A few days ago, I listed three things that IT departments want from vendors. To refresh:
Trust: They want to know the vendor is focused on their interests and will do what's promised.
Security: They want their employees and executives to feel secure.
No Disruption: They don't want a new technology or service to degrade their company's productivity or increase the aggravation already focused on IT.
As I think about this, in a way, this all comes down to IT decision-makers being focused like never before on peace of mind. You'll also notice I didn't mention price, cost of ownership, or any economic metrics. While that wasn't an oversight, value does speak to why some vendors are successful and some aren't. Let's chat about that first.
Why Money Seems Unimportant
Competitive bidding goes to the core of anything sold into a medium-sized or large entity, be that government, enterprise or local business. If you can't compete on price, you can't compete. However, the almost laser-like focus on cost has had unintended consequences that have done a great deal of damage to the growth of the market.
Cost, as an absolute (and this includes cost of ownership) doesn't take into account what is sacrificed. You saw the impact of this a while back when Dell cut costs to the bone. The result was that services suffered and Dell's revenue -- and margins -- fell farther than the cost savings, dropping it not only behind HP but causing its founder to return to fix the problem.
It isn't that money isn't important. It's just not the most important. The right metric is value, and as long as buyers, be they consumers or professional buyers, see there is superior value in a product or service, they will buy it. But value, much like quality as described in one of my favorite books, Zen and the Art of Motorcycle Maintenance, is much harder to measure.
It's Value, Stupid
Value is the relation between what a buyer thinks something is worth and what they pay for it. It exists at all price points. Take a car, for instance. Recall the Yugo, arguably the least expensive car sold in the North American market. It was of incredibly low quality, and the result was that it had an unacceptable value and didn't sell well. The Mazda Miata, at least when it launched, was vastly more expensive and sold out because buyers felt they were getting a good value -- in other words, their money (more of it) was purchasing an experience that vastly exceeded the cost. In fact, buyers often paid huge premiums to get their hands on the car.
If I were to point to the difference between GM and Toyota today, I would say Toyota, while not expensive, provides vastly better value as a rule than GM does, and that is why Toyota is both larger and more profitable.
Taking this into the technology market, and comparing Dell to HP, you see what has become a similar trend. HP is using a combination of marketing, retail presence and industrial design to create a sense of better value, and the market is rewarding it with more sales.
If I were to now move to Microsoft -- at least based on the coverage -- I would say that most IT buyers do not think Vista and Office 2007 are good values. In my discussions, this is often based on the fact that they don't actually know what they pay for the product. Per unit, it is a fraction of retail pricing, but they see an aggregated bill (which often goes to the millions) and the retail price and mistakenly assume one is directly related to the other. Also, they don't seem to have a frame of reference anymore to measure what some software, like operating systems and office productivity, is worth.
Two decades ago, word processing was often done on incredibly expensive dedicated hardware, and something like Office looked incredibly cheap. No such comparison exists today and with lots of low-cost or free software on the market, the comparative measurement has flipped upside down.
This speaks to marketing, because that is where value is often established. Companies like HP, Apple and IBM have used marketing to build value, and that has driven their success. Others haven't had this focus and the results, in market, are easy to see.
Peace of Mind: The Old IBM Way
The pre-'90s IBM sold Peace of Mind. This goes to the core of the phrase "no one got fired by buying IBM" that still circulates today, but was actually true back then. Currently, I would argue that HP, Cisco and even EMC are trending to embrace this concept, though they haven't embraced the needed marketing yet to really create the IBM-like advantages in the mind of the buyer.
This concept rolls up Trust, Security, and the lack of Disruption into a relationship where the IT buyer and the technology vendor are a team working together for common goals. Where this breaks is when vendors drive initiatives that aren't closely aligned with IT needs. This puts ingredient companies like Microsoft and Intel at a strong disadvantage because they generally do not own the customer relationship and are simply not positioned well, even if that is their intent, to form the kind of partnership needed to assure Peace of Mind.
But that doesn't mean this is impossible. I've been spending a lot of time with EMC of late and I think it actually gets this better than any other vendor right now. For it to provide Peace of Mind, it has to assure that ingredient companies like Microsoft are looped into the solution on one side, and IT on the other, with it forming the bridge.
This way, it can both 1) assure the result to the technology buyer, and 2) assure that companies like Microsoft are effectively contributing to create the Peace of Mind and Value all sides want to make the engagement successful and rewarding.
With the emergence of AT&T as a powerhouse, there is certainly a chance that an all-in-one company like IBM was could emerge again to do it all better, granted at a premium price, but still superior value. Until then, it is a cooperative model coupled with strong marketing that is likely to result.
EMC, HP and Cisco currently stand out as being on that path, and not necessarily in direct competition with each other. Overall I believe, whether you are a vendor or a buyer, that cooperation going forward will be how value will be created and those that can give their customers Peace of Mind will do vastly better than those that simply focus on price.