big way – so we know how to do it.  And the balance of trade needs attention.
  3. Do Our Part:  If this were to happen, all of us could be proud of our contribution to the worldwide economic recovery.  Instead of presenting a military face to the world, or fancy financial engineering – which deploys just as much of a scorched earth approach as the military, we could be helping companies and governments around the world increase their productivity.  And they would pay us for it!  Good for us and for them. 

I hope someone figures out how to make enterprise computing interesting enough to get some media attention.  Could do us all some good.

Intel Wants the Consumer

The grass is definitely greener on the consumer side of the fence in 2010.  Companies that have built their businesses on their ability to sell to the enterprise, or that are a step or two removed from direct access to the consumer, are looking for a the gate through the fence. Increasingly mobile is that gate, and it appears that Intel thinks McAfee is their best shot at getting over there.

It is much more fun as a writer to be negative on announcements like this -- and the business press is having their share of fun with Intel.  Anyone that wants the business press to be positive should remember not to surprise them.  A few good leaks will get some of the journalists onto your side ahead of the announcement.  With the exception of Steve Jobs, who gets to play by a different set of rules, scoop equals page views, page views equals happy writers, happy writers equals "this is a brilliant idea".

Intel depends on the PC makers to get its chips to market and has managed to dominate that business over the years through business tactics that just keep getting them in trouble with the Justice department and the EU.   The top PC makers in the world control over half of the sales of new PCs including HP (18%), Dell (13%), Acer (12%), Lenovo (10%), and Asus and Toshiba tied (5% each).  The industry is on the rebound, up 22% in Q2, so everyone is growing.  However, HP and Dell are growing only slightly, and the other guys are smokin' with growth rates up to 87% (Asus).

The deal to buy McAfee may or may not be a good idea, but it does signal Intel's concern over its traditional route to market, and its corresponding desire to find a new route.  Their best domestic friends are getting pounded by the guys in Asia, and they are increasingly prevented from pulling monopolistic stunts, so I would guess there will be more deals to follow.

Other coverage:  


WSJ Digits Blog

Daily Finance

Read Write Web

CNet (for the PC industry numbers)





I Bet Mark Hurd Wishes Women Would Get Off the Elevator Too

Harry Truman reportedly would get off an elevator if a woman got on it.  I don't think it was discrimination, but rather he thought it too great a risk to be in a confined space without others around where he would find himself in a he said, she said situation.

Yesterday's widely covered resignation of Mark Hurd from HP due to legations of poor judgement in the context of mixed gender relations demonstrates that some sixty years and several waves of liberations later, the interaction of men and women in the workplace is still complicated and explosive.

As the father two incredible daughters, two individuals that are every bit as capable as any male, my response to the Hurd incident is disappointment.  I am disappointed that one of the best performing CEOs in the tech industry got into this situation, and I am disappointed that my daughters may still have to deal with high profile men that will get off the elevator in fear instead of treating them as equals.

Here is the incendiary part:  that still nameless woman, who when exposed to Mark Hurd's poor judgement did not get off the elevator herself, but instead continued to dig the hole deeper and then file a harassment case -- has participated in setting back the march towards gender equality -- no matter how justified she might be.

Here is some of the coverage in the NY Times and WSJ.

HP Announces Printing in the Cloud

HP rolled out its web printing capability, ePrintCenter, at Internet Week NY yesterday.  Here is a pretty good article in PC Mag about it.  

I don't ordinarily write about individual technology announcements, so why would I write about this?

Well, yesterday I wrote about two things that could really change the way small businesses buy technology: Google's Cloud Printing and Tungle.me's web based scheduling service.  Google's thing is still just a plan and HP has promised to deliver cloud printing this summer.  

Here is how it will work (from the PC Mag article):

The print-through-the Internet feature (which won't work with the older generation printers, unfortunately) lets you simply e-mail a file to the ePrintCenter's email address, which rasterizes the image and sends the print job to the printer. According to HP, the ePrintCenter can handle files in most common formats, including PDF, JPG, and Microsoft Office 2003 and 2007 versions of Word and Excel. Each printer gets a unique e-mail address.

I stopped buying HP printers for home a couple of years ago because they break so much and the software on the PC was gigantic.  Why printing would require software in the hundreds of MBs just never made any sense to me.  Add to that the fact that the software was telling me to download updates every other day -- and I was reminded early and often that HP was not the printer to buy.  All I wanted to do was print!

Anyone who has ever done tech support will tell you that printing is still a giant pain in the neck.  If HP does this right -- it could be a game changer.

This may not seem like a big deal -- but I bet the Microsoft Small Business Server team is thinking about the implications.



HP Hires - and hires

Mark Hurd has been very busy remaking HP.  Just put "HP Hires" into a search engine and you will get the picture.  Here are a few that I think are the most interesting:

Bill Veghte:  Long time Microsoft veteran and the guy that got Windows 7 back on track after Vista.  He left in January.

Richard Gerstein:  From Sears -- where he was the top marketing guy in charge of the brand.  at HP he will be the top guy in charge of marketing at the Personal Systems Group.

Mark Stephenson:  From Cisco.  Let's watch for the lawsuits on this one.

Add to this all of the talent from the Palm deal and you have a serious make over underway.

Another Layer on the Silos

Is it just me or does it seem like the big vendors are isolating themselves even further?  Here are the events that I can remember from the last few weeks that point to this trend:

Apple pushes Adobe away:  The old folks remember that Pagemaker, made by Aldus and acquired by Adobe, was the killer business application on the Apple platform.  But hey, that was a long time ago.  Steve Jobs clearly thinks they can make it without Adobe on their team.

