Innovative tech CEOs studying Microsoft’s public announcement on July 2nd that it would take a $6.2Bil charge against earnings as it writes down an unsuccessful acquisition of aQuantive should note two important points:
- Companies like Microsoft that have proven to be enormously successful servicing the needs of enterprise IT computing are not necessarily going to be successful should they choose to enter into other technology-driven markets like online advertising. In fact, we think that the two markets are largely dissimilar. Enterprise IT ISVs like Microsoft would do better to either allow acquisitions to self manage or to stay out of these markets, altogether
- In our opinion the online advertising market built around click ads (regardless of whether revenue models are built on pay per click, or pay per action) is not the cash cow that it is generally taken to be. At some point Google will catch this same cold.
The inevitable conclusion that must become apparent as the result of point 1) is that innovative tech businesses planning on entering enterprise IT markets should staff up with talent in marketing and sales with demonstrated success in these markets. Enterprise IT is a world unto itself. It is not possible to extrapolate from online sales success, even with business to business products, to success in enterprise IT markets. Better to source candidates from known competitors than to chance a hire with little if any experience in the enterprise IT computing area.
The second inevitable conclusion should be that innovative tech businesses looking to online promotion and advertising as a revenue model should exercise skepticism as they formulate and then review revenue projections. As we mentioned above, we think the online click ad market will not display the exponential year over year growth that was formerly the case, despite an opportunity to extend advertising efforts to a growing list of mobile devices. Bottom line: click advertising is an expensive method for almost any business that opts to avail of this approach to advertising. Until a better return on investment can be found, better to assume attrition in the size of this market than to bank on a strong flow of easy money.
Of course, we think it makes complete sense for CEOs to keep both of these points in mind and plan accordingly around them. If you are grappling with a need to improve planning and market position for your business, we would welcome an opportunity to connect with you. Please telephone Ira Michael “Mike” Blonder at +1 631-673-2929 to further a discussion. You may also email Mike at email@example.com.
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