The companies that are working in the IT market have to use the same strategies that other companies are using in other markets: automotive market, food market, etc.
In every market there is a leader, there are few chasers, and there are a lot of underdogs. In the CPU/GPU market the leader is without a doubt Intel, a chaser is NVIDIA and an underdog is AMD. There are a lot of other companies, like Imagination Technologies, ARM, VIA, Applied Micro, and so on, but today I want to talk about the strategies of these three companies.
It will be an odd article for a lot of you, but I hope that it will be useful to you to understand the inner working of IT market. To do this, I will use a book that I consider a milestone: Marketing Warfare, by Al Ries and Jack Trout. I suggest you to buy it. ;)
Intel is the leader of the CPU/GPU markets. According to latest data, Intel gets 99 percent market share in server chips, 95% percent market share in consumer CPUs, and it’s gaining traction in HPC market thanks to Xeon Phi chips.
So, Intel has the force to maintain its leadership: “How many times have you heard company people say it’s easier to get to the top than stay there? Forget it. That’s a myth created by people who are more interested in the study of sociology that they are in recognizing the realities of business competition. It’s far easier to stay on the top than to get there. The leader, the king of the hill, can take advantage of the principle of force. No other principle of warfare is as fundamental as the principle of force. The law of the jungle. The big fish eat the small fish. The big company beats the small company”. So, Ries and Trout make a clear example: “When you examine the mathematics of a firefight, it’s easy to see why the big company usually wins. Let’s say that the Red squad with nine soldiers meets a Blue sqaud with six. Red has a 50 percent numerical superiority over the Blue. […] Let’s also say that, on the average, one of out every three shoots will inflict a casualty. After the first volley, the situation will have changed drastically. Instead of a 9 to 6 advantage, Red would have a 7 to 3 advantage. From a 50 percent superiority in force to a more than 100 percent force superiority. The same deadly multiplication effect continues with the passage of time. After the second volley, the score would be 6 to 1 in favor of Red. After the third volley, Blue would be wiped out completely”.
So, when AMD commercialize some new stuff, Intel has just to counter attack showing its new stuff, or lowering its prices, in order to stop AMD to gaining market shares. And don’t be fooled to think that a better products could win. We have seen how this strategy works during Athlon64 times: “Another fallacy ingrained in the minds of most marketing managers is the belief that the better product will win the marketing battle. Behind the thinking of many marketing managers is the thought that the truth will out. […] Don’t be fooled. Misconceptions cannot easily be changed by an advertising or sales effort. […] The single most wasteful thing you can do in the marketing today is to try to change a human mind. Once a mind is made up, it’s almost impossible to change. […] Even if you succeed in convincing the prospect that you have a better product, the prospect soon has second thoughts. -hey, if your computer is better that IBM’s, how come you’re not the leader, like IBM is?-”. (You have to know that this book was written in 1998)
Intel is not just the leader, but it has the power of the brand. Intel is synonymous of reliability, power and compatibility. Do you remember the old ads where Intel said that AMD CPUs were not 100% compatible with Intel software? AMD spent a lot of money to state the contrary, but even today some people thinks that AMD CPUs are not 100% compatible!
So, Intel has the advantage of the superiority of the defense. If AMD attacks directly Intel, Intel has the possibilities to counter attack: “The larger the operation, the less the surprise. A small company might be able to surprise a big company with a new product. But the small company is unlikely to pull fast ones on big company. The friction of the whole machine gets in the way”. The perfect example is about AMD APUs. AMD was the first to talk about this kind of products, but Intel was the first to commercialize them!
However, “leaders get overrun when they ignore those warnings or pooh-pooh the efforts of the competition”. The case of the x86-64 extensions is the perfect example. AMD took by surprise Intel. Athlon 64 CPUs were available in large number, but AMD had a poor marketing machine, so Intel counter attacked minimizing the importance of 64 Bit extensions: “In marketing attack, transportation in usually not a problem. A company can deliver products to thousands of outlets in days. The bottleneck is communication. Getting a marketing message across to millions of customers can take months or years. There is often plenty of time for the defender to blunt the attacker’s sales message by undercutting it in one form or another”. Intel persuaded its partners (e.g. Dell) to not commercialize AMD PCs, or Microsoft to not give importance to Windows XP 64 Bit. The users thought that 64 Bit extensions were useless.
Another strategy is to sue the rival. From "Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk", by James Bessen and Michael J. Meurer: "Even simple delay can impose large business costs. Consider, for example, litigation against Cyrix, a start-up firm that introduced Intel-compatible microprocessors. Intel, the dominant maker of microprocessors, sued Cyrix and the litigation lasted four years (there were multiple suits). During much of that time Cyrix had difficulty selling microprocessors to computer manufacturers because most of them were also customers of Intel and they were reluctant to buy a product that might infringe. Cyrix also had difficulty finding fabricators willing to manufacture their chips - again, for fear of being sue themselves. In the meantime, Intel responded by accelerating its development of chips (the Celerons) that would compete against Cyrix's offering. In the end, Cyrix won the lawsuit, but lost the war, having lost much of its competitive advantage. In effect, Cyrix lost the windows of opportunity to establish itself in the marketplace. Litigation exacted a heavy toll, indeed". One year after the end of this litigation, Cyrix merged with National Semiconductor to avoid the bankruptcy.
