Business Implications for Social Marketing

April 7th, 2008

There is a whole brave new world for social marketing which is unfolding and which, so far, has caught many businesses off-guard.

A good part of the reason for this is because many corporate marketing departments are managed by people who cut their teeth when TV, radio and print were the main ways to reach audiences.

Sam Flemming, who is the founder of Shanghai-based CIC, a market research and consulting firm which covers brand buzz in China, has posted an article on how online trends will affect how agencies will think and work.

Based on my experience working in traditional media and then online in China, I think that online users are about 2-3 years ahead of online users in the US. This is because the Internet developed without the help of advertising income in its early stages, unlike in the US where advertising was a very established model. For this reason, it is much easier for Chinese consumers and advertisers to adapt. In China, there is much stronger tie-in between offline events and online promotions, instead of just relying on online advertising as in the US.

US corporations and advertisers have to “unlearn” much of what they have thought would work in the new online space.

One of the big questions is that agency account people will have to learn to become advocates for their brands and products both offline and online. Where does the agency and customer advocate line end and begin? It’s easy to see that in the very near future the best agency account people will be those who are the most passionate and eloquent advocates for a product, and can exercise good judgment quickly. Those who succeed will be the ones who can go from strategy to tactics very quickly, while keeping the client clear about overall goals and weaving through the intricacies of the online conversation.

One book which is going on my “to read” list is Jump Point, which talks about how marketing to the interconnected online crowd is going to work.

China Marketing: Think Deep, Not Big, and Add A Twist

March 30th, 2008

One of the things which I frequently hear from first-time visitors to China is that “It is so big!” Sometimes, I hear this even from Texans, an American state which takes pride in being bigger than almost any other state, with the exception of Alaska.

Westerners are not the only ones to fall victim to this thinking; Chinese also are enamored with these numbers. When I hear presentations, the most frequently heard numbers show 420 million mobile phone subscribers, 250 million IM subscribers, at which point the China virgins go gaga and start counting the yuan they are going to make (in their dreams) and planning their retirements (also in their dreams).

By now, I’m sure that you’ve figured out that I don’t buy into this view. Yes, China is big, but so what?

Instead, when you start looking at real revenue and earnings numbers, China is still way down there. And for many companies, both Chinese and western, it’s a difficult nut to crack.

But I don’t think that it needs to be. First of all, let’s get past the population and subscriber numbers. Yes, they are very big, and the only country which can even come close is India. All the thoughts, fantasies and conversation about projections should end there, and marketers should dig deeper to look at revenue and earnings projections, since they are the only real numbers which count.

Marketing 101 says that it isn’t the size of your market and number of units sold, it’s really all about your margins and accessories you can continue to cross-sell or up-sell to your customers after the initial sale. There is the often quoted example of “give away the razor, and sell the razor blades (where you really make the money).”

Since my field is the Internet, I frequently come across all kinds of interesting ideas where Chinese entrepreneurs are seeking funding. Let’s say that I’ve seen a lot of ideas in my lifetime, and I’m picky about what strikes my fancy. When I talk to people, I’m often looking for a “je ne sais quoi” which is different about them, or their products and services, and their ability to execute. China subscriber and user numbers don’t impress me, and make my eyes glaze over very quickly.

I’m much more impressed when people talk about revenue and earnings projections. I’m even more impressed when I find out that these numbers are not pulled out of thin air, and can relate to something the presenter/entrepreneur has worked on and delivered in the past. At this point, we cross the line from fantasy to a doable reality.

The trouble with many Chinese startups is that the founder is so focused on raising money that he forgets to even spin a good story about what he’s going to do with the money! And yet, China is such a hot place to be now that there are people with money who are willing to part with significant amounts of money without even asking for a good story about how they are going to execute!

Part of the reason so many poor ideas get funded is because the burn rate is so low in China that even if the startup fails in the initial stage, the burn can be kept so low that if/when the startup founder has to do a reboot (usually by coming up with a sensible idea), that there is still money left in the till for a repositioning and second chance. In reality though, I think that this is a bad strategy for investors. After all, if the founder/s did not come up with a good idea the first time, and it got funded, what is the incentive for him to come up with a good idea the second time around?

