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Fortune Magazine Issue: June 22, 1998
Secrets of the New Brand Builders
AOL, Yahoo, Palm Computing--a few innovative infotech stars have built powerhouse consumer brands in very little time. You may be able to follow their lead.
In the early '90s Intel faced a dilemma. Computer users showed little willingness to upgrade to its latest chip, and Intel's older chips faced fierce competition. The company's response: the multiyear, multibillion-dollar Intel Inside brand marketing campaign. Some still question whether customers care what brand of chip sits inside their computer, but they shouldn't: In 1996, 80% of home computer buyers were aware of Intel as a microprocessor supplier, up from only 20% in 1992, and a majority said they preferred Intel chips. Over the past ten years Intel has delivered blowout financial performance, generating 36% average annual returns to shareholders.
Despite Intel's stunningly lucrative strategy, most Silicon Valley whiz kids have clung to the belief that breakthrough technology sells itself. No way. In fact, not only does brand matter in infotech, but it probably matters more than in traditional consumer-products businesses. With 50 to 60 software companies sprouting each month, "the starting line is so crowded that startups need to claim victory on day one," says Ann Winblad, founding partner of Hummer Winblad Venture Partners. Branding helps companies survive long enough to secure a market foothold. Once that happens, argues W. Brian Arthur, an economist at the Santa Fe Institute, knowledge-based companies that gain market share are likely to continue doing so. Why? Consider software: The larger the network of people and companies using a particular kind, the more attractive it becomes to prospective users seeking broad compatibility. In addition, users who have invested the time to learn to use a piece of software are unlikely to switch to a competitor's product.
Maturing technology companies with product lines that are fast becoming commodities, like Sun Microsystems, are realizing that branding helps them too. Branding has already transformed a host of consumer commodities--chicken, fruit, beef. Now that many types of computer hardware are becoming commodities, manufacturers of products like Intel's microprocessors realize that a strong brand helps retain a loyal following, even as they introduce new generations of products. Just as important, a strong brand boosts a company's credibility when it announces plans to launch a new technology or enter a new market, something Microsoft's online service, MSN, benefited from, at least initially. And as technology becomes more complex, trusted brands enable customers who aren't IT officers to short-circuit an often baffling buying decision. Remember "No one ever got fired for buying IBM"? That's the mindset many infotech outfits are striving to create, and a few--like Microsoft and Hewlett-Packard--are achieving.
A handful of technology companies, such as Yahoo, AOL, and Palm Computing, are brand-building trailblazers, becoming household names seemingly overnight. More than half of U.S. households are familiar with AOL, and 42% know of Yahoo, reports NFO Research. PalmPilot, the electronic personal organizer, took only 18 months to sell a million units, surpassing even the Sony Walkman.
How did these corporate kids achieve levels of brand recognition that would make Procter & Gamble envious? Well, not the way P&G does it. These companies have built strong, flexible brands quickly and cheaply by looking beyond advertising, the mainstay of consumer-products companies, and pioneering less conventional marketing approaches. It's not that technology companies don't advertise. Far from it: Their spending on advertising has grown from $600 million to more than $2 billion in the past five years, says Competitive Media Reporting. Even formerly invisible tech players such as Seagate and Network Associates are trying to familiarize consumers with their brand. But advertising is just one element in a bag of creative brand-building tricks.
Brand-building trick No. 1: Give away the farm. Distributing free samples--of everything from laundry detergent to magazines--is nothing new, but technology companies have taken the tactic to previously unimagined levels, handing out valuable services and intellectual property. The objective is to build a big affinity group fast. Sound like a money-losing proposition? Quips Sun's vice president of worldwide marketing, Anil Gadre: "You know what URL stands for, don't you? Ubiquity first, Revenues Later."
America Online is the Godzilla of giveaways. For several years AOL has been blanketing the country with diskettes and now CD-ROMs offering consumers a one-month free trial. Why did AOL pursue this campaign with such zeal? Because it's tough to describe the benefits of an on-line service to novices; AOL believes the best approach is to let them try it.
AOL diskettes have found their way into consumers' hands through often surprising channels. They've been stashed inside boxes of Rice Chex cereal, United Airlines in-flight meals, and packages of Omaha Steaks. Most recently AOL has put its free-trial software on hit-music CDs from artists such as Celine Dion and Sarah McLachlan. Music fans can pop the CDs into their stereo and listen to their favorite tunes or into their computer's CD-ROM drive and give AOL a whirl.
3Com's Palm Computing, manufacturers of the PalmPilot, applied the giveaway principle with a twist: At Demo, a smallish conference attended by the who's who of the technology world, it launched the devices after a ten-minute demonstration by offering them at half price to the roughly 600 people at the show. Half went for it, and so the buzz began. In the past 2 1/2 years, the company has handed out the devices at 20 other such conferences. Most of the influential executives who attended opted to buy them, says Ed Colligan, vice president of marketing.
But what good is a giveaway if nobody knows about it? Hence:
Brand-building trick No. 2: Conduct public relations like a war. The best technology brand builders recognize that customers increasingly value information from objective third-party sources. Among their public relations innovations: guerrilla marketing stunts, lobbying around industry issues, and celebrity marketing of company founders--such as Yahoo's youthful and now famous duo, Jerry Yang and David Filo.
Sun has built the visibility of Java--its flagship software platform--within the corporate community almost entirely through public relations. In addition to doing all the usual PR stuff, such as sending the big guns out on speaking tours and making high-profile announcements every time a licensing agreement is signed, the Java marketing team launched an intense guerrilla marketing effort aimed largely at--who else?--Microsoft, its nemesis. "Think of it as a military operation," says John Loiacono, Sun's vice president of brand marketing.
Consider the marketing of Java Beans, a Sun technology that lets developers create reusable pieces of code--miniapplications of sorts, like Lego building blocks. After Microsoft developed a competing technology, Sun learned when and where Microsoft planned to introduce it. The day before Microsoft's announcement, Sun mailed bags of coffee beans to reporters with a note saying "Why is Microsoft so jittery?" and inviting them to attend a Sun training seminar on Java Beans at a hotel adjacent to where Microsoft was holding a developers conference and making its announcement. Sun claims the tactic was a home run: It attracted over 250 people and planted seeds of doubt in reporters' minds about the Microsoft technology while pumping up Sun's, naturally.
Amazon.com is like Sun in that it's challenging the dominance of its industry's behemoths. It is the leading online bookseller and the most visited shopping site on the Internet. But most of Amazon.com's marketing success can be attributed to:
Brand-building trick No. 3: Work the Web. The Internet has spawned a host of new ways to reach consumers, the foremost being online advertising, predicted by Forrester Research to exceed $4 billion by 2000. But Amazon.com uses the Web to far greater advantage: It has pioneered the cyberspace equivalent of franchising and is becoming the master of one-to-one marketing. The company isn't earning any profits yet, but that's largely because it's spending so much on brand-building--a shrewd thing to do, if AOL is any guide.
To build brand identity, the bookseller strives to make every customer interaction highly personal, the antithesis of the anonymous strip-mall experience. When a customer logs on to the site, he is welcomed by name and is offered a list of recommended books based on previous purchases. Through a service called BookMatcher, Amazon.com asks customers to rate ten books. The ratings enable it to further determine readers' preferences and to suggest additional titles they might like. The site also alerts customers to new arrivals by their favorite authors. All of this adds up to relationship marketing that land-based retailers can only dream about. The payoff for Amazon.com: Customer accounts jumped 50% in the first quarter, and repeat customers accounted for 60% of all orders.
Amazon.com happened on the concept of digital franchising a couple of years ago, when an Amazon.com customer asked if she could link book recommendations on her Website to Amazon.com. Sure, said the company, which began to offer the same arrangement to other sites. Now Amazon.com will set up a link to any Website--including your personal one--free, and will pay so-called Associates 5% to 15% of any revenue they generate. The Associates franchising program now encompasses more than 40,000 sites, making Amazon.com virtually ubiquitous on the Internet. Other cyber-retailers--such as CDNow and Cybermeals--are rapidly replicating the Associates model.
Brand-building trick No. 4: Make it funny. In their marketing, technology companies often try to capture the irreverence and freewheeling spirit of the Web and of their own workers. For the 1996 Internet World trade show, for example, the Java marketing staff published an entire comic book for software developers that featured Duke, the Java mascot that looks part penguin, part tooth, battling to "keep the Internet safe for everyone." Java marketing director George Paolini observes, "If anything, Sun as a corporate culture errs on the side of humor." Sun believes that gives it a public relations leg up over Microsoft. Referring to a recent incident in Brussels when a prankster pegged Bill Gates in the face with a pie before Gates was to deliver a speech, Paolini says, "That was a lost opportunity. He could have had so much fun with that."
As fast as these innovative companies have built their brand recognition, they haven't repealed an ancient law of marketing: Brands with staying power aren't built overnight. Becoming a Coke or a Disney requires decades of sustained effort and investment. That raises an important question: Will highflying infotech companies, which can soar or crash in months, have the patience to stick with their brand-building campaigns for the long haul? The smart ones will. In a business in which every product and service becomes obsolete in no time, a strong brand is one of the few things they'll have to hold on to. |
