About Jean-Louis Gassée

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Respect Your Salespeople: They Earn Your Salary

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by Jean-Louis Gassée

Another people-in-tech Monday Note, vs. tech itself, in the spirit of The HR-Less Performance Review and Firing Well, this time about the value of competent, service-oriented salespeople, and the respect we owe them – with our own interest in mind. 

We’re at the Board Meeting of a Valley start-up. An investor has exhorted the founder to go, go, go…push the (almost, we know how it goes) finished product to the market as quickly as possible. ‘But,’ the founder responds, ‘we first have to build a sales team, find some knowledgable people, teach them the product…’ The investor cuts him off:

“Don’t waste our time and money. Just get yourself a bunch of coin-operated salespeople…”

This thoughtless characterization of sales is too common, it’s counterproductive, and it has been part of the culture for a long time.

When a family catastrophe threw me out on the streets more than 50 years ago, I went through what California healers aptly call a psychosocial moratorium, a process of adaptation that landed me in a rapid succession of jobs, many in sales, from insurance and office equipment to pharmaceuticals and dietary supplements, mostly with undistinguished to really bad companies that treated their salespeople as cannon fodder.

When I joined Hewlett-Packard France four years later, I anticipated a more humane approach (accurately described in David Packard’s calm, almost reticent memoir: How Bill Hewlett and I Built Our Company). But, to my disappointment, not everyone adhered to the HP Way. When I started recruiting salespeople after launching the company’s first desktop computer, my methods were challenged: “Why do you insist on tech college degrees? Salesmen are mere peddlers.”

I had an uneducated intuition: We need salespeople who are masters of their products. The more they know about what they’re selling, the more they’ll sell.

Experience led to a theory: My Prospects will tell me as much as they think I can understand about their situation, their needs. By exhibiting a command of what I have to offer, I engender trust, which leads the Prospect to tell me more about his/her headaches, including office politics. Thus armed, I can propose a well-defined solution, suggest alternatives… or avoid a bad sale altogether.

It worked very well for me and the people I worked with, but the cheap view of sales endured.

So it was in Apple’s early days. Hired to start Apple France and develop a network of French retailers, I took my baptismal trip to the hallowed halls of Cupertino’s Bandley Drive in February, 1981. I got my company badge and immediately took off in my rental car to visit Apple shops along El Camino Real. A surprise awaited me. Everywhere I went, store owners welcomed me, smiled at my heavy French accent, and said they were delighted to see someone from Apple – at last. They’d never been visited by anyone from Cupertino, even though it was just a couple miles away.

I returned to the office and asked the head of Sales why he and his people had never visited Apple retailers. He brushed back his permed locks (yes, some straight men permed their hair back then) and scoffed: “Why bother? Apple ][s sell themselves.”

After I flew back home to Paris, I set up a sales organization that had a thorough knowledge of Apple products and an affinity for the company’s considerable ambitions. (I also started my habit of weekly writings with Apple Hebdo, a love and information newsletter from every department in the organization to our business partners.) The approach worked very well — well enough that I was brought back to the Valley in 1985, this time to run Apple’s engineering.

Back to the Board Meeting: I almost ask my fellow director why he wants to treat salespeople like street walkers. Doesn’t he realize that any sensible employee can sense our expectations and will naturally rise — or sink — to fulfill them?

Instead, I direct my questions to the CEO: Does he have a job description for sales? Prerequisites and salary range?

No. Not yet. The founder is an engineer and, regardless of his innate ability to sell his ideas to everyone from his parents to fellow workers and investors, he’s never “carried a bag”, he’s never had a sales job with a territory and a quota. And, like many fellow engineers, he oozes barely disguised disregard for sales and has mixed feelings about entrusting his precious creation into their less capable, dirtier hands.

Without a doubt (I assure him), the crystalline purity of what he and his team have created is the core asset. That’s who and what we invested in. But… what about the company’s money pump? Who fits the hoses into the proper spigots? Who works the levers and causes the sacred fluid to course from customers’ pockets into our coffers?