This is why countries like the US and Sweden and other countries continue to be competitive in the Internet startup field even though their initial startup costs and burn rate are much higher than in China. Being cheap and being good are too entirely different things, and often being cheap actually prevents you from being good because it allows, and even encourages, sloppy thinking and poor execution skills.

This is not healthy for the western investors and for the Chinese. This is a sign of a bubble, and is oddly reminiscent of that situation in the US just a few short years ago when many people thought that they could buy a house without a down payment and a job. Fortunately for China, the Internet sector is still a relatively small part of the economy, and while US and western funds may eventually come up $50 billion or so shorter in a few years, it won’t be significant enough to put a crimp in any venture capitalist’s or private equity fund manager’s retirement plans.

What is needed now, at least in the Internet startup area, are entrepreneurs who have actually had experience selling something, and actually understand the purchasing habits of Chinese consumers, and know how to provide a useful service to earn that money and are willing to put revenue projections into their pitches.

There are plenty of opportunities and China is still a big market. I can think of several things right off the bat.

But let’s stop talking population and subscribers, and start talking revenue and earnings, shall we?

Asking the Right Questions Before Diving In

March 22nd, 2008

A good way to find out how sharp a person is to listen carefully to the questions they ask. Smart people ask very sharp questions which cut right to the core of an issue, while less astute individuals kind of dance around the edges.

Smart entrepreneurs ask the sharpest questions because often the success of their own business depends on the questions they ask. Smart people who work for large organizations usually do not have to ask such sharp questions because they have an employer who tells them what they need to do, and they are usually not paid to ask questions, they are just paid to do things they are told to do, regardless of whether the tasks are smart or not.

I have long been an admirer of the folks at 37 Signals because I think that they are a small and very smart crowd of people. For me, they represent the kind of company which future entrepreneurial organizations should be like: small, smart, fast and lightweight. They are the Davids (as opposed to Goliaths) who want to continue to be small and smart, and focus on serving their customers’ needs.

One of the reasons I admire them is because they were the incubator/developer for Ruby on Rails, which I talked about earlier in this article. What is significant about the 37 Signals team is that they think of themselves more as designers than developers, which gives them a different perspective. Instead of adding features, they are focused more on making software programs easier to use. This is the thinking behind their online application suite offering which includes Basecamp, Highrise, Campfire, Backpack, Writeboard and Ta-da. After doing web development over several years, they have captured their thoughts about web application development in a downloadable PDF book called Getting Real.

A major part of their appeal is that aside from being designer/developers, they also have an appreciation of how the business world works. For this reason, I’m a frequent visitor to their website. Recently, they had a posting to their company blog called Question your work. According to this article, there are several questions which you should always ask:

  • Why are we doing this?
  • What problem are we solving?
  • Is this actually useful?
  • Are we adding value?
  • Will this change behavior
  • Is there an easier way?
  • What’s the opportunity cost?
  • Is this actually worth it?

All of the questions are very good big-picture questions which should be asked up-front before embarking on any major development project. I have seen many fairly major software development undertakings, as well as marketing projects, which did not answer these questions well, and frankly, a good deal of grief would have been saved if these questions were posed first.

So regardless of where you are, whether you are in the US, China or anywhere else, ask these questions first before you embark on a major business adventure.

Advertising On The Three Screens and New Business Models for China

February 16th, 2008

In technology marketing parlance, the three screens refer to the television screen, the PC screen and the mobile phone screen. Most marketers and advertisers now recognize that more eyeballs and viewing time are going to the PC screen, and even more will soon go to the mobile phone screen, and the question they are asking is “When will advertising on the PC and mobile phone catch up with advertising on the television?”

This is a question which Kaiser Kuo, publisher of Ogilvy China Digital Watch, asked in his article “Closing the Marketing Gap”. To quote from his article:

The “Marketing Confidence Gap.” That’s Ogilvy parlance for that vexing and persistent chasm between, on the one hand, the high percentage of media time spent by the average consumer online and, on the other, the relatively low percentage of overall ad budgets being directed online.

Kaiser then goes on to point out that when TV was the disruptive new technology, advertisers most likely ran into the same kinds of complaints from what were then mainstream media buyers (print and radio). And that it took some time for the new advertising models for TV to take off and then reach a new equilibrium of general acceptance. The new medium created its own new business ecosystem with the most well-known being the television market research firm AC Nielsen.

