Grenoble Graduate School of Business: MBA Marketing Assignment

Information Technology and Open Source Marketing in the Participation Age

Patrick Petit
November 2007

Executive Summary
The social and economical evolutions under way, known as the participation age, reflect
fundamental changes in consumer behaviors. Although people are still interested in brands and
products, they are finding the old-school advertising techniques out-of-sync with their lifestyle.
Today's advertisers seem to be facing quite a brain-teaser challenge to retrieve customer
enthusiasm about brands and products. James Cherkoff and many other sharp observers of the
markets of the 21st century, think that the answer to this issue lies in a phenomenon known as the
Open Source Movement, which has pioneered the era of the Participation Age.
Sun Microsystems, a computer manufacturer and software vendor, headquartered in California,
has made a bold move, following the breakdown of the dot-com business and the rise of the
commodity computing concept, by open-sourcing most of its intellectual property assets. The
company, influenced by the values and vision of the participation age, has adopted an open source
marketing strategy in a strive to broaden its market and improve revenues.
The company has been fairly successful in this strategy. Sun's return to profitability in 2007 may
be an indication that the company is starting to reap the benefits of such a strategy, although other
companies of the Information Technology sector, like IBM, have been more successful than Sun
in applying it. It appears that in order to generate revenues out of free software, it is necessary to
effectively leverage other sources of revenues, which truly rely on the company's ability to deliver
highly complex problem-solving solutions. To achieve that goal, it is recommended that Sun
improve its solutions offerings through a more global and better integrated professional services
organization.

1 Introduction
The social and economical evolutions under way, known as the participation age, reflect
fundamental changes in consumer behaviors. Although people are still interested in brands and
products, they are finding the old-school advertising techniques out-of-sync with their lifestyle.
Today's advertisers seem to be facing quite a brain-teaser challenge to retrieve customer
enthusiasm about brands and products
This report explores the founding values of the participation age, that some refer to as modern
marketing, where fundamental marketing rules and techniques are being challenged and revisited
to leave way to more effective customer relationships.
James Cherkoff, editor of the Modern Marketing blog1, as well as many other sharp observers of
the markets of the 21st century, develops in his What is Open Source Marketing Manifesto that the
answer to this issue lies in a phenomenon known as the Open Source Movement, which has
pioneered the era of the participation age.
We will then explore how Sun Microsystems' s marketing strategy has been influenced by this
1 http://www.collaboratemarketing.com/

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movement, and how it has been involved in the open source business as a way to spur innovation,
reduce its engineering costs, and increase its revenues.
Finally, I will critically conclude with to what extent Sun Microsystems has been successful in
this strategy, and how the company could perhaps have performed better. I will provide some
recommendations as to how the company could have better leveraged the assets of its open source
marketing strategy.

2 The Open Source Movement Phenomenon

2.1 The Birth of the Movement

The Open Source Movement takes its roots in the early days of Internet, when projects were
almost exclusively government-funded (i.e. DARPA agency), and developed for the most part by
young, brash, untrained researchers and students from US universities like Berkley and Stanford.
Pretty much left to themselves (no one else knew how these things worked, so no one could tell
them what they could or couldn't do), they created and shared software in interconnected
communities aside from the licensing rigidness and hierarchical structure of the traditional
corporate organizations. The reward was not money, but rather the thrill of innovation,
independence, intellectual challenge, building oneself a reputation, and a certain form of pride to
making a difference. Staggering products have been obtained from the source forges of these
communities ,which have since been downloaded and used by millions of users around the world.
The most renown achievements are named Linux, Apache, Firefox, Open Office, the GNU tools
set, and much more. The Internet as we know it today came essentially from that contribution. It
was not so much driven by profit as by an advancing state of the art. This model worked
remarkably well.
However, the most interesting facet of the Open Source Movement is less the cult of the
intellectual challenge, free software, and so forth, than the social values and entrepreneurial spirit
that spurred out of this phenomenon. Ultimately, the Open Source Movement has been a real-
world example of a new production system paradigm that has been enabled, in significant ways,
by self-nurturing of the Internet tools and technologies . It provided an early perspective on some
of the institutional, political and economic consequences for human societies of the participation
age revolution.
The Open Source Movement is about a business and legal story as well. The Open Source
Movement does not alienate profit, capitalism, or intellectual property rights. Companies as well
as individuals are making money from open source software. Only, it is a productive movement
intimately linked to the mainstream economy, which invented its own business models and terms
of property rights.

