counternotions

Last February, with great fanfare Wal-Mart introduced its same-day-as-DVD video download service, as covered by the New York Times:

Wal-Mart Stores may have lost the online DVD rental battle, but it has no plans to lose the higher-stakes video downloading war.

Wal-Mart’s video download site will offer movies and television shows. The new service enters a field already crowded with competitors.

Today the company will introduce a partnership with all of the six major Hollywood studios — Walt Disney, Warner Brothers, Paramount, Sony, 20th Century Fox and Universal — to sell digital movies and television shows on its Web site (www.walmart.com/videodownloads), becoming the first traditional retailer to do so.

The move plunges Wal-Mart into competition with several established sites, like Amazon.com, CinemaNow and iTunes, and given the chain’s penchant for price cutting, could drive down the cost of a digital download.

In less than a year, on December 21, 2007 with the “Beta” tag still attached, the service was shuttered :

Why did the nation’s biggest retailer, whose recent slogan dress-up betrays a larger ambition beyond low prices, fail so quickly and decisively?

It never had a chance. Sure, the usual suspects — AAPL shorters and iPod/iTunes/AppleTV-killer merchants — thought this would be a “game changer” but that by now has become background noise.

There are myriad reasons why Wal-Mart has failed. The company had already closed its DVD rental site before it tried downloads. So it should have had plenty of lessons learned, especially in a fractured market with so many me-too, iTunes-killer services creating endless confusion for customers. It could also be argued that Wal-Mart just didn’t want to eat into the steady profits from its physical in-store DVD sales business.

At the end of the day, however, it comes down to one factor: Wal-Mart didn’t have competency in this business, and worse, didn’t quite figure out how to acquire it. While supply chain management and low prices are Wal-Mart’s forte, technological ingredients of digital downloads, to say nothing of the business end of branding and marketing the service, are not.

Companies that are good in one area often make the mistake of assuming that the formula that has been successful for them previously could be adapted to another market for a similar affect. Dell, for example, also fell for the very same delusion by assuming that its competencies in direct sales, supply chain management and low prices would translate into domination in digital players. Unfortunately, Dell DJ Ditty, the iPod-killer, was killed in about a year.

Wal-Mart thought that what it lacked in core competency can be outsourced. It chose HP Video Merchant Services introduced a year ago with 30 licensees:

HP Video Merchant Services provide efficient aggregation, merchandising and fulfillment of commercial video content, enabling retailers to address the growing consumer demand for greater selection of titles, improved online shopping experiences and multiple media formats…HP’s manufactured-on-demand DVD service is used to produce a DVD of any movie, TV show or other video content regardless of niche or obscurity in much smaller run quantities than would be economically viable for traditional DVD replication.

HP’s video platform prominently showcased the Wal-Mart “Success story” at its website. In an act of sheer embarrassment, the “Success story” was still available even after HP decided to shutdown the service. HP said paid video services did not perform “as expected.”

Wal-Mart relied on HP for the download service, the six major movie studios for the content, Microsoft for the IE web browser and DRM, and hardly anyone for branding, marketing or customer service. Why the world’s largest retailer thought this was a winning formula is still a mystery, one that applies to a frightening number of companies that prove to be all too ignorant, arrogant or incompetent.

In a frenzy to catch up with Apple, the industry hasn’t learned much from the PlaysForSure debacle by watching Microsoft abandon its own DRM and introduce Zune with a new and incompatible system to compete directly against its erstwhile digital music “partners.” In another instance of mortgaging success to others’ willingness or ability to innovate, AOL recently moved its struggling video service to Amazon Unbox which in turn is based on Microsoft’s PlaysForSure.

The irony here is that Wal-Mart relied on HP that relied on Microsoft and AOL relies on Amazon that relies on Microsoft which itself no longer relies on its own PlaysForSure. When a core component of a product or service depends on the rate of innovation of another party over which you have no control or influence, it’s time to rethink strategy. It’s also time to ask yourself, twice or thrice removed from core competency, should you really be in such a business?

UPDATE: It turns out Wal-Mart actually thought about the impending implosion of their download service and fingered the culprit. From an interview last month in the New York Times, Raul Vazquez, chief executive of Wal-Mart.com:

This has been in beta. We want to understand what the customers want. And I think what we learned is that the initial experience of buying and downloading content needs to be better. We thought it was going to be easier for the customer to understand.

