Live Mesh Means Live Mosh: Market Implications of Microsoft’s New S+S Platform

No ‘Microsoft unplugged’ on this week’s Web 2.0 stage.

Only the clang-clang-clanging of plugged-in, fully-connected electric guitars powering up to shout out an asymmetric song about software plus services.

And on that big dance floor called the cloud, you can see the mosh pit beginning to form as those heavily-inked headbangers in the marketing departments of the software superpowers sport their platform body art of choice….App Engine Rules, Force.com Means No Software, and now… Live Mesh Ink=All Device Synch.

So who will prevail? Better yet, in the wake of this week’s Microsoft’s Live Mesh announcement, who is best positioned on the cloud computing dance floor to draw blood first? In plain punk-marketing English, now that Microsoft has opened a new front in their software + services offensive, what are the market implications of this for the cloud platform wars between the superpowers, specifically Google and Microsoft?

Here’s my take. At last, at long last, Microsoft is leveraging their superpower status to potentially change the game in the coming cloud platform wars. How so you ask? By positioning Live Mesh as a set of platform services around devices. Here’s 3 support points for my point of view.

1. “Devices”, whether Windows PCs or Windows-based smart phones, constitute a piece of market real estate where Microsoft possesses a dominant, asymmetric market advantage today, and Google does not. The battleground of devices, to paraphrase Sun Tzu, is one of the Nine Grounds of war where Google enters at a disadvantage. Sun Tzu calls this dispersive ground. Sun Tzu’s advice….Don’t Do Battle Upon this Ground.

2. As witnessed by the success of iPod/iTunes, Microsoft is validating that devices are the new ‘packaging’ model for software plus services delivery. Additionally, Microsoft’s relationships with PC OEMs, cell phone vendors, and wireless carriers constitute a future ‘channel’ for the ubiquitous distribution of Live Mesh.

3. Despite a slowing enterprise IT economy, devices remain a major growth area for consumers, and device-synch services constitute a potentially large opportunity for ad-based and sponsorship-advantaged business models outside of search, Google’s patch. I don’t know about you, but I can foresee a lot of ads being served into various Live Mesh services, or if you hate ads, a ‘premium’ subscription model ala anti-virus software and update services. In either case, MS benefits.

What are your strategic marketing counter-measures if you are Google?

First you mock Live Mesh…Disparagingly call it Live Mush and say it will never work in a million years, or that it will only work for MS devices, and that it’s just more ‘proprietary’ ‘break the internet’ stuff from Redmond.

Second….Enter into a ‘coalition of the willing’ with Apple and other MS device competitors with an alternative service that ‘embraces and extends’ Windows and has a ‘synch’ download like the Google toolbar for Windows.

Third, and most important---Actually teach developers how to make real money (not some mythical, VC-funded Long Tail ‘application marketplace’ chump change) writing and running apps on App Engine. Call it Cloud University from Google.

In other words, show ISVs and Web 2.0 services providers how to draw the most blood in the mosh pit of cloud computing.

The Redmondista bottom line. Live Mesh means it’s going to get real messy...uh moshy out there on the dance floor. As dance floors tend to be in the age of the software superpowers.

Office in the Cloud or Head in the Cloud? Notes on the Salesforce/Google Announcement

"Salesforce.com is thrilled to be offering Google Apps integrated with our Salesforce applications and Force.com Platform-as-a-Service to the millions of businesses looking to manage their entire office in the cloud. The combination of our leading CRM applications and Google's business productivity applications pushes forward the transformation of the industry to cloud computing. The end of software is here." Marc Benioff, Chairman and CEO, Salesforce.com.

First, congratulations are in order.

So please allow me to do my Randy Jackson imitation and say Major Props to My Dog Marc Benioff for Your Fly Deal with Google, embedding Google productivity apps like email, calendar, and more into the Salesforce UI.

Got to love it when historic go-it-aloners like Salesforce (reflected in a total sales/marketing expense line that hovers in the 50% of revenue range) do something slick right out of the 'embrace and extend' original Redmondista Bill Gates playbook. Clearly, this kind of alliance can not hurt Salesforce or Google in the markets both currently serve, may even result in a little more adoption for both companies products, as well as an increased share price based on future merger speculation.

But that's where my Randy Jackson imitation ends and my Simon Cowell imitation begins.
And as Simon is often known to opine, "This is a singing competition. And you have to pick the right song." And for my money, the song Benioff mentions above titled '...Looking to Manage Their Entire Office in the Cloud" is not a song that enterprise customers are ready to sing in 2008. And maybe never be able to sing, as a direct result of that miracle even more powerful than compound interest called MARKET LOCK-IN.

Two of the key concepts in the glossary of Asymmetric Marketing are 'ecozones' (locked-in customer installed-base of a market superpower, e.g. Microsoft), and 'ecoregions' (specific subset of an ecozone that clusters around a given superpower product/partner set, e.g. MS Exchange).

So in the context of the significant number of installed base ecoregions of Microsoft in productivity apps, and Oracle, SAP and IBM in enterprise CRM, I don't see that much 'disruption' coming out of this deal, much less 'the end of software'.

Bottom line---At this point in the evolution of SaaS to connected SaaS, I think this was a missed opportunity for Google and Salesforce to begin embracing, extending and coopting the Microsoft notion of 'software plus services', and inserting their own SaaS/PaaS value propositions into that much broader vision of an integrated on-premises/on-demand IT universe.

Whoever begins doing that in a smart way will be able to penetrate those superpower ecozones and ecoregions of Microsoft, Oracle and others, and establish cloud computing in the context of all computing. Not as the next stand-alone 'disruptive innovation'.

In other words, victory in the war for the 'office in the cloud' will go to those who get their heads out of the cloud and acknowledge the asymmetric nature of today's software market landscapes.

More Californication 2.0: Yahoo Googles a Menage

"Senator -- you can have my answer now if you like. My offer is this -- nothing. Not even the fee for the gaming license, which I would appreciate if you would put up personally." Michael Corleone, Godfather Part II

Like Michael Corleone, Jerry Yang and the Yangbangers decided not to wait 3 weeks to blow off Steve Ballmer's final offer... as I predicted. Instead, they decided to do it today by leaking news of the Yahoo/Google 'partnership' under which Yahoo essentially becomes a content affiliate of the Google ad network, and serves Google ads into Yahoo pages. This is one form of the indirect methods I hinted at in my post yesterday for the Yangbangers to stave off the Microsoft buyout offer.

And the monopoly watchers are already on alert, as indicated by the comments of a Wisconsin Senator on the Anti-Trust Subcommittee that he will be 'watching' Yahoo's new affiliate relationship with Google. Since Google can not bail out Yahoo outright, it will continue to try to do so indirectly, and/or through 3rd party relationships.

The lesson here for CEOs and CMOs of software and web companies is this. Understand how Yahoo has gone from web superpower to web affiliate of Google in years since their initial powered-by search deal with Google in 2000.

Following the asymmetric marketing playbook, Google rose from a startup supplier of search to Yahoo to a market superpower by capturing the momentum of Yahoo's business from inside. Just as the startup Microsoft did with IBM in PCs during the 1980's. I call it parasitic symbiosis in my book. It's how the mighty fall, and the asymmetric insurgents win the cage fight by entering the cage.

I suspect this new Microsoft/Yahoo/Google menage a trois is just going to get more like reality TV with every passing day so stay tuned.

With no Jack Bauer and the CTU on TV this spring, I can't wait to see what Steve Ballmer does next. I hope he gives me a call. I've got a few ideas of my own.

