This just in, the New York Times is reporting that the economy grew at an annual rate of 5.7% in the forth quarter, the fastest pace in over six years. This would indicate positive results for the economic stimulus set in motion a year ago. Certainly, anecdotal evidence from our briefings with software companies confirms this trend.
Apple Software, Inc.
When Apple changed its name by dropping the “Computer” word we all thought that the reason was the phenomenal success it has had in consumer electronics. Sure, the company kicks booty with its computers thanks to great design and a stable operating system, but the success of the iPod seemed to point the company in a new direction.
Apple’s success has been three fold — near flawless manufacturing, customer service and software. More than anything it has been the software that seems to make you almost forget there’s a device involved as some of those who played with the iPad yesterday seemed to indicate.
Yes, Apple unveiled its long rumored slate computer, the iPad, yesterday but what I saw was release three or four of the software that runs the modern iPod and iPhone. Apple’s success comes from being able to repurpose and add on to a core piece of software that runs its consumer devices.
For example, start with the iPod Touch and you have, an iPod with applications and a nice user interface. If you add a camera for stills and video plus phone capability you get the iPhone. That was a nice trick but not so revolutionary as it was evolutionary — at least from that angle. But now take the iPod software and put it on a bigger device and then plug that device into your HD TV — in the presence of a high speed wireless network — and that device is called Apple TV. In that vein, yesterday’s iPad announcement is really not much more than iPod in a different form factor and with some tweaks to the software including more applications.
Ok, now there are some significant differences in look, feel, purpose — what is iPad’s purpose? — and the applications that run on each gizmo but the fundamental software appears to be common to all these devices. And it needs to be said that all of these devices also have in common the ability to connect with the mother ship (not you, Apple!) to download content for a price.
One of yesterday’s announced uses of the iPad will be for downloading and reading newspapers, starting with the New York Times, and books. In fact a whole new (?) store format for book content will feed the iPad, but let’s face it, that sounds like a repurposing and modification of iTunes.
Now, I am not complaining about any of this. Downloading digital content — especially the kind that you read and that has heavy-duty information — has been a missing factor in our digital lives and I, for one, am glad to see this evolution. If iPad can help to save the newspaper industry, I am all for it. But I am most impressed with the vision and the execution on that vision. Apple built sophisticated software for iTunes and the iPod and then contemplated the number of ways they could leverage it to invent not only a number of useful devices, but also categories. That’s genius, if you ask me.
Perhaps the next game we all play on the web will be asking and answering the question, What will Apple do next with its software? I think it’s worth pondering.
Just about every vendor that briefs me these days makes a point of telling me how robust business was in the forth quarter. They usually go on to say how good business still is. The obvious conclusion is that going back to October 2009, which is nearly four months ago, business began a noticeable pick up.
Certainly Google’s Q4 earnings last week at just under two billion dollars on revenue of $6.6 billion confirm this. Many companies that buy Google Adwords are the same companies that brief me and presumably some of them read this. This would all seem to mean that recovery is underway.
I still worry about structural economic problems — there aren’t enough jobs and we don’t make enough of the things that we buy, for instance. I also know that a sample of people who call me up to say they’re doing well is not necessarily representative of the whole market. But at this point, I’ll be happy to take half a loaf as long as I know the other half is coming.
Marketing and research
One of the reasons that sustainability is such a big issue for all of us is the way the marketplace has shaped up in the last few years. A telltale sign is the initial public offering (IPO) market. The once vibrant activity of bringing new companies to the stock markets has shriveled up and with it you have a graphic description of a relative lack of innovation in the economy.
I say relative because there is plenty of innovation going on within established companies; it’s just that new company formation is down and that’s important. Innovation by new companies defines new category formation while innovation within established companies is mostly about product line extension and improving existing products while lowering their production costs. While each is important, even vital, the innovation patterns are predictive, to a degree, of demand in the marketplace.
The demand in this market is for incremental improvements in products that companies and individuals already have. For example, while new cell phone users enter the market each year, the business opportunity is more targeted at existing users coming off contracts and looking for the next gadget. But what should that gadget have?