So, we have seen that Intel is the King of the Hill, and it could destroy easily AMD. But why doesn’t Intel destroy AMD? Ries and Trout in Marketing Warfare talking about General Motors, the leader of Automotive market in 1998, wrote: “In terms of market share of market, automotive market is really the big one. General Motors gets 59 percent of the market. All the others don’t add up to the one of General Motors. In share of market, Ford has 26 percent of US market, Chrisler has 13 percent, and American Motors has 2 percent. Total for the little three: 41 percent. […] First, who are General Motors’ competitors? There’s the Justice Department, the Federal Trade Commission, the Secutity & Exchange Commission, and the U.S. Congress. General Motors can’t win by winning. If they wiped out one or more of their automotive competitors, the courts or the Congress would break them up. Witness what happened to that other big winner, the American Telephone and Telegraph Company. They were no match for Judge Greene and the Department of Justice. General Motors can only win by not losing. General Motors should wage defensive warfare. […] Good defensive warfare is offensive in nature with the clear objective of protecting a company’s dominant share of market”.
Intel has to follow just one rule, to remain the King of the Hill: “Strong competitive moves should always be blocked”. It’s not important to be innovative, because Intel has the power of the brand, the power of the market share and its marketing fire power. Ries and Trout wrote: “The U.S. atomobile industry illustrates this principle well. Says John deLorean in the book On a Clear Day You Can See General Motors: Even though Ford was superior to General Motors in product innovation during the time I was with GM and Chrisler surpassed it in technical innovation, neither firm made substantial cuts into GM’s half of the market. GM had not produced a significant, major automotive innovation since the hydramatic automatic transmission (1939) and the hard-top body style (1949). Ford pioneered in practically every major new market while Chrisler produced the significant technical innovations, such as power steering, power brakes, electric windows and the alternator”. But who gets the credit for engineering excellence? General Motors, of course. it’s the flip side of the “Truth will out” fallacy. […] There is also the psychological pressure that benefits the leader. […] The power of majority was indicated by the typical reaction in the Asch experiment: To me it seems I’m right, but my reason tells me I’m wrong, because I doubt that so many people could be wrong and I alone right”.
The main innovation made by Intel were the first microprocessor (Intel 4004) in 1971 and the first MOSFET SRAM in 1969. Integrated Memory Controller? Digital Equipment Corporation. Integrated GPU? MIPS. HyperTransport (and derived Quickpath)? AMD. FinFET? UC Berkeley. And so on.
Why is NVIDIA a chaser? Yes, NVIDIA actually is the King of the Hill in the GPU market, but it is the Intel’s chaser in the Enterprise market, and now I want to explain why.
As we have seen, Intel gets the 99% of Enterprise market, so it’s the King of the Hill. However, the Enterprise market is quickly changing thanks to Cloud Computing and HPC new sub-markets. Intel has just to defend its positions. On the other hand, there are a lot of virgin territories to conquer, and NVIDIA is interested in.
“Leaders should play defensive, not offensive, warfare. Offensive warfare is a game for the No. 2 or No. 3 company in a given field. This is a company strong enough to mount a sustained offensive against the leader”. NVIDIA has to consider the main Intel’s weak points in order to master a good attack plan: “Find a weakness in the leader’s strength and attack at that point”.
Intel has the x86 ISA, NVIDIA not. Intel can easily attack Cloud Computing market, NVIDIA not. But Intel doesn’t have a good portfolio products to attack HPC market, NVIDIA has its own GPUs and CUDA. But Intel is the leader, so NVIDIA has to do a good attack. How?
“Launch the attack on as narrow a front as possible. Preferably with a single product. The “Full line” is a luxury only leaders can afford. Offensive warfare should be waged with narrow lines, as close to single products as possible. […] Only when a breakthrough was achieved did the attacking forces expand laterally to occupy territory”. Intel will try the same strategy in HPC market like it did in x86 market, when AMD showed innovative products and technologies. Intel will try to take advantage of its partnerships (SuperMicro, AsRock Rack, etc), of its brand, and of its software compatibility (Xeon Phi is a HPC chip that use x86 cores, and x86 code gets 99% of Enterprise market!).
NVIDIA has to commercialize as soon as possible its best HPC GPU, in order to counter attack Xeon Phi and gain a lot of market share. Intel, on the other hand, has a lot of money, and it can do a friction war against NVIDIA: Intel can give for free its Xeon Phi, in order to gain market share. For this reason NVIDIA is now partner of IBM in this market: The enemy of my enemy is my friend! When Intel deposed DEC as best CPU manufacturer, Intel joined IBM to create the PC revolution. Now IBM with its Power ISA (About 15% Server market share, and about 30% Infrastructure and Middleware Server market share) is an enemy of Intel.
