Facebook’s Next Business Model

VC Chris Dixon muses in a recent post that Facebook has yet to uncover a business model that will support its IPO valuation and drive future growth in that valuation.  As he puts it:

Facebook relies on an old internet business model: display ads. Display ads generally hurt the user experience, and are also not very efficient at producing revenues. Facebook makes about 1/10th of Google’s revenues even though they have 2x the pageviews. Some estimates put Google’s search revenues per pageviews at 100-200x Facebook’s.

The good news for Facebook is there is a lot of room to target ads more effectively and put ads in more places. The bad news is that, if there is one consistent theme in both online and offline advertising, it’s that ads work dramatically better when consumers have purchasing intent.

I think he’s right about the ad model.  Google has uniquely cornered the market in delivering an ad at precisely the moment the user is searching for something to buy, hence the remarks about purchasing intent.  A banner ad, on the other hand, lurks in hopes that someone with purchasing intent will happen to see it at exactly the right time and place to make a difference.  Given the odds, it’s no wonder the ads make 1/10 the revenue despite 2x the pageviews.  Unless Facebook can engage the timing and content properly to capture purchasing intent, that isn’t likely to change.

So what’s a poor Facebook to do?

Let’s get back to basics: what exactly is Facebook?  If Google, from a monetization standpoint, is the place you go to find something when you want to buy, what is the analogous elevator pitch for Facebook?  It’s pretty simple, really:

Facebook is a platform for chilling with your friends.

Doesn’t that really capture in a nutshell what people do with Facebook?  Put aside what marketers wish they were doing (yeah, we all go there to worship the sugary soft drinks that use those adorable polar bear cartoons as mascots), this is what’s really going on with Facebook.  And guess what, isn’t owning the world’s leading platform for chilling with your friends apt to be extremely valuable?  It’s got to be.  If for no other reason, look at how big a part of the economy entertainment is.  In 2010, Arts, Entertainment, Recreation, Accomodation, and Food Services amounted to 3.6% of the nation’s GDP.  That’s the platform Facebook has available to tap into.  It’s not as good as say the 5.9% that is the retail trade Amazon and Google tap into, but heck, it’s still not bad at all.  It is a sufficient market on which to base a huge business.  Look at what Apple has been able to do with music alone, for example.

The key for Facebook is to get focused with laser-like precision on how to monetize their Chillin’ Platform before the opportunity seeps away.  Eyeballs and leisure time are fickle as those old enough to remember things like pet rocks and CB radios will tell you.  Right now, Facebook is focused on advertising revenue, but they could get a lot more creative and, given all the capital they’re raising and the opportunity available to them, they should be getting very creative and testing everything under the sun.

What are some potential ways to monetize a platform for chillin’?

-  Social games are an obvious first choice.  Facebook has to relentlessly build this platform and creates as many barriers around it as possible.

-  Making Dates:  Dinner anyone?  They should own Open Table.  Movie Times?  Why am I going to Google to figure that out.  Hook me up.  Make it easy for me to plan and coordinate a date.

-  Music:  Gotta be part of any chillin’ for me.  While we’re at it, plug in media of all kinds.  If Google is gonna do hangouts, Facebook needs to up the ante in some chillin’ fool kinda way.

-  Vacation and Travel:  The ultimate chillin’ game and big bucks involved too.

-  Party Time:  Coordination, invitation, planning, decorations, photos (oops!), eats and drinks.

-  Devices:  What devices do we have around when chillin’?  What facilitates communicating the vicarious virtual thrill of chillin’?  Video, phones, cameras, yada, yada.  But what else, and how does Facebook uniquely home in on all that?

Being successful with all of this will require Facebook to think BIG.  I mean Steve Jobs kinda BIG.  They have to seriously simplify and amplify the act of chillin’ in ways that only a platform can accomplish.  If they do that.  If they can reinvent chillin’ the way Apple reinvented music and the phone, they’ll be here for a long time and folks buying in at today’s market caps will stand to make a lot of money going forward.

This is a big time innovation and UX problem: reinventing the art of chillin’ with your peeps.

Hewlett Packard and the Many Curious Paradoxes of Micro-Management

I just finished reading Fortune’s massive write up on the ills at Hewlett Packard. What an amazing story, and as I was going through it, I kept seeing the same thing repeated over and over again: Micro-management trumping Leadership and creating a disaster in its wake.  Instinctively, we all know Micro-management is something bad, but the first paradox for me is that we need this term.  What are the variations of Management that are good?  I prefer to contrast the term “Manager” with “Leader”, and ascribe all the bad things about Micro-management to Management in general.  It’s unfair, I know, and it doesn’t apply to all organizations, but I’m helpless to avoid it because I’m an entrepreneur and not an employee.

What then, is the difference in HP’s case between Management (or Micromanagement as I prefer) and the Leadership that should have been available?

In another post, I characterized Micromanagement as forcing people to do things not because they believed they were the right things to do, but because the manager had sufficient Political Capital to make the employee do what was desired.  This seems to have been the order of the day in the HP article if you read it through the lens of this definition.  There were executives at all levels who acted on enforcing their decisions largely by means of political capital expenditure and without the necessary leadership step of making the hearts and minds who actually had to execute these plans believe.  What made the Political Capital bill much more expensive is that this went on through a succession of leaders.  The descriptions of all the nastiness, snarkiness, hubris, and ego are all symptomatic of individuals who were so certain they were right and so certain they were entitled to make others obey, that they need not do the work of persuasion.

