The Two Most Dangerous Words in Technology Marketing

"Just wait."

So powerful.  So easy to say.  So appealing when your current products are behind the curve, and the press and analysts are beating you up about it.  You can shut up the critics instantly if you just drop a few hints about the next generation product that's now in the labs.

So dangerous.

The phrase "just wait" ought to be locked behind glass in the marketing department, like a fire extinguisher, with a sign that says, "Break glass only in emergency."  And then you hide the hammer someplace where no one can find it.

Saying "just wait" is dangerous because it invites customers to stop buying your current products.  You're basically advertising against yourself.  If your company is under financial or competitive stress, the risk is even greater because people are already questioning your viability.

This danger is especially potent in the tech industry (as opposed to carpeting or detergent) because tech customers worship newness, and they use the Internet aggressively to spread information.  One vague hint at a conference in Japan can turn into a worldwide product announcement overnight.

 This danger has been well understood in the tech industry dating at least back to 1983, when portable computing pioneer Adam Osborne supposedly helped destroy his PC company by pre-announcing a new generation of computers before they were ready to ship (link). Palm reinforced the lesson in 2000 by pre-announcing the m500 handheld line and stalling current sales (link).

But maybe memories have faded, because we've been hearing "just wait" a lot lately:

--Nokia announced that it's switching its software to Windows Phone, and promised new devices based on the OS by this fall.  Nokia executives have hammered that message over and over, even making detailed promises about features including ease of use, battery life, imaging, voice commands, cloud services, and price (link).  Some execs have even told audiences that they have a prototype in their pockets, but coyly refused to show it (link).  What's the thinking here?  Does refusing to show the product somehow nullify the fact that you just told everyone not to buy what you sell today?

--In February 2011, HP pre-announced a series of new smartphones that were supposed to come out over the next year.  The most attractive-sounding one, the Pre3, was supposed to ship last.  Not only did this obsolete HP's current products, but it also overshadowed the other new products HP launched in the interim.  HP's interim smartphone sales turned out to be so bad that it killed the business before the Pre3 could even launch in the US.

--Speaking of HP, the company just announced that it will be selling its PC business because it's not doing well.  As Jean-Louis Gassee pointed out, that's like inviting customers to switch to another vendor who actually wants to be in the business (link).  That forced HP executive Todd Bradley to boost confidence by going on tour pre-announcing himself as future CEO of the theoretical spun-out company, even though HP's Board won't even meet to decide on a spinout until December (link).

--RIM announced that it's moving BlackBerry to a new operating system, which will apparently not run on its existing smartphones.  It has spent much of the last year telling people how great all the new features of the OS will be.  The company also pre-announced that it will enable Android applications to run on its future phones.  Meanwhile, market share of its current products has been dropping steadily.  The latest rumors say RIM's new phones will not be out until Q1 of 2012 (link), meaning the company has probably sabotaged its own Christmas sales for 2011.

--Microsoft announced that it's replacing Windows in about a year.  That's not necessarily a problem, since it says the new version of Windows will run on existing hardware.  But Microsoft also said it's introducing a new development platform based on HTML 5.  This set off a huge amount of teeth-gnashing among today's app developers worried that their skills are about to become obsolete (check out the excellent overview by Mary-Jo Foley here).

Why are companies doing this over and over?  Sometimes you have no choice.  For example, Nokia couldn't lay off the Symbian team without saying something about its OS plans.  However, it didn't have to be so noisy about the plans, so I think that wasn't its only motivation.

Sometimes the cause is a mismatch between the needs of a hardware business and the needs of a software business.  If you're making a software platform, you pre-announce it as early as possible to build confidence and get developers ready at launch.  But if you're selling hardware, you want to keep new stuff a secret until the day you ship.  When you mix hardware and software, you are pulled in both directions.  I think that disconnect probably affected Nokia, which is now run by a CEO who worked in software for most of his career. 

