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It has been twenty-three years since the publication of Al's first book on branding, Positioning: The Battle for Your Mind.
Coincidentally, twenty-three years elapsed between the day Charles Darwin completed his journey on the HMS Beagle and the day his magnum opus was published.
Time distills ideas and concepts so they become refined and purified. In spite of the hundreds of thousands of words we have already written on branding, we believe that the essence of the subject has still eluded us. We believe there's an important principle at work that has never been isolated, defined or explained.
We believe this principle is so fundamental that the only analogy that would do it justice is contained in the definitive book on biology, The Origin of Species.
That principle is "divergence," the least understood, most powerful force in the world.
What has happened in nature is also happening in the world of products and services. Every category will eventually diverge and become two or more categories, creating endless opportunities to build new brands.
The interplay of evolution and divergence provides a model for understanding both the Universe and the universe of brands.
Evolution has received all the publicity, but evolution alone cannot account for the millions of diverse and unusual species that inhabit the Earth. If it weren't for the force of divergence, evolution by itself would have created a world populated by millions of single-cell prokaryotes the size of dinosaurs.
So, too, it is in the world of brands. Brands evolve to become stronger and more dominant. But it's divergence that generates the conditions that allow the introduction of new categories and new brands.
Comparing branding with biology might seem far-fetched, but we could think of no other analogy that so clearly and simply explains the branding process.
As Thomas Huxley said upon reading The Origin of Species, "How extremely stupid not to have thought of that."
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The "great tree of life" is how Charles Darwin described his metaphor for the origin of species.
"The affinities of all the beings of the same class have sometimes been represented by a great tree. ÉThe green and budding twigs may represent existing species; and those produced during each former year may represent the long succession of extinct species. At each period of growth all the growing twigs have tried to branch out on all sides, and to overtop and kill the surrounding twigs and branches, in the same manner as species and groups of species have tried to overmaster other species in the great battle for life."
How do new branches arise? By divergence of existing branches.
How do new species arise? By divergence of existing species.
In the "great tree of products and services," how do new categories arise? By divergence of existing categories.
The computer didn't converge with another technology. It diverged.
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In The Origin of Species, Charles Darwin describes how natural selection gradually increases the number of species that populate the earth.
In nature, changes in the environment create the conditions that cause species to diverge. In business, changes in technology and in the cultural environment create the conditions that cause categories to diverge.
First there was broadcast television which allowed the creation of three network TV brands: CBS, NBC and ABC. Then cable television emerged and a proliferation of cable TV brands followed. HBO, ESPN, CNN and many others. Then satellite television arrived on the scene, creating opportunities for DirecTV and the Dish network.
Put yourself in the shoes of an executive of a company wanting to get into television just as cable TV was starting to emerge.
Are you better off trying to take a piece of an established market like network TV or are you better off trying to establish a new brand in an uncertain new category like cable TV?
Hindsight is 20/20. Today the answer to the question is cable TV, but that wasn't so obvious back in 1968 when the FCC first authorized pay-cable transmission.
And so it goes. Big companies tend to see things the way they are. Entrepreneurs tend to see things the way they could be.
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What's the size of the market?
That's the first question normally asked before the start of any branding program. It's also the wrong question to ask.
Branding opportunities do not lie in the pursuit of existing markets. Branding opportunities lie in the creation of new markets.
A new brand is like a new species. A new species does not evolve from an existing species. If the "lion" is a brand, you can't create a new brand by improving the lion. No matter how much you improve the breed, a lion is still a lion.
New species are created by divergence of an existing species. Somewhere in the distant past, the ancestor of the lion (panthera) diverged and a new species was created called a "leopard." In the same way, the panthera diverged a number of times creating the jaguar, the tiger and other species. That's the way nature works.
That's also the way branding works. If you want to create a powerful new brand, you should look for ways that your product or service can diverge from an existing category. In other words, the best way to build a brand is not by going after an existing category, but by creating a new category you can be first in.
Divide and conquer is the way you build a powerful new brand. What's the size of the market? The best answer to this question, from a branding point of view, is "zero."
