The iPad: In the middle (of nowhere)

Not even 24 hours since the announcement of the much-hyped iPad and much real and virtual ink has already been spilt. Here is my two cents. I think the iPad is aimed squarely at the center – of nowhere. I’m trying to understand the scenarios where the iPad does something that other devices we own (including Apple’s own iPod Touch and iPhone) don’t do well enough to justify the price of the iPad.  Further, I struggle to come up with scenarios where the iPad will be a complete substitute for either a laptop or a netbook or a smartphone.  And I’m forced to make a heretical statement – I’m sorry, Mr. Jobs, I think you messed up on this one. The iPad, in the final analysis is either a) an oversized and overpriced iPod Touch; or b) a Netbook/laptop substitute wannabe that is marvelous at content consumption but is nowhere as good at content creation.  Maybe Apple will conjure up a market of people who don’t own iPhones or iPods or iMacs or Netbooks or laptops, and are willing to pay a hefty price for an admittedly gorgeous browsing experience.  I’m not sure there are too many people like this left. When Apple did the iPod and the iPhone, they created truly breathrough performance, design and usability that reinvented the categories these devices participated in. But with the iPad, Apple is trying to create a new category, a much more difficult task.  There is a hole in the market between smartphones and netbooks, and it is a hole for a reason.

And then there is the TCO (Total Cost of Ownership). If I take the median hardware device (32GB) and add in the 3G coverage (without which the mobile value proposition of the iPad is seriously compromised), I am out $729. If I add the umlimited data plan from AT&T (the 250MB/month plan isn’t enough if I want to watch movies), that’s $30/month additional.  Over a 24 month period, that’s a TCO of almost $1,500. I’m sorry, Mr. Jobs, did you realize that 10% of Americans don’t have jobs? Apple is trying to make money on ALL three elements of the business – the hardware, the connectivity and the content. Amazon swallows the connectivity fees, and the iPod Touch doesn’t require a data plan.

What’s the outlook for the iPad? There will be long lines on the day it becomes available, because a million or so die-hard Apple fanatics will buy anything Apple puts out, even if it is a brick.  Seduction and lust is a powerful emotion and it will drive sales for a while. Once the early adopters have forked over their money, the rest of us will start to ask difficult and incovenient questions about the value relative to the price.  And Apple will be forced to make some drastic adjustments to the pricing and the connectivity fees. The iPad won’t be a failure, but Mr. Jobs, this is no iPhone.

Then again, as Richard Bach notes in the last page of Illusions - “everything in this book may be wrong”. And so may everything I have said. After all, Jobs is the brilliant billionare, and I’m just a modestly-paid academic!

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Last weekend, my wife made a convincing case for an interesting kitchen appliance – the Keurig Platinum Single Cup Brewing System.  The device is really innovative – it brews a single cup of coffee, tea, hot cocoa or even iced coffee in less than a minute, using “K-Cups” that you load into the machine and discard after each use.  It is easy to use, easy to clean, and looks really cool.  And you can choose from a lengthy list of branded providers of beverages. 

I was skeptical, arguing that we didn’t need yet another space-age kitchen appliance and that the TCO (Total Cost of Ownership) was very high.  But she won me over with her arguments that convenience trumps TCO and a hot cup of on-demand Joe was well worth the financial sacrifice and shelf space.  As I sip my cup of Newman’s Own Extra Bold coffee that I made on the Keurig, I must say that she was right, as usual. This machine is the greatest thing since sliced bread!  The coffee comes out piping hot, it tastes great, and the kids love the fact that they can make hot cocoa in less than a minute whenever they want. 

But what impressed me more than the device is the innovative business model that Keurig and its competitors (Tassimo and Lavazza, among others) have created.  I call it “Apple iPod/iTunes meets coffee”.  Let’s look at the similarities:

·         Like Apple, Keurig began with the premise that, while coffee makers have been around for a long time, the customer experience of making a hot, consistent and convenient cup of coffee in the home leaves a lot to be desired.  Coffee makers are difficult to clean, a hassle to operate, the coffee sits there and becomes cold and bitter, and it is difficult to figure out exactly how much coffee to put into the filter.

·         Like Apple, Keurig created a superb end-to-end customer experience consisting of an elegant hardware device, single-use “K-Cups” and a comprehensive ecosystem of “content” from 13 branded beverage manufacturers.  Further, like Apple’s proprietary AAC format, the Keurig K-Cups are not compatible with other systems.

·         Like Apple, Keurig sells the hardware for a similar price point as the iPod ($199), and content at a similar price ($0.60 per K-cup).

·         Like Apple, Keurig creates an “open yet closed” customer experience by allowing independent content providers to offer their own branded beverages, while maintaining tight control over the buying and brewing experience.

·         Like Apple, Keurig has been able to convince all beverage providers to sell the beverages at the same price.  Just as i-Tunes sells all songs at $0.99, all K-cups sell for $13.95 for a pack of 24.