2.2 The Open Source Values

The Cluetrain Manifesto (Levin et al, 2000) which has been and still is a major business book for
understanding the new Internet market landscape, describes the rise of the open source values.
On the Internet, as a member of an open source community you are free to state your opinion, but
you had better be ready to explain why and how you reached your conclusion. Mouthing
platitudes guarantees that you will be challenged because in online communities nothing is taken
for granted. Everything is subject to question, revision and even parody whether it is an algorithm,
a political viewpoint, or God help you, an advertisement!

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The Cluetrain Manifesto believes that the Internet still has something special of this radicalization
effect today. The something special is what the Manifesto calls voice.
Modern marketers want to encourage traversal conversations because they believe that today's
markets are conversations.
“Companies need this voice to innovate, build consensus and go to market. Without it, they don' t
know what works and what doesn't.” (McNeally: nd)
However, in traditional marketing, there is a conservative and fearful firewall separating voices
inside the corporation from those of the markets, which has resulted in interposing a vast chasm
between buyers and sellers.
Indeed, people are no longer part of some passive couch-potato mass-consumer demographic
target. They have become millions of individuals connected to one another, conversing and often
laughing at corporations still trying to serve them that same old TV commercial nonsense.
Modern marketers alleged to the manifesto, acknowledge that the Internet is inherently seditious.
It undermines an unconscious respect for authority, whether that “authority” be the neatly
homogenized voice of broadcast advertising or the smooth rhetoric of the corporate annual report.
. There is a certain amount of truth to this. Because people are alternatively the developers of
products and services, and the customers who purchase them, they have legitimate concerns and
knowledge of what they do and what they want, which drives the voice of what most like to talk
about: their craft...
These conversations are obviously mediated by the Internet, but have little to do with technology.

2.3 Open Source Values Reaching Consumers Market

During the last ten years, the open source founding values2 and technologies started sparkling out
of the computer sphere to enter a new era of pervasiveness which eventually reached the
mainstream consumer markets. By making the open source software free and consistently more
easy to use, the community has turned the complex science of computer software into a
commodity. The Web Log (i.e. Blog) server is a good example of software as a commodity, for
which Gartner reported that blogging will peak around 100 million blogs in year 2007 (Bloggers
Blog, 2006). As of March 2006, there were 890 million people connected, representing an
impressive number of 14% of the world’s population. As a result, the Internet has become like a
kind of epidemiological vector for the open source values.
In effect, today's consumers are different from those of the 20th century. They are more
demanding, smarter, better informed, and more in control of their purchasing decisions. The
numerous online services available, such as online reviews, consumer forums, price comparators
and online rebates, have collectively rendered old marketing recipes based on the 1950's
advertising techniques, obsolete..
In his blog, Collaborate Marketing3, James Moore states that “conventional marketing is under a
lot of pressure these days and many of the techniques that worked in the past aren't working any
more”, adding that, “people are becoming smarter, better informed and better connected. It's
increasingly hard to pull the wool over people's eyes.” (Moore, n.d.)
Also, the proliferation of media channels (podcasts, blogs, and others to come) as well as the
ability to filter out unsolicited content such as spams, and pop-up windows, will increasingly place

2 Also referred to as Participation Age which promotes collaboration, sharing, personal involvement, independence,
global intelligence values as opposed to ownership, command and control over the business.
3 http://www.collaboratemarketing.com/open_source_marketing/

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consumers out-of-reach of the old-style ad slots from the TV advertising golden age. The new
marketplace does not respond to the unidirectional launch of marketing campaigns that target
consumers with brand collateral and drive consumer demand by bombarding their senses. . The
new marketplace is made of more thoughtful and powerful consumers who know how to use
technology to protect themselves from excessive marketing .
Today's examples of the dramatic social and economical impacts of this phenomenon are
numerous.
For example, the decline of the music record industry is an example that illustrates the most
destructive effects of not listening to the structural changes of the market like de-intermediation.
Today, independent artists and labels depend less on so called majors (i.e. Sony, EMI, Warner,
...) to distribute their own records directly on the Internet, bypassing all intermediaries. Peter
Paterno, the music attorney of Metalllica and Dr. Dre(in Hiatt, 2007: 1), said in an article in
Rolling Stone magazine that “the record business is over," and that "The labels have wonderful
assets -- they just can't make any money off them."
Other examples of open source values reaching domains like politics are growing fast. Howard
Dean’s presidential campaign used open source techniques to involve 600,000 people in his
campaign and raise more than $ 25 million. The French presidential campaign did the same in
2007 by stimulating citizen representativeness in what Segolène Royal named Démocratie
Participative (Royal, 2007).