Apple Sues HTC to Kill Android:  Some say that android is now the most expensive phone operating system because HTC had to go to Microsoft for patent protection and then Microsoft shot at Google for Android -- pushing the cost of Android up to as much as $40 per device -- and none of the money goes to Google.

HP buys Palm, Kills the Win7 tablet, gives its partners an anti Cisco ultimatum:  I guess if you are going to start shooting, you might as well shoot at everyone.  

Dell pushes the fear button on Cisco:  Look for Dell to come out with networking gear soon because their PR machine is on the anti Cisco track.  Funny because Dell and HP are always going at each other, and HP is all over Cisco, you would think that Dell would line up with Cisco.  Nothing like fighting wars on multiple fronts.

Things are getting hot in tech!

LATER: Jim Jubak on MSN Money had a similar thought.

Picking the Winners

I am not smart enough to pick the big winners in advance.  So I don't play the stock market, and at CSG we sell shovels to the gold miners instead of prospecting for gold ourselves.  Sure striking it rich would be a thrill, but the world is littered with hundreds or even thousands of would be Googles.  I was going to say would be Twitters, but they have not made any money yet!

This strategy has provided us with a very interesting vantage point from which to watch the show.  And it is quite a show these days.  I sure am glad I am not a telecom equipment vendor or a distributor -- it is easy to see what is going to happen to them.  It is much easier to pick the descending parts of our industry than the ascending.  Who in tech is going to do well?  

There has been so much talk about services over the past ten years that we have both lost interest, and lost track of the definition of services.  There are hosting services, IT services, software as a services, software + services -- and each time the word services means a different thing.  IBM, Dell, HP, Microsoft, and Oracle all have significant services organizations.  IBM generates more revenues from services than all of Microsoft's revenue.  What is IBM doing when they deliver services to their clients?

Business pay IBM 50 billion dollars a year for services.  And everyone in tech wants to get into services.  I propose that we could learn a bunch about the future winners by digging into the question -- what are people paying IBM 50 billion dollars a year for?

Stay tuned, in tomorrow's post I will dig through IBM's annual reports.

Moore's Law Gets A Bonus Game

I am not sure how many extra games Moore's law has already used up, but if the latest press release by HP is to be believed - the law that explains the endless growth in the technology industry just hit double bonus and the end is once again beyond our perception.

The funny thing is that if you search for nano technology and chips the results are all HP -- announcing every year or two that the whole world is going to change from their inventions.  I suppose it is possible that these predictions have all come true and the PR machine at HP has just not capitalized on the follow up press.  The alternate truth may be that HP announces all kinds of cool science -- that just cannot find its way into real applications.

This time it is "memristors" and a published article in the journal Nature which outlines the latest advancement by HP scientists.  It is a good thing too because a consensus was building that the we had extracted just about all of the miniaturization and optimization that we could.  Memristors however look to be at least a 10X improvement -- so if this comes to be things will be faster, smaller, lower power, and even cheaper.  

Way to go HP.

Sales vs Engineering

We are coming into earnings season and accordingly we have the chance to look at the financial reporting of companies in our industry. IBM and Google both posted their numbers last week and that got me to thinking about one of my favorite subjects -- how companies choose to spend their money. Specifically I am interested in how much a company spends on sales and marketing, how that compares to engineering (R&D), and how they each compare to the amount of money a company has available.

We know that gross profit as the amount a company has available to spend on all things not associated with delivering their products or services to customers. There are essentially four places this money goes. General and Administrative, Sales and Marketing, Research and Development, and Profit. A company cannot survive without just the right balance of each of these four things. So I thought it would be interesting to take a look at how eight well known companies in the technology industry choose to spend their money.

Here is a graph comparing the companies on sales cost as a percentage of gross profit. Google has made a big point that their products are so good they sell themselves. They clearly are backing that up with good performance. They are only spending 13% of their gross profit on sales and marketing. The only company spending less is Amazon at 11%. One could argue that insufficient investment is sales will show up in slower growth rates -- but both Google and Amazon are defying that with 8% and 20% growth rates respectively. Salesforce.com is also growing at 20%, but is spending 57% of its gross profit on sales and marketing. So I think you want to be on the left end of this chart -- spending enough to grow the company but not too much.

Anyone wishing to have products that are so good they can sell themselves should be investing in R and D. One of the highest impact decisions a CEO can make is allocating resources between sales and engineering. The temptation is to invest more in sales because the results will show up faster there. But a company that starves its engineering effort in order to invest in short term sales results will pay the piper later. Here is a graph showing R&D spending as a percentage of gross profit. I think the left side of the chart is where you want to be for long term health in the company.

Once we add the two together, it is interesting to see that Apple, Google, and Amazon end up on the good (left) end of the chart. And all three of them are also turning in impressive growth numbers. The stock market agrees with this analysis because these three companies are on the high end of P/E ratios as well. Strangely, the highest P/E ratio of all is for Salesforce.com -- a staggering 110. I don't get this. To me it seems like Salesforce.com is having to try very hard to generate revenues by spending 57% of its gross profit on sales and is investing less than anyone in R&D. Could be a correction in the works there.

Finally, I think sales spending and engineering spending diverge in one significant area. Sales should always be compared to near term revenue, but investments in engineering can in some cases be disassociated with current revenues. In other words, size does matter here and this is where we see Microsoft flex its muscles. Microsoft is not spending the highest percentage of gross profit on R&D, but it is way ahead of the pack on total dollars committed -- over $9 Billion! This is a full 50% more than the next biggest number which is IBM -- who has 4 times the employees and two times the revenues.

Microsoft is spending six times as much as Apple. So far Apple has been the premier innovator -- something that will be hard to forget this coming week. But don't count Microsoft out yet.