Californication 2.0: Microsoft/Yahoo Embrace Tough Love

As the great poet T.S. Eliot said, "April is the cruellest month". Fast forward to April 2008 and that would appear to be the case in that Californication 2.0 saga known as the Microsoft/Yahoo merger talks. Three days ago, Microsoft CEO Steve Ballmer sent a letter to the Yahoo Board of Directors stating as follows:

"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."

"Proxy contest"...."alternative slate of directors".... "take an offer directly to your shareholders".... "undesirable impact on the value of your company"..... Sounds like something or somebody went and seriously pissed off Steve Ballmer, which is not really the starting point for a successful asymmetric marketing strategy in the 21st century software plus services industry.

In response, Jerry Yang continued to play out his hand and ask for more money stating the MS offer 'substantially undervalues Yahoo' and then went one step further by invoking the strategic value of the combined entity as follows:

"Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo!, including any strategic benefits to Microsoft...." Which means that Jerry Yang also knows it's down to a 2-horse race in sponsored search and his horse is not in the running.

OK. Based on the above, I think it's safe to say we're past the 'friendly' offer phase of the MicroHoo dance. And the question of the moment remains a simple one. How will this whole thing play out?

Here's my scenario, based on the blueprint for 21st century software markets that I lay out in my book, Asymmetric Marketing.

1. To gain ground in search, Microsoft needs a 2-horse race, i.e. MS vs. Google. This is common knowledge, and a fact of life in the age of the software plus services superpowers. And with Yahoo in its portfolio, MS can get more creative about its overall 'software plus services' approach to carrying out 'category regime change' against Google in its core sponsored search business.

2. Meanwhile, Google is frozen by anti-trust concerns and can not directly come to Yahoo's rescue, although they may try an indirect, three-way deal involving a content player, e.g. News Corp., TimeWarner, etc. But these players also do business with Microsoft and may not want to risk their relationship capital with Redmond for Yahoo. Unless Google really sweetens the pot, which may not pass regulatory scrutiny after MS cries foul.

3. Even though Redmond is significantly overpaying for Yahoo at their current bid level, as well as absorbing a potentially hostile culture into Microsoft, the original poker-playing Redmondistas led by Ballmer will play out their hand to the end. So if I was a Yahoo board member I'd take Steve Ballmer at his word and expect a proxy fight. This will tie up Yahoo management resources and attention, and place Yahoo in the same kind of 'twist in the wind' position relative to its biggest customers that PeopleSoft was in when Larry Ellison of Oracle initiated the hostile phase of his takeover.

So look for the following headlines in the days and weeks to come.

Jerry Yang refuses to blink in the three week timeframe he's been handed, and Microsoft withdraws its offer.

Yahoo stock tanks after the withdrawal of the offer, and Yahoo shareholders call for the public hanging of Yang. Call it a 'yanging'.

In short order, institutional investors caught in the downdraft of Yahoo's stock sell-off will force the Yangbangers off the Yahoo board, and accept a lower offer than the original MS offer.

Jerry Yang will go to work on his new philanthropic venture.

And Eric Schmidt over at Google will call Al Gore. Gore will advise him to begin encouraging well-paid Google corporate attorneys to apply for staff positions in the Obama justice department, and prepare for the next phase of the Microsoft anti-trust offensive.

Californication 2.0.

Tough love in the 21st century software plus services industry.

Brought to you by the month of April. A tradition of cruelty for almost a century.

Yang Microsoft Rejection Memo: A Masterpiece of Management Dysfunction

It's rare that one gets to see a true masterpiece of dysfunctional thinking about marketing strategy out there in the public domain for all to see and deconstruct at will. Such a masterpiece of dysfunction is Yahoo CEO Yang's internal memo summing up the reasons:
1. Why the Microsoft takeover bid 'undervalues' Yahoo, and
2. Why the litany of failed Yahoo marketing strategies to date are the reason why Microsoft should up its offer and 'fairly' value Yahoo.

Let's just go with a couple biggees for now. First, Yang's rant on the Yahoo brand.

"we believe microsoft’s proposal substantially undervalues yahoo!—including
our highly recognizable global brand......." and later

"... our global brand is a tremendous base from which to build leadership as the starting point for internet use: yahoo! is one of the most recognizable and admired brands in the world."

This is where the Redmondista blog is out front on all things marketing in the age of the software superpowers, as my commentary last week broke ground in pointing out that the Microsoft offer did not even mention the Yahoo brand as a 'value' element in their proposal. And rightfully so.

Earth to Mr. Yang... the Yahoo brand may have widespread 'recognition', but it has not to date been a factor in halting the fury of the Google search blitzkrieg. In fact, the Yahoo brand, once perceived as a hip, fresh, internet-native marketing advantage, is now just another destination noun in an age of brand verbs........ "I 'googled' it." That's brand as verb, and the ascendance of that one phrase says more about the deterioration of Yahoo's marketing strategy than anything else.

But the second dysfunctional marketing biggee is even more worthy of comment. Here it is.

"our goal is to grow visits to key yahoo! starting points and properties, by approximately 15% per year over the next several years. and we’re on the move: we are the most visited site in the u.s., and the number of u.s. users grew strongly in the double-digits in 2007 on our yahoo.com home page alone. as our open platform takes shape it will significantly accelerate that growth."

Here's the problem with 'growing visits' and the whole 'starting point' concept in the age of Google search dominance.

THE SEARCH ENGINE IS THE STARTING POINT.

IF YOU CAN'T WIN ON SEARCH THEN THE STARTING POINT STRATEGY IS REALLY JUST THE OLD WEB 1.0 PORTAL STRATEGY IN DRAG. UNLESS OF COURSE YOUR STRATEGY IS TO RUN ADS ON GOOGLE TO DRIVE MORE TRAFFIC TO YAHOO.

That somehow this fact of 21st century web marketing life appears to be lost on Mr. Yang, coupled with the whole narcissistic self-obsession with 'brand' value, tells me why Microsoft may actually be wise to proceed with a 'hostile' (aka Larry Ellison vs. Peoplesoft) takeover of Yahoo.

MS management has perceived the core of Yahoo leadership, and made the diagnosis that it is dysfunctional. That delusional thinking about "branding" and "starting points" is in control, not a truly asymmetric strategy to halt Google's momentum.... and that perhaps a little adult 'intervention' is needed.

More later. This is just going to get more interesting by the day.

MS/Yahoo Combination: TimeWarner/AOL 2.0 or Asymmetric Rope-a-dope?

If you're a blogger in the realm of software/web/tech marketing, you absolutely need to take a position on the recent offer by Microsoft to acquire Yahoo for $44 billion. Why? Because on the surface, the buyout offer appears to be an exciting, perhaps industry-changing "Let's team up to tackle Google" moment.

Or then again, perhaps this could be a tale of two web has-beens from the 1990's seeking a 'Misery loves company' shotgun marriage in order to leverage their combination 'synergies' in the form of 'scale economics', 'expanded R&D capacity', 'operational efficiencies' ....You know, lot's of those power words in Microsoft's offer letter that financial analysts love to hear, as they did with the original Synergy 1.0 story that went down in history as the Time Warner/AOL fairy tale.

By the way, as a monumental aside for you tech marketing tea-leaf readers that lurk on the fringes of this blog, note the complete ABSCENCE OF ANY VALUE PLACED UPON THE MUCH BALLYHOOED YAHOO BRAND in the Microsoft letter to the Yahoo board. In point of fact, the word 'brand' does not even appear as a factor in the proposed combination of the two companies. So much for the power of Yahoo marketing in the after-bubble era. So much for all that Yahoo 'brand building' that has led Boohoo (I mean Yahoo) to its current state of flatness. (Is that what that guy meant by that 'world is flat' book?)