To build a new brand, you must overcome the logical notion of serving a market. Instead you must focus on creating a market.
Consider Coca-Cola, the world's most valuable brand worth an estimated $70 billion. How did the Coca-Cola brand achieve such a lofty value? It wasn't because the brand was launched to serve an existing market. Coca-Cola became a big brand because it created a new market called "cola."
Coca-Cola created a tiger in a market populated by lions, leopards and jaguars. Powerful new brands are always created this way Éby divergence of an existing category. Never by improving an existing category or combining two or more categories.
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Darwin recognized that there were two aspects to evolution. One is gradual change and the other is divergence.
In biology, gradual change (anagenesis) and divergence(cladogenesis) are largely independent processes. Gradual change produces strawberries the size of plums. It just won't produce a plum. It takes divergence to do that.
In business, the two processes are largely independent, too. What can cause problems is confusing the two. You need to recognize what is normal, natural change and what conditions can lead to divergence which is abrupt change.
The 2004 Ford Taurus doesn't look like a 1955 Ford Fairlane, but it's still a sedan. There have been a lot of changes in Ford sedans over the years but they didn't evolve into minivan or sport-utility vehicles.
If you see divergence as natural change, you will miss the opportunity
to create a profitable new brand. If you see natural change as divergence, you might launch a new brand that turns out to be a disaster.
The first fundamental principle of evolution is "natural selection," or the survival of the fittest. The competition between individuals improves the species over an extended period of time. Darwin believed that all living things are engaged in a fierce struggle for existence and that this tended to kill off those plants and animals that inherit unfavorable traits.
Over time, a species evolves and because of natural selection becomes stronger and more resistant to the unfavorable conditions of life.
The second fundamental principle of evolution is "divergence." The competition between species drives them further and further apart.
A famous experiment in biology demonstrates the principle. Place two different species of paramecium in a test tube and come back in a few days. One species will have occupied the top of the test tube and the other species will have occupied the bottom of the test tube. The border between the two is a desert.
Likewise with barnacles. One species takes the high-tide line and another species takes the low-tide line. (In marketing, a brand that tries to occupy two different positions is often referred to as being stuck in the "mushy middle.")
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The success of the ubiquitous clock radio has convinced thousands of otherwise rational business leaders that the future belongs to a concept called "convergence."
If the clock can combine with the radio to produce an interesting and useful device, then what might happen if entire industries were to converge?
Some people give the credit (or blame) to the surge of interest in convergence to a New York Times interview with John Sculley that appeared on September 15, 1992:
"John Sculley, chairman of Apple, has been preaching about a post-industrial promised land where four giant industries (computers, consumer electronics, communications and information) will converge."
The following year The Wall Street Journal jumped on the convergence bandwagon: "Shock is a common feeling these days among leaders of five of the world's biggest industries: computing, communications, consumer electronics, entertainment and publishing. Under a common technological lash -- the increasing ability to cheaply convey huge chunks of video, sound, graphics and text in digital form -- they are transforming and converging."
The New York Times was just as enthusiastic: "Digital convergence is not a futuristic prospect or a choice to be made among other choices; it is an onrushing train."
This is the most important issue in marketing today. Whatever path you choose has enormous implications for the success of your brand.
If categories are converging, then existing brand names (and the companies that own these brand names) are going to become more powerful. If the handheld computer converges with the cellphone, then the resulting PDA/cellphone market would likely be dominated by either Palm, the dominate PDA brand, or by Nokia, the dominate cellphone brand.
If categories are diverging, then the opportunity arises for new brands.
You know where our beliefs lie. In spite of the overwhelming media hype to the contrary, we strongly believe that convergence will never happen. Technologies don't converge. They diverge. And thankfully they do, otherwise it would be almost impossible to create new brands.
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Every macho male has one, but when was the last time you saw someone actually use the scissors on a Swiss Army knife to cut something? Or the screwdriver to screw something?
