I’m always fascinated by business models, i.e. at how entrepreneurs and companies put together services in order to make money from them. I’d call it the source code of business if I hadn’t seen the other source code in Luxembourg —legal and accounting—but arguably that’s more like binary code, i.e. 99% unintelligible.

Sarah Lacy writes about SMSONE, a ultra-local news provider in India similar to Outside.IN, a Union Square Ventures funded US-only company that provides news updates via the web. SMSONE does it, as the name suggests, via SMS. And it spreads through a franchising model, working with local entrepreneurs that pay a franchise fee and also collect a share of the advertising revenue from locally focussed businesses. It is able to do this because of something that apparently doesn’t exist in the US (but does in Europe): receiving an SMS in India doesn’t cost the recipient anything.

When reading about this, I was immediately reminded of a similar business model employed by a Dutch entrepreneur in Russia, Ms. Annemarie van Gaal, founder of Independent Media, a company that distributed Russian versions of magazines like Cosmopolitan, Marie Claire en Good Housekeeping (source). When she spoke at the Star entrepreneurial seminar in Rotterdam a year ago, she told us about how she differentiated herself from the competition (paraphrased as I haven’t got my notes with me):

The trouble with getting your magazines distributed in Russia was that you had to pay quite a lot of money (some would call it bribes) to companies that would then take care of it… badly. Instead van Gaal decided to do it differently. She would hire street kids to distribute her magazines, similar to the gold days of newspapers: the newspaper boy.

If you read Sarah Lacy’s account on Techcrunch, you’ll see that SMSONE does it similarly, hiring local kids, often without much education, to take care of distribution. Doing it via official channels is likely a nightmare over there, and centralising distribution kind of defeats the purpose of micro-news.

It’s a different way of thinking, which many of us westerners don’t have. I mean, would you entrust your products to a beggar on the street or to a street musician? Not only is it probably against the law (except if the government does it), we pride ourselves on our super-organised infrastructure, where anything from temp-workers to interns are there to provide companies with a flexible workforce, and anything from printing presses to mobile internet exists to produce and distribute your stuff.

Of course, I wouldn’t just leave you with these two examples. In the beginning of 2008, Boston Consulting Group published a study of “local dynamos”— domestically focussed companies, which use creative business models to capture value from emerging markets that are filled with challenges, like lacking infrastructure and low-income consumers. The map below shows how widespread these companies are.

Some very interesting examples are mentioned, like:

• Shanda, a Chinese gaming-company, that, in order to combat software-piracy, focusses on providing interactive services through gaming, services that are impossible to pirate. And to overcome a lack of a financial infrastructure to pay for online services, they work with pre-paid cards.
• Indian CavinKare, which sells cheap sachets of shampoo through small local retailers, while using educational marketing to teach customers how to use their products.
• Goodbaby, which targets the many 1-child families in China, who are both willing to spend more on their child than multi-child families would, but are also in need of education.
• Amul, an Indian food-and-beverage-marketing-organisation, which collects and pays for milk locally, while tracking all operations via satellite and uses ERP solutions to make analysis based on the data and gauge whether future supply needs to be increased or decreased.
• Wimm-Bill-Dann Foods (Russia), which works extensively with local partners, and has devised leasing schemes for expensive machinery to boost their production and is able to serve 280 million consumers nation-wide.

The BCG, of course, takes the stance of its customers, Western companies, and the study is mainly aimed at how multinational companies (MNCs) can replicate 6 of these dynamo’s advantages, in order to compete with them. They are:

1. Customising to local needs – which involves first understanding these needs, and then meeting them.
2. Devising innovative business models that overcome local challenges – a logical follow-up to the last point, how to make money from the info you gained.
3. Leveraging the latest technologies – meaning that these emerging economies are less burdened with traditional infrastructure and quicker on the uptake of more affordable, newer, and easier-to-spread technology, e.g. mobiles.
4. Benefiting from low-cost labor and overcoming shortages of skilled labor – there’s two ways to look at this; a local workforce will be better equipped to interact on a local level, a highly-trained workforce will be better equipped to run a business. Tough call.
5. Scaling up fast – Russia, India, China, Brazil, etc. are all giants with the promise of huge rewards when you capture them. Many of these dynamos grow quickly through both through acquisitions and building up their network of suppliers and distributors.
6. Sustaining long-term hypergrowth without imploding – this kind of follows on to the last point

Some of the Western companies mentioned, which have managed to compete on a local level, include:

• General Motors, which has adapted its luxury-liners to meet the demands of its Chinese customers, who are usually sitting in the back;
• LG, in China, which has learned that the audio-quality of its televisions is more valued by its customers, who often reside in noisy environments;
• Carrefour, which has started to work with local municipal governments in China, as these don’t meddle in their operations like local dept. stores would, and are able to provide access to prime locations;
• Perfetti Van Melle, in India, a candle/chewing-gum manufacturer, which has found local means to advertise, interacts frequently with local partners, and has adapted its products to local tastes;
• and Yum! Brands, which owns Pizza Hut and KFC, and has adapted its menus to meet local Chinese tastes, started a new food-chain aimed specifically at the market, and uses its international expertise to integrate IT, lean supply chains, and a higher level of food standards into their offering.

It shows the value of out of the box thinking in terms of reaching people, and I believe that traditional “Western” thinking should long ago have been thrown out the door anyway, particularly in light of the troubles that media-, automotive, and financial industries are going through. We are in the flux of disruptive innovation and only those quickest to grasp new technologies and ways of thinking are able to survive another day.

No shortage of lessons on that from entrepreneurs in emerging economies…

Vincent out

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I think I must be a geek because I like creating order (that doesn’t automatically mean that I’m a very orderly person, rather the opposite).

One of my first priorities in my new position was to orientate myself in the “order” of things, or rather to have a good view on what the process from customer generation to customer acquisition is (my interpretation of the lifeblood of every company).

