This year, I had the chance to visit CeBit 2010 for the very first time. It was an anticlimactic experience. Being raised with reports of CESs and Macworlds, you can’t help but hope to stumble on the next big thing, but what I was confronted with what had the air of a dusty town ripped out of a Western movie after all the gold diggers left for fairer grounds. In this case, the gold drought is the recession, and the aftermath (to me) appeared as a number of very empty spaces and the remainder seemingly under-budgeted, not “2010 innovative” but 2007 innovative, and with a big sticker on their back saying: “I’m under-confident, please buy something!”

To me, the most interesting technologies were 3D and a massage chair that took me under for 20 min. The biggest news story, however, was USB 3.0, a sad state of affairs if 2010 is marked by a tiny, soon to be in every computer, plug (no matter how fast that damn thing is).

Ignoring the massage chair, which I can’t recommend enough, 3D was the hot topic, inspired by, of course, Avatar. Everybody, from Nokia to Nvidia, appeared to have something related to 3D. They mostly had excuses for it—Nokia was pimping its high bandwidth infrastructure for 3D content aimed at TV & telephone providers; Nvida was pimping its 3D shutter technology for consumer PCs; Frauenhofer Institut was pimping its glasses-less 3D technology; and more and more and more—but my end-conclusion, also after trying to explore the potential for a revolution that was Avatar, was that 3D is an excellent gimmick that will draw a crowd to your stand or cinema, but will leave you disappointed 2/3 times.

Ironically, Nokia had the most impressive display of 3D, showing it off on a 15,000 euro JVC flatscreen. When asked for details, however, all they could tell me was the price of the TV and that their bandwidth technology was not for sale to the “likes of me.” Very arrogant, those Nokia folk and it wasn’t just the 3D guy either… Nvidia’s shutter glasses also worked well and I see a real potential for 3D gaming. Frauenhofer’s glasses-less 3D-TV… pah! The problem with 3D is that it’s so easy to do it badly and 3D without glasses is far from ready. 3D with glasses is far from ready!

I don’t get the obsession with not wearing glasses either. First of all, they’re roomy, which means that you can wear them over existing glasses, they won’t make the claustrophobic more claustrophobic, and they’re disposable. Putting on glasses in the living room is kind of like turning off the light when watching TV.

Last, but not least, I liked lcReflex, which developed an interesting, if not very portable contraption, that makes applications on a computer screen three-dimensional. It involves something they call a Stereomonitor, two screens joined together at a 90 degree angle (one front-facing, one on top facing down) and a semi-transparent mirror in the middle. Put on glasses and you can manipulate an image of brain in 3 dimensions, which should be very interesting for, eh, brain-scientists and playing 3D Tetris.

What’s fairly clear is that we are very close to having 3D in our living rooms, whether it’s for playing games or for watching (selected) TV-shows and movies. But 3D has the same problem that HD-DVDs and -TVs have, which is that it’s insanely niche. You can’t play everything on it and you need some pretty expensive equipment to play it. That combination doesn’t justify much of an investment in it.

The best chances for success belong to companies like Nvidia, which produce consumer-priced solutions for consuming content. Add to this that it is (relatively speaking) fairly easy to convert digital content from 2D to 3D. I very much see the next stage of gaming to becoming 3D.

I’m much more bearish on video-media. Great that cinemas have found a new revenue stream to subsidise their troubled existence. Great that 7 out of 10 filmmakers are considering to make their next film in 3D. I don’t think cinemas have to worry about living rooms competing with them on that level anytime soon. While the need for a big screen to enjoy 3D is a myth well-worth breaking (and it soon will be in gaming), it is still a powerful way to experience a movie and something you can sell at €/$ 15 a pop. Home-entertainment still has the expensive technology problem and the fact that BluRay DVDs simply aren’t selling to anyone except Playstation 3 owners.

As mentioned, 3D’s gimmick power is strong, but that will wear off after having 3D technology in your living room and hardly any media to consume on it. It’s much better off in cinemas where the growing few pay a few bucks more to see space debris floating above their heads, or on consoles where the price of a 3D add-on is hardly more than buying a Guitar Hero guitar.

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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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It’s been a while since I wrote about food and retail, an area that I still like (and actually find much more interesting than tech or simple business), but which I’ve put on the backburner for now. I don’t like Starbucks as a business nor as a coffee, for a number of reasons that I will elaborate on in this post, but I do like that the company, back under the helm of Schultz, is undertaking some new initiatives.

Reasons why Starbucks bothers me include, most of all, that it is not a coffeeshop with a European target-audience. We Europeans have plenty of choice and tradition in terms of coffee, and I have no problem finding a place of atmosphere with some kickin’ coffee at half the price of one of those Americanos (which, btw. taste terrible). The only attraction of Starbucks is for me as a take-away place, but that was not really the aim of the business, as described in Schultz’s book.

