Apple's next move: it isn't just music any more

Robert X. Cringley, someone I always find worth reading, has an interesting column on where Apple Computer is headed this year. Despite the seemingly meteroic success of the iPod Shuffle (there are now rumors afoot that they will be offered by Walmart), Steve Jobs declared this year to be the year of high-def TV, not music, at his MacWorld keynote. One of the unexplained mysteries of that keynote is why the president of Sony -- an Apple competitor -- appeared to promote its new HD camcorder; clearly that could have been done by a product manager or lower level executive. But his appearance clearly said, "Apple's HD video work is important to Sony."

Well, it appears that Cringley has a theory. His view is that the next shoe to drop will be the use of Mac Minis as high-def video servers for TVs, fed by an iTunes-like clone that allows you to rent movies a la NetFlix or buy them digitally like iTunes.

Oh, and by the way, don't forget the Steve Jobs is also CEO of Pixar, a company that makes hit movies and is looking for a new distributor after Disney. So Jobs has some clout with the movie makers for licensing, something he didn't have in the music business.

Interestingly, Jobs is one of the few people with both the marketing skill and technology credibility that could pull off this type of deal. The board is set, and the pieces are moving. It may be a very interesting year.

More on struggling CE and PC markets

Today's Wall Street Journal has two interesting articles that reinforce my comment about struggling CE and PC markets below: Profit Squeeze Bodes Shakeout In Electronics, and Governments Prod Microsoft To Slash Prices. These just provide more proof that quality production and PC monopolies are no defense against the commoditization of technology.

The Conceptual Economy as counterpoint to tyranny of too much

Daniel Pink's Wired article Revenge Of The Right Brain argues that the Information Age is so 1990s, because it left us with outsourcing and automation of repeatable processes and too much information for us all to deal with. So how do we break through the detrius of the information age? Start using our right brains on conceptual work that has beauty, elegance, and attractiveness to cut through the clutter. I'd argue that this phenomenon is exactly why companies like Bose and Apple are thriving when the mainstream CE and PC markets are struggling. Worth a read.

Technology in search of a problem.

 I was reading an article in Technology Review (subscription required) recently, and came across this article about how Microsoft's Janus technology was going to rock the digital music world. My immediate reaction: It is so wrong. Totally.

Why? Because this article seems to describe technology in search of a problem. It states that the solution is Microsoft's Janus software, which Microsoft itself has been promoting since June 2004. Yet, the vendors who plan to offer this solution can't craft a simple marketing message that describes why consumers should buy it in January 2005. Worse, one service provider says they aren't even interested, saying "We're not going to advertise this feature. It's something that will take time for consumers to grasp."

With promoters like these, it's going to take a lot longer than these vendors think. It's the job of the vendor, not the user, to describe why people should want their service. If they aren't even trying, that's the kiss of death. With marketers like these, who needs competitors?

Democratic Senators pick communications strategy to get their message across

Today's Boston Globe has an interesting article today about how Senate Democrats have adopted a new centralized communications strategy to promote their agenda. Of particular interest in this story was this section:

For the first time, the 44 Democratic senators
are coordinating their media messages through
a centralized Senate Democratic Communications
Center. The new center has its "war room" in
an office on the Capitol's third floor, where
staff members send out daily talking points
to Democratic press secretaries, line up
radio and television interviews with senators,
and issue "rapid-response" news releases
in the style of political campaigns.

The center has an aide dedicated to getting
information to Democratic-leaning bloggers
and yesterday launched a website,
democrats.gov, to better communicate the
positions of Senate Democrats.

Said another way, these senators just adopted three essential tactics for powerful communication:

1. Boil what you want to say down into a straightforward story,


2. Tell the story consistently with the same words, and


3. Give people an easy way to get the story.

No matter what your political views, I expect we'll be paying a lot more attention to what Senate Democrats say in coming months, simply because of this new communication strategy. Stay tuned.

By the way, Blackfriars has looked at how politicians communicate before, and it hasn't aways been wonderful. We had a chance to revisit our 2003 analysis of presidential candidate web sites recently. In that analysis, we were surprised to discover that only three out of 10 of the candidates communicated clearly enough to rate a "Pass" by Blackfriars. But we were surprised to discover that our ratings of Bush's and Kerry's communication clarity actually matched up with the outcome of the general election (i.e., that Bush more clearly communicated to voters, volunteers, donors, and press better than Kerry did). We'll grant that it may be just coincidence, but we also believe that clear communication pays even bigger dividends in politics than it does in business.