In fairness, perhaps this was coupled with a sense of desperation; that there might not be time for persuasion; and that with that certainty comes the notion that since the plan was going to work out spectacularly well, persuasion would come later.  The results could speak for themselves and would persuade even the harshest critics of the wisdom behind the plan.  Such reasoning is obviously circular and even a bit lazy in retrospect, but we’ve all been guilty of it at one time or another.

Another of the curious paradoxes of Micro-management is it can only work in a very few cases.  The ideal opportunity for Micro-management success involves these ingredients:

-  The situation and group you intend to Micro-manage must be small enough relative to your talent that you can be right personally making every decision of consequence.

-  The individuals have to be willing to be Micro-managed so that the consumption of Political Capital relative to its replenishment can proceed at a net positive.  Perhaps it is an assembly line job where Micro-management is such an established part of the job that it is totally expected.  Perhaps the individuals are in a training mode of some kind and you are a recognized expert who they all look up to and respect.

-  You have to be right often enough to assist in the replenishment of Political Capital.

-  If any of these ingredients are going to be missing, you had better make sure that the application of Micro-management is so brief, with so few people, and affects so little of what’s going on that you don’t use up too much of your Political Capital.  For example, it is often more important to have a decision that is sub-optimal than no decision at all.  An insightful executive will realize when they are faced with no decision and will Micro-manage the sub-optimal substitute as needed.  It will be a rare executive practicing Micro-management who strikes the proper balance and doesn’t overdo it because Micro-management is addictive.

Unless you disagree with that set of ingredients, you can see that Micro-management is a tactic that can only be employed very sparingly.  The type of people who tolerate it are not high in an organization.  The HP story seems to be one where the Team has so little cohesion, that they’re all trying to Micro-manage each other incessantly.  Each new CEO is tasked with immediate transformation, dives in and tries to Micro-manage some momentous decision to fruition, but is thwarted:

-  Because they are new, they have little Political Capital.

-  Because the long timers have seen these tactics fail again and again, they insist on a higher Political Capital price each go round.

-  Ultimately, the Political Capital is insufficient to pay the bill, so the managers become insubordinant, unresponsive, and they flip the bozo bit.  That’s always the cost of an overdrawn Political Capital account, and it leads to worse.  Once you default on Political Capital, it’s much harder to replenish.

Another irony or paradox of Micro-management is the type of people who practice it are often those who should most readily understand its failings.  They’re those who’ve exceled in some way.  They are the brilliant young leaders of new startups.  Or the successful old warhorses of companies like Hewlett Packard or SAP.  These people know they’re good, and it is that knowledge that bolsters their certainty to the point where they’re unwilling to invest in Leading.  They’re too impatient.  Once you know you’re right, you shouldn’t have to persuade others.  It is their deficiency if they can’t understand your plan.  They need to get on board with it because the train is leaving.  This is important stuff and we don’t have time for the laggards.

I believe HP fell into a culture of Micro-management through no fault of their own.  If Micro-managing leaders jerk the organization through manuevers without ensuring true alignment of hearts and minds (not just lip service), it breaks down the bonds of a Team and creates silos in a hurry.  Once you break apart an organization that large, and do so over a long enough period of time, you create problems that cannot be solved quickly.  Even Leaders will be tempted to force change through Micro-management because they know results will be expected before they can deliver true Leadership.  That’s a great pity, because one of the roles of the Leaders at the top has to be to take that kind of pressure until results can be produced.  A little Micro-management of big issues will have to be tolerated, but at the same time, room has to be made for Leadership principles to take root again.

It’ll be interesting to see if Meg Whitman is able to pull that off.  Her predecessors and Board have left her facing an uphill battle.

What Would Steve Do? Ruminations on the Jobs Formula

The follow on wave to the initial reaction to Steve Jobs departure has begun, and it’s interesting.  It’s all about understanding the “Steve Jobs Formula”.  I confess I do enjoy reading these articles as do I enjoy reading about the “Warren Buffet Formula.”  There are entire books about the latter.  The one thing that is strangely missing is cracking open the Forbes list of the 400 Richest Americans and finding a passage for some new billionaire that says, “Well, I just followed the Warren Buffet Formula and it was easy.”  Perhaps that’s Nature’s way of telling us that these brilliant leaders can’t be deconstructed and reduced to some “formula”.  Nevertheless, we’re driven to understand what they did and why.  In this article, I want to critique or amplify on some of what the pundits are saying about the Jobs “Formula”.

The Folly of Assuming Commoditization is the Only Game in Town

Those who worship at the altar of commoditization see it as inevitable for any market.  Someone will introduce an innovation and the commoditization race begins.  Whoever manages to make the innovation “good enough but much cheaper”, wins.  They will own the Lion’s Share of the market and the profits.  There is little question that commoditization happens, perhaps inevitably, to some markets just as described.  But to assume it is inevitable for every market, and that building better mousetraps is misguided, is a mistake.  Clearly Apple has shown the way in a number of markets for a case where the best product really can win.  Importantly, it may not win in terms of numbers or market share, but it can win in terms of share of profits.  Many have taken to commenting that Apple doesn’t really care about market share, it cares about products.

Apple didn’t invent this notion that commoditization need not be inevitable, by the way.  Mark Segal has a good write-up on this where he views commoditization as the conventional wisdom and Apple as the innovator, but it isn’t.  I’ve been hearing about it since Business School.  Michael Porter says there are three stable competitive strategies:  build the best, be the low cost provider, or be the niche player.  The Commoditists assume that being the low cost provider is the only position that counts.  Long before Porter, Henry Ford was a commoditizer.  He was sending his people to junkyards everywhere to examine which parts of junked Ford automobiles were still usable.  Anything usable was obviously overbuilt and could be cheapened to give Ford a cost advantage.  Apparently Mercedes Benz didn’t get the memo on how to operate that way, and today they seem much stronger than Ford for it.