Starbucks was meant to be a “3rd Place,” a place where people can temporarily reside that is not their office or their home, and that is where Starbucks, in my opinion, fails. It should also not seen in isolation from other chains, like McDonalds, Subways, and the many “CloneBucks’s” that have arisen since the writing of Schultz’s book—it is basically a manual for how to start your very own Starbucks and, apart from its partnerships, it’s a low-tech business. Right now, when you enter a Starbucks in say, Cologne, Germany, it will look exactly the same as the one in Paris, France, and that act of replication already devalues the concept in my eyes. All Starbucks Cafés are very clean-looking, unlike a Hard Rock Café for instance, which doesn’t make them all that much better than a McDonalds (Café), which serves coffee equally well.

End complaints about Starbucks, a chain I had all but given up on.

The most depressing part of this business is the ease at which McDonalds managed to replicate its basic features, ……… but let’s not forget that the Starbucks people aren’t stupid and learning goes both ways. Clearly, McDonalds (another business, I’m a fan of) has strong process-advantages, which are also quite apparent to the observer and can be benefitted from by outsiders. Something that, it turns out, Starbucks exploited and will hopefully lead to a more efficient machine of a business, while (hopefully) placing the focus back on the “3rd Place” idea.

And now, it has been revealed, Starbucks is trying to get back into that game with its “community coffeeshops initiative.” While I don’t think that this will drastically improve the Starbucks offering, I do hope that it allows for more creativity and individuality down the road.

That said, there is still a lot of room for “3rd Places,” also in terms of building chains of them, they just need to be better designed to actually be a 3rd place. From books, to music, to zen-gardens, people like me are still looking for the equivalent of what was before probably known as the “gentlemen’s club,” by I mean, in an entirely un-sexist way, a place where you can go and relax, alone or with friends.

Starbucks seems to have gotten lost on the path and retreated down to the level of commoditization. It make me wonder if perhaps these types of qualitative initiatives simply cannot be undertaken quantitatively, without losing too much in the process.

Vincent

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Read today about a new service in the Netherlands that is doing very well. It’s called doehetzelfnotaris.nl, which translates roughly as ‘Do-it-yourself Notary,” and has already attracted 13,000 visitors since it launched 2 weeks ago (for NL, that’s a big deal). By allowing you to automatise certain services, like preparing the contracts and wills, it claims to save you 30% of the price of having a notary take care of these things. Needless to say that during these financial troubles, people like it when they can save some money.

At our financial trust, I’m currently filling out a pretty long survey from the Luxemborg statistical office (STATEC) regarding our level of “internetisation.” It’s not easy being digital in a world where you often deal with highly sensitive data, sometimes coming from individuals who do not like dealing with you through digital means. The very word “Trust” in our company description, already forces you to ask the question: can clients trust us using digital communication?

The answer is in most cases No. Go to any bank and try to get significant things done and they want you to sign for it. Same with notaries (and doehetzelfnotaris.nl does not automatise the signing part). The financial sector is particularly stuck in what I would call “the old world,” though not, I would say, without good reasons.

My question to you is:

• is there such a thing as fool-proof communication, which cannot be falsified by any means?
• Is there a surrogate for being there in person and signing your name?

I don’t know of any, but I always assume that our readers are smarter than me.

Chime in, if you can.

Vincent
(Picture of a Robot Accountant. Waah!?)

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(I could have picked a more profound movie for this…). In the story of Sindbad, the animated Disney version from 2003, Sindbad and Marina go on an adventure together and fall in love. In the beginning of the film, you find out that Marina always loved the sea and… a little spoiler… in the end she chooses a life on the sea as her future as well. And, in the process, she chooses Sindbad over her originally betrothed, Proteus.

Watching this movie in bed this morning, recuperating from a very exhausting but great few days, I thought about the meaning of it all. And because this is a business and technology blog and I can’t exactly write posts about the meaning of life, I’ll write about what I think it means in a business context instead.

In sales, which by its nature of convincing people to spend their hard-earned cash on a product or service, has a bad reputation, you can either sell a widget (Sindbad) or you can sell a life (the sea). But really you should sell the widget, within the context of the life. So, in other words, the most convincing sales method is to sell an Experience.

Right now, I am sitting at a terrace in the Place Guillaume II in Luxembourg, listening to live music, and drinking my third tea. Had the context been, pardon my French, merde, I would’ve left after the first tea. Had the tea been bad, I would’ve left also. But because the context and the product/service are good, I have become a repeat-customer, at least for today.

I don’t think this is restricted to B2C only. In business-to-business, which is the area I operate in, we also sell services which have to either fit within the context of the customer, or create an entirely, new and better context for him. So, for instance, our financial trust manages certain financial affairs for customers who want to settle down their company or savings in Luxembourg and enjoy certain tax- and other advantages. The context/product combination is even more clearer in this case, as we are in fact offering a country as our product. Of course, we still have to do a good job, but we convince our “Marinas” to come here and work with us, through a big-picture sale.