Marketing as a percentage of revenue

Marketing

Update: We have had so much interest in this topic, that we have released an entire market research report on it titled "Marketing 2005: Q2 Marketing By Industry." This report not only gives overall data for marketing as a percentage of revenue, but also gives revenue percentages for six vertical industries, including finance, information, manufacturing, professional services, retail, and other services. Look for it at the Blackfriars eStore. You can read the press release that updates the sizing to $1.074 trillion for 2005 here.

One question we hear from clients fairly regularly is "How much does the average company spend on marketing as a percentage of revenue?" It turns out that we did collect some information on that question in the first three quarters of 2004, so I thought I'd share the answer here.

We asked this "marketing as a percent of revenue" in three surveys: Q1, Q2, and Q3 2004. Therefore, we have about 300 respondents total for that answer. This is a broad-based survey, and our only filter on the respondents is whether they are senior executives (VP, C-level, owner, president, etc.). Our claim is that our sample is roughly representative of the US Census of Business, with large businesses typically being *over-represented* by about 10-20% and small businesses being *under-represented* by the same amount. You can look at the US Census data at http://www.census.gov/epcd/susb/2001/us/US--.HTM. In the census, small business is 99% of business, so anything where you get a sizable number of large companies is actually over-representing large business.

I ran a segmentation of those responses by company revenue. I used a cut-off of $100 million to differentiate between large and small companies. I also inserted a "reasonableness" filter on the data. While I can imagine some non-mainstream companies spending 50% of revenue on marketing, it's not a common case, and we had several responses of that type. So I put in a hard cut-off at 25% of revenue (anything above that I threw out the response and didn't count it in any way), and looked at the results.

Bottom line: Companies with $100 million in revenue or more allocate an average of 13.8% of revenue to marketing. Companies with less than $100 million in revenue allocate an average of 8.7%. The results for the three quarters don't really vary much more than a point on either of those answers, so I feel like they are reasonable numbers. A small company has fewer resources and typically is more operations focused than marketing focused, so it makes sense that they spend less as a percentage of revenue than large companies do.

One final comment. What if we want the answer for all companies, regardless of size? That's an easy one and probably a good one for marketing people to have on the tips of their tongues: On average, regardless of size, US companies spend 9% of revenue on marketing.

Next question.

Software buyers are mad as hell and they aren't going to take it any more!

The Wall Street Journal published an article today titled, "The Revolt of the Corporate Consumer: How companies are squeezing tech suppliers to get a bigger bang for their software bucks." Great topic; Blackfriars noted that same concept about a year and a half ago in a piece titled An Idea Whose Time Has Come: Real Software Warranties.. Oh well; better late than never. That is, unless you are a software company, in which case you are in big trouble noticing only now that you are liable for making your products actually work.

An indictment of technology marketing language

Today's Boston Globe has an AP article about the lack of readability in today's technology marketing. Blackfriars says amen, but wishes the article had been even more forthright. If people within a firm can't understand their own press releases and messages, it's not just a style issue; it's actively harmful to that company. Clarity: it's not just for school assignments any more.

Intelligent market segmentation -- by a hardware guy

MacWorld UK has an interesting interview with Greg Joswiak -- commonly referred to as Joz -- VP of hardware marketing at Apple where he talks about the product positioning of the iPod Shuffle and whether it will cannibalize product sales. His answer? "This is a different product and it will take the iPod to a different market, one which couldn't afford the price of the normal iPod."

I've always liked Joz, because he speaks intelligently about both marketing and hardware (a rarity in high tech, I might add). But lest you think the above statement is obvious, remember the buzz about the iPod mini when it came out? Joz does. He notes, "When that launched [the iPod Mini] everybody said that it would take customers away from the iPod, but it didn't. They are different products." Amen. High-tech needs to stop thinking price and technical specs define products. Customer needs, product positioning to address those needs with benefits, and clear messaging of those needs and benefits define products. Apple gets that; the rest of the high-tech should learn it.

