A social-media/Enterprise-2.0/whatever-the-buzzword-is-today blogger is making the following generalization based on the Rackspace (RAX) share price rise over the 2009-2010 period:
The statement reminds me of the old marketing adage:
"Nothing kills a bad product faster than good advertising."
The reality is that every information-technology (IT) and enterprise software supplier needs good multiple-channel marketing to succeed in the market. Clearly one of those channels today is social media. But the blog has simply basically replaced the weekly customer email of the last decade, which basically replaced the monthly customer newsletter of the previous decade, which basically replaced the IT-vendor CEO showing up in your office once a year with the local sales rep to tell you what was new.
Back in the 1980s, I "bought" advertising time in a then new TV medium called cable, which led to some guy from Atlanta named Ted Turner calling our ad agency and asking if he could buy my boss and I lunch to thank us for the business. The CEOs of NBC and CBS never did that. But Malcolm Forbes and Harold McGraw at least ran good golf outings. (But that's all a story for another blog post.)
My point is that marketing does not drive the share price of IT companies despite the need that IT suppliers have for multi-channel marketing programs. Success in the market drives the share price. And in IT and enterprise software in particular success begins with "the product." 40 years of research says "Functionality rules!" That was true in the 1970s and it was true in the decade just ended (or did it end 12 months ago?). Of course "the product" both back in the 1970s and increasingly today is more a service than a physical thing but the same rule of thumb applies. In the interim (the 80s and 90s) and in consumer technology, the product was/is more often a physical thing but the rule still applies.
Microsoft (MSFT) did not grow to lead the enterprise and consumer software market by marketing campaigns but by keeping its leading customers -- IBM/Lenovo (LNVGY), HP (HPQ), Dell, etc. -- satisfied. Apple (AAPL) -- as good as its marketing is -- does well because of great product. Oracle (ORCL) and SAP in particular have succeeded with weak marketing campaigns because their key route to market is indirect, historically through the systems integrators.
And the systems integrators in turn -- just so you don't think I was wandering above with the Ted Turner story -- are successful because of key customer contact and great golf outings. Ditto for a hosting company such as Rackspace.
-- Dennis Byron
(No financial interest in company mentioned)