I hate it when salespeople try to convince me about their product without having considered for one second what the financial or other benefit is for me. And there is an incredible amount of these negative experiences out there, which I think is the primary reason for why sales gets a bad rap. If you instead think of it as selling a cruise on the sea, or, better, an sea-adventure with Sindbad, I think you’ll generate much more positive returns.

Of course, this doesn’t always work for a cheap product like tea, where the margins are so low (actually, I think the margins are at about 70%, but 70% of 2 euros is not a lot) that you would rather sell more, more quickly, than spend too much effort on the context and in the process sell more slowly. The difference is perhaps that with a product like tea, the location matters a lot, which means that you have to spend more on rent and include that in the cost of your product.

End of thought for today. If you’re in sales, sell the experience, not just an expense, and I think your quality of working life will increase. I prefer a happy paying customer than just a paying customer, don’t you?

Vincent

(Picture of The SS Rotterdam returning home from her last voyage)

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Background: This is an advice that I am giving to someone, who is a traditional artist. She paints and tries to sell her paintings. By writing this down for you, the public, I don’t think I am revealing critical information, in that it is a common sense approach to building a sustainable business. It does not address two critical factors: the intellectual property (which is the art) and the marketing (which comes in part from quality and in other part from choosing the right sales channels).

Here is the situation: I like (her) paintings, but they are very work-intensive. Each painting can take anything from 2 weeks or more to produce and the end-price reflects this as well. In today’s economy, in any economy, this means that there is a segment of the population that will not be able to afford it it. Museums, who display art worth millions, have overcome this problem quite elegantly, by selling posters and postcards of these art-pieces. Countless other art-industries are based on turning a singular piece of art into mass-produced widgets. Similarly, I think it is much more efficient, for more reasons than the work alone, to do something similar for the independent painter. Again, I don’t think this is a trade-secret or anything; the quality of the art and the sales channels are most critical aspects.

In any business, there are two types of cost. These are fixed and variable. Fixed costs are often significant costs and difficult to remove. A workplace is a fixed cost, so is some of the material used to produce a painting. Variable costs are smaller, often more flexible costs, incurred regularly. Paint would be such a cost and you can affect the cost of producing a painting by using different paint. It’s not quite as easy to change the workshop you work in from painting to painting.

Following is the action-plan:

1. Find out what the total fixed and variable costs are for producing a painting and x amount of reproductions (e.g. 100 posters). In other words, list all the costs in a nice Excel-sheet or piece of paper and add them up.
2. Divide the total costs by the number of posters you want to sell. Those are the costs per product.
3. Decide how much you want to charge per poster. If you or the market decides that this price is below your cost, then there is something wrong with your formula and you are making a loss. If, on the other hand, your price is above your costs, you are doing well.
4. Now… find out how you plan to sell the amount of posters you decided on…

Some … pause in that last point because how can a business man or woman really know that these are the sales they will make? My advice is therefore to keep costs as minimal as possible at the start, focussing a lot on developing the actual sales process.

That’s it really! And it reflects how hard it really is to go from having an idea (and preferably also the skill) to a profitable business. From a right-brained creative approach, you have to do some left-brained accounting, and from a product-focussed, perhaps introversive approach, you now have to become outgoing, market-focussed, and sell. Not easy!

As with all big projects, from writing a thesis to climbing a mountain, it’s my opinion and what I have learned so far, that it is always better to break it down into simple steps, see the relationships between different processes, and understand how the whole project is put together.

I always welcome discussion, so if there is an error in my logic somewhere, please, please contribute through a comment!
Vincent

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The “Captain’s Chair” is what I call the chair of the entrepreneur which always has to be filled and which sits prominently in the middle of the office and all the business being conducted within. It comes out of the simple evolution from running a 1-man show, and then hiring on more people to do the work. It also has a lot to do with how sensitive the service is that is being released, and when customers expect services to be at the same level of professionalism that the initial founder has always displayed, it is understandably hard to let go.

It is also a trap that is being written about in plenty of business “self-help” books and is, in my opinion, best solved through designing processes to be as failure-free and as simple as possible. In other words, like the preparation of a McDonalds hamburger, which is a scientifically designed factory process.

One public example of the captain’s chair phenomenon is Micheal Arrington’s Techcrunch, which has, until recently, always been run out of his own apartment, and even today he is (I believe) the no. 1 editor and certainly the no. 1 PR guy. In no other media publication of that size (in terms of readership numbers, not company size) does the founder take such a prominent and involved position and, physically and mentally, I’m sure, it is taking its toll on Arrington. Similarly, I know several small companies, where this is a problem, with similar consequences on the founder.