Does anyone care about advertising clarity? Google does.

Today's New York Times Circuits section has an interesting piece on the fact that Google actually vets its text advertising for grammar and style. The article makes a radical claim in today's market: From Google's point of view, clarity is more important than tone.

Blackfriars sides with Google and applauds their stand. While slang and misspellings can occasionally work for a company, more often, they simply make copy harder to understand, more difficult to remember, and less effective in today's global marketplace. And don't forget, that while you may think that street slang and text shortcuts sound hip to your average American, today's Internet ads are seen around the globe; audiences in other countries who don't speak English as a native language to say nothing of American English may struggle to figure out what you are talking about.

Our bottom line: simple, correct language should be the standard for all business communication, including advertising. That may sound obvious, but Blackfriars thinks more companies than Google should take up that fight.

How to market part 2

Reactions are still pouring in to Apple's announcements yesterday. One of the more interesting bits introduced was the iPod Shuffle, which is a $99 package-of-gum sized iPod with no display. Hard-disk-based iPods have LCD displays that allow users to choose what play lists they want to hear and generally control what they hear. The iPod Shuffle has just two modes: play what's on the device in order (it holds about 120 songs, 240 on the 1 Gig model), and play the songs in random order. No pretty display, no playlists, no breakout games.

But as CreativeBits notes, Jobs, being a great marketer, didn't focus on the limitations of the device. Oh no. Instead. he introduced a new slogan, "Life is Random", named the product the iPod Shuffle, and promoted the limitation as a feature! By redefining the problem -- users are looking for tunes to listen to and don't want to hassle with user interfaces -- Apple has turned its the iPod Shuffle's main limitation into a feature.

Based upon some initial reports of iPod Shuffles causing near stampedes at Apple's retail stores, we again doff our hats to Jobs' marketing mastery.

Oh, by the way, in case you think this type of marketing can't possibly have anything to do with real business, Apple just reported its best quarter in years, with over $3 billion in sales, and nearly $300 million in profit, nearly four times the numbers a year ago and blowing past analyst estimates.

Jobs again demonstrates marketing mastery

The best CMO in high-tech actually doesn't have that title; instead he is CEO of two companies, Apple and Pixar. Of course, I'm speaking of Steve Jobs, who today unveiled a collection of new products at the company's MacWorld Expo in San Francisco. This is an annual tradition at Apple, but this year's roundup was particularly interesting, including a new low cost Mac mini debuting at $499, a new $99 iPod music player, a new productivity suite termed iWorks, and an upgrade to Apple's unmatched iLife suite of software.

From a messaging point of view, though, what was striking was how clearly and consistently Jobs communicated Apple's plans. With it now about 2 and a half hours after the keynote ended, there are about 288 stories on Google News about Apple's product introductions, and they all have a remarkable similarity in the appeal of the products and their impact on Apple's business. Jobs' simplicity, style, and clarity stand in stark contrast to the cacaphony of messaging that came across at last week's CES. Many pundits wondered why Apple hadn't displayed its iPod players at CES, where many of its competitors were showing their products. But Jobs rightly questioned why he should compete with 2,400 other exhibitors to get his message out, when by delaying Apple's announcements by a week until MacWorld, he could have the stage to himself?

In high-tech marketing and strategy today, nobody does it better than Steve Jobs.

The CMO Help Line -- another CMO

Today's Wall Street Journal has an interesting article on CMOs joining networking groups to meet with other high-profile CMOs. Forget conference calls or emails; these executives pay up to $50,000 a year to meet face to face and look their peers in the eye. It just shows that despite electronic media, simple, personal communication is still one of the most effective executive tools -- and that large companies will pay real money for it.

No, you don't need more information to decide

After three days of CES and a couple days with the flu, now seems to be a good time to turn to some more traditional (and useful) sources of information: books.

Malcolm Gladwell takes on the question of how people make good decisions in his latest book, Blink : The Power of Thinking Without Thinking. Gladwell makes a strong argument that the tyranny of too much confounds most decision-making, and that people who focus on only a few factors and can shut out the cacaphony of too much information make faster and better decisions than those who wait for all the facts and weight all the alternatives. You can read reviews in this past Sunday's New York Times and the Boston Globe. We here at Blackfriars are ordering the book; the official release date is tomorrow.

