Giving something back: what companies could learn from Amazon

6 08 2009

When I recently made the move from Chicago back to New York, I decided to do what I once thought was sacrosanct: selling much of my book collection. If you were once a liberal arts major like me then you can understand how eventually your shelf gets stacked two deep with books you’ll never read again.

I’m convinced that knowledge is always better spread than horded and I can use the cash so I sold my books on Amazon using their EasySell service where you simply ship the books to them by cheap USPS Media Mail and they do the rest including shipping the book to the customer.  The basic result, I’ve made a boatload of money and been able to sell my books in a flash. Here’s my sales report:

AmazonOrders

That’s over $2,000 from selling about 200 used books, most of which are the definition of long-tail. For instance, I recently sold The Crusades: Islamic Perspectives for $19.99 to a college professor from California.

Of course, Amazon’s making a little coin from their commissions. But the most lasting impact for me is that I’m now an even more delighted customer who wants to talk in detail with others about their service. I’m blogging about Amazon now and talking to my friends all the time about it.

I’m convinced from this experience that Amazon is a company which actually helps me do more of what I enjoy. They recognize that my experience with books doesn’t end when I sign their receipt. As a book lover, I want to be able to read more books so Amazon’s solution helps me to free space on my shelves and in my bank account to buy new ones. Amazon ultimately profits from these transactions, but most importantly enriches the depth of their relationship with me which makes them my book provider of choice. The power reciprocity is profound.

This brings me to my question, what can other companies learn from this?

- Wireless: what if Sprint offered a marketplace where customers could buy and sell their phones and plans. Somebody who wanted to join Sprint could swap their Verizon plan and phone for a Sprint one knowing that they could easily reverse the trade if it doesn’t work out for them. A Sprint customer who is sure that they’re locked into a plan they don’t need could sell it to somebody who wants it and buy a new one.

Does this fit the current lock-in strategy of cell phone providers? Of course not. But this program isn’t incompatible with 2-year contracts either. It simply removes the painful burden of calculating 2-years ahead from the consumer, delighting them and enabling the cell phone companies to profit from their superior information. For a company like Sprint which is advertising customer centricity even as it bleeds customers, this is one way to prove it without re-hashing the  ”our network is the best for everyone” story which Verizon already owns.

- Health Insurers: it’s well known that some people get more coverage from their employers than they need and others don’t get enough. What if United Healthcare enabled you to trade your policy for another within their system? Second, taking a cue from Amazon, what if the health insurers thought of the end goal of their customer as providing health not policies? Amazon realizes that people like to consume the information in books more than they like to horde them. Those who want to consume more books will naturally turn to Amazon because of the liquid marketplace and information which exists within it.

Do any health insurers think this way today? No. They compete to win corporate accounts, letting the end consumer wither on the vine. Meanwhile, the customer perceives that the health companies are doing a great job at selling policies that don’t provide the service of health. They clamor for national health care. This might change if they made a serious commitment to providing the health service rather than just talking about it. A great example is the  Health & Wellness at United Healthcare where you’ll find that you have to have already bought the product to gain access to whatever scarce bits of information are inside. If United Healthcare wants to show that it cares about health, it should offer content from its own databases and third parties like WebMD to uniquely integrated health content with the health policy products it offers. Consumers could shop for policies by starting with information on an important topic, like joint health, and then working backwards into the solutions that United provides.

- Clothing Retailers: people who love brands like JCrew aren’t comfortable visiting the Goodwill shops which often end up housing them or sorting through the stuffed close-out racks. Fashion assortment and merchandising are so complex that it doesn’t pay for Amazon to keep a standard catalog of JCrew outfits. But JCrew has this information and audience themselves, why don’t they use it? The existence of a liquid used market for recent JCrew styles would help many of its devoted fans to afford to shop there more often, buy more of the latest styles each season and feel less worry about taking a chance on buying  something new.

Is this compatible with today’s romantic branding notions of a semi-upscale soft goods brand? No, but I wouldn’t rule it out until we hear what today’s consumers think. Millions of customers on Amazon have no problem differentiating between buying used and new merchandise and love Amazon for giving them the choice. They buy with confidence on Amazon knowing that they can always sell back a movie. This requires a very different, customer-centric way of thinking, but it’s the type of radical idea that has the potential to delight customers who will could just start to think of themselves as fashion merchants rather than victims.


Comments : Leave a Comment »

Categories : Marketing

Chipotle does brand right

29 07 2009

In a recent post, I gave credit to MyChipotle.com for its excellent execution of a so-called “brand campaign” online. The campaign launched in May and features print, bus stop, taxi top and online spots in select cities like Chicago and Dallas which direct customers to:

StopStarving

This campaign works well for several reasons:

1. Illustration: the first thing a viewer sees actually shows the food. It’s appetizing. Looks fresh. Showing good looking food should be a basic pre-requisite for all fast food advertising. Otherwise you get the Burger King debacle from Crispin, Porter which has won plenty of awards but sold almost no burgers as sales and market share at the “The King” have dropped.