So my questions, very formal, covered following three elements:

• what is the profile of a customer most valuable to our company?
• what are the USPs of our company for these customers?
• what is the process of converting potential customers into actual customers?

The answer was that there is no simple answer to the question, except that over time I would learn to understand what was possible or not.

It kind of follows the paradigm that the famous Harvard Business Review article called “The Knowledge-Creating Company” introduces, where experts possess a lot of tacit knowledge, which they use to do their job (Incidentally, the HBR-article is authored by Ikujiro Nonaka and Hirotaka Takeuchi, who are the original protagonists of the Scrum approach).

In other words, over time, by accumulating experience, I would be able to develop a type of instinct regarding stuff like what a good customer is, what optimal solution is for him, and how the internal process works of customer conversion.

But the article takes it further (and is also my inspiration) in that from tacit or implicit you move to explicit knowledge, meaning that processes are documented and standardised. A kind of spiral forms, indicated in the picture below. This also reminds of Gerber’s franchise methodology in the E-Myth Revisited.

The question is what internal and environmental conditions have to exist for this spiral to function properly, and whether it can be applied universally to all company processes. I do not think so and would ague that in environments that are constantly changing, like global finance or when starting a company, making things too explicit undermines the speed-advantage that the tacit approach brings.

A little academic perhaps (you know me… ), but what do you think? What company processes typically need to be made explicit, and which are not served by this?

Vincent

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Probably not a mainstream user

Now, my list is not scientific at all, and is, as usual, meant to be the start of a conversation. What I would do to make it scientific however, is as follows:

1. Talk to experts (hello there, experts )
2. Based on expert-input, design a survey that measures preferences per demographic (gender, age, spending-behaviour, etc.).
3. Advertise that survey on an industry-specific website (Alternatively: use survey to interview people face-to-face during an industry-specific event. Works well as a combo, the first being quantitative, the second qualitative.)
4. Process data into user-achetypes (and expected ratios).

In web-apps, by which I mean a web-utitlity like Facebook of Netvibes, I’m curious as to both the archetypes and, later on, how to deal with them. Generally, you of course have the early adopter and the mainstream one, which, I know, should be catered too differently.

Following is a list of the ones that I would expect to play a role.

• The money-maker: This is typically the most pragmatic of the group, cares about results, speed, and task-specific information, but not so much about elegance and useless information.
• The (early) geek: This, at the risk of generalising, is very much the Digg-, Techcrunch-, and Engadget-audience, by which I mean the typical commentator on those sites. They ask for feature, after feature, after feature, and often ask for too many of them. I call them “early” geeks, because I expect them to be rather young.
• The newbie: This is not the loudest of users, and tend to accept that which they get (as long as the quality is ok). I’m thinking people that use PCs with Vista-home pre-installed. I think that these are also pretty hard to reach with niche-apps.
• The specialist geek: I’m thinking photographers or writers, who have very specific demands of what an app should do and also a certain aesthetic demand. This would be more the Macbook Pro / Photoshop audience. Whether these are a large segment in the web-apps category, I’m not sure. I would expect that these apps don’t really meet with their approval, most of all because they are often free.

What do you think? Were there any archetypes that I missed or is the reality much simpler? (How) do you find out what the user-archetypes for your apps are?

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Let me start by saying that we are passed the age of positioning, a concept that was pioneered as the 5th P, by the authors Ries & Trout of the book, fittingly called “Positioning: The Battle for Your Mind” Rather I think we are in the age of 2 C’s: Conversation & Customisation. Before I explain, I’ll briefly summarise my thoughts about the book in the next few paragraphs.

Book thoughts

What is positioning? It is

the art and science of creating positions in a targets mind, something “that takes into consideration not only a company’s own strengths and weaknesses, but those of its competitors as well.”

“Positioning” is neither a bad, nor an irrelevant book. Jeremy Fain gave it a favourable review a while ago, which inspired me to give it a read. Some things I immediately liked were its thinness (213 pages) and a very effective table of contents—every item has a short paragraph underneath it, shortly summarising that chapter. The book is also a pleasure to read, written in a flowing fashion and using effective titles that make you curious about what’s next.

The book itself points out that marketing has evolved in stages, determined by both our understanding of customers, but also by our competitors’ understanding and subsequent copycat-strategies. A marketing-strategy is only effective if it comes through clearly and isn’t diffused by too much noise.

In the 50s, according to the book, marketing was focussed on products, i.e. marketing your better mousetrap. As production-techniques evolved and more mousetraps were produced, that became increasingly difficult. This was followed by the image-era, where the focus was on brand and reputation. Again, as competitors caught on, the noise-level eventually decreased the ROI of that strategy. Now, the book (originally published in 1985, republished in 2001) states, we are in the positioning era, which is about “getting in the consumer’s mind.”

True, but clearly companies have had two decades to perfect and clone best-in-class strategies, so what’s next?

2 other C’s – Customisation & Conversation

Focussing on product features, on brand-image, and now positioning, is clearly something that won’t lose in relevance anytime soon. Nothing good in marketing ever disappears, but rather the marketing-mesh becomes ever more complex, integrating what came before into more comprehensive, more complete value-propositons. If I come up with more words starting with ‘C,’ I can probably write a book about it . Remember, there’s also the 4 C’s of positioning: confidence, clarity, continuity, and competitiveness.

What struck me about the book was that it seemed to describe a one-way strategy for interacting with customers. It wasn’t one-way with the competition, rather the book advises to actively combat other companies through your messages—e.g. “Avis is No. 2 in rent-a-cars, so why go with us? We try harder!“—and even change your brand-name if it makes sense—e.g. when B. F. Goodrich (a company I never heard of) makes a tire, it is actually Goodyear that get most of the PR benefits, so why not change the name? The book’s tagline is “The battle for the mind,” yet that battle only takes place within a competitive environment.