·         Like Apple, Keurig has created a number of accessories, including reusable filters, milk frothers, travel cups, etc. that it sells at healthy margins.

·         Like Apple, Keurig has created a strong lock-in effect because of the investment that customers have made in its hardware and accessories.

All this allows Keurig to make a killing, first on the coffee maker and then on the K-cups.  For my household, here is the stimated CLTV (Customer Lifetime Value), assuming a 36-month horizon:

·         Coffee Maker: $199

·         Accessories: $50 (we have already spent about $30)

·         K-Cups: $6,000 ($0.60/cup x 10 cups/day x 365 days x 3 years)

That’s a CLTV about $6,150, assuming a 10% discount rate. And you thought Starbucks was an expensive habit!!

Here are the lessons to be learned from Keurig and its competitors:

·         Even a commodity category like coffee can be reinvented by focusing on creating innovative solutions and an innovative customer experience.

·         Business model innovation has far greater payoffs than product innovation

·         There’s a lot you can learn about business model innovation if you look beyond your industry

Now, I wonder why P&G and Kitchen Aid haven’t thought about creating a “personal laundry system” or a “personal dishwashing system”. This could include appliances that would accept proprietary “pods” of Tide or Cascade that would be inserted for each load, and would take the guesswork out of doing laundry or dishes.  If HP can make money from ink, Gilette from razor blades and Apple from MP3 players, what’s stopping other consumer packaged goods companies from using a similar “razor-razor blade” business model? 

Customer segmentation is probably the most important concept in marketing. But it is also one the most difficult to do well. In this post, I reflect on four key issues that marketers must address in their segmentation work:

1. Scope of segmentation – What is the appropriate scope at which segmentation studies should be conducted? Specifically, how do we reconcile the level of depth required by engineering with the breadth required by cross-business alignment?
2. Inbound versus Outbound Use of Segmentation – How do we reconcile segmentation variables that are useful for inbound product development decisions versus segmentation variables that are useful for outbound product marketing decisions?
3. Refresh Cycle and Stability of segmentation – How we ensure that segmentation remains relevant between the time the product is initially conceptualized, through development and into go-to-market? How often should we “refresh” segmentation studies to ensure that they are tracking changes in the market structure or demand?
4. Segmentation for Multiple audiences – how we approach segmentation and targeting for products that cater to multiple audiences?

1: Segmentation Scope:

The broader the scope of segmentation research, the less actionable the results are for specific business groups and products. On the other hand, the more focused the segmentation research, the less the “interoperability” and reusability of the research for other business/product contexts. If the scope is defined too broadly, you can end up with a very generic segmentation approach. At the other extreme, segmentation of a very narrowly defined audience will lead to very precise segments, but it would be of no relevance for other products/markets.

Specific questions that you need to think about related to scope:

• What are the different levels of scope at which segmentation is currently done?
• How “interoperable” are the segments/segmentation variables in segmentation studies done for different products/business groups?
• How feasible is it to “standardize” segmentation across business groups/products?
•  What is the “sweet spot” in scope between too broad and too narrow?
•  What can we learn from other companies or other industries in terms of best practices?

2: Inbound vs. Outbound Segmentation

When segmentation is done at the inbound stage to guide engineering decisions, it will emphasize variables such as:

• End-user behaviors
• End-user needs
• Usage scenarios
• Technological environment
• Desired features
• Depth and breadth of product use
• Skill level

On the other hand, when segmentation is done at the outbound stage to guide marketing decisions, it will emphasize variables such as:

• Audience
• Attitudes
• Demographics/Corpographics
• Psychographics
•  Life stage
• Media habits
• Price sensitivity
• Channel preference
• Goals and outcomes

For students of marketing, Barack Obama’s campaign is an excellent marketing case study on positioning and messaging. Here are some lessons I take away from his campaign:

Focus on pain points: Successful marketers are very clear about the customer pain points that their products or services address. Apple improved the lousy experience of buying and listening to digital music with the iPod. And then it improved the lousy experience of web browsing and gaming on mobile devices with the iPhone. So did the Obama campaign. When you sort through all the campaign pronouncements, plans and promises, Obama focused on two main pain points – people are sick of the war in Iraq and ordinary Americans are worried sick about their personal finances. At the outset, Obama defined his campaign around his opposition to the Iraq war. Then, as the financial and housing market crisis deepened, he dialed up his focus on middle-class tax relief. Those are the only two issues he focused on. These pain points were real and they were both areas where his competitor was weak.