OK, back to the main narrative. The underlying issue here is a simple one, and you my gentle reader deserve a definitive answer.

Can the acquisition of Yahoo's audience and infrastructure by Microsoft enable it to mount a sustained attack on Castle Google, where-in lie the crown jewels of ad-sponsored search? An attack that can turn the tide and enable Microsoft to capture a market-share lead in sponsored search over time?

My answer. Capitol N, Capitol O, or NO!

And please allow me to reference none other than Microsoft Chairman and Redmondista Numero Uno Bill Gates in my defense. I quote:
"Once a format gets established it is extremely difficult for another format to come along and even become equally popular." Bill Gates, Internet Tidal Wave Internal Microsoft Memo, 1995.

Gates made these famous comments in reference to Adobe's establishment of Acrobat as a locked-in natural monopoly 'format', and by implication to Microsoft's own market dominance around desktop applications. He was saying that there were market wars you just can't win if the other guy has established a user-sanctioned 'natural monopoly'.

Looked at from this 1995 Bill Gates point of view, Google is not actually a search engine. It is a format.

A format for advertisers. We've all seen the format. Sponsored links at the top. Sponsored links down the right hand side of the page. A link at the bottom saying 'More sponsored links'. Google is a format for ad-sponsored software-as-a-service.

And as a format, Google follows the Redmondista Rule of Software Natural Monopolies. It enjoys a 'natural' or user-sanctioned monopoly. This natural monopoly is what makes it a platform for the advertisers (plug-in the word developers instead of advertisers if you are over the age of 40) who want to capitalize on the widespread adoption of the 'format'. And who have enjoyed enough market success on the Google advertising format that they are not going to jump ship to the new "MicroHoo" Branded search anytime soon....Without a compelling reason to switch.

And 'scale economics', 'expanded R&D capacity', 'operational efficiencies' don't matter to these folks at all. What they care about is selling their stuff to the universe through Google.

But is that the end of the story here. Is it all just another TimeWarner/AOL synergy mirage, or is there an even better reason for MS to acquire Yahoo than the 'synergies' listed in the MS offer letter. I think there very well may be. And I alluded to it in the title of this post under the phrase 'Asymmetric Rope-a-dope'.

First the 'rope-a-dope' part. For you ladies and virtual ladies in the audience, rope-a-dope is a boxing term originated by Muhammed Ali, the man who single-handedly re-invented the sport of professional ass-kicking in the 20th century. It means drawing in your opponent and taking him off his game plan by laying on the ropes of the ring, appearing weakened, and inviting him in oh-so-close... to throw as many punches at you as you can take.

The net benefit for those like Ali who perfected this asymmetric fighting strategy---Wear out your opponent and set him up for a powerful counter-attack and/or knock-out punch from a guy on the ropes who turns out to be an opponent who is not so weak after all.

So is it possible that the Yahoo buyout offer is asymmetric marketing or Microsoft rope-a-dope in action, and that the stated reasons for the buyout are not the real reasons for the buyout. I think there is a high probability that this is the case.

Why? Because the combination of MS and Yahoo holds the potential to take Google off their new A-game, which is rapid expansion into social networking, mobile services, sponsored enterprise applications and more. It forces Google to temporarily play defense against MicroHoo Branded Search instead of continuing on its campaign of diversification and cross-category expansion. And it is these new areas of Google market expansion that matter most to Redmond, as it is these new areas of market conquest that will move Google beyond being, in Steve Ballmer's words, a 'one-trick pony' into being a formidable competitor of Microsoft in Microsoft's core business.

So as FBI Special Agent Fox Mulder used to say, 'the truth is out there'. Somewhere. More on this MS/Yahoo dance as the situation develops.

But now I've gotta run because it's SuperDuper Tuesday and I've got to go out and vote for the Romney/Obama ticket......... or was that the Clinton/Huckabee ticket....... I know it's one of those synergy tickets but I just can't remember which one. Better do a quick search.

Yahoo Re-brands After 1000 Laid Off, Now Boohoo!

Boohoo-oo-oo! An intransitive verb meaning 'to weep noisily', may be an appropriate brand do-over for web superpower Yahoo, in the wake of their announced 'targeted' force reduction of up to 1000 staff. While Google, like the energizer bunny of paid search, keeps going and going, Yahoo seems to be losing its mojo, reporting both an earnings reduction and cautious revenue guidance for 2008.

So what happened to Yahoo? Short answer....It's called parasitic symbiosis, and the basic damage was done to Yahoo between 2000 and 2003 when they selected then startup Google as its search provider. Google's strategy was similar to the strategy employed by Microsoft relative to its early OEM deal with IBM for the original PC---Leverage their relationship as a portal-embedded 'powered by' provider of a SaaS application, in this case paid search, to capture the clicks and customers of their 'partner' Yahoo. Yahoo is still paying the price for this deal, and for their inability to develop asymmetric marketing counter-measures to the Google strategy of 'eating them from within'.

Are there approaches Yahoo can employ to derail the Google juggernaut? Absolutely. But to do so their management team needs to begin thinking more like a software superpower with a search platform, not a dying media property, e.g. your average metropolitan newspaper.

Bill's Last Day Video Rocks

Here's the link to the video produced by TriFilm on Bill Gates' last day on the job at Microsoft. Definitely a keeper for all those who relate to the journey of Redmondista Numero Uno.

Is Microsoft Getting Serious About Vertical Search?

The news that Microsoft has made an offer for FAST, the Norwegian developer of an OEM search platform, raises an interesting question. Is MS buying FAST as an enterprise search product, as this announcement seems to indicate, or is FAST part of a larger strategy to transform web search from the 'one big search engine' (aka Google) model into a 'tens of thousands of specialty and vertical search providers' model?

As I've indicated in previous posts, the vertical and/or specialty search model will enable MS (or whoever gets there first with a platform) to create an army of 3rd party search developers that incorporate their own domain knowledge into general purpose search engine feeds with various business models from ad-sponsored to premium subscriptions.

This is one strategy to counter the Google juggernaut and change the ad game game in search. FAST's OEM platform looks like a candidate for that. It would be nice to see some real competition in search from the original Redmondistas.

Asymmetric Marketing Awards 2007

OK. It’s a new year and what better way to start off the new year than to stay stuck in the past year.

Hence the First Annual Asymmetric Marketing Awards to those software and web players who most successfully:

a. Capitalized on the market momentum of an incumbent leader to grow their own business;

b. Engaged in cross-category market expansion, leveraging one asset into new markets; or

c. Grew their natural (customer-sanctioned) monopoly at the expense of their competitors.

So here’s my top 10 A-marketers for 2007, with me as the sole judge in the competition. (Seriously…What’s the point of having a marketing blog if you can’t pontificate?) I’m going to use the David Letterman model and start at the end of the list working forward to Number One.

10. EqualLogic: In 2007, Dell paid well north of a billion dollars for iSCSI innovator EqualLogic. While EqualLogic's public face to the world is that of a storage appliance provider, it is their focus on providing a seamless storage experience for Microsoft Exchange and SQL, and their focus on aligning with software superpowers that enabled their revenue growth and perceived leadership in iSCSI. Look for this trend of application-focused hardware, and hardware blended with software to grow in 2008.

9. Novell: In 2007, Novell began to benefit from their interoperability deal with Microsoft, including a revenue commitment of $240 million. This was smart asymmetric marketing on the part of Novell, i.e. to leverage the MS installed base to drive a Linux open source product into the market, and position themselves vis-à-vis Red Hat and others based on their interoperability with MS. While Novell as a company is still unprofitable, continuing down the asymmetric marketing path with Microsoft can only help them in their turnaround efforts.

