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Separating Gimmick From Value

Written By Brian Hicks

Posted May 31, 2014

Five years ago, the consumer electronics industry was overrun by companies claiming that 3D screens were the next big thing. Television makers pushed elaborate entertainment systems that allowed viewers to enjoy their favorite cinematic 3D releases at home, Video game makers toyed with 3D-capable machines that “enhanced” gameplay, and smartphone makers showed off devices with stereoscopic cameras and screens that could display depth without the aid of special glasses.

Today, the 3D craze has all the signs of a dried-up gimmick.

The most successful of the 3D gadgets, the Nintendo 3DS video game console, is now in its third year of availability. Nintendo has shipped 47 million 3DS units worldwide so far. While this is a great figure compared to most other 3D devices, the previous generation of Nintendo handhelds, the DS, had already shipped 64.8 million units by this point in its life.

For 3D to thrive as a technology, it requires compelling 3D content, and it’s often not worth the time investment by content creators.

“3-D is a marketing gimmick that adds very little to the point or value of a movie,” Seamus McGarvey, Director Of Photography for the recent monster movie Godzilla said in an interview.

McGarvey’s sentiment is a common one among content creators, and it’s been echoed by end users.

“This is a bad experiment that the industry is forcing consumers to subsidize. And since they can’t create a better product, they’ve simply latched on to 3D as a marketing ploy that the entertainment and electronics industries can use to trick people into thinking that they are getting a superior experience. It’s only working because just enough people are falling for the scam to keep it alive.”

Said Jason Hiner in TechRepublic’s most-read blog of 2011, “Stop being duped by the 3D scam.”

Since the Consumer Electronics Show last January, some television makers have been pushing curved displays as the next big thing.

With the distaste of 3D still fresh in consumers’ minds, consumers are already skeptical about curved displays.

After all, if 3D-TV was just a rehash of the 1950’s drive-in movie 3D craze, curved displays are just a rehash of the equally old Cinerama technique.

Unintended Consequences

Gimmicks are often met with derision. Customers feel cheated when they’re sold something of questionable value, and that’s exactly what a gimmick is.

By definition, a gimmick is some additional feature to a product used simply to differentiate it from its competitors. These features are generally shown to be irrelevant in the long run.

As an investor, though, gimmicks aren’t necessarily your enemy. Often, they can help companies tremendously.

In the 1990’s, Avon’s Skin-so-soft lotion was falsely reputed to be an effective mosquito repellent. This urban legend grew so popular that Avon (NYSE: AVP) successfully launched its own line of insect repellent under the Skin So Soft brand. There are now more than a dozen different types of Skin So Soft insect spray, even though the original Skin So Soft was later shown to be mostly ineffective as a bug repellent.

This product line extension was based on the notion that Skin So Soft didn’t have a gimmick, but an unintended use. Unintended uses are a real treasure trove of value.

Monoxidil, for example, was an oral high blood pressure medication. An unintended side-effect of the drug was that it darkened and thickened the hair of some patients taking it. Even though the side effect wasn’t fully understood, the Upjohn Corporation marketed the drug a topical form for treating hair loss. Upjohn merged with Pharmacia in 1995, which then merged with Pfizer (NYSE: PFE) in 2002.

The trick is to recognize the difference between a gimmick and genuine added value.

In Tech

It’s often difficult to see the immediate value of a piece of new technology, but it’s pretty easy to see when a piece of technology is just a vehicle for a gimmick.

The telltale sign is that there’s more marketing than organic growth.

Take recent moves by Microsoft (NYSE: MSFT) as a measuring stick.

Microsoft’s marketing spend took a massive leap last year. It went from $1.6 billion in 2012 to $2.5 billion in 2013. According to a 10-K filed with the Securities and Exchange Commission, an estimated $898 million of that budget went to advertising, and a significant chunk of that went into advertising Surface, Microsoft’s answer to the Apple iPad.

Microsoft’s revenues from Surface tablets was reportedly only $853 million.

It should be noted that Microsoft is partially using Surface as a replacement for consumer notebook computers. The refresh cycle in this market segment is typically much longer than that of smartphones and tablets, so there may not be an immediate pickup in sales. These were, after all, the first two years of Surface availability, and if the PC refresh cycle is three years and greater, there might still be an impending Surface boom.

However, due to Surface’s hazy status as an iPad alternative and not a full-blown PC replacement, a surge could potentially never happen, and it could end up being a gimmick.

The question then becomes: Are tablets themselves a gimmick?

The answer to this is no. There are many niche areas where tablets excel beyond notebook PCs, and they have shown their value in both consumer and business applications. Surface has not yet shown a similar value; it’s equipped with a touchscreen and a keyboard, but neither of these has proven to provide value above and beyond simple gimmick.