Acquisitions: Don’t Forget the Vision and the Messaging!

Acquisitions in the tech industries continue unabated.  Some companies are frequent buyers and others occasional buyers.  The reasons for buying are well understood and most deals make sense on the surface.  The integration of companies being acquired is not without risk and often gets down to retaining key personal.   After the big issues are resolved; financial details, the IT system combined and the organizations merged, life goes on.   Two important areas that are often overlooked is the integration of the vision and the strategic messaging.

The vision and messaging are indeed strategic. They differentiate you from your competition, they help your sales teams, they strengthen your brand, and they are the seeds for dozens of tactical activities both internally and externally.  If this is true, which it is, why aren't they front and center during the entire acquisition process?

Questions such as these needs to be addressed during this entire process:

1.       What’s the new strategic vision and message of the combined entity?

2.       Why are the buyer’s vision and messaging more compelling?

3.       How does the buyer's new vision drive an enhanced roadmap?

By address these key issues early and throughout the acquisition process the entire process is streamlined.  Everyone involved including employees, customers, investors and the media will see that the acquisition “makes sense”.  When this occurs resistive and negative forces will abate and the odds of a long term successful acquisition will increase. 

Please contact me if you’d like assistance in this area.  

What percentage of the smart phone potential have we seen?

The smart phone is extremely powerful.  You can read mail, surf the web, read Facebook and Twitter, play games, find direction from where you currently are and thousands of other things and even make phone calls from most anywhere!   And most importantly you can store it in your shirt pocket, sorry tablets. 

That said, I’m a firm believer that we have only seen the proverbial tip of the iceberg with the potential of these devices.  I’m remiss to put a percentage, even 1%, on this potential since I’m not sure where it ends.

As we saw with the web, bandwidth drives innovation.   As soon as broadband replaced the dial up modem, which had an absolute limit of 64 Kbps, this innovation engine exploded.  With every increment of bandwidth innovations came to market that were not possible with the previous limit.  That’s why it’s important to ensure service providers never become a dumb pipe. 

Wireless has its bandwidth challenge limited by Shannon’s Law.  Yet we continue to see advances here as well.  We’ve seen 2G, 3G and now 4G/LTE.  5G is in the works.   Smaller cells, femto cells, pico cells and massive increases in Wi-Fi offload will all continue to increase the effective bandwidth available to each smart phone. 

We can only imagine what we and future generations of people will use their smart phone for.  

High-end Only STB Vendor? Is this Possible?

 It is understandable that a dominant vendor such as Cisco would be skittish when it comes to slugging it out in the low end of the settop box market.  The gross margins on these devices are much lower than a CRS-1 or ASR-9K.  (OK, big understatement) Yet, is a high-end only strategy sustainable?  Let’s look at an historical example that would argue it is not. 

In the heyday of the “IBM PC” market, as it was known, there were dozens of manufactures of PC “compatibles”.  At the same time the Win-Tel (Windows and x86 Intel) franchise was moving rapidly up market eating away at the mini-computer and UNIX server markets.  The marketing messages from the mini and server vendors was as expected; Lower performance, not purpose built, not robust, etc. etc.

Yet, large system vendors such as DEC, AT&T, Unisys and Wang felt the need to offer their own manufactured PCs and Win-Tel servers to be able to offer the total system solution.  There are numerous interesting lessons from these dynamics, but let’s focus only on the PC for now. 

At this time Dell and Compaq were thriving selling the full range of PCs and were starting to compete in the server market.  These servers were priced around $80-100K.  DEC and the other began to see the low margin PCs, especially the consumer market, as a nuisance.  DEC publically stated that they were abandoning the “low end” PC market and were going to focus only on the high-end office PC and server markets.  Sounding familiar Cisco?   What happened was the Win-Tel architecture dominated the server market and cut harshly in to the UNIX server market.  Compaq and Dell were the winners.  Why?

If you looked at the hardware components of a low end consumer PC and a Win-Tel server they used many of the same components.  Same memory chips, same processor family, same disk drive family, etc.  Compaq participated in the high volume consumer PC market with volumes measured in 10’s of millions.  In this market gross margins were 5% on a good day.  However, they were buying these common components in 10 million unit quantities from the manufacturer. 

DEC on the other hand was selling these $100K servers in the 10’s of thousands and “high end office” PCs in the low 100’s of thousands.   Therefore, they were buying these common components based on 100k unit pricing.  When Compaq sold a $100K server in 10K volumes they had component pricing in the 10 million unit range.  Thus, by participating in the low end high volume market they had a tremendous cost advantage in the lower volume higher price market segment.  In the end, Compaq bought DEC arguably for the professional service business.

Will history repeat itself in the STB market?   The “low-end” and the “high-end” STBs share many common components.  The argument that STB are commodities anyway at the HW level makes sense in the short term.  The SW equivalent of Moore's Law, i.e., SW gets better with every release, will mitigate any software advantage over time.  Regardless of a perceived short term software advantage,  in the end, since STB are roughly 50% of an SP CapEx, low price will always win. Adding the move to virtualizing the STB and the high end only STB strategy is doomed to fail. 

