“Specsmanship”: Missing the Point of a “Complete Product”

The Definition of “Specsmanship”

Wikipedia defines Specsmanship as the inappropriate use of specifications or measurement results to establish the putative superiority of one entity over another, generally when no such superiority exists. It is commonly found in high fidelity audio equipment, automobiles and other apparatus where uneducated users identify some numerical value upon which to base their pride or derision, whether or not it is relevant to the actual use of the device. Smartphones and the early microprocessor market are also examples.

Two Specsmanship Case Studies

Most recently, we are seeing specsmanship in the smartphone market.  As the smartphone market has matured into 7th, 8th, 9th generations of smartphones, the differentiation among products has been reduced to smaller and smaller differences in the products : resolution of the camera, display size or alleged brightness, etc.. In earlier generations, Apple, and the Android phone manufacturers created a highly effective intangible market need to possess their latest generation phone in which features were less important. I called this market need the smartphone “Star Wars” phenomenon causing people to line up around the block as if to see the latest Star Wars film.  Most market analysts now agree that the smartphone market frenzy has run its course. Apple’s strategy to reinvigorate the market by creating a higher price point product has predictably fallen flat. Apple’s move surprised me because the marketers at Apple seemed to miss the consumer market sentiment. Water resistance in my view was the last major device feature with a market need to protect phones from the dreaded “toilet drop.” Samsung introduced water resistance in the 5th generation Galaxy, and permanently in the Galaxy 7. I have not been motivated to buy a new phone since the Galaxy 7.

In another, more dramatic and pivotal example, my first personal experience of the specsmanship phenomenon was at Intel, during the original first generation microprocessor war: the Intel 8086 versus the Motorola 68000. Without diving too deeply into the technical specifications, the Intel 8086 on its face was technically inferior to the Motorola 68000 at a critical time when microprocessors were very new, customers had doubts, and the market was just beginning to establish a foothold in electronics design. Facing this marketing challenge, Intel’s Vice President of Marketing at that time, Bill Davidow, made a momentous decision to “differentiate” Intel and the 8086 not its specifications, but on Intel’s long-term vision for its microprocessor family of products and to focus its marketing efforts on senior management executives of its customers, not the engineers.  Davidow famously delivered a presentation to the Intel sales force, “How To Sell A Dog.” The message was to ignore the spec and concentrate on the customers higher level needs, and the security of an investment in Intel with its long-term vision to provide them with greater value and competitive advantage.

Motorola fatefully decided to concentrate its marketing strategy entirely on the superior technical specifications of the 68000, poignantly winning a small skirmish but losing the war. Intel dominates the general purpose microprocessor market to this day. The Intel versus Motorola story is definitively detailed in Bill Davidow’s now famous book, Marketing High Technology: An Insider’s View. Davidow’s book also includes numerous gems of insight into marketing. Bill’s thoughts on the barriers to a new entrant into an existing market have stuck with me over the years.

If the smartphone market is ever to revive, it needs to learn from Davidow’s lesson, ignore the specs, and concentrate on creating a higher level marketing message that meets deep customer needs.

 

Bill Davidow, former Intel Marketing Vice President

 

 

HBS Professor Ted Levitt’s Total Product Concept And Its Influence On Davidow

Though I have met with Bill Davidow many times, spent time with him, and invited him to speak with executives of an emerging technology company, I have never directly asked him about the degree to which Harvard Professor Ted Levitt’s concept of a Total Product influenced him. It does seem highly likely that it is the case.  By way of example, marketers often refer to “product differentiation.” Specsmanship is the lowest possible form of product differentiation. Creating a higher level of product value is the true essence of product differentiation. This is also the essence of Levitt’s now legendary Total Product. What is different in the Intel case is my memory of how Levitt’s Total Product model, was adapted at Intel. I will explain.