8. Akamai: In 2007, Akamai's revenue for the first 3 quarters of the year exceeds 2006 revenue for all 4 quarters. They continue to practice asymmetric marketing by successfully attaching their application acceleration and edge network services to market creation initiatives of the software superpowers (MS Silverlight, Adobe Flash and SAP enterprise SOA) as well as to leading web properties (MySpace). Akamai is also one of the best examples of ‘Software plus services’ on the planet.

7. Facebook: By landing a $240 million equity investment from Microsoft, in addition to partnering with MS as their exclusive advertising partner, Facebook deserves to be among the top 10 asymmetric marketers of 2007. Their initiative to market their social networking site as a 'platform' for Web 2.0 developers is also a feather in their cap.

6: Salesforce.com: In 2007, Salesforce moved forward beyond the on-demand CRM category with it's PaaS (platform-as-a-service) offering, Force.com, and its initiative to create an army of 3rd party software developers. In addition SFDC began to aggressively partner with Google around the "Salesforce for Google AdWords" offering. With 2009 revenue forecasted at $1billion, Salesforce.com is clearly beginning to take more than a few plays from the Microsoft and Oracle superpower playbooks.

5. VMware: One of the most street-smart software companies in a long, long time, VMware has leveraged its relationships with EMC, Intel and other incumbent market leaders to grow a billion dollar plus software business, go public at a killer valuation, and emerge as a rising superpower in its own right. Virtualization is their ball to carry or fumble going forward, depending on how they handle the competitive challenges to come.

4. Adobe: The Acrobat natural monopolists broke through the 3 billion in annual revenue mark on the strength of their Creative Suite, proving that 12 years after the browser wars, it is possible to rise to and remain a software superpower in markets dominated by companies 15X their size. And their ever-expanding Flash ubiquity proves that they understand how to drive cross-category market momentum, a key indicator of superpower status.

3. Microsoft: In 2007, the original Redmondistas began to put some meat on their Software Plus Services vision, fought their way through the rolling Vista launch, launched new initiatives in Unified Communications, Security, Storage, Rich Internet Applications, Office Business Apps (OBAs) and more, while acquiring some assets to help their still-struggling online search and advertising war with Google. Their asymmetric marketing muscle across multiple categories enabled them to chalk up a killer Q1 2008 quarterly number. They remain Numero Uno in many, many categories (and my personal poster child for what asymmetric marketing is all about) but in the post-Gates era, they will have to ratchet up their game and re-invigorate their culture in an age of continuous superpower rivalry.

2. Oracle: Hats off to Larry Ellison. His high risk strategy of 37 acquisitions (including PeopleSoft & Siebel) over the past 3 years began to pay big dividends in 2007 relative to their head to head competition with SAP. In the words of Oracle President, Charles Phillips. “We like our growth strategy of expanding beyond ERP into high-end industry specific vertical software in contrast to SAP’s strategy of moving down market to sell ERP systems to small companies.” Cross-category expansion focused on strategic lock-in---An asymmetric marketing strategy for the ages.

1. Google: All’s NOT fair in the age of the software superpowers, so Steve Ballmer’s oft-quoted remark that search rival Google is a ‘one trick pony’, can be chalked up to brass knuckles combat PR. Unfortunately for my main man and Redmondista role model Steve B, Google’s ‘one trick’, i.e. ad-sponsored search, happens to be pretty freakin’ awesome. Hence Google’s selection to occupy the number one spot on the Redmondista Blog’s first annual asymmetric marketing awards. Throughout 2007, Google was clearly laying the foundation for tricks two, three and four with its Doubleclick acquisition, its YouTube video ubiquity, and partner/developer initiatives in social networking and mobile software designed to recruit an army of 3rd party developers to the Google standard. It remains to be seen whether Yahoo and/or Microsoft will develop a ‘category regime change’ strategy capable of toppling the Googleplexers in search before the cross-category juggernaut leaves the station. I keep giving them free hints but they don’t seem to paying attention. Oh well, so much for the value of free advice.

Apologies to all those who didn't make the 2007 list. Buying bulk quantities of my book and forcing your marketing and sales organization to apply the ideas contained therein may help you get ready for the 2008 awards.

OpenSocial: Google Tries It's Hand at 'Embrace & Extend'

Google's OpenSocial announcement is making waves around the web today, and rightfully so. It's a smart asymmetric marketing move right out of the Bill Gates Redmondista playbook. It's called 'embrace and extend'.

In this case, the Google folks have created a set of developer APIs to write applications for social networks, and gotten MySpace, LinkedIn and others to get on board. Simply put, embrace the community of social networking pioneers, and extend that community to the world of Google. Wouldn't be surprised to see a follow-on announcement for new Google Ad products (beyond AdWords and AdSense) that serve targeted ads into OpenSocial apps. Let's call it AdSocial.

Needless to say, lots of commentary about this as an anti-Facebook and anti-Microsoft move, comparing Google to the 'open platform' early Microsoft and Facebook to the 'closed platform' early Apple. While I wouldn't buy-in to that metaphor just yet (based on the $400 billion Microsoft ecosystem 'super tail'), this move is conditioned by software superpower rivalry, as is almost every major wave in the 21st century software industry.

Microsoft blogger Don Dodge has fired back at all the 'Facebook is kaput' speculation, making valid points about the user-centric (not developer-centric) nature of social networking relationships, privacy issues, and more.

It will be interesting to see the marketing countermoves made by Facebook and Microsoft. I'm hoping to see a headline that says something like "Is Open Social Just More Google Open Socialism?" (Had to get that in there for my brothers and sisters in the vast right conspiracy called the Microsoft ecosystem).

Who knows? Maybe Ballmer and Ozzie will figure out how to embrace and extend the embracers and extenders. In either case, just as I pointed out in my book, superpower competition between Microsoft and Google in emerging markets like social networking is a good thing for application developers and future Redmondistas.

Embrace the age of the software superpowers.
Superpower contention in emerging markets is an opportunity.
Sieze it before it siezes you.

Knowledge @ Wharton Talks S+S

Good article by the folks at Knowledge @ Wharton on the concept of hybrid applications and software plus services. Looks at Microsoft, Google, Adobe and others, examining scenarios, business models, etc.

Here's the link.

The Super Tail: A Virtuous Cycle of Software Superpower Symbiosis

You'd have to be living on Mars not to have heard of Chris Anderson's book, "The Long Tail". In the book, Anderson lays out the impact of web and digital distribution on the economy of market 'hits', arguing that a new wave of niche-driven abundance is underway. Since brick and mortar retailers (books, music) have limited shelf-space, and digital retailers have unlimited digital shelf-space, web-advantaged consumers now have the ability to access an ocean of niche products heretofore unavailable. I quote: “Broadly the Long Tail is about abundance. Abundant shelf space, abundant distribution, abundant choice.” (P143) So far, so good. He uses Netflix, Amazon, etc. as his proofpoints.

But then Anderson, like other 'new rules for the new economy' authors before him, grossly over-reaches with his theory, attempting to apply his 'long tail' metaphor beyond pure-play distribution landscapes to what are essentially value-creation landscapes, e.g. the software industry. I quote.

“As in other industries, there is a head and tail of software, with Microsoft on one end and millions of individual programmers, many of them in India and China, on the other. In between is the work of a huge number of small groups of developers, most of whom have a few good ways to reach customers around the world. But it’s still a very top-heavy distribution.Microsoft’s quasi-monopoly is the ultimate hit-dominated market.” (p. 208)

When I first read Anderson's assessment, it was clear to me that he had veered way off the mark, applying his Long Tail model in a simplistic and unhelpful fashion for ISVs. But I chose not to poke holes in it at that time, instead deciding to accumulate the data I needed to repudiate it. I now have that data.