A man holding a highly desirable prize -- a Sony PSP gaming device

Samsung's 102 inch plasma. Only two of these exist, and they are both here. Available 2006.

HDTV, Plasma

What does hosting a snowboarding competition (complete with snow) in Las Vegas have to do with Motorola?

LG lays claim to the largest *production* plasma at 71 inches

HDTV, Plasma

CES opens

Panasonic's way to show lifelike color rendition on their TVs

HDTV, Plasma

There is nowhere you can't put a plasma TV nowadays

Bill Gates delivers the wrong message to 120,000 attendees

Last night, Bill Gates took the stage at CES to deliver his ninth keynote speech in as many years. Yet, Gates announced nothing new, noting that Longhorn, the next generation of Windows due in 2006, is Microsoft's next purely consumer offering. Instead, he emphasized partnerships with manufacturers such as LG and Tivo, and noted the shortcomings of existing CE products.

But the unspoken message was that Microsoft products don't work reliably. Despite the fact that no new Microsoft products were being shown, he experienced no fewer than two blue screens of death during his presentation. Further, one of Microsoft's Tablet PCs couldn't reach the Internet during the demonstration, and Microsoft's Media Center PC couldn't display photographs of Gates and Conan O'Brian out on the town in Las Vegas.

There is already a buzz at the show that this is the year that the CE makers take back the crown of the sexiest consumer products from the computer vendors like Microsoft. Gate's keynote sent the message that Microsoft isn't a serious consumer electronics player. After all, when was the last time your TV crashed?

Sharp's wall of LCD panels

HDTV, LCD

Sharp's booth houses several walls of large LCD displays. This is in marked contrast to most other manufacturers who are showing Plasma displays at the largest sizes and LCDs up to about 37 inches. One of the stories at the show is whether 2005 will be the crossover point when LCD starts to overtake Plasma in the most popular 42 inch sizes.

Sharp's large LCD panels contrast with an overall emphasis on Plasma at CES

HDTV, LCD

The new 65 inch LCD being introduced

Sharp's 45 inch LCD

HDTV, LCD

One of Sharp's three models of 45 inch LCDs

A Pioneer-equipped car on the show floor

A Pioneer-equipped car on the show floor

Pioneer aligns with XM satellite radio

In addition to ordinary satellite radio receivers for cars, Pioneer is introducing new telematics for cars that can make use of traffic information that is downloaded by XM radio. Not only does the system provide turn-by-turn GPS navigation, but it also flags traffic slowdowns through digital information downloaded from the XM satellites. Pioneer is further introducing an iPod-sized satellite radio receiver that you can put in your pocket and providing new iPod adaptors for cars.

Pioneer also emphasized what it saw as the profound advantages of Blu-Ray disks versus HD DVDs, namely the significantly larger capacities and the ability to easily integrate them with existing technologies. Despite all claims that there shouldn't be a format war, it certainly sounds like one at this point.

Sharp pushes LCDs and works on eliminating wires

Sharp is currently the global market leader in LCD TVs. The Aquos 45 inch LCD was the largest LCD in 2004. This year, they are introducing a 65 inch LCD display, which supports Ultra HDTV at 1080p. Sharp actually received an Emmy award in 2004 acknowledging its development of direct view LCD displays. Sharp increased its market share in dollars, despite more than 70 companies now offering LCD Tvs. Expect sales to double in 2005, despite price declines and compression. Sharp now offers LCDs from 13 to 65 inch displays this year.

One key innovation that Sharp is showing at the show is the use of ultra wideband (UWB) technology to transmit HDTV wirelessly throughout the home and to eliminate wires. Few things will impress consumers more than eliminating the need to run wires throughout their homes.

Part of the football field length Panasonic booth

HDTV, Plasma

Image of a Panasonic HDTV video wall

HDTV, Plasma

Panasonic aligns its name with its brand

One of the most impressive communications announcements at CES this year came from Yoshi Yamada, who is chairman and CEO of the America subsidiary of Matsushita Electric. What was such a big deal? It was the fact that as of January 1, Mr. Yamada is now Chairman and CEO of Panasonic Corporation of North America, not Matsushita Corporation of America. After being in the US market for 45 years, the company name will now be the same as the brand it markets its products under. This renaming just makes sense and eliminates consumer confusion.