Harvard Business School Professor Ted Levitt

 

READ MORE: Levitt HBR: Marketing Success Through Differentiation of Anything

Levitt’s classic Total Product model is graphically displayed here:

In my personal view and recollection which I show here, I believe Davidow focused on the “Augmented Product,” “Expected Product” and the “Potential Product,” and avoided the “Generic Product” to win the specsmanship war with Motorola. I also distinctly remember a slightly different Intel model which is shown below.

The Intel Variation On The Ted Levitt Total Product Model

It is my recollection that we at Intel, and most likely Bill Davidow in particular, adapted the Ted Levitt model to Intel’s particular new market realities, and focused on the outer circle, “Corporate Vision” and “Product Roadmap” to win the microprocessor war. The “Engineering Deliverable” is not a product. It is only a naked engineering project deliverable. Specsmanship does not make it a product. The “Corporate Vision” and “Product Roadmap” offer greater long-term value to customers, and ultimately create a powerful brand image.

WCW III: World Chip War III

 Intel: The Missing Piece In The Epic New Global Microchip Battle

In the beginning, in the early 1970’s there were the original semiconductor companies like Intel, AMD, Motorola, and not far behind, the Japanese giants NEC, Fujitsu, and Mitsubishi. The first great Chip War was in memory chips, primarily as replacements for magnetic core memory and for the emerging new minicomputer industry. The Japanese fought World Chip War One as a nation, using the power and influence of its entire government to compete against the American companies. At the behest of the U.S. government itself, IBM bought a minority share in Intel to potentially defend Intel against any hostile bid from the Japanese.  Not long afterward, the Great Microprocessor War, World Chip War Two exploded, primarily between Intel and Motorola. Intel was the victor of World Chip War Two, primarily due to the extraordinary marketing genius of Intel Marketing VP Bill Davidow’s “Crush” campaign, not superior Intel technology. It was a huge lesson of the importance of marketing over having the “coolest technology.”  Now after something of a long hiatus, we have World Chip War Three, which is being fought over “CODECS,” and related chips which power our smartphones. Today’s news about Broadcom’s bid for Qualcomm omits the other crucial player in this new War of Titans, Intel, which has risen from earlier ignominious failures to become the third player in WCW III.

Broadcom’s Bid For Qualcomm Marks Upheaval in Chip Industry

The California-based chip maker offered made an unsolicited $105 billion takeover bid for Qualcomm

Broadcom proposed to acquire rival chip maker Qualcomm for $70 per share. PHOTO: MIKE BLAKE/REUTERS

By

Ted Greenwald

Broadcom Ltd. AVGO 1.42% made an unsolicited $105 billion takeover bid for QualcommInc., QCOM 1.15% the chip industry’s boldest bet yet that size will equal strength at a time of technological upheaval.

The approach, which would mark the biggest technology takeover ever, shows how tech companies are positioning themselves for a world where a range of chip-driven devices—from phones to cars to factory robots—are transmitting, receiving and processing evermore information. Broadcom Chief Executive Hock Tan already has used acquisitions to build the company into the fourth-biggest chip maker by market value, part of a wave of industry consolidation as profits on some chips, such as those used in personal computers, are squeezed by sluggish sales and rising costs.

A combination with Qualcomm would create a behemoth whose chips manage communications among consumer devices and appliances, phone service providers, and data centers that are becoming the workhorses in artificial intelligence.

The deal is far from certain. San Diego-based Qualcomm, which said it would consider the proposal, is expected ultimately to rebuff it on the grounds that the price isn’t high enough, especially given the significant risk that regulators would block it, according to some analysts. Under typical circumstances, unfriendly bids like this are difficult to pull off; given the sheer size and complexity of Qualcomm, this one could be especially challenging, analysts said Monday.

Broadcom’s preference is to strike a friendly deal, but if it fails to do so, it would consider nominating Qualcomm directors who may be more amenable to a transaction, a person familiar with the matter said. The nomination deadline is Dec. 8 and the annual meeting at which the director vote would take place is likely be around March.