This is not to say that doing the opposite is necessarily a good thing. As perhaps the case of Starbucks showed, which recently had to ask its original founder, Howard Schultz, to return to the captain’s chair, sometimes an organisation can forget the original values it was based on and do some silly things. In Schultz’s case, I have actually always blamed its problems on his book, which was essentially a franchise manual for anyone who wanted to set up a coffee-shop, and which might have also inspired McDonalds to basically become an affordable Starbucks alternative for the masses. A story for another day, but I think the current Starbucks model is doomed and Schultz will have to redesign the company’s business model from scratch.

There is certainly a careful balance that needs to be maintained when designing a company to both expand a business’s reach, without losing the heart of the business. Together with the simple process of “preparing a burger,” you need to instil the values that also lead to the “smile” that accompanies the sale of the burger and leads to a satisfied customer (and his return-visit).

Designing companies must thus, in my opinion, be a rich process, involving the founder(s)’s, the employees’, and customers’ input, finally leading from the single business to the chain of businesses serving all customers equally or superiorly well.

Vincent

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If you think about how the iPhone was launched so many months ago, or rather at what stage the iPods were at, you know that apps were always on the horizon. The iPod G5 introduced a wider range of games that you could buy through the iTunes store, which already introduced us to the idea of buying apps, well games really, through that venue.

When the iPhone arrived, there were NO apps; App-support was basically web-coded widgets with limited functionality. The reason for this was, I believe, that there was no competition to speak of + perhaps the complexity of setting up such a venture. Apps for other phones existed, ok, but it was either in a decentralised fashion (Java for instance), or very centralised and very limited in its offering (e.g. Blackberry & Palm), at least compared to the current iTunes store.

It took pressure from the market [jail-breaking & media] and perhaps already the idea in the back of Apple’s heads to release the app-store a little over a year after the initial device was launched. When it did launch, there was lot’s of hype, lot’s of love, and good news for Apple iPhone numbers both on the device-sales side and that of app-sales.

How the other device makers reacted was two-fold and really quite half-heartedly. Most hardware makers focussed on what they did best: hardware. Touch-screen after touch-screen device entered the market. The most interesting software-based strategy came from Google, which, I guess, realised the potential of mobiles as computing platforms and, more importantly, as search/internet/”revenue for Google” enabled devices in everyone’s pocket.

The current app-store offerings are still lacking with many big parties attempting to launch one for their platforms. The key-factors in terms of adoption seem to be having a critical mass of both users and developers, both of which represent a chicken & egg problem for many, something that the initial iPhone circumvented quite elegantly.

The most promising devices today are Google-/Android-powered phones and the, still somewhat vapoury Palm Pre. The latter seems to be the most competitive, hardware-wise, with much ex-Apple talent having contributed to the Pre’s development. On the App-store front, it’s still very early days, but reports are disappointing.

So, the question is, what can phone-makers and software-makers do to compete with the new “Microsoft” (=Apple) of the mobile space? The choice, to me, appears two-fold:

1. Emulate Apple in whatever way possible: create a great device and create an app-store with a sufficient supply of apps.
2. Or, create a great device and find a way to elegantly get apps onto it, without all this centralising nonsense.

By the wording, it’s obvious that I prefer the second option. As good as the iTunes store is, it isn’t amazing for developers and it isn’t as profitable for Apple as one would think either. The biggest problem for competitors is similar to the music-situation, that Apple has critical mass, which attracts the greatest amounts of customers and is a nearly insurmountable challenge for new entrants.

Where Apple clearly leads is in its developer-support, which isn’t quite as apparent from other software/hardware makers, except perhaps Microsoft (but mainly on the PC-side) and perhaps Google. Palm, as yet, does not offer a comparable service to developers, or to put it in another way, Palm developer conferences are not yet sold out in the way Apple’s WWDC is each year.

Final thoughts:

• I think that developer support is key in any smart phone strategy these days, as mobile devices continue to become computers in your pocket.
• I don’t think that centralised app stores are necessarily the way to go, except (and I suspect this) if the mobile carriers are demanding it.
• The simplest thing would be to create a web-based categorised list of a apps that developers can add to;
• implement mechanisms that vote and demote apps according to their usefulness and other attributes;
• and create / implement mechanisms that prevent abuse (e.g. P2P apps or VOIP apps, though I think the latter can no longer be considered this)
• And continue to innovate on the hardware, because I think there is plenty of innovation left. What makes the iPhone so desirable is the app-support, but the hardware is really nothing to write home about.

Note: I purposefully left the links towards the end, because it allows for a more time-efficient, easier to write (and, maybe, read) article. Links with additional info are included in below list:

• Mossberg on Palm Pre
• Apple App store numbers
• The incredible app store hype (one of many developer complaints)
• Palm developer network

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My sentiments about online media aside (I think it’s despicable the way media-companies treat consumers, particularly outside of the US), it has always bothered me to use Last.fm for a number of reasons. Here they are:

1. Last.fm, apart from being happy to pull my listening data into their site, does not integrate with my listening habits Whats.O.Ever. My method for managing music, perhaps determined by owning an iPod, is entirely dominated by iTunes and the usage of the device itself.




