Wednesday, 31 August 2011

The Two Most Dangerous Words in Technology Marketing

"Just wait."

So powerful.  So easy to say.  So appealing when your current products are behind the curve, and the press and analysts are beating you up about it.  You can shut up the critics instantly if you just drop a few hints about the next generation product that's now in the labs.

So dangerous.

The phrase "just wait" ought to be locked behind glass in the marketing department, like a fire extinguisher, with a sign that says, "Break glass only in emergency."  And then you hide the hammer someplace where no one can find it.

Saying "just wait" is dangerous because it invites customers to stop buying your current products.  You're basically advertising against yourself.  If your company is under financial or competitive stress, the risk is even greater because people are already questioning your viability.

This danger is especially potent in the tech industry (as opposed to carpeting or detergent) because tech customers worship newness, and they use the Internet aggressively to spread information.  One vague hint at a conference in Japan can turn into a worldwide product announcement overnight.

 This danger has been well understood in the tech industry dating at least back to 1983, when portable computing pioneer Adam Osborne supposedly helped destroy his PC company by pre-announcing a new generation of computers before they were ready to ship (link). Palm reinforced the lesson in 2000 by pre-announcing the m500 handheld line and stalling current sales (link).

But maybe memories have faded, because we've been hearing "just wait" a lot lately:

--Nokia announced that it's switching its software to Windows Phone, and promised new devices based on the OS by this fall.  Nokia executives have hammered that message over and over, even making detailed promises about features including ease of use, battery life, imaging, voice commands, cloud services, and price (link).  Some execs have even told audiences that they have a prototype in their pockets, but coyly refused to show it (link).  What's the thinking here?  Does refusing to show the product somehow nullify the fact that you just told everyone not to buy what you sell today?

--In February 2011, HP pre-announced a series of new smartphones that were supposed to come out over the next year.  The most attractive-sounding one, the Pre3, was supposed to ship last.  Not only did this obsolete HP's current products, but it also overshadowed the other new products HP launched in the interim.  HP's interim smartphone sales turned out to be so bad that it killed the business before the Pre3 could even launch in the US.

--Speaking of HP, the company just announced that it will be selling its PC business because it's not doing well.  As Jean-Louis Gassee pointed out, that's like inviting customers to switch to another vendor who actually wants to be in the business (link).  That forced HP executive Todd Bradley to boost confidence by going on tour pre-announcing himself as future CEO of the theoretical spun-out company, even though HP's Board won't even meet to decide on a spinout until December (link).

--RIM announced that it's moving BlackBerry to a new operating system, which will apparently not run on its existing smartphones.  It has spent much of the last year telling people how great all the new features of the OS will be.  The company also pre-announced that it will enable Android applications to run on its future phones.  Meanwhile, market share of its current products has been dropping steadily.  The latest rumors say RIM's new phones will not be out until Q1 of 2012 (link), meaning the company has probably sabotaged its own Christmas sales for 2011.

--Microsoft announced that it's replacing Windows in about a year.  That's not necessarily a problem, since it says the new version of Windows will run on existing hardware.  But Microsoft also said it's introducing a new development platform based on HTML 5.  This set off a huge amount of teeth-gnashing among today's app developers worried that their skills are about to become obsolete (check out the excellent overview by Mary-Jo Foley here).

Why are companies doing this over and over?  Sometimes you have no choice.  For example, Nokia couldn't lay off the Symbian team without saying something about its OS plans.  However, it didn't have to be so noisy about the plans, so I think that wasn't its only motivation.

Sometimes the cause is a mismatch between the needs of a hardware business and the needs of a software business.  If you're making a software platform, you pre-announce it as early as possible to build confidence and get developers ready at launch.  But if you're selling hardware, you want to keep new stuff a secret until the day you ship.  When you mix hardware and software, you are pulled in both directions.  I think that disconnect probably affected Nokia, which is now run by a CEO who worked in software for most of his career. 

Companies also sometimes pre-announce products because it placates investors.  Wall Street analysts always ask what you're developing in the future, and executives sometimes can't resist the urge to tell them and prop up the stock price.  Ironically, this may help the stock for a quarter, but often has the long-term effect of hurting a company's value when the pre-announcement slows sales.  But each CEO always seems to believe he or she will be the one who gets away with it.  I believe investor pressure was one of the drivers when Palm pre-announced the m500, and I believe it also explains some of the pre-announcements by HP and RIM.

