AL RIES (Atlanta, GA)

Al Ries is author of Focus and co-author of 10 other books, including Positioning: The Battle for Your Mind, Marketing Warfare and The 22 Immutable Laws of Branding. His most recent, with daughter and consulting partner Laura, is The Origin of Brands -- it explores "divergence," a branding framework analogous to how Charles Darwin saw new species being created. Twelve years ago, he and Laura started Ries & Ries. They consult with Fortune 500 companies and give seminars around the world. Their 2002 book, The Fall of Advertising & the Rise of PR, made both the Business Week and Wall Street Journal bestseller lists. Besides reviews there, it was also reviewed by USA Today, Harvard Business Review, The Boston Globe, Chicago Sun-Times and many other publications. Probably the best way for you to keep current on his thinking is via the monthly marketing column he writes for AdAge.com. In 1999, PR Week named Ries one of the hundred most influential Public Relations people of the 20th century. He lives in Atlanta, Georgia, with his wife Mary Lou.

SETTING THE STAGE by Frank Gregorsky

Without having chanced upon the Ries book Focus at a low point in my professional life, I would not have launched this website or staked a claim to the word "exacting." Prior to our taping on 3/6/2006, I e-mailed him 10 "personal background" questions. The resulting exchange -- keyboarded rather than tape-recorded -- seemed a good way to set up the spoken part. And it plays out the same way here.

What did your father do for a living, and did you consider going into that line of work?

AL RIES: My father was a schoolteacher during the Depression and never made much money. That was the last occupation I would have considered.

What part of the country was "home"?

I was born in Indianapolis, but grew up in Homewood, Illinois, a suburb of Chicago.

Where did you go to college, and what was your degree in?

DePauw University in Greencastle, Indiana. I graduated with a liberal arts degree.

How did your early interest in advertising and/or marketing take hold? Did you have a role model or "guide" in that sector prior to age 25?

I read a book by Frederic Wakefield called The Hucksters, a novel about the advertising industry. It sounded like a great occupation and I was never sorry I chose it.

How and when did you meet Jack Trout?

Both Jack and I had worked in the advertising department of General Electric. After I left GE, a friend used to call me and tell me about any good people that were thinking of leaving GE. One of them was Jack Trout, who came to see me when I was running a New York City advertising agency called Ries Cappiello Colwell. We didn't have a job for him at the time, so I got him a job with a client (Uniroyal). Later, he joined us. Several years after that, I changed the agency's name to Trout & Ries.

During the 1960s, did you align yourself with any controversial issue? Then or later, did you ever consult for a political candidate? Who?

I was very much against the war in Vietnam, but never figured out how I could do much about it. Jack and I did some consulting for Lowell Weicker when he was Governor of Connecticut. We decided never to work for another political candidate because of the ego problem. You need a very strong ego to be a politician. Unfortunately, a person with a strong ego will never accept advice from a consultant unless it's their idea. I understand, however, that our book, Positioning: The Battle for Your Mind, was very popular with political consultants and staffs of politicians.

How many places did you and Jack try to place that breakthrough "Positioning" article or series before Advertising Age accepted it?


None. The article was requested by Rance Crain, a reporter for Advertising Age at the time (and son of the founder -- today Rance is editor-in-chief at Advertising Age). What might be interesting, however, is that after the articles ran in Advertising Age, I tried to get the Harvard Business Review to do an article on the subject. (I tried very hard.) Their response: "There's nothing new here." That's a reflection of the biggest problem we have had ever since. Management is focused on building better products and services. We are focused on building better perceptions using positioning strategies. That's a conflict that has existed for 30 years. We have never won that battle. Over the years, I have tried at least 20 times to place an article in the Harvard Business Review, with no success.

Did you formulate the "own a word" doctrine because you and Jack ended up "owning" the word "positioning"? Or did you have it -- the doctrine, I mean -- before the article hit?

Owning a word is a simplification of the concept owning a position. We used to talk about the need to "own a position in the mind" -- and at some point, shifted to owning a word. I'm not sure when that happened, although the success of Volvo and "safety" may have had something to do with it.