There are many "Swiss Army knife" products on the market. They get a lot of publicity, they capture the public's imagination, they get bought by the millions and then they wind up in dresser drawers where they sit idle for decades.
Swiss Army knife thinking is rampant up and down the corridors of corporate America.
What are the three biggest, most exciting, most dynamic industries in America? Most people would probably say television, computers and the Internet. Great, why not combine the Internet with your television set as well as your computer?
And so the cry goes up, interactive TV, the wave of the future.
Some wave. In 1997, Microsoft bought WebTV Networks for $425 million and has since poured more than half a billion dollars into the venture. Results have been dismal. Today, WebTV (whose name has been changed to MSN TV) has about one million subscribers, a trivial number compared to the more than 100 million TV sets in use.
Convergence has clearly become an obsession with Microsoft. "Has William H. Gates become the Captain Ahab of the information age?" asked The New York Times. "Mr. Gates' white whale remains an elusive digital set-top cable box that his company, the Microsoft Corporation, is hoping will re-create the personal computer industry by blending the PC, the Internet and the television set into a leviathan living-room entertainment and information machine."
Microsoft keeps trying. After the lukewarm reception to WebTV, Microsoft moved on to UltimateTV. Putting a clock together with a radio is nothing compared to what Microsoft has in mind for today's couch potato.
Fred Allen once said that television is 85 percent confusion and 15 percent commission. UltimateTV may turn out to be 100 percent confusion. "If programming the clock on the VCR gives you a migraine," reported Fortune magazine, "UltimateTV will trigger a full nervous breakdown."
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With the press, the pundits and the high-tech community firmly behind the convergence concept, who could possibly doubt that one day it will all happen?
Any student of history, that's who. "Those who cannot remember the past," wrote George Santayana, "are condemned to repeat it."
Remember the aerocar? When general aviation started to take off after World War II, the convergenists looked for ways to combine the airplane with the automobile.
In 1945, Ted Hall introduced the Flying Car. Roads would become obsolete, traffic jams a thing of the past. You could go anywhere, anytime, with complete freedom of movement.
Every major aircraft manufacturer in America hoped to cash in on Hall's invention. The lucky buyer was Convair. In July of 1946, Convair introduced Hall's flight of fancy as the Convair Model 118 ConvAirCar.
Company management confidently predicted minimum sales of 160,000 units a year. The price was $1,500 plus an extra charge for the wings, which would also be available for rental at any airport.
Three years later, Moulton Taylor introduced the Aerocar, a sporty runabout with detachable wings and tail. The Aerocar received a tremendous amount of publicity at the time. The Ford Motor Company considered mass-producing it. But the Aerocar met with the same predictable fate as the Flying Car.
Bad ideas never die. As recently as August 2, 2002, The New York Times carried a major story (nearly a full page) on the Taylor Aerocar. "A car with wings," said the Times "is many a flyboy's dream machine."
Remember the autoboat? Would-be convergenists should study the combination automobile/boat introduced with great fanfare in 1961 by Amphicar, a German company. Like all convergence products, the Amphicar performed neither function very well. Drives like a boat, floats like a car, was the buyers' verdict.
It's divergence that triumphs, not convergence. Instead of a flying car, today we have many types of airplanes (jet planes, prop planes, helicopters) and many types of automobiles (sedans, convertibles, station-wagons, minivans, sport-utility vehicles.)
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It took an enormous leap of the imagination for Charles Darwin to visualize his "great tree of life," the evolutionary process that takes place over hundred of thousands, even millions of years.
We're lucky. We can see the evolution of brands over a much shorter period of time. Take the computer, for example.
It was the introduction of Univac by Remington Rand in 1951, and the IBM's mainframe computer a year later, that marked the real start of the computer era. And what an era it has been.
In a little more than 50 years, the world has witnessed an astounding array of products: Minicomputers, midrange computers, personal computers, network computers, laptop computers and handheld computers plus many thousands of software products. There are computer magazines, newsletters, websites and the Internet plus an army of computer consulting firms.