Sometimes internal company politics also plays a role.  An executive may pre-announce a product in the hope that the announcement will put more pressure on the development team to deliver "on time."  Or a business leader will pre-announce something to pre-empt internal competition from another group.  I've seen both of those happen at places where I worked.  Needless to say, any company that allows internal politics to drive external communication has much bigger problems than its announcements policy.

Pre-announcements also create other problems.  They educate the competition about what you're doing, and give them time to prepare a response.  This is especially dangerous if you're trying to come from behind, which is usually the situation when a company pre-announces.  So a competitor is already out-maneuvering you, and now you're giving them more notice of your plans?

But I think the worst effect of a pre-announcement is that it invalidates any signals you get from the market.  You can't actually tell if your underlying business is healthy or not.  Did HP's smartphone sales slow down because people hated its products, or because HP had invited customers to wait for the new ones?  Have BlackBerry sales been suffering because customers don't want them, or because RIM invited people not to buy?  Was the enormous drop in Nokia smartphone sales due to flaws in the products, or due to Nokia's relentless promotion of new phones that aren't yet shipping?

There's no way to tell for sure.  And so, if you're running one of those companies, you don't know whether or not you should panic -- or more to the point, what exactly you should panic about.  You have now trapped yourself in limbo, and there is no way out until your new products ship.

So, as you can guess, I am generally against pre-announcements.  But they can be very powerful, and there are a couple of special cases in which they're appropriate.

When it's safe to pre-announce

If you're entering a new business.  If you don't have any current sales to cannibalize, it's relatively safe  to pre-announce.  You're still alerting the competition, which I dislike, but at least you won't tank your current business.  Apple pre-announced the first iPhone and iPad before they shipped, but you'll notice that they've been very secretive about the follow-ons.

A variant on this is when a competitor is ahead of you in a new category and you want to slow down their momentum.  You pre-announce your own version of their product, in the hope that customers will wait to get it from you rather than buying from the competition.  This can be especially effective in enterprise markets, where IT managers tend to develop long-term buying relationships with a few vendors.  IBM used this technique relentlessly during the mainframe era, and Microsoft picked up the habit from them.

Pre-announcements are less effective against competitors in consumer markets, where people are sometimes driven by the urge to buy now.  They also don't do much in cases where it's easy to switch vendors.  For example, Google pre-announcing a web service isn't likely to stop people from using competitors to it in the interim.  A pre-announcement can intimidate venture capitalists, though, and I wonder if Google doesn't sometimes announce a direction in order to hinder a potential competitor's ability to raise money.

If there is a seamless, zero-hassle upgrade path.  If customers will be able to move easily to your new products, without obsoleting what they use today, and without big expense, a pre-announcement can be safe.  For example Apple generally pre-announces new versions of Mac OS, and it's not a major problem because currently-available Mac hardware can run the new OS.  Where RIM went wrong with its OS announcement is that its current hardware apparently can't run the new OS.  So RIM has announced the pending obsolescence of everything it sells today.

If you are messing with the mind of a competitor.  Theoretically, if you're dealing with a competitor who's very imitative, you can make them waste time and money by leaking news of future products that you don't actually plan to build.  The competitor will feel obligated to spin up a business unit to copy your phantom product, leaving less money to respond to what you're actually doing. 

When I was at Apple, we used to joke that we could waste $20 million a pop at Microsoft by seeding and then strenuously denying rumors that we were working on weird but plausible products.  Handheld game machines, anyone?  Television remote controls?  Apple today is so influential that it could manipulate entire industries by doing that, not just individual companies.

But when you do this you gradually erode your credibility with your customers. If the rumor is plausible enough to dupe a competitor, it will also dupe some customers, who will then be disappointed when you don't deliver.  Eventually you won't be able to get customers excited when you announce real products.  Look at the skepticism people often express today when Google announces a new initiative.

The most famous case in which misdirection supposedly worked was not in business but in international politics.  Some historians say that the collapse of the Soviet Union was hastened by the huge investments it made trying to keep up with Reagan Administration defense initiatives, some of which had no hope of actually working, but which still seemed plausible enough that the Soviets felt obligated to cover them. 

I'm not so sure that really caused the collapse of the Soviet Union; big economic changes are usually driven by big economic forces, not by tactics.  But more to the point, you're not Ronald Reagan, this isn't the Cold War, and if you try to pull off a fake this complicated you'll probably just confuse your customers and employees.

So unless you're entering a new market, or have a seamless low-cost upgrade path to the new product, your best bet is to grit your teeth, shut up, and next time plan better so you'll be ahead of the market instead of playing catch-up.

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