Quick Takes: RIM's Marketing, Microsoft Takes Even More Risks, and A Lesson from Digg

Short thoughts on recent tech news...

How not to turn around a company, part 1

Some day, my friend, you might become the CEO of a major technology company.  (Heck, maybe you're one right now.)  When you are a CEO, you sometimes have to deliver bad news to the public.  Maybe it'll be a poor quarter, or a product that doesn't work as advertised.  Or maybe you'll be in charge of a major corporate turnaround, in which case you'll have to deliver a lot of bad news.

There are some very specific rules for how you deliver that news.  You can't sound like you're in denial, but at the same time you can't surrender to the gloom that will flow like a river from the press and analysts you talk to.  It's their job to make the case for what's wrong; it's your job to make the case for how you will fix it. 

One of the rules of this process is that you can't adopt the language of the people criticizing your company.  If you do, they'll play back that language at you. 

For example, say someone asks "did your company deliberately steal millions of dollars from your customers?"  There are several good ways to respond.  You can go for incredulity:  "Anyone who says that is completely out of touch with reality."  You can accuse the reporter of naivete:  "You've been spending too much time on the bulletin boards.  I talk with our customers every day, and they are very happy with their relationship with us."   Or you can just change the subject:  "Let me explain what we're doing."

What you must not do is repeat the hostile wording in the question ("no, we did not steal millions of dollars").  That's a trap, because you legitimize the accusation by repeating it.  The headline the next day will be "CEO denies stealing millions of dollars," something so inflammatory that a reporter on his or her own could never get it into a headline.

RIM CEO Thorsten Heins fell into this trap in an interview he did with CBC in early July.  It's a good interview; I encourage you to listen to it here.

The interviewer, Matt Galloway, is politely professional but relentless.  The interview reminds me of what can happen sometimes with British journalists when they see themselves as proxies for the audience, exposing the misdeeds of the rich and powerful.

Galloway uses death imagery throughout the interview:  "seems to be if not at death's door, it's in the vicinity"..."another nail in the coffin"..."the company may not be around by the time this thing comes out."  So it's a tough interview.

Heins handles most of it fairly well.  He sounds beleaguered at times, and he allows the interviewer to drive the subjects, instead of taking over the flow of the interview.  But he generally sticks to his message.  Until the last question.  Galloway asks:

"The public perception now is that it's a company in a death spiral, on death's door, and about to become irrelevant.  How do you turn that public perception around and make people believe that you can create devices that people will want?"

This is actually the only creampuff question in the interview.  Heins is being invited to talk about the new RIM handsets coming out now, and what's to come next year.  Or he could brag about sales in markets where RIM is doing well.  Journalists, especially on TV and radio, will often give you an easy question at the end so the segment will have an upbeat ending (and so they won't look like total attack dogs).  Unfortunately, Heins chooses this moment to go defensive and start playing back the interviewer's language:

"This company is not ignoring the world out there, nor is it in a death spiral."

So the interview ends on a sour note, and guess what the headlines say the next day:

The only words all of the headlines share are "RIM" and "death spiral."  What do you think people are going to remember?

The problem with doing a turnaround like RIM's is not that the task is impossible, but that it requires incredibly good execution.  You have to get a long list of things just right.  That's hard in any firm, but in a company that's laying off people and shuffling its management, it becomes even more difficult.  So far I don't see the necessary attention to detail from RIM.

How not to turn around a company, part 2

As long as we're picking on RIM, one of the other principles of a turnaround is to underpromise and overdeliver.  Make the situation seem as bleak as possible at the start, so you can surprise people with good news later.  If you think a product will be done in June of this year, promise it by December.  If you expect that the next couple of quarters may be bad, declare that the entire year will be a disaster.  Especially when you're a new CEO, no one's going to fire you for being gloomy in your first couple of weeks, and you will buy time for the turnaround to start working.

And don't worry about the stock price.  Trash it now so you'll look like a hero when it rises later (and so there will be no basis for a shareholder lawsuit).

Thorsten Heins did the exact opposite when he took over RIM.  He reinforced his predecessors' promise that the BlackBerry 10 OS would be out this year, and he made some very upbeat statements when he took over the job.  Galloway even played back a recording of one of them in the CBC interview.  Heins said in January:  "I don't think that times are that difficult...it's an exciting time to take over.  RIM is not a turnaround company.  RIM is a financially healthy and sound company."

Six months later, the OS schedule has slipped, and obviously RIM is in a turnaround.  Instead of looking like the solution, Heins comes across like he's part of the problem.

The consistent theme here is self-inflicted wounds caused by bad marketing and PR.

Surface: Another Microsoft gamble

I continue to be fascinated by the moves Microsoft is making around Windows 8.  The OS has a radically new UI, and violates some of the most basic rules on how to do a platform transition.  I don't know whether to admire Microsoft's courage, or to be appalled at the unnecessary risks the company is taking.

I got the same feeling when I saw the previews of Microsoft's new tablet/PC devices, called Surface.  The pictures of them look swoopy, and I really like the idea of the flexible keyboard/cover that lets you use the tablet (sort of) like a notebook computer.  I'm also extremely intrigued by the model with a stylus (could this, at last, be the foundation for an info pad?)  Surface is giving me a serious case of technolust.

Unfortunately, we don't yet know many of the most important facts about Surface, such as what it'll cost, where it will be sold, and what it's like in long-term use.  If the answers are bad, Surface could become a curiosity on the order of the Palm Foleo (or maybe Microsoft's own Zune).  On the other hand, if everything is right, Surface could be a milestone product that helps reshape personal computing.

The one thing that's certain is that Surface is a high-risk business move for Microsoft.  For its entire history, Microsoft has avoided competing directly with its hardware licensees.  It certainly manipulated and sometimes exploited them, but it did not sell PCs against them.  Surface breaks that taboo.  It has to be putting a chill through Microsoft's licensees.  You want to share your hardware road map with your OS company, to make sure your products are coordinated with the OS.  But who's ever going to share their hardware plans with Microsoft when you know those ideas could sneak into a Microsoft device?  The licensees won't dump Windows, but they could easily reduce their investment in it.  And they might be scared away from the market for Windows tablets, the place where Microsoft is most anxious to grow.

Depending on Microsoft's manufacturing and sales plans, there's a danger that Surface could be just successful enough to damage the market for Windows 8 products without having enough impact to change the competitive situation versus iPad, Android, and Mac.  We don't know how many Surface devices Microsoft is making, or how they will be distributed.  The hints I've seen so far are that Surface will be available in Microsoft stores and online, but no place else.  If Surface is a hit, what happens to the rest of the PC retail channel?  Do Best Buy and its peers around the world just step aside?  And will they invest in promoting Windows 8 computers if the most popular Windows 8 device is not available to them?

Has Microsoft ordered enough Surface devices to fill the demand if it's popular?  If Microsoft has ordered a lot, maybe it'll have extra units for the Best Buys of the world.  But the more Microsoft invests in inventory, the greater the financial risk if Surface doesn't sell well.  Microsoft could be stuck with a huge inventory writedown, or might be forced to sell Surface at a very low price, spoiling the market for other Windows licensees.

I guess (and it's just a guess) that Microsoft will put the price of Surface a bit on the high side, with a fairly low sales forecast.  That would reduce the impact on licensees, and make it easier to manage inventory.  In that case, Surface becomes something like a concept car, not affordable to the average customer but encouraging licensees to do something similar (see here and here). 

Ashlee Vance at BusinessWeek pointed out that it's Microsoft's own fault that it needs a concept car (link):

"Microsoft, in many ways, helped create this mess... Along with Intel, it sucked all the profits out of the PC industry, leaving HP and Dell to rely on manufacturing companies in Taiwan for their innovative twists. The result has been the Great Stagnation."

The rumor mill says the low-end Surface device will be in the $600 range, and the high-end one around $800 (link).  That's concept car territory, in my opinion.

But even the concept car approach has risks.  If Surface doesn't sell well, will the licensees bother to copy it?  They usually want to copy best-sellers.  On the other hand, if Surface is viewed as a lustworthy product, will PC buyers delay purchases of other Windows 8 devices to wait for Surface clones?

The usual rule is never to give hardware customers a reason to wait, and Surface could do just that.

If I were a PC licensee, I'd be thinking very seriously about investing more in Android tablets.  Except that Google, to compete with its rogue licensee Amazon, just announced its own Google-branded tablet at $200.  That pricing isn't a concept car; it's more like a knife to the heart of other Android tablet makers.

Maybe that's why Microsoft feels it can get away with doing Surface; the licensees really have no place else to go.

So I end up back where I started, admiring Microsoft's courage but wondering about its strategy.  From a tech industry standpoint, it's nice to see a big company like Microsoft stirring the pot.  We need more of that.  And I admire Microsoft's willingness to change radically rather than waiting for something bad to happen to it, a la RIM.  But Microsoft is taking a huge number of risks all at once, and some of its plans feel like they were not deeply thought through.  If Microsoft screws up, it could severely wound itself in short order.

It all reminds me of something an Apple exec once told me.  He was a former Sun manager, and liked to quote the often profane strategy pronouncements of Sun executives.  One of his favorites (and forgive me if I offend) was "no brass balls, no blue chips."  In other words, if you don't have the courage to take big risks, you won't win the big payoffs.

I get the feeling that Microsoft these days is operating on the same principle.  It sounds like great advice, until you think where Sun ended up.


There's been a lot written online about the fate of Digg, one of the original "Web 2.0" poster children.  I don't have much to add regarding its current situation, but I think back to a conference I attended in 2006 called "The Future of Web Apps."  It included many of the most prominent Web 2.0 CEOs, including Kevin Rose of Digg.  Michael Arrington spoke there as well.

Rose talked about evolving Digg into a social network in which people would be connected by shared interests rather than whether they have hot photos (this was back when Facebook was just a college socialization site).  Rose's idea for Digg sounds interesting; you wonder what happened to it.

Rose also said Digg was on the road to profitability based on advertising and traffic growth.  Oh well.

