Turkey and tofu meatloaf

January 29, 2010

Today the cafeteria here at Tuck served “turkey and tofu meatloaf.”

Men like meatloaf. It’s man-food, like Sloppy Joes, ribs, and fried chicken. However, men don’t like ground turkey or tofu. If you eat stuff like that, other men will make fun of you.

Women, on the other hand, love replacing beef with healthier options like turkey or tofu. (Yes, I’m generalizing.) However, I have yet to meet a woman who ever got excited about eating meatloaf. Maybe it’s the name. Maybe it’s the shape. I don’t know, but it’s just not a very lady-like thing to eat.

You can bet that somewhere in some back kitchen at Tuck, somebody thought, “We’ll make the meatloaf that men want, but we’ll make it healthier like the women want, and everyone will buy it!” Well, let me assure you, no one bought it. When you try to please everyone, you please no one.

Basic marketing 101 teaches us to segment the market, select a segment to target, and then position your offering for that segment. By definition, targeting means selecting not only who you will serve, but just as importantly, who you won’t. It’s easy to find a market to go after. It’s much harder to ignore everyone else. (“We can’t just serve regular meatloaf. We’ll miss out on all the women!”)

Southwest Airlines is my favorite example of a focused, clearly positioned company. Legendary CEO Herb Kelleher said, “I can teach you the secret to running this airline in thirty seconds. This is it: We are THE low-fare airline. Once you understand that fact, you can make any decision about this company’s future as well as I can.”

He went on to provide an example of how this rule works in action:

“Tracy from marketing comes into your office. She says her surveys indicate that the passengers might enjoy a light entrée on the Houston to Las Vegas flight. All we offer is peanuts, and she thinks a nice chicken Caesar salad would be popular. What do you say? You say, ‘Tracy, will adding that chicken Caesar salad make us THE low-fare airline from Houston to Las Vegas? Because if it doesn’t help us become unchallenged low-fare airline, we’re not serving any damn chicken salad.”

Compare Southwest’s positioning to that of Scandinavian Airlines. SAS’s strategic focus is to “become the best airline in the world for the frequent business traveler.” When other airlines started converting their fleets to the larger, more fuel-efficient Airbus model, SAS continued using smaller DC-9 planes. Though they missed out on cost savings, this strategy allowed them to provide more frequent flights than competitors, and therefore more options for time-sensitive business travelers to choose from.

Southwest serves meatloaf. SAS serves turkey and tofu. They don’t try to serve both.

What do United, American, and Delta serve?


Hire craftsmen

August 18, 2009

“You don’t have to preach honesty to men with a creative purpose. Let a human being throw the energies of his soul into the making of something, and the instinct of workmanship will take care of his honesty… A genuine craftsman will not adulterate his product. The reason isn’t because duty says he shouldn’t, but because passion says he couldn’t.”
– Walter Lippmann

Companies try all sorts of things to earn their customers’ trust, from celebrity endorsements to “4 out of 5 dentists recommend.” But there’s another option: hire passionate people who build honest products, and let the products speak for themselves.

Upon completion of orientation and training, Zappos offers new hires $2,000 to walk away. CEO Tony Hsieh explains, “We offer money to trainees to quit because we really want to make sure that people who are working at Zappos are truly passionate about the company, and that this is the place they want to be.” Very few take it.

The more your employees believe in what you are doing, the more your customers will, too.

MLB and the Future of Television

August 12, 2009

Two interesting stories out today that speak to where television is headed.

First, from the Wall Street Journal: “Radiohead said in a magazine interview that it wouldn’t release any more full-length albums, instead focusing on downloadable singles…and shorter EPs.”

Second, from NewTeeVee (among others): “Roku announced it has added MLB.TV to its channel lineup, so anyone who owns the little set-top box and has an MLB.TV Premium subscription can now stream live out-of-market baseball games directly to their big-screen TVs without the need for a PC.”

What do these two stories have in common? In a word, unbundling.

The impact of the digital movement on the music industry was that customers no longer had to pay for 12 songs to get the one they wanted. The market preference for singles (as opposed to albums) is so strong that now artists are giving up on albums entirely.

But with television, we still pay for packages with hundreds of channels when we only watch a small percentage of them. By essentially creating a TV channel out of a website, Roku and MLB are showing how that could change. Netflix CEO Reed Hastings described his vision for this new model of television:

“In the long term what we’ll see is a web browser like IE or Chrome or Safari or any of these in the television, and the way that consumers will interact on the big screen will be similar to the way they interact on a laptop screen. That is with a web-oriented paradigm and they’ll go to CNN.com or Netflix.com or ESPN.com as opposed to specific channels. So think of websites, over time, replacing channels…over maybe 5 to 20 years.”

The more “web channels” like MLB.tv that appear, the less the traditional bundled model makes sense. Imagine your internet provider trying to sell you a bundled package of websites. A basic plan gets you access to Gmail, Facebook, Amazon, and 15 other sites you never use. Pay $10 more and you get ESPN.com, CNN.com, and 25 other sites you never use, and so on. Sounds absurd, right? Yet that’s how we pay for television. Why? Because we have no other  we have no other alternative to get the content we want. But as soon as enough consumers and content providers can go outside of the bundled distribution and still find each other, MSOs will be forced to respond.

I believe the market preference for a la carte programming–like singles in music–is so strong that eventually bundled packages will no longer exist. And Major League Baseball, of all things, may prove to be a pioneer in the movement.

Can Chrome Disrupt Windows?

July 17, 2009

Chrome OS is meant to do more than just antagonize Microsoft. It has been Google’s Microsoft-killing strategy for years.