Now, I’m not saying to ignore the competition, but the book does ignore the relationship that can be built up with customers these days. In a recent interview, Jason Fried of 37Signals, said that the company a. doesn’t market, and b. doesn’t really focus on the competition. I hate to bring up that little company every time, but it just has some great attributes.

There are two facets of today’s society that make a significant marketing-difference, as far as I can see. One is that it becomes increasingly easier to customise products. From just-in-time / lean manufacturing techniques in the factory, to agile development techniques, quick prototyping and market-testing in software, the argument for creating static one-size-fits-all products becomes less and less relevant.

The second is that there is a bottom-up media-explosion. Everyone is a journalist, everyone has a voice. Now that is certainly a science that still has to be perfected, but when I see initiatives like Getsatisfaction.com for software, and Dell Ideastorm, it certainly gives me hope.

Using these two effectively can be a differentiator in consumers’ minds, one which is adapted to his or her tastes and one which evolves as that taste evolves. By perfecting the science of customisation, based on ongoing conversation, you actually lock in on a customer, you make him or her feel special and you completely make the competition irrelevant. At least… until the competition catches on, where we will need something else again.

A reading list:

I’d like to end with reading list of books that I think discuss the next step in marketing, none of which, I should add, I have read. But I’m hoping you give your critical perspective in the comments and add some other reading suggestions.

• Scoble and Israel’s The Naked Conversation
• Locke, Levine, Searls, and Weinberger’s The Cluetrain Manifesto (for free here)
• Tapscott & Williams’s Wikinomics
• Seth Godin’s Meatball Sundae

Vincent

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I recently read a ‘filler’-article in Fortune Magazine, entitled “The luxury of choice.” It’s about how more and more products today are being customised for picky end-consumers. The way society is evolving, I think that such ‘pickiness’ is something that is more and more on the rise.

I wonder if such a thing also applies to software, by which I mean anything that can be coded and presented to someone on a screen (so web-apps as well). Traditionally, the power of software has certainly been to mass-produce the same thing, save on storage, reproduction, and distribution, and collect the cash.

But for certain people, like me for instance (more right-brained than left) it’s often quite frustrating that I can’t shift software around the way I want. To me, Excel should be 3d, mapping not only the co-evolution of variables over time, but also how different forces, on a Z-bar affect these variables. I’m also a Visio guy and would love for that to integrate well with the numbers.

Beyond that there’s certainly the promise of multi-touch that I find exciting, not because I want to shake things around on the iPhone, but because it’s often much simpler to communicate with a drawing. Instead I’m forced to type this text into an editor and hope you can read between the lines.

I’m sure that companies can have all kinds of things customised these days. I was reading an interview with Micheal Dell (from 1998), who talked about how Dell pre-installed custom-software for companies at the factory already, to save the sys-admins the hassle. These days, I’m sure the magic of networks changed much of that, though the principle remains the same.

But the core of my thinking is that customers, individuals like you and me, are becoming more and more conscious of their rights. They are able to become activists at the click of a button. The internet and the media is making what is and what should be more and more transparent.

When I visualise “luxurious” software, I don’t necessarily see it as expensive either. It only takes a single company to realise that there is a market out there for doing things differently, without charging much for it. All it takes is a smart way to collect information about a customer and an equally smart way to translate that into a customised piece of software for you and me.

Vincent

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Just briefly… I did a practice defence for my thesis yesterday, was certainly interesting, and got to listen to a whole lot of other entrepreneurship-students (and potential entrepreneurs) on their own thesis-topics. Why I love universities is, of course, because of all the smart people I meet, but also because there usually isn’t a confidentiality agreement attached to our conversations, which means I can brainstorm about it openly with you.

The one thing I came away with was that networking is in… “Hah!” you say, and I wouldn’t blame you. With the rise of social networks and its media attention, of course it’s “IN.” No, but what I mean is that about 70% of the thesis-topics I heard being presented yesterday, were in some form or fashion centred on networking. And I can’t remember it being so dominating a topic before.

As was mine, incidentally, being in part about incubation and innovation systems, and how to improve the connection between tech-startups and investors, but there was one thing I didn’t look at, which was: Weak ties, strong ties, and their implications. I won’t explain it in great detail now, if interested, you should definitely read this pdf, I just uncovered, by Mark Granovetter, the originator of that theory and how to measure (!) it.

The idea is that we are surrounded by possible ties, some of them non-existant and potential, some of them strong, meaning that we meet frequently and that psychic distance is low, some of them weak, meaning that we see them rarely and that they are perhaps based on less emotional factors. If you’re in a university environment, it’s of course easy to imagine that you have a lot of strong ties. As everyone enters their careers, your ties to to each other become weaker and weaker. The same, to some extent is happening on this blog: some I have stronger ties with than others, simply because of the frequency of interaction. Of course, I’m hopefully a not-to-weak tie to all of you on this blog

Regarding the power of weak ties, Granovetter also writes:

The macroscopic side of this communications argument is that social systems lacking in weak ties will be fragmented and incoherent. New ideas will spread slowly, scientific endeavors will be handicapped, and subgroups separated by race, ethnicity, geography, or other characteristics will have difficulty reaching a modus vivendi.

In other words, strong ties aren’t everything either—they, rather, lock you into a clique and prevent ideas from spreading and changing the world!

The strength of ties & funding

Some things I learned yesterday, was that networking and its strength has certain implications in areas pertaining to funding and sales. One student did his thesis on the Greek semi-conductor industry and how it was funded. He found that (my phrasing):

strong ties are important for finding early-stage funding, like friends & family. But that weak ties are actually the predominant factor in finding funding from VCs and similar. His opinion is that those investors make their decisions not on emotions, but on business-reasons. A connection certainly helps, but is not the primary decision-maker.

The strength of ties and sales

If you ever worked in sales, you know that it’s often not really a job focussed on relationship-building. Rather it is about maximising turnover, which can best be achieved by selling to as many people as possible in a short period of time.

