This article describes how one of the most competitively successful semi-conductor companies enters new markets by systematically collecting information, subsequently developing it into knowledge, both technical and commercial, that is used to define and market new products. This approach reflects the central characteristics of Intel's business strategy:
- need to grow in high volume, high margin markets.
- the knowledge that new technology was going to arrive because the march of predictable, improved technology defines the semiconductor business ("Moore's Law": The number of transistors per square mm of silicon doubles every 18 months. )
- the knowledge that Intel had to displace either internally sourced components or components supplied by its competitors
- Intel's need to grow in unfamiliar, large, established markets because of the continually rapidly declining prices of existing products in existing markets. (Semiconductor companies don't simply continually have sell new products (i.e. new cars to replace old) they have to continually sell significantly more capable (often completely new) products order to grow their sales volume.)
- the knowledge that its customers had the knowledge it needed to grow - and that those customers would have to loose significant proprietary knowledge to Intel for it to succeed. This reflects the technical strategy of integrating upwards from components to subsystems whilst also increasing the overall capability of the system and reducing its cost. Intels approach is therefore something of an iron fist inside a velvet glove, because their presence in any market as a critical component supplier invariably forces significant restructuring of all the participants in that market.
It is interesting to note that this article overlaps Intel's (now declining ?) dominance of the PC Processor field in which it has been able to main dis-proportionately higher $/chip because of its
software compatibility-based hold on the market created by Microsoft. Its ability to grow in this market with the growth of the PC enabled it not to enter many large, fresh chip markets for a number
of years. Intel is now looking for new markets to supplement its decaying dominance of the PC market - probably using variations on the theme described here to enter those markets.
I wrote the article from the position of observing Intel's tactics from two different companies in two different markets at times spaced about 12 years apart.
In parallel:Develop a detailed Engagement Plan for the target industry. Intel Engagement Plans all follow the same basic approach:
(1) Identify and analyze all the players in the target market. Divide them into various classifications - market leading, technology leading, secondary, minor, influential etc.
(2) Build a picture of the organizational structure in these businesses. This is done by discussions with local Intel employees, company representatives and by consulting industry experts. This picture includes as many individuals names as possible.
(3) Develop outline product specifications datasheets
(4) Develop a (usually) tri-level customer presentation, with the following target audiences and content:
(a) An Engineering Presentation:
Thrusts: Intel's technical competence and leadership in technology - that competitors are already using....plus detailed datasheets
(b) A Mid-Management Presentation:
Thrusts: Intel's Technical and Supplier competence and their plans for the industry 'to allow individual companies to compete at a new higher level of technology as Intel's products become common throughout the industry'
(c) An Executive (President and VP) Presentation:
Thrusts: Intel's overwhelming competence as a supplier, Intel's level of investment in the target market and its application of highly advanced new technology superseding existing technology - together with Intel's success at penetrating competitors
(i) Initial targets are secondary companies
(ii) The use of confidentiality agreements that constrain target companies freedom to pass on information within the company and outside it. The intent is to give the impression of giving differing (and, naturally, very important ) information focused on the interests of the three levels; the effect is often to create conflict between those levels. These confidentiality agreements include detailed datasheets together with information describing Intel's product plans that is tailored to the level in the company that it is supplied to.
(iii) Intel personnel (usually 5-8 people) then have meetings at the three levels in the targeted secondary companies, starting at the top down. In each case they create impression of competence whilst they interview for every detail about the industry, company and technology. They also request information about the target companies product marketing plans and new product plans, including attempts to learn about new planned products in considerable technical detail. The people used by Intel are at levels matching those in the targeted business.
(iv) After a round of visits to the secondary companies the Intel team then critically reviews all the information obtained. Datasheets are updated, market development plans updated, all team members are re-educated about the target industry, Roadshows significantly updated. The teams business objectives are reviewed for consistency with the information obtained.
NB: Secondary companies are often technically as advanced and as knowledgeable as the leaders; they are usually more open than the leaders and they can be a good source of team building employees for Intel.
(V) The next sequence of Roadshows then starts. This sequence is targeted at more significant companies; Intel's team conducts reviews between each visit, updating plans and Roadshow information each time, since these more significant companies may become important target customers.
NB: Mid-Level companies usually have a stronger marketing understanding than the secondary companies; they are also usually in realistic position relative to their market potential; and they may feel that they have a lot to gain from Intel, leading them to be open with information.
(VI) After the more significant companies have been visited a plan exploiting Intel's now extensive industry knowledge is prepared, to gain access to the real targets - the market leaders. This plan (yet another Roadshow) has the following characteristics:
- it is realistic - the market leaders probably cannot be fooled
- it contains solid market and technical information that stands up to scrutiny; and it draws on Intel product development information that is becoming significantly advanced
- it is based on a careful appraisal of the likelihood that the target company will become a significant Intel customer
- it contains an important new element - a partnership plan whereby Intel offers to exchange its detailed product plans with the customer in exchange for detailed information of the customers technical and market plans. Intel offers detailed product availability schedules and may offer specific customizations to suit the customer.
- it is very intensive; senior Intel people reach all levels and areas of the target customers with romantic information and an apparent treatment of the customer as being an equal of Intel's. Fresh confidentiality agreements covering more detailed information are signed as the engagement proceeds.
- it has the specific intent of derailing any plans the customer may have had for his own strategic components in the targeted technical area, plus that of forcing customers to start designing Intel in.
At this point more normal sales territory is entered, because the customer is on the hook; Intel has all the details it needs to finish product design - and it can estimate its market share and
hence customer control. Plus it has neutralized internal competitive customer activity. So Intel enters final price negotiations, reveals the real delivery schedules and problems with initial
product, and starts the design of the second generation of components to draw the on-hook customers firmly and finally into the Intel camp.
Or - perhaps - Intel decides to withdraw because it has not obtained sufficient market share or because the knowledge it has obtained scares it away.
(1) Much of the success of Intel's business is based on its arrogance. Sometimes this arrogance is so strong that potential customers shy away in favour of competitors !
(2) Large customers are sometimes not fooled by Intel's strategy. But - some certainly are !
(3) Intel often reduces a companies ability to compete by supplying the same technology to many market participants. This forces companies to compete in different technical areas, reducing their investment in the technical areas that Intel targets, thereby guaranteeing Intel's market position.
(4) The engagement approach used by Intel forces them to provide very complete application information for their components, to the extent that Intel engineers essentially design some parts of their customers products. This gives Intel a marked advantage over their competitors, some of whom historically earned industry notoriety for poor new product support.
(5) This approach also enables Intel to fully measure the opportunity in the new business area, which enables it to use suitable levels of investment.
(6) The approach gives Intel the opportunity to manage the introduction of its new products to a schedule that suits it.
(7) The approach can hide information from competitors if customers observe the confidentiality agreements.
(8) In some markets the approach has been so successful that Intel has essentially set market standards.
(9) The approach can also be used with minor variations for potential competitors (partnerships to co-exploit the competitors knowledge - the effect can be to stop the competitor thinking). It is also can be used to influence companies that can be impacted by Intel products (i.e. software companies).