It has come in the form of an IDC White Paper, sponsored by Microsoft, titled "The Economic Impact of IT, Software, and the Microsoft Ecosystem on the Global Economy".

Let me share with you a few highlights of this White Paper, and then go on to introduce an alternative to Long Tail theory for software markets. Something I call the 'Super Tail' consistent with the arguments I make in my book "Asymmetric Marketing: Tossing the 'Chasm' in the Age of the Software Superpowers". First 3 simple IDC White Paper highlights.

1. "For every unit of revenue – dollar, euro, peso, etc. – that Microsoft will earn in 2007, other companies will earn 7.79."

The takeaway here clearly repudiates the Anderson thesis relative to software markets. In fact, attached to the "hit-dominated' big head of the Microsoft "quasi-monopoly" is a rich, vibrant ecosystem of device developers, ISVs, services partners, managed services partners, certified IT professionals and others who comprise the 'super tail' of the Microsoft 'head'. A Super Tail of a software superpower that realizes almost 8-fold the revenue that Microsoft itself realizes. In fact, many of those "individual programmers" in India and China pay their bills as members of the Microsoft Super Tail and the adjacent Super Tails of other natural monopoly superpowers, e.g. Oracle, Adobe and others.

2. "The subset of the Microsoft ecosystem that excludes channel firms, whose revenues IDC does not track, will generate $425 billion in revenues in 2007."

Unlike the Long Tail, in which the niche markets over time approach the size of the 'hits' market, the Super Tail is driven by this "8-fold effect" in which Microsoft generates $50 billion in revenues, while its ecosystem partners generate $425 billion. Additionally, this 8-fold effect illustrates the symbiotic nature of software natural monopolies that provide a starting point and market foundation upon which other 'non-disruptive' innovators create value. Think of this as the virtuous cycle of software superpower symbiosis.

3. "While the IDC research sized the number of employees in the Microsoft ecosystem, and not the number of companies, IDC estimates that as many as two thirds of IT vendors offer products or services that run on Microsoft platforms, or include Microsoft products among those that they distribute and support. Most of these companies are small, local firms."

Unlike the distribution-centric Long Tail, in which the hits and niches do not enjoy a direct symbiotic relationship, in the Software Super Tail, 2 out of 3 Super Tail businesses are directly symbiotic with the 'big head' of Redmond. This means that the power of 'hits' continues to become re-inforced, repudiating Anderson's assertion that "If you think about it, today’s hit is tomorrow’s niche. Almost all products, even hits, see their sales decay over time.” (P142) The IDC study argues for the exact opposite conclusion. The symbiotic nature of the head/tail relationship in the Super Tail will only re-inforce the hits, and expand the footprint of the hits.

I'm going to flesh out this Super Tail argument in coming blog entries as I dig deeper into the data in the IDC White Paper and other materials, but as I point out in my book, one thing software marketers need to avoid like the plague are 'graphically correct' market models that do not provide the proper instrumentation to look at 21st century superpower-driven software markets. I use Moore's 'chasm' theory in my book as the whipping boy for graphical correctness, but mis-application of 'Long Tail' theory to software markets would also fall in under graphical correctness. The Bubble 2.0 flavor of graphical correctness.

Applying Long Tail theory incorrectly to software markets reminds me of that old exchange between Dr. Hannibal Lector and Agent Starling in 'Silence of the Lambs'.

"Do you think you can dissect me with that blunt instrument, Clarice?"

I ask you Chris, "Do you think you can dissect a value-creation ecosystem with a blunt distribution model?" If you do, then I say Game On my author brother! I welcome a good cage fight.

PS: I'll be working on the visuals for the Super Tail over the coming weeks, as well as how it will be extended in the new Microsoft 'software plus services' model, something that holds the potential to turn the '8-fold' Super Tail effect into a 10 or 20-fold Monster Tail effect in the future.

Embracing & Extending the Cloud

Darryl K. Taft at eWeek has a good piece today on Microsoft's Erik Meijer and Project Volta, which is focused on enabling Redmondista developers to write native applications for cloud computing, an essential ingredient of the MS software plus services vision.

Here is the link to Erik Meijer's blog.

Here is the link to a mini-paper on 'democratizing the cloud'.

Here is a link to a video with Meijer on MSDN.

By the way, note how Saleforce smartly inserted an ad for its Force.com 'platform as a service' into the Taft article. That's called asymmetric marketing in the realm of messaging, something I refer to in my book as a messaging mashup.

Big S Plus Little s: Microsoft's First Quarter Numbers

Lot's of analysts going gaga over Microsoft's first quarter revenue performance, and rightly so. Lot's of growth around the Vista rollout, server and tools, and every software segment. All the positive indicators of a true cross-category software superpower, and world's leading asymmetric marketer. Warms the cockles of my stone cold marketing heart when I see true asymmetric marketing in action. And even more so that I was the first guy to write a book about it. (Thank you Dr. Phil for permission to be 'braggin' on myself'.)

But then we come to the Online Services Division, which reported pre-aQuantive revenue of around $600 million ($591 for you closet beancounters). When you divide this $600 million by the 405 million currently registered Windows Live IDs, you get about $1.50 in revenue per quarter for each Live ID. Not really a 'Die Hard' Detective John McClane 'yippee-ki-yay' mother-freaker moment.

And not really a proof point that could demonstrate the success of Microsoft's 'software plus services' or S+S vision. More of a big S plus little s moment.

And then you look at the Yahoo and Google numbers in their most recent quarters and the dimension of the Microsoft S+S challenge becomes clear. Yahoo's online revenue, mostly based on advertising, was around 2.5 times the MS Online Services Division or $1.5 billion.

Google's was around 7 times the MS Online Services Division number, i.e. around $4.2 billion.

And Microsoft's other businesses combined were around 22 times its Online Services revenue.

While Microsoft's high profile deal for aQuantive, and the recent investment in FaceBook are designed to begin growing the quarterly online number, those approaches to growing its online market are not really relevant in any strategic sense to the immediate success of the S+S vision. To do that MS must begin leveraging that 22x software business to grow the online business. And that strategy has yet to emerge.

Nobody asked me, but here's a simple suggestion to begin reversing this deficit, begin to close the gap with Yahoo and Google, and start paying off the S+S vision before it becomes the next MS Bob marketing embarrassment.

Forget about owning vertical search as the way to grow ad revenue. Chris Liddell, MS CFO mentioned 4 verticals on the conference call as their next big upside.

Instead, let the tens of thousands of MS ISVs and other ecosystem partners create an ocean of vertical and specialty search portals using Live Search feeds as a 'platform'.

To do this MS needs to go back to its asymmetric marketing roots and quit imitating Google, change the overly restrictive search partner contract, and think about Live search the way Salesforce thinks about the data contained in its system, i.e. as a web services platform for an AppExchange network of third party developers.

Got some more Redmondista ideas to go along with this one. But those will cost you some of those blowout quarterly earnings. As Don Tattaglia said in the Godfather...'After all, we're not communists'.

"We Are All Chairman Mao's Search Engines"

"We are all Chairman Mao's young red guards, Making our hearts red in the storm. With Mao TseTung Thought we arm ourselves, Sweep away all pests". 1960's Cultural Revolution Era Song

It appears that the appeasement applecart of the 3 major US search engines is being overturned by our good friends, the government of China.

Apparently the Communist Party can't stand the idea of the his holiness the Dalai Lama sneeking in the back door to have a little Texas style meet and greet with George W.