Another student did his thesis on how the social environment of startups affects their sales strategies. He interviewed three independent ICT startups and three, which were located in incubators, and found that the first group was much more focussed on developing their sales-force, while the latter group depended much more on the ties it had with their respective incubator, often finding their first customers within, one even supplying the incubator with software. Kind of scary, I think, this co-dependency in the latter case.

Strong ties were an important factor in business development, which were more intense relationships between businesses, trying to get a larger project off the ground. Sales, in general however, relied mostly on NO ties, aka cold approaches to customers. So if you want a job in sales, that’s kind of what to expect.

Thoughts and questions

While I dig theses a lot for their practical research alone—it sometimes reads like a section of a business-plan, and I have used it before to research an industry—we are obviously dealing with theories that are generalised across whole populations. But it seems like strong ties are actually not a very important factor in either getting funded or making a sale.

So some questions to you…

• How do you feel about networking after hearing this?
• Can you provide counter-argument, where a strong tie to a person actually improved your career? Ok, wives, girlfriends, boyfriends, and husbands should definitely be left out of this
• Are there other areas, apart from funding and sales, where either strong or weak ties are better?
• How often do you use contacts-of-contacts on LinkedIN or otherwise for professional reasons?
• Can you provide some Best Practices in regards to “Weak-tie management”?

I look forward to your answers!

Vincent

P.S. I asked a friend to send me the names of these students. I’ll try to fill them in later.

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Context: I’m currently in discussion with a number of companies that are involved with SOA-vending & -consulting. As a result, I’ve been studying up a little on this market and hope to learn more by writing about it. Note: Since I know, judging by the response to other articles on enterprise-software, this isn’t exactly the most sexy of topics, I expect the number of comments to be minimal.

Jeremy has already written about this topic (primarily in terms of Software-as-a-Service (Saas) and Software + Service (S+S)) before (here, here, and especially here), so I won’t go very deeply into it, but SOA is roughly defined as:

“guidelines that allow software developers to design systems in stand-alone chunks of computer code, each specifying the critical outcomes, performance metrics, and interfaces between a discrete activity and other services.” (Src: HBR, June 2008)

If that’s a little abstract, I see it as a selling you a ticket to Lego-land, where you can play with legos all you like, those lego-blocks representing individual applications that can be used by businesses through a web (SaaS) or hybrid (Software+Service) interface, and Lego-land being the SOA-system that integrates all of them for you. This is opposed to the historical approach of buying a lego-box, which you eventually replace by another and another (side-prediction: we will eventually see Lego-world online).

SOA’s value-proposition

While traditionally it has been so that in order to compete in a technological world, you have to be technological, the idea of SOA is to remove that element, instead allowing individuals and businesses to focus on what they do best. I, personally, like that very much.

Other, more measurable advantages are that it is dramatically more cost-efficient. If you imagine that 5+ years ago, every company had to either invest into a powerful wide-area network (WAN) to be able to centralise IT-services, or replicate islands of IT-systems for each business-location, SOA removes that idea entirely, using a freely available infrastructure, the internet, and removing the need to build IT anywhere, instead paying-as-you-go for singular services that an external provider hosts and distributes. Added to this is the idea that performance now becomes accountable, in the sense that it is covered by contracts (e.g. QoS or SLA), something that was much harder to do with a permanently employed IT-staff.

With all these advantages and several more, it is no surprise that, in 2007, over 50% of mission-critical IT-projects were estimated to be SOA-based, a figure which is believed to increase to 80% in 2010 (these figures are from Gartner and may be US-only).

SOA’s hurdles

While this sounds pretty great, anytime you’re talking about system-wide change, you have to consider that this will meet resistance and involve a great many stakeholders, i.e. take a lot of time. And the question is here, who will you talk to as an SOA-vendor? Will it be the business-side of your client, as you are selling easy-to-understand lego-blocks, or will it be the technology-side, as you are selling technology? This is a serious question, so please answer it in the comments!

Added to this, a SOA-deployment is a strategic issue for your customer, meaning that your selling-proposition will also need to include the option of strategic support, aka consulting-services. This means that technology-only SOA-providers (vendors) will likely have to work with third-party consultants that pick-and-choose the best SOA-package for their client.

Related to this, the lego-like quality of SOA, which promises values like agility, flexibility, price, and reuse, and several more, all very important in this recession-prone time, also mean that someone can quite easily replace your service with someone else’s legos. Arguably this is much less the case if you provide an architectural framework and focus on building ecosystems (create lock-ins). But that is easier said than done, and as such this is a field dominated by few big players that buy up smaller ones.

Some more things, which I haven’t researched, are the degree that open source is a factor/issue here, and different revenue-models.

Grasping the paradigm-change

On the customer-side, there’s two ways of seeing this trend. On the one hand, extreme efficiencies, which also follows Nick Carr’s view that IT is no longer a competitive advantage. On the other hand, you’re giving away a lot of responsibility, which can be bad in two ways.

One, you’re giving away a lot of power to an industry, which will continue to consolidate. It’s something that may not be a problem now, but may become one.

Two, delegating a problem does not necessarily solve it. Taking the retail-industry, the biggest problem here is logistical inefficiencies, caused by delays, unnecessary replication of processes, or otherwise. Here, SOA, as long as it spans across the value-chain of manufacturers-transport-retailers-customer, is clearly a good thing. But it still requires a solid understanding of how IT does and can help your supply chain reap better results, something an independent SOA-vendor may not do as well. My opinion here is purely hypothetical, but it may be worth investigating how the masters of retail (Wal-Mart, Tesco, Carrefour, etc.) solve it. And if this is a problem, I imagine it is elsewhere too.

The SOA playing field

This post is getting a little long, so I’ll briefly go into this. Following Forrester-graphs show the players in the integrating corner of things (consultants) and, on the right, the vendors (also note the time-difference (the second one is Q4 2007) and region). You can find the originals here and here.