Of these marketing/management-and/or-advertising notables -- Peter Drucker, Malcolm Gladwell, Seth Godin, Steve Jobs, Theodore Levitt, George Lois, Regis McKenna, David Ogilvy, Tom Peters, Sergio Zyman -- please rank them in terms of impact on your own career and idea-formulation.

The only people on your list that have had an impact on my thinking are David Ogilvy and George Lois. But there are a lot of other advertising people that influenced me -- including Bill Bernback, Rosser Reeves and Carl Ally. I knew David Ogilvy, George Lois and Carl Ally personally; the other two I read about. What makes a good marketing person is the ability to absorb many different ideas and concepts. I have learned from all the people you mentioned, plus many, many others. I subscribe, for example, to four daily newspapers and dozens of magazines.

For some detailed recollections -- of ad-industry greats and business partners (including introversion versus extroversion) -- try this Q&A sidebar: www.ExactingEditor.com/Ries-History.html

Finally, who did the above list miss? Other than long-time partner Jack, and current partner Laura, who has done the most (whether you worked with him/her or not) to shape your marketing doctrine and strategies? If you want to go back to Clausewitz, well okay, but I'm thinking 20th century.

Interestingly enough, people have asked me what authors, aside from us, they should be reading to become good marketing people. My answer is always the same: Forget the books, including us. The best way to become a good marketing person is to study the outcome of marketing battles by reading business and trade publications, starting with The Wall Street Journal, Business Week, Fortune, Forbes, The New York Times, etc.

Marketing is fundamentally a prediction of the future. How do you predict the future? You study the past. That's why it's absolutely necessary for a student of marketing to study what has actually happened in the past. Of course, warfare is a good analogy for marketing. (Jack and I wrote the book Marketing Warfare.) You can find the order of battle for conflicts that occurred as far back as the Battle of Marathon in 490 BC. That's almost 2,500 years ago. By studying the moves made by the opposing commanders, you can learn an awful lot.

Creative People versus Suited Strategists

GREGORSKY: I read the 1972 Advertising Age reprint from your website, as introduced by Laura, and I recommend any self-employed writer or publicist print it out and absorb it more than once.

But a powerful doctrine can be so unnerving its own discoverers don't apply it with full force. Along those lines, in terms of building a consultancy, as you and Jack [Trout] did in the ‘70s, why was there an eight-year gap between that Advertising Age series and the book of the same name? Seems to me you would have been able to get a book really quick.

RIES: That was a major mistake. We should've done it right away. But don't forget: I was running an advertising agency at that time, and that's a 25-hour-a-day job. Writing a book while running an agency is very, very difficult.

GREGORSKY: Really? But you were getting vast amounts of material just doin' your daily job.

RIES: Well, wait a minute.

GREGORSKY: You could almost have dictated the war stories week to week and hired somebody to put 'em together.

[Mutual laughter]

RIES: Maybe. The difficulties -- oddly enough, the [1972] Positioning articles made the advertising agency more difficult to run, because we were perceived as positioning experts -- which meant strategy.


RIES: Rather than creativity.

GREGORSKY: [signifying delayed reception] Ohhhhhh.

RIES: So two forces were at work. One is creativity, the other is strategy. You know, you go in a boardroom, look around, and you can point out the creative people from the strategic people. The creative people have got the blue jeans and the ripped shirts, and the strategic people have the suits and ties on. So, as a result, unfortunately, while the positive side of the Positioning articles made people think of us as strategists, the downside was: "[Ries and Trout] can't be very good creative people if they're strategists." Out of that thinking, we decided long-term to get into the strategy side --

GREGORSKY: Perfect transition comment.

RIES: -- by shutting down the advertising agency.

GREGORSKY: A fairly recent Business Week web bio of you says: "Al Ries, whose specialty is branding, learned a critical branding lesson himself in 1989, when he stopped calling himself an ad agent and started calling himself a marketing strategist." You are quoted: "People seemed to take me more seriously." Question: Wasn't that a change of category? Affiliating with a different profession? Or was your label simply catching up to what you were already doing?

RIES: It was a change -- because we actually shut down the agency in '89 and moved out of New York City to Greenwich, Connecticut. For personal reasons, but also because we felt that being in Greenwich we'd have the perception of being a consultant -- marketing consultant -- rather than an ad agency. There'd be no ad agencies in Greenwich but there were a lot of ad agencies in New York City. But the truth is that, in the decade of the '80s, more and more clients came to us and said: We want to buy your strategy, but we don't want you to do the advertising.


