Google and Microsoft Telecom Failures: Lessons Learned

Let’s start this piece by saying it is meant to be constructive and that people who live in glass houses should never throw stones. Unlike many writers, I am also the CEO of a media company which means I get involved in lots of product launches myself – sometimes they are from my company TMC and sometimes they are with partners or even vendors in the industry who use our services to help them launch. Over the years, I have failed in some of my launches – and I feel what doesn’t kill you makes you stronger and in an effort to utilize my collective experience to help others, I figured I would write about some of the areas where Google and Microsoft have tried to change telecom and failed.

We will start with Microsoft who unveiled their Response Point phone system to me a number of years back and wowed me with all the features embedded in a system which cost only a few thousand dollars. The company had a strategy of rolling out the product via VARs and Costco and other big-box retailers. The one concern I had about this box was the low price and figuring out how the VAR could make any money. I became comfortable with the idea of SMBs buying their phone systems in big-box stores as Microsoft told me the sales from these retailers was strong. The reality was that strong or not, the company pulled the plug about a year ago. Word has it the reason was there wasn’t enough revenue being generated.

There are a few reasons why this project didn’t work out for Microsoft. They had a premium product – the best in the market at its price point by far. They could have raised the price by a factor of four and plowed that money into marketing. An example of what I mean is the company had the equivalent of Bose Noise Cancelling headphones and they decided to price them for $69 instead of $300. Make no mistake about it; Bose has huge margins on its products because it spends tens of millions of dollars or more on branding. Throw in retail stores and you see this company is a mini-Apple in terms of their sales model.

One lesson here is pricing a product too low can hurt you to the point of killing off your product line. Another is telephony is an unusual business. As much as we want to say it is like data or computing, it isn’t. Do you want proof? I know of a few PBX companies who don’t innovate and don’t market but live off the sales of resellers in cities you have never heard of and will never visit. The telecom resellers in question are still called interconnects – an ancient term used to describe telecom resellers when pulling telephone wire was more important than understanding how voice and video travels over IP networks with minimized jitter and latency.

These interconnects who have been in the business forever make their money by developing deep relationships with the small businesses in their towns and golfing frequently with business-owners in the town. When it is time to upgrade the phone system they get a call and sell them the latest junk they have in inventory. It is really the equivalent of selling a company a record player but it is still done.

The next problem Microsoft faced was Moore’s Law as companies like Epygi, Grandstream and other small players in the market were willing to drop their prices even more and live on razor-thin margins. Then there is the ongoing open-source threat which allows companies to have virtually free telephone systems or at least systems which are very low cost.

Microsoft tried to become the mainstream PBX player with its low pricing but market research found that the penetration of the ResponsePoint name was negligible. This was in part because the company spent hundreds of millions of dollars promoting its OCS products and UC in general.

The lesson is if you are a premium brand and have a premium product you have to have a premium price.

Then there is Google who decided the Nexus One would be sold online exclusively and the world would beat a bath to the company’s door. It just didn’t pan out this way for Google who will now shut down the online store and sell the phones via retail outlets. Some will say the reason for the failure had to do with the Nexus One being outclassed by other phones from HTC which were newer and better and had more features.

I for one saw the Google model with extreme interest because the company threw everything it had at the launch. There were ads everywhere and one has to imagine the company spent far into the hundreds of millions of dollars if the ad space was to be resold to other companies.

There are two things you can determine from this news. The company can’t make the amount of money it wanted to via an online store regardless of how hard it tried. And from where I stand they tried super-hard. The second takeaway is that carriers were not thrilled to compete with Google when it came to selling phones. The challenge with this second point is that Apple seems to be selling phones without upsetting carriers too much, why can’t Google? In other words the sales must have been disastrous in the eyes of Google for them to make this move.

This leads me to an important point which is worth sharing about Google’s marketing vehicles. They are useful as part of a broader campaign. I hear tech companies complain constantly about Google Adwords – especially lately at places like Interop. What many companies fail to realize is that marketing needs to be holistic and comprehensive. Even Google who used its own channels exclusively and had unlimited access to inventory could not make the model work for them. Does this mean Google ads are no good? Quite the contrary when you know what sort of product you want like a Targus power adapter, Google is a great place to go to find a low price. For branding though, Google ads doesn’t work that well – organic rankings do better. At least that is what customers and my experience tells me.

Did you ever stop to think why Apple spends so much money on billboards and TV and has retail stores? After all, isn’t Apple selling similar products to Google? There must be a reason right? Didn’t this come up in any Google meetings?

One last point on this issue. When you bought your last phone did you decide to use a search engine or were you swayed by an ad on TV or a testimonial from someone else? Or finally, did you go to a store yourself and try all the phones yourself to see which fit best?

The overall lesson of this post is no matter how large you are as a corporation, you can’t necessarily change the way the market works overnight. This is especially true when it comes to human relationships – we have relationships with our VARs and relationships with the carrier stores in the malls we frequent. We won’t be won over in a few years, it often takes much longer.

  • Peter Radizeski
    May 27, 2010 at 11:43 am

    One problem with Response Point was that their wasn’t enough margin for anyone to get involved in configuration and support. People would buy the system retail and then have to contact one of the approved VoIP Providers for service. But they also need install and config which the SP’s didn’t want to do since they didn’t sell the phone system. That is also a Pricing issue function.

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