Clearly this industry is very layered, with some offering the complete package, including strategic assistance, and others providing either the SOA or a part of it (SaaS or similar). There is a lot of movement in this field with players buying each other out or moving into related industries, either on the hardware or software-side.

Final thoughts

Because I’m not a soft-/web-ware guy, I’m still very much undecided whether to head in the software-only direction myself, though I see much merit for an integrated business-consulting + software-deployment approach, and I also prefer selling Lego-blocks to rubber-trees. Feel free to convince me of your points of view.

All of this was initial thinking of course, and as such I’m happy to hear if you have anything to add or if I made some obvious mistakes. Again, considering the relative unsexiness of this area, I don’t expect too much

Vincent

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Hello again, Vincent here.

As some readers may know, I’ve both read and commented on Malcolm Gladwell’s Tipping Point, and found it an interesting book to think about the nature of communities and how certain individuals or groups of them are more influential in passing on ideas than others. That said, while I believe that such “influencers” exist, also from personal experience, I know fairly little about the science of it.

Similarly, Duncan Watts a research scientist at Columbia, working at Yahoo, questioned that principle, asserting that news travels fast, through whatever type of individual. I have no doubt that Yahoo has amassed vast amount of data on what source of del.icio.us bookmarks receive the most clicks, etc., and that the nature of the internet allows even the lowest of the lowest content-provider or -mediator (e.g. yours truly) to lead people to news.

A recent HBR-article gave me some insight into the complexities for companies to measure the value of such referential actions, something they call Customer Referral Value (CRV). It is calculated by estimating the number of successful referrals made by a customer, but differentiating between new customers that came because of his/her referral, and those that would have come anyway. It’s a fairly complex formula and requires some extensive market-research, but you can find a good overview in the HBR-article.

This is opposed to a customer’s lifetime value (CLV), the traditional way of measuring the value of customers, which looks at the amount that the customer’s purchases contribute to the companies operating margin, less the marketing costs to him or her, and projected over a certain period of time.

Using this methodology, the authors of the article measured both the CLV and the CRV of 9,900 customers at a telecom-company and came up with following results:

I added the totals myself, because I thought those would also be interesting. What you can see here is that those with the highest CLV also presented the highest total value to the business, though CRV added considerable value also. What’s also interesting is how these are distributed. The high value shoppers added relatively little in referential value, and only in the medium-levels do we see a high amount of CRV.

Through three one-year marketing-campaigns aimed at the high shoppers with low referential value, the medium CLVs with high CRVs, and the low of both, the company tried to stimulate the customers with lower values in either segment to do more, either by spending more or by referring more. The result was a 15.4 return on investment on the marketing-campaign, meaning that for each dollar spent on marketing to customers, $15.4 was gained in revenue.

Clearly, I could say more about how the authors went about it to make these kinds of gains in both CLV and CRV, however that’s why this nice article was written about it and I encourage people to check it out if they’re interested.

Are there implications for the Gladwell vs. Watts fight? In my opinion, either could be right. What Gladwell has merely done is open our eyes a little towards this whole viral marketing-thing, though certainly some companies were already busy with it. And what Watts is pointing out is that there is great value in building on top of existing networks, something I’m sure the telecom-company benefited from also. The greater lesson here is to look beyond the CLV of a customer, though that already brings a high value to companies, and focus on methods of stimulating word of mouth in innovative ways. How that is achieved depends on the type of business and the networks that it can use to communicate with its customers. Certainly, Milner cheese, which I wrote about a few weeks ago, offers one possible answer. Update: and so does the recent marketing-move by Etsy on Twitter.

This article is mirror-posted on my blog.

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Hi, Vincent here. You’ve probably been noticing that social networks are springing up in every nook and cranny all around the net. Fast Company is starting one (which I joined, just for fun), Anthony Robins is starting one, even food-companies are starting them (check my post on the somewhat unsexy Milner-cheese on my blog). The question of why is relatively simple to answer.

Social networks are relatively cheap to operate (for certain types of companies), they do not require significant shifts of resources (for certain types of companies), and derive the majority of their content from user-generated content.

The types of companies that benefit most from them are two-fold. For one, those that already produce content for a living will find it easy to add in social features. Those that do not, will likely be more suited for a partnership with a content-company, as that will not distract from their core-focus. Another, perhaps less apparent benefit is competitive advantage.

Relational competitive advantage
With the internet there has been a growing shift of power towards customers. Customers are more informed, they are wealthier, and they are more selective. Competition in the global market-space is fierce and you’ll be hard-pressed to find companies that truly offer unsubstitutable products. Even Apple, to get back to tech for a second, which has some fairly unique attributes as opposed to its major competitors—Microsoft and Dell—is losing its uniqueness, more and more everyday, ever since shifting to the Intel-platform.

The problem is that, nowadays, features are no longer enough. It’s no longer sufficient to have a better design, a better tasting product, a lighter or faster machine, etc. Because these are factors that companies from cheaper regions on this planet can easily emulate and for a lower price. To briefly bring it back to food—my core-competency—you’ll be hard-pressed not to find a private label not able to offer the same level of quality that an independent manufacturer can.

What matters more and more—and this is the point I’m making in my Milner-post—is the relationship that companies are nurturing with their customers and vice versa. And that is where social networks come in.

Now clearly, no one is certain whether social networks are a fad or here to stay. Even I, on this blog, have thrown a lot of crap towards social networks*, because I’m suffering from so-called “fatigue.” However, it’s hard to deny that you can form much more complex relationship with people using social networks, than you can with most other marketing methods. And those relationships are a competitive advantage that other companies will find hard to emulate—at least for a while.

I’m going more into the case of Milner-cheese on my blog, explaining how they are forming relationships with their consumers.