Companies also sometimes pre-announce products because it placates investors.  Wall Street analysts always ask what you're developing in the future, and executives sometimes can't resist the urge to tell them and prop up the stock price.  Ironically, this may help the stock for a quarter, but often has the long-term effect of hurting a company's value when the pre-announcement slows sales.  But each CEO always seems to believe he or she will be the one who gets away with it.  I believe investor pressure was one of the drivers when Palm pre-announced the m500, and I believe it also explains some of the pre-announcements by HP and RIM.

Sometimes internal company politics also plays a role.  An executive may pre-announce a product in the hope that the announcement will put more pressure on the development team to deliver "on time."  Or a business leader will pre-announce something to pre-empt internal competition from another group.  I've seen both of those happen at places where I worked.  Needless to say, any company that allows internal politics to drive external communication has much bigger problems than its announcements policy.

Pre-announcements also create other problems.  They educate the competition about what you're doing, and give them time to prepare a response.  This is especially dangerous if you're trying to come from behind, which is usually the situation when a company pre-announces.  So a competitor is already out-maneuvering you, and now you're giving them more notice of your plans?

But I think the worst effect of a pre-announcement is that it invalidates any signals you get from the market.  You can't actually tell if your underlying business is healthy or not.  Did HP's smartphone sales slow down because people hated its products, or because HP had invited customers to wait for the new ones?  Have BlackBerry sales been suffering because customers don't want them, or because RIM invited people not to buy?  Was the enormous drop in Nokia smartphone sales due to flaws in the products, or due to Nokia's relentless promotion of new phones that aren't yet shipping?

There's no way to tell for sure.  And so, if you're running one of those companies, you don't know whether or not you should panic -- or more to the point, what exactly you should panic about.  You have now trapped yourself in limbo, and there is no way out until your new products ship.

So, as you can guess, I am generally against pre-announcements.  But they can be very powerful, and there are a couple of special cases in which they're appropriate.


When it's safe to pre-announce

If you're entering a new business.  If you don't have any current sales to cannibalize, it's relatively safe  to pre-announce.  You're still alerting the competition, which I dislike, but at least you won't tank your current business.  Apple pre-announced the first iPhone and iPad before they shipped, but you'll notice that they've been very secretive about the follow-ons.

A variant on this is when a competitor is ahead of you in a new category and you want to slow down their momentum.  You pre-announce your own version of their product, in the hope that customers will wait to get it from you rather than buying from the competition.  This can be especially effective in enterprise markets, where IT managers tend to develop long-term buying relationships with a few vendors.  IBM used this technique relentlessly during the mainframe era, and Microsoft picked up the habit from them.

Pre-announcements are less effective against competitors in consumer markets, where people are sometimes driven by the urge to buy now.  They also don't do much in cases where it's easy to switch vendors.  For example, Google pre-announcing a web service isn't likely to stop people from using competitors to it in the interim.  A pre-announcement can intimidate venture capitalists, though, and I wonder if Google doesn't sometimes announce a direction in order to hinder a potential competitor's ability to raise money.

If there is a seamless, zero-hassle upgrade path.  If customers will be able to move easily to your new products, without obsoleting what they use today, and without big expense, a pre-announcement can be safe.  For example Apple generally pre-announces new versions of Mac OS, and it's not a major problem because currently-available Mac hardware can run the new OS.  Where RIM went wrong with its OS announcement is that its current hardware apparently can't run the new OS.  So RIM has announced the pending obsolescence of everything it sells today.

If you are messing with the mind of a competitor.  Theoretically, if you're dealing with a competitor who's very imitative, you can make them waste time and money by leaking news of future products that you don't actually plan to build.  The competitor will feel obligated to spin up a business unit to copy your phantom product, leaving less money to respond to what you're actually doing. 

When I was at Apple, we used to joke that we could waste $20 million a pop at Microsoft by seeding and then strenuously denying rumors that we were working on weird but plausible products.  Handheld game machines, anyone?  Television remote controls?  Apple today is so influential that it could manipulate entire industries by doing that, not just individual companies.