The three screens model throws the old model of TV advertising into question. For many video watchers on the PC, the main appeal of watching videos on Youtube or Tudou is because they can watch them anytime, without advertising. Contrast this with the old broadcast model of the 1960s in the US, dominated by ABC, NBC, and CBS and a few affiliate networks. In the 1970s, cable TV began to take off; it did not have any advertising and relied exclusively on subscriptions. Then in the 80s, satellite news (CNN) took off. So the good old days were not really as quiet and stable as some would have us believe.

This is why the relationship between time spent online and advertising does not hold water for me. There is no rule which says that the correlations which applied to the first screen of television should also apply to the second and third screens of the PC and the mobile phone. I would go so far as to argue that disk and broadband prices have dropped so low that the traditional ad agency role of playing matchmaker to ad inventory (advertisers) and media (publishers) have disappeared. My opinion is that the only place where there is any meaningful and measurable matchup of ad inventory and media are done online is with search ad results, with Google the leader in most of the world and Baidu in China.

This is why I think Sam Flemming’s talk about Internet Word of Mouth (IWOM) has hit an important vein which the ad agency’s have failed to grasp. It is an uncontested fact that while e-commerce in China has been slow to take off in China, many Chinese look for information about purchases beforehand by visiting BBSes and seeing what others say about a product. So why is there no way to track the main influencers of buying decisions and rewarding them with money if their recommendation results in a completed sale? To me, this has always seemed like a difficult, but not insurmountable, technical challenge. In the west, there would be complaints about people making recommendations because they want to make money instead of actually having tried and used the product, but in China, I don’t believe that those disputes would be likely to arise.

China has a unique retail phenomenon called tuangou 团购. This is groups of individuals and families who meet each other in the BBSes and who are planning on purchasing the same big-ticket items. Then, they go and negotiate volume discounts with individual retailers, eventually selecting the retailer who gives the biggest discounts. I have never heard of this phenomenon anywhere outside China.

There are plenty of opportunities in China; it’s just a question of how you see the challenge.

There Are Chinese, Then There Are Chinese

February 10th, 2008

crowd.jpeg

For many westerners and western companies, it’s hard to figure out why some Chinese have gone to the US for their graduate degrees, worked at name technology companies such as Intel and Microsoft, then come back to China, their homeland, start their own businesses, and fall flat on their faces.

How is this possible? They had everything going for them; they had the best education the US had to offer, worked in a great company, were smart and entrepreneurial, know the language, have connections, and they failed.

More often than not, these people have been away from China for a long time. Over time, they have become used to the American way of life, and while they keep up with what is going on in China, their knowledge and understanding of the country has gone stale. Gradually, they are more at home in America than in China. They jump on the China bandwagon because it is in the media all the time, and they hope to strike it rich.

Then they return to China and discover a country which is not the China which they grew up in. Compared to when they left, the role of the government is much smaller, the country has become more market-oriented in most sectors, and they may have lost many of their former connections. Worst of all, they look at the country through American-tinted glasses and use American society as a point of reference, something which does not work in China at all.

For any business or individual to succeed in China, you must understand China on Chinese terms.

This failure to understand China on Chinese terms is, in my opinion, why so many western Internet companies have failed in China. Moreover, the constant need of local management to report to headquarters outside of China, and to report every purchase they make, and more often, to explain what they are doing, puts a fatal hindrance on the decision-making process because the management is constantly tied up in knots educating someone in headquarters about China.

This makes for another very important point: No successful company in China can be successfully run from outside China; the key decisions and decision-makers must live, breathe, work and sweat in China every single day to make it work.

The single most important bad decision western companies make in China is to force the local China management to consult with headquarters about every matter; this makes the local management look weak in the eyes of their own staff. After all, what is the point in staying with a company if they do not have the power to make decisions even if they are sitting in the corner office?

It all comes down to how empowered people are to make their own decisions, and to be held responsible and accountable for them.

It makes much more sense for them to break out and start their own company, often taking the idea the western company had, but was not able to implement in China because they were constrained by headquarters’ indecision. In the Internet sector, where change is happening so fast, it makes no sense to sue and countersue; that would only make the lawyers happy and not solve the basic issues.