The growth of the computer tree and its many branches allowed the creation of many powerful and valuable brands including IBM, Unisys, Hewlett-Packard, Sun Microsystems, Siebel, Oracle, SAP, Dell, Apple, Palm, Intel and Microsoft.
The trunk of the computer tree (IBM) is worth $167 billion on the stock market. But the other 11 companies alone are worth $852 billion and there are thousands of other branches on the computer tree.
What is happening in computers is also happening in every other industry. Appliances, automobiles, beverage, toiletries, food, you name it and you'll find divergence at work. Over time, categories divide and become two or more categories, creating endless opportunities to build new brands.
If convergence was really a trend, it would mean that generations of divergence have suddenly come to a halt and life is going to get simpler.
Fat chance. Life never gets simpler. It only gets more complicated. Whatever tree you are looking at, you can be sure of one thing. In the future, there will be more branches, more categories and more brands.
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Fifty years ago every town in America had a coffee shop. What did you find to eat in a coffee shop? Everything. Eggs, bacon, pancakes, hamburgers, hot dogs, chicken, soup, sandwiches, ice cream, pie, donuts, cake, soft drinks and, of course, coffee.
How would you improve your operations if you owned a typical coffee shop in the mid-twentieth century in Middle America? Convergenists would probably focus on the menu.
"Maybe we could increase sales by adding new items. How about buying one of those new pizza machines being advertised in the trade press? Or maybe we could get one of those soft ice cream machines that Tom Carvel is peddling?" Makes sense. If you want to sell more, you need more things to sell.
But what makes common sense often doesn't make good marketing sense.
Go back and look at the coffee shop from a divergenist's point of view. What's the most popular single item in a coffee shop? Arguably it's the hamburger. "Let's open a coffee shop that serves primarily hamburgers."
In 1948 in San Bernardino, California, that's exactly what Dick and Mac McDonald did. Open a "coffee shop" that served primarily hamburgers.
What do you call successful divergenists? We call them "convergenists," because as soon as they become successful, they revert right back to type. McDonald's has been busy expanding its menu. Where there once were nine items on a McDonald's menu, today there are more like 50 items. More and more, today's McDonald's looks like yesterday's coffee house.
Compare McDonald's with In-N-Out Burger, a California chain that has stuck to a basic burger-and-fries menu. The average McDonald's unit in the U.S. does $1.5 million in sales. The average In-N-Out Burger unit does $1.9 million in sales.
(The original McDonald's brothers' restaurant in San Bernardino was ringing up annual sales of more than $400,000 during the 1950s, a figure that accounting for inflation would be $2.9 million today.)
What should McDonald's have done to increase sales? Use its real estate, financial and operating expertise to launch a second brand. Or even a third or fourth brand.
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One of the knocks on evolution is the absence in the fossil records of "missing links." If man were descended from the ape, where are the half man/half ape fossils? Paleontologists haven't found any.
Nor are they likely to find any. The missing link will always be missing.
Solving the mystery was one of Charles Darwin's most brilliant deductions. The only illustration in The Origin of Species diagramed the natural tendency of species to move apart after many thousands of generations, leaving wide gaps between individual species. And no missing links.
Today's personal computer is not descended from the typewriter. The first personal computers didn't have a keyboard, didn't have a printer, didn't work like a typewriter and didn't look like a typewriter.
The reason for the failure of many companies and many brands is that Homo sapiens can overrule nature, at least in the short run. Homo sapiens in the business world can do things that would never occur in nature. Homo sapiens can introduce missing links.
And they do. Every day. In almost every industry you can name, companies are busy introducing missing links.
Half-typewriter/half personal computer, the word processor enjoyed a brief moment in the spotlight. It made Wang Laboratories the dominate brand in the category. By 1985, Wang was a $2.4 billion company.
By 1992, Wang had filed for bankruptcy, another victim of the missing link myth.
In the early days of any emerging industry, you see repeated examples of the same folly. There are many companies that jump in to provide the missing link between yesterday and tomorrow. Their motto: The best of both worlds.