Hence the redirecting of Google, Yahoo and Microsoft search engines to Baidu, apparently in retaliation for this sleight of Chairman Mao's wondrous legacy in Tibet. Here's an idea guys.

Get Steve Ballmer, Eric Schmidt and Jerry Yang all in the same room to agree to a 1 year shut down of all search engine operations in China, thereby blacking out the Chinese-hosted 2008 Olympics.

It's not really life-ending lost revenue for the big 3 compared to Western markets, and none of the big 3 gain or lose very much by the move. But it sure might motivate the emerging entrepreneurial class in China to come out of the closet politically, especially in an Olympics year.

For those of you love liberty, and the support the democratic aspirations of the Chinese people, here's a link to the Falun Gong news site Epoch Times, and their famous Nine Commentaries On the Communist Party. As I point out in my book, these folks are going to be running China someday (remember Yeltsin on the Soviet tank--it happens), and you may want to get to know them a little.

IDC Economic Impact Study on Microsoft Validates Asymmetric Marketing

It's coming up on a year since I finished the manuscript for my book, "Asymmetric Marketing: Tossing the 'Chasm' in the Age of the Software Superpowers". In the book, I make the case that the current superpower-dominated market landscape is the most stable launch & go-to-market environment ever for software entrepreneurs to prosper, and that ISV market strategy for the age of the superpowers must tip in the direction of strategic symbiosis with them, not disruptive innovation against them.

Today IDC released a Microsoft-sponsored study on the economic impact of the Microsoft ecosystem. It validates the core thesis in my book. The illustration above shows that while software represents 21% of IT spending, IT employment related to software represents 63% of total IT employment spend, including ISVs and service providers. Related to the study, Microsoft today issued a press release pointing to the 14.7 million IT jobs worldwide tied to the Microsoft ecosystem.The lesson here is simple. Embrace the age of the software superpowers. Take today's asymmetric market landscape as the starting point for your strategy. Develop your marketing strategy around attaching to the superpowers' installed base. Chasm crossing is so 1990's. So...what's the word I'm looking for...disruptive.

Oh...One more thing. Buy my book, por favor.

MS Unified Communications Launch: A Missed Opportunity for 'Software Plus Services' Or Something Else?

Interesting. Wondering what to make of it all.

Here is a major launch by Microsoft of its Unified Communications initiative, including the following:

A server product called Microsoft Office Communications Server 2007;

A client product called Microsoft Office Communicator 2007;

An online conferencing services product udate for Microsoft Office Live Meeting;

And a new device for phone/video conferencing called Microsoft RoundTable.

One would think a great opportunity to recruit new partners around the S+S or software plus services vision Microsoft has been articulating.

The Unified Communications launch event even included high level participation by Bill Gates himself.

But in the press release and the Bill Gates email to customers, I can't find any reference to software plus services as part of the Unified Communications vision. Or even a reference to the interoperability between Live Meeting and Office Communications Server, etc. Or how the fact that MS has a client/server/service/device unified offering makes it better yada yada yada.

And in the partner categories represented at the launch there were systems integrators, telephony providers, ISVs and device developers.

But no providers of online services. No next generation Redmondistas. No partners involved with any of the MS Live initiatives.

So I'm wondering out loud if this is just a case of stated messaging strategy, i.e. S+S, falling through the cracks of a major launch, i.e. a missed opportunity.

Or is it something more regarding the S+S mantra. Perhaps a backing off on the messaging until the strategy itself is a little more fleshed out.

Time will tell.

How MS Can Beat Google in Search: Kill this Contract

For Microsoft to defeat Google in search and enable a broader ad-sponsored application model, it needs to do more than pretty up the interface and improve on the quality of its search results. It needs to harness the power of its developer ecosystem and provide the best platform and business model to enable a new wave of vertical and specialty search.

And to harness this developer power Microsoft needs to kill (OK...how about radically modify) its current Windows Live Search Developer agreement, which is modeled after the equally onerous Google Custom Search Engine agreement, and develop something that provides incentives for vertical search to flourish. In other words, how about a little partner-advantaged, asymmetric marketing in the realm of search.

But don't take my word for it. Here's a few choice contract clauses for your consideration.

"In developing, distributing or hosting Authorized Applications, and in using the service, except as otherwise explicitly permitted by Microsoft in writing, you may not:

-display in the Authorized Applications any results returned from the service (including maps, photographic imagery, legends, digital watermarks, advertising, user interface elements, text, graphics, colors, logos and such other elements as we may choose to make available via the service from time to time) in a manner that modifies, adds to, minimizes, alters, obscures, blocks or misrepresents any portion of the results;"

Question: How do you do vertical, specialty or niche market search if you can’t ‘add to’ and/or ‘minimize’ any portion of the results? Answer: You can’t. It's a mash-up and I need complete control of my own user experience.

And you also can't:

"cause advertising from a third party to appear in close proximity to a display of results returned from the service;"

What does ‘close proximity’ mean.? Answer: It means I can’t control my own UI, and prioritize my own advertising over the MS feed. It means I can't get creative with my business model. So why bother using the MS feed.

And there's the whole 'throttling' thing. I quote.

"We may, in our sole discretion, limit the rate at which the service, or any subset of it, may be called (“Throttling”). We may perform this Throttling globally across the entire service, per end user, or on any other basis. You will not take steps to circumvent any technical measures we may put in place to enforce Throttling."

Give me a break. What’s the point of using the service if the service can’t be ‘called’ on-demand. Throttling is not a realistic alternative for a vertical search provider. It's a kiss of death.

And then there's this gem.

"We reserve the right to include advertising in the results provided to you via the service. You will not intentionally omit or obscure such advertising when providing results to end users."

What if the advertising Microsoft is sending me is not relevant, yet it’s hogging my UI and my page space? Come on guys, ‘omit’ and ‘obscure’ is in fact the whole point in vertical and specialty search.

And if you think I'm just another complainer with a blog, I've saved the best for last. Here it is.

"This agreement may be terminated immediately for any reason and without notice by Microsoft. If this agreement terminates, all rights granted to you by this agreement will automatically terminate and you will cease to have any rights to use the service or APIs."

I can see the help desk drowning under the emails.... 'Hey...what happened to your MS Live Search-based vertical service.' I don't know. We got terminated.

And we got no notice.

I think I've made my point. If MS is serious about taking on Google in search, then do it via a wave of vertical search services enabled by the MS developer ecosystem. And get your lawyers out of the marketing department.

Willkommen, BienVenue, Welcome...To the European Socialist People's Republic of Software

We interrupt our regular programming to bring you this urgent bulletin from the Secretive Capitalistic Redmondista Underground Movement (SCRUM).

Today, counter-revolutionary running dog revisionist lackeys of the EU (Hey FactChecker...is EU an abbreviation for European Union or EUnuch), seeking in vain to reverse the inevitable march of asymmetric marketing and customer-sanctioned natural monopoly in the software industry, completed their Stalinist show trial of the shadowy market superpower known only as 'Microsoft'.

The goal of the courts, according to EU 'Competition Commission' (man does sound scary) dominatrix-person Neelie Kroes, is to reduce Microsoft's market share in Europe by taking control of Microsoft's 'embrace and extend' product roadmap, along with their asymmetric competitive advantage known as 'dark-itecture' (closely held strategic functionality).

I quote.

"A market level of much less than 95% would be a way of measuring success...You can't draw a line and say exactly 50 (percent) is correct, but a significant drop in market share is what we would like to see."

SCRUM has determined that as we go to press, European ISVs, smelling Redmond blood, have been ordered by Mistress Kroes to line up in the Red Light District of Amsterdam for their Orwellian Market Share Quota Allocations, now that 'those geeky Americans' have been put in their collective places.