2.4 The Open Source Market

The Open Source Movement has been extremely successful in the past 10 years or so in delivering
some of the best of breed software products of the Internet age, like Linux, Apache Web server
and Firefox. Today, most of the biggest online stores and services such as Google run on the
Linux operating system. Linux has been so successful that, when referring to the software giant’s
future, Microsoft’s CEO, Steve Ballmer said, "I'd put the Linux phenomenon really as threat
number one" ( in Cherkoff 2007).
It is therefore important to understand that the open source market is not some kind of libertarian
reverie of a perfect meritocratic culture. One would be seriously mistaken. The open source
market is a huge market with multi-billion dollar potential. Even Microsoft acknowledges this.
The fact that Linux doesn't run your PC's desktop doesn't diminish the significance of what is
happening with open source. The point is that the Windows operating system is becoming more
like the steering wheel of car, which is important, but not nearly as important as the engine. In
fact, the desktop is becoming more of a web 2.0 or web services communication end-point, whose
central piece is the web browser. Google's operating system is designed on that emerging
principal. The engine is the Internet, and it is mainly built upon open source software. Linux and
Apache attract the most public attention. Apache simply dominates the web server market with
over 65% of all active websites. Nearly 40% of large American companies use Linux in some
form or other. When you use Google to search the web, you use a cluster of 10,000 computers
running Linux. Yahoo! Runs its directory services on FreeBSD, another open source operating
system. Movies' special effects designed by Disney, Pixar and DreamWorks are rendered on Linux
machines. Some national states from Germany to France to Peru to China are using (or even
mandate the use of) open source software like the office productivity suite OpenOffice. IBM
declared officially in 2001 a $1 billion dollar commitment to develop open source technology, and
in effect uses Linux as the operating system for its Intel-based line of standard server products
(Weber, 2004).

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2.5 Open Source Marketing

The concept of open source marketing borrows heavily from the ideas outlined in James
Surowiecki's "The Wisdom of Crowds: Why the Many Are Smarter than the Few and How
Collective Wisdom Shapes Business, Economies, Societies and Nations."

The Co-creation Rules

The question now for marketers is how to interact with these new powerful consumer groups and
regain passion for brands in the hearts and minds of consumers. There are no text books or strict
rules, just some guidelines, which are summarized for completeness in Appendix 1.
In essence, these guidelines stretch the needs for a change from a command and control mindset to
one of greater openness that James Cherkoff calls co-creation rules. Co-creation rules no longer
treat consumers as marketing targets , but as initiators of action, where brands and promotions
become the objects everyone gets to play with. In other words, the prominence of the mass-media
as a marketing vehicle is bound to disappear in favor of a mass-participation paradigm. (Cherkoff,
2005)

A Question of Governance
Ultimately, the success of the open source production model is a question of transactional costs4.
The open source production process is far from being a chaotic environment in which everyone
has equal power and where consensus reigns and agreements are easy to settle. Quite the contrary.
In fact, it is a world where conflicts are not unusual. Conflict management is often political and
indeed there is a political organization within open source communities in charge of decision-
making procedures and sanctioning mechanisms. But it is a model of governance which escapes
many of the traditional corporations' logic of political economy. (Weber:2004)

Online Marketing
Open source marketing goes online. In a recent survey How Companies are Marketing Online
(McKinsey Quaterly, 2007), McKinsey Quaterly5, reviews how companies are currently
performing online marketing in the five core marketing functions of sales, service, advertising,
product development and pricing.
The survey shows a number of noticeable trends, outlined in Appendix X.
In summary, respondents show a growing interest in the interactive and collaborative technologies,
collectively known as Web 2.0, involving brand and product development. It is clear that
companies are experimenting and still deciding which digital marketing techniques are most
effective for what purpose. The interesting part of the survey, is about the impact of collaboration
tools in advertising, customer service and, more importantly, product and brand development. The
survey shows that companies use some kind of collaboration tool for customer help (22 %), and
customer retention programs, which tends to indicate that companies believe that these tools help
build durable relationships between customers and companies. But even more interestingly, almost
4 Transaction costs of open source engineering is characterized by a mix of social selective and market selective
profiles of partial exclusion. Opportunity costs incurred by open-sourcing software by the owner, refers mainly to
the costs of settling open source community programs including governance, licensing and productivity policies. For
Sun it is deemed lower than perfect exclusion transactional costs often found in proprietary software engineering
models. (Benkler: 2004)
5 “In july 2007 McKinsy surveyed 410 major marketing executives from public and private companies around the
world, representing industries such as business services, energy, retail, technology, and telecommunications.”. See
references.