But the most interesting tidbit I remember from the conference was Michael Arrington saying that Web 2.0 companies don't need a perfect revenue model.  The general attitude of everyone at the conference (not just Arrington, and I am not trying to single him out) was that if you attract an audience, you will find some way to monetize it.

In the tech industry, one of the most common mistakes is to look at a trend today and assume that it'll continue in the future.  The reality is that basic economics usually reasserts itself at some point.  For businesses, that means you need to provide real value to real customers, with a realistic way to monetize it.  And you need to figure that out pretty early in the process, or you're taking a huge risk that you'll never get the answer.

It's something to keep in mind for the hundreds of thousands of companies creating mobile apps today because it's the hot thing to do.


Rob said...

is this right?

"Except that Google, to compete with its rogue licensee Amazon, just announced its own Google-branded tablet at $200. "

My understanding was that Amazon was not a licencee; They just use the open source android, and skip on the google-branded apps.

Still a huge threat in the market, but there are important gaps like the lack of access to the standard android store.

Walt French said...

Here's a possible outcome for Surface: because Office '13 will NOT be fully touch-aware (e.g., many dialog boxes require a high-rez pointer), the X86 Surface will NOT enjoy rapid adoption, instead being a more lust-worthy version of Ultrabooks. While the use case for the ARM version will go wanting.

This will help rally the troops in Redmond, but interest will be restricted to corporate traveler types who feel they need some techno-bling. It seems unlikely to induce the OEMs to offer similar form factors, since there won't be enough demand to justify the rather modest margins under the Surface points you've SWAGged.

A critical difference is that Apple gives itself enough head start on the competition by figuring out exactly the product they want to offer, and the key elements of it. (Apps on the iPhone being the dramatic exception, I guess.) Microsoft is merely putting a lot of nice technology into a box and leaving it up to others to decide what it's good for. Surface/ARM is a particular head-scratcher for me; I guess in a couple of years there'll be enough apps that it can find a place.

Now presumably, Microsoft was speaking to its OEMs when it did that quick 180 from being totally behind Surface and the new MO, to it being a design point. I imagine that whoever runs OEM relations has discussed likely price points, and they've already started some “just in case” design approaches (in case my scenario turns out to be more pessimistic than reality). Either way, it's hard to imagine a bunch of clones, as some of us fondly remember early PC offerings.

Chuck Till said...

I've never met Heins, and I have no reason to defend his performance. I will say that it's difficult for a CEO to give a large number of lengthy interviews and never make the mistakes that Michael has called out. Having a long run as CEO without a major PR gaffe is as difficult as DiMaggio hitting in 56 consecutive games. But give RIM's current situation, every mistake is scrutinized.

Rohan Jayasekera said...

I think the era of splitting hardware and its system software is ending in the consumer market. Microsoft and Google are doing what they have to: becoming designers of integrated hardware/software just like Apple. In my blog post of December 2009 I wrote that hardware companies “are not up to the task” and need to be replaced by software and services vendors. They can still be contracted to build the hardware and to design some of it.

The tech press is fascinated by meaningless specs (how many megapixels does your smartphone need anyway?) and misses the overall user experience, which tends to be dismal when a hardware company designed it. This can be seen even in the difference between my ThinkPad laptop and my wife’s HP laptop (hey, it was a door-crasher sale): they have nearly identical specs, but the former was designed by IBM for high productivity, and the latter by HP to have as many keys as imaginable on the keyboard.

Every day I use devices with horrible user interfaces, e.g. cordless phones and ATMs, and that’s because they were designed by hardware companies. What if there were a company that sold devices with well-designed integrated hardware/software? It’s called Apple. (And Palm in its early days.) Now Microsoft and Google, which are also capable of doing good design work, are stepping up to the plate, and I couldn’t be happier. Let the hardware shakeout proceed.

greenlander said...

I'm always amazed that companies like RIM try to stick it out.

If I were the CEO, I'd say "you know what, we're so far behind on every front and there's no real hope that we'll turn it around. We're just going to lay everyone off, liquidate our inventory, and distribute the remaining cash to the shareholders in a special one-time dividend before the last person locks the door and turns out the lights."

Instead, what will happen is that RIM will release a succession of products that are a flop, continue to lose large amounts of money every quarter until it has no cash to building new inventory. The shareholders will get zero, and the court-appointed bankruptcy trustee will turn off the lights after selling off the remaining assets for pennies on the dollar for the benefit of bondholders and creditors.

I guess that perspective is why I'm not a CEO lol.

Anonymous said...

Microsoft has already said Surface will be sold via web and Microsoft retail store.

Surface is device aimed at and designed for CIO. It is the blunt the ipad invasion into their territory.

Surface Pro is aimed at Macbook Air so it will be $1000. it has i5 with USB3, mini DisplayPort, 1920x1080 on 10.6 inch screen with Office RT built-in.

Anonymous said...

"In the tech industry, one of the most common mistakes is to look at a trend today and assume that it'll continue in the future. The reality is that basic economics usually reasserts itself at some point. For businesses, that means you need to provide real value to real customers, with a realistic way to monetize it. And you need to figure that out pretty early in the process, or you're taking a huge risk that you'll never get the answer"

Well said!!