Oops....daydreaming again. Gotta stop staying up late on Sunday night to watch Larry David's Curb Your Enthusiasm.

Now here's the real commentary.

This ruling (other than costing Microsoft a billion in fines) means next to nothing in the real world of software competition. In the real world of software competition, the following metrics of success will determine the outcome. I quote MS attorney Brad Smith.

"When this case started, we published Windows in 24 European languages; today that number is 41, and it will continue to grow. When we started this case, we had 3,900 employees in Europe; today we have 13,000, and that number will continue to grow. When this case started, we were spending $3 million a year on research and development in Europe; today we are spending almost half a billion, and that number will continue to grow. Today we work with over 200,000 business partners, who employ almost 3 million people on the European continent, and that number too will continue to grow."

At Redmondista we have a saying which we are not ashamed to admit we reverse-engineered from that VW commercial.

"On the road of life there are software superpowers and the 'competition commission'. Superpowers wanted."

And that even includes those other shadowy market share superpower piggies, Apple and Google.

Windows Update Uproar: An Opportunity to Sell S+S Vision

I love it when industry fur flies around the latest sensational headline about Microsoft 'wrongdoing', especially when the 'permission' word is invoked. This is the case with the latest uproar around Windows Update doing what it was designed to do, i.e. update and patch Windows user systems.

In this case, the big hue and cry is over Windows Update updating it's own update code (say that 5 times fast), not spying on the people of the planet for the greater glory of Redmond.

Microsoft, of course, issued the obligatory apology through the Vista weblog, even using the politically correct term 'community' to describe the negative feedback they received.

But here's the bigger issue. This is an opportunity missed by Microsoft marketing. An opportunity to explain that Windows Update is in fact Microsoft's first real 'software plus services' or S+S offering.

An opportunity to explain that S+S is a superior paradigm to SaaS or ODOP (on device or on premises---can I get an amen on that cool new acronym). A paradigm that enables a new way to think about value delivery in 21st century software markets, and the relationship between computing as utility and computing as customized functionality.

Remind me to send a note to Steve Ballmer on the creation of an S+S War Room. A command center designed to look at every crease and crevice in the Microsoft installed base, and identify the corresponding services roadmap. More on this in future posts.

Remembering 9.11: Be Prepared

For Redmondista ISVs, the best way to remember 9.11 is to get prepared for the next one.

Yesterday, the Department of Homeland Security released their new National Response Framework for public review and comment. I suggest we all take a close look at it.

Here's the link.

Novell's Asymmetric 'Moonlight' Strategy

In my book, I explain that true asymmetric marketing begins at that point a given ISV creatively coopts the market momentum of an incumbent market superpower in order to accelerate its own success.

The young Microsoft did this with IBM in PCs. The young Google did this with Yahoo in sponsored search. The young Adobe did this with Apple in desktop publishing. The young Oracle did this with Digital Equipment Corporation in relational databases.

It appears that Novell is now systematically applying an asymmetric marketing strategy through its 'interoperability' relationship with Microsoft, most recently around their development and validation of 'Moonlight', a Linux-compatible version of Microsoft's Silverlight RIA technology. This strongly positions Novell as the Microsoft Linux partner of choice in the fast-emerging Web 2.0/RIA space, in addition to the benefits I highlighted in my blog on Mark Shuttleworth's 'fractured fairy tale'.

ISVs should make it their business to study the creative marketing initiatives Novell has launched around their interoperability relationship with Microsoft. This creative thinking is open to all ISVs who want to win in the age of software plus services (S+S), on a market landscape dominated by the software superpowers.

Here's the MS press release on the official launch of Silverlight and Moonlight.

S+S Reality Check: Notes on the AutoPatcher Shutdown

In the age of software plus services, automated product updates are an integral part of the product experience, for better or worse. And maintaining control over the security, integrity and brand equity of one's updates should be seen as standard operating procedure for asymmetric product marketers.

That's the context in which I view yesterday's decision by Microsoft to trigger the shutdown of the AutoPatcher website, which provided an alternative to the Windows Update service.

With a strategic vision defined by the relationship between on-premise software and on-demand web services, aka S+S, it was only a matter of time before Microsoft would step in to either shut down or gain effective control of this kind of service.

The take-away for commercial ISVs: On a market landscape driven by software superpowers, it's imperative to practice asymmetric marketing in the domain of product management, and gain effective market permission to attach to a superpower's installed base of customers. Here's an example of how not to approach market permission, from the AutoPatcher FAQs.

Q: Is AutoPatcher legal?
A: Yes, Antonis Kaladis (our project manager) once spoke to a Microsoft employee and apparently they know about us but don't care what we do! The AutoPatcher project has been going strong since 2003 and never had a sniff of trouble from Microsoft.

Sniff delivered.

Mr. Foo Meets Mr. Bar: Notes on the MS/Cisco Alliance

If you do marketing of any kind in the high technology or web industry, you've got to bypass the many cursory news reports on the Cisco/MS alliance announcement this week and go straight to the pure, uncut dope, i.e. the transcript of the interview Charlie Rose conducted with Steve Ballmer and John Chambers. My advice is to mainline this rare asymmetric marketing tutorial by 2 market superpowers into the fattest Redmondista vein you have, and capitalize on the rush of market opportunity to follow.

Why? Because Microsoft and Cisco, commanding the two biggest partner networks in the industry, are aligning their respective visions around unified communications infrastructure, Web 2.0, mobile, QuadruplePlay, and other rapidly evolving markets in a way that will benefit a new generation of ISVs and solutions providers. It is a superpower market creation initiative worth attaching to in the age of software plus services.

My vote for quote of the interview goes to Ballmer for this gem, which seems to have passed old Charlie Rose right by. In response to a question about the challenge of aligning the innovation pockets inside Microsoft, I quote:

"We want product 'Foo' and product 'Bar' to work together and they don't, come on Microsoft, let's get to gettin' on this."

This of course being a reference to the ubiquitous FUBAR acronym.

Also some interesting observations about Google from both CEOs.

Here's the link to the interview.

Deconstructing Ozzie, Part 8: "Asymmetric Threats"

In an age of cross-category, natural monopoly software superpowers, one of the most fruitful marketing paths for ISVs and Web 2.0 developers to take begins at that specific point where a superpower systematically responds to new, potentially disruptive market challenges.

Microsoft's current set of initiatives around 'software plus services' (S+S) is their most recent response to an entire set of market challenges ranging from Google's ad-sponsored software vision, to the Linux promise of 'free' software, to Apple's ascendence in software-rich, mobile consumer devices, to subscription SaaS ala Salesforce and more.

In his interview with Knowledge @ Wharton, Ray Ozzie provides us with insight into how cross-category market superpowers think about potentially disruptive challenges.

"It's our job to do the best we can to cope with asymmetric threats and to use our size and scale as an opportunity."

What does Ozzie mean by 'asymmetric threats'? From whence do these threats originate? And how can ISVs benefit when superpowers like Microsoft use their 'size and scale as an opportunity' to cope with these threats? Let's go into 2 of the more high profile asymmetric threats faced by Microsoft to shine a little light on these questions.

1. Asymmetric Threats to Installed Base Natural Monopoly

As I point out in my book "Asymmetric Marketing", the primary strategic asset of a software superpower like Microsoft is 'natural' monopoly, i.e. the existence of a customer-sanctioned, installed-base lock-in.

Such is the case on the PC desktop, in desktop apps, in network servers, in enterprise email systems, and more. So the first kind of 'asymmetric threat' is one which can upset the natural monopoly apple cart, i.e. the so-called 'disruptive technology innovation'.