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20% of the respondents use collaborative tools primarily for brand building. In the future, high-
tech industries will be focusing on generating new product ideas through collaboration tools.

Measuring Returns
In the same survey, McKinsey Quaterly states that an absence of meaningful metrics and adequate
capabilities are the key issues troubling many marketers today. Among companies already
advertising online, 52% said "insufficient metrics to measure impact" was the biggest barrier,
followed by 41% claiming insufficient in-house capabilities, the difficulty of convincing
management (33% ), limited reach of digital tools (24% ) and insufficient capabilities in the
marketing agency (18% ). Respondents recognize barriers that could slow down the adoption
process. The lack of capabilities and /or expertize within companies and their agents is the most
significant concern.
Technology will have to rid itself of implementation and practicality hurdles.

3 The Case of Sun Microsystems

Sun Microsystems, Inc. (Sun) is a US manufacturer of computer systems and software,
headquartered in Santa Clara, California. The company was founded in February1982 and
currently employs over 35,000 people worldwide. Sun's original motto was the “Network is
Computer”. The actual evolution as we see it through Google and Yahoo! upholds this claim.
Sun sells end-to-end networking architecture platform solutions, including products and services,
in most major markets all over the world, through a combination of direct and indirect distribution
channels , independent software vendors (ISVs), value-added resellers (VARs) and Original
Equipment Manufacturers (OEMs). Channel relationships accounted for more than 65% of Sun's
total net revenues in 2007.
Sun's business strategy and positioning is to provide superior network computing infrastructure
solutions that rely on innovation as the main differentiator. Sun's core brands are Java, the Solaris
operating system, the UltraSPARC processor co-developed with Fujitsu, and StorageTek storage
systems. The company has recently emerged as one of the leading proponents and contributors of
open source software. Its products include computer servers and workstations based on its own
SPARC processors as well as AMD's Opteron and Intel's Xeon processors, storage systems and a
suite of software products including the Solaris operating system, software developer tools, Web
infrastructure software, and middleware software.
In 2007, research and development (R&D) expenditure accounted for $2.0 billion ($1.8 in 2006)
representing a substantial R&D investment level of 14% of its total net revenues.
In this chapter, I will try to describe why and how Sun has used open source software as a
marketing strategy, productivity and business model. I will also examine to what extent the
company has been successful in applying this strategy and how it could do better.

3.1 The Dot-com decline Electroshock

The burst of the Internet bubble and the ensuing economic breakdown amidst the dot-com startups
marked the start of the commodity computing concept, This coincides with the beginning of Sun's
financial difficulties. Sun's business model, which was based on a high-end, high-margin
computer systems offerings, has been unable to react appropriately to the increasing
competitiveness of Intel standard architectures running Linux software and other open source
software offered by other companies . Sun's computer sales got stuck between IBM on the high-

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end server side, and HP and Dell on the low-end server side. Between 2001 and 2002, Gartner
reported (in Shankland: 2003) that sales of Linux servers increased 63% with a staggering 90%
growth in the United States, while Sun hardly achieved 0.5 % during the same period. In less than
two years, the emergence of the commodity computing concept, spurred by the need to lower
costs, fundamentally changed the dot-com market landscape.