RIES: So we were a 50-50 -- half of our income was strategy, and half was advertising -- for quite a few years. And we made the decision to become strategists three or four years before we actually made the move. Don't forget: We had a lot of people, a lot of equipment, a lease, and everything else. So you just can't --

GREGORSKY: You had to execute the tough operational part of a focus doctrine even before it was called that. Shear stuff off, or at least move away from it.

RIES: Yeah. We told our employees, two years before we shut down: "Look, you only have a job for two years." When we shut down the ad agency, there's no room for art directors or paste-up people or -- you know, lots of the technical people you need for an ad agency. We were up-front with them. And some stayed until the bitter end. Some left, but a number of 'em stayed.

Start with the Mind of the Prospect -- and Then?

You and Jack Trout parted on good terms 12 years ago, and during 1996 two solo books came out. Yours was Focus, his was The New Positioning. Unlike Jack, you were moving beyond the critical word that helped both of you break out. Why?

RIES: Well -- yes, because "positioning" isn't really a strategy. "Positioning" is a way of communicating with consumers and prospects.

GREGORSKY: It is the activity itself rather than the [point] of the strategy.

RIES: Well, what I'm saying [pause] -- a company will hire us because they want us to help them. How do they want us to help them? They want us to help them focus their company, or their brand, or their service. But to say they want us to help them position [those same things] -- "positioning" is a way of looking at things. In other words, it's an outside-in way of approaching a problem: Start with the mind of the prospect.

But that doesn't say anything about what you should be doing, whereas "focus" tells a prospect: Look, I don't care what business you're in, you're into too many different things [laughter] -- and we want to help you focus. The question [then becomes]: What should they focus on? To establish the new position, in a sense, we use positioning thinking.

GREGORSKY: But -- the thing that blew me away in 2000 was the way [your '96 book] used the word focus. I understand the strategic [and product-refinement] aspect. But what locked in with me, and what I fail to communicate again and again to self-employed friends, is that "focusing" is the obligation the producer/writer/small business owner has to help friends, family, prospects and clients focus back on us. Not how we manage our time, not even how targeted our product-line is; but to "facilitate the focus" so that these [intimates and associates] can give the elevator speech for us. Our obligation is to help them get clear on us, and quickly.

RIES: Yeah -- wellllll.

GREGORSKY: Or is that just a slice of it?

RIES: You have to differentiate between Ries and Ries as a business, and how we work with our client. In working with our clients, invariably the problem is always the same: They're into too many different things. Why does a company get into too many different things? See, that's the nature of our last book The Origin of Brands. What we're saying is, over time, a category will diverge.

For example, IBM and computers. They started with mainframe computers. They had 70% of the business and they were a powerhouse. But what happened to the computer business itself? It diverged. So now we got personal computers, handheld computers, mainframe midrange computers -- [plus] many different types of accessories and peripherals and software and everything else.

GREGORSKY: And for too long IBM saw itself as an umbrella that encompassed most of those.

RIES: Exactly. And this is true of any company over an extended period of time -- you're gonna become unfocused. It's like a garden: Over time, you'll have to prune it.

GREGORSKY: Or the so-called "glove compartment" in the car [laughter].

RIES: Or the desk drawer. So, when we say we're "focusing consultants," we're like a housecleaner. Everybody needs a housecleaner ‘cause the house gets messy. So we're working on a problem when we say "focus," whereas "positioning" is a process of how you communicate or how you get into people's minds. The problem with positioning as a selling concept today is -- nobody disagrees with it! Everybody says: Yeah, sure. Matter of fact, almost every brand has a positioning statement.

GREGORSKY: Yep. But in and of itself it doesn't rule anything out.

RIES: It doesn't -- it could be a meaningless positioning statement, or a worthwhile positioning statement, depending on whether it's focused or not. See, the value of a positioning statement is [in] how much focus do [you] have in the statement.


