A History Lesson: How enterprise firms get consumer tech wrong (and vice versa)

A continuation of my thoughts on Enterprise vs. Consumer IT. After sketching out the theoretical framework in my first post, a few more practical examples of how - and why - companies fail at bridging the divide.

Recap - A Tale of Two Cities - Enterprise and Consumer

During my undergraduate studies I once went to a lecture. This was an unusual occurrence because, as I was doing a Modern History degree, lectures were strictly optional.

This lecture was on St Augustine - I presumed it was Augustine of Canterbury, early English missionary and highly relevant to my paper on Anglo-Saxon history. The amusing thing was that it actually turned out to be about Augustine of Hippo, guilt-tripped North African theologian and originator of the idea of Two Cities (subsequently swiped by Charles Dickens).

And an idea which sort of sums up my previous post on Enterprise vs. Consumer IT. Like Augustine's Cities of Man and God, there are two parallel but completely separate worlds of Enterprise and Consumer IT. While they are raised on the same technological foundations the products they sell, who sells them and how they sell there are utterly different. Here's summary of what i wrote:

How (not) to sell to both enterprise and consumer - a brief history lesson

Another point I raised in my previous post is that very few IT companies are successful at selling to both halves of the market. You sort of have this corporate groundhog day where a company does very well in one segment, gets delusions of grandeur and thinks they can shift their bulk to take on the other side.

To flesh out that point, I'd thought I'd (finally) make use of my undergraduate studies, and give a brief history lesson (see those three years weren't entirely wasted after all!):

• IBM tries to crash the consumer market with the PC Jr: In 1984, having built up a handy lead selling PCs to business, Big Blue turned its beady eye on the consumer market with a stripped-down PC called the PC Jr. If was one of the Big Blue's more memorable flops - overpriced, underpowered and rather shown up by Apple's sexier-looking Mac. And just to show that they hadn't learned their lesson IBM tried six years later with the PS/1, an ugly duckling of a desktop hobbled by a 16-bit 286 processor. One good thing did come out of the episode though - the original Kings Quest game was funded by IBM to show off the PC Jr, the first of many excellent games to come from the pen of Ken and Roberta Williams.

The PC Jr, and Kings Quest (the only good thing to came out of the whole mess!)

• Amstrad's fumbles the enterprise: In the UK Amstrad tried to do the opposite. Having built up a handy business selling home computers, and bargain-basement PCs for the masses, it then tried its hand at genuine enterprise-class PCs. The result was the PC2000 series, launched in 1988 against IBM's sexy new PS/2 architecture. Unfortunately while CEO Alan Sugar's ambitions were enterprise-class, his product control wasn't. Numerous hardware failures - notably a spate of dodgy Seagate hard drives - did it in for him and his PCs. Makes you wonder how exactly Sugar (now Lord Sugar) got his reputation as a "business guru"!

Amstrad's 2000 series - quite good if you don't need a hard disk...

• Microsoft's game of two halves: For the first two decades of its history Microsoft had very little to do with the consumer. With the exception of the excellent Flight Simulator series (RIP), I struggle to think of a decent consumer highlight. The lowlight would obviously be MSN walled garden - their Canute-like attempt to pretend the Internet didn't exist. However since then their fortunes have turned around with the success of XBox and XBox Live - although I note that after ten years this business still remains tiny when set alongside their enterprise offerings. And a shan't mention Zune. Much.

Look, could you stop picking on the Zune. The hardware wasn't actually that bad (but shame about the rest...).

• RIM's successes (and failures): Blackberry are probably the most successful crossover product to date (but see what's happened since!). They took an original enterprise hit product and used it to ride the initial stages of the smartphone boom. They then extended their consumer lead with their BBM product. However since then consumer success has proved transitory, even though the enterprise side remains resilient (so far).

Open the door... Get to the floor... Everybody walk the dinosaur!

• Google vs. Office: Google have obviously been a consumer smash, pretty much immolating the world of online advertising and listings. However their enterprise offerings (does anyone remember the Google Search Appliance?) have been nascent. Google Docs for example is a great product and suits the needs of the majority of Office users, but has simply failed to make a dent in the risk-averse world of IT purchasing managers.

A rack-mounted Google Search Appliance. Don't think they quite cracked the whole corporate colour-scheme thing yet!

