[ET Platform] Brand Marketing for Fabless Businesses

In the past, branding was limitedly considered essential part of successful business-to-customer (B2C) products such as Coca Cola, Nike and Mercedes Benz. Today, companies involving business-to-business (B2B) transactions are also required to have branding strategies. Dr. Philip Kotler, the world’s leading marketing scholar, stresses in his recent book titled “B2B Brand Management” that differentiated B2B branding is key to survival of business organizations in this global competition era. Branding is especially seen as essential for an organization to become a leading player in the global IT market, where widely-shared technologies and revolutionary low prices have become major trends.

In the industrialized age, brand marketing was considered privilege preserved for a small number of large businesses. In today’s information society, anyone can have such an opportunity. The most effective and the fastest way to explore and utilize band marketing is to better understand customers, who are creators of the web 2.0 culture that can be characterized by participation, sharing and openness. Throughout the course, small and medium businesses can also seize opportunities to increase their brand values.

“Wikinomics,” a book about web 2.0 economics, discusses the value of large-scale collaborative relationships that began to be created between customers and business organizations. The author of the book emphasizes that competitiveness of a product depends on the company’s capabilities to utilize communities voluntarily created by prosumers, and to see them innovation partners. In fact, progressive users now create online prosumer communities to share information about products; cooperate in customer customization projects; participate in commercial transactions; and exchange tips and tools among members.

One of the major characteristics that represent the web 2.0 era is blogs. What is noteworthy is the fact that blogs function as tool of knowledge production. The function can be seen in the context of a broad trend of open-source revolution, which is led by the ‘wiki.’ At Google, all the employees have their individual blogs, and use them in sharing platform while developing software programs.

What is more intriguing is that blogs is the most effective marketing tool in terms of hearsay marketing. Intel, a leading B2B brand marketing company known for its “Intel Inside,” is now taking a new approach. The company has incorporated individual blogs owned by engineers into an enterprise blog, and created a community with its customers across the globe by using the new channel of communication.

  Fabless businesses in Korea are also required to create sustainable competitive edge by using branding for global marketing. Then, where does the brand value of fabless businesses come from? It will likely come from the value chain with prosumers, further with solution providers in the future. Prosumers are innovative developers and also loyal customers in the web 2.0 era. Solution providers are a marketing tool and sales network in the channel 2.0 era. Fabless companies need to establish a sustainable and powerful innovative network with them on a global base. Then, how can the links in the value chain be connected?

  To do so, I would like to propose “blog-to-prosumer (B2P) brand marketing.” Successful enterprise blogs are all tailored to meet the eye of prosumers, and promote voluntary participation by prosumers. Power blogs become sources of powerful hearsay, and create cult-like followers. When a community is created among these leading blogs, a business can say that it has secured sustainable competitive edge in terms of branding. This means a leading position in the global market, and better chances to become a standard platform.

  An open design contest can help create momentum for global brand marketing. It helps companies win prosumers intensively in a relatively short period of time. World’s leading MCU vendors such as Atmel and Microchip have been wooing prosumers and developing standard platforms through open design contests. 

　Korea is a global semiconductor powerhouse. Yet, the global standing of the domestic fabless industry remains weak. The web 2.0 era is unfolding before use. Business opportunities are out there, and the answer is prosumers.

By Lee Yoon-bong, President of Wiznet, yblee@wiznet.co.kr

The emerging Web 2.0 era has tipped the balance of power between manufacturers and retailers. In the past, retailers instructed the terms and conditions of inventories, pricing and marketing against retailers, as consumers purchased brands of manufacturers such as Kodak, Craft and Coca Cola. Today, consumers buy brands of retailers such as Wal-Mart and Target. Retailers have all the information about customers, and now they set the terms and conditions of inventories, pricing and marketing against manufacturers.

“Channel 2.0” is also emerging as new mantra. In the channel 2.0 era, customers will more likely purchase brands of solution providers (SPs) rather than those of vendors. Until recently, SPs were heavily dependent on brand power of vendors. In their marketing materials, they proudly displayed their relationships with leading vendors, indicating “Microsoft Gold Partner” and “HP Authorized Reseller,” for instance. Now, SPs are moving to selectively use competing technologies of different vendors so as to develop value-added solutions instead of remaining subordinate to certain vendors.

What customers want is a complete pack of customized offerings including solutions, technological support and consulting. In the channel 2.0 era, therefore, it is expected that SPs will instruct terms and conditions of inventories, pricing marketing to vendors since they are better positioned to deliver solutions plus customized service to customers. It is in the same vein that retails with all the customer-related information set the terms and conditions against manufacturers in the Web 2.0 era.

SPs can also become major global players through mergers and acquisitions over the next five years. In the United States alone, there are now more than 100,000 channel companies. In five years, however, only about 10 mega value-added retailers (VARs) will account for 75% of the market, with small and medium-sized VARs sharing the remaining 25%. For smaller players to compete with larger VARs and reinforce their negotiating power against vendors, more specialized SPs need to join forces to form supply chains.

System on chips (SoCs) are often referred to as next-generation semiconductors. They are bundling of reusable intellectual properties. More recently, interest is also growing in system in packages (SiPs) that combine multiple chips into a single package. SiPs require shorter development time and far less development costs.

Then, which chip vendors with certain nature can be capable of forming value chains with SPs in the channel 2.0 era? Platforms are in a better position, because SPs add value in a way of developing solutions by dressing platforms with the clothing of software applications. Which chips have such platform nature? Host processor chips like CPUs represent such type of chips. And Intel and ARM are presently dominating the market. Another one is a network coprocessor that off-loads Internet standard protocol processing from the CPU. It can serve as platform used for IP communication of various embedded Internet devices in the ubiquitous era. Being global IT power, Korea is on the forefront of this network coprocessor area.

Industry specialists now point out that Korean fabless chip makers in their early years should form clusters promoting SiPs so as to become competitive in the global market. They also need to have the ability to link with the value chains of mega global SPs, as the balance of power is tipped to SPs from vendors. They need to take a structural approach toward marketing link. One of solutions to this challenge can be creating a variety of SiPs by dressing market-leading infrastructure platforms with certain applications which proved their success in specific commercialization areas. As the market continues growing, platforms can expand to join larger value chains, hence adopted in different segmented markets at the same time. By establishing market-leading infrastructure that can lay the foundation for the value chains in the channel 2.0 era, the ecosystem of the domestic fabless industry can be grown to cultivate the soil fertile and rich.