2. Headline: it’s simple and bright enough to be seen walking by the bus stop or as tax cabs pass by.  This principal should be applied to web ads which are glanced at for, at best, 1 second. Here’s an example of a terrible ad which lacks a headline, has tiny print and black reverse copy which is especially difficult for the aging eyes of the older target audience to read:

JaguarInvisible

3. Call to action: it’s actually very well executed and based upon a consumer insight. If you visit MyChipotle.com you’ll find a site which highlights all 60,000 great combinations  that you could make with Chipotle and includes some colorful user generated videos highlighting their favorite burrito recipes. It’s fun, informative and gets you thinking about trying to come up with a new flavor combo yourself. It also gives you a higher sense that being a regular at Chipotle makes you a member of a community.

This campaign is based upon a customer insight gathered from research: consumers don’t feel like Chipotle offers enough variety relative to other fast food competitors. This is despite the fact that Chipotle actually offers almost infinite flavor combinations with every dish fresh made. But most customers actually order the same thing every time.

That said, the campaign does fall short on a few dimensions:

1. Advertising-dependent: if the problem is variety and consumer boredom, Chipotle should also be looking at its product mix, menu design and service process. Perhaps it’s time to introduce a new product or sauce now and then at Chipotle? Chipotle’s menu design resembles a flow where you “pick one” from each of the wrap, meat, filling and sauces categories. But this leads some consumers to feel like a rule is being imposed upon them when it’s not: you can actually pick two meats if you like. Finally, the service process itself could adapt a bit to this. Chipotle could train its employees to prompt stumped customers with friendly suggestions.

2. Lack of follow-through in the store. There’s no tie-in between MyChipotle.com and the stores. You can’t find the nearest Chipotle from the MyChipotle.com site. Nor can you one-click order your favorite user-generated recipes by using Chipotle’s web ordering tool. And finally, no sight of the most innovative implementation which would be to stream MyChipotle.com content into the stores to be enjoyed by customers in the notoriously long lines.

The lack of foll0w-through likely results from an abundance of marketing silos within retailers. The problem is that none of these silos call themselves marketing, but they are crucial to it. The group that does service process doesn’t say that it’s engaged in marketing, but it touches the customer more than anybody else in the company. The people who design the menus and order the signs “aren’t in marketing” but consumers spend more time looking at those than any advertisement. Finally, yet another group manages “technology” and is likely waiting for its marching orders from marketing. But alas, those might not come because the general problem is these companies fail to recognize is that marketing is something that everybody in the company needs to be worried about. In other words, marketing is too important to be left only to the marketers.

That said, Chipotle and its agency Butler, Shine, Stern and Partners seem to be running great campaign which pushes down the barriers between brand and response, bricks and clicks.


Comments : Leave a Comment »

Categories : Advertising, Retail

Can Twitter be the pulse of the people… and their celebrities?

17 07 2009

In a recent post on Twitter, I speculated on their business model by working backwards from their design priorities. Now, TechCrunch has leaked the internal Twitter documents which shed a lot more light on what’s going on in Twitter’s head.

I noted that Twitter seems to want content on the network above all and is obsessively keeping up a hip image. Thus it has de-emphasized search, following, monetization and partnerships. But when it comes time to monetize, Twitter will be torn between becoming a mass messaging platform and a tool for elite influencers to broadcast to the masses.

Looking through these documents, we see a strategic morass where Twitter is really hoping to become both a mass platform and a hub for influencers but these are likely incompatible goals:

  • Twitter’s goal is to become “the pulse of the planet” with 1 billion users. Doing this requires being “open to scale” on all devices using the “lowest common denominator” techologies like SMS.
  • But Twitter has no idea how to monetize this vision. $1 per user is a purported goal, but it sounds like a total shot in the dark akin to the “if we just get 1% of the market” revenue estimates found in bad business plans. The reality, as Twitters management realizes, is that “most users are not monetizable” and this is made even worse by having an open SMS-like distribution. Becoming the pulse of the planet further dilutes the possibilities: can Twitter monetize 50 million users from Brazil at $1 per user? Unlikely.
  • Thus Twitter speaks at great length about monetizing corporations, celebrities and pursuing distribution deals with Google, Microsoft, etc. but they can’t bring themselves to do anything other than “verified celebrity accounts.” Twitter’s management views these as a way to get some revenue “without mobilizing the whole company around something” but that’s troublesome. It means they’re going with a tactic that is incompatible with their strategy. Servicing celebrities, ask anyone in Hollywood, is completely unlike dealing with regular users. More requests will come in from the likes of Diddy who feel that Twitter should be paying THEM for their contributions to the network. If there’s competition from better monetized sources like Google or Facebook, that just may happen.

A final issue which Twitter management seems to be struggling with is “brand”. For instance, it rejects acquisition by Facebook and partnerships with Microsoft and Google largely based upon how its brand might be perceived or developed. These brand concerns are short-hand, I think, for many issues like how do you keep early adopters happy while bringing the masses on-board, how do you keep direct relationships with users while supporting an abundance of third-party apps and how do you fend off future competitors?