Fortunately, the CEO’s IQ overcomes his EQ, and he quickly regroups:

“You’re right…we need knowledgable salespeople. And really good ones because beta tests have shown early adopters to be happy… after a bit of orientation and learning.”

A salesperson’s domain knowledge isn’t just a boon to sales, it’s an important component when sales brings back customer feedback. Engineers know when they’re dealing with a “coin-operated” salesperson, and they have no respect for the species. ‘Ah, he doesn’t know what he’s talking about!’. Actually, engineers don’t have much respect for sales, period, but they’ll listen to a technically competent salesperson, particularly if he or she is bringing back an esoteric bug report.

Then there’s the issue of compensation. Too much “compensation pressure” leads to incautious statements about the product’s features and benefits, which leads to disappointed customers. And unless you’re a de facto monopolist such as a cable operator, you can’t afford even one unhappy customer.

Furthermore, most people want to do good and do well, in whichever order. Salespeople are no exception. Compensation mustn’t send the message that salespeople need only work hard (and smart) when they’re bribed.

I’ve seen and been part of a variety of sales compensation structures: All commission, no commission, bonuses on goals, bell curve compensation… They can all be made to work, but the point is this: The focus of selling mustn’t be about the sale, but about a relationship with the customer, a relationship that can lead to a steady stream of transactions.

A vignette comes to memory. At the now defunct Data General minicomputer company, nothing ever worked coming out of the factory, products had to be finished in the field. The DG salespeople, true survivors, were paid a commission of 1%. Not 1% of bookings, nor shipped revenue. No, they got 1% of collections. They got paid when customers paid… and customers didn’t pay until they were finally satisfied that what they bought also happened to work.

From time to time, marketing would visit from the Home Office to “gift” the salespeople with a shiny new product presentation. Savvy salespeople nodded, grin-effed the presenter…and then went out in the field to present the products as they actually worked. They knew what their customers would pay for, regardless of what the missi dominici touted.

Here’s to salespeople and to those who appreciate them.

JLG@mondaynote.com

Samsung’s Mobile OS Dilemma

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by Jean-Louis Gassée

Scroogled if you do, HPed if you don’t. To differentiate itself from aggressive Android competitors, Samsung would need to build its own mobile OS…but can it overcome the odds?

“Samsung execs don’t brush their teeth in the morning, they file them”. So goes the Valley lore, an expression of fearful admiration for the Korean giant’s success. The massive chaebol (the largest conglomerate in South Korea) is terrifyingly effective at dominating  every industry it touches, from shipyards and power plants, to surveillance equipment, amusement parks, cars, and, of course, electronics.

When Samsung enters a market, the competition trembles. The TV set industry is one such example: Sharp remains on life-support after taking a $112M investment from Samsung two years ago (for a 3% stake). Sony has fared a bit better: When Samsung displaced Sony as the world’s number one TV manufacturer, the Japanese company was kept afloat by its life insurance business while CEO Kazuo Hirai worked on a much needed turnaround.

Smartphones offer the most vivid example of Samsung’s determination. As Android rapidly rose to prominence, Samsung saw an opportunity. Combining Android with its manufacturing might and gigantic war chest (Samsung’s 2013 marketing budget was $14B, the biggest in history, about the same as Iceland’s GDP), the company quickly became the world’s leading smartphone manufacturer, selling 300M units in 2013 alone — double Apple’s volume.

But Samsung’s handset business soon contracted. By the third quarter of 2014, Samsung profits had fallen by 60% and unit volume was down by 9% while all other major vendors went up. In the last quarter of the year, Samsung unit volume fell behind Apple (73M vs. 75M) and the Cupertino company reaped a huge share of all smartphone profits.

How did this happen?

Samsung is being squeezed.

At the top-end of the smartphone market, Apple more than holds it own. iOS reaps 89% of smartphone profits worldwide and is gaining unit share as well.

From below, Samsung is being attacked by big-name Android players such as Huawei, Lenovo (which now owns Motorola Mobility), and fast-rising Xiaomi. From lower still, there are no-name Chinese handset makers using chipsets provided by Mediatek running on roll-your-own Android Open Source Platform (AOSP) forks.

One way out of the squeeze is differentiation, something Google isn’t keen on. If you want the full Google Mobile Services (GMS) suite, you need the official Android version: “GMS is not part of the Android Open Source Project and is available only through a license with Google”. Even straying too far from the Android look-and-feel can be a problem: A year ago, Google was accused of “strangling innovation” when it forced Samsung to “tone down” TouchWiz, a proprietary user interface layer. (The beauty and function of TouchWiz was debatable; it reminded some of the PC crapware of yore and it appears to have stopped working on recent Android versions.)

Ironically, one avenue of differentiation is The Apple Way: Samsung could take its future into its own hands and write its own mobile OS.

Regardless of its recent profit slide, Samsung is a rich, powerful, and determined company, one that knows the importance of smartphones. The company toyed with the idea of a mobile OS when it contributed to the Tizen software platform, but that project suffers from two unsurvivable birth defects: it’s a consortium, software by committee; and it runs on everything, from smartphones and tablets to refrigerators, Blue-ray players, AC units, wearable devices, smart TVs…

When we look at what it would take for Samsung to come up with its own mobile OS, the first thing to note is that “operating system” is a misnomer. Surely, iOS and Android are operating systems in the old-school “kernel” sense: They manage drivers, memory, input and output streams, user tasks, and the like. But today, an “operating system” is much more than just a kernel, it includes rich frameworks that support a wide range of applications, games, maps, social networking, productivity, drawing… Building these frameworks is a much harder task than adapting a Linux kernel.

And the OS is just the beginning. What Samsung really wants is its own ecosystem, a set of services that will ensure its autonomy, growth, and lasting importance. It wants its own app store, maps, music/video, cloud storage…

How long would it take for Samsung to build all of this? Three years, four years? Add to this the difficulty of “skating to where the puck will be”, to divine where the industry will land four years from now.

If that’s not enough, consider Samsung’s culture and management structure. So far, the company hasn’t shown a deep understanding of software: The Tizen affair shows that they look at software as some kind of commodity. Also, the Samsung culture isn’t geared for a four-year plan — an eternity in the rapid cycle world of TV sets and other appliances. Top Samsung execs would have to give the OS project leaders (project despots, more likely)  the freedom and space to stay out of the usual political battles and top-level interference inside the huge conglomerate.

And then there’s Google. The cheap, no-name AOSP forks have been enough of an annoyance with their home-grown services that don’t feed into Google’s all-important data collection process. A Samsung OS would be intolerable. If the OS starts to take shape, Larry Page would pick up the phone, call Samsung Electronics Chairman Lee Kun-hee (or his son Lee Jae-yong), and offer a deal: If Samsung keeps using Android, Google will pass back a couple billion dollars a year in rebates, all in recognition of the value of the data that’s scooped up by Google Mobile Services on Samsung’s smartphones. After all, Google is rumored to pay Apple substantial sums for traffic brought by iOS devices, why not relieve Samsung of the burden of developing its own ecosystem – and give it a few billion to assuage its collective ego?

In summary, developing its own OS platform and ecosystem is a huge technical task, subject to the giant conglomerate’s cultural and political challenges and, in the end, very likely to be torpedoed by an attractive counter-offer from Google.

So, no, Samsung shouldn’t develop its own OS ecosystem.

Let’s consider a more realistic solution to Samsung’s shrinking marketshare problem, one that’s less glorious, but much safer: The Korean giant could use its hardware might to regain its domination of the mobile market. Samsung makes processors (including Apple’s), displays, batteries…most if not all of the hardware components of a smartphone and tablet. It could slowly develop cloud services that add value to its hardware, buy Here as its maps solution, make a deal with DuckDuckGo or Microsoft’s Bing for Search, and so on. As it becomes less dependent on Google, Samsung puts itself in a better position during negotiations…and all without the pain of having to develop an OS.

Finally, one other alternative: Microsoft’s mobile platform could certainly use some help…but I’ll leave that for a future Monday Note.