RIES: If the statement is like Chevrolet's "An American Revolution" -- they say that's their positioning statement, but it doesn't narrow the Chevrolet line to anything. It doesn't even say "automobile." "American revolution" could be anything. So that's not focused enough to get in people's mind. Nobody refers to Chevrolet as, "Well, that's the American revolution driving by."

This is a universal problem. That's why we call ourselves focusing consultants.

Company Exhibits (this part is mostly Preview)

GREGORSKY: Alright, before we get to those four business and history questions I e-mailed you in advance, can we give a few respectful minutes to the entity you have long held up as the ideal mix of market-dominating centralized leadership, mixed with systematic appreciation for brand focus and uniqueness. All the upsides of "big," with I guess none of the downsides. Large company with many products, yet not fuzzing or screwing up the brand identify of all those products. That would be...Procter & Gamble. Assuming P&G remains the champ according to your rule book, does any other big, established and multi-product company come close?

RIES: They're still the champ, and if you look at the numbers, they're doing very well. But the competitors are pretty much the same. Not as profitable but --

GREGORSKY: Unilever, Colgate Palmolive.

RIES: Unilever and Colgate, plus H.J. Heinz and Campbell and others. But certainly they're all focused on that strategy, which is "forget the Procter & Gamble [or other company name], we want to focus on the brands." Now, it just so happens that Colgate [the company] and Colgate toothpaste are the same name. But they don't use their corporate name in any meaningful way, and neither does H.J. Heinz or Campbell's.

Unfortunately -- still -- many of these companies are making what we call the line-extension mistake, trying to put their name on everything. Look at what they've done to Crest toothpaste [by extending it]: The Crest name is on the white-strip product, the Crest name is now on their mouthwash product. They're dragging a lot of products in under the Crest name, which we would never do...

INSERT by GREGORSKY: This being an Author Profile, it didn't seem quite right to unveil it with over 3,000 words of Q&A on the plusses and minuses of Microsoft and Coca-Cola, Ford and General Motors, Southwest and Xerox. Yet, for investors and strategists, such "lab cases" go to the heart of the Ries marketing doctrines. So I'm holding the bulk of this section for the September website update, which is when this sidebar URL will be activated:


Writing Drives Speaking Drives Advising

GREGORSKY: This [next section] is about being an author, giving speeches, and doing consulting. Most of the bestselling non-fiction authors I know have made far more giving speeches than they have selling books. Granted, without a serious book or two to begin with, they wouldn't be on the speaking circuit. But just thinking of yourself as a business, with the different revenue streams, does that -- speaking revenues versus book royalties -- fit with your experience?

RIES: Yeah, that does -- but, let us give you our thought, which is pretty simple: The books drive the speeches, and the speeches drive the consulting. In the best of all possible worlds, you make more on the consulting than the speeches; you make more on the speeches than [from] the books.

GREGORSKY: [Pause] There ya go.

RIES: Now that, as a glittering generality, is true -- but that's not true for everybody [who's juggling those three revenue possibilities].

GREGORSKY: Because the cycle can get out of whack now and then.

RIES: Sometimes if you're lucky, if you happen to hit it right, you can have a book that takes off. Take Malcolm Gladwell's [most recent] book Blink. I like the book. It sold a million copies, mostly to people that found the book interesting -- but not really useful from a business point of view.

GREGORSKY: And the weird thing is, two years before, Gary Klein put out Intuition -- a far mere serious book, about how to use [this unsettling attribute and sometime set of skills]. Because of his professional expertise and depth, Klein's book is so much better than Blink. But because Gladwell came up with the [catchy name], and he had this pop-psych reputation [laughter], his book sold and Klein's book didn't.

RIES: Yeah. And the reason [Gladwell] got that reputation is that he worked for The New York Times. That's one of your big [hurdles] -- you take an author that has no credentials; very difficult to get reviews of that person's book. Without reviews, you don't sell a book. So the fact that he's a writer for the Times instantly gave him credibility with the reviewers. Same thing happened with the guy who wrote Den of Thieves [James B. Stewart].

Sure, the books are nice, but a lot of "nice books" are out there, and most of 'em don't sell worth a damn -- when they're business-oriented. There are too many business books for the number of different places they can be reviewed. As a result, a publication like Business Week will review no more than a hundred books a year out of 10,000 business books published. Your chances of getting reviewed are very slim. And they don't read the book before they review it; they just look at the author, and the title. If it's Jack Welch, they're gonna review the book.