Yes, it’s the customer’s fault.

In Why enterprise software isn’t sexy Robert Scoble writes about Bill Gates’ frustration with the lack of coverage given by blogs and reporters to enterprise software:

Even in the Wall Street Journal, and you think, oh, this is the paper they’re going to tell me about business computing; no, it’s all about consumer computing.

In enterprises all over the world, there must be millions of programmers writing enterprise software and untold others interacting with them. However, if actually understanding the scope and depth of enterprise software were to be a requirement for blogging about the subject, there would be a frighteningly miniscule fraction qualified to do so. Anyone who hasn’t been around a decade or so would be immediately ineligible, for lacking all important historical perspective if nothing else.

In turn, those who have been around often expediently erect walls of authority and accuse others of being unable to understand the complexity of creating and maintaining enterprise software.

There’s of course plenty of confusion about what’s usable, useful and sexy, but those who defend what amounts to inherent complexity of enterprise software support an underlying assumption: it’s acceptable that people who are daily exposed to high interface and interaction values inherent in TV, movies, advertising, magazines and gadgets in the consumer sphere are somehow rendered incapable of expecting and appreciating the same within the walls of the enterprise from 9 to 5.

This is understandable in that while consumer consumption is about personal choice, enterprise workers almost never get to choose or, just as importantly, personally pay for the software they use. If they did, we surely would not have had, for example, ghastly “enterprise-grade” mobile device software that has been “servicing” the industry for over a decade…until the birth of the iPhone.

It’s a daily spectacle to watch iPhone toting CEOs telling their IT departments to make their phone work with their company’s enterprise systems. The only ones who may not appreciate the irony in the world’s biggest maker of business management software introducing SAP CRM 2007 to run on the iPhone – the sexiest consumer device around – are in fact the defenders of enterprise legacy. SAP senior vice president Bob Stutz:

“The iPhone has become such a popular thing…Everybody wants the ease of use of the iPhone.”

The New York Times quotes Stutz saying that “SAP decided to introduce the iPhone software ahead of programs for other devices at the request of its sales people, saying they prefer using iPhones to the other devices.”

We know what’s sexy in the consumer world. I have no doubt that given half a chance consumers who go to work from 9 to 5 in the enterprise and those who access enterprise software from outside would want radically better and sexy software just as well.

Instead, this is what they get:

• Legacy mainframe apps whose caretakers are unwilling or unable to abstract the UI through a rich and flexible web interface to hide complexity, what some call “incremental SOA,” aren’t sexy.
• Strategists who regard scalability as mere capacity enhancement without understanding who uses their software and how aren’t sexy.
• Those who don’t understand that iTunes Store, Google or Amazon are some of the largest enterprise applications on the planet despite supporting consumer-level access aren’t sexy.
• Enterprises who compel users to download multi-megabyte, single-OS, thick-client software for tasks that even the iPhone’s web browser could handle without much fuss aren’t sexy.
• Those who advocated running the enterprise through the desktop by devaluing the web browser for half a decade, even if they admit it now, aren’t sexy.
• Businesses that still think that subjecting their customers to endless paper and digital form filling is a sexy form of information gathering and circulation aren’t sexy.
• Financial enterprises that believe in creating hyper-efficient, but siloed loan origination systems without tightly coupling them to risk analysis systems, thereby writing off over $50 billion industrywide aren’t sexy.
• Software architects who still have their business logic scattered all over UI objects, web pages and stored procedures aren’t sexy.
• Those OS architects who neglected security at the altar of features and gave several hundred million users a decade-long agita aren’t sexy.
• Those who believe the best way to bring “business intelligence” to executives and masses alike is through uninformative 3D dashboard gadgetry aren’t sexy.
• Those who think UIs to end-points of enterprise service systems can be done by Soviet-era Bulgarian freight train engineers aren’t sexy.
• Those who have convinced themselves that the user interface isn’t the application aren’t sexy.

So yes, Bill Gates is absolutely right that we all should pay far more attention to enterprise software. Only then will we learn just how much work is needed to strip away layers of mindless complexity in Microsoft’s own SharePoint, BizTalk and others, to finally render them…sexy.