This just scratches the surface of why being Chinese is no guarantee of success in today’s China. Put simply, the society has changed too much too fast, and unless outsiders live here and deal with local Chinese who have never been outside China and speak only Chinese on a daily basis, they will fail.

In business, success cannot be guaranteed, but failure can…

Is It Possible For A Western-Managed Business To Succeed In China?

February 8th, 2008

China’s increasingly important global role means that more and more businesses are coming to China. While there has been a significant presence among multinationals for nearly 30 years, now companies are coming in at earlier stages. Now some startups are even choosing to start in China instead of Silicon Valley.

This trend has been encouraged by venture capitalists, who now give a premium valuation to companies based in China.

This raises a very interesting question: “Is it possible for a western-managed business to succeed in China?”

First of all, a few qualifications. While there are many western multinationals in China, most of them have heavily localized their staff and management. The general trend in these companies is to localize staff and management as quickly as possible without sacrificing necessary management skills in the process. So, for the most part, while they are western companies, they are largely Chinese-managed.

Since most of my work is with startups, I’ll drill down in this field. Now the trend is for more American startups to start in China, even though they may not see China as their main market. In the gaming field, for example, China has a huge pool of people with talent and experience in the gaming field. This means that there is a pool of people with talent in programming and art, and understand gaming culture. The areas where the local Chinese population are weak is in product management. Chinese tend to gravitate to managing other people; there is a serious attraction to being able to say that a manager manages x number of people. Product management is more about managing resources, and coaxing cooperation from different stakeholders in the organization. Naturally, this requires more in the area of soft skills. And soft skills are an area where most technical people feel less comfortable with, and generally do not do as well in.

And unlike in the US, product management people in China are generally expected to be much more technical. So there is a difference here.

Hence the shortage of good product management people.

Naturally, this gives an advantage to startups which have experienced product management people. One mainly western-managed startup in Beijing which is strong in this area is ECitySky.

What about other kinds of companies, and what about the market for talent?

It all depends on what you are trying to do, and what audience you are trying to reach.

One tendency in the Internet field is that as the technology tools become more mature, the technology plays second fiddle to product marketing and marketing. Since the Internet has had just as long a history in China as it has in the west, it is getting harder for an experienced technology person to differentiate himself purely on technical skills alone. Increasingly he has to bring soft skills to the table, especially team management skills, to the table to be seriously considered. This means that for most technical people in China, the opportunities are becoming fewer, especially when you consider their significantly higher costs.

On the management and marketing side, it becomes more important to know how to communicate with your main audience in China. If the audience you are trying to reach is mainland Chinese, this means you must be keenly aware of social trends, the different social groups in Chinese society, government policy, what the different groups are thinking about, and the dynamics affecting the different groups.

The only way to get a deep feel and grasp is to know the language on a native level, including speaking reading and writing Mandarin Chinese. Basically, you need to become local. Assistants, translators and PR agencies will only get you so far because they cannot provide the social context to digest and understand the raw data to make good business decisions.

And then, even if you have a native command of Mandarin, that is no guarantee of success. I sum it up this way:

  • If you don’t know Chinese (spoken, reading and written) and have not lived long in China, you don’t even know what are the right questions to ask.
  • If you speak, read and write Mandarin on a native level, but do not socialize with mainland Chinese except on special occasions, you may know what you don’t know. More importantly, the most capable and intelligent mainland Chinese will not join the startup, instead choosing to start their own startup, often competing with the company they just left. (I’m thinking of many American-born Chinese, Taiwan and Hong Kong Chinese-managed companies which claim to be Chinese, but do not include mainland Chinese who have grown up in China in their management ranks. For the most part, they do not trust mainland Chinese and in private meetings, it is not unusual to hear them complain about things in China. In my opinion, they are doomed from the start.)
  • If you have a startup which breathes, by which I mean that management does not have an inner circle dominated by any regional group or background, and freely allows people into senior and executive management based on their creativity, communication skills and ability to execute, then your startup will have the greatest chance of success. This is because a startup depends on moving quickly, and rapidly adapting to changes and competition in the marketplace.

