The Origin of Brands Blog

Don’t coddle the cow. Kill the cow.

Much has been written about the failure to innovate at dominant companies like Microsoft, Coca-Cola and Procter & Gamble. These companies have little chance to innovate because innovation requires letting go, relinquishing control and potentially undermining a cash cow. Something not tolerated in corporate corridors.

Instead of developing innovative products internally, corporate behemoths tend to buy innovation. But like an absent parent who tries to make up for lost time by bringing home a box full of toys, the initial giddiness wears off quickly. After awhile, things haven’t changed and just get messy and difficult.

Why does Microsoft need to buy Yahoo? Why did Coca-Cola need to buy Vitaminwater? Why did Procter & Gamble need to buy Glide? Don’t these companies have some of the best engineers, developers and researchers on the planet?

Of course they do. But what they don’t have is marketing sense; they have only management sense. Management sense tells them to milk what they already have. Marketing sense would tell them to also invest for the future in new categories and new brands.

That is really hard to do when (a) it is so easy and sometime initially so profitable to milk your brands and (b) when you have so much cash you can buy whatever and whomever you want to buy. But is this the best way to grow? Is this the best way to run a company?

I think not. The best way to run a company is by managing your brands much like you would manage a stable of racehorses. Don’t over-train, over-race or over-fed.

Management people often confuse innovation with ideas like Oreo cake sandwiches. That is not innovation; that is a sacrilege.

Innovation usually involves abrupt change that can take years to fully realize. That is why small companies run by entrepreneurs are willing to take chances and big companies run by financial types can’t be bothered because they are more concerned with their next quarters.

Sometimes big companies can make innovation happen. Either because they are down and out and have nothing to lose. Or they get ahead of an emerging new technology and face little competition.

In the first scenario, one can point to Apple. By the end of the 1990s, its future looked bleak. Betting everything on the iPod wasn’t a threat to the cash cow, because Apple’s cash cow was bringing in very little cash. The company was free to chase the future.

In the second scenario, one can point to Orville Redenbacher, now owned by ConAgra but obviously run by entrepreneurial-types. Going from popcorn jars to microwave popcorn bags was a huge shift. Excellence in one area does not necessarily translate to excellence in the other. But the company wisely jumped on the microwave trend early and established its authenticity. Waiting could have cost them dearly.

It took many years to get there, but the future belongs to microwave. And you’d be hard-pressed to find a jar of Orville kernels at your local supermarket. Most are long gone from the shelves.

Sometimes the delineations are clear. Everybody goes from using popcorn jars to using microwave popcorn bags. Or from typewriters to computers. Or from film photography to digital photography.

Sometimes they are not. Most people still drink Coca-Cola but many people also drink Red Bull, Gatorade, Propel, Dr. Pepper and Snapple too.

Microsoft faces the same problem that Coca-Cola and Orville Redenbacher faced. Today everybody uses packaged software. Tomorrow things could be different. Today, all the money is in software packages and closed operating systems, categories that Microsoft dominates. Why would the company want to undermine that?

One motivating force for innovation is getting mad at the way things are and agitating for change. If the enemy is external, nothing charges up the troops like discussions of the enemy and its weaknesses.

But when the enemy is internal, it becomes a much more difficult game to play. It is not safe for internal marketers to offer up solutions that could be seen as hostile. That is why rational, management-type thinking usually prevails. “Let’s focus on what we’ve got, milk what we’ve got and if something else pops up, we’ll buy them.”

So Microsoft goes after Yahoo. Besides the obvious challenges of integration, people and cultures, a merger creates another problem. It creates a company without a focus.

A company without a focus is a company without an enemy. And a company without an enemy is a company without a purpose.

There comes a time when a company needs the courage to kill its own cow. Without the courage to do is, the company has no future.

Which is what happened to Western Union, Wang, Digital Equipment, Polaroid and many other once-famous companies.

Micro-Hoo!?

Micro-Hoo! Is bigger really better? It all depends.

Microsoft aims to get bigger with its unsolicited $44.6 billion takeover offer for Yahoo. Facing its own troubles, Yahoo seems to be considering the offer but hopes to up the price from the current $31 a share to something closer to $40 a share.

Will a combined Microsoft-Yahoo work? Unlikely.

And here is why:

1. Two brands. Two cultures.

Microsoft and Yahoo don’t share the same sense of style. Steve Ballmer of Microsoft and Jerry Yang of Yahoo would make awkward dinner companions, let alone business partners. For a merger or takeover to work, the companies and brands should be as similar as possible. If not, expect a mass exodus of talent from the cooler firm.

Buying YouTube worked for Google because the two brands shared a similar love of white space and embodied a similar culture of renegade youth.

2. Two losers don’t make a winner.

Putting Sears and Kmart together didn’t help either company. Because the best strategy for Kmart has little to do with the best strategy for Sears. The combination of the two companies just made things more difficult, more complicated and more expensive to manage.

Putting Microsoft and Yahoo together is likely to face similar issues. For instance, what will all the products be called? Who will sell what? How will they manage the overlap?

Microsoft tends to put its name on everything: MSN, MSNBC, Microsoft Office, Microsoft Live. The only stand outs are X-Box and Hotmail, both of which have done well in spite of operating without the Microsoft name.

What is a “Microsoft” anyway? Bill Gates would probably say something like the “future of computing.” But customers don’t think in such general terms like “quality” or “state of the art.” Consumers think in specifics. Toyota is “reliable.” Nokia is “cellphones.” The iPod is “portable music.” Starbucks is “expensive” coffee.

In the mind, Microsoft is PC operating systems and personal computer software. Microsoft Windows is the operating system running 90% of the world’s personal computers, an impressive and powerful position. One that the company seems to take for granted.

A company that owns a dominant share of a market should think about launching second and third brands. Like Toyota did with Lexus and Scion. Like Gillette did with Mach3 and Fusion.

Instead of giving the consumer a choice of operating systems, Microsoft introduced a one-size-fits-all behemoth. The latest edition of this philosophy is Vista, an overblown, overly complex, mind-boggling system that is getting some pretty bad reviews. I’m currently running Vista, so I know the pain.

3. Chasing the future by expansion.

Google took over the search-engine category through focus and simplicity. Chasing the future by expanding your brand to include every new technology rarely works.

Google didn’t beat Yahoo by launching a website with more services and features than Yahoo. Google beat Yahoo by narrowing the focus to search only. (Today, of course,
Google is going in the opposite direction. A bad move.)

Microsoft and Yahoo probably wish they could turn back the clock to simplify and strengthen their strategies. But that rarely works. It’s like pulling out your prom dress to wear to your next corporate function.

4. Not a cool place to work.

Acquiring new young talent is always a problem for an old-guard company like Microsoft. Young people are not just looking for money. They also are looking for the hot brand to work for. Where you work has a big impact on your life, your ego, even your future mate with more people finding love in the workplace.

Companies with a strong, narrowly-defined brand are better able to manage corporate cultures and attract the right talent. Southwest has been around for over 30 years but they remain a cool place to work because they have stayed focused.

A combined Microsoft-Yahoo is going to have problems starting with the fact that Micro-Hoo is not going to be a cool place to work.

Micro-Hoo? Both companies would be better off going it alone. Valentine’s Day is about finding love and a long lasting partnership. Micro-Hoo is unlikely to find either and much more likely to be the next Bennifer.