Asymmetric Marketing

Jagged Edge Markets: 10 Asymmetries on the Software Industry Landscape

If you consult a thesaurus for other words to describe 'asymmetry', you will find the following. 'Lack of smoothness or regularity: crookedness, inequality, irregularity, jaggedness, roughness, unevenness.'

For startup and emerging ISVs seeking to win on the 21st century software market landscape, it is this asymmetry or jaggedness that must increasingly become the starting point for marketing strategy development. Here are 10 manifestations of this market asymmetry that should be on the radar of all software marketers seeking to effectively compete in the 21st century software industry.

1. The 21st century software industry is a superpower-dominated market landscape.

Today's software marketers must plan for the permanent reality of high concentrations of cross-category market power in the hands of a select contingent of market 'superpowers'.  Microsoft, the superpower poster child, spans desktop, server, web portal, handheld, gaming, security and other formerly stand-alone categories. Oracle spans multiple categories from database and application server infrastructure to dozens of enterprise applications. eBay, the superpower of web commerce, spans auctions, online retailing, payments, VOIP and more. This cross-category market power will only intensify going forward.

2. Web-based 'Automatic Update' product models optimize customer 'lock-in'.

Need a good example? How about Windows Update, in which platform, browser and enhanced security capabilities are continuously delivered to both enterprise and consumer users, dynamically upgrading the Windows platform despite the multi-year lag time between the release of Windows XP and the new Windows Vista. Other superpowers are also adept at this software product marketing best practice, e.g. Symantec, who pioneered this approach with their anti-virus products. With this 'high touch' continuous update model driving software products, higher levels of multi-year customer loyalty and 'lock-in' are achievable.

3. Category Market Share Leaders Are Vulnerable to 'Regime Change'.

Today's 21st century software superpowers are not your father's market share leading 'category gorillas'. They possess cross-category, category-extensible market power that enables them to conduct ongoing 'regime change' operations against incumbent market leaders. Oracle's M&A takeout of Peoplesoft and Siebel, eBay's takeout of Paypal and Skype, and Microsoft's classic campaigns against WordPerfect, Lotus 1-2-3, Novell Netware, and Netscape are representative examples.

4. Software superpowers are adept at co-opting disruptive technology innovation.

IBM and Oracle have embraced Linux, once thought to be a disruptive innovation against incumbent leaders. Oracle, IBM, SAP and Microsoft have all embraced the 'on-demand' delivery model, similarly positioned by Software-as-a-Service pioneer Salesforce.com as the death knell for the superpowers. And Web 2.0 and the age of the advertising sponsored application, largely identified with Google, are now openly embraced by Microsoft.

5. The Superpowers dramatically out-invest VCs in overall R&D/marketing spend.

As every good TV detective says, 'follow the money'. The fiscal 2006 Microsoft R&D/marketing spend of $16 billion dollars is itself twice the total U.S. venture capital investment in all software and web deals combined. Throw in other cross-category superpowers like Oracle, IBM, SAP, Symantec, Cisco and others and you can see the dimensions of the startup marketing challenge begin to emerge. And VC investment is spread across a thousand-plus deals, not concentrated on a single platform agenda, as this R&D/marketing spend of the superpowers.

6. Superpowers join forces to close emerging market gaps.

Take the emerging 'web services' category. In 2006, Microsoft and SAP rolled out Duet, a jointly developed offering to connect MS desktop applications to the SAP enterprise services backbone. This alliance serves to close a legacy gap between these two disparate platforms. In the lucrative search category, eBay and Yahoo have teamed up to cope with the Google juggernaut. Look for more examples of superpower collusion designed as both offensive and defensive strategic moves in 2007.

7. Superpower contention squeezes out 'best of breed' challengers.

As superpowers Oracle, IBM and SAP contend for dominance in the enterprise, the so-called 'best of breed' player is becoming a vanishing species. IBM has acquired Rational Software (tools), Internet Security Systems (enterprise security), Filenet (enterprise content management) and others. Oracle, as mentioned above, has acquired Peoplesoft, Siebel, Retek and even an open source database company.  And as Microsoft and Symantec slug it out in the consumer PC security category, the challenge for best-of-breed competitors like McAfee and others only intensifies.

8. Distribution channels have become superpower 'colonies'.

The day of the independent software distribution channel is long gone. Today's software channel participants are increasingly loyal to one or two superpowers that provide them with the sales leads, market development dollars, training, installed base opportunity and more. They have effectively become 'colonized' by their superpower of choice. New ISVs seeking to penetrate the channel must be clearly perceived as superpower-aligned if they want to successfully work with these channel partners.

9. Superpowers successfully contain and co-opt new category emergence.

Google's acquisition of YouTube is the most recent example of the cooptation of an emerging, as yet unprofitable, category, i.e. consumer video sharing. The superpowers are placing the bet that these emerging categories are more explosive when combined with superpower market muscle in a cross-category portfolio. Microsoft's acquisition of Groove Networks, a collaboration platform player, is in the same vein. This trend means that the 'atomic half-life' of emerging categories will be shorter and shorter as the superpowers contend among themselves for the best of the best.