Google knows you can’t beat Microsoft by trying to build a bigger/better OS.

  • People don’t want to re-learn how to use their computers.
  • Developers don’t want to write a program for a new OS when 90% of the market is using something else.
  • Microsoft has locked down the distribution channel, tying up PC-makers in exclusive agreements (or by simply wielding their virtually monopolistic bargaining power).
  • And of course, even if you do build a bigger/better OS, Microsoft will just copy your technology and then outspend you in marketing it (i.e., “embrace and extend”).

No, you can’t beat Microsoft with a better OS.

Instead, Google is trying to entirely circumvent the OS (or at least the concept of one). They read the trends and imagined a world where internet connectivity is ubiquitous and just as fast as working locally. They saw hardware prices plummeting and imagined a world where people owned many devices on which they would want to access the same data. So, they thought, why not boot up directly to a browser, and run all your apps in the cloud? Your “desktop” is out there somewhere, available to you anytime, anywhere, on any device.

Under this strategy, the network externalities that have made Windows invincible are neutralized.

  • People have been using browsers for years and are increasingly comfortable working there.
  • Developers love building web apps because everyone–PCs, Macs, and everyone else–can use them.
  • Netbooks (not to mention mobile devices) constitute a brand new distribution channel–and the fastest growing PC segment–that is ripe for cloud computing.
  • And perhaps most significantly, when you circumvent the OS, Microsoft can’t outmaneuver you because it would mean direct cannibalization of their most profitable business lines (Windows and Office).

I interviewed with the Windows Live group (Microsoft’s internet applications team) and one of the guys was very frank about the obstacles they face from the other more powerful divisions within the company. It’s a classic case of disruptive technology where the greatest hindrance to innovation is the success of the existing business.

Of course, Google’s big weakness in this strategy is in the corporate, B2B business. Big companies make up the majority of the industry’s revenues, and many of them are extremely reluctant to put their stuff out there for hackers to get at. Also, they demand powerful, feature-rich desktop apps like Outlook and Excel, for which there currently are no comparable web-based solutions. Those barriers mean a big chunk of the market will resist transitioning to the cloud.

But even those barriers will fall over time. Salesforce.com is proving that companies can operate safely in the cloud. (Meanwhile Microsoft continues to prove that you don’t need to be web-based to have security issues). And web apps will only continue to mature as the market incentives grow. (Update: Microsoft has announced that Office 2010 will feature a free, web-based version.)

Plus, if you’re a Seth Godin-ite like me, you believe that virtually all the growth in the economy is coming from small businesses, which are likely to value the affordability of non-Microsoft solutions over security concerns or feature requirements. As small companies adopt and grow comfortable with these new technologies, then grow up to replace faltering big companies, cloud computing will naturally grow to replace desktop computing. This will be a slower process than most tech junkies hope or believe, but the advantages of software-as-a-service (SaaS) can’t be ignored forever.

Of course, $24 billion in cash buys Microsoft a lot of time to overcome internal barriers. It’s hard to bet against a company as resourceful and aggressive as Microsoft. If Google’s read on the trends proves to be correct, Microsoft will certainly bite the bullet and adapt. The question is, will they be too late to prevent Google (or someone else) from stealing away market leadership.

The “Free” Debate

July 1, 2009

I’ve been following the debate between Chris Anderson and Malcolm Gladwell about the “radical new price” called Free. I admit, I haven’t read Anderson’s book yet (though I do have the free Scribd version bookmarked for later), and I don’t intend to analyze their specific arguments here. But the discussion has brought me back to something I have been thinking for a while.

More and more of what we used to pay for is now being offered for free. We used to pay for mail. Now it’s free online (email). We used to pay for news. Now it’s free online. We used to pay for magazines. Now they are free online. We used to pay for software (MS Word/Quicken). Now it’s free online (Google Docs/Mint.com). We used to pay for TV (Comcast). Now it’s free online (hulu.com). What else will we soon be unwilling to pay for?

Obviously, consumers prefer things to be free. What rational person would choose to pay for a product when he can use a free one instead (all else equal)? But of course, what we’re talking about isn’t really free. It is supported by advertising. Take away the advertising and you can say good-bye to Free.

(Note: Even “freemium” services like LinkedIn that subsidize free consumer accounts with paid commercial accounts can be considered ad-based in that the consumer accounts really are just advertisements for the commercial ones. If the free accounts don’t somehow generate more paid ones, they are a wasted investment and will get trimmed as competition intensifies.)

There is an important point about advertising that I don’t hear being discussed. That is the notion that advertising is speculation. You invest a dollar in an advertisement hoping it will result in more-than-a-dollar increase in sales. So instead of transacting in dollars and cents, ad-based services are transacting in promises. “If you pay me now, I’ll increase your sales later.”

So what happens when services can’t make good on that promise? What happens when advertisers give you a dollar only to find less than a dollar returned to them? I’ll tell you what happens — advertisers stop giving you a dollar!

There are two reasons why I believe it is getting harder, not easier, for services to keep their promises to advertisers.First, the law of diminishing returns teaches us that eventually we reach a point where each additional dollar invested returns less than the dollar before. In my opinion, nowhere is this more true than in advertising. You can only show me so many advertisements before I reach a saturation point. When I’m bombarded with ads, I tend to ignore them. Or, worse yet, I’m irritated by them. In those cases, I’m left with a less favorable impression than if the advertiser had done nothing. That’s a negative ROI!

Every service that replaces a sales dollar from yesterday with an ad dollar today takes us one step farther on the path of diminishing returns. If we walk that path far enough, we’ll no longer be able to make good on our promise to advertisers. Then you can start writing books about a radical new concept — charging your customers.