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Archive for the ‘Go-to- market strategy’ Category

Electronic Arts LogoThere is a lot of emerging competition for traditional video game makers. For instance, Zynga’s estimated $10B valuation is larger than EA’s, yet the firm only has a tenth of the revenue in contrast and a possible over-dependency on Facebook. This almost sounds like the dot com era again to me. How will this story end?

This is the question that my class discussed with Peter Moore, President of EA Sports, when he visited my class on May 16, 2011.

Peter opened by saying digital is the growth driver in the gaming industry. The gaming industry is expected to grow an estimated a 5-10%* from the years 2010 to 2014; while digital gaming alone has grown at a 67% pace to $20B in just the last two years of business. It sounds great, but there is a big challenge – growth isn’t coming from a single digital source.

What is inspiring about EA’s approach to digital is that they are taking it on with enthusiasm – no heads are buried in the sand. Everyone knows that they adapt or become irrelevant. The digital transformation for EA means that they must face disruption on multiple fronts. New revenue generating business models include micro-transactions, downloadable console content, game add-ons and advertising; shifting revenue away from traditional physical disc sales. Platform proliferation dictates an expansion strategy that crosses just about anything that enables true ubiquity for the gamer; allowing them to play where and when they want.

With such a wide array of changes and challenges present, Peter doesn’t ignore the business case for making smart digital decisions across ecommerce, merchandising and device platforms. His rigor is demonstrated in the ability to deliver 30% margins as an operating business unit.

Peter Moore in John Schneider's Spring 2011 MGMT 162 Class

Peter Moore's visit to John Schneider's MGMT 162 course

With Peter’s second visit over the past year, one thing becomes evident. EA and the gaming sector are in for a wild ride. It is truly exciting to watch a large firm embrace Schumpeter’s theory of creative destruction; one that encourages the opening of new markets by tearing down traditional business models and placing emphasis on redesigning industry boundaries as new technologies introduce tremendous growth opportunities.

* Source: PwC Global Entertainment & Media Outlook 2010-2014

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Photograph: Susana Bates/Reuters

Analysts are questioning Microsoft’s $8.5 billion purchase of Skype this past week for good reason. Skype isn’t turning a net profit and Microsoft wasn’t truly in a competitive bid. This sets up the question as to what synergies can be created between these two firms that drives such a valuation. We’ve all heard about Skype’s role as a key technology across many Microsoft technologies such as Xbox and Outlook, but I think there is one focal area that takes the lead over all others – mobility.

Microsoft announced Windows Phone  7 Series at Mobile World Congress in February 2010 with the goal of re-invigorating their position in the smart phone space, one they pretty much created but have since lost. In a recent opportunity to meet Robbie Bach, Retired President of MS Entertainment & Devices, he emphasized the point that they learned that MS had made a key mistake in the past by allowing handset manufacturers and carriers to manipulate the user experience on the phones with little to no restrictions (which can be likened to the approach Android is taking today). Now Microsoft is tightening controls and limiting what modifications, if any can be made. With this new strategy and reach into both enterprise and consumer markets on a global scale, what was missing until last week?

Microsoft did not have a unique value proposition. Nothing to disrupt the space. Apple has the tightest user experience and ubiquity across devices. Android is in just about everything now. In order to thread the needle between these two heavyweights, Microsoft needs something that changes the current market trajectory which looks to be building towards a duopoly a few years out.

Let’s look at the dynamics on the buy side of the industry, specifically the carriers, as an example of what could happen next. With AT&T’s recent proposed acquisition of T-mobile, Sprint is concerned with extinction due to its relatively low market share. Until now, no carrier has been a big advocate of changing their lucrative business model by allowing highly integrated VoIP calling that negates the use of their airwaves for voice transmission. Why would Sprint or another carrier consider disrupting the industry with a low cost VoiP solution that uses MS Windows 7 and Skype? The simple reason is that that Microsoft can create cross subsidies with search advertising through Bing. Suddenly, the carrier doesn’t lose financially. The consumer wins as well with lower subscription costs. Thus, the industry is disrupted with a network effect between search advertising and VoiP.

Microsoft captures market share, perhaps just enough to be worth $8.5 billion.

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Robbie BachRobbie Bach, recently retired President of Microsoft Entertainment and Devices Division, visited my Business Capstone class at Santa Clara University on February 11, 2011. Robbie’s experience spans an array of amazing accomplishments including his role as CMO of MS Office and leading the effort to bring Windows Mobile 7 to market this past Fall.

One of the most interesting discussions was related to the introduction of the Xbox. Robbie was tapped to bring Microsoft’s first gaming console to market at a time when Sony and Nintendo dominated that space. This may be hard to remember now that Microsoft is a dominant player with approximately 25% marketshare. Having no formal experience in console gaming, Microsoft recognized the prospective power of this space with respect to fulfilling the vision of “the connected home.” Microsoft knew they needed a seat at the table.