JLG@mondaynote.com

Apple’s Intriguing Developer Conference

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by Jean-Louis Gassée

At this year’s Worldwide Developer conference, we were told about Apple’s new music streaming service and given hints about the iPad’s future… and we were left asking questions about Apple’s relationship with Google.

Apple’s yearly Worldwide Developer Conference has a well-established, festive tradition of announcing new software tools. One way to gauge reactions to the conference is to count the number of articles that imply that Apple is simply playing catch-up: “Apple finally does X that competitor Y has been doing for Z years.” More

You Don’t Need An Apple Watch – Part 253

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by Jean-Louis Gassée

One more time, with feeling: You don’t need this [blank] Apple product. This time, pundits believe you shouldn’t buy an Apple Watch. But will the Greater We listen this time?

I’ve been professionally and sentimentally involved with tech products for more than six decades. Luckily, my affection for new technology has (mostly) been requited: The objects of my desire have rewarded me with fun and financial independence. More

Apple Watch: Five Weeks, A Dog’s View

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by Jean-Louis Gassée

[This is an updated version]

After a few supply chain hiccups, the Apple Watch is now in the wild. I’ve had mine since April 24th, enough time to educate my opinion: Is this a truly new genre or simply an elegant version of a gratuitous accessory?

Technology reviewers — and customers — come in two species: Cats and Dogs. When presented with a new brand of cat food, our feline masters tiptoe suspiciously around the offering and, having carefully sniffed their human servant’s token of devotion, finally deign to sample it.

Dogs have no such sense of decorum and hierarchy, they joyously snarf up the mystery meal. More

Firing Well

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by Jean-Louis Gassée

Ending a work relationship needn’t be complicated or traumatic. It can be done in a sane and respectful way if a clean framework is set up at hiring time.

In an August, 2012 Monday Note titled The HR-Less Performance Review, I described a sane, humane way for an employer to conduct the dreaded Performance Review. The script is simple: More

Three Slides? You’re Nuts! OK. How About Seven?

by Jean-Louis Gassée

In practice, the three slide pitch may be impossibly concise. This week, we’ll look at the seven slide variation.

After last week’s Monday Note, Three Slides Then Shut Up – The Art of The Pitch, I was subjected to a bit of email ribbing. My honorable correspondents, many of them entrepreneurs themselves, questioned my rationality, insisting that it’s psychologically and emotionally impossible for entrepreneurs to be so boldly concise as to limit their presentations to three slides. Indeed, how many three-slide presentations had I actually seen in a decade+ of venture investing? Upon the fourth slide, is the presenter sent packing? More

Three Slides Then Shut Up – The Art Of The Pitch

by Jean-Louis Gassée

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This week, we look at pitches, at the stories entrepreneurs tell investors. The best pitches aren’t really pitches. Dumping one’s entire body of knowledge on easily bored investors won’t help. The best pitch is one that quickly moves from monologue to conversation.

The First 70 Minutes of The Hour. When, in 2002, I was invited to join the ranks of venture investors by Barry Weinman, my Gentleman Capitalist mentor, I voiced a concern: I didn’t want to go blind looking at PowerPoint presentations for the rest of my life. Gentleman that he is, Barry didn’t — and didn’t need to — remind me of the two hours investment pitches I had inflicted on his kind during my early entrepreneur days.

I finally learned to curb my prolix talk during the Be IPO road show in 1999. The investment bankers who helped prepare the show soundly disabused me of my prolix ways. I was relegated to the clean up position, following the VP of Marketing, our experienced CFO (three IPOs before ours), and the demo. Putting me last before the hard stop enforced concision.

Now that I’ve joined the VC brotherhood and am on the receiving end of money-seeking tall tales, I can attest that my fear of mental cauterization by PowerPoint wasn’t misplaced. I’ve found a name for the blight: The First 70 Minutes of The Hour.