So, in my opinion, when you get past the government regulatory issues, which are slanted to favor Chinese-owned companies in some sectors (especially media, where foreign companies are not allowed), it really is not any harder in China than many other parts of the world.

The biggest barrier for many startups is to get the management right so that it does breathe. Management needs to set the right tone from day one.

The best management hires the best people, empowers them, and let’s them go. At that point, it’s no longer a western- or Chinese-managed company; it’s just well-managed.

Get that right and China’s your oyster.

Has The Tipping Point Tipped?

February 7th, 2008

Ever since its publication, The Tipping Point, by Malcolm Gladwell, has captured the imagination of marketers and PR people all over the world. Basically, the book argues that ideas are spread by different groups of people, and that some have more influence than others in helping an idea to spread.

For marketers and PR people, the book basically argues that there is a formula for success; just feed your client’s idea or product into this ecosystem, and you can come up with a very predictable result. It’s almost like a software engineer’s dream: given a certain input, then a process, there is a predictable outcome. The marketer/PR agency can argue that the amount of money spent forms a direct correlation with the input, and if a project fails to take fire, it’s because the client didn’t spend enough money. As a result, the right connectors could not be influenced, and the project failed.

This is known as Influentials theory and forms the backbone of much marketing practice.

All clear and simple, right?

I have always had my doubts about it. For one thing, the model fails to take into account what is a good idea and what is a bad idea. And it fails to explain how people decide what is a good idea worth transmitting to one’s network, and what is a bad idea which should be immediately dismissed or ignored. If you were a Google engineer, how would you write an algorithm to describe how these very human and subjective individual judgements are made?

It seems to me that it is impossible to write an algorithm to describe them. What an engineer can do though, is plot how ideas are spread in a time when we are bombarded with more and more information, making our attention spans progressively shorter.

Wouldn’t there come a point when influence becomes almost random, when Influentials lose most of their influence? And doesn’t this coincide with the breakdown of the “mass market”, a concept which has collapsed with the rise of the social networking phenomenon and the long tail?

I had long suspected this, but I had never been able to prove the thesis. However, the results of some serious research by Duncan Watts supports this thesis. In this article published in Fast Company, his experiments suggest that the success of many fads has become, for all practical purposes, random. The article is an excellent read.

For one thing, I believe that The Tipping Point was written too long ago, and it described a world vastly different from ours in 2008. When it was published in 2002, the book described a time when people still read paper newspapers and books and before blogs. You may remember a term then called the “mass media”.

Now, ideas spread much faster, and within smaller groups which may appear random. It is also very likely that products/services/ideas will be served to much smaller groups of people.

One example is the gaming industry where the shelf life of titles has become progressively shorter, almost to the point where the marketing industry has trouble keeping up with the shorter time cycles. Hollywood movies have to prove their box-office success in their opening weekend in the US. These two industries have yet to adapt to lower production expense models which fit in with the lower shelf-life of their titles.

Basically, they need to downsize their costs.

If you boil it down to essentials, it means that you will have to market your ideas/products/services yourself, since you know your own audience best and understand how to pitch it to them. If they like what you have to say/sell, then they will become your connectors, and push it beyond your immediate circle, creating a breakout phenomenon.

In the end, the Internet empowers smart generalists who understand technology and keep the human touch in their marketing. Dumb messages may have short-time entertainment appeal, but they are unlikely to be profitable unless there is something behind them.

And marketing cannot buy credibility.

Ogilvy Mindshare Report on Chinese Consumer Behavior

January 28th, 2008

chinamobilephoneuser.jpeg

I just came across this Ogilvy Mindshare report on Chinese consumer behavior which goes beyond the normal reports which cover exclusively the Tier 1 cities.

This one also covers the tier two and three cities, which are becoming increasingly important for marketers. According to the report, consumers are still frugal, and are reluctant to go into debt.

How old-fashioned can they get? And I’ll be that they think savings are a good thing…

Sheeesh…

Chinese Face, Chinese Heart Part I

January 24th, 2008

Zhengtu gaming title

One of the frequent questions I run into in China is how western Internet companies coming into China should position themselves for growth in China.