To discuss this please contact me at gwhelan@greywale.com

For a list of other articles and blog post please see...    www.greywale.com

  

The Settop Box: Love or Hate? Still a Missed Opportunity: Part I

The settop box (STB) has always been a critical part of the video delivery solution.  STBs enable the SP to deliver many revenue producing services including basic channel line ups, VOD, DVR, etc.   Hence, they love them.  STB are about 50% of an SP’s CapEx.  Hence, they hate them.  As everyone knew, and Cisco learned when they bought SA, there is constant downward price and margin pressure on STBs.  Vendors such as Cisco, and now Arris, along with Samsung and others have yet to change the dialog away from “speed and feeds” and “price”. 

Part of this arises from the “old days” where the STB vendor would not put engineering “pen-to-paper” until they had a signed contract for millions of units.  Armed with this contract they would then beat the living daylights out of their semiconductor suppliers.  I know; I was one of them.  I felt the large STB vendors (SA and GI) looked upon this beat down as sport.  They seemed to enjoy it.  (See “side-bar” below)

Even back then I felt the STB vendors and their SP customers were missing something.  They had a physical box the same size as the current PC that was situated, and visible, in living rooms throughout the world.  I began looking at them as a Trojan horse.

Competition among service providers and vendors has spurred many innovations in the market.  New entrants including Intel, Google and Apple as well as many startups have made forays in to this market.  Yet with all the talk of cord cutting, OTT only solutions are not enough.  Cisco’s Videoscape presented a story that was all encompassing.  Unfortunately, it was only a story.  Interactive TV and Apps on the TV continue to stutter.  Surfing the web with a 0-9, up, down, left, right remote control falls far short of a good user experience.  Social TV stutters as well.  Who wants a Facebook window taking up valuable TV screen real estate?  The industry has tried to address this in many ways.  Yet, adding single purpose boxes such as Roku, Slingbox, etc.  (All irritants to the SPs) became, among other things, a wiring nightmare for all but those consumers with structured wiring closets.

All of these problems are individually solvable and many efforts are underway to do just that.  However, I’ve yet to see anyone, SP or vendor, figure out the real solution.  I though Google had it when they bought Motorola, but was proven wrong with they sold the video part to Arris. 

In Part II, I’ll elaborate on the solution that I believe if adopted by SPs will give them an economically attractive long term solution to capture and control the home.  This solution is found at the turbulent intersection of technologies ranging from Video, Cloud, Mobile, SDN et al and addresses market and business realities, dynamics, and trends.  I don’t mean to leave you in suspense but few will read longer post since we all have ADD. 

Sign up to receive Part II or contact me at 978 992 2203 or gwhelan@verizon.net

Side Bar (OK it’s not on the side)

In one meeting at the dominant STB at the time, I had brought a senior development engineer who was pitching his new component.  This new component had features that were state-of-the-art.  The STB vendor on the other hand had some basic requirements that started with “Two Bucks”.   They had architected the box down to each component and had assigned a dollar value to each and every one.   Every time the engineer went on about some secondary feature such as spurious free dynamic range, the Director of Engineering kept saying “Two Bucks”.  After a few rounds of this I tried to change the conversation but the engineer kept pushing, what were now tertiary features.  It literally took an under the table kick and the evil eye stare to get him to stop.  The message was “give us the best for performance for two bucks”. 

CMO : Best Friends with the CIO or CTO? Both!

I recently saw an article about CMOs become more quantitative with the onslaught of “big data” and analytics.  It then suggested we watch the relationship between the CMO and the CIO.  While this is interesting it only addresses 50% of the CMO’s role.  The role of “selling what’s on the truck”. 

The other 50% should be concerned with figuring out what to put on the truck in 1 to 5 years.  In this role the CMO should be “joined at the hip” with the CTO. 

If this is true, which it is, is this role too big for one person?  Should we create a CTMO (Chief Technical Marketing Officer)?

I’d be interested in your comments.  

SDN: Nothing New Here, Move Along

SDN is a new disruptive technology with great potential to move the networking industry forward.  What’s not new is the industry forces “new disruptive technologies” face.   Here’s we are talking classic “S-Curves” and classic Gaussian market adoption as illustrated below.

The existing technology, HDN, is well establish and far along the Gaussian adoption curve.   Service providers, large enterprises and all the way to the home user have adopted IP networks.  They are well understood technically, financially and organizationally.  Each of these creates barriers to adoption.  A new technology, SDN, faces that same challenges other new technologies. 

A direct historical example was the adoption of IP within the service provider market.  TDM was well established. It  had 99.999% availability, it supported 100’s of millions of end points, it had trained organizations to support it (unions) and it generated $100 of billions in revenues.   Whether you lived in the tornado (ala Geoffery Moore) or not, it’s easy to imagine the anti-inertia throughout the organization.   The same forces exist(ed) in the Cable industry.  For years they loathed terms such as “IPTV” and “IP NGN”.  [Even though VOD was IP to the QAM.]

Business and marketing professionals at all levels of organizations need to remember this.

SDN is facing these same anti-inertia forces.  Nothing new here.  

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