Not Resting on 25 Years of Book Sales

GREGORSKY: In your 2002 book with Laura, you positioned yourself against the traditional vision of advertising [i.e., to build a new brand] and spoke up for PR -- which we political types call "free media" -- so that was a classic polarization: Speak up for one industry and position yourself against another. And then, with the '04 book, you went against one concept -- digital "convergence" fusing product functions and even whole economic sectors -- and explained and glorified the opposite concept [which the book and this Q&A sum up as "divergence"].

What's your take, in terms of how each book as a product has been received by the market?

RIES: The Fall of Advertising was extremely well received. It got a lot of publicity and sold a lot of copies, and we got invited to make a lot of speeches. The Origin of Brands -- a very difficult [situation]. We got very little [in the way of] reviews. But that doesn't discourage me, because the longer a bubble lasts [the more stunning will be the switch in views]. We've been in the Convergence Bubble since 1993 when the merger proposed  --

GREGORSKY: Between Bell Atlantic and TCI [John Malone's cable giant, which AT&T would eventually purchase in 1999].

RIES: Yeh. It never went through. But that kicked off the Era of Convergence, [which means this] bubble has been building for nigh-on to 13 years. And the longer it goes, the more steam it's gonna have when it bursts. At some point in time, somebody will say that "they have been talkin' about this for a long time [laughter] -- and nothing's happening. So maybe we should do a story on the opposite side of the street." Anyone who does that story -- talking about divergence -- I think will come across our material.

GREGORSKY: But do you really need Harvard Business Review or Wall Street Journal or Business Week to do [an anti-convergence] story when you have your own channels and vehicles for getting this message out?

RIES: Sure. Because we don't have the credibility that [those publications] or Fortune or Forbes or anybody else has. I don't care who you are. You can be Donald Trump -- you don't have the credibility until people write you up. I can say anything I want to say, but it doesn't move people until they see it in the pages of, you know, whatever.

GREGORSKY: Even with several bestsellers over 25 years?

RIES: Yeah, because it -- well, you gotta keep in mind that there are 20, 30, 40, 50 million business-oriented people in the country. So even though we might've sold, in total, a couple million books, the number of core "believers" that have read our books and say "hey, this is right" is only a fraction of that. Our supporters, so to speak [chuckling], are a minority of the 20, 30, 40 million business-type people out there. So, that's the problem. Breaking through is always a problem. While we've gotten a lot of publicity in the "trade"-oriented kind of media, it's very difficult to break into the general business media.

GREGORSKY: You know, Al, that's astonishing -- that you could make such a statement as one of [this country's marketing veterans]. You sound like a 38-year-old who's out there maneuvering for the next leg up the ladder. The marketplace is a demanding mistress? [laughter]

RIES: I'm not complaining about it -- because the fact that it's difficult keeps all of our competitors from doin' it [laughter]. If it were easy to do, thousands of people out there would have a much bigger reputation than we do. I'm just trying to explain that breaking through is difficult. I like to say that: "Listen, the Wall Street Journal [isn't out there] to make you famous [laughter]; they want to talk about people who are already famous." You see that in the headlines.

GREGORSKY: Sure. Then those people can help the Wall Street Journal reinforce its brand.

RIES: If Donald Trump does something, the headline says "Donald Trump Does Something." If an entrepreneur like us would do something, the headline would say "Entrepreneur Does Something" [laughter]. They wouldn't say "Al Ries Does Something."

GREGORSKY: Sure [laughter].

RIES: So, their instincts are to keep you from being famous. They want the status quo. Anybody that wants to get ahead in life -- this is true if you work for a big company; this is true if you're trying to publicize yourself or anything else -- you have to spend some effort at it. And one of the ways you do that, oddly enough, is you find an enemy. You know, be it advertising [as traditionally used] or be it convergence.


RIES: And you position yourself against the enemy -- because that's what creates controversy! We keep our fingers crossed on the convergence-divergence idea because it has incredible controversy. Unfortunately, people that own these publications -- they don't see it yet. But I say "what the hell, I think we have time on our side."