But when you do this you gradually erode your credibility with your customers. If the rumor is plausible enough to dupe a competitor, it will also dupe some customers, who will then be disappointed when you don't deliver.  Eventually you won't be able to get customers excited when you announce real products.  Look at the skepticism people often express today when Google announces a new initiative.

The most famous case in which misdirection supposedly worked was not in business but in international politics.  Some historians say that the collapse of the Soviet Union was hastened by the huge investments it made trying to keep up with Reagan Administration defense initiatives, some of which had no hope of actually working, but which still seemed plausible enough that the Soviets felt obligated to cover them. 

I'm not so sure that really caused the collapse of the Soviet Union; big economic changes are usually driven by big economic forces, not by tactics.  But more to the point, you're not Ronald Reagan, this isn't the Cold War, and if you try to pull off a fake this complicated you'll probably just confuse your customers and employees.

So unless you're entering a new market, or have a seamless low-cost upgrade path to the new product, your best bet is to grit your teeth, shut up, and next time plan better so you'll be ahead of the market instead of playing catch-up.

Allowing underwater borrowers to refinance could help

Yves Smith and Adam Levitin, for whom I have enormous respect, argue that allowing underwater borrowers to refinance their mortgages at lower rates would not help the housing market very much.  I am not so sure.

Consider a borrower with a six percent mortgage whose house is worth 80 percent of the mortgage balance.  Let's also say that it is four years into its mortgage--so it has 26 years remaining on its term.  If house prices remain flat, it will be 11 years and 9 months before the mortgage balance drops to the value of the house. 

Suppose we were to convert the mortgage to a 4.5 percent mortgage but left the mortgage payment the same.  In the first month, the amount of principal payment would increase by 2.35 fold.  The borrower would be above water in 5 years and 5 months (I have a spreadsheet with the calculations, should anyone be interested).  If house prices rise by two percent per year, the 4.5 percent borrower would be right-side up in less than four years.  Helping borrower see a light at the end of the tunnel could really make a difference (I don't see borrower in Las Vegas ever seeing that light, but not everyone is in Las Vegas).

Personally, I would rather see some principal reduction too, but allowing free refinancings on Fannie and Freddie mortgages could materially benefit the housing market.

Top 10 Least-Polluting U.S. Metros

From the Urban Land Institute:

Top 10 Least-Polluting U.S. Metros: As greenhouse gas (GHG) reduction policies

gain momentum at the federal and metropolitan levels, a new study about urban

areas’ GHG emissions levels could have implications for real estate

developers.

It is stirking that LA is among the best 10, and is not materially different from Portland and is even a little better than Boston and Seattle. To be fair, the climate here is mild in both winter and summer (while it can get hot during the day, it almost always cools into the 60s or lower at night), and this allows us to avoid cranking up furnaces and air conditioners. But Portland and Seattle have pretty mild climates, too.



One could argue (and some have), that LA has accomplished this by being anti-business, hence driving polluters--along with their jobs--to other states. This may be correct, but ultimately, everyone is going to have to control carbon emissions. Perhaps this will give LA a first mover advantage.

What does Warren Buffett know?

When I first read this morning that Warren Buffett had invested $5 billion in Bank of America, I was puzzled.  I didn't know how Buffett could figure out the costs of likely mortgage repurchases from securities issued by Countrywide/Bank of America.

I thought perhaps that Buffett had hired an army of analysts to go through the securities and figure out their value.  But Nicholas Santiago (h/t Yves Smith) has the more likely explanation:

3. Warren Buffett has made a career of investing in troubled companies for the sake of the economy. The last time he made an investment such as this one was back in 2008 with Goldman Sachs Group Inc.(NYSE:GS). It is important to remember that Goldman Sachs was bailed out by the tax payer in what was called the TARP program. Buffett knows that the U.S. taxpayer will bail him out if he is wrong and Bank of America stock does go belly up. 

[Disclosure: I own a few shares of Berkshire-Hathaway B-shares]. 