Implications for tech
How I think this affects the world of technology is as follows. Experts on social networking are being called in to consult these companies. Case in point: Robert Scoble (5000 Facebook-friends / 7000 Twitter-friends) for Fast Company and Amber MacArthur (4000 Facebook-friends / 4500 Twitter-followers) for Tony Robins. Added to this, I think a new business-model will appear for social networks looking for one: creating platforms that they can license out / customise for companies. The same may also apply to app-/widget-designers. Media-/Marketing-companies with bright ideas on how to draw in a crowd and tie this into some kind of product-relationship will be popular.

* A note on my previous post about Facebook: My point was about cohesion. This is still a vital point, I feel, as without a solid core (see pic), social networks are like flies on the wall.
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I consider myself a “power buyer” on Amazon – having ordered and read for the last decade or so between 20 and 30 books every year, for sums of money far from negligible, at least to me.

This being said, I’ve never been more unhappy about my experience as a customer. Here are 5 free pieces of advice from too faithful a customer:

1. The company pretends to invest millions in its customer relationship management systems, but why on Earth Amazon never implemented any Fidelity / membership program? Even the worse companies in the world, customer service-wise (yes you’ve recognized them, I’m talking of airlines), have membership /faithfulness programs. I would be delighted to gain some travel miles or free mp3 as a reward for being a long time customer.
2. Books purchased via the one-click purchase button should be automatically removed from one’s automatic recommendations, wish list & shopping cart. Why would you want to recommend a book already acquired and shipped to the actual same customer in the past? Today, you face a high risk of ordering a book twice because of that.
3. Amazon seems to consider that none can purchase a book anywhere else than on their store. I think users should be granted with the possibility to mark a book as already acquired (somewhere else), either on Amazon (they should make this automatic though, but I’m so desperate…) or elsewhere.
4. Even worse, when these books are already in the shopping cart (or mention “In your shopping cart” already), that is to say between my wallet and Amazon’s and their warehouse and my shelves, Amazon still finds ways to recommend them. Don’t they think I already know the book if it’s included in either my shopping cart or my wishlist?
5. This one is more a back office thing. But aren’t you guys all about dematerializing the bookshopping experience? So why can’t I find ‘.pdf’ed invoices in my “account info” space? I still need to keep these blue bills for ages: I know you legally have to send these, but why don’t you help us get rid of the tons of paper we receive.

And I’m not even mentioning transnational use of Amazon (if you acquire a book on Amazon.com rather than on Amazon.yourcountry login in with the same email address, it’s not removed from your country’s wishlist) or the interface here. Or… let’s mention it before we leave the floor: Amazon’s interface wasn’t so much more convenient back in 1997 or so than it is today. I’m surprised because every engineer from Amazon I’ve met was super bright, but if I were an e-Commerce entrepreneur today I would definitely embrace rich media and video category marketing as a paradigm to set a new user experience standard.

To everyone: as you will have understood, I’m not so happy with my experience as a customer on Amazon. Any alternative?

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I’m writing this post for two reasons. One is that I am incredibly interested in the subject of leadership and try to learn about it in whatever way I can. A second reason is that, even though my main focus on my blog is food and retail, what Matthias calls “old economy” (thanks Matthias!), I try to also be very aware of “the past, present, and future of this industry,” and (internet-)technology plays very much a part in the future of retail.

In terms of leadership, Amazon’s Jeff Bezos is a good person to study—a man who created perhaps the most iconic garage-based venture since Apple, and who managed to not only take his company, Amazon, public, but also stay on as CEO until now, something that is rare amongst founders. In terms of retail, Amazon is itself great company to study. It has transformed the book-industry, and is doing amazing work in terms of providing infrastructure for web-based infrastructure. And, even though they are not as yet selling any books in the Netherlands. I’m hoping that SEPA, to be introduced next year, will change that.

Before I continue, this is not really a Kindle-related post. While we’re on the subject, however, let me say that I’m a big fan of ebook-readers. At the same time, there are certain advantages to paper-reading, which I’m especially experiencing since I started my own blog—namely that I can write on them. I know I can take notes on Kindle, but it’s not the same. And I think the price-point of either the device ($400), or the books (a $10 intro-price), or both, is just too high for something that can be produced in mass and has no printing-, and hardly any distribution-costs attached to it.

Speaking of notes, I took some while reading a nice HBR-interview with Jeff Bezos, in which he discusses his take on strategy, innovation, customers, … and not Kindle. I’ll share these, and my thoughts on them, with you now.

Innovation at Amazon

There are generally two types of innovation, the radical kind and the incremental (or process) kind. My general belief is that, while retail on the internet radically transformed the way we shop, and will continue to do so, ultimately it is an evolution in process. Instead of giving our credit-card to the clerk, we type in a number behind a screen, etc. etc. And, since the internet has taken off, this kind of process-innovation has become much more prevalent. Now, instead of clicking 5 times to buy a product, I can click once: yay! Before you ask, “so what is ‘radical’ innovation to you?” I’ll just say: “Space, flying car, people living under water, that kind of stuff. So get busy!”

Amazon has of course just announced the Kindle, which could be interpreted as an innovative move. But again, what will make this innovation shine, if it does, is Amazon’s incredible process-strength, namely that they can deliver the device to nearly every household in the Western world at beautiful economies of scale. For now, these are paying of for Amazon, but knowing their business-model, it’s pretty certain that this will pay off for consumer too… eventually.

What I like about Amazon (and got from the interview) are that they have an incredible experiment-based culture and generally take a long-term view—both rare with public companies. In terms of experiments, these are encouraged on a company-wide level, and due to the nature of experiments, are both had to predict and not unknown to fail. One example of an experiment which became an enormous, but unplanned, success, is the Amazon-associates program.