Broadcom offered $70 a share for Qualcomm, representing a 28% premium from its closing price on Thursday—before news reports on the expected approach.

Qualcomm shares ended trading Monday up 1.2% to $62.52, while Broadcom shares were 1.4% higher at $277.52.

Mr. Tan said he has been talking with Qualcomm for over a year about a possible tie-up. “Our strategy has been consistent,” Mr. Tan said in an interview. “When a business is No. 1 in technology and No. 1 in market position, we acquire it and put it on our Broadcom platform and grow through that strategy. Qualcomm has a very large sustainable franchise that meets those criteria.”

Should the deal be completed, Broadcom would take on Qualcomm’s leadership in developing the next wave of cellular technology, known as 5G, which is expected to roll out over the coming two years. That could give Broadcom a new growth engine, as 5G is expected to dramatically accelerate the speed and responsiveness of cellular communications necessary for applications like self-driving cars.

Broadcom was formed when Avago Technologies Ltd. bought the former Broadcom in 2015 for $39 billion and kept the name, and Mr. Tan has continued growing by acquisition. The company sells a diverse line of equipment for networking and communications. Its products include chips for Wi-Fi and Bluetooth technology that connect devices that are closer together—technologies that some analysts say are likely to grow less quickly than 5G.

“People will continue to use short-proximity wireless like Wi-Fi and Bluetooth, but the growth and money is clearly in 5G,” said analyst Patrick Moorhead of Moor Insights & Strategy.

Overall, Broadcom and Qualcomm have largely complementary product lines. But the possible Broadcom takeover is likely to face intense regulatory scrutiny, given the companies’ combined scale and the fact that they are both leaders in Wi-Fi and Bluetooth technology. The companies share customers including Apple Inc., whose iPhones and iPads include components from both Qualcomm and Broadcom.

Qualcomm already has been under pressure from antitrust agencies in several jurisdictions, including the U.S. The company has paid hefty regulatory fines in China, South Korea and Taiwan.

Qualcomm was riding high as recently as a year ago after unveiling the chip industry’s largest-ever acquisition: a $39 billion proposed deal for NXP Semiconductors NV. The deal hasn’t closed yet, and Broadcom said Monday that its proposal would stand regardless of whether Qualcomm’s proposed acquisition of NXP is consummated under the current terms.

Since then, a string of hits by regulators, competitors, and customers including Apple has left the industry titan in a vulnerable position. Qualcomm’s profit in the fiscal year that ended Sept. 24 plummeted 57%, and its share price declined 18% in the 12 months through Thursday’s close compared with a 58% rise in the PHLX Semiconductor Sector Index. That was before news of Broadcom’s interest sent Qualcomm shares up nearly 13% on Friday.

Funding for the deal would come in the form of loans from a gaggle of banks, with additional cash from Silver Lake Management LLC. The private-equity firm, which already owns a stake in Broadcom, provided a commitment letter for $5 billion in convertible debt. Silver Lake said a substantial portion of that capital would come in the form of an equity investment from its Silver Lake Partners fund, with the remainder from other sources.

The equity contribution would be the single largest in the history of the firm, exceeding the roughly $1 billion it invested in the merger of Dell Inc. and EMC Corp.

Broadcom’s bid came days after the Singapore-based company announced plans to relocate its headquarters to the U.S., a move that could make it easier to pursue acquisitions of U.S. targets.

Broadcom’s earlier $5.5 billion offer to buy Brocade Communication Systems, based in San Jose, Calif., has been delayed due to a review by the Committee on Foreign Investment in the United States, which reviews international deals that raise concerns about national security.

Any deal to acquire Qualcomm would also receive close scrutiny, experts say. “Anything that has the word semiconductor in it gets rapt attention from CFIUS,” said James Lewis of the Center for Strategic and International Studies, a policy think tank. “The move to the U.S. is an effort to tamp down CFIUS concerns.”