More recently we have strategies involving Blue Oceans and such the further refute the commoditization destiny.  When I look at the life of a Commoditizer, I can’t think of anything less interesting than spending your every hour not caring about what is good, but rather driving out every extra fraction of a cent of cost.  For most markets (not sure about paper clips and the like, they may be pure commodities, but don’t forget how Starbucks turned the ubiquitous cup of coffee into a product worthy of Apple), there will always be an opportunity for the very best.  It’s a question of whether you can build the best, convince people it is the best, and perhaps most importantly, imbue a sense of style and connect with lives in a way that makes enough people insist on having the best.

If you’re capable of all that, let the Commoditizers do their thing, and you go do your thing.

Confusing “Minimum” With “MinimumViable” Where Steve Jobs and Entrepreneurs are Concerned

Sean Ammirati in RWWeb writes that there are four parts of the Jobs formula that Entrepreneurs must avoid:

1.  Avoid being secretive

2.  Avoid a perfect release 1.0–release early and release often

3.  Avoid starting a community–swarm an existing community

4.  Avoid being closed–create an API Day 1

This analysis is motivated by a lot of the current writing and thinking about how startups should operate, but it belies a misunderstanding of what “Minimum Viable” means and what Jobs uses as his strategy.  It is a mistake to think if we simply release early and often enough, we will succeed.  It’s very popular for entrepreneurs to assume an air of (often false) humility, tug their forelocks, aw shucks about how little the know and how smart the wisdom of crowds, and leave it up to the almighty customer to tell them what to do.  They learned this behavior, no doubt, from Wall Street, but they lack the portfolio effect to help them actually succeed with it, although they do sometimes have the other benefit Wall Street enjoys–the use of Other People’s Money to test out these ideas.

Look, if we take even a fundamentally very good core product and slather on a thick and chaotic layer of customer-mandated and product management defined features, that leads to Crap Product.  We know that.  We’ve seen it too many times.  It’s the reason Microsoft is failing today.  But just because a nice clean sheet product that said “No” to all sorts of things and shipped really quickly can beat such a Death-By-Feature-Overload Behemoth does not make that the only strategy that wins or even the best strategy to win.  Winning in a competitive market is all about giving people something they desperately want (whether because they need it or simply want it) while forcing the competition to completely upend what they’re doing to respond, and ultimately forcing them to be too late and too little in their response.  Satisfying that equation with just enough is the essence of a “Minimum Viable” Product strategy.  Shipping something that isn’t good enough to ignite need and is easily copied and side tracked by the competition is minimal, but not viable.

With that in mind, let’s revisit those 4 tenets of what an Entrepreneur should avoid and make 4 tenets of what an Entrepreneur should do:

1.  Be secretive what you’re building but not who you are.   You have a chance to attract a following without telling them quite yet exactly what you’re building.  It’s enough to strike up a common interest, perhaps around the kinds of problems you hope to solve.

2.  Make sure your release 1.0 can ignite customer delight and is not easily ripped off by your competition.

3.  In terms of swarming communities versus building communities, if your business intends to use a network effect as a barrier to entry, it has to be your network effect.  Before you swarm someone else’s network, make sure you have the ability to lock whomever you attract into your network.  Otherwise you are just building features on someone else’s platform and you’re likely to wind up like those many startups that built Twitter front ends only to have Twitter say, “Thanks for all the ideas, folks.  We’ll take it from here.”

4.  Make sure you are in control.  It isn’t about being Open or Closed, it’s about control.  You must be in control of your ability to delight your customers and keep the competitors struggling to respond.

Vertical versus Horizontal Integration, Open versus Closed, these are all just symptoms of the underlying strategic goal Jobs had to ensure he had the control he needed to get where he was going without having the fruits of his labor stolen.

Incidentally, if you really want to understand the part about, “forcing the competition to completely upend what they’re doing to respond, and ultimately forcing them to be too late and too little in their response”, that’s the true essence of competitive strategy.  The best way of thinking about it on those terms comes from fighter pilot John Boyd’s writings about his “OODA” (Observer Orient Decide Act) strategies.  They’re every bit as applicable to modern business strategy as jet fighter dogfighting if only because there’s even more room for nuance and deception.

On Caring About the Customer

There are a lot of ways to care about the customer.  The salesperson cares that the customer signs the contract.  The product manager cares that the customer’s feature is implemented.  The Marketer cares that the customer says nice things about the company and its products, and that they read the marketing materials and hopefully one day become sales leads.  The CFO wants the customer to pay on time, to avoid egregious terms and conditions in the contracts, and to stay happy enough they don’t ask for a refund.  The CEO cares that the customer is satisfied.

These are professional, but not very deep relationships one could have with their customers.  They don’t begin to tap into anything resembling “Delighting” or “Enchanting” the customer.

Jobs, by contrast, has never really seemed to fall into any of these camps.  His relationship with customers has always seemed to me to be most similar to the relationship of a parent to their children.  They want what’s best for the children.  They delight in seeing their children happy.  They’ll do what it takes to help their children.  And they’re prepared to make some tough decisions if it leaves their children in a better place.

But parents don’t spend much time asking the children how they can be better parents.  Families don’t have 360 degree reviews mandated by HR.  They don’t conduct focus groups to see what the kids think about the latest parental policies and ideas.  They know what’s right, and they love parenting more than life itself.

