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Nortel takes a stand

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Ian Craig, executive VP-chief marketing officer for Nortel Networks, starts marketing meetings these days by drawing a box on a blackboard. In the middle, he writes the word "Butkus"--as in former Chicago Bears football player Dick Butkus and the Butkus Zone, that space on the gridiron where competitors can't make an inch of progress.

The message from Mr. Craig to his 200-strong marketing department? Nortel must stop its telecommunications networking competitors, such as Lucent Technologies, Newbridge Networks Corp. and Cisco Systems, especially Cisco, dead in their tracks.

"Cisco claims it is the Internet," says Mr. Craig, who took the reins of Nortel's marketing operations Nov. 1. "We're saying: `Hang on guys! We are one of the biggest providers to Internet carriers, and we are going to defend that turf.' "

For Nortel, which projects $22 billion in revenue in 1999, defense adds up to strong corporate positioning in the $135.5 billion telecommunications hardware market.

The campaign is spurred by a number of forces. In 1997, when Nortel CEO John Roth took the helm, the manufacturer of traditional, high-end telecom equipment, was losing market share to Internet networking hardware ven- dors. But the company's $6.9 billion acquisition of Internet protocol equipment maker Bay Networks in 1998, designed to help Nortel take on its new competitors, didn't help.

Instead, Bay's weaknesses quickly made Nortel's situation worse. When Nortel warned it would miss one quarter's earnings estimates last year, a total of $9 billion was quickly knocked off its market capitalization.

Determined not to let that happen again, Nortel is betting $100 million that the current campaign can build employee morale for its Internet vision, entice customers to accept gradual change from old circuit-switched equipment to newer Internet products and keep the company's capitalization high.

Using nerds and regular folks lip synching the Beatles' song "Come Together," Nortel in late October began to entice business strategists with the question, "What do you want the Internet to be?"

It's an expensive question: The campaign from Temerlin McClain, Dallas, is costing 10 to 15 times more than the Brampton, Ont.-based company has spent annually on a corporate message in its 104 years.

"Our business marketing was commensurate with a Canadian company," says the Scottish-born Mr. Craig, who hasn't shaken a brogue 33 years after moving to North America. "Canada is a conservative country--even the female impersonators are women. We were conservative, too. But we saw these campaigns coming from our competitors. We realized we had to step up."

Despite Nortel's need to be different, the company marketing campaign, focusing on a broad message rather than discrete products, is a sign of the times, says consultant Robert Rosenberg, president of Insight Research Corp., Parsippany, N.J.

For decades, telephone equipment manufacturers sold multimillion-dollar packages of products to a handful of government-owned or government-regulated utilities worldwide, Mr. Rosenberg says. Deregulation, and the advent of the Internet, have introduced a whole new set of requirements for marketers of telecommunications products.

"There are thousands upon thousands of new customers growing like mushrooms in the rain," he says. "Brand-name recognition is increasingly important for their suppliers."

Competitor Lucent first set the tone for broad corporate marketing messages in this arena three years ago. After the Murray Hill, N.J., subsidiary was spun off from AT&T in 1996, it spent as much as $100 million to create a global brand message to establish its new identity. Wrapped around the phrase, "We make things that make communications work," that campaign pushed AT&T Network Systems out from under its parent's wing and into the limelight.

Cisco, too, has done a masterful job leveraging the Internet in its marketing, Mr. Rosenberg says.

Beginning with a 1996 campaign taglined, "Welcome to the planet Internet, transportation provided by Cisco Systems," the San Jose, Calif.-based company has consistently based its messages on the revolutionary power of the Internet to transform business.

Cisco is a particularly dangerous competitor for Nortel because its packet-switched technology lowers the cost of entry for telecommunications providers. Where it might have cost a company $5 million to enter the circuit-switched telecommunications environment of a few years ago, a $25,000 expenditure for a high-end work station and software can get you up and running today, Mr. Rosenberg says.

"The top is moving down and the bottom is moving up," he says. "Nortel is looking to develop products for a much smaller customer, and Cisco is moving toward larger customers. They are both aiming at each other's core markets."

Cisco's Web legacy

Cisco has also backed up marketing messages with real-world demonstrations. Through early, aggressive Web development, Cisco was the first company to clear $1 billion in Internet sales on its corporate Web site, Cisco Connection Online. In fiscal 1999, 80% of Cisco's $12.15 billion in revenue and 85% of its customer service operations were Web transactions.

"We've been explaining the Internet transition to industry going from old to new for more than two years now," says Larry Lang, VP-service provider marketing for Cisco.

Cisco is standing pat in its advertising mixture. The company will continue to concentrate on information technology advertising, deep in technical description, Mr. Lang says. As far as broad messages, Cisco has traditionally spent less on newspaper, network TV and radio advertising than its competitors, he says.

In 1998, Cisco spent $13.7 million on consumer media, while Nortel spent $20.9 million and Lucent $32.8 million, according to Competitive Media Reporting, New York. For the first six months of 1999, Cisco spent $6.9 million, Nortel $10.8 million and Lucent $21.4 million, according to CMR.

"On a corporate level, we generally don't do the big Wall Street Journal buys," says Mr. Lang, who acknowledges that favorable press is worth millions to the corporate brand. "The divide between telecommunications and data networking is becoming blurrier. Nortel is caught because they aren't No. 1 at anything. Conversely, it has uniquely positioned Cisco because our heritage is our future."

Nonsense, counters Bill Conner, exec VP-president, Nortel's Enterprise Solutions.

Nortel's fiber-optic networks are capable of handling all the communications demands of enterprise customers today, while Cisco still promises voice-data combinations based purely on the Internet down the road, Mr. Conner says.

And Nortel's message of steady migration from old equipment to new, rather than the wholesale changes advocated by Cisco, is far more appealing to corporate decisionmakers, he says.

"Our message is an absolute inversion of Cisco's message, which is `Are you ready?,' " says Mr. Conner, who spearheaded development of Nortel's "What do you want the Internet to be?" campaign before turning over marketing operations to Mr. Craig on Nov. 1.

"Cisco started enterprise customers thinking, but we're going to finish it," Mr. Conner says. "We have real capability on four key attributes: optical Internet, wireless Internet, Internet telephony and Internet services."

Nortel's results

Nortel's campaign follows profound change in the way the company goes to market. Following its acquisition of Bay Networks in 1998, Nortel pushed for centralized marketing operations. Previously, small groups created and managed advertisements for specific products.

"It was clear that technology marketers were doing their own marketing, as opposed to a planned approach," Mr. Craig says. "It is not like we discovered marketing, but we have brought professionalism to marketing at Nortel."

The campaign is yielding other positives. It has helped drive the company's stock from a 52-week low of $22 to $78 as of Nov. 30 and pushed Nortel's market cap over $100 billion for the first time. Sales are growing at nearly 30%, outpacing Lucent Technologies' 23.8% and approaching Cisco's 43% sales growth rates in fiscal 1999.

Yet there are risks in Nortel's brave new world of the broad message. Some experts argue overarching themes are no way to sell arcane telecommunications products.

"Nortel's campaign is a big waste of money," says Al Ries, chairman of the marketing strategy company Ries & Ries, Roswell, Ga. "Nine out of 10 people reached have nothing to do with buying Nortel products. In a funny way, in-house IT experts don't necessarily like it when they see their supplier advertising generally. These are in-house gurus who don't like to be put under pressure as to what to buy."

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