The condition is caused when an entrepreneur uses the allotted hour to dump everything he or she knows about his/her business. I’m a sinner reminiscing: I’m anxious, I’m unsure which of the product’s many arcane features and benefits will click, I’m terrified that I’ll leave something out. My desperation induces acedia as the allotted hour ticks past, and, as a reward, I receive non-committal California-speak: Great, Interesting, We’ll Circle Back To You.

This is an unfair caricature, but not by much. Too many presentations concentrate on the needs of the speaker instead of addressing the interests of the audience. Fortunately, there’s a simple remedy: Show three slides and shut up. Say just enough to engage us and then move on to a lively conversation, to questions, arguments, suggestions.

The canonical three slides go like this:

  1. Who we are: The founding team’s résumé, its technical, business, and academic background.
  2. A nice, sharp dichotomy: The world before us, the world after us. Show a substantial, practical impact, not just a marginal improvement of something that’s already in place. The more impossible or unthinkable the better — it will become retroactively obvious once understood. The mouse is a good example.
  3. The Money Pump. Your business plan. I like the Money Pump image, the pipes that allow the cash that’s temporarily residing in customers’ pockets to flow into the company’s coffers – legally, willingly, and repeatedly.

After that, shut up.

The silence will be unbearable. It might help to look down at your shoes, your hands, something on the conference room table. But the awkward moment won’t last, no more than an interminable 12 to 15 seconds. If you don’t get questions, you have your answer: We’re not interested.

But if we poke holes in your story, demand explanations, play devil’s advocate, we’re hooked. You may now dig into the 253 backing slides you have under the table, whip out the market research, competitive analysis, academic studies, financial projections, and casually lay out your roadmap. Show us that you’re not afraid to think on your feet. You can even gently flatter us that we’re the visionaries, you just want to help make that vision a bit clearer.

You’re either in or you’re out, but you won’t have wasted our time or yours.

There are benefits to this approach even if we don’t buy your pitch.

If we’ve turned you down, you can call us back six months later, remind us of your “failed” three-slide presentation and offer to show us three new ones. If the first pass was quick and painless, we might ask you back in. You won’t get this welcome if you bored us for 70 minutes the first time around.

Moving forward, sharpen your internal characterization of your business. You can’t have ten success factors that are equally important. Concentrate on the top level features in your Before/After slide and leave the “really cool” pet tricks for the ensuing conversation. Remove the branches that blur the picture, but don’t hack away at the graphical details in your slides. Edward Tufte, the world’s pre-eminent “data visualizer”, has posited the counterintuitive notion that by adding visual cues we enhance comprehension. (We’ll get back to Tufte in the postscript.)

And the most important benefit: If you’ve distilled your presentation into three slides, you won’t even need them. The effort will have been so intense that they’re now burned into your brain. You can walk into a conference room, ask for a white board and a marker, and impress us with your command of your business by “extemporaneously” drawing the three slides. There will always be time to whip out your laptop, tablet, or big smartphone for the 253 FAQ (Foire Aux Questions, in French) slides.

All of this is easier said than done, of course. I can relate to anxious entrepreneurs who have a hard time sorting through the wonderful ideas brewing inside the garages in their heads. Afflicted with what Buddhists call monkey brains, I, too, have a hard time quieting the noise so I can “hear” the most important, reality-changing element of a product/service/business. Only the most gifted and focused (or perhaps the most delusional) can see the edge of the blade with unfailing clarity. The rest of us muddle through.

One point remains: The goal of the presentation is to start a conversation, the sooner the better.

JLG@mondaynote.com


Speaking of presentations, you might want to read Edward Tufte’s The Cognitive Style of PowerPoint: Pitching Out Corrupts Within, a searing indictment of mindless slide presentations ($7 paperback on Amazon):

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(Also available in PowerPoint, er, PDF format here)

Tufte’s seminal work, The Visual Display of Quantitative Information ($29.62 for the hardcover edition on Amazon and also, it seems, in PDF form here), includes this celebrated chart that tracks Napoleon’s ill-fated march to and from Russia during the abominable Winter of 1812-1813:

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The chart makes the French Army’s unimaginable losses imaginable.