Robert E. McCormick and Robert D. Tollison on the NCAA's Subversion of the Academy

This is worth reproducing (with the kind permission of the authors) in its entirety:

Two great American institutions are about to crank up. Freshman and their older classmates will soon start returning to campuses for fall classes. Soon thereafter or about the same time, fans will fill stadiums and the 2011 college football season will begin. These two events come together almost naturally and have for over 100 years. The former may be one of the best examples anywhere of competition among universities and colleges, but the latter is surely one of the best examples of a cartel. Recent athletic resignations and firings at Ohio State, Georgia Tech, and now most recently the University of North Carolina demonstrate that the corrupting influences of the NCAA cartel on the academy have reached the highest levels of our public universities. Doubtless there are few people on earth who care less about the University of North Carolina in Chapel Hill than us (since it is a prime competitor in intercollegiate sports), but in spite of this, the time has come to stand up and be counted on the athletic scandal that has engulfed UNC-CH and so many other institutions of higher learning in our country (including Georgia Tech and Ohio State). UNC-CH is not just a university, it is regularly rated as one of the top five public universities in the United States.

What is the root of the problem here? We assert it is the enormous economic rents, or free money, that have been created by the NCAA cartel. Moreover, no college or university can be expected to withstand the ill-gotten gain that lurks underneath the NCAA banner. The NCAA is a cartel of the major athletic universities in the United States that sets wages, playing conditions, and other aspects of intercollegiate athletics. Most prominently of these is a restriction on payments to football and basketball players. These two sports create billions of dollars in local and national revenues via gate receipts, TV contracts, and ancillary merchandise, not to mention millions of dollars annually at member schools in donations by alumni and other supporters of athletic programs.

Coaches sign multi-year multi-million dollar contracts while players get tuition, room and board, and recently, only because of an important court case (White v. NCAA), some pocket money to cover the cost of living. Big chunks of these revenues also go to support other men and women athletic teams on campuses, swimming, track, golf, soccer, and the like. None of this would be possible but for the overarching cartel agreement between all of the major U.S. colleges and universities operated under the umbrella of the NCAA.

Both of us have long held, along with numerous other economists (such as Gary Becker and Robert Barro), that the NCAA’s cartel harms the market, the world, and the athletes, but now we are prepared to claim more. To wit, this crisis in athletics puts the American system of higher education at risk.

Despite our earlier disclaimer, UNC-CH is an incredible academic institution, a virtual colossus of graduate education, research, and professional education. Yet with all its storied history and social importance, the school has put its institutional credibility and brand name at risk by succumbing to the perverse incentives created by the cartel, a cartel whose primary function is to maintain a façade of amateurism on the one hand while aggressively pursuing commercial profits on the other. Never mind the morality of the arrangement. Focus instead on what this temptation has done to the University, and remember that this has been happening at lesser schools for a long time. Now that it has reached the ranks of most elite universities, it is hard to argue that any school is immune from becoming ensnared in the inevitable trap that lies in the huge gulf between amateur inputs (the lowly paid players) and professional outputs (massive TV contracts, alumni donations, and ticket prices).

Hear us clearly, we are NOT arguing to pay players. We are lamenting the diminution of the reputation of a top ranked public university and the warning signal that it sends about the dangers of the incentives created in this case. We believe in amateurism, deeply. But we believe that it should apply broadly to the coaches, the fans, and all the rest of the participants in intercollegiate sports. If amateurism is a shrine, then let us all worship it. The fans should get to see the games for nothing or nearly so (the costs of facilities and game day services). The coaches should be faculty or volunteers as they are in Little League and in local neighborhoods. It is not amateurism, but the business of intercollegiate athletics is a growing cancer bound to infect other storied American institutions of higher education.