Canadian Startup Case Study Underscores Canada’s VC Challenges

UPDATE: It is worth noting that this 2012 case study on a company in British Columbia, Mobile Data International, and its CEO Barclay Isherwood, attracted the ire of followers of Werner Erhard, prominent San Francisco New Age cult leader, with similarities to L. Ron Hubbard, founder of Scientology.  It is a lens into New Age cults at that time.  In the same way that Scientology reacts to attacks on itself. Erhard’s followers attacked this post in a frenzy of irrational hatred. 

I can only hope that this is a serious effort to reverse this national problem of short-term thinking.

I have seen the problems with Canadian investors first hand, and have the following case study to share here.

Many light years ago, I worked for a pioneering wireless data company, Mobile Data International, in Richmond, BC.   I thought this company was so promising, I came from the UK to join it.  Regrettably, the Board of Directors and the Canadian investors were more interested in making a quick profit than in building the company to potentially be the company that established itself as a global leader in wireless data.  The CEO of MDI, Barclay Isherwood, was an avid follower of California new-age guru, Werner Erhard  aka Jack Rosenberg, of erhard seminars training, better known as “est”.  Erhard’s career has been marked by allegations, controversy, and legal disputes.  Leading academics have raised serious questions about Erhard’s qualifications, his businesses, and the highly authoritarian style of his organizations.

Finding that MDI was influenced by Erhard was a supreme irony. Years before, while in university, my housemate was also infatuated with Erhard.  My housemate eventually quit university and joined “est” as one of Erhard’s trusted senior lieutenants. I got to see “est” up close and very personally. I was brow beaten by my friend, who tried to convince me how important it was to take “the training” as they called it, at a price I could not afford. I was disturbed enough from what I saw from outside the cult, that nothing altered my view that est was extremely dangerous. Since that time, Erhard has run from his critics, and reincarnated himself and “est” into a new group called “The Forum” and another group called “Landmark.”

Isherwood was spending company money to have Erhard’s people “hang out”  at MDI, and he kept his girlfriend, Evi Truu on the payroll, supposedly reporting to me, but via “pillow talk” apparently also reporting to Isherwood himself. The Board took no action, employees were asking questions among themselves, and morale was suffering.  I brought Intel’s legendary Marketing VP, Bill Davidow to MDI for a speaking engagement.  I was flabbergasted to be told that no one liked Davidow, as he was too “arrogant.”  Ironically, they got their assessment backwards: they were too arrogant to get Davidow.   The company was floated on the Toronto exchange much too early, and as a consequence, MDI was eventually sold for a relative pittance to Motorola Canada in a hostile takeover. Isherwood has tried to take credit for selling out to Motorola, but the truth is otherwise.

The investors made a modest return, but Canadian investors don’t seem to think like Silicon Valley.  In a strikingly similar startup situation in Silicon Valley, the CEO, actually an Intel sales organization alumni, had become infatuated with the alleged “supernatural powers of crystals” and his belief system became part of the company culture. The investors quickly became deeply concerned about their investment and their fiduciary duty. The question was, “How could this have happened?” and “We need to move to fix this immediately or face consequences.” My former Intel boss, Barry Cox, was brought in by the Board of Directors to fire the CEO, take drastic action and turn the company around. Obviously, nothing like this happened with MDI.

In the years since, I have seen offers in California in the hundreds of millions turned down flat, and million dollar cheques thrown back across the table.   The MDI employees were mostly laid off and MDI’s doors were eventually shuttered.  The MDI building, an excessively elegant structure that would have raised eyebrows in California, sat idle in Richmond for 20 years, until it was finally leased again as the security headquarters, ringed in barbed wire, for the 2010 Olympics.

Let’s hope that this new realization of the need to build innovation in Canada strikes a chord, and that Canada doesn’t repeat the mistakes that occurred at Mobile Data International.

http://www.techvibes.com/global/category/start-up

Canadian Startups Look to Reverse Their “Sellout” Trend

UPDATE: It is worth noting that this 2012 case study on a company in British Columbia, Mobile Data International, and its CEO Barkley Isherwood, attracted the ire of followers of Werner Erhard, prominent San Francisco New Age cult leader, with similarities to L. Ron Hubbard, founder of Scientology.  It is a lens into New Age cults at that time.  In the same way that Scientology reacts to attacks on itself. Erhard’s followers attacked this post in a frenzy of irrational hatred. 

I can only hope that this is a serious effort to reverse this national problem of short-term thinking.

I have seen the problems with Canadian investors first hand, and have the following case study to share here.

Many light years ago, I worked for a pioneering wireless data company, Mobile Data International, in Richmond, BC.   I thought this company was so promising, I came from the UK to join it.  Regrettably, the Board of Directors and the Canadian investors were more interested in making a quick profit than in building the company to potentially be the company that established itself as a global leader in wireless data.  The CEO of MDI, Barclay Isherwood, was an avid follower of California new-age guru, Werner Erhard  aka Jack Rosenberg, of erhard seminars training, better known as “est”.  Erhard’s career has been marked by allegations, controversy, and legal disputes.  Leading academics have raised serious questions about Erhard’s qualifications, his businesses, and the highly authoritarian style of his organizations.

Finding that MDI was influenced by Erhard was a supreme irony. Years before, while in university in the San Francisco Bay Area, my housemate also became infatuated with Erhard.  My housemate eventually quit university and joined “est” as one of Erhard’s trusted senior lieutenants. I got to see “est” up close and very personally. I was browbeaten by my friend, who tried to convince me how important it was to take “the training” as they called it, at a price I could not afford. I was disturbed enough by what I saw from outside the cult, that nothing altered my view that est was extremely dangerous. Since that time, Erhard has run from his critics, and reincarnated himself and “est” into a new group called “The Forum.”

Isherwood was spending company money to have Erhard’s people “hang out”  at MDI, and he kept his girlfriend, Evi Truu on the payroll, supposedly reporting to me, but via “pillow talk” apparently also reporting to Isherwood himself. The Board took no action, employees were asking questions among themselves, and morale was suffering.  I invited Intel’s legendary Marketing VP, Bill Davidow to MDI for a speaking engagement.  I was flabbergasted to be told that no one liked Davidow, as he was too “arrogant.”  Ironically, their description of Davidow was exactly backward.  The company was floated on the Toronto exchange much too early, and as a consequence, MDI was eventually sold for a relative pittance to Motorola Canada in a hostile takeover. Isherwood has tried to take credit for selling out to Motorola as if it were a victory for him, but the truth is that he snatched defeat from the jaws of victory.

The investors made a modest return, but Canadian investors don’t seem to think like Silicon Valley.  In a strikingly similar startup situation in Silicon Valley, the CEO, actually an Intel sales organization alumni, had become infatuated with the alleged “supernatural powers of crystals” and his belief system became part of the company culture. The investors quickly became deeply concerned about their investment and their fiduciary duty. The question was, “How could this have happened?” and “We need to move to fix this immediately or face consequences.” My former Intel boss, Barry Cox, was brought in by the Board of Directors to fire the CEO, take drastic action and turn the company around. Obviously, nothing like this happened with MDI.

In the years since I have also seen offers in California in the hundreds of millions turned down flat, and million dollar cheques were thrown back across the table.   The MDI employees were mostly laid off and MDI’s doors were eventually shuttered.  The MDI building, an excessively elegant structure that would have raised eyebrows in California, sat idle in Richmond for 20 years, until it was finally leased again as the security headquarters, ringed in barbed wire, for the 2010 Olympics.

Let’s hope that this new realization of the need to build innovation in Canada strikes a chord and that Canada doesn’t repeat the mistakes that occurred at Mobile Data International.

http://www.techvibes.com/global/category/start-up