Comcast Folds. No Dancing In the Streets Yet

by Jean-Louis Gassée

We may have dodged the Comcast/Time Warner bullet but we’re still far from getting rid of the antiquated set-top boxes and cable modems that only exist to protect juicy old business models.

We can breathe a sigh of relief: The proposed $45B merger between Comcast and Time Warner Cable (TWC) is dead. When the merger was announced with size-appropriate fanfare just before Valentine’s Day, 2014, normal humans saw the deal as clearly dangerous. How could “Concast”, a company that’s unanimously despised and indisputably abusive, be allowed to bear down with even greater weight on our collective neck?

In a salvo of Orwellian doublespeak, Comcast assured us that less competition and a more dominant provider would translate into a dream come true for consumers and competitors:

“Transaction Creates Multiple Pro-Consumer and Pro-Competitive Benefits, Including for Small and Medium-Sized Businesses…This transaction will be accretive and will yield many synergies and benefits in the years ahead.”

This Freedom Is Slavery agitprop is evidence of Comcast’s belief in our passive idiocy — but it’s more than that. It’s a testament to the company’s faith in its political chicanery. Combined, Comcast and Time Warner Cable spent an outlandish $25M trying to persuade lawmakers to endorse the deal, and showered campaign donations on both parties – a little bit more on Democrats. (And let’s not forget that Comcast CEO Brian Roberts is President Obama’s golf buddy.)

The political machinations don’t stop there. As uncovered by The Verge, Comcast ghostwrote pro-merger letters that were delivered to the FCC:

“…Mayor Jere Wood of Roswell, Georgia, sent a letter to the Federal Communications Commission expressing emphatic support for Comcast’s controversial effort to merge with Time Warner Cable… Yet Wood’s letter made one key omission: Neither Wood nor anyone representing Roswell’s residents wrote his letter to the FCC. Instead, a vice president of external affairs at Comcast authored the missive word for word in Mayor Wood’s voice.”

Dipping into this bag of tricks has worked before. After all, Comcast got away with an anti-competitive deal when it acquired NBC in spite of the obvious anti-competitive distribution advantage stemming from its huge Cable TV footprint.

Yet, Comcast insists that the sentiments are genuine, an “outpouring of thoughtful and positive comments“. The company pronounced itself “especially gratified for the support of mayors and other local officials, […] underscoring the powerful benefits of this transaction for their cities, constituents, and customers.

As Consumerist reminds us, this is the company that resorts to tortuous customer rentention tricks and foments a culture of customer disrespect. We’ve all experienced the poor customer service and bad attitudes, the last minute appointment cancellations, the phone reps who know nothing about our accounts. During a visit to Comcast Palo Alto,  one rep tells me I can self-install while another rudely insists that I ignore what I’ve just been told.

I can’t blame the customer service employees. Deprived by management of any ability to access data or to exercise judgment, they’re just following the script and emulating the examples set by their bosses. I blame the execs who don tuxedos and put on airs of benevolent prosperity at charity balls in Washington and Philadelphia. They’re the ones who created the culture and then feign bewilderment and concern when they discover that customers don’t like Comcast. About a month ago, when the merger hung in the balance, the @ComcastCares Twitter account suddenly displayed increased activity, after repeated apologies and the appointment of a Senior VP of Customer Experience last September.

But arrogance, mendacity, and poor customer service weren’t enough to stop the merger. ‘Twas Net Neutrality killed the Beast.

The Comcast/TWC deal was initially seen as a Cable TV merger, with a combined market share that approached 30% of Pay TV. But Pay TV is sliding into the past. Internet connectivity, broadband speed, and reliability are what matter now, and an expanded Comcast would have garnered more than 40% market share. That’s a portion that can’t be squared with the concept of a free (as in freedom, not free beer) and open Internet. After the FCC issued Net Neutrality rules — which were immediately challenged by our freedom loving carrier friends — the notion that 40% of public access and about 50% of “triple play” services would be handed to a single company became intolerable.

So, we dodged that bullet. But entrenched players and their convoluted business models still keep us far from where today’s technology wants to take us.

