Chapter 6 Swiss Army Knife Thinking I.

Introduction - Swiss army knife thinking is very rampant - Example: Many Swiss army knife products in the market. They get a lot of publicity, they capture the publics imagination, they get bought by millions and then they wind up in the dresser drawers where they sit idle for decades . II. Interactive TV Why not combine the Internet with your television set as well as your computer? Interactive TV, Microsoft Version - 1997: bought WebTV Networks (today: MSN TV) - 1997: invested $1 billion for 11.5% of Comcast Corporation, at the time the nations fourth-largest cable operator. - Comcast -> seedbed for Mr. Gates to test his vision - 1999: Microsoft pumped $5 billion into AT&T -> AT&T is now out of the cable business, contract another convergence dead end - Ultimate TV record and store programming, pause and instant replay love, watch and record two shows at once, can send email and chat online while watching tv.

Interactive TV, AOL Version - America Online, strong supporter of convergence - 1999: company invested $1.5 billions in Hughes Electronics and got a deal to launch AOLTV on its DirecTV Sattelite Service - 2000, July: Rolled out its AOLTV Service ->$249 set-top box that allows, send instant messages, read email, chat online, surf the Web while watching. -Imagine lying on a sofa, watching program produced by Cooking Light magazine on your wall-size plasma tv. AOL Time Warner serves up a digital version of your recipe. You send the recipe to your refrigerator; it knows you need milk, which it orders online USAToday - AOLTV is now on hiatus and is no longer accepting new subscribers Interactive TV, NASCAR Version - NASCAR in car service, currently offered by Time Warner, Cox, Comcast, you can watch the races from the cockpits of seven different drivers - Young people want to interact with an entertainment medium like television. - industry pundits cite the succes of video games like NASCAR Thunder. (more money is spent on interactive medium of video games than on the passive motion pictures.) - young people doesnt necessarily want to combine television with telephone and internet just because they might be using several devices at once. You pay a price when you try to put things together. And the price is usually the sacrifice of simplicity, flexibility and ease of use.

Interactive TV, ABC Version - Give consumers something active to do during a scheduled show -> reasoning - ABC offers simple interactive versions using two-screen approach - Celebrity Mole II: First test, January 2004 -> need a personal computer running Windows XP Media Center - A TV card within the PC captures the standard broadcast image, and the networks Web site supplies the additional graphics. - How many viewers are going to bother booting up their PCs to watch one show when its a lot easier to push the power button on the TV remote?

Interactive TV, Newsweek Version - Internet is an active medium. Television is a passive medium. - Convergence is fundamentally flawed concept, but its even worse when you try to put an active medium together with passive medium. Semi-interactive Television - doesnt done well at the box office. - 1999: TiVo and ReplayTV - personal video recorder - Reality is usually somewhere in between. Theres a market for convergence concepts even though they may be out of the mainstream and not represent a trend, which is almost always in the direction of divergence. - What makes convergence successful is the concepts ability to generate massive amounts of publicity. - No convergence product, no matter how trivial is announced without a blaze of favorable PR.

III. Interactive Telephones - iMode: Introduced by NTT DoCoMo in Japan - iMode service: can swap notes. buy tickets, and download tunes -- In principle you can use an iMode phone to look at internet sites, but you will only see a portion of it. - Two kinds of internet: Traditional internet sites and truncated iMode -type sites IV. Smart Phones - latest example of Swiss Army knife thinking - combines PDA or handheld computer with a cellphone with internet access plus digital cameras - How about simplicity, reliability, convenience, low cost, ease of use, small size, light weight and protection against obsolescence? V. Migration Problem - if convergence technology is going to take hold, it must attract users from pool of available prospects

