Nortel faces uphill climb against Cisco

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In recent years, being the Nortel Networks Corp. CMO has been like wrestling an 800-pound gorilla while wearing a singlet made of bananas.

Clent Richardson, who announced in December he will leave the CMO post at Nortel on March 1, knows firsthand that the job has had its challenges.

First, Nortel, like nearly every other company that produced equipment for the Internet, was blindsided by the dot-com crash in 2000. As a manufacturer of networking and telecommunications equipment for both the enterprise and carrier markets, Nortel was also hit hard by the telecom downturn at the same time. About three-quarters of its revenue derives from telecom carriers and one-quarter from enterprise networking.

Second, in addition to suffering from outside economic misfortunes, Nortel shot itself in the foot with an accounting scandal. The company announced earlier this month that it has offered a $2.50 billion settlement to its shareholders.

Third, the Nortel CMO has to match his budget against Cisco Systems, the 800-pound gorilla of the enterprise networking space. In the first 11 months of 2005, Cisco outspent Nortel in advertising expenditures by $64.3 million to$ 8.1 million, according to TNS Media Intelligence. Similarly, in 2003 ($74.9 million vs. $7.5 million) and 2004 ($72.5 million vs. $6.0 million) Cisco outspent Nortel by a factor of 10 or more.

Industry observers expect that Mike Zafirovski, a former General Electric Co. and Motorola Inc. executive who took over as Nortel president-CEO in November, will name Richardson's successor in the near future.

The new chief marketer will step into a position whose prospects have improved modestly since Richardson joined the Brampton, Ont.-based company in April 2004.

The overall telecom and networking industries have improved, and the accounting scandal, although it has distracted the company, has not had an outsized impact on Nortel's sales, analysts say. What remains are two seemingly intransigent problems: Cisco's dominant marketing budget and Nortel's strong culture as an engineering, not a marketing, company.

"They've always been known as a good engineering company," said Robert Whiteley, a Forrester analyst. Industry observers, and even Nortel's management, have agreed that Nortel's marketing efforts over the years could have been better.

William Owens, the Nortel CEO who was replaced by Zafirovski, was quoted in the Ottawa Citizen newspaper as saying, "We need to be a better marketing company. We need to be a little more like Cisco."

Limited marketing tradition

Mark Fabbi, VP-enterprise networking for Gartner, said the comparative lack of marketing skills has roots in Nortel's history as a company serving the telecom carrier industry, where the customer base has traditionally been so small, particularly in North America, that crafting broad marketing messages wasn't a necessary skill-technology and service were.

But in the 1990s, selling networking equipment into enterprises, where the broad customer base included the Fortune 2,000 and beyond, demanded marketing skills. "In the enterprise sector buying is so much more about perception [than it is in the carrier market], and feeling that you have the right solution and so on," Fabbi said. "It's very much less about technology."

Nortel's most famous foray into creating a marketing message aimed at the enterprise market-particularly enterprise market C-level executives-was its "Come Together" TV campaign. It used the Beatles' song to preach convergence and claimed that Nortel would be at the heart of that technological inevitability.

The campaign broke in 1999. When the downturn followed shortly after, Nortel didn't return to television until 2004, with a campaign themed "This is the way. This is Nortel." Richardson oversaw the campaign, which was created by the Richards Group, Dallas.

The campaign essentially reintroduced Nortel to C-level executives in the enterprise space. It also included print ads in publications such as The Economist and The Wall Street Journal. One of the early executions in the campaign signed off with the words, "This is the way hundreds of millions of people, Fortune 500 companies and government institutions around the world trust their networks to be reliable and secure."

"We really had some challenges," said Wes Durow, Nortel's VP-global brand communications. "We needed to step forward and tell our story."

Durow said the campaign has boosted Nortel's "brand confidence" among the target audience by 13 points.

Earlier this year, Nortel introduced a new wrinkle to this campaign, using a "Business made simple" tagline in recently introduced TV spots and print ads.

"It's a progression of the [`This Is the Way'] campaign," Durow said. "We're telling people where we're headed and why they should be with us." The campaign pays particular attention to issues such as wireless and convergence.

Gartner's Fabbi gives Nortel's marketing efforts under Richardson a middling grade. "Too much effort was put on the corporate brand," he said, adding that Nortel's marketing failed to differentiate it from its competitors and didn't delve enough into the particular product lines and describe their advantages.

"He came from Apple and T-Mobile, where it was all about establishing a brand," Fabbi said of Richardson. "What he didn't realize was that he had to get more granular."

Forrester's Whiteley offered a more positive spin on Richardson's work. "I think it helped them a lot," he said of Nortel's marketing. "The `This Is the Way' campaign was pithy, and it said, `We're relevant again.' "

Overall, Nortel's marketing efforts on the enterprise network side have helped the company make strides, Whiteley said.

"It hasn't resulted in gangbuster sales or a huge leap forward," he acknowledged. "But what it has done is present Nortel as relevant and as a credible No. 2, which is exactly what it needs to be. With Cisco as large as they are, they will probably always be No. 1. Nortel needs to be Avis to Cisco's Hertz." 

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