First, an old issue: Extortionate channel bundling. Why must we buy a bunch of channels we’ll never watch just to get the few we actually want? A la carte distribution should be the norm.

Second, everything ought to be on-demand from the Cloud. It’s not that much of a fantasy: today, I can set up a recording from my Xfinity set-top box and then watch it from my laptop or tablet anywhere in the world — especially in places where Internet access is better and less expensive than in the US. See the following graph and sigh:

Broadband Worldwide Price Performance

As Joe Palmer, a former colleague and current friend likes to say: It costs more, but it does less.

Lastly, our regulators should force carriers to let users connect a Brand X, Y, or Z box to the Cable network. Why must we put up with the clutter of a Comcast Internet modem and Wi-Fi access point, an Xfinity set-top box and DVR, and a Microsoft Xbox? Satya Nadella would love to sell us a single, universal Xbox. I have no doubt Tim Cook would look kindly on an all-in-one Apple “iBox” that replaces the two Comcast boxes and combines it with an Apple TV and a Time Capsule.

There will be dancing in the streets when we throw away today’s cable modems and set-top boxes. It will happen…but I won’t hold my breath. It will take time and repeated attempts to tear down the blockades erected by Comcast, AT&T, and the other carriers.

JLG@mondaynote.com

FrankenNokia

 

by Jean-Louis Gassée

Stitching together the disparate body parts – and cultures – that make up Nokia-Alcatel-Lucent is not a task for the faint of heart. This week we look at what Rajeev Suri, the CEO of the combined companies, is up against.

April 15th 2015: Nokia “agrees” to the $16.6B takeover of Alcatel-Lucent. On the surface, the acqui-merger makes sense. Both companies make networking gear and they’re of similar size, each with 2014 revenues of about $16B. (Nokia’s latest financials; Alcatel-Lucent’s 2014 annual report.)

It’s a financially complex transaction involving two complicated and venerable companies. Debt is assumed, debt is exchanged for shares, new debt is issued…there are a lot of ifs and buts.

As expected when a deal isn’t a straight shot, Wall Street’s reaction is mixed. Some think Alcatel-Lucent’s shareholders are on the short end of the bargain. Others, such as Standard & Poor’s (S&P), the haruspex that fondles financial statements and divines the value of securities, buys into the deal partners’ obligatory rationale and opines that the merger will result in a stronger product portfolio and less financial risk. (Let’s keep in mind that this is the same S&P that contributed to the 2007 housing bubble and the resulting depression. It recently agreed to pay the United States $1.38 billion to settle civil fraud charges that the firm had inflated the value of mortgage investments.)

Regardless of the prognosis, these analyses have concentrated on the numbers, the regulatory hurdles, the challenges of competing with ascendent Chinese companies, or the rise of Software Defined Networking (SDN) competitors. They blithely overlook a more fundamental element that determines success or failure: Culture. As an old but eternal saying goes: Culture Eats Strategy For Breakfast, a saying attributed to management sage Peter Drucker.

Consider the paths that led the two companies to the altar.

Alcatel was founded in 1898 as Compagnie Générale d’Électricité (CGE). For more than a century, the company accretes and sheds businesses, mostly in France, but never achieves a solid, lasting market position.

Embroiled in a fraud and corruption controversy in 1995, Alcatel hires Serge Tchuruk to clean house and reshape the old electric equipment and electronics company. Tchuruk, a life-long chemical and energy man, had seen success as CEO of oil giant Total, but at Alcatel things don’t go his way and the company continues to lose money.

In an attempt to right the ship, Tchuruk explores a merger with Lucent, the telecom equipment company that was born from the AT&T breakup. The deal fails to conclude amidst accusations, from both sides, of “unreasonable demands”.

But Tchuruk is persistent. Five years later, in April 2006, he finally gets his way: “Alcatel and Lucent Technologies To Merge and Form World’s Leading Communication Solutions Provider”.