- Two groups of prospects: early adopters and prospects who dont own either a cellphone or a PDA (lower-income, unsophisticated people) -- early adopters - who likes to have the latest , most up-to-date cellphone or PDA. - Example: A dvd player is useless without television set or monitor. You might expect that people would buy a combination TV/DVD player rather than individual units, but they dont. Most people come into Best Buy or CIrcuit City to buy either a replacement TV set or a replacement DVD player. VI. Camera Phones - Convenience is a powerful motivating factor which can assure the success of some convergence products. VII. Interactive Everything Interactive automobile interactive print advertising interactive gas pumps interactive pens interactive homes interactive paper interactive pianos interactive refrigerators interactive watches interactive washing machines interactive toys interactive soda fountains interactive recliners interactive toilets interactive clothing interactive home appliances - Most of these interactive ideas are foolish, some have an ounce of merit, and some might even make if they provide a convenience angle. VIII. The Role of Convenience - Example: Convenience store usually connected to a gasoline station. Convenience stores doesnt have lower prices, better brands, better selections. The single reason is convenience. You can buy a number of items while stopping for gasoline. - convenience segment is normally a small slice of any category. - If your company is a major player in your category, why bother with niche convergence products? IX. From Palm to Handspring and Back Again - in a free enterprise system, failures are to be expected. - Its never the concept. Its always the execution. We have learned the hard way, that these are difficult products to make and that the network operators are difficult relationships to manage. - Donna Dubinsky X. Media Hub, Media Player, Media Center - Enabling device du jour is the network media hub - a set-top box that allows you to share files between PCs and home theater systems. (Hewlett-Packard, GoVideo, Gateway) - Media Player - piece of software that resides in the users computer or other device and opens a portal to what the industry calls rich media. (Microsoft, RealNetworks RealOne Player) - Media Center - allows to control a computer with a built-in TV tuner. (Microsoft)

- They might find a place in a college dorm rooms or tiny apartments, but the vast majority of people are much more likely to watch television on a television set and do their computing on a computer. XI. A Step in the Wrong Direction - All-purpose box is a step in the wrong direction. The trend in television is towards large, flat screens. The trend in computers is toward small laptops. A media-center box is going to be a mediocre viewing device and a mediocre computing device. XII. The Pen Computer - A year ago we were all talking about pen computers. Who would thought that the industry would come and go in a year? XII. First the Pen, Now the Tablet - product hits the market in 2001 - by the end of 2003 only half a million tablet PCs were sold compared to 36 million laptops that year

Chapter 7 Bad Ideas Never Die I. Introduction - in our history, there is a long history of convergence. There are many ideas that are repeated that fail all over again. History of Convergence - 1945: Ted Hall introduced flying car Buyer: Convair - 1946: Convair introduced Convair Model 118 ConvAirCar. - In spite of the hype, only two ConvAirCars were ever built. - 1949: Moulton Taylor introduced Aerocar - sporty runabout with detachable wings and tail. - received enormous publicity at the time - Ford Motor Company considered mass producing it - same story as ConvAirCars - Paul Moller spent 4 decades developing the M400 Skycar - Personal flying machine that can be used as a car. - Today, $50 Million, 43 patents, 3 wives later, his dream has still not taken off - Its divergence that triumphs, not convergence II. No Convergence in the Home -In almost every aspect of life, things dont converge. - example: eraser did combine with the pencil but the combination doesnt make the eraser better nor the pencil. But the combination was convenient. - most homes have bathtub/shower combinations. Yet when people can afford separate units, they usually buy separate units. III. They Never Stop Trying - combined records and hamburgers (as if tower records converged with burger king) - mcdonalds tried to put hamburgers together with hotels IV. Convergence Will Never Die - convergence concepts have captured the imagination - When an idea is capable of capturing the imagination, the way convergence has done, that idea will live forever in the minds of a gullible public.

