Market Update: UCIF Names Two to Board

Rob Enderle

I've been watching, as I'm sure many of you have, the U.S. election process closely. I was fascinated to see that, after McCain switched to nearly 100 percent negative attack ads, Obama's lead grew. Recently, McCain reversed this tactic in order to stop his slide in the polls, but the move probably came too late. Negative campaigning is the political version of FUD, or fear, uncertainty and doubt, and this got me thinking about how it can be successful tactically but create massive strategic problems. It also reminded me of the irony that IBM, during its strongest years, had a policy of not disparaging competitors. And then the concept of FUD, which came from IBM, arose when IBM slid from leadership.

 

I argue that the two things were at least partially related and suggest, with examples from IBM, Sun and Microsoft, that FUD (and negative marketing against competitors in general) not only doesn't reflect well on the company doing it, it isn't successful either. The reason this is the case is that FUD is tactical, and using it causes distrust, which erodes loyalty and results in a bigger strategic problem than the one it's attempting to solve. In short, the founders of IBM were right. Using FUD is stupid.

 

Tactical vs. Strategic

 

One of the first graduate classes I ever took started out with the professor asking, "What is the difference between a policy and a strategy and a tactical vs. a strategic plan?" Policy is internal, strategy is external, tactical is short term (typically under a year), and strategy is longer term (typically over a year). When a company changes prices to respond to a competitive threat, that is tactical. When it buys a company to address that threat, that is typically strategic. Mixing those two concepts up is one of the fastest ways I know to screw up a company.

 

IBM's Anti-FUD Rule


 

I formally studied IBM while working there to understand why it had slid from being massively dominant to almost going out of business at the end of the '80s. One of the things that jumped out at me from that work was how few of the rules set by the Watson family, who founded the company, remained by the time IBM failed.

 

There were some amazing practices and rules, which gave IBM its trustworthy image and helped create the saying "no one ever got fired for buying IBM." One of them was the enforced -- at least initially -- rule that IBM employees were never to disparage a competitor's product. I should point out that IBM largely follows that rule today, but during the '80s, this clearly was not the case.

 

The rule existed because FUD attacks tended to damage the credibility of the company making them. It is very hard to remain accurate on a competitive product, and bias is clearly evident, meaning that trust in the message by any third party will be hard to come by.

 

Still, IBM was once the most trusted company in the market and likely did block a number of challenging technologies from being successfully used against it. However, I think the very fact that it later used FUD to do this eliminated that trust over time and Microsoft, a vastly smaller company, rolled right over IBM's defenses.

 

Sun FUDs Microsoft

 

One of my most vivid Sun memories was going to an event where Scott McNealy (then CEO of Sun) was supposed to announce a major initiative with Ray Norda, the founder of Novell. Norda, who was far from his peak at that time, was up on stage, expecting to have his friend McNealy back his effort. Instead, McNealy used the opportunity to disparage Microsoft with his stale litany of "hairball" sayings. Norda looked like a deer caught in the headlights, and much of the value of the announcement was lost in the competitive rhetoric.

 

This kind of behavior was a signature of McNealy's and Sun's marketing efforts during Sun's decline and, I think, substantially helped it along. In meeting with IT buyers at the time, they generally commented that while Sun and McNealy were very good at bringing up concerns they hadn't thought of with regard to Microsoft, Sun rarely spoke about their advantages and, as Microsoft gained share, increasingly looked inept. Sun clearly did Microsoft a great deal of damage but, by not focusing more on what it was bringing to the table, lost substantial business to a broad variety of competitors, including Microsoft.

 

If the goal of a company is to increase financial performance, then attacking Microsoft in a way that harms that financial performance is counter strategic, regardless of how much damage it did to Microsoft. Tactically, it got Sun great press, but strategically it was part of what, in hindsight, appeared to be a going-out-of-business strategy.

 

Microsoft FUDs Linux

 

Initially, Microsoft's FUD attack on Linux and open source was impressive in its scope and funding. From the top executive on down, it came at both with guns blazing, pointing out the risks of everything from the code to the license and implying expensive litigation and security problems could result. By any measure, given Microsoft's scope and funding compared to what the Linux providers had, this should have rendered Linux to the junk pile. But it didn't. In fact, it was like pouring gasoline onto a fire to put it out. The harder Microsoft attacked, the brighter Linux burned, gaining significant momentum and market penetration in the process.

 

This speaks to one of the aspects of FUD: For the message to be successfully delivered, there has to initially be some strong trust in place. Microsoft was not trusted. Linux specifically, and open source in general, were grassroots offerings supported directly by the very people who wanted to use them. Linux's foundation was steeped in trust. By attacking in this fashion, Microsoft made itself less trusted and did nothing but promote the competing offerings.

 

Conversely, with Microsoft embracing the concepts of open source and focusing more on its own advantages, Linux growth has slowed. It actually represents much less of a risk today to Microsoft than it did at the height of Microsoft's attacks.

 

Where FUD Works and What It Costs

 

Where FUD can work is right before a decision is to be made, but only if it is used by the entrenched and/or trusted party. Change represents risk and an entrenched vendor can use FUD at the last moment, as part of a weapon against competitive encroachment, and successfully block a competitive sale. But, and particularly in this Internet age, people will likely find out that they were tricked, which should assure that the vendor will certainly be displaced on the next cycle and will find their engagement much less profitable because the buyer will be questioning much of what the vendor is doing.

 

The cost, therefore, of FUD is trust, which is directly connected to customer loyalty. I think one of the reasons the current U.S. administration has been so unsuccessful is that it gained office largely on FUD; the resulting mistrust corrupted everything it tried to do. Looking at the performance of McCain and Obama, what has happened is people have lost faith in the Republican party and simply don't trust it. Now this is catapulting Obama into the presidency with what appears to be a very powerful lead.

 

In the end, whether it is products or elections, FUD isn't a successful path if you truly want to build a relationship and enjoy strategic success. You can use it to close the deal, but it may cost you the customer in the end. To me, that is too great a cost; trust is vastly more valuable than short-term revenue.



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