10. Superpowers themselves are now in the new category creation business.

Microsoft in pen computing, multi-player online gaming and wearable computing. Oracle in grid computing. Google in blogging. These are examples of the superpowers initiating and jumpstarting fresh new areas of technology innovation that they can harvest over time. And time is something the software superpowers have in abundance.

Conclusion

So does this jagged or asymmetric 21st century market landscape mean that 'the sky is falling' for startup and emerging software companies. I think not. As Jerry Seinfeld once said to his perpetually 'in-crisis' sidekick George Costanza, 'When every instinct you have is wrong, then the opposite would have to be right'.

In fact, this superpower-dominated market landscape, unlike the banker-driven landscape of the bubble and rubble years, is the most stable environment ever for new software startups and emerging players to flourish. But ISVs need to learn to leverage the incumbent leader dynamics of the superpowers, as Microsoft itself did in its OEM deal with IBM for the original IBM PC, as Adobe did with Apple when it provided the PDF engine for the original Apple LaserWriter printer, and as Google did with Yahoo, when it provided 'powered by' search advertising services for the Yahoo portal.

Each of these superpowers, in their own business infancy and adolescence, was adept at leveraging the asymmetric advantage of incumbent leaders. The starting point for this winning approach, as I point out in my book, Asymmetric Marketing, Tossing the 'Chasm' in the Age of the Software Superpowers, is a market assessment that takes the jagged or asymmetric nature of today's markets into account.

Free Sanjay Kumar

In my book, "Asymmetric Marketing: Tossing the 'Chasm' in the Age of the Software Superpowers", I characterize the competitive challenge facing 21st century ISVs by using the metaphor of a sandstorm. A sandstorm characterized by impaired revenue visibility in locked-in superpower-dominated enterprise markets, positional confusion in rapidly eroding categories, intensified heat from regulatory oversight and management/board intervention into the marketing function, and broken sales and marketing machinery as the moving parts of your organization are impacted by all of the above.

Sanjay Kumar, former CEO of Computer Associates (now CA), sentenced today to 12 years in prison for his part in the company's revenue recognition scandal, is the latest high profile casualty of this sandstorm-like competitive environment in the software industry. The scandal in question took place as the bubble was bursting in 2000, and involved the desperation behavior of the so-called '35 day month', in which deals were backdated in order to 'make the number' in a given quarter.

Was this practice a crime? Yes.
Was this practice a sign of broken marketing and sales machinery, and a dysfunctional operating culture? Yes.
Has Kumar stepped down from any leadership position at CA? Yes.
Has CA corrected its bubble-era revenue recognition practices in favor of its subscription model? Yes.
Should Sanjay Kumar be going to prison for 12 years? No.

For the record, I don't know Sanjay Kumar. I have never met Sanjay Kumar. And Sanjay Kumar has not PayPal-ed me a few million bucks to come to his defense.

And also for the record, I purposely did not include CA among the list of software superpowers in my book, despite their multi-billion dollar top line, because of the significant brand reputation crisis that resulted from this scandal. As well as from the fact that software superpowers with high levels of customer lock-in and cross-category asymmetric market dominance usually don't need to back-date customer invoices. They creatively manage customer lock-in and dynamic revenue growth within the parameters of both anti-trust and accounting law, thank you very much. That's how they got to be software superpower natural monopolies.

But 12 years in prison for Sanjay Kumar for back-dating customer orders during the bursting of the bubble. That's what I would politely characterize for the judge as a non-productive sentence. A sentence that reflects a post-Enron political agenda more than justice. A sentence that does not allow the industry to learn the really valuable lessons from the parable of Sanjay Kumar. The parable of a software CEO getting lost in the sandstorm.

My suggestion. Sentence Sanjay Kumar to go on the road on his own nickel for the next 5 years and tell his story to every software CEO, CMO and CFO that will listen. Especially the part about how the culture of the organization is the key competitive differentiator of the organization. And if the culture of the organization is broken, well...As the Scottish say, shite happens. Better yet, sentence him to write a book titled "Memoirs of a Broken Marketing Organization'. Given away at no charge to students of marketing everywhere.

So Free Sanjay Kumar. And let us all learn in his own words about the shite that has happened to him and to his former company. From the standpoint of the new generation of entrepreneurs in the 21st century software industry, that's a whole lot more valuable than the supposed $400 million dollars in lost shareholder value that is the basis for his sentence. In fact, put his parable on the CA balance sheet as an intangible asset. And let the whole industry leverage it. As one component in the open source of software industry 'worst practices', which are as valuable as best practices. Especially in the superpower sandstorm.

Asymmetric Marketing, the Book

As you can see, this blog has been inactive since mid-2004. At that point, a colleague said 'Get off your ass big guy and turn this stuff into a book'. He was right. So I did. It's predictably titled Asymmetric Marketing and subtitled Tossing the 'Chasm' in the Age of the Software Superpowers. I'll be using this weblog to expand on the material in the book, as well as to prepare for follow-on projects. Stay tuned.