As far as time-frame is concerned, innovations at Amazon usually take 5-7 years before they make any meaningful impact on the company’s economic situation. This is a big risk and is offset in a number of ways. One is to minimise the costs of experiments. Amazon has a web lab just for that purpose, which undertakes these experiments on a massive scale, collects real usage data on what works best, and is constantly trying to push the costs of these experiments down. Again, taking a long-term view, it helps when building innovation on things that won’t change in the next 5-10 years. For Amazon, these are basic customer preferences, such as: choice, low prices, and fast delivery (hello Kindle?).

There are three more core-attitudes, which I think have a big impact on the way innovation takes shape at Amazon. One is, to always ask the question “why not?” According to Bezos, the biggest mistakes at Amazon come from not doing something, rather than taking the risk. And asking “why not?” instead of “why should we do it?” opens up a whole other universe of possibilities. Similarly, there are lot of difficult decisions that Amazon has had to make over the years, such as allowing reviews on their site. The vital question there was “what is better for the customer?” Last, but not least, I like this line in regards to making experiments a success: “Be stubborn on the vision, and flexible on the details.”

Strategy at Amazon

The other part of innovation is execution, some of which was already discussed above. Much of decision-making comes out of the way a corporate culture is shaped. Some cultures are hierarchical, some are flat, some are individualistic, some are collective. From my understanding of things, Amazon has both a departmental structure (which would suggest some hierarchy) and takes decisions collectively. Both senior management and departmental management have mechanisms through which this collectivity manifests itself. Seniors meet once a week for four hours and once-twice a year for a two-day meeting. Homework is assigned before and the latter type of meeting deals mostly with long-term issues. Department-management has a similar system.

Some more general characteristics of corporate culture were mentioned in the interview, namely that they can be incredibly stable over time, and are self-perpetuating in the sense that they attract people who like that culture (and repel those that don’t). While a company’s corporate culture is probably the hardest to replicate, and can thus be a tremendous competitive advantage, the rigidity of the culture can both mean that there are limits to what it can do (and should do), and it can sometimes hamper innovation during turbulent times. At the same time, a culture can by nature be open to change, which should overcome some rigidity.

A few weeks ago, on my blog, I wrote a post on Porter’s five forces in which I outlined what I think matters in strategy, but also that it pays off to stay close to customers. Jeff Bezos shares a similar view-point, for a number of reasons. One, customer-needs change more slowly than a lot of other things, e.g. tech; and two, following the competition doesn’t work well in fast-changing environments, e.g. tech. A third point is that being too competitor-focussed can result in a passive attitude once a certain dominance has been reached in an industry. You can argue about this either way, but when you look at certain large companies (no names), this “hey, we won, so why innovate?”-attitude, is definitely one that is recognisable.

One way that Amazon tries to stay close to customer-needs is by enforcing rotation. Every new employee has to spend time in their fulfilment-centres with the first year, every two years, employees have to do two days of customer service, and everyone has to be able to work in a call-centre. That includes Jeff Bezos.

Finally, he also had some advice as how to survive the transition from the founder of a start-up, to the CEO of a multinational, public company. It’s simple (yeah right!). When you start, the main question is “How?”; as you grow, the question is “What?”; and when you’re huge, the question becomes “Who?” There you go, the secret to being the leader of a big company.

Final thoughts

One of the weaknesses of secondary information, such as what came from this interview, is that I (and you) have to trust everything that is in the article. I can’t ask follow-up questions and can’t tell, by body-language, tone, or otherwise, whether some points are more important than others, or more true than others. Therefore I try to be careful to treat each piece of information as part of a greater whole. In other words, I may come across information that conflicts with what Bezos said in the interview. If it’s noteworthy, I’ll write a new post about it. One piece of important data, released perhaps a month after the interview, is the release of Kindle, which, as mentioned, I am sceptical of.

Two things I learned from the interview is that innovation takes time, especially to make it economically viable, for both the business and the consumer. In my opinion Kindle, in order to fit the philosophy of Amazon (which is not Apple after-all), has to drop in price, as do the books. It’s a matter of ethics, of being customer-focussed, and of being a process-innovator. I can only assume, that over the next years, this is exactly what will happen.

The other thing I learned is to constantly be open to innovation that can benefit the customer. This point has been made many times in the words above, yet it bears repeating. A company can be incredibly rigid, the bigger it becomes. Competition can become incredibly threatening. Technology can change from one day to the next. But what doesn’t change is that customers will pay you for products that make them happy. And I fear that a lot, a lot of businesses have forgotten that as they became big, arrogant, and focussed on anything but what customers want.

Finally, while I may be focussed on “old economy” topics, I think Amazon teaches some interesting lessons on how to remain high-touch in a high-tech environment. As such, this certainly won’t be the last time I touch upon the topic of technology in retail.

Further reading

If you’re interested in the topic of leadership, you mean also want to check out a list of free podcast-interviews with a number of CEOs, ranging from Google’s Eric Schmidt to, indeed, Jeff Bezos, which I posted on Tech IT Easy a few months ago. Worth a listen. Oh, and don’t forget to check out the original article on HBR.

Vincent is a co-author on Tech IT Easy. You can find all of his posts here, or check out his food & retail blog, updated nearly every day, and where this article is mirror-posted.

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Guys, it’s time.

We need 3 minutes from your time. Please help us improve our blog. Just drop us a brief comment that intends to provide answers on a few questions listed below, related to your overall experience with Tech IT Easy.

It’s been a while since we’ve asked you dear reader for inputs on how we can (further?) improve Tech IT Easy, the blog.

We really want the full thing on your experience on Tech IT Easy, whether you find it crap or sometimes relevant, or, who knows, always insightful. We want no bullshit in this conversation, so forget about diplomacy, or trying to content the 14 bloggers that constitute this blog. If you think one or two of them write crappy stuff, say it, if you believe my career as a blogger is seriously compromised by the poor – or too high - quality of my posts, say it, etc. No bullshit whatsoever.