Should they try to be western, or should they try in the shortest possible time, try to become Chinese, hiring Chinese for their local staff and management? Under what circumstances is it best to be western, and under what circumstances is it best to be Chinese? And what if a company has been in Taiwan, Hong Kong and/or the US; how should they position themselves for future growth in the Chinese market?

Their positions are made more complicated because it is now hard to find good management people they can trust locally in China; as an organization becomes larger the camaraderie and culture which forms in the management team becomes increasingly important. Over time, this builds into trust, especially if they need to deal with problems and challenges which need to be overcome on a daily basis. This comes face to face with another China reality: it simply is not easy to find people you can trust in China. Backgrounds can be fudged, headhunters want to push their candidates; the list goes on and on.

Internet businesses are especially complicated; most founders come from technology backgrounds, even today, and they have very little understanding of marketing, company positioning, and yes, national and corporate culture. Many still have dreams of serving the world from one virtual data center in Redmond, Mountain View, Beijing, Hong Kong or elsewhere, and letting more junior management deal with the soft and fuzzy stuff like “culture” and “marketing”. Even relying on ethnic Chinese management from Taiwan or Hong Kong has not really worked, as China is littered with Internet startup failures led by Taiwan and Hong Kong management teams who really did not understand the dynamics of the market in China. There have been many western executives who have said “How was I supposed to know that they didn’t understand China; they told me that they were from Hong Kong/Taiwan?”

For anyone from established business service sectors, such as banking, these ideas seem silly, even foolish. And they are. A simple reality of the Internet is that it is going to come under more national jurisdictions and regulations as it becomes a more important part of peoples’ lives. Just as it is inconceivable that banking would not be government regulated (unless you count the ongoing subprime mortgage crisis as a failure of the government’s regulatory system), it is becoming inconceivable that the Chinese, US or other governments would not want to have a say in how the Internet is run.

These established sectors know only too well how important it is to somehow find a way to live with government regulatory bodies. In China, successful new startups have almost always come from new areas which the Chinese government has not figured out regulations about and does not yet know how to regulate.

The perfect example is the online gaming industry. This industry was basically an import from South Korea, and took root in China because gaming consoles are technically illegal. (Sony PS2 and 3, Nintendo Wii and xBox360 are all freely sold; that law is seldom enforced, and all of the games sold are cracked versions.) The Chinese government’s rationale for that law was because way back in the nineties, the Chinese government saw PCs as a valuable educational tool, but considered gaming consoles to be expensive frivolous tools for kids to waste their time. At a time when the Chinese had much less buying power than they do today, it seemed like a good idea to ban gaming consoles.

This created an opportunity for Shanda, which was the first company to launch online games (almost all from South Korea) in the Chinese market. This idea caught fire with many younger Chinese and spawned the Internet cafe industry, where many younger Chinese choose to spend/waste their time and has also popularized QQ, the ultimate social networking application if there ever was one, and which for many Chinese, is the Internet.

This industry has swiftly matured, and with success has come regulation. Online gaming companies have tried to adapt, some have adapted (or tried to adapt) by moving into the online game publishing business from online game distribution. The transition from online game distribution to online game publishing has been a rocky road for companies like Shanda. The company has in the past acquired studios and titles, but many of the creative pros have left post-acquisition. A new wave of game publishers with strong titles have come up, led by Perfect World and the highly-contentious Giant Interactive.

On the regulatory and marketing fronts, the online game publishing company has become a victim of its own success: the huge amount of revenue it generates has created something the government and other regulators call a “social problem”, and it has fallen into a rut on the creative side, adding more titles in what are basically the same genre with very little to differentiate each other. The result: titles with diminishing shelf lives and ROI. People who are not addicted to games (i.e. people who have lives) have an increasingly bad view of the industry and game titles.

Unless you have some way to break out of your core audience, which is exactly what Nintendo did with the Wii. The greatest contribution of the Wii is that it has forced people to take a second look at gaming, as something other than just frivolous entertainment which wastes a lot of time and is anti-social for people who do not play games. (Heavy game players would argue that game players are social; they are just online.)

So the Nintendo Wii is halfway there; it has offered a new paradigm for games and gaming.

Now, if gaming is going to really succeed, it will have to get non-gamers to think that they are not playing a game. Then we are talking breakout.