Divergence as the Realistic Antidote to Convergence

GREGORSKY: Having fought digital convergence delusions when I managed the Technology Policy program for a Seattle think tank, I laud this campaign by you and Laura, especially the raucous chapter on failed products in the Origin book.

RIES: Convergence has gone through so many permutations -- I mean, you can't believe the number of things. Take Microsoft. They spent millions of dollars on the Tablet PC. Then they spent a fortune on interactive TV. Then they spent a fortune on the Media Center PC -- everybody was to control everything in their house, including their lights, from their personal computer.

GREGORSKY: One complexifying approach and unworkable product after another.

"Three years after their introduction, tablet PCs have settled into a small niche serving people who regularly take notes or fill out forms while on the job... Sales of the pen-based computers [are] just 2% of the overall notebook market. Use has been limited to markets such as health care, pharmaceutical sales, manufacturing, and education."

-- SOURCE: "Tablet PCs: Stuck in a Niche," Information Week 11/28/2005

RIES: I mean, you name it, they've been [pouring money into] it. The thing that's keeping [the Convergence Bubble] alive -- and I think it's the last straw -- is the cell phone. I don't see anything else coming down the chute. [But even there, look at the numbers] -- there are 200 million cell-phone users in America. Two hundred million. Right?


RIES: So they're bragging about "Mobi-TV" having 500,000 subscribers. They look at 500,000 there, two million [over here] and they say Wow, convergence is happening. But [stack those novelty-loving users against] 200 million. This is always gonna be a niche product. Never a big deal.

You can find "convergence" in convenience stories, which do 5% of the grocery business. Are convenience stores going to replace Wal-Mart? Or Kroger? Or Whole Foods? I don't think so. But [7-11 and the others] have 5% of the market. Typical convergence idea, where convenience is the issue. A certain percentage of the market would like convenience -- same way as a certain percentage of the market will like the idea of having one product that does everything. But most people find these things too complicated. No built-in obsolescence so they can throw away one thing and buy another thing -- instead you gotta throw away the whole thing. These are big issues.

Need a Better Way to Market "Divergence"

GREGORSKY: I don't have any specific questions on the substance of The Origin of Brands. Just one about how strongly to state the fundamental point. You and Laura might be overdoing it. The evidence is overwhelming that "convergence" can't create new brands, whereas divergence does that almost every day. But -- isn't that the point?!? Your books and columns naturally set a branding and breakthrough standard for what divergence does and what convergence keeps failing to do. But you go further to declare -- or seem to declare -- that convergence products can't be profitable and almost have no right to exist. By making [the anti-convergence] argument so sweepingly, you make it easy for a lot of people, especially in high-tech, to come back with plausible nitpicking and oddball case studies where some of these things are selling.

Bottom line: Why not just confine your contention to "branding and breakthrough"? Make that the benchmark for the convergers.

RIES: Well, this is one of the problems with marketing, which unfortunately is compared with science. In science, if you can find one example where the speed of light is not 186,000 miles per second, the whole theory collapses. But, in marketing -- like in warfare and [other] things that are more art than science -- your principles might work 90% of the time, and [misfire] the rest of the time.

Take line-extension. Line extension is a little like convergence-divergence -- there's an incredible number of examples of where line-extension doesn't work. But the trouble is: If somebody in the audience can think of one example of where it works, then our arguments are totally wrong, and they want to go right ahead with their product and do a line-extension.

GREGORSKY: All the way up to CEOs, who are supposed to think in terms of probabilities and tradeoffs?

RIES: If they can find one example where it works, that's all they need -- they're gonna do it. We try to say: "Wait a minute. Nobody's gonna be good at marketing if they're ‘all or nothing-at-all' thinkers. You gotta be flexible." You gotta say: I have a principle here that works most of the time. Why would I want to use a principle that doesn't work most of the time? -- just because you can show me an example of where it didn't work.

GREGORSKY: Well, gambling theory says if you can play the really long odds and the one-in-50 horse wins, you get a million bucks.

RIES: [Chuckling] Sure. A very good example -- yeah.

So that's our problem with convergence and divergence. I mean, your question says "overwhelming evidence" but -- I'll tell ya how bad it is. I have yet to see the word divergence in any story about convergent-type products. They don't even bring up this notion that maybe things are going apart instead of coming together.


