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A technology company without a consumer strategy doesn't have a strategy

Posted by timboudreau on February 8, 2009 at 10:03 PM PST

I was chatting with a friend who works for RedHat today. You don't hear much about them anymore. Remember when RedHat Linux was all the rage? I've still got that self-congratulatory book with the black-and-white guy with the silly red fedora hat photoshop'd onto his head on the cover. For that matter, remember when Sun was all the rage? Maybe this is the same story...

I remember trying out some video chat software from the NetBeans office in Prague in October, 1999. My "office" was a corner of a room, and it happened that there was some space in the corner, so all of these empty workstation boxes got piled there - we'd just been acquired by Sun, and had gotten a pile of computers for the trouble.

My friend was agog - "Is that really a giant pile of SUN WORKSTATIONS behind you?!?!" (I had to say, sorry, no, just cardboard boxes - but they're somewhere around here).

But here's the critical thing - nobody would say that today. Why is that?

So, enough biting the hand that feeds me - let's go back to my friend at RedHat. I had used Linux distros since the mid 90's ( Slackware still holds a special place in my heart for the sheer simplicity of its installer and how easy it was to end up with...something that didn't work - but Gentoo is the only easy way today to put together a similarly bare-bones (no gui) linux install). But at the end of the 90s, along came RedHat. And Netscape cum Mozilla. OMG! Companies are doing open source! And if you wanted a Free OS, but wanted it to work, you were using RedHat. Everybody was using RedHat Linux. It was the Linux.

Today, I have two machines with Linux installed. My coding machine runs Ubuntu, my server machine Gentoo. Anybody I know who knows what Linux is is running Ubuntu unless they're a sysadmin, in which case they're running Gentoo. What happened?

Well, at some point, I don't actually remember when, RedHat decided that this whole business of doing a consumer OS was costing a more than it returned. The money was in the enterprise. So eventually the whole consumer OS piece of it got sort of spun off into this Fedora-somethingorother thing (don't get me started about product naming), and progressively lost steam, but who cares - because they're at warp speed on the enterprise.

Back to Sun for a moment. In the dot-com heyday of the late 90's thru 2001, everybody bought Sun hardware. I remember one of the stupidest parties I've ever been to, in early 2000, at CeBit in Hannover, Germany (Hannover is nice, but avoid CeBit like the plague unless you like getting up at 5AM to spend 3 hours to drive 5Km to an exibition hall you won't get out of until 11 at night). You had to have a special pin being handed out at the show to get in. It was a Star Trek communicator pin with the logo "Dot Com The Enterprise." I think that was the moment I knew the bubble had to burst.

So what really happened to Sun? Well, sometime a few years before I arrived, Sun was making so much money on enterprise that, well, that whole workstation business didn't make the same kind of profits. Best to get out of it. I don't know if it was MBAs trained in the mantra of "focus on your core competency", malevolence, the fact that any large organization of human beings goes insane very quickly, or just pure stupidity (one day "focus on your core competence" will be studied curiously by anthropologists as a cult-like phenomenon - ask yourself this - do you have a core competency? Just one? You're only allowed one...) "Business" as it is studied today is a soft science like literary criticism with about as much credibility as Derrida deserved with deconstrution (i.e. none). It just scientififies itself by dressing unjustifiable assumptions up in pretty numbers.

There's just one problem with that whole "core competency" disease: Those unprofitable workstations were your marketing channel. They were your way to show the world that you do good engineering - to show that to the people who would be the decision makers at all those dot-coms to-be. To think the people who are deciding to buy your stuff today will be the buyers of tomorrow - that you've got a "permanent majority" isn't even the height of hubris, it's the height of stupidity. You can't even call it self-serving behavior because it's not even that! At best it's a malignant form of laziness.

For most any company in the enterprise market, what you put into *consumers'* hands is the determinant of your future success. If consumers - particularly college students - don't know who you are, the enterprise of the future likely won't either.
The big enterprise money is a distraction par excellance. Here I am watching two companies that both made their run to the top on consumers, and then forgot about them when the big bucks started coming in. Your loss-leaders that get young people using - and loving - your technology are the decision-makers of the dot.coms of the future - you live and die by those people's decisions.

I once sat in for a week at my friend's ISP - they'd fired their support company and had a week with no coverage before the new support contractor came in. She begged and pleaded and paid me to come down to connecticut, sleep on the couch and be the tech support department for that week. I asked for big bucks, but I did it (it was hell - never again). The CEO had this huge pile of resumes for the support job. I watched him rapidly go through them, and it was amazing how fast some went into the trash. I asked him, "How do you know so fast to throw away those resumes?" He replied, "Oh, those were MCSEs (Microsoft Certified Support Engineer). This did not surprise me - a year earlier I had dinner with a friend from high school that I had not seen in years. He'd just passed his MCSE test. Over dinner he asked me this question: "So, I understand what HTTP is. And I know what HTML is. But what's 'the browser'?" Which goes to show just what technical certifications of that sort are worth - they're only useful if you're interviewing for a company large and dumb enough that the interview process is checking off formal training and qualifications, not whether you actually know anything.