Chapter 8 The Great Tree of High-Tech Brands I. Introduction - we can see how brands diverge over a much shorter period. - example: computer - the seed was planted in 1946 by engineers at the University of Pennsylvania. Their invention, called ENIAC, was the first general-purpose, fully electronic digital computer II. Branding in the Computer Era - marked the real start of computer era : introduction of Remington Rands Univac in 1951 and the IBMs mainframe computer - in a little more than fifty years, the world has witnessed an astounding array of products: minicomputers, midrange computers, personal computers. laptop computers. and handheld computers plus many of thousands of software products. - there are computer magazines, newsletters, websites and the internet, plus an army of computer consulting firms. - growth of the computer tree and its branches allowed creation of many powerful and valuable brands - IBM, Unisys, Hewlett-Packard, Sun Microsystems, Siebel, Oracle, SAP, Dell, Apple, Palm, Intel, Microsoft - IBM (trunk of the computer tree - worth $167 billion in the stock market - others worth $852 billion - What is happening in computers also happening in every other industry - youll find divergence at work - categories divide and become two or more categories, creating endless opportunities to build new brands. III. Time Flows in One Direction Only - if convergence was really a trend, it would mean that hundreds of years of divergence have suddenly come to a halt and life is going to get simpler. - life never gets simpler. It only gets more complicated. - In the future, there will be more branches, more categories and more brands - Knowledge is power. - Knowing that categories will eventually diverge is enormously useful to any marketer looking for an opportunity to launch a new brand. IV. Divergence in Personal Computers - three major brands: Apple IIe, Commodore Pet, Radio Shack TRS-8 - Early personal computers: self-contained keyboard, central processing unit, monitor were integrated in one box - convergenist would ahve looked around for useful devices to combine with the personal computer - opposite trend has taken place - Today: instead of an integrated box, most desktop computers have separate keyboards and separate monitors, and separate printers.

- Printer Proliferation or (divergence) reason why convergence is a losing proposition - With time, divergence creates new categories, which creates new opportunities for new brands - Divergence in personal computers created opportunities - build a monitor brand (ViewSonic) - keyboard and mouse brand (Logitech) - operating system brand (Microsoft) - microprocessor brand (Intel) - disk-drive brand (Seagate) - modern brand (Hayes) - printer brand Hewlett-Packard) - financial software brand (Quicken) - storage brand (Zip, Migo) - printer brand (Epson, Lexmark) - video projector brand (InFocus) - scanner brand (UMAX) - computer speaker brand (Altec Lansing) - label printer brand (Dymo) - What brands were created by combining the personal computer with another product? None that we know of. - A segment of a category is often worth more than the entire category, at least from a branding point of view. - Divergent brand (Microsoft) is worth almost twice as much on the stock market as the entire IBM company, the dominant computer brand in the early days of the industry. - So where does the real opportunity lie? putting things together or taking things apart? - Examples of taking things apart - Palm Computing took the electronic organizer function out create the Palm brand, first hand-held computer - Research-in-Motion took the email function out create the Blackberry brand, first wireless email device - not every segment becomes a brand building - dial-up modems: technological barrier at 56k, not possible to make a faster modem that will connect to the copper wires. - 56k where modem evolution stopped. modem become a commodity and Hayes Microcomputer Products Inc. went bankrupt - in the great tree if high-tech brands, there will obviously be some dead branches (dead brands) V. Divergence Doesnt Usually Destroy - computer didnt put the pocket calculator out of business. - the calculator become smaller, lighter and less expensive because of evolution - new type emerged: scientific calculator - In most cases, the new category exists side by side with the old category. - Life goes on. but thanks to divergence, life gets more complicated. - developing category: smart keyboard - cheap, simple, rugged, light, power-stingy word processor.

