William H Davidow is known today as a successful venture capitalist, but in the 70’s he was the Stanford professor who was recruited by Intel, where he became senior vice president of marketing and sales. In 1986, he summed up his experiences in Marketing High Technology : An Insider’s View. It’s a book that has stood the test of time.
The tech sector was slow in picking up the central tenants of marketing. Intel was one of the pioneers and really only because it was pushed into a corner. When Davidow arrived, Intel’s devices were outperformed by those from the rivals DEC and Motorola. Its engineers would never have been able to come up with better technology fast enough to save the company.
Davidow noticed, however, that while Intel’s strategy was geared towards selling thousands of units a year to large corporations, their actual customers were small outfits that would buy batches of fifty processors at a time. It turned out the needs of these customers extended far beyond the hardware. In fact, they were happy paying a premium even for devices which couldn’t compete on specification, as long as they got reliable help with their major pain point, which was all to do with troubleshooting the integration of hardware and software.
So Davidow launched “Operation Crush”, a massive customer training campaign that established Intel as a leader; anyone who bought one of its processor was now also assured access to the best support and training on the market. The success meant that Intel became one of the first tech companies to start defining a full product as device + world class service. Operation Crush was all the difference between bankruptcy and building what would turn into one of the most valuable companies in the world. Davidow:
“The campaign began as an intellectual exercise. We first had to understand the market segments and why we were losing or winning in each of them. We did not ask engineering to do anything different; that would have taken too much time. Time was the one thing we didn’t have. So instead, we simply took the devices we had, adding Intel’s credibility and future direction, and then “dynamically repositioned” the product line (as Regis McKenna would say) as a complete solution. Marketing took what it had and created a “new” product line that customers believed they needed.
All the key ingredients – the organization, the products, the people – had been there before Crush. The difference was that with Crush we stopped cowering at the competition and started believing in ourselves. As we regained our confidence, Intel exhibited hope rather than despair. The market sensed that change, and soon our customers were cheering on Intel’s counterattack.
It took me years before I discovered that selling the best, the weakest, and the most troubled products all followed a remarkably similar pattern. Ultimately I came to understand I was not managing or championing products but *crusading* for them, as well as for the customers interest. The product itself was important, as was the overall marketing strategy, but in the end it was dedication to the product and commitment to the customer that made the difference.”
The second point Davidow makes is evident in the moniker of his operations, the aim of which was to CRUSH the competition.
It seems that both he and the rest of management at Intel were strongly influenced here by a paper from Boston Consulting Group which had been published in 1968. The article, titled Perspectives on Experience, argues that the costs of any business will fall by 30 percent for every doubling of its revenue, and that consequently companies with more than 30 percent market share in a particular segment is practically always profitable while those with less than 15 almost never are. Davidow sees marketing as “civilised warfare” and segmentation as one of its “most discussed and least understood concepts”.
The core of how most companies get segmentation wrong is how they end up gaining moderate traction in multiple different segments. This creates the illusion of success but a position that is impossible to defend in the long run, and explains promising but ultimately disappointing flash-in-the-pans like Atari and Lotus.
In contrast, once a company has become the leader of its segment – like Intel had under Davidow – it gets increasingly hard for competitors to enter and once the cost of market entry equals that of potential profit, it’s practically impossible.
This dynamic is evidenced by the vast graveyard of brave newcomers that tried to challenge Intel’s supremacy. The fact that their products were often slightly better simply wasn’t enough. Davidow again:
“Segmentation lets David slay Goliath, focusing on a segment means a leaner tighter product family, which means reduced R&D-costs. […] The only good way to secure a segment is to get there first; head on assault on an entrenched competitor is often suicidal.”
Davidow’s third point is perhaps the most surprising. He observes how time and time again, great technological breakthroughs are nearly sabotaged by marketing people.
It was the marketing department which tried to stop the brilliant engineer Ted Hoff from inventing the microprocessor, a device they saw no need for on the market at that time (the inspiration for which was Hoff’s irritation at customers for “trying to solve the wrong problem“).
The same story was repeated almost exactly at General Electrics when the transistor was invented, but kept from being launched. And again at Xerox, which nearly didn’t commercialise the Haloid-patent that was fundamental to the modern copying machine, again because the marketing department didn’t see a large enough demand.
Davidow might very well have been ‘head of sales and marketing’, but deep down never lost his roots in engineering and seem to agree fully with his friend Dave Packard, whom he quotes saying that “marketing is too important to be left to the marketing department”. In Davidow’s own words:
“The great promotional campaigns are always outgrowths of what already exists. […] Great devices are invented in the laboratory, great products are developed in the marketing department. When a device is properly augmented so that it can be easily sold and used by a customer it becomes a product. The cost of developing a complete product is often many times the cost of developing the device. A great deal of technical creativity goes into developing new devices. Far too little energy is expended on inventing complete products. The latter requires marketing innovation. A frequent mistake is to underestimate the degree of completeness required by the market.”
So to sum up, here are my three main take-aways:
- A product is what you get when you combine a device and service
- The purpose of marketing is to dominate a segment.
- Marketing people should stay out of the way of engineers.