This should not be so surprising.  It’s the behavior of anyone seeking to truly delight their customers and to delight themselves in their art, for to truly delight the customer, you must give them something they don’t have and probably didn’t even realize could exist.

They can’t tell you how to delight them in a survey.  They can only tell you how to stop pissing them off.  There’s a profound difference in the two.

Film makers understand all this.  Steve Spielberg didn’t run around asking people whether they thought a movie about children harboring a so-ugly-he’s-cute alien would be a success.  Hemingway spent a lot of time out and about drinking in humanity in all sorts of colorful places, but he didn’t ask people to help him write his books.

“Writing, at its best, is a lonely life.”

There Will Be No Files, No PC’s, No SQL, No Datacenters, and No Money Soon

This post is on  behalf of the Enterprise CIO Forum and HP.

Fred Wilson says there will be no files in the Cloud.  Somebody, somewhere must be itching to write that the growth in mobile surely indicates there will eventually be no PC’s.  And the big trend to mobile payment, complete with carrots and sticks from companies like Visa must also indicate that money itself will be short lived.  Certainly the current economy has managed to destroy quite a lot of it, though we seem equally as adept at inflating bubbles and debt that manufacture more money seemingly from nowhere.  The NoSQL gang would like to eliminate SQL for most applications, and if that’s too scary, the NewSQL gang would still like you to give up your Old School Databases.  The Cloud Brigade feels you should mothball that datacenter–it’s sadly out of date and no longer needed with Cloud Computing in full swing.

Welcome to the siren song of early adoption.  Any time the new new thing promises that there will be none of the old thing left soon, the truth is, they’re pretty nearly always wrong.  Heck, we still have mainframes and COBOL running around.  Files, PC’s, and Money are in no danger of disappearing any time soon nor is Oracle, MySQL or SQL Server.  As good as the alternatives may seem, they don’t solve all the problems well enough to truly eradicate their older competitors.  It’s very rare that a total paradigm change can solve all the problems of what came before. Certainly very few will do as good a job as say the transistor did to the tube (and look how long that one took).  VC’s like to say they overestimate where technology will be in 3 years and underestimate where it will be in 10 years, but that’s still too optimistic.  What they really mean to say is the technology won’t change enough in 3 years to transform their investment’s value, but it will change more than enough in 10 years to make them a whole lot of money.  That’s different from wiping out the incumbents.  Yet the Western Mind craves black and white certainty.  We’re uncomfortable with grays and we love combative analogies.

That the world is not black and white shouldn’t be a revelation.  You must have suspected it.  Evolution itself isn’t so much about the survival of the fittest as it is about establishing a vast rainbow palette where the are many different ways to be successful to greater or lesser degrees.  We admire the lion, great white shark, and other members at the top of the food chain.  But there are many more antelope, seals, and others that feed the top of that food chain.  It’s a pyramid after all, so who can say that the bottom of the pyramid isn’t the more successful niche?  It certainly is when measured by number of individuals or tons of biomass.  It has to be for the higher levels to survive.

Google was founded in 1998 and their IPO was in 2004, 6 years later.  There’s that less than 10 year figure that’s enough to make the VC’s wealthy.  But wait, Google wasn’t first, or even second generation search–it was third gen at least.  We had Alta Vista launched in 1995, three years before Google was founded.  When Alta Vista launched, it still wasn’t the first generation, search engines weren’t new, and most people were using them.  It takes long time for one of these visions of ubiquity and dominance to play out.  Much more than 10 years, and there is room for multiple generations of fortunes to be made.  First Visicalc, then Lotus 123, finally Excel, and perhaps eventually some spreadsheet software that lives in the Cloud and without files.  The more mature the thing is that is being replaced, and the less the differential advantage of the new new thing, the longer it will take.  The Altair 8800 personal computer was heard from in 1975 while I was in High School.  We got the Apple II in 1977, and the Apple II and CP/M computers duked it out until the IBM PC launched in 1981, 6 years after the Altair.  But we didn’t get a “real” PC capable of transforming the business markets and performing as more than a toy until 1983 when IBM stuck a hard disk on the PC and called it the PC XT.  That’s now 8 years after the Altair and we’re just beginning to introduce real power for business to drive the economics that really fuel the personal computing revolution.

So, the next time you’re trying to make an important decision about whether to abandon the conventional wisdom for the new new thing, ask yourself when the clock started on that new new thing.  When did the clock start on being able to get by without files?  Has it started yet?  What about NoSQL?  That clock has started for sure.  Add 10 years to when the clock starts.  That’s the date when you’re probably hurting yourself by not switching, assuming the new new thing is as good as its cracked up to be.  That doesn’t mean you can’t gain some advantage sooner by being an early adopter, that’s just to say you have time before it becomes an outright negative not to get on the bandwagon.  Certainly that’s been the case for world changers like PC’s and the Internet.  You probably have a lot longer for things of much less import.  In all these cases there’s plenty of time for the upstart to prove it has real benefits.  There is no urgency to buy on hype–that’s an emotional decision.

If you’re a VC like Fred Wilson, or an entrepreneur, you have less time, but perhaps more than you’d think.  Remember, Google wasn’t the first generation and each generation had 3 years or so before the next one showed up.  You have to time the wave properly, but there will be more than one set.  Get up on your board when the next one comes and surf on.  If you’re a CIO, your Innovation Clock needs to keep time differently.  Now you have a better scale to help decide whether you’re too early or too late.

Come On Silicon Valley, We Can Provide a Better Rx for Jobs!