The key to finding a successful brand will be making Twitter stand for an aspiration not a feature. Being the “pulse of the planet” is a feature, and indeed one that is hopelessly complicated. How can one reduce 6 billion heartbeats in multiple languages to a true pulse? Look at the case of MySpace whose CEO recently lamented that MySpace users “don’t know if we’re a social portal, a music site or an entertainment hub.” That may be right but the greater problem is that users don’t know why they should come to MySpace instead of Facebook, PEPSI instead of Coke. This is another reason why these online brands need to develop some revenue: you can’t create brands for 1 billion people just by changing “status” to “what’s happening?” You need advertising, people and a lot of expense.

Here’s my first take at an aspiration for Twitter that would emphasize the focus on celebrities: Be Somebody.

Twitter lets you hobnob with celebrities and be the cool kid that people look up to even if they don’t really know them. Where Facebook is about reflecting your static social graph, Twitter is about growing it. The business model for that implies that influencers like celebrities should be treated with kid gloves and seen as the driver of adoption. In reality, they are. Most of the 1 billion users are going to join Twitter to follow the celebrities they already know.

The users who want to become influencers, who aren’t yet celebrities, should be charged for the opportunity to promote themselves on a powerful network. These charges can be as simple as $20/user for tools and tips that help them use Twitter more effectively but they can also include charges for directly embedding video in Twitter posts, etc. There should also be an option to pay for placement in searches by topic: for instance, people who want to find “Advertising” influencers.

Finally, Twitter should provide consulting and analytic services. It’s remarkable that companies are paying consultants hundreds of thousands of dollars to train them in how to use Twitter effectively but Twitter corporate itself provides no services – not even to those consultants.

Similarly, an abundance of third-parties are building businesses which help corporations, recruiters, stock analysts and so forth to find information on Twitter. Twitter should acquire and manage many of these services for the reason that supporting them will require development by Twitter of data structures and APIs to suit them. For example, in recruiting, data structures need to be built which allow resumes and applications to be linked to job hunters and referral networks on Twitter. These changes are not inexpensive to make, market and maintain. It behooves Twitter to try to capture some value from the work it does here.

What does all of this require? More management, more focus (which will upset some employees). Tough things for a company to embrace as it grows from 50 to 500 employees but absolutely essential given Twitter’s ambitious goals.


Comments : Leave a Comment »

Categories : Social Networks, Strategy

Will online advertising ever get brand analytics right?

15 07 2009

Online advertising’s standardized metrics and ad formats may be the slowest developing web technology of the last 15 years. Doubleclick was founded in 1994 and over that time, ads have tuned their targeting, become visually richer and interactive and, of course, been embedded into search results. But overall, not much has changed in advertising’s strategy, styling or approach.

Compare this with the web where the pace of disruption has been much faster. Technologies like AJAX and Flash have made sites more interactive, application APIs have made them more open, CDN’s have made them much faster and cheaper. In general, the web has become more social, open and interactive. This fast pace of innovation is one reason why the top websites of 1997 like Geocities and Excite are unrecognizable today.

Conservatism would be warranted if online advertising was living up to its potential, but it’s not. One statistic is that 2/3rds of the $180B spent on advertising fits into the “branding” category but just $7 billion of is spent online. Those who have attempted to defend the status quo haven’t been doing a good job of it.  Take this recent study by the Online Publishers Association which touts the success of brand advertising:

Even a cursory look at this study shows that it’s little more than evangelism under the guise of science. Let’s look at a few slides:

Slide 11: purporting to show that people exposed to brand campaigns visit the advertiser’s site most often:

Slide11
Diagnosis: this slide is meaningless because it only shows the results of the experimental group. An experimental finding is only interesting if the results of an experimental group, exposed to advertising, were different than control group who was not. But they don’t show the control group here. Since the “experimental sample” in this study is 86 million, it seems like the control group is amazingly small.

Slide 17: purports to show that users exposed to ads spent significantly more on e-commerce

Slide17

Diagnosis: aha, we have a control group with with little information about it.

So we should be asking some question like:

Does the methodology make any sense? I’d say no. The chart indicates that the statistic represents spending on all of the 53 brands sites if the customer was exposed to any of their ads. So, a visitor might have been exposed to the Allstate campaign but have spent nothing on Allstate.com and they will still be counted in the “exposed” sample. Chances are if you look at this data at an advertiser-specific level, you get much less convincing data. Yet this is exactly what you want to do since obviously the quality of execution and a brand’s product should make a great deal of difference. You can’t just invent a brand, throw up a lousy ad, take the customer to an uninteresting site and expect to get something out of the advertising.

Is the control sample otherwise identical to the experimental? If the groups were targeted ads because they are of different incomes or have different online behaviors, that’s the cause of their differential e-commerce spending not the ads themselves.

Are the results statistically significant? When I see a study that says “significant” without the statistical before it, I wonder if they’re trying to talk around something. The sample size is fine, but we need to know the standard deviation of consumer purchases to determine whether $242 is “significantly different” than $227 statistically speaking.

Do the numbers make any sense? The average individual in this study spends about $234 per month on e-commerce. That’s $2800 per year. Multiplied across the 220MM US Internet population, that’s a market size of $617 Billion or 4.5% of total US GDP. E-Commerce is not nearly that big of a deal, it’s probably about $150 Billion.

Now don’t get me wrong, I’m a huge advocate for online advertising, analytics and branding. I just think that using data mining and Powerpoints to prove your point isn’t going to do anybody much good.

The work that people like David Blum of Butler, Shine, Stern and Partners have done for Chipotle on the MyChipotle.com campaign presents a much better example of how to meld brand with response, online and offline to delight customers. It’s integrated marketing with a mission that stands out to anyone who sees it. It’s the product of the unity of creativity and technology with a call-to-action that’s right on brand.

Is it an online branding success? I’ll speak to how I might evaluate that later. One thing’s for certain: any analysis should map to basic marketing principles and avoid generalizations based entirely upon undifferentiated panels like ComScore which only track online behavior like looks, clicks and buys.


Comments : 1 Comment »

Categories : Advertising, Marketing

Can “paid content” save journalism?

25 06 2009

The hype cycle on “paid content” as a way to save journalism is picking up steam. Gordon Crovitz and his Online Journalism start-up are touting that their technology platform will enable 10% of readers to pay for content. The Atlantic has micro-payments up as their “Idea of the Day” and the Dow Jones is purportedly developing its own platform for paid content.

But the problems with paid content online, as I see it, are manifold:

First, paid content is historically a modest percentage of print media profitability so it’s not the “culprit”. For newspapers and magazines, circulation revenues are about 35% of the total and we can presume that they contribute almost zero profit since the objective until recently of both was to maximize readership.

Second, consumers don’t pay much for printed media. According to the Census 2007 Survey of Consumer Expenditures, the average consumer spends a mere $118 per year on Reading products, including books, and this data is very socioeconomically skewed. Most consumers spend less than $50/yr. except for those over $75K in income who spend $200-$300. Table 4 of the same also shows that persons under 44 spend half as much money as older people on reading. Journalism Online, the aforementioned paid start-up, conducted a survey in which it was estimated that the average subscriber would pay $300 per year for their service. This datapoint is flatly contradicted by the Census’ own findings.

Third, following Becker and Posner’s excellent analysis of this same question I’d point out that the decline of readership of newspapers has followed the increasing proliferation of information in our society. The more information we encounter in our daily lives, the faster news spreads and opinions can be heard and shared, the less we need to wait to hear them from a journalist. Of course, some have called this “information overload” and argued there’s a role for journalists and technology to help with this. Surely there is, but that doesn’t mean that solving this problem will point consumers towards professional journalism content. In many cases, the work of journalists is being increasingly done by subject-matter experts who publish blogs online. Whether the subject is what’s happening on your local block or what’s happening in the economy, experts who don’t get paid primarily for their writing are able to answer these questions far more effectively than journalists. Journalists have been disintermediated.

Finally, this brings us to the fundamental problem with paid content: too many substitutes. If information is all around us and most of it is not very valuable (after all can you remember what you read about in yesterday’s paper?), then why do we need to pay for it?

While education correlates with spending on reading materials, our increasing levels of education as a society bode poorly for news/magazines. The average newspaper story is written at the 8th grade reading level. I think that’s one reason why news analysis looks increasingly shoddy to us: we’re more educated than ever. The NY Times taking its content back behind closed doors won’t change this dynamic: they can’t impact the price of a commodity that borders on free. And if they did, new entrants would expand supply and push it back down. That’s exactly what Politico, PoliticsDaily, HuffPost, TMZ, Gawker, the Daily Beast and so forth do quite successfully because they aren’t burdened with the overhead of major news organizations.

There are a few conditions where paid content works:

  • You serve a relatively small group of people. With a small group, say less than 200,000, the potential advertising market is very small so entirely ad-supported market entrants are less likely. Of course, as advertising becomes more efficient and production costs decrease, market entry becomes easier. This helps explain why local newspapers are still a profitable business in small towns, but in New York City the free subway papers are the lowest common denominator of American newspaper publishing.
  • The information you provide is proprietary and really important to your audience. As in, they couldn’t live or work without it. Bloomberg was once a good example of this sort of business but it’s already seen its nadir. Reuters entered with a solution that’s a fraction of the price. The information is no longer proprietary and its arguably less important when a) everybody else has it b) automation and computer algorithms.
  • You can solve information access and organization problems. In other words, you help people access structured data, archived data and hard-to-find aggregated data. This is what Lexis-Nexis, Westlaw and so forth do for lawyers. This is what CapitalIQ and FactSet do for bankers. Note this is different from what “Internet aggregators” like Google or TechMeme.com do because they typically highlight easy-to-find information that’s current and unstructured. They are great services, but not solving this problem.
  • You sell to businesses: the expense can be written off against taxes and amortized as part of the infrastructure of a large, complex organization. This is important because it creates cultural support and switching costs. In contrast, the consumer bears the full cost of their expenditures and switch providers on an annual basis.

None of these conditions apply to the current content of magazine and newspaper publishers. I do think it’s plausible that they can morph some of their content to solve deeper problems. The Economist has, for instance, opened up an expert’s bureau that offers high-priced subscription products, studies and consulting. But profound changes would be needed for say Better Homes & Gardens to provide an information service of that magnitude.

I believe that in this lies more of the solution for publishers than “printed content.” With print readership declining, companies need to restructure to cut costs and focus on what’s of most value to readers. The core of most media will be advertising supported because consumers have too many substitutes to pay much for it, but if you have experts, sources and data then you might be able to carve out a small, focused audience for paid products. If you leverage your local brand and make good partnerships, you might be a useful distribution channel for other providers like classifieds, employment and personals.  But as much as I’d like to see it, the economics of “paid content” don’t make much sense to me.


Comments : Leave a Comment »

Categories : Economics, Media

Why marketing is broken: the SEO/SEM craze

23 06 2009

I suspect that marketing is broken and the craze for search engine optimization and management is a good example. Search for “SEO” on a job site like TheLadders.com and you’ll find hundreds of positions paying 100-250K for someone to “define and lead a SEM strategy.”

But SEM, search engine management, isn’t strategic. It’s essential but completely tactical. Strategic issues require creative and analytic thinking to synthesize ambiguous data on internal and external factors in a very dynamic game. Intuition, which is developed only through experience, education and diligent practice, is essential to strategy.

But you can learn 95% of what you need to know about SEM from reading two webpages. Or you can pay $200-$1000 for an online seminar from the Sempo Institute. The most valuable source of info is a panel of 37 expert’s aggregated wisdom on the importance of 200+ factors to Google’s results. The study is of 2005 but it’s unlikely to change dramatically. The key factors are:

  1. Having the search keyword appear in the Title of the page
  2. Having the search keyword appear in the URL of each page
  3. Having lots of other popular sites link to your site
  4. Having some category-specific sites and communities link to your site

With that set, you need to understand what keywords people are searching most often. Your best sources for this are your own log files/analytics program followed by the search engines themselves, as Yahoo or AdWords will provide estimates of traffic per search. Finally, you can also consult WordTracker.

There is, of course, plenty of work involved in implementing SEM: keywords need to be bought, page titles need to be set-up and so forth. There are very dedicated professionals who excel at doing it as well as software tools which can speed the process. But thinking of SEM as the heart of “online marketing” is misguided. Take some learnings from the leaders. I’ve heard about one company which is likely the world’s #1 search engine advertiser. If anyone has incentives to do things “on the margin” to improve search engine placement it is them. But they hire more product managers annually than all of the folks they have on their entire SEM/SEO team. The reason for their success is that they are in love with their customers, and vice-versa.

This takes us back to why marketing is broken: no amount of advertising can fix a bad product, marketed to the wrong customer who is being served poorly. Worse, SEO/SEM doesn’t even offer the control of advertising. Google controls the search engine and how it ranks you. Your customers and influencers are the ones deciding to promote you and increase your link popularity. Random traffic can’t take you very far and that’s one reason why Amazon will actually show advertisements for competitors to in-bound traffic that comes from Google.

I’ve said that “marketing is broken” but by that, I mean the practice of it. There’s nothing broken about the theory of marketing if you go to a source like Kotler who defines it as the “science and art of finding, retaining and growing profitable customers.” This view of marketing is powerful because it links it to businesses key objective: profits. But the real world often thinks of marketing as “promotion” after all the other P’s have been defined: product, price and placement.

This gives marketing an image problem. One of the best studies of this is provided by Professors Sheth, Sisodia and Barbulescu in the compilation “Does Marketing Need Reform?” They ask colleagues of marketers from other departments like finance and operations to evaluate their performance and the results are indicting: only 38% rate their marketing colleagues as good or excellent and only 34% view marketers as strategic thinkers. To address this, marketing needs to start its reformation by making its objective start with providing benefits to customers. Making SEO central to strategic marketing efforts is probably missing the point of it all.


Comments : 1 Comment »

Categories : Marketing, Technology

Is Twitter simple, or just simplistic?

20 06 2009

The excellent Barbarian Blog has a great piece up on why Twitter is not simple. That’s been apparent to me since I began using it myself and even more so when I tried to teach my web/blog-savvy mother how to use it.

I’d like to extend the dialogue by speaking to why Twitter is complicated and providing my thoughts on whether to try to “fix” it.

First, product design necessarily tackles three dimensions: business objectives, design hypotheses and user interaction with them. It’s hard to guess Twitter’s business “objectives” since they self-avowedly have no business model. But we can safely assume that, like most start-up companies, the initial design reflects business objectives more than it does customer-centric design. Businesses almost always have to grow with their customers. Take Amazon, which invested millions to hire literary editors and library scientists to provide its customers with a well-organized browsing experience before they found that the search box was enough for 75% of its users.

Twitter’s design reflects several design hypotheses:

  • Personal networks are most important: contact list import is sign-up default, suggested users is an after-thought
  • Broadcasting comes first: the input box is at top
  • Broadcasting is ambiguous by default: there are no categorization options, no “send to” option
  • Short is best: 140 characters or less
  • Messages should be personal: “what are you doing?” is the default prompt
  • Timing is everything: messages are arranged chronologically with no other filtering options
  • Searching is secondary to streaming

However, these have been rejected by most Twitter users in their interactions with the site:

  • 60% of new users don’t have anyone to follow and they aren’t finding them
  • Updates received by Twitter users out-number updates sent by a 100:1 ratio indicating following is more important.
  • 140 characters is not enough. Most Tweets are multi-tweet thoughts. Few users actually send-and-receive on mobile phone SMS where the 140 character limit matters.
  • Twitter users have introduced a whole language of hash-tags, re-tweets, @tweets, bit.ly links and so forth to add specificity and meta-data to messages.
  • Anecdotally, most Twitter messages aren’t personal. This is consistent with Technorati’s report on blogging where 79% of bloggers blog to “speak their mind” versus only 32% who blog to keep friends & family updated.
  • “Real-time search” seems to be the most frequently referenced application for Twitter at least by the TechCrunch and digital journalism crowds

So should Twitter alter its product design to address these issues? Ultimately, this is a matter of business objectives. We can infer a few objectives from their design:

  • Twitter wants users to contribute content to the network. Thus search and following are de-emphasized.
  • Twitter wants mystique, such that knowing how to use it identifies one as hip. e.g. easy-to-use sounds too much like MSN or AOL.
  • Twitter wants to create an alternative language: short, dense, notable, brandable?

Are these the best objectives? I think the answer boils down to whether these can be linked to the most valuable business model. They have served Twitter well to build a network with appeal to a small percentage of well-networked tech saavy: the core of these seems to be about 2 million strong. But “messaging” isn’t inherently an application that wants to be limited to technorati so this is where I think Twitter has a fork in the road:

  1. Twitter can seek to become a basic, open messaging protocol like SMS with some network services built it. This will imply a lowest-common denominator feature set and a quest for distribution embedding Twitter within more devices, web sites, software and services. This is the path which Twitter is going down now, but from the revenue perspective it seems weak.

    OR

  2. Twitter can try to challenge blogging as another service which facilitates structured communication. In that case, it will need to attract large “follower” audiences which don’t necessarily write updates and focus on helping paying broadcasters to be discovered by search engines and share multimedia content, track readership, etc. Twitter can make money by charging commercial users for helping them to influence but the egalitarian, utopian nature of Twitter will be lost and the feature-set will need to become more responsive to its customer base.

Personally, I think great businesses always start with a vision that seems a little utopian and they try to nudge users in the direction of “what they should do” rather than “what they actually would like to do.” But any product needs to evolve its design over time to learn from customers actual behavior and reconcile the needs of different customer segments.

Complexity then is the natural result of popular interest and pleading. So as Twitter continues to gain popular interest, it will need to be more customer-centric to capture that audience. That  probably means it will need to spawn concepts like “channels” which organize content and an API which enables some users to experience “Twitter for technorati” and others to experience “Twitter for corporations” and “Twitter for the rest of us.”

Balancing the complexity introduced by actual users with a business model that serves a target market which is not too broad or too narrow is a matter of art informed by science. On the science side, there’s plenty that can be done to crunch usage data, develop perceptual maps, look over the shoulders in ethnographic research, perform conjoint studies (a simulated, more versatile and lower cost “bucket test”) and incrementally test the business models which product design supports.

But if I’m certain about one thing: it would be a shame if Twitter tries to stay “simple” forever because right now, it’s anything but.


Comments : 1 Comment »

Categories : Product Management, Social Networks, Technology

Saints and Pigs and marketing on the Internet

13 05 2009

The Internet is not kind to many brands because the Internet makes it possible for customers to punish companies which violate their trust.

This happens to companies of all sizes. Design flaws in Microsoft’s Xbox 360 system are known for triggering the “red ring of death” permanent system failure. A Google search reveals that for every 6 mentions of “Xbox 360″, there is 1 mention of the “red ring of death”! That’s an incredibly high liability and probably one reason why Microsoft has had to pay out over $1 billion in warranty claims on the system! I’ve also been consulting lately for a small local company who believe that their service is “best in class” but the crowd on Yelp gives them a mere 3-stars. If a $200 billion and $20 million company can both be out of touch, the root cause of denial cannot be size it must be overconfidence in success. That such a trait exists in companies isn’t surprising, it exists in people too: 85% of MBAs believe that they have above-average GPAs.

The power of punishment is nothing new. Economists who view the world as comprised of entirely selfish individuals tend to predict extensive free riding and non-cooperation as the dominant strategy for Prisoner’s Dilemma games. But add the possibility of being punished or punishing others who misbehave and behavior becomes much more cooperative and “altruistic.”

In one famous experiment, behavioral economist Ernst Fehr gave individuals $20 and asked them to play the “dictator game” choosing whether to divide the money 50/50 between themselves and a stranger or the more selfish 60/40 split.  Participants chose each split roughly equally. But then Fehr found his ‘aha’ insight after he then divided the parties into two groups to play a second round. One group, Pigs, had chosen the selfish 60/40 split and the other, Saints, chose the 50/50 split. Then he re-ran the experiment with Pigs and Saints on the receiving end and a new subject who was informed of each party’s prior behavior doing the dictating. The result was that overwhelmingly, Pigs got the shaft and Saints got an even-split. In other words, subjects were willing to pay money to punish a stranger.

This result has been repeated over and over again in many variations which confirm that people will pay to punish others even when it doesn’t seem “rational” to do so. Marketing studies confirm that customers are willing to switch to a more inconveniently located convenience store or retail bank if they feel wronged.

The link which marketers must form between the Internet and punishment was identified in 1999 by the Cluetrain Manifesto:

  • Markets are conversations
  • Markets consist of human beings, not demographic sectors.
  • Conversations amongst human beings sound human. They are conducted in a human voice.
  • Whether delivering information, opinions, perspectives, dissenting arguments or humorous asides, the human voice is typically open, natural, uncontrived.
  • People recognize each other as such from the sound of this voice.
  • The Internet is enabling conversations among human beings that were simply not possible in the era of mass media.

Today, we are seeing this. The question is whether marketers are feeling it. I’m seeing a lot of buzz about social media which consists of planting Facebook, Twitter and YouTube veneers on traditional advertising methodologies. But these are insufficient because open information means that marketing has changed. It cannot be content with broadcasting a few well-defined product messages out of the corporate black box. Marketing needs to lead a charge in screaming that markets are conversations which can potentially reach back into every dark corner of the corporation. But these conversations are also opportunities to show your humanity, empathy and appreciation of your customers.

I hope to see more companies think fundamentally about “Internet marketing” and the shift that it has brought towards making conversation a business requirement at the CEO level.


Comments : Leave a Comment »

Categories : Philosophy, Technology

How the media can “clean up the cesspool” itself

5 05 2009

Jim Spanfeller, CEO of Forbes.com and chairman emeritus of the Internet Advertising Bureau, just prodded Google to “help clean up the cesspool” that is the web. Some have already said he’s stumbled into his own cesspool, here’s my reaction.

Spanfeller has two suggestions for Google:

  1. Share the wealth

    Spanfeller suggests that Google makes a stunning $60 million per year directing its users to Forbes.com. This is remarkable since this would mean that Forbes accounted for almost 0.5% of Google’s global revenue base last year!Spanfeller implies that Google makes money whenever a user clicks on Forbes.com through a search for “Forbes” and that Forbes must compete with other marketers for control of its brand in Google. This couldn’t be further from the truth. Google only makes money if a user clicks on a paid keyword on the right-hand side of search results. Searches for Forbes, “Forbes.com” and “Forbes Magazine” don’t reveal any paid keywords. The two paid ads attached to the “Forbes” keyword have been purchased by Forbes itself, so the only way Spanfeller can be correct is if Forbes is spending $60 million/yr. on Google ads.Moreover, the accusation that Spanfeller makes that Google forces Forbes to “buy its brand name” aren’t necessarily true. Google and most networks place restrictions on the general public’s ability to bid on unique brands. Try searching for “Amazon.com” and you will find zero non-Amazon ads because they are forbidden by policy. If Forbes hasn’t made the protected list and that’s causing a problem, then it should simply ask for its brand to be added.Overall, I find it astounding that the CEO of Forbes and a chairman of the IAB does not seem to understand some basic elements of Google’s revenue model. With that said, I am glad that he’s joining the digital community and hope that this and other criticism he’s receiving on PaidContent.org will be seen constructively.

  2. Preferential treatment for “professionally produced” content.

    How this would be accomplished isn’t clear, but I would guess that he probably has in mind something like putting up Forbes headlines on the Google frontpage or highlighting Forbes articles in search results.

This wouldn’t be the first time we’ve heard pleas for cash and content subsidies and I can empathize with their motivation: Google finds what’s popular and not necessarily what’s great.

But fixating upon Google as the only solution to their problems illustrates a fundamental blind spot which traditional media have about search technologies and Google itself. They seem to think that Google controls what people see rather than understanding Google as an algorithm and network that traditional media can use to their own advantage – and Google will help them to do so.

For example, Forbes can easily go over to Google and signup for free Google Custom Search.  This will allow them to use Google technology to search “only the best” content on their website or even on a network of other “professional” sites. For instance,  Forbes could ally itself with US News and World Reports, Newsweek and so forth to create a selective search engine. With this many popular sites linking to the search engine, it will rise relatively quickly in Google PageRank enabling Google to funnel more traffic over to them. Mission accomplished: a solution to the cesspool.