Early transoceanic steamships also had sails. At first, the hybrid combinations were big winners. They were faster than pure sailing ships and more economical than pure steamships.
In retrospect, it's easy to see what happened. Sailing ships and steamships evolved in two different directions and the hybrid was pulled apart and sank
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Two seeds fall onto the forest floor. Maybe it was the angle one seed hit the ground, maybe it was the soil underneath the seed, but for some reason that seed germinates first and the other seed a day or two later.
At every stage of growth, the first seedling is taller, stronger, more resistant to drought. As time passes, the first seedling grows up to become a gigantic tree, blocking the sunlight from reaching the second seedling. Eventually the second tree-in-the-making withers and dies.
Survival of the fittest? To be sure. But how did the first seedling become the fittest seedling? In the forest or in the marketplace, the battle is usually won by the first contestant to occupy the space.
Being first doesn't automatically mean your brand will become the leader in a new category. It only gives you the opportunity to do so. If you're first, your brand starts off as the leader since there are no other brands that are trying to occupy the same branch.
Here's where evolution comes in. Your brand needs to continue to evolve to maintain your leadership. In this respect, you need to be protective of your brand and be especially vigilant when competitors threaten your position.
Sales, however, don't matter nearly as much as perception. To become successful, your brand needs to establish a perception of leadership in the minds of consumers.
The motion picture industry has figured out how the game is played. If a movie doesn't open with a big weekend, it's not going to become a blockbuster. A big opening weekend, especially if the film is No.1 in ticket receipts, almost guarantees that the film will be successful.
Sales don't matter. It's the publicity generated by sales that build the buzz for the brand. People want to see what other people are seeing. A motion picture that opens with a big splash creates the perception that it's a "must see" movie, especially among the younger crowd who make up the majority of the market.
"The Matrix Reloaded" sold $42.5 million worth of tickets on its opening day, a new record. Naturally this new record generated buckets of publicity.
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Three seeds fall onto the forest floor. Two land close together, the other lands some distance away.
In the struggle for life, the two seeds that are close together will fight an epic battle until one dominates the other. From that point on, it will be survival of the firstest.
But suppose your brand was not first, suppose your brand has no chance of being first, suppose that your seed is the one that fell some distance away from the leader.
You're exactly in the right position to survive. Your brand will benefit from another principle derived from Darwin. Survival of the secondest.
A few acorns will fall some distance away the oak tree. These are the ones that have a chance to grow up and become trees.
In nature, it's easy to see why survival demands a certain separation of species. Why a monkey takes to the trees to escape the bigger primates on the ground. Why a giraffe uses its long neck to find food that its shorter competitors cannot reach. In the long run, each species occupies a different niche on the great tree of life.
The second largest city in America is not Boston, Philadelphia, Baltimore or any other city close to No.1 New York. The second largest city in America is Los Angeles, about as far as you can get from New York without leaving the country.
In business, you can generalize this concept with the strategy: "Be the opposite of the leader."
It doesn't matter what the leader's strategy is, whether it makes sense or not, it's always better to be the opposite of the leader in some fundamental way, than it is to emulate the leader.
There is no one way to build a brand. There are two ways. Either be first and establish your brand as the leader. Or be second and establish your brand as the opposite of the leader.
Too many business people allow their emotions to cloud their judgments. There is no right way and no wrong way to build a brand. There is vanilla ice cream and chocolate ice cream. Some people like vanilla. Some people like chocolate.
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The way to keep a plant vigorous, as every gardener knows, is by pruning.
Why is it that corporate gardeners have trouble accepting this principle? Growth in all directions weakens a plant and it also weakens a corporation.
Every hour, every day, every week, every month, the typical company expands into more products, more industries, more distribution channels, more price points. Like organic growth, corporate growth is mostly invisible. You can't see the grass grow. You can't see a company grow.
Take Sears, Roebuck. Most people think Sears, Roebuck is a good place to buy appliances and maybe clothing. Check your yellow pages and you'll find that Sears is also into a lot of other businesses. Some examples: Sears Auto Centers, Sears Carpet & Upholstery Cleaning, Sears Dry Cleaning & Shoe Repair, Sears Driving School, Sears Electrical Repairs, Sears Eye Glass & Contact Lens Center, Sears Fencing, Sears Hearing Aid Center, etc.
