Who's in charge? Act 2

So yesterday I talked about the failure of the semiconductor industry, as a whole, to accurately anticipate much of the market need.  I identified the causes of that failure as an inadequate funding of the marketing effort as well as a pervasive preference to withhold accurate data from industry analysis that is relied upon to develop new products.  How deep does this go?  I’m going to use the Electronic Design Automation (EDA) Industry as an example.  They support the semi industry with the tools they need to design and analyze complex products.

At the Electronic Design Automation Consortium (EDAC) industry forecast meeting this month it was pointed out that while semiconductor revenues have increased by double digits in 2010 while EDA is still in single digits (although it had decreased the previous two years).   Aart DeGeus, CEO of Synopsys, repeated an observation he has had many times in the past that EDA is not “getting its fair share” of the value it creates for its customers.

 Well, there are three reasons for that.  It could be any and all of them.

  1. EDA is basing it’s forecasts on information provided by the industry analysis it’s customers provides... which we’ve already seen to be flawed.  So EDA is building products to support semiconductor and systems development that is going the wrong way.  (That may be a stretch.)

  2. EDA has not done sufficient research into market needs to understand the what their customers value and is not communicating how they provide that value.  (That’s getting pretty close.)

  3. Because EDA spends so little on real marketing and relies on rumor and tradition primarily as market research, it is not building products their customers’ value.  (I think we may have a winner.)

Here’s why I think the latter is more accurate.

Like many of his colleagues and competitors, DeGeus likes to trumpet how much money they spend on research and development.  I remember some years where it is as much as 20 percent of revenue for Synopsys.  I also know most of the companies in EDA have been increasing sales staff budgets every year.  I also know that every company in the industry has been cutting its marketing budget by an average of 10 percent every year for the past 10 years.

Now if you look at marketing as a function of sales, and that it’s duty is to crank out press releases, advertising and brochures; and to run trade show operations, well then you probably should look at ways to economize.  But marketing --real marketing-- is the advocate for the customer.  A marketer is supposed to converse with the customer through media, conduct professional surveys, and set up two-way channels of information between the company and the customer to get an accurate picture of what the customer needs before he know he needs it.  It’s a research function first and foremost. And that’s pretty much the way marketing works in every industry... except semiconductors.  And it’s even worse in the EDA world.

If Aart decided to take one percent of his R&D budget and put it back into marketing to do that kind of work, he would quintuple his marketing effort and possibly find out what the next big thing is going to be, not for EDA, but for the electronics industry.  It would make Synopsys the thought leader for his customers’ customers.  He would be able to explain his value clearly in hard numbers.

In fact, forget Synopsys.  Any EDA company, including the smallest startup, could do the same thing if they put some effort into marketing.  That means hiring a real marketer, and not an engineer with an MBA who once took a course on communications.

Instead EDA has marcom admins running Surveymonkey polls that make the statistician in my cringe.  

I recently got the results of a survey that I had participated in a few months ago.  The survey started out with an explanation of what engineering discipline was being explored.  

Right there, if I was an engineer from a different discipline, I would take a pass on the survey, so the only people that would take it are in that discipline.  OK, I can accept that in an effort to winnow out the non-relevant.  the next question was, “How important do you think (this discipline) is?” 

Gee, I wonder what the answer was? Sure enough, the survey result showed that a great majority of the engineers polled thought it was very important.  Whodathot?

The rest of the survey was pretty much the same: leading questions and obvious answers.  

What really caught my eye in the summary was a statement in the summary that estimated the savings a customer can realize from using this company’s technology was $5 million annually.  There was nothing in the survey that asked questions about costs.  There was one about “time savings.”  So I sent the CEO a question about how they arrived at that number.  They extrapolated that number from an assumption of the number of engineers a customer has and what they might be paid.  

This is a practice I’ve seen in every... I mean every... EDA company when I ask how they justify their product.  It’s based on sheer guess work.  they have no idea how much the customer is paying.  They don’t know the size of the engineering teams of the customers.  They don’t know anything about the market, other than the one or two companies they have actually sold product to.

So to answer the question: How deep does this lack of real marketing go?  Right to the core, baby.

To be continued.