- AlphaSmart (Leading Brand), markets a 2 pound $230 device created by a pair of apple engineers - no trackpad, no modem, no expansion slots, only enough memory to hold about hundred pages of typing - 700 hundred hours of life on a set of AA batteries - MailStation: email, only does 3 things extremely well - compose, send, get email - Stripped-down thinking isnt the same as divergence thinking. - Stripping down an existing product taking out value faster than taking out costs. - a two-door car doesnt cost half as much to manufacture as a four-door car, which is why the auto industry sells a lot fewer coupes than they do sedans - Palm has a winner in its Zire line of PDAs - selling like hotcake because it is what palm is all about small, simple, electronic organizer - excluding all the convergence extra like phone, camera, and internet browsing VI. Divergence in Other Areas - vacuum tube (gigantic semiconductor did not become smaller until it evolved into a transistor - transistor was a totally separate branch on the semiconductor - none of the big vacuum-tube manufacturers ( Western Electronics, Sylvania, etc made the transition - Instead, big names in microprocessors are new brands (intel, advanced micro devices - examples: handheld computers real action in the opposite direction - companies making specialized hardware and software tailored to specific industries - Physicians Epocrates and Allscripts Healthcare Solutions Softwares - Waiter Ameranth software - Salespeople Inventiv Pocket Advantage Software - will those brands become a big successes? - most probably will fail, because thats the luck of the draw - have a chance to succeed unlike convergence that is doomed to failure - the market for specialized handheld computers, 4 or 5 times as large as the market for general purpose Palm-type devices - with corresponding increase in brand-building opportunities. VII. Divergence in GPS - microprocessor revolution high-tech products - take advantage of the Global Positioning System - GPS: Developed for military - satellite-based system that allows users to pinpoint their longitude and latitude anywhere on earth within fifteen feet - tried to combine it with: Handheld computer (GeoDiscovery Geode, Rand McNallys StreetFinder GPS) and personal computer (TravRoutes CoPilot) - none of these brands are likely to go anywhere

- theres often a fine line between true convergence and products that are grouped together for convenience VIII. Instead of Everybody, How about Somebody? - Wherify Wireless: LoJack for kids - Owner: Timothy Nether - programmed to notify parents when a child leaves a designated area, also has a panic button - Applied Digital SOlutions and GBSTracks has similar products - LoJack for dogs: AVID Identidfication Systems (and Destron Fearing) - inexpensive microchips that can be inserted to animals. - SafeForce monitors teens driving - DriveCam safe driving for employees IX. Narrowing the Market - Taking an existing technology and applying it to a narrow market segment is the surest way to build a brands - examples: radar detector (Passport), alcohol breath tester (PNI), fish finder (Smartcast), golf range-finder (StarCaddy), personal mileage/speed/calorie counter (SportBrain), weather tracker (Davis), language translator (Phraselator), handheld power-consumption meter (Kill A Watt), fake-ID detector (IDLogix) - general principle that brands are built by thinking narrow - example: dog translator (Bow-Lingual) - high-tech products problems are always the same: how to make teh devices smaller, lighter and less expensive in order to broaden market. - divergence thinking helps solve these problems. convergence does the opposite X. Divergence in Biometrics - access control devices have branched out over the years. - 1st the key, 2nd is the card, contactless cards (ProxCard), - fingerprint-scanning devices (Identix) another branch of access control - iris-scanning XI. Divergence in Component Brands - Divergence thinking should encourage innovators to ask themselves, What component of a new product can we focus on to build a brand? - you can make more money selling batteries (Duracell) than flashlights, Film (kodak) than cameras, software (Microsoft) than hardware - memory card latest high-tech component enjoying boom in popularity - worldwide sales exceeded $3 billion. - radio-frequency identification (RFID) microchips used to open locks will also open a big market in inventory control. - Benetton ordered 15 million RFID tags (Phillips) - Proctor and Gamble tested RFID tags, Pantene shampoo bottles, and bounty paper towel packages, gillette on mach 3 razors - biggest boost of RFID Wal-Mart