Sure, many of these side deals are franchised operations, but they still require management time and attention. Furthermore, they detract from the power of the Sears brand name. When you stand for everything, you stand for nothing.
Years ago, many years ago, Sears boasted of being "The Cheapest Supply House on Earth." Obviously that's no longer true.
What's a Sears? We don't know, do you? What could Sears be? We would prune the soft goods and focus the retailer on hard goods, specifically home appliances where Sears is No.1 with a 39 percent market share.
It's the management issue that ultimately limits the optimum scope of a corporation. How can you manage a business you don't understand? You can't. In the garden, you hear the word "pruning" a lot. In the boardroom, almost never. The buzzword in the boardroom is "expansion." How do we expand our business to increase sales and profits?
You expand your business at your own peril. One way is by merger or acquisition. The great M&A wave washed over corporate America in the last half of the 1990s. One estimate put the loss due to mergers in the 1995 to 2000 time period at $1 trillion of share-owner value.
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The most difficult marketing job, and also the most rewarding, is creating a new category.
The first, and the most important question of all, is what's the name of the new category. If you cannot define the new category in simple, easy-to-understand terms, the new category is unlikely to become successful.
Consider Zima, a new beverage introduced in 1992 by the Adolph Coors Company. Coors has never told us what a Zima is. As a matter of fact, Coors ran advertising bragging about the fact that the new category defies definition. Here's the entire copy from one of the first Zima ads.
"Zima ClearMalt is, let's seeÉit's lightly carbonated but not filling like beerÉ(even though it is brewed) and it's um, zohisticated tasting but lighter than a mixed drink, and um, easy drinking but not so zweet (gaaaaack!) like a wine cooler; and it's clear, so you can zee through it and check out what's going on in the rest of the room even while you're drinking it (very important) and Éwhat else? You can drink it straight or on the rockz."
"So it's sort of like different from ahhÉanythingÉever."
In contrast, consider Red Bull. The product is a lightly carbonated, highly caffeinated concoction containing liberal quantities of herbs, B-complex vitamins and amino acids. Founder Dietrich Mateschitz based his drink on Krating Daeng, a popular health tonic he had encountered in Thailand.
A temptation that's hard to resist is to give the category an "exotic" name. Mateschitz could have bought the rights to the name "Krating Daeng," for example. Or perhaps he could have called the new drink, "Thailand Tea."
What Mateschitz actually did was to call his Asian compound, "an energy drink." As it happens, the first energy drink.
Simple names work best when defining a new branch. Not only is "energy drink" a simple name, it also benefits from an analogy with PowerBar, the first "energy bar."
Marketing can be visualized as "filling a hole in the mind." If there is a category called "energy bar," the prospect thinks, there must be a category called "energy drink." Red Bull, of course, was the first brand to fill the empty hole in the mind called "energy drink."
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Establishing an enemy is almost as important as creating a new category. No category will be successful unless it has an enemy.
No new brand will be successful unless it also has an enemy.
The world is filled with inventions that never go anywhere because they don't have enemies. They are just interesting concepts that never find a place in the consumer's mind.
You have to ask yourself an important question. Why would a consumer want to put a new category into his or her mind? The truth is, the average person has enough mental junk to last several lifetimes.
If given a choice, most people would rather clear out the crap that already exists in their minds. They don't want to remember the hundreds of categories and thousands of brands that already clutter up their minds.
You need to ask yourself, why would a consumer want to take the time to put my new category into his or her mind?
The best way to put a new category into the mind is to use the new category to attack an old category. It's like clothing and fashion. The best way to put a new fashion brand into a mind is to make the old fashion brand obsolete.
It's easy to see how this strategy works if you study the past. Whiskey used to be the largest selling distilled spirit in America. Then a new category called gin came along. How did gin get to be a big category? Gin treated whiskey as the enemy. Whiskey was old fashioned and gin was the latest "in" drink.