2. Last.fm does not play on the road (let’s ignore the iPhone radio app and that eventually all devices will be connected to the internet)




3. Last.fm does not acknowledge that I give different stars (= degrees of love) to songs (instead I have to “love” a song manually).




4. Discovering new music through Last.fm’s radio does not easily lead me to purchase the actual song




5. One cherry on top is that Last.fm now wants to charge me for using the radio, even though I add to it by playing my songs.




6. A second cherry on top is that Last.fm is now, indirectly through CBS, giving information about what we listen to and who we are, to the RIAA, a US organisation that probably also shares that information with other international organisations.




7. The only use Last.fm seems to have is vanity, in the sense that you can see what songs I loved (when I love them) and I can make pretty graphics of my listening habits (makes for an interesting poster).

So, as of this week, I am deleting my Last.fm account.

That doesn’t change that I am a fervent listener of music and it also doesn’t change that I believe deeply in the concept of sharing music. I like finding nice tracks to play at parties and equally I like finding tracks for some of my friends that I can only connect to online. There is no legal service that allows me to do this. As a matter of fact, in the Netherlands, I should even be paying a licensing fee if I play music in public or for too many people at once!!!

In comes Drop.io, a file-sharing service that recently added Facebook Connect as a way to share stuff only with your friends. Drop.io fills the void that Last.fm leaves in the following ways:

1. It has an integrated player that is very elegant and can also be accessed and added to via many different devices.




2. I can restrict access to my files to my Facebook friends only (evil internet lawyers can get lost).




3. It’s free for using 100 MB storage and charges a very fair $10 per gigabyte per year.




4. Any loss in statistical “vanity” data can be compensated by using iTunes and starring / sorting your files accordingly.

That’s it. Of course I will not be sharing songs that are copyright protected (and, of course, if we’re not Facebook connected, you will never know for sure )

Vincent

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Bear in mind that by calling you cheapskates, I also call myself the same (plus, I’m Dutch…). Remember that I was the one raving about a €30 contract-less phone not too long ago, the Motorola Motophone (which I have since given to my mother, who hates it). Since moving to Luxembourg, less than a month ago, I’m shopping for a new phone and am considering the iPhone.

At the same time, do the math! To get the 16GB version, I have to shell over €99 + €50 per month for the next two years. That’s €1300 as a base price for the iPhone, not including the cost of getting hooked to paying such prices in the future.

Some other factors to consider:

• There’s is city-wide, free WiFi in Luxembourg (at least one good thing about this small city, apart from me being there )
• Skype was just released in the app-store, making calling on the iPod Touch + Wifi a viable option.
• Signing a 2 year contract seems like a big deal, considering I just started the job and still need to be able to keep it.
• The country of Luxembourg is so small, that I ‘ll be in international roaming mode before I know it (Mobile in Europe sucks, did you know that?)
• Taking a 32GB iPod Touch + a internet-less phone, would be ca. €400 + €30 per month = ok, €1120 for 2 years (bearing in mind that I usually NEVER take 2 year contracts on anything!)
• I already have an excellent portable camera, the IXUS 870 IS
• I also expect an upgraded iPhone to come around, hopefully within the next 6 months, but too long for me to wait.

So, it’s a tough decision for a cheapskate like me.

It’s taken me a long time to get to the point of wanting to use a touch-screen, which I considered an inferior typing solution, until… I watched this video. It’s amazing that this guy, sitting in a moving vehicle shaking like a bull on steroids, can type intelligible words on his iPhone, and nothing at all on a regular button-based keyboard.

Take that together with the iPhone OS 3, due to come out within the next 1-3 months, and it sounds like an interesting option. But €1300 for a phone? Man!

What do you say, cheapskates, buy or don’t buy?

Vincent

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“The strategy and tactics of pricing” is the toughest book I’ve ever read. Not tough as in boring, what most books regarding finance, accounting, law, programming, and other subjects I’m bad at end up being. But tough like Chess, you have think more than a few moves ahead. The fun part about chess is that it’s a game and you can fail without much pain, but with Pricing… it’s better not to make too many mistakes.

Picture this nightmare scenario, an example I just read about in the book [paraphrased]:

A large building products manufacturer is operating in a commoditised market, but has continuously been profitable due to banking on perceived technical excellence and exceptional customer service. Still, market share has been going down due to aggressive price cutting by competitors.

How would you address this problem? Well, this is what the new management of the company did:

Whenever an account was seriously threatened, sales manager were authorised to negotiate “special deals,” that would retain the business at lower, but still profitable prices. It seemed successful, and market share increased by a few points over the next few quarters.

But what happened in the long-term?

The company tried to minimise damage, by not making this a public policy. But still, customers eventually ended up talking and found out that other customers got the same quality and service for less. Worse, those customers that negotiated by threatening to go to the competition, were the ones that got the lowest prices!