That said, Panasonic's booth at the show is truly remarkable. The booth is longer than a football field and features over 100 flat panel displays of various kinds (no surprise there because Panasonic is one of the largest manufacturers of plasma panels in the world). I've attached a couple of pictures to give you a sense of the drama of this huge set of displays.

Toshiba recasts its audio/video business as a storage business

Toshiba CEO and President, Yoshihida Fujii, said "The PC paradigm is over. We are introducinga new paradigm. Toshiba is working with content holders and providers to create a new audio visual world." Toshiba is the major proponent of the HD DVD format and is a major vendor of hard disk drives (they make the specialized miniature hard drives in iPods, for example), and it is planning to introduce Surface-conduction Electron-emitter Displays (SED) in 2005.

Toshiba is particularly aggressive in integrating hard drives and DVD recorders (remember, they make their own hard drives), and already sells 600 Gigabyte drives integrated with DVDs in Japan, and they plan 1 terabyte drives next year. The company clearly has the ability to record a lot of HDTV content

Toshiba believes that the 30 GB capacity of HD DVD is plenty for HDTV, since it is capable of playing back 8 hours of HDTV at that capacity.

On of Toshiba's most notable introductions is the promotion of its gigastyle hard-drive CE systems. The gigastyle prodcuts include a digital music player, named Gigabeat, with a color display; think of this as a 60 GByte photo iPod. Gigabeat, however goes the iPod one better by ripping its own CDs from its cradle. It uses WMA and MP3 music formats. This product arrives in 2Q 2005.

Gigastyle also includes a HD camcorder named gigashot, which uses a 0.85 inch hard drive for videos and an up to 5 megpixel digital camera. Surprisingly, it can take stills and video at the same time.

Toshiba also introduced Tivo-based personal video recorders.

Toshiba noted the same trend identified yesterday by the CEA: the money in TV is shifting to flat panels, despite the fact they still have a healthy business in CRT-based TVs. They will be introducing their SED flat technology this year, which will support Ultra HD resolutions with superior contrast and brightness over plasma and LCD. As is typical with new high tech products, it will be priced at a premium. Don't expect it to be price competitive by 2007.

From a communication point of view, Toshiba's messaging was much less clear and precise than LG's. While there was a bit more flash in places (they brought out a Harley chopper at the end of the press conference), their overall strategy was harder to understand and more convoluted. Their story suffers from too much information, and as a result, we expect press coverage of their products to be poorer than other companies with clearer messages.

LG's new 60-inch integrated HDTV with personal video recorder (60PYDR)

HDTV, Plasma

LG's new 60-inch integrated HDTV with personal video recorder (60PYDR)

LG kicks off Wednesday CES announcements

HDTV, Plasma

Korean heavyweight LG kicked off today's bevy of CES announcements with products combining three big trends at CES: flat screen TVs, Ultra-HD digital TV, and personal video recording systems. They announced a 72 inch plasma display at the show which supports Ultra-HD (1080p digital television), as well as 50 and 60 inch plasma displays that incorporate 160 GByte personal video recorders for recording and playing back high definition TV signals.

In addition, LG announced a wide array of LCD monitors, new cell phones (some of which are incorporating camcorder functions), and the fact it is now the #1 manufacturer of optical drives in the world.

The 720p HDTV images on the six-foot plasma displays were truly breathtaking. Pictures of those displays will be uploaded within an hour or so. US markets will see the 71-inch plasma displays within the next few months, despite its $75,000 price point. Lest you think that's out of line, Samsung's 102-inch plasma display is over $100,000.

An interesting factoid from LG: retailer returns of DVD recorders currently are running about 40%, because of format incompatibilities and user interface frustration. LG is introducing a multi-DVD recorder and playback unit that can record any format and play any format. It's a great example of a company trying to make things simple for consumers..

In 2004, LG pursued a two-brand strategy -- LG and Zenith -- that focuses on retailers who can clearly explain why consumers benefit, not just features. Further, LG used a strategy of no Internet direct sales of LG products because consumers might buy the wrong products and not realize the benefits. As a result, its business doubled in 2004. This is probably one of the best examples of a "less is more" marketing strategy paying off in real business results.