Robbie focused on two key principles for ensuring he had the right organization in place to enable innovation and commercialization of this new product. What struck me the most was his emphasis that “a more disciplined process might have killed the project” and so he really had to strike a balance that ensured they could think like entrepreneurs, while executing manufacturing and distribution on a global scale. The following are the principles he outlined in the discussion:

Separation from the core
Robbie and his leadership team made it clear that they would not join the effort to introduce the Xbox unless they had independence from corporate headquarters. They could not operate effectively under its structure and needed the flexibility to organize the way a game manufacturer operates, rather than the way a computer software company such as Microsoft historicaly operates.

Measuring the market and then setting internal goals
The first order of business for Robbie and his staff was to run game theory simulations to understand how the industry players might react when Microsoft made its debut. By knowing the potential outcomes, he was able tailor his go-to-market strategy. This effort followed with what he called the “3/30/300 documents.” First, he had a 3 page document outline the core principles of the initiative. Second, he had a 30 page document produced that outlined the execution strategy. Finally, the team produced a 300 page document that was the detailed specification for the Xbox console.

The rest is history. Robbie successfully introduced the Xbox in only 18 months from the time he received the assignment.  As a result, he was able to gain 25% market share and build the platform for subsequent console releases.

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Hulu's logoFor Q4 2010, ComScore reported that Hulu is watched twice as much as the 5 major TV Networks online combined. Just as this report was released, my class was fortunate to have Tom Fuelling, Hulu’s CFO, visit class to talk about the video rebroadcasting industry and Hulu’s market position.

Tom opened up with Hulu’s mission statement, “To help people find and enjoy the world’s premium content when, where and how they want it.“ A mission statement focused on the end consumer of their product was definitely expected; however, he went on to say: “as we pursue our mission, we aspire to create a service that users, advertisers and content owners unabashedly love.”

What a great statement for my class to hear. At the heart of competitive strategy is an understanding of the industry forces driving profitability and what, if any, resources and capabilities a firm can cultivate to establish a leading position. Born out of industry disruption caused by the ability to distribute video over the Internet, Hulu was somewhat formed as a defensive posture by Fox and NBC to protect themselves against YouTube and other sites illegally

Tom Fuelling, Hulu's CFO

distributing their content. That being said, Hulu understands no one wins if users, advertisers and content owners don’t all obtain value out of the venture.

Hulu, under the working title “NewCo.,” was laughed at when it started out due to the poor history of major media companies working together to deal with such type of attacks.  This was epitomized by its nickname “ClownCo.” From the time Jason Kilar, the CEO, started, the goal was to release a beta product in 10 weeks. To this end, he removed the cubes, modified the refrigerator to house a beer keg, moved out of the corner office and into a room adorned with whiteboards, and wrote a 1,100 word “culture manifesto” aimed at establishing a frugal meritocracy

The rest is history. They now have 30 million users and revenue of $260 million. And that is just 36 months after starting out in Fall of 2007. Ads on Hulu are 55% more effective than the same ads on traditional channels, making a compelling case for advertisers to pay attention to them. To sum it up, TechCrunch ate its words when it released an article, “Happy birthday Hulu. I’m Glad You Guys Didn’t Suck.”

Now Hulu has new challenges. The owners no longer fear YouTube the way they used to in 2007. Consequently, ABC has now created its own iPad App ton control its own distribution, and other networks are more hesitant to concede control of their most popular content to Hulu. And then there is the success of Netflix as a competitor.

Hulu is at a crossroads so to speak. It has already moved to a hybrid advertising and subscription model. Does it now move towards a cable operator model? How will international expansion work? Does it IPO and gain independence from the major networks? Time will tell, but it sure is great having the opportunity to listen to visionaries tell their story such as Tom Fuelling did in my class on February 9, 2011.

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I recently heard a marketing executive talk about the art of persuasion. The person emphasized the need to convince customers why they need their product. For me personally, it felt as if we were trying to trick people.

Persuasion is only necessary if one or more of the following occurs:

1. Your business level strategy is unknown or there is misalignment.
2. Your products and services do not provide value.
3. Your competitive position is weakening or changing customer needs are making you irrelevant.

In sum, using persuasion is only needed if the business has failed at its primary responsibility, which is to create a relevant and sustainable value proposition in the marketplace.

Let’s banish persuasion with a shift in mindset towards a Total Customer Experience.

Want to learn more?

 Come hear my talk on November 18th at the Smart Seminar on Globalization in Santa Clara. Seating is limited for this Medialocate-sponsored event. If you are interested in attending the invitation-only seminar, please contact Ann Day at annday@medialocate.com.

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Free and Freemium go-to-market strategies are here to stay because anyone can do it and it a great way to establish a community of enthusiastic users. And if you are really savvy, you create a network effect such as eBay, Craigslist and Monster.com achieved in their respective spaces.

Freemium can come at a cost though. Customer expectations are set by the industry as a whole, not just your company. If users are used to free, it is hard to shift them to a different mindset. This is particularly true because incentives to keep the community are often very weak in these models and there are competitors at each turn waiting to introduce an innovative feature that your community can’t live without.

Aaron Leevie, the CEO and co-founder of Box.net, recently stated that he loses more deals in a sales cycle to his own company than he does to competitors because people don’t see why they should start paying. My interpretation of that statement is that you have to go to market with a clear value proposition that is supported by a business model that can achieve solvency. What’s the ROI? Watch out for companies that defer the profitability discussion until later because they just might not figure it out.

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