Where does the fault lie? It lies plainly on the shoulders of the NCAA cartel. We propose that our school, Clemson, and the rest of the schools in the ACC leave the organization, sit down, take stock and decide whether the Ivy League approach is better for the ACC (no athletic scholarships) or whether the players should receive reasonable compensation. We do not take a position on the issue. Each league within the NCAA should do the same, and we doubt that they will all choose the same course. Some will go the Ivy route, others the payment route. And that is as it should be. There should NOT be one authority in control of almost all collegiate athletics in the United States. Competition is salutary, and it should prevail both on and off the field.

Cartels are a bad bargain. They raise price to consumers, reduce output and social welfare, and enrich one class of participants at the expense of another, creating envy and strife. The NCAA cartel is especially perverse because it disadvantages young people (often from challenging backgrounds) to the advantage of adults. And worse, it is morally corrupting to these same young people, compounded by the fact that it derives from the same university institutions society has charged to nurture them to adulthood.
At present, coaches, even those trying to live by the rules, daily confront moral dilemmas and choices. But the nature of the restrictions creates two sets of rules (written and unwritten), and our young college students, both the athletes and their classmates, are not being taught to play by the rules. They are being taught, “everyone cheats, we got caught, it is no big deal.” Paying under the table is okay. Having tutors write term papers is okay for athletes who are working their rear ends off to practice especially if they are good and the team is winning.

Students are being taught that ends matter, but means do not. Our educational system is built upon honor, integrity, and the search for truth as bedrocks. Yet these same foundations are washed away on a regular basis by phenomenal dollars made available by the cartel. What is a young person to believe? That it is wrong to crib on a test or plagiarize a term paper, but okay to lie to the NCAA investigator? That it is right and proper to offer a helping hand to those less fortunate or in need, but wrong to do so if they have signed an athletic scholarship? Our universities need to stand for our culture, and our culture should not be about lying, half-lying, deviousness, and cheating.  There is only one way to end cheating- resolve the conflict between amateurism and professionalism, either by making both sides professional or both sides amateur. But the current situation is unsustainable and puts institutions of higher education at risk.
We contend that the moral fiber of the university is one of its most powerful social virtues. It helps bring young people to adulthood with a care and concern that things are done correctly and on the up and up ethically.

There is a clear positive implication of our argument. Cheating teaches cheating, and it is a mistake to think that our kids will not watch what we do instead of what we say. The scandals that now infect the best universities in the land will almost surely lead to more and more academic dishonesty and disregard for the basic traditions of the academy if something does not happen to reverse course. Cheating in the athletic department begets cheating in the classroom and perhaps generally  in life. This is a prediction of our argument albeit a depressing one.

It is critical to note that we are big fans of the coexistence of athletics and academics. Our  research speaks loudly and clearly on this. We support athletics as part of university education and think the two together make for the best organizational arrangement. Our cry is NOT about athletics, but about the NCAA cartel that creates the rents and free money that shred the moral underpinnings of our home, the academy.
A la Ronald Reagan, we say tear down the wall around truth and dignity. Clemson, UNC, Georgia Tech, and all the rest should refuse the financial inducements offered by the NCAA. Return to amateur intercollegiate sports, or pay the players. Nothing less than the integrity and quality of our universities is at stake.

The passage that really hits home to me is: "Students are being taught that ends matter, but means do not. Our educational system is built upon honor, integrity, and the search for truth as bedrocks. Yet these same foundations are washed away on a regular basis by phenomenal dollars made available by the cartel. What is a young person to believe?"

Thanks, Steve

I've never even met you, but I wouldn't have my career if not for you.  So I thought this would be a good time to say thanks.

It was the Macintosh computer you championed that first drew me into developing software.  That business didn't make me rich, but it eventually got me hired by Apple.  Unfortunately, you left a year before I got to Apple, but the company's goals were still the things you preached -- do something insanely great, change the world.

I spent ten years at the company you co-founded, and it was both a great education and a fun ride.  Unfortunately, in a case of spectacularly poor judgment, I quit in early 1997, after the NeXT acquisition but before you took back control of the company.  I didn't believe you'd take over, and I lost faith in the previous management.  My only contact with you was a single meeting that you and I both attended.  I was there as an observer, so I sat in the back and said nothing.  My only impression of you was, "wow, he really doesn't wear socks."