Fortune magazine has an article running that Techmemed about some advice Barrack Obama is getting about jobs from Silicon Valley Heavyweights like Kleiner VC John Doerr and Facebook COO Sheryl Sandberg.  They’re all about Education and Immigration Visa Reform as the path to creating jobs, along with plugs along the way for their own ventures.  Here are some quotes:

“We have to focus on our education system,” said Facebook’s Sheryl Sandberg. “We’re falling behind in every way possible.” Sandberg talked about what can be done to get more women in particular into high-tech jobs, such as giving girls more time with computers from an early age. “Let your daughters play video games,” she told an audience comprised of educators, entrepreneurs and investors.

and:

Sandberg also talked about the role Facebook’s ecosystem of developers has played in job creation. While Facebook employs about 2,600 employees, she noted that there are 2.5 million developers globally creating applications for the social network. She added that Facebook has also given rise to entire new industries, like social media consulting.

Here’s the problem: this stuff has nothing to do with creating jobs in the kind of timeframe our failing economy needs them in.  We needed to be doing things a year ago that would line us up for massively reduced unemployment for the coming-sooner-than-you-think Christmas 2011 season.  We’ve missed that window, but we dare not let it go on for another 12 months, particularly not if President Obama expects to have a hope of re-election.

I’ve got nothing against letting our daughters play video games (I couldn’t stop mine if I tried, and she’ll be taking a swing at programming too after having helped her brother learn very successfully) nor against education (some personal news on that front before too long I hope!).  The problem is we can’t wait on the time it takes for education to work.  This economy needs help right now.  We need results in less than 12 months.  I want President Obama to keep Education as a major initiative that his Administration stays behind 200%–we absolutely need to do better in this country.  But job creation needs to be even more urgent, especially now that the original bets placed on stimulus have failed to pan out and the new deal needed to raise the debt ceiling is going to reduce the potential for even more stimulus as a tool to get the jobs engine going.

The truth is, the government has been betting on the wrong horses for job creation.  The Dems want Big Government and the Republicans want Big Business to do it (Big Business is largely who wants the immigration reform being talked about, tell me how that’s going to create jobs Right Now in the Good Ole U S of A?).  They’re both entirely wrong.  Neither Big Government nor Big Business has ever done much good by way of job creation.  Big Government fails because we can’t afford to hire everyone without a job and put them on the dole.  The whole point of the debt ceiling compromise is we’re already spending too much on government.  And Big Business has an ongoing record of fail.  During the 2000′s when they had everything just as they like it–the least regulation and taxes ever–they managed to eliminate 2.9 million jobs in the US and move 2.4 million overseas (according to the pro-business WSJ).  If they eliminated a net of 2.9 million jobs when they were booming, imagine what good they can do for us when things are tight?

I’ve been skeptical about the President’s Silicon Advisor group before.  The problem is that only small businesses create jobs in this country, and while many of these advisors may have started with small businesses, their interests have moved on.  That’s no knock on this group of advisors, they’re all smart people, I know many of them, and we are all products of our experiences.  Heck, I’m glad they have the President’s ear, but when I hear their primary advice being education and immigration reform to create jobs, I know the President needs some additional advice from somewhere.  We simply do not have time to educate ourselves out of this morass.

Let’s go over the data, one more time, on where job creation happens.  It’s been well established for a long time that small companies are the engines of job creation in America.  This is not just supposition, and it’s not just a little bit true, it is well-documented and a huge difference.  See for example this data from Jeff Cornwall:

The columns represent net job creation. The big giant spike that’s doing most of the work is for new companies with less than 50 employees.  A little deeper analysis is available here, and goes back all the way to a study published in 1979 before we were so worried about the impact of China on the job market.  The OECD has a particularly in-depth white paper on how public policy impacts the small firms that are the drivers of growth.  There are many other such write ups.

It isn’t all that hard to understand why we have to rely on small companies to create jobs.  After all, many of the things that result in fewer jobs are unique to larger organizations:

-        Small companies don’t outsource overseas.

-        Small companies don’t have huge piles of captive profits overseas that they can’t repatriate for fear of paying taxes on them.

-        Small companies can’t go through round after round of layoffs where the bottom 5-15% is cut.

-        Small companies don’t spend a fortune automating in order to get by with fewer jobs.

-        Small companies don’t have billions in the bank and billions more for shareholders to squabble over.  They spend every penny to keep going and growing.

-        Etc., etc.

Small companies just don’t have the critical mass to cut jobs.  They’re too busy trying to grow and generate the critical mass.  Based on that data, if we want to fix the jobs problem, we have to do everything we can to enable small businesses to get started and to grow as quickly as possible, and we have to do it NOW.  Every dollar we spend, every day that goes by, without focusing on helping small business, is a day and a dollar we have lost as our economy worsens.

Who are these small businesses?  They are the restaurant owners, small retailers, garages, machine shops, little manufacturers, florists, bakers, candlestick makers, and many others.  They’re the people with that scary gleam in their eyes.  You know, the ones that just never fit in at a Large Organization–the geeks and rebels, not the Armani-clad scratch golfers.  They’re the ones who don’t get much respect, like Rodney Dangerfield, but who actually built this country.  For the most part, the Big Ideas come from them.  Ironically, once they get big, they quit having so many Big Ideas and settle down to fine tuning the numbers.  That’s when the Outsourcing, pay cutting, automation, and job elimination cycle begins.  Unfortunately, once they’re big, they represent the kind of concentration of power and influence that politicians crave.  After all, it’s much easier to do dinner with a few Movers and Shakers than it is to talk to 1000 entrepreneurs about what might help them, yet the latter is what will produce the jobs we so sorely need.

The thing is, we now have the power to talk to those people just as easily as sitting down to dinner with the Movers and Shakers.  We didn’t used to, but the Internet has changed all that.

Here’s what I wish the Silicon Valley Digerati advising the POTUS had said instead of focusing on Education and Immigration Reform:

Mr President, in addition to our small advisory group, you should be putting together a Virtual Job Creation Council filled with small business owners.  Our companies, which include Social Networks like Facebook, can help you do that.  In fact, we believe it’s our patriotic duty to do that, we understand the Internet, and we know how to use it to democratically crowdsource all the ideas and initiatives you need to kick-start these small businesses into the job creation engine this country so sorely needs.  

We’ll get you the ideas, and we’ll rely on you to make them real.

Aren’t you curious to know what such a crowdsourcing initiative might turn up?  Don’t we sorely need some new ideas to move forward, get inspired by, and break the gridlock?  Isn’t this the sort of thing Silicon Valley would be proud to be doing for our Country?

How about it guys?

Why Do the Cool Kids Keep Missing the Tragically Knowable?

I just read an article on GigaOm about Facebook (Techmeme caught it too) app vendors being up in arms because Facebook’s new spam control was too strong and knocked out a bunch of legit apps.  It isn’t just Facebook, we read these stories constantly about various Valley companies.  Mostly they are companies that don’t have enough grey hairs so far as I can tell.  Twitter is another one that keeps thrashing around.

I don’t get it.  I’ve been spending a lot of time lately telling various Marketers that Marketing is a Product.  It has a UX, you want to delight your prospects with it, yada, yada.  I guess I need to be telling Product Guys that Products are Marketing after I read stories like this.  They can be A/B tested.  They can be trialed.  You don’t have to roll out changes wholesale and wait to see who screams, and then frantically roll back what doesn’t work.  In fact, it’s much better if you don’t.

Look people, in an online / social / connected / mobile / viral / cloud world, the distinction between marketing and product blurs to the point of being nonexistent.  It all carries a message and a User Experience that either strengthens or weakens your position.  And, it is all Tragically Knowable.

Talk to your customers.  Listen to your customers.  It isn’t hard to do.  You’re supposed to be Social Networks for Heaven’s Sake.  Once you get good at it, you’ll realize it’s actually a lot of fun.

Why screw around with your entire audience and momentum when you could do some tests and do what’s right?  I don’t care how brilliant the wunderkind at the top may be, they are wrong sometimes.  Save us poor customers and prospects the pain.  Life is short, we don’t need any more pain, and we’d like to get on with just loving your products if you’d let us.  Quit doing stuff that was Tragically Knowable.

There’s a New Sheriff in Town and His Name is “Content”

Just read a great top-level overview of Google’s Panda on SEOMoz.  If you haven’t been following Panda, or you’re not involved with marketing much, it is Google’s latest algorithmic attempt to minimize the ability to game search results.  This article is at a good level for CEO’s, Board Members, Investors, and other Interested Parties to understand the flavor of this huge watershed event for marketing on the web.  I’ve talked to a number of companies that were impacted by Panda.  In most cases, the impact hurt their search traffic because they’d been relying on SEO games to get the job done.  In a few, it has transformed their search traffic for the better.   Those few are companies that had been almost overly focused on content.

Google wants to interfere with the SEO strategy of manipulating search results mechanically by delivering search results that searchers actually like.  Towards that end, Panda lets Google blend in subjective evaluations of search results to tune up their search engine and start to de-emphasize those sites we all come across that aren’t really that enjoyable or even informative despite great search ranking.  This is mainstream when you start to see Dilbert cartoons about it, and it is life threatening for Google when we read that measurable amounts of web traffic have left the general web and gone to sites like Facebook.

Marketers should expect a lot more of this sort of thing over time.  It will be increasingly important to quit worrying about SEO voodoo and start publishing content people are delighted to find.   I have been saying to everyone that will listen:  Marketing is a Product.  It has a User Experience.  Make sure yours is one that delights would-be customers lest they not only tune you out but have an increasingly difficult time even finding your content.  First impressions will matter more and more as feedback loops like Google Panda and Social “Like” buttons that affect search results are not going to give you a second chance if you blow the first one.

If you’re running an established business that focuses most of its efforts on SEO manipulation, start thinking about how to ramp your content quality up quickly.  If you’re an entrepreneur thinking about bootstrapping a business or an investor wondering where to invest, you need to add another couple of tests to your framework for evaluating potential ideas:

-  Is this space crowded and noisy due to an abundance of great content, or is it one where there is a tremendous hunger for scarce content?

-  Does this company already have a track record for producing differentiated content that is driving traffic?

-  Does the company have content creation talent on board and does it understand how to use content effectively?

You want to be a big fish in a small content pond when you’re starting out if you expect to be noticed.  And importantly, it’s hard to farm out the best content until you have a critical mass of folks familiar with your market and products who want to contribute.  Make sure you have the ability to operate with great content until you’ve spanned that gap.

There’s a new sheriff in town, and his name is Content.

Related Posts

Small Businesses Need a Minimum Viable Marketing Strategy

Pitfalls of Free Content and an Inbound Marketing Strategy

Quality is Part of the UX Too

Just had a back and forth with @dahowlett on Twitter about Dropbox’s recent breach of security.  For about 4 hours passwords didn’t matter to Dropbox–you could type in whatever you wanted and access anyone’s data.  Dennis went on a pretty good rampage about it, and I have a hard time blaming him.  Yes, accidents happen, this is software, and all software has bugs.  But some kinds of problems are sufficiently scary that there should be automated testing that is pretty bulletproof in preventing these problems from reaching customers.