3.2 Sun Bets on the Economics of Sharing

To leverage the transactional costs of its R&D activities, Sun decided to conjointly develop
programs of freely-available intellectual property assets. Marketing claimed that sharing
technology would benefit communities by increasing participation on the network, which in turn
would stimulate the demand and create new market opportunities. In fact, the heart of Sun’s
strategy since the dot-com crash has been to open source its software and use this strategy as a
competitive advantage to sell more hardware and increase maintenance contract revenues. In
January 2005, the company positioned its Solaris operating system as an open source offering that
can run on standard industry architectures in addition to its own proprietary SPARC-based
computers. By opening up Solaris in this fashion, Sun believed that it would increase sales
opportunities aligning its offerings on the demand for commodity computing platforms.
That was also the time when the concept of participation age started appearing in Sun's top
executive speeches. In an open letter, Scott McNeally, former CEO and co-founder of Sun,
proclaimed the values of the participation age as the new driving business values of the 21st
century.
“In the Participation Age, there are no arbitrary distinctions between passengers and crew, actors
and audience. Be one, be both, be everything in between.” (McNeally: nd).
The participation age (as the logical evolutionary step after information age) clearly induced the
values of the open source movement.
Scott McNeally and Sun's top executives are not particularly known as philanthropists or soft-
minded people, and questions have arisen such as why do these people think that playing by open
source marketing values should improve business? Can this be practically implemented and how?
Sun's answer regarding the first question is unambiguous. In an economy driven by powerful
groups of customers and mass-participation, the company is forced to rethink its business models.
Top management have said that the new currency to make business is based on trust from which
sales and profitability derive. The open-source productivity model has proven its efficiency to
deliver and has been and will continue to be the productivity model of the company where the
guiding principals are share, build trust, engage and collaborate.
These principals lay in the economics of sharing. A way to make the “pie bigger” when you are
not in the first quadrant. Those who have the largest slice of the pie, like Microsoft and IBM, tend
to protect their own intellectual property assets rather than focus on making the pie bigger. But for
others, sharing may be the only way to reach the market these days.
Another logic behind the idea of sharing is that innovation stems from the exchange of a large
number of small fast-paced changes, as practiced by many startups, and that the pace of change is
proportional to the amount of sharing among the participants. This view is consistent with the fact
that a big chunk of some corporations' innovative products comes from the external acquisition of
startups because the slow pace and rigid organizational structures of the big firms are inhibitors of
innovation.

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3.3 Sun Open Source Marketing

Sun fostered remarkable working relationships with open source communities all over the world.
This was not easy. In the past, anybody approaching with an attractive product was considered a
threat. Richard Stallman, founder of the GNU project and co-founder of the League for
Programming Freedom, a figure most emblematic of the open-source movement, once said that
“the prospect of charging money for software was a crime against humanity” (Williams, 2002).
Sun's success in changing mentalities and establishing trust among communities is mainly due to
the fact that the company managed to build effective collaboration tools thus ensuring that
intellectual property rights do not end up in company's hands as proprietary assets to be sold back
to developers.
Sun has implemented community governance programs, processes and a fair open source licensing
scheme known as the Common Development and Distribution License (CDDL). The CDDL is in
compliance with the specifications of the Open Source Initiative (OSI) and the Free Software
Foundation (FSF). After Sun released Java under the GPL license, in November 2006, the same
Richard Stallman said in an article of the Free Software Foundation:
“I think Sun has contributed more than any other company to the free software community in the
form of software. It shows leadership. It's an example I hope others will follow.”
Similarly, in January 2001, Sun launched the Liberty Alliance Project community in reaction to
Microsoft's Passport project whose aim was to control the Internet's identity system. This has been
denounced as some kind of machiavellian, big-brother-like plan to become the planetary
middleman of who's buying what, when and where on the Internet. And it worked! Passport is
dead, Liberty Alliance is now the main standardization body used in today's products supporting
identity federation, a market forecast to be worth $4.9 billion by 2011, according to IDC6.
Other examples abound. Most notably the Java Community Process (JCP), to guide the
development and approval of the Java technical specifications known as Java Specification
Review (JSR). Anyone can join the JCP and have a part in its process. The Solaris operating
system, “The Jewel of the Crown”, as Scott McNeally calls it, went open source in a program
called OpenSolaris in June 2005. Solaris has now exceeded 10 million licenses downloaded as a
result of open-sourcing the operating system code. Intel, IBM, and Microsoft are now all
committed to working with Solaris. As a matter of fact, Sun announced last summer that IBM will
distribute the Solaris operating system on IBM' Intel standard architecture servers. The company
also alluded on future collaboration objectives, most notably on developing Solaris to run on
IBM's traditional mainframe server. According to some analysts, it is believed that IBM's
customers have been requesting support for Solaris as an alternative to Linux. This announcement
is important as it gives credit to Sun's open source strategy as well as the global distribution
platform from IBM's massive services and sales organization.