Perhaps it's just as well that I quit.

Although I was no longer with Apple, you still played a huge role in my career.  For a time in the late 1990s, it looked like Silicon Valley was becoming a backwater in technology.  Software was dominated by Microsoft after its demolition of Netscape, AOL on the east coast was the online leader, and Dell in Texas plus the Asian companies were the leaders in PC hardware.  The Valley's leadership role was saved, I believe, by Yahoo and Google in the web world, and by Apple's resurrection in computer systems.

Other people are doing a great job of recapping all of Apple's product successes since your return, so I won't bother repeating them here.  But I want to talk about two other accomplishments that stand out to me.  The first is how you've reset the way the tech industry looks at consumer products.  Even a few years ago, most people still said that Microsoft's business model -- in which the hardware was designed separately from the software -- was the only viable way to make computing devices.  Today, everyone talks about codeveloping hardware and software, and it's because of you.

The other accomplishment that stands out to me is your creation of an organization at Apple that could turn out hit after hit, reliably and with great quality.  Most people don't appreciate how hard that is, mostly because Apple makes it look so easy.

It's because of the organization you built that I'm confident Apple will continue to do well, even as you reduce your role.  I hope your health will improve, and it would be great to see you back as CEO some day.  But that's speculation for another time. 

Right now, I just wanted to say thanks, Steve.  It was insanely great, and you did indeed change the world. 

Two cents (or maybe a nickel) on Texas.

Texas is doing well relative to the country.  Its jobs creation rate is second only to North Dakota, a state whose population is smaller than Austin's.  It has large in-migration because of jobs, and as one blogger points out, wages are rising faster in Texas than [most] other states, so one cannot credibly make the argument that its success is entirely a "race to the bottom outcome."  The fact that Texas only relies a little more than average on construction for its employment base shows that its job performance is not the result of an unsustainable housing construction boom of the Arizona, Florida, Nevada and Central California variety.

In an ideal world, we would run some regressions explaining Texas' growth, but we haven't sufficiently up-to-date data to do that.  We do know that some things matter in general for growth: climate (which I don't think even Rick Perry is claiming credit for); fraction of the population with a BA, and, if I may refer to work I did five years ago, availability of air transportation.

Texas does well in two out of three indicators: since World War II, people and jobs have moved to warmer places such as Texas, and Dallas is a hub for two airlines and Houston is a hub for one.  Texas is below average, however, in the share of adults with BAs and graduate degrees.

So why is Texas doing well?  First, it has managed to maintain its state and local government spending far better than most other states, and has not had the negative stimulus arising from massive layoffs. Over the past decade, government job growth in Texas has outpaced private sector job growth by about 2 to 1.

Second, Texas has among the most stringent consumer protection laws in finance in the country--likely arising from a long-standing Western mistrust of bankers.  As a consequents, consumers were essentially forbidden from using their homes as piggy banks.  As Mike Konczal shows, this means Texans have far less debt to pay off (it also shows how we in California are still in the soup).  So "heavy-handed" regulation helped keep Texas out of trouble.

Finally, it is simply easier to develop everything in Texas--housing, businesses, etc.  This is the one part of the conservative view of Texas that I buy--as one Los Angeles planner said to me, it takes 18 months in LA to do what it takes six weeks to do in Dallas.  LA doesn't even have by-right zoning.  It is here where I think Texas has an enormous advantage for business development over California.

That said, California has a greater share of people with BA's than Texas.  Part of the reason why may be that well-educated people, who can afford to live in a place that takes environmental protection seriously, do so.    There is actually some good reason for California's stringent environmental rules--the air quality here, while much better than it used to be, is still not good enough.  Of the ten cities with the worst air quality in the country, six are in California.  But the cities with the worst air quality outside of California are Houston and Dallas; someday voters in those cities are going to demand better.  I do think California can do a better job of protecting its environment while making business development easier, but that is the subject of another post.