Consider really terrible obvious painful problems that might afflict a service like Dropbox:

-  It might be impossible to add data to your Dropbox.

-  It might be impossible to retrieve data from your Dropbox.

-  It might be possible for anyone to access your Dropbox (this problem that prompted this post).

-  etc.

It’s not a hugely long list, but these are the obvious catastrophic things a service like that has to make sure can’t possibly get out the door.  Ever.

Isn’t this level of quality just table stakes?

We live in a world where VC’s and Angels want software developed on a shoestring.  They’d prefer it was done and working with customers and traction before they put a dime into the company.  We like to revel in the idea of Continuous Deployment–look, it’s so easy, even our VC can push code out to our customers.  We kid ourselves that programming tools are so much better than they once were that we can do the same things faster, better, and with far fewer engineers.  Never mind that you can look at things like Objective-C and wonder what people who think that are smoking.  The tools are better, but not that much better.  We’ve simply lowered our sights on what we’re building.

We think all the cool kids are on the consumer side, so much so that we want to “consumerize” the business side to make it better.  Quite apart from my belief that consumerization is something else entirely, isn’t all this hubris how we wind up with problems like Dropbox’s?

Let me ask it a different way: are we doing to our once innovative Software Industry exactly what the bean counters did to our once innovative Auto Industry?  We know how that turned out.  The once proud American Automakers eschewed innovation, style, quality and performance for cheap, cheap, cheap.  The bean counters and finance types ruled over the engineers and stylists and we cut costs everywhere we could, introduced planned obsolescence, Ford Pintos blew up when rear ended, yada, yada.  The car became a commodity.  Right up until Japan figured out that Quality is part of the User Experience too.  What now Ford, Chevrolet, and Chrysler?

Once upon a time the Valley stood for cool technology.  I’m not saying a lot of cool technology isn’t still being built, but it sure is a lot harder when the way to fame and fortune seems to involve catapulting cuddly birds at complacent pigs in rickety houses.  Do you remember the horrendous excuses for automobiles Detroit started giving us in the late 70′s?  The Mustang II.  The Chevette.  There are many more.  Even now Detroit hasn’t really recovered.  Are we building the equivalents in the software world as we speak?

I read Mark Sigal’s post, “The iPhone, the Angry Bird, and the Pink Elephant,” and I wonder if we aren’t on the same wavelength.  He bemoans the contrast between huge companies built on great products in previous iterations of the industry and the present.

The PC revolution gave us high profile names like Intuit, Lotus, Microsoft, Apple, Adobe, Symantec, Borland, CheckPoint, McAfee, Oracle, Siebel and Sybase, as well as many others.  Some have lived on and some have died, but you can’t deny they were all great at least at some point.

The Internet revolution added names like Amazon, eBay, Yahoo, Google and PayPal.  And let’s not forget the Enterprise side like Salesforce, VMWare, NetSuite, and others.  Again, some are not so great as they once were, but they each accomplished quite a lot.

Now we have the likes of LinkedIn, Facebook, Groupon, and Zynga.  Are they really in the same category as any of the prior players?  Do they deserve valuations that imply they are somehow even better than the prior giants?  Perhaps, but from my perspective each iteration seems like more and more the greater fool theory and less and less innovation, talent, and quality.

Could any of the more impressive earlier generations even be possible to found today?  Are we so obsessed with quick hits, bubble economics, and trivial software that we wouldn’t even try?

There certainly are some exceptions, and in some cases they have resulted in amazing companies.  Reed Hasting’s Netflix is no flash in the pan consumer web quick hit.  Steve Jobs’ latest efforts in the iPhone and iPad are likewise revolutionary.  But access to capital to do truly big things is pretty limited.  Hastings got Netflix done before the current funding mentality set in and Jobs needs no VC.

Everyone else either gets to be a digital sharecropper slaving to get lucky so their Darwinian seed can be plucked up and pumped full of uber-growth-hormone-capital for instant bubble inflation, or they go the bootstrap route and try to make it without capital.

At some point there will be the equivalent of the Japan Car Industry that reverses this trend to the inane, brings back Quality and Innovation as features of the UX, and knocks the current Tom Foolery right out of the park.  We’re already too far down the ski jump on this bubble cycle, but perhaps out of the ashes will come a resurgence.  Let’s hope so.

When Will Your Job Be Consumerized?

This post is on  behalf of the Enterprise CIO Forum and HP.

It’s become all the rage to talk about the Consumerization of IT in the last few years.  There are a lot of definitions of what the term means.  Those who are looking to downplay it somewhat will toss out the idea that it’s copying consumer web technology into business software.  One gets the idea that some are trying to argue consumerization happens when proper business software thinkers become bankrupt of ideas and so are forced to steal from other markets.  Wikipedia says it’s:

A stable neologism that describes the trend for new information technology to emerge first in the consumer market and then spread into business organizations, resulting in the convergence of the IT and consumer electronics industries, and a shift in IT innovation from large businesses to the home.

Okay, that’s a bit much (stable neologism?).  In 2005 Gardner said it would be the most important trend of the next 10 years of IT development and that, “the majority of new technologies enterprises adopt for their information systems between 2007 and 2012 will have roots in consumer applications.”  Better, but this all misses a larger point:

What drives Consumerization?  Why is it happening?

If we could understand that point, assuming it’s more than just business software companies being bankrupt of ideas, we might start to skate where the puck will be instead of where it has been in the consumer markets.

I believe consumerization is a much deeper phenomenon that simply copy consumer markets.  My manifesto and definition of consumerization is:

Consumerization happens when the consumers have choice in any market causing the market to have to leverage the user experience of its consumers to make them more satisfied.