The big business of Consumer Electronics

Consumer electronics is a big business in the US. How big? According to an analyst with the Consumer Electronics Association (CEA), in 2004, consumer electronics accounted for $113 billion in wholesale sales in the US. That number was closer to $200 billion at retail. And it is growing at about 11% a year.

This year's 2,400 CES exhibitors occupy about 1.5 million square feet of exhibit space here. There will be about 50,000 product announcements at this show over the next six days, making it the tyranny of too much personified. But there are already some trends evident from the CEA sales data that was released here today:

• LCD flat television will overtake Plasma TVs this year. This happened already in 2004 and the trend will accelerate in 2005. While many consumers call any flat TV "Plasma", LCD flat panels already outsell Plasma TVs in terms of number of units, and will outsell them in dollar value this year as well. While there will be other new technologies to complete, LCD will be the trend to beat in flat TV.


• HDTV isn't the end of the improving TV quality. This year we are already seeing the next step in high definition television called Ultra HD or 1080p. Sharp already makes an LCD TV that can display 1080p, and other manufacturers are following suit; it's only a matter of time before that becomes a new high-water mark for quality.


• The megapixel race in digital cameras is coming to an end. This past Christmas, five megapixel cameras were already below $300. For consumer snapshots and family pictures, more megapixels are starting to matter less than compact size and weight, good optics, well-developed user interfaces, and intelligent imagers that avoid common errors. There will always be a high end in digital photography, but the sales data says that that isn't going to be the mainstream market.


• Digital cameras are driving other new product purchases. Anyone who has bought a digital camera rapidly discovers that 1) they want ways to print their photos easily, and 2) they want a place to store their photos with or without their computer. As a result, consumers are starting to buy photo printers that don't require computers to print photos, and consumers are buying more flash and hard disk storage. While the an ever-increasing thirst for storage has been a trend in corporate American for years, a consumer storage boom will manifest itself in a variety of new product categories. Need an example? Think of the iPod Photo.


• Music is more important than you think. The iPod ecosystem is rampant here at the show with over 200 accessory products just for that platform. But the sales data has further surprises. For example, multi-room audio systems are starting to edge past home theatre systems. Why? Because while it takes an avid movie watcher to want to use their home theatre system more than once or twice a day, nearly everyone is interested in listening to the music they like whereever they happen to be.

Tomorrow begins the onslaught of press events and product announcements at the show. Look for photos and commentary by mid-afternoon Pacific time.

CES week begins

A quick snapshot of the south entrance two days before the show opens.

Happy New Year -- Time to prepare for CES!

It's the first week of January, so it is now time to look forward to CES, where I'll be for the next few days. Blackfriars will be looking at the show for how companies are marketing their products, but as a former technology analyst, I'll also be looking for cool new toys. Some things I expect to be hot this year include:

• Ever bigger flat screen TVs. The transition to flat panel displays has begun, and there is no indication it will stop any time soon. While some are predicting a $1,000 flat panel TV by 2006, I don't expect that to happen. Instead, we'll see more pixels and larger panels while leaving prices in the $2,000 to $10,000 range. And don't forget the whole migration to digital and HDTV which should drive product introductions as well.


• Ever smarter digital music players.The iPod revolution is in full swing, and I expect a host of new music products to complement the iPod ecosystem and compete with it as well. But I also expect more smart playback systems that observe your music preferences and choose music that you like just as Bose's uMusic does.


• Tons of digital imaging products.The hottest products after iPods this Christmas were digital cameras and printers, and every company in that space will be showing next-generation models.


• A format war for the next generation of DVDs. HD-DVD and Blu-Ray/DVD will fight it out for the hot Christmas products of 2006. Expect to see the two consortia supporting those formats to conduct a war of licensing for the next couple of years.


• Lots of wireless audio products. Everyone hates wiring their house just to have music, but it takes a lot more than an 802.11b wireless ethernet link to make wireless audio plug and play. I expect to see a host of home theatre systems and media servers to sport wireless speaker links for both in-room and whole home audio.

I'm sure there will be surprise products as well, so check back over the next few days. I'll be bringing my own current favorite electronics toy -- my Canon EOS 300D digital SLR camera -- so expect to see pictures of the best toys I see.