And the game publishers (creative people) will have to learn how to get along and work with the marketing pros, and will have to understand that there is much more to marketing than press releases, press conferences, paying off the media to pick up their stories, planting stories and fake planted conversations on Chinese BBSes, etc.

To really go big, they will rely on a new class of professional and and a new kind of strike force.

We’re not there yet, and we’re not moving fast enough. But there is a way.

I believe in the value of history, but I also believe that there are times when we have to stop referencing the past for what we do in the future.

This is one of those times.

Dell and WPP: Will DaVinci Work?

December 4th, 2007

HP 2710p

When an ailing computer company which has lost a lot of its shine teams up with one of the leading ad agency groups, WPP, to form a new marketing agency called DaVinci to spend $4.5B in marketing money, I am, naturally, more than a little skeptical.

Consolidating adspend under one roof makes sense sometimes; it made sense for IBM in the nineties when it chose my former employer, Ogilvy, also a part of WPP, to handle all its accounts. IBM was able to consolidate its image, and Lou Gerstner, then IBM’s CEO was able to make a dramatic turnaround and a nice exit for himself.

More than 10 years later though, the challenge for Dell is more complex. Dell is a company which has surpassed at squeezing costs out of the system, making cheap computers for the office masses. The problem now for Dell is that it is getting challenged on this front by Lenovo, the Chinese computer manufacturing giant and Acer, the Taiwan company which has made a dramatic comeback after a near-death experience. And then there is the US giant, HP, which is doing some very interesting stuff.

When it comes to buzz, Apple sets the bar. After switching to Intel architecture, then using the iPod as a platform to generate buzz for the iPhone globally, Apple is on a roll. Dell has been left in the dust. Add to that recent customer complaints about quality, and Dell is not in a good situation.

So can DaVinci turn things around for Dell?

My initial reaction is that it doesn’t go far enough; it is made up of Dell and WPP people, and can serve as a buffer to any agency conflicts. But the problems which afflict Dell run much deeper than just quality problems.

They are management and perception problems.

One of the big problems marketing people run into is how to turn a product which is a stinker into something which people want to buy. The Internet has made the challenge even greater, because anyone who has the time, motivation and interest can find anything about a product.

It doesn’t matter how you spin a turd, when it stops spinning, it’s still a turd.

The problem is that once a company starts thinking that it’s all about an agency, or it’s all about the creative, the ground is set to place the marketing people and agency as the fall guys, when actually the problem is with bad management decisions. Then as the management panics because of falling share price, bad buzz, and everything else, their decisions get increasingly short-sighted and the options get worse and worse. When the management starts thinking in these terms, the company is basically in a death spiral; it’s all ends when it hits the ground and bursts into flames.

The problem with Dell is that they are very good at cutting costs, but they have not shown customers how they can ADD value. So naturally, Dell attracts the customers which are at the bottom of the value chain. Dell’s management has effectively commoditized their own product line. This is never a wise thing to do. If your own products have effectively become commodities, how do you position them against anything else?

The answer is you can’t.

Cutting internal manufacturing and component costs is something every computer maker should do internally, but you never want to make it the message you tell your customers and IT departments.

For the past several months, I have been debating what I should get for my next computer. It has been a match between the Santa Rosa Macbook Pro and the HP 2710p. The 2710p is a Tablet PC and has received some excellent reviews. It was the only PC I have been seriously considering.

Why? Because I have never owned a Tablet PC, and it looked like it had reached the right balance of functionality and design. Other HP lines, Dell and the other PC makers never entered the equation.

HP obviously likes the 2710p a lot, they have made it the centerpiece of a TV ad campaign in Asia.

That is why I say that the integration of Dell and WPP do not go deep enough. Instead of trying to flog a lot of commodity products which the market has tired of, instead they should think of how to come up with new products and a product line which actually make a person excited. We’re not talking about marketing anymore; we’re talking design marketing, the kind of stuff Apple excels at.

They should start with one product, then take it to a product line, then expand it, then kill all the boring stuff. Just like Apple did with the iPod, which expanded into the iPhone line.

Of course, in order to do all that, you need to be a dictator like Steve Jobs. The question is whether Michael Dell can be that kind of dictator, even if his own name is on the line.