One of the best examples of how to do the opposite comes from when I was in college. I wanted to take electronic music - they had all these 1960's Moog synths I wanted to play with. I got really lucky, and Everett Hafner was the guy who decided if I got in or not. My music reading skills were and are almost non-existent. So he tested me on intervals - play them - could I tell a fourth from a fifth - he actually tested what I intuitively *knew*, not my knowledge of classical music theory. And that's the ideal job interview - you don't want to find out what someone can regurgitate by memory, you want to find out how they think on their feet. That was a revelation - that there are people in the world who will look at your skills not your paper qualifications. I'd suggest that any company focused on paper qualifications is not one you want to work for. If they can't invest the time to find out who you are, they never will, and that doesn't lead to happiness.

So, back to RedHat, or my perception of what's going on there: it's sad to see the same sad story repeated. The enterprise bandwagon is very seductive. It lures you to think you're so comfortable that you're comfortable permanently. And if you're not careful, that's exactly what you'll be.

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Well, Sun has this idea of parallely keeping their legs on various technologies parallely, and a huge advertisement campaign for each of them. But then given a giant as Sun, you shouldn't expect anything less. Considering this, I don't think that Sun is really suffering from "core competency disease", I mean I keep getting mails from Sun every single day, the most recent of them preaches JavaFX as the next generation RIA helper (ha ha ha), sometime back they almost garbaged my inbox with MySQL, Glassfish and wait, wait, wait...I almost forgot their 7210 Unified Storage system(Save upto 35% campaign). What they forget is that they have only two legs.

The basic thesis that "you have to have a consumer story or you're eventually cooked" -- hmmm, this may hold true for many tech companies, but this isn't a universal law. Think Cisco: yes, they do have Linksys, but most people don't realize that they're buying Cisco when they buy Linksys...and there's essentially no crossover in their technologies, sales mechanisms,etc. Same thing with WebEx (did *you* know that Cisco owned them?). That said, RedHat and Sun and SGI just aren't that relevant because they haven't updated their strategy since Y2K. None of them had a consumer story ever (don't tell me about Nintendo...that was consumer but it wasn't SGI), yet were very successful with their techno when their strategy was working. The real phenomenon here IMHO is the Innovator's Dilemma, where ultra-cheap begets uber volume, which brings better quality and the best value for customers. While the cheap vendors get better, the established vendors in the market have no choice but to go up-market. Wall Street won't let them do anything else. But by focusing too much on the high margins of the Enterprise, the established leaders get into lower and lower unit volumes. (BTW, the same phenomenon is what caused Detroit's suicidal love-fest with SUVs and Hummers). When any PC can do a million vectors a second, how many people really need an SGI that can do 100 million? If Pixar doesn't even need SGIs or Sun boxes the way they used to, how many organizations outside of the CIA will buy high end graphics systems or 100-way SMP boxes? Not enough. In both SGI and Sun's case, I have first hand knowledge that the move to oblivion had nothing to do with MBAs or marketing consultants. It was just a natural evolution from business pressures that everyone in management felt. In miniature, RedHat fell into the same cycle. They were just software, but the almost-good-enough-and-free Linices would rob them of all the "consumer" (read: student) volume no matter what RedHat did. And, once public, they couldn't disappoint Wall Street. Up-market they had to go...

Core Competence is an interesting MBA term for "What do you do and why do you do it?" Apple's Core Competence is consumer products and giving the customer what they want. They are providing technical products that Look Good and Simple to Work. (Yes this sounds obvious though many technological companies miss many of these points.) Sun's Core Competence is its software to make the network the computer. (Note the missing parts of "Looking Good" and "Simple to Work") Microsoft's is to put its products on every piece of hardware on the planet and be the controller of the hardware everywhere. I agree that RedHat is so yesterday. If I could get off my Fedora box I would though that takes time right now and it just works. I will probably do that this next go around. Sun has a great OS, just nobody working to get it out to the customers. If you can't basically give it away to students your selling your future away. You've got to make it "wanted" and "accessible".

Jaceck: >> who in their right mind would blow $1bln on a free database? Hmm, who would blow $1bn on owning the intellectual property rights - the ownership of - something almost everyone in the world uses? I don't know, put that way, it sounds like it might be a reasonable deal. Just to be clear, this is purely my macchiavelian fantasy world, but: Remember I said "large organizations go insane quickly." One of the hallmarks of that is that the bigger the organization, the less the accountability - when something goes wrong, it's harder to pin down what, where or who. That's where "support" comes in. Now, most of that "support" is a fantasy supporting a fantasy, but nonetheless, that's how the world goes. "Support" = Someone To Sue if something goes wrong and can't be fixed fast enough for you to keep doing business. It's an insurance policy. And people will pay for insurance. Probably more than $1bn over the long haul. MySQL will pay for itself. It probably already has.