3.4 Monetizing Difficulties

In 2007, and for the first time since 2001, Sun returned to profitability with a GAAP net income
of $309 million. The company improved its operating income by nearly $1.18 billion, and
improved its gross margin by close to 2 percentage points and lowered its operating expenses by
more than $540 million. It is difficult, however, to quantify how much the economical impact of
Sun's open source strategy has played over its business.
Sun has been successful in building communities, creating open standards, and disrupting the
market through innovation. However, historically, the company has been less successful than
6 Source IDC at http://www-03.ibm.com/press/us/en/pressrelease/21897.wss

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others at monetizing these assets. For instance, in the Liberty Alliance Project, members like IBM
and Computer Associates have been more capable than Sun at reaping the benefits of the
collaboration in terms of revenues in the identity management market.
The issue plaguing Sun's growth sustainability, since the breakdown of the dot-com era, is that the
company as been unable to significantly increase sales of its standard servers' line of products fast
enough to compensate for declining sales of its proprietary high-end SPARC servers. IBM and
Hewlett-Packard, who both offer comparable servers, also offer superior services to help
customers design, deploy, and maintain their IT infrastructure investments.
On the low-end standard architectures, in which Sun has limited product differentiation, the price
competition reduces gross margins. This is a big problem for Sun, who has a high cost structure of
42 % of sales from R&D, selling and general administration expenditures, compared to 16% for
HP and 11% for Dell. It is also clear that betting on giving away software in an attempt to
broaden its market reach, through appealing technology, is not sufficient in itself to increase sales
opportunities. At the end of the day, winning customer deals is for and foremost about removing
customer problems by providing the right end-to-end solution.

4 Recommendations and Conclusion

Sun's return to profitability in 2007 may be an indication that the company is starting to reap the
benefits of it's marketing strategy. Overall, I think that betting on the values of participation age
and vision was a sensible move for Sun. It gave the company more opportunities to broadening
customers reach, leveraging competitive assets based on innovation, and increasing customers
loyalty through trust in the open source standards. Sun has always been a computer manufacturer
generating most of its revenues on computers sales. Then, moving Solaris, and other proprietary
software of its portfolio in open source, was not a big risk. Only good things could have resulted
from that decision.
Elements of open source community governance and productivity processes could be improved
though. In particular those relating to the co-creation guidelines to ease access and participation to
the programs, as they remain very technically focused with too few true marketing involvement.
It is also true that the vast majority of customers may not care so much about innovation or
whether if a piece of software is open-source or proprietary, as long as it does the task at hand.
From a customer benefits perspective, there are many caveats to this thinking, among which
vendor lock in situations, but many small to medium businesses, which represent more than one
third of the IT market, still think this way. The total cost of ownership (TCO) is another significant
issue to take into account since open source products may be more difficult to deploy and maintain
over time than proprietary products. From that respect, IBM's real competitive advantage against
Sun, lies in its ability to deliver highly complex solutions through its globally-integrated services,
software, and hardware offerings. The effects, even positive, to open sourcing software does not
help much in that respect.
In order to effectively leverage its open source marketing strategy, it would recommend that Sun
compete against IBM on the grounds of a fully-comparable integrated services offerings, by
increasing the depth and breadth of its professional and educational services organizations. In
short, deliver best-of-breed integration services. This should not only create new hardware sales
opportunities, but should also improve profitability potentials as hardware sales margins continue
to shrink. For the record, IBM posted in the last fiscal year a 15 % operating margin, while Sun
achieved a modest 2.2 %. The fact that IBM's Global Services accounted for 52 % of the
company's net revenue, whereas Sun Professional Services accounted for only 36.8 % of the net
revenue is not foreign to this profitability disparity.