RIES: Business Week, for example, does a six-page story: "BIG BANG. Digital convergence is finally happening." A six-page cover story: "Look at all these wonderful products." On and on and on and on. The word divergence is never mentioned.

GREGORSKY: Okay, "wonderful products," but not breakthrough brands. That's what my question here tries to get at -- why not argue the branding point as opposed to whether such products can merely exist [and scrape along thanks to specialty users]?

RIES: Well, here's the -- let me give you another example. I finally got an answer from the editor of Business Week. They ran an article [last spring] about "iPod Killers," all right?

GREGORSKY: [Laughter] I remember that! [Gregorsky's insert: A wise editor put a question mark on the headline, but the story itself was stereotypical Business Week buncombe and breathlessness. They need some tranquilizer darts over there...]

EXTRACT: "Mobile phones that rock, jam, thunder, and swing are on the way. Wireless operators around the globe are working with music studios, phone makers, and artists...to turn the mobile phone into a go-anywhere digital jukebox... Who would have thought the cell phone would evolve from a brick-sized talking device to a pocket-sized jukebox? In early April 1973...a Motorola researcher made the first reported call using a handheld wireless phone. Now, [college students] not only can talk on one, they can dance to stereo-quality tunes booming from the little gadgets. Music on phones is coming of age. Watch out, Apple."

RIES: And they showed three or four combination cell-phone-mp3 players -- "iPod killers." I wrote the editor and said: "Since your article appeared, during the last quarter of 2005, iPod sold 14 million units. How many combination cell-phone-mp3 players were sold? I doubt if 500,000 were sold [during that same final] quarter of 2005. So how can you call these things iPod killers?"


RIES: I mean, the iPod is a classic divergence product. First you had the flash-memory mp3 player. Then you had the hard-drive mp3 player. Now you got two types of mp3 players -- low-capacity, and high-capacity. Yet all the publicity is about mp3 players coming together with the cell phone [rather than the splintering of what was a new category just half a decade ago].

Or take movies, right? Here is such a good example of the power of divergence. The most successful movie producer is Pixar. Pixar is not only focused just on movies, but just on animation! And not "just on animation," but just on computer animation.

GREGORSKY: Yep, right.

RIES: One thing -- worth seven billion dollars, and they've only made six movies.

GREGORSKY: But because of the technology they use, it's easier for technology reporters to not see the [focused] results, but instead to dwell on the process [and its digital nature].

RIES: And that's where people put their blinders on. They say: "That's an example of convergence." I say, "What example?" They say, "Well, they're using computers to make movies -- that's convergence! The computer industry has combined with the movie industry." Now come on. Wal-Mart uses computers to run the business -- so that means computers are "combined" with retail?

Advertising is in Less Trouble than Marketing Today

GREGORSKY: What is the question I should've asked? What question would've enabled you to make some key point here about your work or intentions that will otherwise be overlooked?

RIES: I don't know if this is a question but -- marketing is in trouble today. One of the reasons [Laura and I] are not as famous as some people think we ought to be is the fact that marketing is not a discipline well-respected in the boardrooms of Corporate America. There's a feeling among chief executives -- and I've worked with a lot of 'em -- that "marketing is common sense." They have absolutely no hesitation to say: "This is what we're gonna do" or "this is what we should do" -- when it comes to marketing.

Now, with a legal issue -- "uh-huh, I gotta talk to a lawyer." If it's a financial issue -- "hmmm, I gotta talk to the CFO." When it comes to marketing -- "well, marketing is common sense, right?"

GREGORSKY: Which translates to [relying on] their intuition.

RIES: Yeah. Who has more common sense than the CEO? They're not gonna think anybody has more than they do. As a result, most companies do it the CEO's way. The "common-sense problem" -- the fact that marketing is not recognized is a discipline on its own. Phil Kotler says: "Marketing is something you can learn in one day, but it takes a lifetime to master." It isn't common sense. You have to think about a lot of things.

So my point is that -- marketing is in trouble in America. We get more speeches, more everything, outside of the U.S. Two weeks ago Laura and I were in Australia for a consulting assignment. I mean [chuckling] -- why should I go to Australia when they desperately need me at General Motors? That's what I'm saying [laughter].