X. Divergence in Software - Thousands of successful brands have been created by dreaming up narrow, specialized software categories. - Convergence gets the publicity, but divergence is where the money is. XI. The Computer Spreadsheet Wars - VisiCalc first computer speadsheet - Whats perplexing about the successful brands is the pervasiveness of convergence thinking - In software and other products, bundling can give the illusion of convergence at work. - in most cases, however, bundling involves must have products with products that might as well be commodities - Bundling only works for a leader with monopolistic powers. XII. Divergence in Telephones - for seventy years monopoly - phone system was a monolithic operation with little divergence and almost no new brands - Almost every instinct of a monopolistic is against the natural laws. Keep everything under the same name and dont allow branching-out processes to occur - A vigorously growing, dynamic product like the cellphone needs to break away from the confining environment of a conglomerate if it is ever going to reach its full potential - the more dynamic the new product or service, the greater its potential, the more it needs to branch out or break away from its corporate masters. - at the very least, this type of new product needs a totally new name. Yet these are exactly the new products that are least likely to be spun off or given a new identity. XIII. Divergence in Cellphones - major manufacturers are a lot more focused on convergence than divergence - they should be looking at the cellphone tree to see what branches might be developed. Then choose the branches they want to dominate XIV. Divergence in Television - it diverged not converged - when branching occurs, the advantage belongs to the brand that creates a separate identity - when new branch grows bigger and stronger, it separates itself from the core branch and then a line-extension name becomes a severe disadvantage. -Divergence follows a pattern XV. Divergence in Internet Service - As internet service diverges, opportunities are created for new brands - Theres always room for new categories and new brands XVI. Nothing Stands Still for Very Long - A new diverging technology requires a new brands.

- Not every new branch kills off an existing branch. Nature often favors multiple approaches to the same problem XVII. Divergence in Transportation - Divergence thinking made General Motors the dominant automobile manufacturer. - But convergence thinking got General Motors into trouble. - Its Mistake to think a domestic product cant have the prestige of an imported product. It can, bit not at a cheaper price XVIII. Nature Drives Species Apart - over time, the competition between species drives them apart - Opportunities never reside in the mainstream, They always reside on the edges where the competition is weak or nonexistent - No innovation in automobile marketing will probably top Alfred Sloans concept of GM Corp. But a number of automotive illustrate the power of divergence XIX. Divergence in Bicycles - You launch second and third brands to capture the diverging segments - If youre going to launch a second brand, you need to do it early, before competition gets entrenched. XX. Divergence in Marketing - Integrated Marketing - Divergence will continue to push the functions apart, creating more and more specialized agencies and even new categories

Chapter 9 The Great Tree of Low-Tech Brands I.

Introduction - Consumer products demonstrate as much divergence as high-tech products. Maybe even more. - If you want to sell more, you need more things to sell. But what makes common sense often doesnt make good marketing sense. Divergence in Coffee Shops - Whats the most popular single item in a coffee shop? Arguably its hamburger. Lets open a coffee shop that primarily serves hamburgers. divergenists point of view - What do you call successful divergenists? We call them convergenists, because as soon as they become successful with a divergence strategy, they revert right back to type. - make a second brand Divergence in White-Tablecloth Restaurants - nobody thought to categorize the cuisine because there was no other type of high-end restaurant to differentiate from. - fine-dining is usually what the signage on the restaurant said. - Fine-dining segment started to diverge - As category emerges, it represents an opportunity to build a brand. - Brand evolution is slow Divergence in Pizza - Pizza Hut was the first national pizza chain and enjoyed great success. - Dominos pizza focus on home delivery second-largest pizza chain. - Little Caesars branched off the pizza category focus on take-out dominant take-out brand - Papa Johns focus on an upgrading concept = Better ingredients. Better Pizza - Divergence in Action over time, each successful brand becomes as different as possibly can from the core brand and the other brands that have branched off from the same category Dynamics of Divergence - What drives divergence: Consumers and companies - companies have much more control of this process - most companies: static rather than dynamic - they see only what could be done today(convergence) than in future(divergence) - flaw: natural selection - pizza category is in a constant state of divergence

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VI. Divergence in Department Stores

Years ago, department store rule the retail world. Traditional department stores are in trouble. - they didnt move out to the suburbs with their customers. - they didnt keep up with the latest fashions. - department store were eaten alive by divergence. - big companies dont usually have the patience or the vision to see opportunities in branching off. They want to go after existing markets, the larger the better. VII. Divergence in Companies - Outsourcing corporate trend for decades. - Companies activities handled by outside specialists, creating many opportunities for building brands. - Whenever an outsourced function becomes a big enough business, there are further opportunities for divergence. VIII. Divergence in Medicine and Law IX. Divergence in Distribution Channels - a skillful marketing person can sometimes create a brand by creating now a new product, but a new distribution channel -