cowwoc: "except that Sun wasted too much time making Java run better under SunOS than Windows" (Gili, is that you?) You know, I've been hearing that for years. In fact, my first lesson in what really happens when you get interviewed by the press was being shocked seeing myself quoted in print saying we'd fine-tuned NetBeans to run *just* a little bit better on Solaris when I'd said no such thing and knew no such thing was true (the reason I called it a lesson was that it was also how I learned you don't ask for a correction unless you want that reporter to trash you for the rest of your life). I can imagine there may have been attempts to do that. But in ten years at Sun I've never seen any evidence of it, nor met anyone who said they did anything to achieve that. I do know that for a while there was a completely separate JVM implementation for Solaris done by a different team, and some less-than-friendly competition between them, but as far as I know they got merged in 1999 or so. I've had my share of Solaris boxes and dual-boot machines, and even done performance tuning work where I profiled on multiple OS's. The only differences I ever saw were the same you get with native apps (e.g. determining if a file is or is not a directory is a bottleneck on Windows and not on unices). Anyway, maybe that multiple-VM era is what you're referring to?

itvguy2000: I agree. If you're a company that makes hamburgers, office buildings and chainsaws, you've got an identity crisis. What I object to is the lemming-like behavior that, because getting a company to focus on its "core competence" is rewarded, this breeds more and more extreme versions of the "focus on your core competence" mantra, where "core competence" becomes "whatever makes the most profit right now regardless of the long-term consequences." It's a sad fact that the way public companies are structured rewards this sort of short-term thinking. It's natural human behavior to find something that works and then repeat and refine it - when success is rewarded, do what got that success again. But it's also why most "movements" of any sort - pick your politics or genre - end up being taken over by extremists and marginalizing themselves - repeating what worked even when it doesn't work anymore. Focus on your core competence is great when you're figuring out if you're a chainsaw, hamburger or construction company. It's deadly when you're a chip, workstation, software and server company and all of those things do support and market each other - when you destroy synergy. But once you've got "core competence" disease it's easy to end up in a wasteland where there's no competence at all (hence my reference to Derrida) - it's like selling your house a sawed-off beam at a time for firewood. My objection to basing this sort of thing purely on the balance sheet is that economics, and "business" as a discipline is just a soft-science like literary criticism. It just happens to be good at dressing itself up in numbers and putting on a scientific-looking tuxedo. The intangibles that you can't draw a straight line of cause and effect on the balance sheet with have more to do with your profitability than the tangibles you can measure. Making that fundamental error of thinking correlation equals cause + effect is the sales pitch that comes before you swan dive off a cliff. Indulging in the notion that anything you can't draw a direct line to profits on is therefore something to be cut is indulging in pure fantasy at the expense of slitting your own throat. It's giving way too much credit to way too soft a science to deserve to be called one. -Tim

Great article. I fully support "focusing" the business, but in this case the two businesses did not interfere with one another (except that Sun wasted too much time making Java run better under SunOS than Windows). You are right: one has to retain a foot in the consumer space in order to sell future enterprise software. I hope Sun recovers its footing financially in a big way.

"It's not your core competency." Right, but it just depends how you think to cover that competencies. Now it's out of question, but in the past, when there was plenty of money, a good way of expanding the business in a clever way was to buy a specialized company (and let it operate properly). Also, let's think of Apple. Two years ago making phones was not in their core competencies. It's known that I don't like the iPhone (nor Apple), but from Apple's perspective it's known to be a winning strategy. And looking back at the iPod, Apple's strategy has been a winning one when they decided to expand from the computer to the consumer (and later tech-fashion) segments. One might even say "mostly switch" in place of "expand".

Don't forget that Sun is doing the same with Java. Only that they switch their alleged core competence every few years. Desktop? Bah, enterprise was all the rage at some point in time. Then mobile, then enterprise again. PC interface support? The desktop? No, wait. That would have been to cater for ordinary bread and butter programmers - the consumer class of programmers. And sun doesn't touch consumers. No,it had to be the elitist RIA weed-doers who are now Sun's darling. Everything but consumers.

I guess you forgot to mention the fact that RedHat's market evaluation is the same as Sun's these days, even though they have far less revenue. Like it or not, their business model makes sense (i.e. money), while Sun's really does not (who in their right mind would blow $1bln on a free database???). The Register analyzed it quite nicely:

Great article, and I get your point, though your take on MBA types and "Knowing core competencies" is a bit over the top. I have worked at companies that want to be all things to all people, and that is an equally catastrophic strategy. Nothing gets done, way too much thrashing about. Imagine Sun or Red Hat making breakfast cereal, or for that matter automobile manufacturing parts. Betcha there is someone out there who can do it better. Why? It's not your core competency. Knowing what you are good at, knowing what the customer wants, and doing things well is what makes companies successful (IMO). Too narrow a focus and you miss market opportunities and are too inflexible to adapt. Too broad a focus and not much gets done. Or maybe it gets done, but not as well as it could/should due to the fact that you are trying to accomplish 20 other major initiatives at the same time. Like everything in life, itsa balance.