In the case of Microsoft's natural monopoly in enterprise and desktop software, the most high profile threat in recent history comes from 'free' software, i.e. open source Linux. So how did Microsoft respond to this threat, and how did ISVs creatively engage in marketing symbiosis with Microsoft as it responded to this threat. Ozzie sheds light on this as follows:

"In terms of a Linux compete, we could be very focused on that, but I think the company has a much more mature viewpoint of what customers need now in terms of interoperability, which led to a lot of the success in the server and tools division because of a fairly nuanced understanding. That probably wouldn't have occurred had we not had that one focused threat."

This 'mature viewpoint' and 'nuanced understanding', this focus on 'what customers need now in terms of interoperability' is what led Microsoft to enter into its relationship with Linux vendor Novell, a deal that Novell initiated and has creatively leveraged to grow its revenue and penetrate the Microsoft installed base ecoregion with market permission.

Put simply, as Microsoft responded to the asymmetric threat called open source Linux, Novell responded with asymmetric marketing that enabled them to capitalize on a market interoperability initiative of a superpower. Now let's look at the second category of asymmetric threat.

2. Asymmetric Threats to Legacy Business Models

Google's success in fostering an 'advertising sponsored' application vision would qualify as the second kind of asymmetric threat, i.e. a threat to Microsoft's underlying business model. By providing comparable web functionality for free (e.g. Office Apps), Google is attempting to commoditize that functionality and collapse Microsoft's paid license model. This 'commoditization' of Microsoft's value proposition and related business model is what Bill Gates saw in the Netscape threat in his 'Internet Tidal Wave' memo. I quote:

"They (Netscape) are pursuing a multi-platform strategy where they move the key API into the client to commoditize the underlying operating system."

Which lead me back to Ray Ozzie's comments on Google which go to the issue of business models.

"The real question in our competition with Google is not just, "What product will you produce to compete?" but how did the company transform from figuring out which of its many offerings should be ad-supported and which ones shouldn't? Which ones should be subscription-supported and which ones shouldn't? What go-to-market opportunities do we have as an organization, that we never even would have considered, had we not built that infrastructural foundation for that competitive challenge, that could now be taken advantage of by the various offerings?"

And this 'infrastructural foundation' Ozzie refers to are the 'Live' SaaS offerings, new tools like SilverLight, and the .NET and Windows server capabilities that will enable an integrated 'software plus services' strategic response to Google's ad-sponsored model. And it doesn't hurt to buy a few ad companies along the way.

Summing up, Redmondista ISVs have 3 scenarios they can pursue relative to 'asymmetric threats' to software superpowers. They can:
a. Align with these threats;
b. Align with the natural monopoly superpower in responding to these threats;
c. Do both, and 'game' the outcome using asymmetric marketing.

By the way, Novell's creative alliance with Microsoft is the 'c' option, and it's paying off for them relative to their competitors.

Xendetta: Citrix Counterattacks VMware

The virtualization category is one that could be extremely disruptive to the prevailing WinTel alliance that has driven the x86 platform industry since the early 1980's. So it should come as no surprise that there would be a high profile market reaction by the POMs (partners of Microsoft) to the VMware IPO earlier this week.

The reaction has come in the form of the decision by close Microsoft partner Citrix to acquire XenSource, a competitor of VMware.

Here's my favorite part of the announcement.

"The acquisition will also strengthen each company’s strong partnership with Microsoft and commitment to the Windows platform."

If this isn't superpower symbiosis in action by two breakout Redmondista ISVs, then I don't know what is.

VMWare: The New Kid on the Software Superpower Block

Yesterday was the VMWare IPO which provided a big bright spot, closing at $51 a share on another down Dow day. Founded in 1998, and acquired and incubated by storage systems leader EMC, VMWare is clearly positioned to emerge as a future software superpower based on their $1Billion annual revenue run rate, and their asymmetric marketing model.


Here's a few excerpts from their Form SC TO-1 tender offer document that provide insight into the strategy of an asymmetric marketer and future new kid on the software superpower block.

Strategic Symbiosis with Incumbent Market Leader

In this case the symbiosis-driven, Redmondista market attachment strategy is focused on Intel's x86 installed base, and Intel's multi-core processor roadmap. Intel invested $218 million prior the IPO.

"We believe that the addressable market opportunity for our virtualization solutions is large and expanding. IDC estimates that less than one million of the 24.6 million x86 servers and less than five million of the 489.7 million business client PCs deployed worldwide are running virtualization software. We believe industry trends towards more powerful yet under-utilized multi-core servers and the increasing complexity of managing desktop environments will further accelerate the widespread adoption of virtualization for both server and desktop deployments."


Asymmetric Partner-advantaged Marketing Model

No Joe B. commentary needed here.

"We have over 200 technology partners with whom we bring joint offerings to the marketplace. We classify our partners as:

Independent Hardware Vendors (IHVs). We have established strong relationships with large system vendors, including IBM, HP, Dell, NEC, Fujitsu, Fujitsu-Siemens and Sun, for joint certification and co-development. We also work closely with Intel, AMD and other IHVs to provide input on product development to enable them to deliver hardware advancements that benefit virtualization users. We coordinate with the leading storage and networking vendors to ensure joint interoperability, as well as to enable our software to access their differentiated functionality.

Independent Software Vendors (ISVs). We partner with leading systems management, infrastructure software and application software vendors to enable them to deliver value-added products that integrate with our VMware Infrastructure suite of products. Our Technology Alliance Program facilitates joint solution creation and coordinated go-to-market activities with our partners. Our ISV partners have distributed over 400 software applications as virtual appliances.

We have over 4,000 indirect channel partners as of December 31, 2006, an increase of over 1,500 from December 31, 2005."

Customer Installed Base

Talk about an emerging installed base 'lock-in', one of the key metrics of a software superpower possessing extensible market power.

"Our customer base includes 100% of the Fortune 100 and over 84% of the Fortune 1,000. Our customer base for our server solutions has grown to include 20,000 organizations of all sizes across numerous industries."

Compound "Suite" Product Model Drives Market Power and Lock-in

VMWare is also extremely streetsmart in terms of it's product and pricing approach, adopting a 'compound offering' model that market-hardens the offering against commoditization by competitors.

"Although many of the Company’s products are available individually, they are generally sold in product bundles which encompass most of the Company’s products. As we develop new products, they are typically sold as a new component to a bundle of products. Customers generally purchase the most recent bundle. Late in the second quarter of 2006, we introduced a new Enterprise product-bundle which largely replaced the previous product bundle. We added three unique products to this bundle and increased the corresponding list price by 15%. This price increase was partially offset by decreasing prices on certain core platform products. In some cases, we began providing these products for free. The impact of pricing on revenue growth in 2006 compared to 2005 was less than 10% of the overall increase in revenue. The impact of pricing on revenue growth in 2005 compared to 2004 was not significant. "

Community Creation

VMWare also gets the web, using it to build community around their virtualization platform.

"On average, our website receives approximately 400,000 unique visitors each week, as measured by a third-party tracking system. We also have created an online community called VMware Technology Network (VMTN) that enables customers and partners to share and discuss sales and development resources, implementation best practices, and industry trends among other topics. Attendance at VMworld, the largest annual industry conference on virtualization and hosted by VMware, has grown from approximately 1,400 attendees in 2004 to more than 6,700 attendees in 2006. We also offer management presentations, seminars and webinars on our products and topics of virtualization. We believe a combination of these efforts strengthens our brand and enhances our leading market position in our industry."

More on future superpower VMWare in future posts.