Long term effects were that customers decided to no longer get “taken” by the company. Whatever previous loyalty existed, eroded, and customers opened up their doors to competitors, which had previously been closed. The company had ended up creating a financial incentive for its buyers to become more informed and less loyal, and customers responded.

Something that seemed like a smart move in the short-term, had turned into a nightmare over the long term.

Now the book goes on to say that any strategic move you make, pricing wise, must be one that weighs the short-term vs. the long-term consequences. The difficulty is that pricing is an area often dominated by sales people, who use the sport-analogy in doing business: “there can only be one winner, and it must be me!” Pricing, as the example above shows, isn’t just about winning in the short-term however, it’s about operating in a triangular fashion, respecting your bottom-line, understanding what your customer needs, and dealing with the competition. In the words of the book, it requires a “diplomat,” rather than a general to manage this area of strategy.

Reading this book would probably take 1 month full time. It would take ca. 3 months total to understand what is being said. And it would probably take another 3 months to try and implement it in your business. No sane CEO / startup founder would have time learn this stuff! They’re busy enough managing other aspects of the business, such as cash flow and people. So what I would do, if I were the founder of a startup and wanted to master pricing strategy [and you really should], I would hire an intern and make that his job: take 1 month to read the book, take another 5 to develop a pricing strategy for our business.. Then, if successful, hire the kid as the pricing strategist for your company. I’m 100% sure that it will pay itself back and now consider pricing as one of the corner-stones of any company’s strategy.

This was just a brain-dump. Love to hear your thoughts on this.
Vincent

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Just finished a project, which gives me a few days to reflect, work on my personal business-plan, aka career philosophy, and write blog posts about pricing and stuff. A few months ago, I purchased the second edition of the book “The Strategy and Tactics of Pricing.” It’s a really good read, though also a complex one—I’m on page 80 of 450, and I started reading in December! That said, having been exposed to setting my own prices for the services I provide, also taught me a thing or two already.

Understanding pricing really means two things: understanding the numbers and understanding the psychology behind why people are willing to charge or pay x amount for something. The difficulty is mainly that information is incomplete. I can’t judge 100% what contextual factor made a customer decide to go the other way, or why the competition charges 3 x less than my product. At the same time, this fuzziness also means that pricing is not just a matter for the “finance guys,” it’s a matter of doing your homework, experimenting, and some instinct.

Pricing itself is a subject that is actually relevant to everyone [I'm excluding millionaires here, though they may consider the price of their yachts and Rolls Royce's sometime]. It’s something that matters when pricing yourself (what is a fair wage or fee for people to pay you?); when pricing products and services; and when considering paying for products and services (why does a certain price seem to high or like a good buy?).

Pricing yourself

According to my nice bible on consulting, there are three main ways that I can set my own prices. I can work on an hourly / weekly / monthly / etc. fee, I can charge a single fee for the whole project, and I can be paid for reserved time [aka, I set aside x amount of days per month for client y]. Consultants typically charge a lot and that is not for arrogance reasons. Rather, one factor is the amount of risk that you incur. By committing to one client, who may only need you for an undetermined amount of time, you risk forgoing other income. Hence you charge more per project. Something like reserved time over a longer period of time would be less risky, hence you can charge less for that.

Of course, it’s also a matter of what value you bring to the table, which is really a two-edged sword: is the value that you bring, the skill-sets that you have acquired (and which cost you money to acquire)? Or is it the value that your client attributes to it? It is always the latter, though if that value is lower than what it costs to produce it, you’re making a loss and should rethink your business.

Similarly, it should optimally be so that when you apply for a job, you have an estimate of the financial value that you bring to the company. This isn’t always made clear, often you have a salary-indication showing what you are worth to them, but your value-contribution may very likely be higher (or lower) than what is expected. Negotiating in such a situation requires sufficient knowledge about that value—yours and theirs.

Pricing products and services

The mechanics of pricing here is much the same, though perhaps simpler to understand. At least, from a cost-perspective, which should be just a matter of adding up the ingredients and the (wo)man-hours. But cost in itself does not tell you enough. For one, there are economies of scope and scale. Second, there are avoidable costs. And third, we live in a era where the cost of (re)production can often be minimal [I should note at this point, that the edition of the book that I bought is from 199X; a 4th edition came out in 2005, which, I imagine, approaches the digital economy more].

And of course there is also the matter of the competition (cost-based pricing only works well in monopolistic situations—”it costs what it costs, what are you going to do about it, punk?”) and, again, the value that the customer places on your product. But this kind of interplay can be really complex and is exactly why I decided to read this book.

A note on the avoidable costs part. Recently, I was looking for a laptop-bag and came across what I thought was a great deal. Everywhere I looked the bag cost €40. But one place had it for €25. Without thinking I added it into my basket [this is e-commerce] and wanted to order it. Until I saw that sending it would cost €20 [other's charged €5], bringing it to the same sum. This was actually a coincidence, as they charged €20 for sending other products as well. Why does one company charge much more than others for sending materials, but less for the materials itself? My acquired wisdom taught me that this is because it encourages people to buy lots of products at once. Because people buy a lot, the store has to store less inventory over time, which represents a saving that it can translate into the cost of its products.

The inventory cost is an avoidable cost that you, as a store, can tweak up, down, or away. Just like you can outsource certain parts of your operation, etc. etc., you can make decisions on an organisational level which will have an effect on your costs. And because your costs don’t matter to your customer, the value that he attributes to your product does, you have to change your costs and margins to match that picture. Did that make sense? I had to re-read that part of the book a few times to get it myself, sort of.

The price that you and I are willing to pay

While marketeers would like you to think that this is all a psychology game, it is in fact still a psychology + numbers game at this stage. When my income is low, making a purchase that consumes a large percentage of it, will make me very price-sensitive and vice versa. If I use an app that saves me x amount of time [allowing me to earn more money], then that app has a certain value to me relative to that.

But there are psychological aspects as well. My Mac, for example: I know it saves me time to do what I do (=financial value). But I also feel good about being on a Mac (=psychological value). Or the digital SLR I am planning to buy. I briefly browsed the second-hand market, but abandoned the idea because I value the security of buying a new product. My expertise in cameras is too low to place my faith in a second-hand camera, even if it is half price. Had the new Mac not come out recently, I would’ve probably bought a second-hand one, because I know about 10 different tests to make sure that it’s ok. The product’s reputation is a factor, but so is the customer’s expertise.

Setting a price is a matter of what value it has for a customer—real and imagined—and good marketeers can position their products wisely to convince customers of that.

Final thoughts

Don’t worry! Tech it Easy won’t become a pricing-orientated blog anytime soon. As interesting as it can be, it doesn’t quite hit that mainstream nerve, I don’t think. For me, it is just another puzzle to solve on the big canvas that is life. And perhaps, I made you curious about it also? If so, give me a buzz in the comments or send me a mail. As I’m here to learn, I’d love to discuss any questions you may have about this!

Vincent

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Just one post this week, it is again the busy period in Vince’s house. This last week, I’ve read two predictions, both, by coincidence, based on the role-model of Apple. The first was David Carr’s, who asked for an iTunes for news in the New York Times. The second was Ian Betteridge’s, who predicted an iPhone-style app-store, controlled by Apple, for all of the Mac. Let me address them both here.

News… what has that looked like over the years? We had print, which lead to books and perhaps pamphlets. Let’s just jump to the 20th century. We’ve had the onslaught of the marketing age, which also made newspapers big. People have never paid for news really, they pay a minimal fee for the price of the paper, the rest of which is covered by advertisers. Then came the internet and it all went down the toilet. You, me, everyone imagined they could be a journalist, even if it meant just copying the text word-by-word of what someone else had written.

Compare that with music. It started with the production of sound, live performances, then the reproduction of sound across various media. The business-model was 90% of the time a straight sale. Music speaks to our brain, differently from the way news does (it’s all drama anyway, right?), and we are hooked on it, like a drug. So we pay and we pay and we pay. Then comes the internet and the magic of painless reproduction and distribution. The power-houses that are media-companies were slow to catch on and it’s pirate-city all round. CD sales go down! In comes smart Apple with their silly little white box with one button and saves the whole damn industry! We think, oh my god, Apple saved retail! What Apple in fact did was close the loop again. Instead of artist -> CD -> shop -> CD -> consumer, we now have artist -> mp3/4/5 -> iTunes -> iPod -> consumer. Everyone wins, though most of all, Apple.

What is the key here?

• For one, music isn’t news. As I pointed out, music is a drug, while news is a duty. Music is fun, while news is … interesting? We can live without the news, believe me, we can’t live without music.
• Two, news was never a powerful business model to begin with. Since the days of Soap-operas, all media has been owned by advertisers, who somehow have made this industry survive, even though no one was really willing to pay for it. Yes, we can also live without television, but we can’t live without music.
• Music is also a tightly controlled product, it’s expensive to make music and to get it into your ears. News, on the other hand, the media has long learned how easy it is to copy-paste.

The internet has shaken both industries and much more so news. Because its sugar-daddies, the advertisers, suddenly realised that they could get away with no longer paying for the expensive process of print and distribution, as well as having many more options to advertise online. The power-position, which was already unbalanced in the first place, has shifted even more in the direction of the advertisers.

For music, the power of supply continued to be in the hands of the media-companies. In case you haven’t noticed, those are some powerful companies and the world of music and other entertainment media is locked down with some big nails—Pandora, Hulu, Joost, iTunes, take your pick, chances are that most of these are not in your country. The internet has had an effect, to be sure, but they control the supply and they have lot’s of money to change things. They finally got iTunes to succumb as well, with their now variable pricing.