As part of the deal, Patricia Russo, Lucent’s CEO, relocates from New Jersey to Paris and becomes CEO of Alcatel-Lucent. Tchuruk stays on as non-executive chairman of the combined entity.

This was a deal based on weakness, a marriage of convenience between two struggling companies whose culturally incompatible teams were fixated, understandably, on surviving the impending “workforce optimizations”. Lucent carried habits of heart and mind that had been deeply embedded during its grand days nesting in Ma Bell’s well-regulated system. To top it off, no one believes that Russo and Tchuruk can work together.

The marriage doesn’t last. In October 2008, after two years of finger pointing and a further slide into industry irrelevance, both Tchuruk and Russo resign. (Tchuruk returned to the energy industry as CEO of Joule; Russo is back in the US as an HP Director and will almost certainly become Chairperson of HP Enterprise when the company is spun-off.)

Russo is replaced by Ben Verwaayen, a well-regarded, well-liked, and more restrained telecom industry veteran. He lasts for six years; the company continues to suffer.

In 2013, the task of turning Alcatel-Lucent around falls to Michel Combes, another respected and experienced telecom industry exec. Combes immediately launches a two-year mission aimed at cutting costs by 1B€. We’ve come to the end of the two-year time limit…and it looks like he made a reasoned decision to throw in the towel and go for the Nokia deal. Combes has let it be known he won’t stay on as a Nokia exec.

Nokia is a different story. Formed in 1865 as a paper pulp business, Nokia expands into galoshes and other rubber products around the turn of the 20th century (you can still put Nokian Tyres on your vehicle – a separate company). Soon after that, the company gets into electrical equipment (such as cables) and electronics.

After a long history of ups and downs, Nokia, under CEO Jorma Ollila, makes the fortuitous decision to get into the GSM networking business (late 1980s) and then the handset business (early 1990’s). By 2010, it’s the world’s largest handset maker, shipping 100M phones per quarter.

With its long history, its ability to ride crises and invent new businesses, its hard-won preeminence in the high-tech sector, it seems as though Nokia can survive anything.

Well, almost.

Nokia can’t compete in the new world of software platforms and ecosystems. (See a June 2010 Monday Note: Science Fiction, Nokia Goes Android.)

When it becomes painfully obvious that its too-many Symbian and Linux derivatives won’t cut it, Nokia makes a grievous mistake in appointing a former Microsoft exec, Stephen Elop, as CEO. Elop promptly Osborns the existing product line by prematurely announcing a new and improved Microsoft OS that takes a year to materialize.

After Nokia sells its collapsing handset business to Microsoft in 2013 (the deal finally closes in April 2014 for about $7B), the company is left with three businesses: Nokia NetworksHere (mapping technology), Nokia Technologies (guardians of a fat patent portfolio).

363_nokia
[From Nokia’s latest quarterly numbers]

Nokia Networks is the result of the difficult absorption of Siemens’ networking operations, a joint venture once known as Nokia Siemens Networks (NSN), started in 2006 and fully “resolved” in 2013. Despite the birth pains, it’s Nokia’s main breadwinner, garnering 90% of the 12.7B€ achieved in 2014 (about $14B US at today’s rate) with decent operating margins (lately between 12% and 14%).

Nokia Technologies and Here don’t really matter. Combined, they weigh less than 12% of total sales. The patent licensing activity provides decent margins, more than 50%, but it doesn’t matter much with less than 4% of sales. Here’s 6.8% operating margin guarantees that it will be disposed of.

Throughout it’s history, Nokia has been decidedly and unabashedly Finnish. In its heyday, Nokia remained proud of its strong culture and gutsy sisu, even as its factories, Supply Chain Management operations, and carrier relations spanned the globe.

Today, the company is no longer the old Finnish Nokia; it’s now a kind of FrankenNokia assembled from disparate body parts and cultures that CEO Rajeev Suri, a 20-year veteran of Nokia, will have the thankless task of stitching together.

We’ll be watching to see if Nokia can regain its once-proud culture and overcome the “foreign bodies” introduced by the Alcatel-Lucent acquisition.

JLG@mondaynote.com