GREGORSKY: But if marketing is in trouble [in the U.S.], isn't advertising in bigger trouble [given media-mode chaos and the after-effects of the bear market]?

RIES: Advertising is not in as much trouble as a financial operation because customers think that they need advertising. For eight years in a row, General Motors was the largest advertiser in America. If you're a General Motors advertising agency, you don't have that problem. Hey, you're rolling in dough [because the company is still] spending a fortune.

I just ran the numbers [for an Advertising Age column]. In the past 10 years, GM spent $32.8 billion in advertising. The market cap of the company is $10.9 billion [using March ‘06 stock values]. In the past 10 years, they spent three times as much on advertising] as the current value of the corporation. So, you might say "advertising is in trouble" [laughter]. Well --

GREGORSKY: As suppliers, we'd all love to be in that kind of trouble.

RIES: From a conceptual point of view, advertising is in trouble. But from a financial point, it's not.

GREGORSKY: So many CEOs and division heads trust their intuition to know what "marketing" is and what they should do with a given product -- and then they have the budget [given that the S&P 500 firms haven't been this flush, as a share of GDP, since the mid-'60s] to go out and hire an ad agency to execute it.

RIES: And why do they need us? Why do they need any marketing person? The average time of a chief marketing officer was 23 months, last time I looked. They don't last very long at all. Because -- they got nothin' to do. They're in-between the chief executive and the rest of the company. And either they kowtow to what the chief executive wants to do, or they're out. So it's a very, very difficult job these days -- if you know anything about marketing. If you know how to please the boss, then fine, you got no problems.

Little Profit from the Profligate Prophecy of Convergence

GREGORSKY: I'm going to send you a Barron's story by Eric J. Savitz, who -- and this is extremely rare among technology reporters, even ones who take an investment tack -- sounds weary of the convergence hype.

RIES: Yes, I'd like that. I could use it.

Gregorsky's follow-up a day later -- Savitz was writing up the Consumer Electronics Show in Las Vegas, issue of January 9, 2006, beginning page 17. Opening paragraph showed skepticism bordering on scorn: "For years, the $135 billion consumer-electronics industry has been blathering about 'convergence,' the intriguing idea of ubiquitous access to more or less any kind of content or information we want -- anyplace, anywhere, anytime and on any device. Every year, the mandarins of the tech business say the same thing. Still, last week, at the latest Las Vegas gathering of the International Congress of Geeks, Gamers and Gearheads, a.k.a. the 2006 Consumer Electronics Show, the convergence-blathering reached ear-splitting volume. But this time, they really meant it." Later, to cover his backside, Savitz writes "the evidence suggests they are inching closer to a solution." You can see him moving back and forth across the divide of credulity as the article rolls on...

Ries then wrote to Savitz: "No group of companies has fallen as hard for convergence as the Japanese electronics industry. When you make everything (as most of the Japanese companies do), you have a tremendous incentive to believe that all of your products are eventually going to come together. Yet the six largest Japanese consumer electronics companies in the past decade have had dismal results. On total sales of $2,999.2 billion...they managed to make in net profits only $4.8 billion, or 0.16%. One company, Nintendo, on sales of $42.5 billion, made $6.2 billion, more money than the Big Six combined. Nintendo, of course, makes only videogames and videogame players. Their biggest successes are ‘divergence' products like the Game Boy and the Nintendo DS." Ries included a chart of revenues and profits from Hitachi, Matsushita, Sony, Toshiba, Fujitsu and SANYO. "Maybe it's time for Barron's to take a look at the financial fall-out of all this convergence talk."

Concluding our March 2006 phone taping, he says...

From a PR point of view, the worst thing in the world, when someone does a story on convergence, is to write 'em a letter saying: "I think you're wrong, it's really divergence" [laughter]. You won't get past the first sentence. But somebody [like Savitz] who expresses reservations -- I write and say: "I agree with you. Nice article" -- and then give a pitch on divergence. The Economist in the U.K. is also coming around. They have gone from being very pro-convergence to expressing reservations, which is a good step [laughter].

GREGORSKY: Excellent; this has been fabulous.

RIES: Thanks, Frank.