Craft a simple message: If you ask any Obama supporter to define what Obama stands for, you will get a three word answer – “hope and change”. This is not an accident. Obama has been hammering away at this message for two years. He has had variants of this message in his stump speech for a long time. At one point, he used to say that “doing the same thing over and over again in Washington and expecting different results is the definition of insanity”. His message of hope goes back to his defining speech at the 2004 Democratic Convention, where he uttered the famous line – “there are no Red States and no Blue States – there are only the United States of America”. Even his message on tax relief was defined in terms of one simple number – “not a penny more in taxes for anyone who makes less than $250,000 a year”. Change plays well to voters who are sick of the way things are going. And hope complements change because it shows voters a vision of a better tomorrow. These were the twin pillars of Obama’s positioning. Hope and Change. Simple to understand and simple to rally around.

Stay the Course: Too often, I see politicians behave like candles in the wind, buffeted by what the focus groups and pollsters are telling them from day to day. I believe that pollsters, led by Mark Penn, were the undoing of Hillary Clinton’s campaign. She let pollsters define her in terms of what they thought voters wanted, as opposed to who she really was. The result was a lack of clarity and consistency in her positions. This in turn led to the perception that she was an opportunist who would do anything and say anything to get elected. This is a pity, because Hillary would arguably have been the best president among all the candidates. Later on in the campaign, John MCain shot himself in the foot with his ill-conceived “Maverick” move to “suspend” his campaign and parachute himself into Washington to help solve the financial markets crisis. In retrospect, this will rank as one of the “100 Dumbest Political Moves of All Time”. It made McCain look like an impulsive hothead. It was terribly presumptuous of him to believe that he could be the catalyst to seal the bailout deal. People including myself, were left wondering what McCain would do if, say, North Korea decided to launch a nuclear missile or conduct a nuclear explosion. My take – he would “Bomb, Bomb, Bomb” first and ask questions later. I think we have had one too many gun-slinging cowboys in the White House! Crisis calls for calm. That’s what we saw in Obama. As McCain was rushing off to Washington, Obama didn’t bat an eyelid. He stuck to his message and continued with his campaign as if it was business as usual. To me, this was an important turning point in the campaign because it told voters a lot about his temperament and how he would respond to a “3 A.M.” crisis.

Speak to the heart: Ultimately, I believe no election is about the issues. It is about the person. And no election is about the head. It is about the heart. That’s why Al Gore lost his bid to be president, despite being orders of magnitude more knowledgeable and intelligent than George W. Bush. And that’s why Bill Clinton and Ronald Reagan won their bids. People want to be inspired. They want to believe, even if they don’t know what exactly they are being asked to believe in! One of my cousins, who voted for McCain, was incredulous that “no Obama supporter can speak for more than 5 minutes on WHAT Obama would do as President and what this change that he talks about is really about”. But this, I pointed out to him, was exactly the point! People believed in Obama as a person. They were inspired his fresh face and his passion. Did they read his tax plan or his health care plan? How many of us can quote chapter and verse from any candidate’s plans or positions on issues? That’s politics of the head. It will always lose to the politics of the heart. Just as brands that focus on emotional value (think Mini Cooper, Apple, BlackBerry, Singapore Airlines) will always trump brands that focus on functional or economic value.

Target non-consumption: Brilliant marketers don’t just fight for a bigger share of the pie. They expand the pie by bringing new consumers into the market. When Southwest Airlines got started in the early 1970s, it did not compete against airlines. Instead, it took people out of cars and put them on planes by offering dramatically lower prices and point-to-point short haul service. Obama did something similar. While most politicians worry about “energizing the base” (remember the angst that McCain felt at not being able to energize his conservative base). Obama went beyond this and successfully expanded his base. In particular, he focused on two segments who were less engaged with the political process – young voters and African American voters. By inspiring these two segments through the message of hope and change, Obama brought millions of new voters into the political process. And these new voters supported him overwhelmingly. Just look at the candidates’ share of voters by age in Florida, and you can see how Obama won the elusive state.

In summary, most people believe that Obama is a brilliant politician. But to me, Barack Obama is a brilliant marketer. His historic campaign embodied many best practices in marketing. Of course, now we will find out if he can really deliver the goods!

I gave a keynote last week at the Teradata User Group Conference in Las Vegas. The subject was “Collaborative Analytics”. To me, it seems logical that two key trends – the rise of Collaboration and the interest in Analytics should come together to create the concept of Collaborative Analytics. I define Collaborative Analytics as a process where inter-organizational teams organize, analyze and interpret federated customer and operations data to make better joint business decisions.

In this presentation, I first talk about the importance of Collaboration, and the rise of the Collaborative Enterprise. The Collaborative Enterprise consists of Collaborative Business Processes, which are inter-enterprise processes that need to be designed and optimized at the Business Network level, not at the level of the enterprise. Next, I discuss the concept of Collaborative Analytics, which is analytics for the Collaborative Enterprise. I point out the promise and potential of Collaborative Analytics, and discuss the challenges in implementation. I also offer a 5-step process for putting Collaborative Analytics to work.

The presentation can be viewed here:

Collaborative Analytics