Unfortunately, existing customers can be a notoriously fickle bunch. Existing customers can upgrade, and vendors hope they will, but the urgency of upgrading is much less than what’s found in first time buyers. Then there’s the attrition issue. There’s no reason why a customer has to remain loyal at the end of a contract. Customers can and do take their business and their phone numbers to the next company with a better offer, a nicer gizmo.
The process goes in both directions and that is the reason we call it a zero-sum market. It can be encapsulated in the old phrase, “win some, lose some” except that modern companies and their shareholders understand the former and block out the latter, which brings up the central point of this piece.
To be successful in a zero-sum marketplace, a company has to exist on a sustainable footing. One of the pillars of sustainability in this situation is marketing research. For a long time marketing has been seen as a one way street focused on blasting messages that we all hope stick enough to generate leads that sales people can pursue and close.
This type of marketing works very well in emerging markets with new categories being formed for the simple reason that nearly everyone — or at least a big population — needs the new category product. Every warm body is a lead and everything that comes into marketing gets shoved at sales where the sorting happens.
Things are very different in a zero sum market for the above reasons and many others. For one thing, sales has to do a better job of qualifying, of understanding which customers really will buy the upgrade and which will sit on the fence. If that’s true, then marketing’s job has to change too. Marketing still needs to be that part of the business that gets the message out, but increasingly, marketing has to develop a serious research function too.
Research in this case means gathering unique data about customers’ attitudes and behaviors, which it can use in crafting messages and helping sales to qualify. The marketing research function has been around for a long time but it is something that larger firms would engage in. Research is time consuming and can be expensive to conduct.
Fortunately, social media has come along and some of it is quite good at helping with the research function. But we’re far from the point where social media is highly effective in the research effort for two reasons. First, too often we think of social media and social CRM as essentially outbound tools — things that we use for messaging. In this effort there is no difference between a zero sum market and an emerging market. The tool is used to get a low cost message out to a large population of friends in the hope that a small percentage of them will buy something.
The second reason is that we haven’t fully embraced the idea of researching before messaging. This is ironic and not universally true, but true enough. Community-based social tools pre-date the outbound variety by several years and there have been some great success stories of companies reaching out to customers to mine their minds.
For the sake of sustainability in a zero-sum market, I think what’s needed is a synthesis of the outbound and the inbound, in a roughly 80/20 ratio. Twenty percent research should be able to drive eighty percent messaging, but that’s not all. The twenty percent research will do a lot to inform other parts of the business about what’s important to the increasingly fickle customer and enable product development, for instance, to better do its job.
Taking this approach marketing stands to gain status within an organization moving up from the perception that it only spends money on hard to quantify projects. This could be marketing’s golden age.
Study in contrasts
Google announced earnings yesterday and the Fed informed us that unemployment is still rising. What to make of this seemingly contradictory information? Nothing much beyond the fact that we are still in the early days of a recovery.
Google’s announcement that it had earnings of $1.97 billion in Q4 on revenues of $6.67 billion is a strong indicator that business is beginning to do the work of marketing its wares, which eventually results in revenue, new jobs and all the rest that goes with a recovery. Google’s numbers were 17% higher year over year.
The Fed, meanwhile, released disappointing news that initial joblessness claims increased to the tune of 482,000 new claims last week. That number was up from the 440,000 expected and while there were technical reasons for the increase, it didn’t feel good. The U.S. unemployment rate is stubbornly stuck in the ten percent range and you can expect it to stay there until demand improves across the board. Complicating the task of growing jobs is the dismal fact that in the last decade American manufacturing has been hollowed out.
According to The American Prospect, 42,400 factories decamped these shores for dim sum in the last decade. If you have read this space before you know this statistic because I used it recently. Nonetheless, it bears repeating and repeating. The Prospect article argues that among all the industrialized nations of the planet, ours is the one without an industrial policy.
Other countries have well defined industrial policies and they execute on them which is why we import so much (check out our trade balance) of what they export. I suppose some enterprising new-classical economist will someday try to argue that we lead the world in exporting whole businesses rather than mere products but even then one would have to ask what we got for these exports and why our trade balance looks like a bad cholesterol report.
So there is good news in the economy but unemployment might stay high for a long time as we look for ways to reabsorb the predominantly blue-collar workers who lost out in globalization.