Silicon Insider: Branding as Modern-Day Fiasco

Dec. 12, 2001 -- If it's true that you can never successfully go forward until you have learned all of the lessons of the past, then we've just had the final lecture. I wonder if anybody took notes.

In an interesting coincidence recently, a pair of companies made similar announcements. The big one was the collapse of Enron, one of the highest corporate fliers of recent years. The other, little announcement, made 3Com Corp. was that it wasn't planning to renew its lease on the title of San Francisco's Candlestick Park stadium, home of the 49ers.

What did they have in common? Baseball fans know that the ballpark for the Houston Astros has lately been known as Enron Field. Enron paid a $100 million for that dubious honor — an amount, given its stock value at the time of the bankrupcy of about two bits per share, represented about one-fifth of the company's total value.

Enron and 3Com weren't alone in this idiocy. Modern American life, from bowl games to golf tournaments to stock car races and from arenas to superdomes, is plastered with corporate brand names and logos, all to little apparent benefit to the advertiser.

This is what happens when you let the marketing department run the show. We've learned a lot of things in the last year about business: The old rules still apply. But the one big one that no seems to have noticed is this: Branding is bulls---.

Let me put it another way: If your company seriously contemplates embarking on a multimillion-dollar marketing campaign that is designed not to sell products or services, but solely to enhance the company's image, start typing your resume.

A Devil’s Bargain

The last 10 years have seen the apotheosis of corporate marketing. Business used to be about tough guys in manufacturing and dry bean counters in finance. These days it's about publicists, ad placement specialists and focus groups. It has been a devil's bargain, and we are now paying the price.

It all began innocently enough, and with the best intentions. One of the glories of American industry is its powerful right arm in academia, research institutions and think tanks. As American industry races along in its pragmatic way, innovating new products, services, organizational models and competitive techniques, these professional observers follow along closely in its wake, codifying these new ideas, giving them titles and terms, and determining how to disseminate them across society.

When it works it is a sweet model. It's the reason why, in just three decades a group of ideas forged at a little California company called Hewlett-Packard — profit sharing, stock options, flexi-time, management by objective — was adopted by millions of companies in the United States and then around the world.

This rapid distribution and adoption of new ideas in turn means that the next wave of companies, coming along every five years or so, can start out with this installed base of knowledge and quickly build upon it. It also means that MBA students came come out of college armed with an inventory of received wisdom that has been updated almost to the day of their graduation, and new start-ups can move into their first offices with business models as sophisticated as those found in billion-dollar corporations.

When Theory Outpaces Experience

Unfortunately, lately the system has been working too well. In particular, the observers having getting ahead of the observed, drawing conclusions that don't jibe with reality. When that happens it is almost always a disaster.

Remember the "learning curve" model of pricing? The Boston Consulting Group propounded this idea about 25 years ago. Basically, a bunch of business theorists noticed that high-tech product pricing followed a distinct curve as the product matured from new innovation to commodity.

So, said the gurus, why not anticipate that result, price from the beginning at that end point and tie up the market now? Great idea! Texas Instruments tried it in pocket calculators and stole the business, killing most of its competitors … and its own profits in the process.

There have been other disasters resulting when theory outpaces experience. Take "core competence," in which you do only what you do best and hand off everything else to contractors and strategic partners … and then watch as they fail to meet delivery times. Then there's "intrapreneurship" — millions spent on internal start-ups that are strangled in the crib by jealous fellow employees, or turn into expensive retirement villages or pay to fund a future competitor.

The Brand Fiasco

But the biggest fiasco of recent years has been the idea of branding.

Branding is hardly a new idea. But only in the 20th Century was it identified as the ne plus ultra of marketing. Coca-Cola showed the way, McDonald's perfected it, both becoming the most universally recognized entities on the planet.

High tech learned the lessons well, and in one case — "Intel Inside" — actually drove the state-of-the-art, convincing consumers to buy a personal computer based upon the arcane microprocessor technology buried in its motherboard.

The power of brand is unmistakable in high tech. Think of the following companies and the images connected with each: Apple (maverick, creative); IBM (safe, huge), HP (quality), etc., etc. Obviously, in these cases branding worked.

But in the mid-1990s, just in time for the arrival of a generation of dot-commers, everything turned upside down. Once again, the thinkers got ahead of the doers.

This time it was the marketing gurus. Branding is everything, they pronounced. Seeing big-money contracts, the big consulting firms like KPMG and Ernst & Young joined in, as did every PR firm and ad agency in high tech.

They all found the perfect prey in the inexperienced entrepreneurs starting e-commerce companies, and the equally inexperienced venture capitalists funding them. The mantra became "Build the Brand," superceding even such minor matters as actually building a product or constructing a real company.

No Metaphysical Bumper Sticker

Not surprisingly, before long new Internet start-ups were devoting most of their energies and capital to propounding their brands, apparently assuming that the actual business would follow.

What these companies never learned, and the analysts apparently never noticed, was that the brand identity of high tech's great companies arose organically from their business activities — their products, their business culture and their relationships with vendors and customers. It was not applied like some metaphysical bumper sticker.

This mistake cost the American economy hundreds of billions of dollars (remember all those Super Bowl branding commercials? Rented stadiums? Coffee mugs and mouse pads?) and thousands of companies. Unless they can find new suckers, it will now also cost municipalities that built edifices assuming corporate financing.

Will all this misery be enough to teach us a lesson? Maybe. But just in case, perhaps we should leave up the fading Enron and 3Com signs, and all the other wasted branding efforts, as a reminder to never be so stupid again.

Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail.