Twitter Results: Duh!! Challenges Abound

Twitter announced its first results as a public company yesterday, and Wall Street did not respond well. I never get caught up in quarter-to-quarter financial results on their own merits, instead preferring to look at the bigger picture.  In all the conversation about Twitter’s financial results, I think their bigger issues are largely being overlooked. This is coming from someone who was early to note Twitter’s potential emergence as an important platform. <pat self on back; rarely do we analysts get something so right.> In early 2008, I wrote a research note entitled “Twitter: The Most Important Platform You’ve Never Heard Of” [full access to Gartner clients only; ping me if you want my original note on the subject].

I still find Twitter a hugely useful, interesting and fun platform.  However, as a business, they have some significant challenges to both growth and monetization.  So, what are those challenges?

  • The out-of-box experience stinks. The learning curve for Twitter is steep, measured in weeks or even months. Only the most committed individuals are willing to go through that steep curve. Finding relevant client software, building follower lists, and identifying interesting people all take way too much time. The industry is littered with good products that had bad out-of-box experiences, names you’ll never remember because they never achieved the market prominence that Twitter has managed to achieve. Compare this with Facebook, where you have a positive experience from almost the moment you sign up, with news and pictures from your family, friends, colleagues and classmates. Twitter’s steps to address this issue have been woefully inadequate. This is not just a home page redesign.
  • You don’t need to be on Twitter. It would be one thing regarding the learning curve if you absolutely had to be on Twitter but except in narrow circumstances, the ordinary person can find what’s on Twitter elsewhere. News outlets routinely mine Twitter for insights and information and present that information to users in a much more consumable fashion. Not everyone needs to drink from the firehose. Even I, an avid Twitter user, probably get more than half of the information contained in my Twitter feed from other sources (Facebook, news outlets, etc .). If you need the absolute real-time feedback that Twitter provides, it’s a must have. If you don’t, it’s not necessary. For example, I urged my parents to be on Facebook (so they could see pictures of their grandkids). My mother, who’s really technologically savvy from way back, has always asked me “should I be on Twitter.” I’ve told her no each and every time she asks.
  • You can take breaks from Twitter. Facebook is an easy browse, usually containing something that’s interesting to me. That’s often how I begin my day, even before getting out of bed. (And I’m not as strange as you’d think, at least with regards to this behavior.) By contrast, Twitter requires an investment of energy and engagement. You don’t get very much from a two minute perusal of your Twitter feed. It’s just too random, full of noise and a small snapshot of a much bigger picture.
  • You don’t get great engagement on Twitter. 140 characters is easy…except if you want to have a conversation. I’ve had some great conversations on my Facebook wall, with dozens of thoughtful responses. The engagements on Twitter are necessarily much shorter, more random, shorter in real-time duration, and generally lack context and history. I’d argue you get interaction on Twitter, not engagement.
  • Twitter’s a lousy platform for advertising. All this and more makes Twitter a lousy platform for advertisers.
    • As with other social platforms, advertising is an intrusion into a conversation. It’s not a natural adjunct, even value-add, as it is with, say, Google search.
    • Twitter doesn’t know that much about me. Facebook has a rich picture of my likes and behaviors. And with Facebook Connect, its information base extends far beyond Facebook’s own walls. Twitter knows what I tweet and retweet, and little more. It makes it almost impossible for Twitter to deliver high value targeted ads.
    • I find it easier to ignore Twitter’s in-stream sponsored tweets than I do Facebook advertising. Facebook ads, precisely because they’re not just in my news feed, stand out from the feed. Now I’m not holding up Facebook advertising as a model of how it’s done. Quite the contrary. I find my Facebook advertising experience almost laughable. But Twitter’s is even worse.
  • Maybe 250 million Twitter users are enough. Metcalfe’s Law, often applied to social networks, posits that the value of a network expands based on the square of its number of users. I’m not going to argue whether or not it’s relevant to social networks, or whether the square is the right multiplier. But for most social networks (e.g., Facebook, LinkedIn), the more people in the network, the largely better it is for that network’s users. I don’t believe that’s the case with Twitter. After a while, more users just equates to more noise. Tweetchats are great when there are small tens of users, just random noise when you get to 50 or more. How many retweets do I need of the same news story or picture of cats? I follow about 6,000 people on Twitter and even ruthlessly putting them into lists and managing my Tweetdeck columns, I know my stream is ultimately a random mess.

I love Twitter and have averaged almost 10 tweets a day for six years. Yeah, I know that’s ridiculous. But therein lies Twitter’s problem. Maybe this is what it is and for all of us, except investors, that’s enough. But will that sustain a business? Maybe, maybe not.

Facebook at 10: I Expect More

Today should be a celebration. Facebook has reached the age of 10. It connects over a billion people. However, as active as I am on Facebook and as much value, and fun, I find from it, I can’t help but be terribly disappointed. I suppose it was inevitable. Monetization (and going public) are harsh mistresses. So, what’s the source of my disappointment? I wanted the social web, not a social site.

I hate to say I saw this one coming. When Facebook went public, listed right there under “risks” in its S-1 registration statement was a note that people conducting social activities on other web sites represented a risk to their business. But I want that to be their business.  I want my social graph to follow me everywhere.  Bringing that graph across all sites should enable all sorts of functionality and value. The problem is that this represents value for us, not Facebook. Monetizing an API is a tough business, certainly more difficult than taking a billion people and monetizing them through advertising. Thus, while Facebook offers Facebook Connect and some sites try to integrate in rich fashion with Facebook and your social graph, this is nowhere as ubiquitous as we all want it to be. And that’s because, plain and simple, Facebook doesn’t make any money that way. The realities of business have hit the ideals of connecting the world’s people. We want to connect them…on our site.

It’s a shame, really. We all want a social web. It would transform our experience, for the better, on most of the web sites we visit on a regular basis. But we’re not going to get that from Facebook. Instead, we get sponsored ads and brand posts and shockingly mis-targeted sidebar advertising. Do we have any chance to get that and, if so, where is it going to come from? Interestingly, we might actually see this connected social web. First, Google and Google +. Don’t laugh. Yeah, no one really uses it. Or do you? Google is actually insinuating Google + into a variety of activities (YouTube, App store, even search) in a way that pushes the social web site to the back but transforms your ordinary activities with social connections. This is a vastly underappreciated move on Google’s part. The other potential? IBM. Again, don’t laugh. Some years ago, fearing Facebook’s control of the social graph, Google launched an initiative called OpenSocial. In typical Google fashion, they lost interest quickly. Fortunately IBM understand the power of an open social graph connecting disparate systems, within and across the enterprise as well as with customers. Thus, IBM has assumed stewardship of the OpenSocial initiative and is actually devoting real resources to it. Starting from the enterprise out is not always a sexy approach to software distribution but it can actually deliver much more complex solutions albeit in longer time frames and with less visibility. But don’t disregard OpenSocial.

Facebook at 10. A remarkable accomplishment. A powerful force. But most of all, a perversion of the real social vision. The next 10 years will be much more exciting.

 

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Why Did Google Buy Nest? More Importantly, Why Didn’t Apple?

Google announced yesterday that it’s buying Nest for $3.2 billion. Almost exactly a year ago, I suggested that home automation perfectly fit the Apple mold, especially given its connection with Nest’s founder and CEO Tony Fadell. So, why did Google end up with Nest and not Apple? Clearly Apple was involved in negotiations yet Fadell ended up going with Google. What can we surmise from that?

At the risk of a gross generalization, I think what we see here is several issues with regards to Apple:

  • Despite conversations about the Apple ecosystem, at its core, Apple is a devices company that builds elegant software to run on those devices. Less elegant, though, are the services that connect the devices. iTunes is stale. (There, I said it.) Its cloud offerings are not really competitive and it struggles with broad-scale integrative software.
  • Apple doesn’t partner well. The music industry still resents Apple’s control over digital music distribution, Apple has been found guilty of collusion in the book selling market, it has met considerable resistance in trying to do to TV what it did with music, and it exerts iron-clad control over its app distribution market.

On the flip side, Google, for all its flaws (and they are many), has a different vision.

  • It sells devices only to force change in markets it wants to see changed (phones, tablets, Cable TV). Instead, it uses its economic largesse to force changes in closed markets.
  • Google partners better. Carriers are delighted to have a free software platform with which to counter Apple’s ecosystem control. I’m not going to go into the anti-competitive things Google does here — that’s a subject for another day — but in the end, companies have a more open playing field in the Google sandbox than in the Apple one.

Why is this important? Well, the marketplace into which Nest is playing is not dissimilar to the cell phone marketplace.  If you’re thinking of Nest as merely a “smart thermostat,” you’re missing the real strategy behind the company and the reason why Google paid so much for a company who has only sold tens of thousands of devices. More interesting about Nest is the relationships it has with power companies.

This is a hugely disruptive play. Think of all the talk about the “smart grid.” To use a computer analogy, the smart grid has been developed to date with a mainframe-like point of view.  Sure, we’ll build intelligence into the network but the intelligence will be centrally oriented, dominated by the utility companies. Nest has a vision of a world where the intelligence is much more distributed and in fact begins with a bottoms-up approach to the market. Begin with adding intelligence to end points in the network and only then can you begin to effectively manage and distribute efficient power solutions so that thinking goes.

That’s what Google’s betting on and that’s why Google was a better fit for Nest.  At the end of the day, Apple wants to sell intelligent devices connected by Apple software solutions. Google, by contrast, wants to build intelligent data-creating ecosystems, selling services around the software and data it collects. And what does Nest represent if not the potential for monetization of the home utility equation. Heck, the thermostat may one day not only be free but the power company will give you, or builders, incentives to include it in homes and offices because the economic value of the information and connectivity dwarfs that of the price you could get by selling the device…to a small subset of the market.

I really thought Nest was going to end up with Apple.  The fact that Google showed the vision to make the acquisition is the most damning thing you can say about Apple’s future prospects and a strong positive for Google. Years from now, we may look back at this moment as a big tipping point.

Microsoft Xbox One: Problem Solved or Major Gaffe?

Last night Microsoft announced that it had changed some of its policies around its forthcoming Xbox One game console that had generated considerable ire in the game console community.  Most notably, Microsoft eliminated the requirement that the console be always connected to the Internet. That requirement and other “features” had created great fear in the gaming community that Microsoft was going to quash the secondary market for its console games, requiring users to buy new games and prohibiting them from sharing their games among friends. I won’t get into the details of what they announced and what changed here — you can Google that — but it’s shocking that Microsoft could get something so terribly wrong that they had to reverse course in less than a week.  Let’s examine possible scenarios:

  1. Microsoft could have really believed this was a good move.  We’re moving towards an always-on environment and Microsoft is not alone in that belief. Just the other week Adobe announced that it would no longer sell packaged versions of its Creative Suite, selling it only by subscription online.  If this is the case, Microsoft somehow managed to miss a few things.  First off, the use profile of a game console is different than the use profile of a high-end business-oriented software suite.  Adobe’s move in no way was a watershed moment.  It was an early move but this vision is not yet universal and so Microsoft’s forcing it early was not well received.  Moreover, if this was their goal, their value proposition for it was, shall we say, lacking.  “Hey, in an always on environment we can deliver you all these neat capabilities.  The first ones require you to use our heretofore optional paid online service and we’re also going to regulate if not eliminate your ability to share and sell games but hey, this is the future.”
  2. Microsoft was trumped by Sony. After Microsoft’s announcement, Sony announced details around their PS4.  PS4 is $100 cheaper and had none of those draconian features that Microsoft proposed.  If Microsoft thought Sony was going to follow their lead, they were badly wrong.  Sony not only offered a solution that had none of Microsoft’s downsides, it did so at a price point $100 cheaper.  Sony not only didn’t follow Microsoft’s lead, they quickly parodied Microsoft‘s sharing restrictions. My son observed that “13 million views had to sting.”
  3. Microsoft thought people would like this. I’m sure they’ve got all sorts of focus group research that said “we really like your direction.”  Maybe they tasked their PR agency with “do a survey with people who will find this strategy palatable.” The sample size was perhaps 17.
  4. Microsoft was planing a “new Coke” scenario. I know this one is really cynical but maybe Microsoft anticipated the reaction and this was done on purpose.  This is a strategy Facebook has used in the past.  Announce something so over the top that the market reaction will be negative.  You can then backpedal, saying “we’ve listened to the voice of the customer.” In this scenario, you assume customers are going to balk on any changes so you purposefully announce something over the top so that when you back up, you’re still ahead of where you were before you made the announcement.  I’d consider this a plausible scenario except for the back that Microsoft basically backpedaled to where they were before they made the ill-founded announcement.

You might say “no harm, no foul.” Microsoft backpedaled fast enough that by the time the consoles come on the market, closer to the holiday season, this will all be forgotten. I believe, however, Microsoft has done itself some permanent damage here.  If you read your license agreements (and I suggest you do…if you suffer from insomnia”, Microsoft (and typically all vendors) reserve the rights to make unilateral changes in their licensing terms. Bottom line, Microsoft has always had the ability to impose these changes on their users, even post-sale.  Nobody worries about these things here because they always think “Microsoft wouldn’t be so stupid as to do something that would slaughter their value proposition.”  Well, now you’re thinking “maybe they would.” Sure, they backed off when it became clear they were getting slaughtered but do you think Microsoft has abandoned the approach or merely postponed driving it into their customers? Losing trust in your vendor is a very dangerous position and Microsoft may just have crossed that line. Maybe by beckpedaling they’ve closed ranks with their user base. But I don’t think so.  This one will be fun to watch.

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I Don’t Care About Google Glass. But Augmented Reality Makes Reality a Read/Write Medium.

Google Glass is in the wild and reviews are beginning to flow in.  They range from blogger Robert Scoble’s claim that “I will never live a day of my life from now on without it (or a competitor)” to some pundits already describing it as a failure.  Truth be told, I don’t care about Google Glass.

Why not?  This used to be what we called a portable computer.

I carried one of these things.  It weighed about 26 pounds.  It’s one reason I needed rotator cuff surgery on my shoulder a few years ago.  Or this.

That’s then-Apple CEO John Sculley proudly holding up a Newton 20 years ago.

If we judged the future of laptops on the basis of this Compaq or the future smartphones and tablets on the basis of the Newton, how stupid would we be looking today?  The original Compaq and the Newton could charitably be called “proofs of concept.”  Less charitably, they were devices that appealed to the (very) early adopter.  (Does it surprise you that I had both of these devices, and even the Compaq’s spiritual predecessor, the Osborne 1. I once got out of jury duty because I had one of these with me in the jury box when it was time to be interviewed.)

This is how I view Google Glass, no pun intended.  Note, I have not tried Google Glass and I’ve only talked to one person who has actually used the glasses.  (He was underwhelmed.)  But I don’t need to.  Google Glass is not the present, it’s the future.  That future, more broadly, is something called “augmented reality.”  Broadly speaking, I think of augmented reality as the blurring of the lines between the physical and the digital.  This is already more prevalent than you think.  If you’re a sports fan, you’re probably already familiar with the first down line superimposed on the football field.  You’re smart enough to know that one isn’t real.  But watch a Fox baseball broadcast.  That advertising signage behind home plate?  The people in the stadium don’t see that one.

Already there are smartphone apps that will display on screen images mixed from the camera and sources on the Internet.  For instance, apps I have will point you to the nearest subway stop or will identify restaurants and other points of interest where you’re looking.  Six years before introducing the Newton, Apple produced a video called the Knowledge Navigator.  It’s a 5:46 tour de force of where technology would head, and still is headed.  If you’ve never watched the video, watch it now.  Go ahead.  I’ll wait.

Now let your imagination run wild.  Imagine that kind of software solution with a video projection system that presented relevant information to you in a heads-up display kind of fashion or on your glasses.  Or, if we’re looking 20 years out, integrated into your retina or optic nerve.  I kid you not.  Think of the use cases.  You don’t remember a person’s name?  That’s a thing of the past.  I now have plug-ins for my email that show me the recent tweets or Facebook posts from the mail’s sender.  I’d love to have that displayed when I’m actually talking to you.  How many times have you been talking about something and gone “what’s the name of that movie?” or “when did Apple introduce that Newton?”  Pilots already use heads-up displays so they can get critical information without taking their eyes away from what’s outside.  Already there are games for your smartphone that insert geo-located objects into your phone display. And looking at your cell phone while walking is such a risky behavior that there are a variety of solutions to help you do that more safely, from the serious to the frivolous.

So let’s not judge Google Glass as a serious product.  I’m not saying I wouldn’t try it.  Maybe even like Scoble, I’d never go another day without wearing this.  Keep in mind, I’m the guy who five years ago used to wear “projector glasses” on airplanes so I could watch my own movies.  Unlike Google Glass, these were big, heavy, wrap around glasses that contained VGA screens.  You’d hook it up to your portable media player and watch movies that way.  The glasses were sufficiently heavy that if you wanted to watch anything longer than a YouTube video, you basically had to tilt your head backwards at an angle so the glasses wouldn’t slide down.  By the end of a movie, I’d be reclined around 45 degrees.  Here we are five years after that watching movies on tablets and, very soon, on flexible portable screens.

The use cases for augmented reality are myriad, and compelling.  Google Glass won’t be the product that gets us to realize that potential.  It may even prove to be the product that gets us to laugh at the potential.  But 20 years from now, we’ll laugh at the quaintness of that early effort, 10 years from now we’ll wonder how anyone could ever doubt the category and five years from now, we early adopters will all be embracing various forms of augmented reality.    If Apple had done this (and they will some day), people would be tripping over themselves to laud their vision.  Google’s track record of “the next big thing” is slightly more tarnished (to say the least), so it’s much easier to ridicule them and dismiss Glass.  Don’t.  This is our future, and the future is nearer than you think.

I attended an Augmented Reality meetup in New York last week and the line of the night was that augmented reality makes reality a read/write medium.  Think about that one.

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Stamford Startup Weekend: Random Thoughts

I spent almost all of my waking hours this past weekend at the Stamford Innovation Center serving as a mentor during their Startup Weekend.  The concept was started by a non-profit in Seattle and last year, over 400 weekends were held in over 100 countries.  Here’s how they describe the idea:

Anyone is welcome to pitch their startup idea and receive feedback from their peers. Teams organically form around the top ideas (as determined by popular vote) and then it’s a 54 hour frenzy of business model creation, coding, designing, and market validation. The weekends culminate with presentations in front of local entrepreneurial leaders with another opportunity for critical feedback.

I’m guessing around 25 people presented Friday night, 10 ideas were selected for work over the weekend and four winners were selected Sunday night.  I’ve now done this a few time and after spending all this time with these entrepreneurs  budding entrepreneurs and entrepreneur wannabes, I walked away from the weekend with a variety of random observations.  I’m not going to so much opine on the idea presented — some were really great, some were pedestrian and some were just strange — but rather hopefully I’ll provide some insights to help the next roster of weekend participants. For me, I know it’s politically correct to talk about giving back to the community and mentoring the next generation but the truth of the matter is that no matter why you’re here, you’ll get more than you give.  I came away with new ideas, new energy and new friends.

If you’re wondering whether this is something you should do, my answer is an unequivocal and enthusiastic YES.  Seeing the progress in 54 hours from loosely formed idea to final presentation to the judges shows just how much you can get done in a short time when you focus.  Where else in a weekend can you get:

  • A team of people to help you build your company,
  • Test an idea with a diverse set of experts and fellow entrepreneurs,
  • Build a prototype or even start coding,
  • Iterate, pivot, change, enhance, improve, and improve some more,
  • Get a logo (from the wonderful father and son team of Alex and Ryan Virvo of the Gorilla Agency),
  • Find your calling (some people came not to present ideas but to find a team to work on), and
  • Make new friends.

While inspired by the Startup Weekend, the insights below are really relevant to everyone, startup to Fortune 10.  Herewith some observations:

  • Presentation skills matter.  Back in my Gartner days, we asked attendees to rate presenters on quality of presentation skills vs. quality of content.  With extremely rare exceptions, if you presented well, clients thought your ideas were great.  If you presented poorly, even using the exact same material, clients thought your ideas were poor.  It’s clearly not my issue but presenters throughout the weekend had problems with volume.  If I can’t even hear you, you’re already out of the running.  Don’t read your speech.  Unless you’re Presidential candidate good, reading is devoid of passion, spontaneity and confidence.  If you’re not confident in your message, I’m not going to be.  Almost as bad, don’t read your PowerPoint.  Your audience is capable of reading; complement your PowerPoint slides. But don’t put so many words on your PowerPoint slides that I’m reading the slide and not listening to you.  There are teams that I still don’t know what they do, not because they have complicated ideas but because, even with a microphone, I couldn’t hear their words.
  • Tell a story.  Entrepreneurs love talking about features and functions.  To the rest of the world, that’s dreadfully boring. Instead, imagine you’re a story teller.  What are the elements of a good story:  an antagonist, a protagonist, a problem and a solution. The good guy wins. Capture my attention with a problem before you go into a solution.  It’s not good if you’re trying to solve a problem no one has. I always adhere to a simple rule:  no matter how good you are, the audience is only going to take away three things from your presentation.  Make sure you’re always bridging back to those three points.  What’s the problem you’re solving, how big is that problem and what makes someone believe you’re the one who can solve that problem. And when it comes to Q&A, it sounds funny but don’t answer the question.  Understand the questioner’s real objective — to throw you off course — and use each and every question as an opportunity to bridge back to one of your key points.  Imagine that one of  your key points is “we’ve got a seasoned team.” Someone asks you “can’t Google put you out of business tomorrow?”  If you actually answer the question, your two choices are bad.  “Yes” isn’t actually awe-inspiring and if you believe “no,” you’re kidding yourself (and showing yourself as out of touch to the questioner).  Instead, what if you went “for a lot of people, that would be a real challenge but we’ve got a seasoned management team who has been through this before and we successfully navigated those waters with one IPO and two acquisitions.”  Notice, I never answered the question.  Instead, I bridged back to my talking point.  I spent some amount of teams trying to focus their pitches.  They were down in the weeds – way down in the weeds — and the challenge was to elevate features and functions to a story.
  • Listening skills. There’s an old maxim, “no one ever learned anything while their lips were moving.”  There are probably some ideas out there that are so good that they don’t need any further insights.  I’ve never heard any of them.  Instead, once someone understands your idea, stop convincing and start listening.  You want to encourage feedback, not challenge observations.  Sure, if someone has something way wrong, you should figure out how to address that issue (and how it is you led them to this wrong conclusion) but for the most part, there are credible alternative positions and you’ll be better if you intimately understand the objections of your target customers and partners, rather than trying to stifle and silence them.  I was in one three-person conversation and the entrepreneur spoke approximately 18 of the 20 minutes we “talked.” Not surprisingly, his project didn’t make it to the weekend round.  And if it had, you can get his would not have been one of the teams I sought out to help…if indeed he could have maintained the team through the weekend.  (Teams do suffer departures, defections to other teams and even occasionally they spawn other takes on the original business problem.)
  • Understand your business. The winning entry, ArtGoGo is not an art marketplace but rather an initiative that is aiming to ease the path to market of starting artists, better democratize the art acquisition process and address some real market inequities.  Do you realize that gallery commissions for many artists are 60% or more of the purchase price of the artwork?  The person in the $2,000 suit gets 60% of the selling price.  The person in the $30 jeans who spent three months actually making the art gets 40%.  Understanding your real business will help inform your business and open up natural extensions to your original idea.  Another winner, Secure Your Own Device, doesn’t offer security software.  Instead, they make it easy for you and your kids to remain safe from real threats. Some of this goes back to the storytelling point.  You’re not just a product or a service. Instead, you’re solving a real customer problem.  That’s the objective of your business.  The product or service is merely a vehicle for accomplishing that objective…and in the future, you may discover you have more ways to do that.  My favorite example of this is Hallmark greeting cards. Over five years ago, I had a meeting with them and they revealed that their market kept shrinking (duh!) and the average age of a card buyer kept going up (then around 62).  Following that trend line, their last customer will die some time in 2023.  I asked a simple question, or so we all thought.  “What business are you in?” Their (wrong) answer was “greeting cards.” I said “you’re actually in the gift conveyance or milestone celebration event.”  Hallmark’s revenue last year was right around $4 billion.  The total affiliate marketing industry last year was right around $4 billion.  Guess whose number is growing and whose is declining.  And how much bigger might that number have been if Hallmark had gotten behind it instead of leaving it to a series of companies most of you have never heard of. The fourth place winner of the Weekend was a team called CartWheel whose whole idea was to enable companies to collect a portion of the affiliate fees generated by employees who shop via their corporate networks.
  • Horse vs. Jockey. It’s an age-old issue:  in a competition like this (or when seeking a funding round), are people betting on the horse (your idea) or the jockey (you and your team).  No idea is so good that a bad team can’t screw it up. Yes, you want your idea to be as compelling as possible but if you’re not thinking about how you convince your audience (here, a judge, sometimes a VC, a potential customer, supplier or partner) that you’re someone I want to do business with/bet on, you haven’t completed the job.
  • Make Your Market Sound Big. I actually talked with one guy who said his total market size was $1 million (small) and that $800,000 of the market was already spoken for (saturated). I was waiting for the “here’s how, why and when the market’s going to grow” but it never came.  Needless to say, he didn’t make it to Saturday.  The ArtGoGo people started talking about how 90% of all artists basically sell nothing.  Not helping your case!  Instead, talk about how many people buy art (millions), the size of the high end market ($billions) and now I’m starting to see dollar signs.  Give people confidence you’re addressing a large market and that you understand the parameters of that market.  “My friend the starving artist thought this was a good idea” is not a market-validating input.
  • CompetitionAll too often people answer that one with “none.” This is not a good answer!  If no one else sees the opportunity you’re seeing, it’s possible that you’ve identified an untapped market.  It’s much more likely, however, that seven people have tried to do what you’re doing and have failed miserably and that there are three others who are doing exactly what you’re doing and you’d better relentlessly out-execute them.  You do have competition.  Even if it’s just inertia behind an existing approach.  Make sure you understand it. Related to this is the notion of the first-mover advantage. I’m still waiting for someone to give me a compelling example of that.  Microsoft was in tablets and smartphones before Apple.  How’s that working out?  More often it’s a first mover disadvantage. The fast follower can learn from your mistakes, better time the market and capitalize on your first move.  Competition is good. Show how you’ve learned from it and how you can win the competition.

If you’re a budding entrepreneur (of any age), a startup weekend is a great vehicle to take a fledgling idea from concept to concrete in a weekend.  So many of these things languish as “in my spare time” or “maybe next year” projects.  Most I’m sure never go anywhere.  Getting this much value and making this much progress in a single weekend is an incredible experience.  One of these days maybe I’ll propose an idea.  In the interim, being a mentor was a great experience.  I met some really interesting people, helped a few, learned a lot, had some fun and had some beer.  And best of all, when I went up afterwards to congratulate the winner, she asked me “could I hug you?” That’s better than any money I could have gotten over the weekend.  Sort of.

Taking the Social Revolution Back From the Marketers

Facebook recently bought Microsoft’s advertising platform, Atlas, as it seeks to offer greater functionality and insights to its advertisers.  This was a subject of great discussion in the Internet Oldtimers  group of which I’m a member.  Friend and fellow member Tom Cunniff made a provocative statement which encouraged me to respond. While the rules of the group are “what happens on the list stays on the list” — we are free to talk “out of school” — Tom was gracious enough to let me reprint our exchange here. (By the way, if you’re an advertiser or publisher looking for deep insights into the whole advertising space, on- and offline, Tom is your man.)

Tom:

According to CNET, “The deal could help Facebook develop its own one-stop shop for advertisers and agencies to buy, sell, optimize, and track ads across the Web. The idea is to help Facebook give marketers tools to target ads based on social habits that it captures, and to better understand how social activity influences consumer purchases. (…)

The expectation (is) that Facebook will create an ad network that lets it sell ads outside of (FB). Facebook is already plugged into tons of Web sites through Facebook Connect, and each time people share or “like” an item on a site, Facebook’s data trove gets a little bigger. Facebook can connect that data with the information from within Facebook — the social graph — to create a social ad network that is potentially more effective than Google’s AdSense.”

Personally I don’t believe social activity influences consumer purchases much at all. It has value, but no more or less than a billboard: it’s drive-by media.

Boy, that last line got my blood boiling.  So I responded:

Tom, you’re absolutely right and you’re completely wrong.  And we’re about to ignite a debate that should get us a keynote at ad-tech or even better.  :)

You’re right that  today’s social activity doesn’t influence much consumer behavior.  Even worse than the drive-by billboard — that has some value — it’s more like somebody giving you the hard commercial pitch during your cocktail party.  Not only do you not want to hear it, it probably produces some negative brand value.  Marketers may be able to gain some deep insights but, channeling my inner Nassim Taleb, I’m not sure that this increased data produces improved selling.  But that’s a discussion for another day.

But here’s where you’re wrong.  I have believed for a long time now, over five years, that the ultimate expression of the social revolution is that the consumer will gain increased power.   Today’s consumer is largely at the mercy of marketers.  The marketers have all the goods, all the insights, all the power.  And how are they using that?  Among other things, price discrimination.  There used to be things we all saw (largely) the same price on — things at the supermarket, things in the department store — and things that we all saw (largely) different prices on (cars, hotels, airlines).  There was some price discrimination — the same item might cost different at Neiman Marcus and Walmart — but many things were very similarly priced.  Now, with the “advances” of online, the things that were priced differently are being driven closer together while paradoxically the things that were priced similarly are now being priced differently.
As to the latter, we’ve seen the recent exposes that Amazon, Staples and many others charge different prices based on competitive calculations.  The price you see likely isn’t the price I’ll see.  But I don’t think that’s durable.  Look at what’s happening to those items that were priced differently. Take cars.  I can’t vouch for the accuracy of the data (or my memory) but in the pre-Internet days something like half of all cars were sold at sticker price.  You didn’t know what someone else paid for the same car and dealers were able to exploit that lack of information.  Now the price you pay for a car is much more close to that which another person pays and some manufacturers are even dabbling with no-haggle pricing, basically saying you’ve got enough market information that you’re going to be able to negotiate effectively and therefore we’ll just bake that realization into our whole approach to pricing.  Take hotels and airfares.  Some of the booking engines will automatically give you a lower price if someone else makes a reservation at that price.  There are whole web sites now devoted to this kind of thing.  Yapta’s one and while I can’t remember it, there’s one hotel site that has you send them your reservation and they’ll actually shop it around to get you a lower rate.
I think the real power of the social revolution is that it will actually give consumers a more equal footing.  We’ll have more information and while the marketers won’t get the value of their increased information, because they’re asymptoting to no more value, we’re still on the steep part of the curve.  In fact, I believe this is where the “Facebook killer” will come from.  Facebook had an opportunity to be the champion of the individual as contrasted with Google’s championing of the marketer.  But they made the easy monetization choice and cast their lot with the advertisers.  Someone’s going to step into that role.  It could be a visionary startup.  If I were Steve Ballmer at Microsoft, thinking I’ve missed the social revolution, I might make that play, hedging bets with their Facebook relationship/investment.  It could even be someone like IBM, effectively an arms dealer equipping both sides of the battle.  They’re actually the leading player in the whole Open Social movement these days, taking over when Google inevitably lost interest. (It didn’t rule the world in the first 72 hours.)
Tom:

In my opinion, we routinely make the mistake of confusing direct response (DR) with brand marketing and try to make them the same. But, they are fundamentally different.All the pricing stuff you referenced is absolutely right in commerce but doesn’t have much at all to do with brands. In a transaction, more information is almost always a good thing — “you can buy the same thing across the street for less” is literally worth something to know.In a brand relationship, more information is often neutral or even slightly negative (“yeah, I know you prefer jalapeno ketchup but I hate jalapeno so…”).There are many things in our life that are not a considered purchase, and that’s actually an *awesome* thing. I can walk around the supermarket tossing stuff in the basket without thinking about it. I can either zone out — “hmm, with a better drum track this Muzak version of Live and Let Die would be really good” — or I can invest my time in thinking about something else.

In social, there’s this weird illusion that because Jonathan “likes” jalapeno ketchup his friends will somehow “like” it too, because he’s an influencer. But the reality is that at best — at the very best — a friend who hasn’t had jalapeno ketchup in awhile might see that you “liked” the brand and think “what the hell, I’ll pick up a bottle”.

Again, I’m not saying this has zero value. It just doesn’t have much more value than a billboard. It’s drive-by media.

Me:
I’ll accept your premise that DR and brand marketing are different, or at least that’s an argument for another day.  I could be provocative and say we’re getting closer to that thing to which every brand marketer pays lip service to but secretly laughs at:  your brand is what your customer says it is.  I believe that to a point but for the sake of this argument, I want to go in another direction.
Where I want to go is declaring that social/big data/mobile is moving us towards a world where DR components are increasingly prominent.  In the good old days, I was a loyal United customer.  Now I’ve got price comparison ability, unbundled services and shared experiences and what before was a brand/loyalty purchase is  +today, for me, much more of a DR-like transaction.  The “loyalty” programs are being devalued and instead we have new loyalty providers.  I get my points less from an airline or a hotel but from a credit card or from Founders Card, effectively a collection of like-minded customers who have banded together to achieve collective economic power that may not have been available to us individually.  We’re growing more DR-like and the brands we’re loyal to are those who aggregate our clout across the brands to which we once might have been loyal.
Tom:

The idea of brand loyalty was largely cooked up by ad agencies and embraced by marketers who want to believe it.In reality, in nearly every product or service category there are two or three “acceptable” brands a consumer might buy. Most customers have a preference, but can easily be swayed by a coupon or other offer.

More than anything, your brand is the product. Apple isn’t cool because of its ads — its ads have been cool because the products have been cool. The iPhone and iPad launch ads were basically product demos. Here’s the product and a hand using it, on a white background. And some cool music.

The closer a brand’s products are to being a commodity, the harder it is for advertising to differentiate them and the lower brand loyalty is.

But I would argue that the real reasons deals are becoming more prevalent are because:
A) that’s what marketers were erroneously taught that this is what “digital best practices” are; and
B) most companies over the past three decades have become much better at taking costs out of products than at putting innovation into them.

Tom again:

More than anything, my argument rests on efficiency — both for the marketer and the consumer.Let’s start with marketers. There is no doubt that word of mouth is effective, and that social media mentions have value (even as drive-by media). The question for marketers: what is the most efficient way to generate this?

I would argue that the two most efficient tools to generate these are:
1) Superior products; and
2) Mass marketing

Consider Apple vs. Dell. Apple has invested zero in social media. ZERO. Dell has been a poster child as an early adopter of social media.

Apple has invested heavily in creating superior products and in mass marketing. Dell has invested heavily in social media.

Which brand has more positive word of mouth and social media mentions?

Now, let’s consider consumers. There is no doubt that there are more ways than ever to research products, and that advertising is generally viewed with skepticism and sometimes derision.

However…

Deeply researching only those products that are in your kitchen would take a large number of hours for scant return. It’s just not efficient. So, how do we choose? We know what the big brands are because they advertise — which also ensures they are the ones we can easily buy at our local store. All of these brands have some sort of reputation, good or bad.

Typically, a quotidian purchase gets very little consideration at all. And this is *good*. The downside risk of choosing the wrong brand is scant, and the upside reward of choosing a better brand at the supermarket is marginal at best.

This flips *entirely* for high-consideration purchases. Trust me when I tell you my wife and I researched our new kitchen appliances to death. Same for our car, same for travel. Why? There was big upside to getting it right and big downside to getting it wrong.

Despite all this, a problem for Facebook — and for all of social media — is that there’s only so much consumers can hear before they stick their fingers in their ears. Personally, the more people I follow on Twitter, the more unusable it gets. The more feeds in my RSS reader, the more unusable it gets.

Attention is scant, and fragmented. On a fundamental level, I get that being “always on” makes it more likely that a customer will randomly bump into my message. But when everyone is “always on” it’s also damned noisy.

The final word
It’s my blog.  I get the last word. :)  Tom and I perhaps agree more than we disagree.  The current forms of “social advertising” are fundamentally flawed.  The reason why Google is so wildly profitable is that its advertising space is highly contextual.  When I search, the fact that someone will actually pay to put their message in front of me means they think they have something to offer to me.  In a social context, you may have great information about me but the context is wrong.  I’m not on Facebook to be advertised to.  Advertisers are not enhancing my social interactions.  We’re still years away from it but I believe the social revolution will flip the relationship between marketers and customers in profound ways.  But that’s enough for today.
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