Now, the question is whether or not anybody cares for this solution. I think there is a market that cares. Well-curated blogs already provide this service for readers. Information services like Hoover’s, CapitalIQ and Bloomberg make billions by helping people to find critical information. A question Forbes should ask its readers honestly is whether or not it belongs in that ballpark. Personally, I tend to associate Forbes more with the dubious “10 Best Cities for Young Professionals” type lists than I do with insightful analysis a la The Economist.

What I do hope Spanfeller will come to understand is that Google makes it readily possible for traditional media to take “cleaning up the cesspool” into their own hands and they should do so. Let the market test whether Google is wrong. Better yet, hop a cab it over to Google’s New York headquarters on 15th Street and I’m sure they’ll be glad to help you try the experiment. If they aren’t, then you can talk to Live, Yahoo, Ask, WordPress, Daylife and and a few hundred other companies who would also be happy to help. Heck, you can talk to me and I’ll be happy to help you start cleaning up the cesspool.


Comments : Leave a Comment »

Categories : Media

Bits and pieces on OpenTable and the new CPA

3 05 2009

TechCrunch has an article up today on pre-IPO restaurant reservation platform OpenTable which is spawning lots of vociferous user comments in response to journalist Sarah Lacy’s criticism of OpenTable for not “offering a real consumer service (i.e. Yelp)” and suggesting they should use their IPO money to hire some talented UI designers.

Lacy makes a decent strawman for the naivity of some Silicon Valley pop business journalism but I won’t go there. Instead, her “call for business models” makes a good lead-in for me to discuss the subject of online-to-offline acquisition I think will, someday, be the “next big thing” which most Web 2.0 social start-ups will turn to to save their business model.The problem is that most won’t be equipped with the basic pre-requisites. I’ll speak to those in a bit.

But first, let’s look at OpenTable. I found an excellent article on OpenTable by blogger J. Bryan Scott who clearly loves technology is also also getting a proper education in finance. It contains this powerful table within it:


What’s the key metric? It costs a restaurant 69 cents per diner to book reservations on OpenTable. I think this is incredibly cheap for a CPA acquisition campaign!

OpenTable probably isn’t charging more than 20% of the value it creates for members. Aside from the paying customers you’re getting into seats, consider the benefits of free advertising to millions of users on OpenTable, having a useful IT system to supplant pencil & paper and having access to a post-purchase communications channel directly with the customer in a business where most unhappy diners just walk away and never return.

I believe that implementing an online-to-offline acquisition model will become key for many Web 2.0 start-ups struggling with limited online advertising models. The problem is that most Web 2.0 start-ups lack the pre-requisites for building the CPoA (cost-per-offline-acquisition) + Service model:

  • You need to focus from Day One on inciting action. It doesn’t matter if the site is entertaining, the question asked by customers is will it bring me customers? This is the difference between Yelp and OpenTable. Yelp is a good, but not as great as focused communities like Eater.com, source of information but it sits at the back of the purchasing food chain which runs from awareness -> interest -> choice set -> intent -> purchase -> customer service.
  • You need critical mass in a focused area. Facebook cannot replicate OpenTable’s functionality despite millions more users. The problem is more than just screenspace: there isn’t enough room in members’ minds to see Facebook as the Swiss Army knife of their world. This is why most Facebook Apps failed to get past the You’ve Been Bitted by a Zombie phase: Facebook is for child’s play in author-community investor David Silver’s well-chosen words. This is also why you see Proctor and Gamble owning so many brands of detergant and keeping Tide in the laundry room not the kitchen.
  • You need traveling salesmen who hit the streets, get meetings, attend conferences and sign up customers who will use your solution. Salespeople need lists and a well-defined target market unlike technologies. There are no easy armchair solutions like “search engine marketing” for building an online-to-offline CPA model. Illustration of this in action: Facebook made much of poaching a Google executive whom I happen to know to be “Director of Business Development” then made him “Director of Platform” 10 months later.
  • You need some clunky proprietary solution like a terminal that breaks, customers complain about and is almost certainly not elegant in its UI design. But that dumb box that’s not hooked up to the Cloud is enough for99% of real world business owners and, most importantly, it’s scarce and troublesome to distribute to 8,000 locations. In other words, there are some barriers to entry that a 22 year old programmer can’t leapfrog.

My view is that this business model is applicable to any industry with millions of potential customers, thousands of competitive retailers, product information available online and impediments to customer customer purchase intent like travel time, scarce inventory (or appointment times) and the passing of momentary impulses.

The trouble with this model is, as Lacy identifies, that you have to serve your customers. It’s just that they’re your paying customers who are a lot more difficult to please than Yelpers. That’s probably the reason why OpenTable charges so little: they’re trying to encourage adoption while ensuring that competitors don’t find the profits attractive enough to compete against them in this early stage.


Comments : Leave a Comment »

Categories : E-Commerce, Retail, Strategy, Technology

« Previous Entries