There is no analogy here and no matter the superficial similarities and the coming of the “iReader,” there never will be. News will never be something that we want to pay for. Who wants to pay to hear that Hurricane XX has killed millions, or Region YY is filled with starving children, or that Region ZZ has weapons of mass destruction? Because, that, unlike the stories we may read on the internet, is what news really is: making us aware that our planet isn’t all that. Give me a good song any day over having to hear that!

Just briefly, the iPhone store translated to Macs. Why it’s different: it’s i…Phone, the most locked-down technology on this planet. Vs. the PC, which is the most unlocked technology on the planet. Need I spell it out?

The greater point I’m making is that frequently “visionaries” and “entrepreneurs” write their business plan or manifesto stating that because X is so, my business will work that way too. Analogies, taken too loosely, will kill your business and rather than taking the words of visionaries at their face value, we should work it out: Was X like that really, and is your business like that really too? Chances are… it’s not.

Vincent

(man, I love it when I can pump out all this text in 15 min. or less)

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I’m sitting in the train, reflecting on the concept of “Free!”, having just listened to a podcast from the London School of Economics on the diminishing role of European citizenship—a British university, a very dry topic, my thoughts naturally drifted elsewhere. I’ve also been thinking about the dwindling state of print-media and the onslaught of digital media—a topic that has been beaten to death over the years.

I was wondering what made a university give its, let’s call them “words” away for a free, until I realised that the one thing that a university probably has in abundance is words. The same applies to print media, with an excess of its type of media, or radio stations, with an excess of music… etc., etc.

My theory of “freeness” is thus that you should release those things for free that you have in abundance. I’m sure there is a more formal economic theory about it, and I think it comes down to the idea of marginal value and that those things that have less marginal value can be released for free or cheap, while those with a higher marginal value should not be (please correct my interpretation in the comments, if I’m wrong).

The reason we are (or I am) so confused about this subject, is because things cost money. It costs money to produce a newspaper, which is why we are forced to look at adverts on every second page and pay a cover charge as well. So, it’s no wonder that we expect that by releasing stuff for free that they must be losing money!

I’m not a good economist, so I can’t throw a complicated formula at you, just that I think that you have to focus on other values, next to the commodity-cost of words / text / music, when selling a service. For universities, it’s the facilities and access to very smart people; for print newspapers, it’s the convenience of the paper at a fair price; for radio-stations, it’s the freshness of supply and witty comments. As long as you can differentiate yourself in areas like these, other things can essentially be given away for free.

As mentioned, I’m sure a theory exists about this, but I thought it would be a nice thought for today’s post.

A quiz to finish. What parts of following businesses could probably be released for free?

• A strategic consultancy
• A mail delivery company
• A gas station
• A word-processing software business
• A social network business
• An author of books

With at least one of these, I think it’s ok to say nothing at all. And I think that for none of them, it’s ok to say that everything should be free.

Vincent

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It feels strange to start 2009 with a dream, but a new year means doing new things and this one felt right. I sometimes have some pretty strange dreams and find it worthwhile to write it down. I don’t quite have notebook lying next to my bed, but close enough. This one was strange too, much stranger than what I’m about to tell you.

In my dream I was looking for a Christmas gift for my brother, a T-shirt actually. For some reason, I imagined that I entered some sort of electronic boutique to do it, I went to pick a shirt, and went to try it out (my brother and me are pretty much the same size).

So there I was in the changing room when I noticed some sort of display on my shirt. It gave me all kinds of options, many of which I can no longer remember, but basically they were something like:

• “Do you want to see the news when eating breakfast?”
• “Do you want me to operate as a timer when brushing your teeth?”
• “Do you want to see traffic information when driving to work?”

You get the idea.

I then had another dream within my dream, which was about imagining other applications, like:

• You’re listening to the radio and the thing suggests Wikipedia entries related to the topic.
• You’re doing exercise, and it suggests other related ones, with instructions.
• You put it on and it sends out a signal to other clothes that match and they start beeping.

And then I woke up, good morning and happy new year, guys!

Ignoring some inconsistencies, like where the display could be on a short-sleeved T-shirt, whether it’s not a little unnecessary for it to display traffic information or a timer when brushing, if those technologies already exist in cars and electronic brushes, and some others, this is the way I imagine it, let’s call it e-clothing, to work:

• It has a wireless connection, which enables it to talk to other devices (including clothes.)
• It has an accelerometer, which senses things like you brushing or doing exercise.
• It can be programmed, manipulated within or remotely, to become relevant to your context.
• It takes on the colour of your clothing when it’s dormant.
• It also has no problem being folded, etc., so it’s like e-paper or better, like e-cloth.

That’s all for now. I would personally love for electronics to be part of our everyday clothing, it makes a lot of sense when thinking about exercising-contexts, where other devices are cumbersome, and for finding matching clothes (hell for some).

Hope you had a happy new year celebration!

Vincent

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