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Appendix 1: Adoption evidences and trends of online

advertising as reported in McKinsey Quaterly's survey
● As companies are moving online across the five main marketing activities. 83 percent of
the respondents who say using digital tools for service management and 44 % for pricing
at the low end. There is a substantial difference though between those for which digital
tools are at least somewhat important from those using these tools frequently or very
frequently.
● Frequency depends on the type of industry. For example 65 % of the respondents in high-
tech say that advertising online is very or extremely important compared to just 39 % in
manufacturing.
● Large public companies are generally more digital than private companies perhaps because
the lack of efficient metrics is less critical than in the private sector.
● A noticeable reason for the relatively low progression of online tools usage is the lack of
capabilities to manage them both internally and externally
● Digital advertising seems set to increase significantly. A third of the companies advertising
online are already spending more than 20 % of their advertising budget there. Three years
from now, about 40 % of the respondents believe that they will be spending 10 percent of
their advertising budget online, and 11 percent are planing to be spending almost their
entire budget there.
● Frequent users of digital tools for the full range of marketing activities are likely to also
use the full range of online advertising conduits (or vehicles) more actively than
companies that are less active on the Internet.
● Corporations think that online vehicles are more efficient than traditional media.
● Frequent users of digital tools across all marketing core activities are more likely to exploit
and experiment these collaborative product-development tools than others.
● Paid keyword search is considered to be the most efficient vehicle for direct response and
brand building despite the lack measurement metrics. But new forms of advertising
vehicles such wikis (collaboration sites), social networks (Facebook, Linkedin), virtual
worlds (Second Life) may be receiving more spending, as the report shows, with an
increase of 64 % for emerging vehicles against 51 % for email, 54 % for podcasts and 55
% for display ads.

Appendix 2: The Co-Creation Rules

A summary of the co-creation rules as described in (Cherkoff, 2005).

1. In traditional marketing the aim has been to create finished piece of work that corporation
expected people will enjoy or find useful in some way. New rules is to let customers
participate be willing to acknowledge and value what they have to say. . In other words,
consumers want to interact with the 'brand source' in the same way the open-source
programmers want to get theirs hands on. That means giving consumers access o the brand
and inviting them to co-create.
2. Listen very carefully to the brand fans, the one and the one percenter as this is the rumors and
whispers that bring the market place alive.

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3. Set the scene for effective participation. People will be more effective if they clearly
understand what they are being asked to do. It is stated that 'When you start community-
building, what you need to be able to present is a plausible promise'.
4. Today the star is the customer, as opposed to the brand and company, so modern marketing
should make customers look good.
5. Modern marketing acknowledges that the best way to obtain effective contribution from
customers is by giving them an opportunity to improve their lives through their products and
services in ways they decided and not necessarily in ways prescribed by the brand.
6. Spur enthusiasms and fun. Fun is a strong forms of social glue. Not having fun in what you do
is likely to not creating fun for others.
7. Understand the environment and context of the online community you are interacting with. An
organization that misreads the cultural tone of an online space takes the risk to fall short and
look stupid.
8. Working the brands through co-creation rules is hard. Maybe even harder than traditional
marketing. Do not expect customers to do all the hard work for you while you are sitting back,
you' ll be disappointed.
9. Listen very carefully to the hard core customers. The ones sometimes called the “one-
percenters”. This refers back to the story of Harley Davidson's management changing of view
point with regard to listening its most loyal customers, the members of the Hog Club, that the
company's fortunes started to reverse and its value soared.
10. Talk the same language as your online communities. That is, get vernacular in the tone you
use when communicating, as opposed to formal or fancy tone, and in manner that is
indistinguishable from the surrounding mainstream.
11. Don't be refrained by making mistakes. There are no definitive success recipes in modern
marketing. In playing along the co-creation rules marketing mix you need to show
vulnerabilities and admit mistakes to create trustful relationships.
12. Make it simple, at least at the beginning, and get rid-off the creative barriers. If you want the
relationships to last, you must make participation as easy as humanly possible for people to
use and incorporate into their lives. “Co-creation is not about technology, it's about
participating in what you do and how you market it.”(Cherkoff, 2005)
13. Don't assume your customers won't be curious about the making of. Co-creation is also about
openness in the day-to-day and one should not be afraid of showing the mess behind the
scenes.
14. Don't run your business as a black box. With smart and networked customers it's increasingly
harder to keep secrets so there is no point running a business as a black box. A company
creates more value by sharing openly than by hiding things which just create suspicion and
frustration.
15. Let the company be changed through the experience of co-creative relationships. It's like
improvised theater. Best improvisation comes from your ability to adapt in real time the story
from the influence of the other actors play
16. Beyond and besides modern marketing strategies, co-creation is about humanity. People like
to see themselves as passionate persons and harvest the rewards of real persons doing real
things.

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Grenoble Graduate School of Business: MBA Marketing Assignment

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