Turning now to different matters, in the GPU consumer market NVIDIA is the leader: it gets about 80 percent of the market. But the GPU market is not like x86 CPU market, because every uArch is a whole other story. There isn’t a x86 ISA to follow. We have seen during these years different uArchs: Fermi, Kepler, Maxwell, VILW4, VILW5, GCN, etc.
But, like Intel, NVIDIA has some strong point: people thinks that NVIDIA drivers are the best, that NVIDIA cards offer the better compatibility, and so on. Even if AMD show better cards, NVIDIA clients will buy green cards (like during Pentium 4 vs Athlon64 war). NVIDIA is challenging against itself. NVIDIA has just to persuade people to change older NVIDIA card/cards: “Because of leadership position, the defender own a strong point in the mind of the prospect. The best way to improve your position is by constantly attacking it. In other words, you strengthen your position by introducing new products or services that obsolete your existing ones”. G-Sync monitors fit perfectly in this strategy: they require at least a Kepler card (No AMD cards supported!). Also, if you are a G-Sync owner, you have to buy a NVIDIA card in the future to use it, even if AMD cards could be better. Another example, Physx: every so often, NVIDIA drops the support for old cards, and you have to buy a new card to use Physx in your video games. NVIDIA has to create standards, where there are none.
Thanks to this strategy, NVIDIA can have a safe market (gaming GPUs), like Intel (x86 CPUs), in order to attack a virgin territory (HPC servers).
Some companies are not enough strong to launch a direct attack, so they have just to do a flanking or guerrilla warfare. AMD is one of these companies, if we compare it to Intel. Also, it is the chaser if we compare it to NVIDIA.
AMD is very tiny, if we compare it to Intel, so AMD managers have to be smart: “Old African proverb: When elephants fight, it’s the ants that take a beating”. Intel is fighting against NVIDIA and IBM in server market, so it’s not wise to fight them directly. AMD has chosen to become ally of China, even if this means low earnings, to gain traction in the Chinese server market. Ries and Trout wrote about American Motors: “American Motors is too small to launch offensive attack against General Motors. […] American Motors is too small to launch a flanking attack against the industry. […] The only category that has been a consistent winner for American Motors is the Jeep. American Motors have to find a segment big enough to be profitable for the guerrilla, but too small to be tempting to the leader”.
AMD did the same in the Console market. Do you remember this NVIDIA quote? Nvidia gave AMD the PS4 because console margins are terrible. It’s an example of guerrilla warfare: “Find a segment of the market small enough to defend”.
When you will have enough money thanks to this strategy, then you can launch a flanking attack: “A good flanking move must be made into uncontested area. […] A flanking attack move does not necessarily require a new product unlike anything now on the market. But there must be some element of newness or exclusivity. The prospect must put you into a new category. […] To launch a true flanking attack, you must be the first top occupy the segment. Otherwise, it’s just an offensive attack against a defend position. […] Flanking skills requires exceptional foresight. The reason is that in a true flanking attack, there is no established market for the new product or service”.
Today, AMD is attacking the VR market, flanking the GPU market. Thanks to its leadership in console market, AMD was able to control the Directx 12 development, and now its GCN uArch is the foundation of VR hardware and software. NVIDIA was hit from behind: “The most successful flanking moves are the ones that are totally unexpected. The greater the surprise, the longer it will take the leader to react and try to cover. Surprise also tends to demoralize the competition. Their sales force is temporarily tongue-tied. They often don’t know what to say until they get directions from headquarters”. That's why NVIDA is still not talking about Async Compute features of Pascal.
VR is a new Eldorado, and the clients are often new too, so it’s a good idea selling products at high prices: “Flanking with high price: For many products, high price is a benefit. The price adds credibility to the product. […] There are two good reason why high price represents more of a marketing opportunity than low price. One is the tendency of the prospect to equate quality with price – You get what you pay for. The other is the potential for higher profit margins with a higher price”. NVIDIA did it with its Titan cards. AMD is doing the same with its dedicated VR cards.
Ries and Trout also wrote: “Flanking with small size. […] A typical example of flanking with small size is Sony. Using integrated circuits, Sony pioneered a host of innovative miniaturized products, including Tummy Television, Walkman, and Watchman”. It's not a coincidence that AMD has commercialized the Fury X, Fury Nano and the Radeon Pro Duo cards. And what about the next Polaris cards, characterized by low TDP? They will be pretty tiny.
Why AMD is almost MIA in HPC market? Because Intel and NVIDIA are too big to fight. VR market is a virgin territory. Also, Intel has no products to use in this market, and NVIDIA has to defend its HPC leadership from Intel. NVIDIA can't fight two big battles, against Intel and AMD, at the same time. NVIDIA tried to figh the gaming GPU and Mobile SoC (with Tegra) battles at the same time, but without success. NVIDIA has won the first, but it has lost the second.