On top of this, there’s a number of unsolved, and yet crucial questions that are likely to remain questions forever when it comes to collective blogs. So if you don’t know yet what to write as a comment, here are the questions that come easiest to mind.

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IBM’s nice white paper, which I briefly touched on before on my food and retail-blog, describes a model for mapping how customers make decisions in a given setting. It looks at three types of retail-outlets: Grocery, consumer-electronics, and apparel (clothing), and explains how each type of store has different types of customers, with different motives for visiting, and different in-store behaviour.

For instance, with grocery-shoppers, they map two types of shoppers, those that shop for replenishment and those that shop for convenience. The figure below shows the different reasons why they would visit a store and what they value inside the store:

Really, what this flows out of is an analytical technique, IBM calls: “consumer decision process (CDP) modelling,” which analyses consumers in five phases:

1. Qualitative market research, to identify elements that impact target decisions: what, who, when, where.
2. Create individual CDP maps and organise elements into stages
3. Validate and create a market-representative view
4. Develop quantitative model to prioritise impact of 100s of “why” elements
5. Leverage CDP insights to drive revenue opportunities

In English: data is collected through traditional research methods, and IBM crunches this data into a system that scores different variables according to their importance and comes up with focussed advice on how a retailer can improve their marketing strategies and the shopping experience.

For instance, in the case of customers for complex electronics, like high-end sound-systems, customers would benefit from a focus on education at the beginning of the decision-making process, and on a high level of technical support after the purchase had been made. This has implications on staffing and marketing. At the same time, this can also affect stock-inventory. With products like these, where people prefer home-deliver and possibly installation, it is often not necessary to carry large amounts of stock within the store, again reducing costs on that front.

Note: this article is mirror-posted on my blog, Sounds + Food ‘n’ Retail.

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This morning, I had breakfast with 2 French friends entrepreneurs who are starting up an enterprise software company in Brussels after two years working, respectively, as a financial auditor and a consultant in Luxembourg and London. Both are 25. Starting an enterprise software startup when you’re so young is extremely difficult. Not that the older, the smarter, but large companies (not to mention venture capitalists), especially in Latin countries, tend to trust youngsters less when it comes to big business. In enterprise software, my guess is that the young crowd makes it perfectly when sales cycles are short (inexpensive apps sold to mid managers or silo-ed clusters like R&D labs or subs). Large accounts feel you can’t be a heavy weight sales exec. if you don’t have grey hair. I think that’s a shame, but what can I do…I won’t reveal the name of the company here, nor the nature of its business, because I am not allowed to, unlike asking for you people to help here on Tech IT Easy. Indeed, my two mates came to Paris to meet with many software guys as well as friend-contacts at potential clients. They came to me to brainstorm on sales materials they need to start nurrishing their sales pipeline. I told them I have absolutely no serious experience in sales – although I will at some point in my career, but they insisted on us three to spend two hours together, an hour on their business plan that I won’t talk about here, and an hour on their sales materials.

Here’s the perfect sales exec. package we came up with while brainstorming:

- A corporate overview document - 4 pages max.

- A functional product data sheet - 4 pages max.

- A technical product data sheet - 4 pages max.

- A price list (including prices for the different versions of your application + price of additional modules + consulting costs + deployment costs + service prices + hosting prices, if applicable). Keep in mind to update your price list frequently and mention the date of the last update in the document.

- A customizable standard value proposition document including all the above just in case you feel the client is willing to proceed during the meeting. This document should include a corporate overview, the vision behind your product (pain tackling / must have or comfort enhancer / nice to have? The former will sell better), the pain / lack of comfort identified at your client, your functional value prop, technical matters, option catalog, service catalog, price & delivery. My call is that this document shouldn’t exceed 20, 25 pages for very complex products for your client to be able to read it during lunch time, while in the toilets, before they go to bed and go through another time in an internal meeting to make a purchase decision. Any higher format will increase the decision cycle.

- A white paper on the benefits of your solution vs. the competition. Don’t forget to explicit the methodology. 25 pages max. excluding miscellaneous.

- Client testimonials (once you have clients) – 2 pages max. each

- On your website, allow the prospect to get a hint on the ROI of your solution by entering a few parameters

- For ‘cheap’ enterprise solutions (eg software below the capex line ie business line or business center P&L-friendly, roughly USD 30K upfront or 50K yearly per monthly payments), same thing with price: allow your prospects to type in a few parameters on your website and come up with some pricing. In case your pricing isn’t fully accountable and transparent (ie price depends on the client, it happens…) then make sure you have a commercial NDA ready to be signed by your counterpart prior to the second meeting.

Guys, none of us have a clue on the quality of our brainstorm. Did we get it right? What would you improve, add, remove? Why and how?

Addendum: we’re to meet again in Brussels in November once they have recruited their two first sales execs to think about how to organize a sales force. Something I think I can’t contribute on but the entrepreneurs want to turn the tables, do something fresh of advice from the grey hair type. I think this is sort of risky, and I told them so, especially in enterprise software, but the two guys have the stubborness of success…As for this post, they required that I blogged for advice when effective.

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A not-so-interesting, but worth watching once, buzz marketing video for SalesForce’s AppExchange platform & Force framework. You could basically leave content as it is and replace SalesForce – AppExchange – Force by: Microsoft + CRM 4.0 ‘Titan’ + .NET; Facebook + Facebook API; Twitter + Twitter API; Google + GWT; Adobe + Flash + Flex; etc. I like the overall approach but I think the video lacks specific content.

What I found rather innovative here is SalesForce’s notion of “Platform as a Service”, that is getting close to the concept of “Software + Service” (thorough post to come sooner or later) introduced by Microsoft. It seems market players converge on the idea of interaction of ’solid’ platforms developed and marketed by software market leaders + a number of customized services run by an ecosystem of independent software vendors & software developer communities. In other words, Platform as a Service = Software + Service.

[youtube=http://www.youtube.com/v/EbnCUqAL6UM]

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