Steve Jobs “consumerized” what was already a consumer market, the music industry, by leveraging a far better user experience in the form of choice, instant gratification, and the ability to manage that choice more easily.  Thus was born the iPod and the digital music industry as we know it today.  He radically improved the user experience for telephones with the iPhone, and before either one came along, the Macintosh improved the user experience for personal computers.  Netflix did it for movies.  Amazon did it for retail and especially books.  These are all consumer areas that were further “consumerized” because the digital everyone always connected world meant consumers had the choice to adopt a better user experience.  And they did so in droves.

What’s happening with IT is the realization that workers are consumers.  They’re consumers because they have choices.  Choice is what begets the opportunity for consumerization in most cases.  If we have to do something because we have no choice, why bother improving the user experience?  But, if there is one thing that has radically changed in Modern Society, it is the prevalence of choice in all things.  People no longer work for the same company their entire careers as they once did.  They do not expect to be doing the same job their entire careers either.  They have choices, and when they have choices, it’s important for those who depend on the outcome of the choices to pay attention.

It used to be good enough to save someone somewhere a little time with a piece of Enterprise Software.  Most of this software boils down to fill in a form and move the contents of all those fields around from database table A to tables B, C, and D.  We may make minor transformations to the information along the way, and we may even review the information at some later date in a report.  It’s a solitary pursuit though, and not much fun.  Not much of a user experience, either as anyone who has ever had the sort of job where you fill in such forms all day every day can tell you.  These applications are data assembly lines where the knowledge workers (to use that quaint old term) are the modern blue collars.  Guess what?  If you give them a choice, they’d like to have a better job.  They’d like to add more value and not just be blue collared cogs on your data assembly line.  They want to use their minds, have some authority they own where they make decisions, and they’d like a chance to collaborate with their coworkers.  They want to understand how their contribution fits into the corporate mission so they can take pride in it.  And while we’re on the topic of taking pride, they’d like others to see their work as something meaningful and valuable.  Hard to do that if you’re just punching data into forms all day.

How can business software do this?

It’s easier than you think.  Let’s take one of the most painful jobs out there–handling Customer Service.  My last company was focused on this problem.  The traditional Enterprise Software solution is part of the CRM space.  It involves what we’ve been talking about–a customer gets in touch and a “Trouble Ticket” is opened up.  The Service Rep fills out the ticket, and pretty soon we’re moving data from Table A to Tables B, C, and D.  Tickets get closed.  We track whether we responded within SLA requirements.  We collect metrics on our call centers.  And we spend a lot of energy trying to minimize the expense of all this to the business by making it efficient and tying Service Rep’s compensation to their metrics.  In the process we incent all kinds of bad behavior and generally piss off our customers beyond belief.  Service Reps have none of the things I mentioned.  They’re not empowered to make decisions of consequence, they’re only there to try to get you off the phone and the ticket closed even if the way to do that is to frustrate you so much you give up.  They are not able to use their minds to any great extent, they stick to a script.  We’ve all talked to many of these people who know less about the product we have a problem with than we do.  They don’t get to create anything of lasting value, collaboration is minimized because it interferes with the metrics, and so on.  These are very hard jobs to take pride in, and I’ve been hearing since I first started in the software industry that Customer Service is not a destination career.  People get out as soon as they can.

To counter that depressing backdrop, we had a very simple idea that today is called Social CRM.  We realized after watching all this machinery in action that a much better User Experience could be made both for the Service Reps and the Customers.  The idea behind Social CRM (today a very promising market with companies like Lithium and Jive, not to mention Salesforce.com’s Chatter) is to change all those negatives using the Social Web.  No, it doesn’t mean literally copying Facebook or Twitter, and it doesn’t mean copying them either.  It means engineering a user experience for Customer Service that better serves the Customer Service Reps and their Customers.  Because both have a choice.  In this case, a better User Experience involves helping these parties to collaborate via social software with one another.  When a Service Rep closes a trouble ticket they (may have) helped one customer.  When they have a collaborative discussion in a forum, our data shows they helped an average of 16 customers.  After all, if one customer has a problem, others are likely to have the same problem.  There are genuinely few one offs.  And, if you can make it possible for customers to help themselves to the answer to the question because someone before them had already asked it, they actually prefer it that way in many cases because it’s faster.  If they get to interact with fellow customers along the way, if the Service Reps get to have the fruits of their labors visible to a broader audience, and all the rest that goes with a modern Social CRM application, that’s a better User Experience for everyone.

So I’m back to my original question:  When will your Job be Consumerized?

There is a wealth of opportunity in the Enterprise to start Consumerizing.  After all, we largely finished building the data assembly lines as a result of Y2K and the first dot-com boom.  The work is getting done more efficiently.  Now it’s time to take the next productivity step and help people to actually like getting it done.

This post is on  behalf of the Enterprise CIO Forum and HP.

 

CIO’s: You’ve Got a Target On Your Back, Use It!

This week’s InfoBoom post is all about security and Sony’s recent epidemic of hacker attacks.  I can’t imagine any CIO watching the Sony/Hacker drama unfold wouldn’t be wondering whether it could happen to their organization. I was reminded of it again when I read this morning about “Another day, another attack on Sony.”

Clearly Sony had very much underestimated their risks, but isn’t it likely almost everyone has too? So far, Sony has estimated $171 million in costs relating to these attacks.  In this post, I look at whether a strategy similar to Netflix’s “Chaos Monkey” might help CIO’s feel a little more secure.

Check it out on InfoBoom.