Every new category enters a mind by positioning itself against an existing category. By treating an existing category as its enemy.
Take the diet cola category. The enemy of diet cola is regular cola, yet that puts the leading brand (Diet Coca-Cola) in a difficult position. Diet Coke should be attacking regular cola by running advertisements that say in essence, "150 calories, for what?"
In other words, Diet Coke should put regular cola in the same category as smoking cigarettes or driving without a seatbelt. They're all bad for you. That's difficult to do psychologically if "Coca-Cola" is part of your brand name, another reason why the Coca-Cola Company should have used Tab or some other brand name for its diet cola product.
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Parvis e glandibus quercus. Tall oaks from little acorns grow.
The biggest, most powerful, worldclass brands start from little ideas. If you try to force-feed your new brand with massive resources including a massive advertising budget, you are unlikely to be successful.
Time and patience are your allies. You can kill a plant with too much water and too much fertilizer. You can kill a brand the same way.
The strongest, longest-lasting brands are created by divergence of an existing category.
But this divergence is a slow process. Television was invented in 1927, but was not commercialized
until after World War II. A company formed to launch a television brand in the 1930s would probably have gone bankrupt.
Perhaps no other revolutionary product grew as fast as the personal computer. The first personal computer was introduced in 1975, the same year Bill Gates dropped out of Harvard to go to Albuquerque, New Mexico, to write a basic software program for the Altair computer.
Microsoft, the company Gates founded, is today the second most valuable company in the world, worth $304 billion on the stock market.
Things weren't always so rosy. On February 3, 1976, Bill Gates wrote an open letter to Altair users complaining about software piracy. Published in the Homebrew Computer Club newsletter, Gates stated, "The amount of royalties we have received from sales to hobbyists makes the time spent on Altair BASIC worth less than $2 an hour."
Most people who found themselves working for less than $2 an hour would have looked for another line of work. Not Bill Gates. His faith in the future of software paid off in a big way.
The branching process takes time. It even takes awhile for a new category to be recognized as a new category. One of Bill Gates' early problems was the perception that software wasn't worth anything. So owners just copied the software needed to operate their computers from friends. (Less than 10 percent of Altair owners bought Microsoft's software.)
As a result, Microsoft took off slowly. It was 10 years before the company exceeded $100 million in sales.
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The critical event in a company's history occurs when the limb it has been riding branches out.
A company that tries to ride both branches with the same brand name is in an exceptionally dangerous position.
They're like a circus performer who rides standing up into the ring straddling two horses. Nice display of horsemanship, but what would happen if each horse went in a different direction? Rider and mounts would part company in a big hurry.
In the ring, it doesn't happen because the rider keeps the horse
under control. In the marketplace, it's a different matter. A company in the mushy middle gets pulled apart
by evolution of the branches.
It happened to IBM. It happened to Polariod. It happened to Motorola. It is happening to Kodak.
Brands live and brands die. Brands don't die because they didn't keep their customers happy. Brands die because their categories die. Wang (word processors) and Polaroid (instant photography) are two examples.
In the long run, every company will die unless it replaces its obsolete and dying brands with new brands built around new categories.
The biggest, single source of new brand opportunities is divergence. But unlike nature, categories don't diverge in response to environmental conditions. (Think consumers.) Categories diverge in response to companies that introduce new brands that are divergent in concept.
Timing is the critical element. You might not want to introduce a new category (via a new brand) because that might make your existing category obsolete. But if you wait and let a competitor introduce the new category first, you will lose out. Survival of firstest.
Even a sensational product like the Apple Macintosh remains a niche machine because it wasn't first. (The IBM PC was the first 16-bit business computer.) Unlike nature, in marketing a company gets a second chance. If you're not first, it's possible to build a strong No.2 brand by being the opposite of the leader.
Dell was late in the personal computer game. All the other brands were sold through distribution channels, primarily stores. So Dell did the opposite. They sold direct. Survival of the secondedst.