• Amazon into the Cloud: Amazon has probably has the most success of recent crossovers, branching out from its core online business into cloud hosting with Amazon Web Services. They have done a great job taking core competencies in data-centres and distributed computing and using it to pretty much start a whole new business. Perhaps this is the exception that proves the rule...

Amazon Web Services. For once, no sarky comments. Respect is due.

Why companies fail to cross the divide

So what lessons can we learn from these failures and (limited) successes? When I look at the failures, I think there are a few key lessons that stand out:


1) Consumer companies misunderstimate the enterprise buyer: When consumer-focused companies try to sell to enterprises, they often underestimate how demanding the buyers are. There's a reason "Enterprise-grade" is an adjective - it means that corporate customers have much more exacting standards. If something doesn't work an apology and a product recall will not do. Amstrad's botched attempts to sell PCs to business was an example of this - their consumer business was built around making machines just-good-enough but more-than-cheap-enough. However when they tried to cut corners with their PC2000 series they were soon found out.

Some of Google's attempts also touch on this. The Google Search Appliance, for example, was a useful product which wasn't pitched correctly at the enterprise buyer ("What do we use it for? Where is the ROI case? And who's going to support the sodding thing?"). Contrast that with Autonomy which has had great success selling million-dollar search appliances, because they knew exactly what buttons to press in the enterprise.

2) Enterprise companies get caught out by the brutal competitiveness of consumer tech: For enterprise companies trying to sell to the consumer, it can be like a panda jumping into a pool of piranhas. Coming from a world of 5-6 year product cycles they are ill-equipped to deal with the fast-moving world of consumer IT. RIM is a case in point - their initial product was great for where the market was. However the iPhone uprooted the whole landscape, and fast-followers like Samsung moved swiftly in to follow. Meanwhile RIM was left with a pretty static portfolio and simply couldn't keep up with the ruthless pace of change. What competitive advantage they had was rapidly eroded.

3) Companies try to bridge two markets with the same product: If you've had a hit product on one side of the fence, its tempted to try and tweak it to sell to the other side. After all it means you can leverage your current investment and market position, which seems very attractive versus having to start again from scratch. However this path can lead to fatal compromise - IBM PC Jr was a good example. They tried to wrangle their enterprise PCs into a Procrustean Bed to serve the home market. At the same time they had to brain-damage it enough so that it wouldn't cannibalise enterprise sales. The result was a sad compromise.

Admittedly it can work at times - the Blackberry was the right product at the right time. However once the consumer work moved touch-screen they were conflicted because their enterprise customers demanded the keep the keyboard, just as the consumer market was leaving it behind. In the end they pleased no-one.

And how a few have succeeded

Of course its not all bad news. There are, as I have said, a few beacons of hope: Microsoft with XBox and Amazon with AWS/EC2 are two good examples of this. How do they do it?

XBox motherboard - PC in a box.

One key point is how they've taken core technology from their existing business, but used it to create completely new products. Rather than falling into the trap of trying to modify an existing product for a new market, they have started with a blank slate.

For example the original XBox was built on a solid WinTel platform, but ditched all signs of PC compatibility (as least at the end-user level). In essence it was a very very ordinary Pentium III / GeForce 3 based PC in a silly box. Similarly Amazon's EC2/Web Services are light years away from their core consumer-facing shopping sight, but under the hood share a lot of the infrastructure know-how.

The advantage of this approach is that they leveraged existing skills but their strategy in new market wasn't constrained by baggage from their old one. This avoids the big trap I've highlight above of trying to bridge enterprise and consumer with the same product.

There is one big disadvantage however, which is if you are starting with a new product you are by definition launching from a low revenue base. This means it can take a long time for you to build the new product to a stage where it makes a meaningful impact on group revenues. XBox for example has been around for over a decade, yet still contributes only 13% of group revenues.

Then again 13% is better than nothing.


Right that's all for tonight (its 2am at the moment. I think I need some sleep!). When I come back I want to continue this series by thinking about how vendors are finally trying to unite the two worlds - first by using Bring Your Own Device as a compromise (e.g. Good Technology), and secondly how Post-PC devices could finally bring them together.

Also plotting a secret left-field book review, which will be ready when its ready. J