The ToolWiz Blog » The Whole World Is A Niche Looking For Help

I heard a well-known marketer speak this weekend, and he had a message that many consider fairly obvious. But it’s too-often overlooked. The idea is to find someone who has a successful product and piggy-back on it with a complementary product. It creates a win-win situation for everybody. This is very true, and it can even be more powerful than you might think!
I worked at Intel from 1979 to 1985. During that time, Intel manufactured more memory chips than anything else; people forget that Intel started out in life as a DRAM (memory chip) manufacturer.

In fact, they were making so many memory chips at one point, and they got their production quality so high, that they were worried about having too many to sell and losing out on profits by driving their own prices down by creating a market glut. Instead, they simply created a bigger market.

Somebody came up with a positively brilliant idea: they started packaging their memory chips into huge racks and selling them as disk cache units to IBM’s mainframe customers. At the time, the chips were something like 4kbits, and an entire disk cache unit stored all of 128 or 256 Mega-Bytes. (Kinda strange to even consider by today’s standards, eh? But back then, these were just HUGE.)

There was a guy working at Intel at the time named Bill Davidow who was their first Marketing VP; now he’s got his own venture capital firm (Mohr Davidow Ventures, IIRC). He gave a talk to the group I was working in some time around 1980 or ‘81. He said when they started planning to build these big disk cache units, everybody initially told them they’d have to be absolutely CRAZY to even THINK about selling such a product directly to IBM’s customers. Intel was this tiny little company that made tons of memory chips, and IBM was a HUGE computer company. Surely they’d crush Intel!

Well, that didn’t happen. It turns out that IBM totally LOVED the product. Bill said IBM would have licensed it from Intel and made it themselves, except they were already consuming all the memory chips they could manufacture themselves, as well as buying them from some other vendors (including Intel). What would be the point in IBM buying the chips from Intel to build these units themselves when they could just sell the units Intel built and not worry about it? (That’s what a “Joint Venture”, or JV, partnership is all about.)

So Intel made this HUGE disk cache, which was cleverly designed so you simply unplugged your disk drives from the mainframe, plugged the disk cache unit into the mainframe, and plugged the disks into the cache. Viola! American Express could suddenly process five times as many charges in the same job shift than they did before.

So instead of glutting the market, Intel created a BIGGER market and sold these chips at a PREMIUM no less, stuffed into a big box that only did one thing — but it did that one thing extremely well. They made more profits on the chips they put into those cache units than on most of the other products they sold.

Bill explained that we were not actually competing against IBM in this case, mainly because IBM couldn’t even produce these things if they wanted to (and they did!). Rather, he said, we were peacefully coexisting beneath their “umbrella”. They loved the product, and what’s more, their customers loved the product. Their sales guys even started inviting Intel’s sales guys out on sales calls.

And, Bill said, he never worried about whether another company would try to elbow in and compete with us, because he knew IBM would be very “uneasy” working with anybody else.

I saw some of the sales and production numbers for these units. I think that was the first time I ever heard the term “cash cow”. I thought they should have said it was a “cash whale”! The profits they made on these relative to their costs was ridiculously high. (Not unlike the kinds of margins earned on info-products these days!) Bill is also known for a saying he coined that drove a lot of Intel’s early marketing strategies:

“The first one to market gets half the market”

So what happens when you’re the first to market with something that’s sitting under the “umbrella” of someone who might be considered a direct competitor? (The IBM PC might come to mind…)

ACTION ITEM: pick a niche you’re familiar with, like: knitting, scrapbooking, shoe polishing; bicycle repair. Find someone who’s got an info product that’s selling well in that niche, and create some kind of instructional video or tutorial on it (live or with something like Camtasia). Then contact that person and ask if they’d like to promote it for you.

Share and Enjoy: