Insulting Steve Jobs

I'm on a Steve Jobs kick lately; last week I wrote about how someday there may be statues of him all over the country. I came across this great video of him responding to an insult from someone in the audience at the 1997 Apple Developer Conference, just after he was renamed CEO.  If you listen closely, you'll notice that in his response he does far more than respond to the heckler.  He  lays out Apple's philosophy on product development that would fundamentally drive their outrageous success for the next 15 years.

Start with the consumer.  The consumer must drive the technology.  It's five minutes long but definitely worth watching.

[youtube http://www.youtube.com/watch?v=FF-tKLISfPE]

Google+ is Trying to Fix Social Networking

I’m a member of most of the big social networks (Facebook, LinkedIn, Twitter, Google+, etc.).  To me, the concept of online social networking is awesome.  Connecting and socializing through the web is a wonderful concept.  And it actually works pretty well in many ways. It’s incredibly easy to share online; nearly every website has “Like” and “Tweet” buttons and most sites are pretty easy to use.  And for the most part the people I want to share with are on the social networks I use.

But the thing that’s missing from online social networking, that makes it completely unlike real social interactions, is that there isn’t an easy way to share with discretion.

In the real world, using social discretion is extremely important and extremely easy to do.  There are things that I tell my best friend at work that wouldn't interest my friend from high school's mother.  There are things that I share with my high school friends that wouldn't interest my brother.  So in the real world, I simply don't share things with people that don't care about them.  This discretion is perhaps one of the most basic laws of social interaction.  But it's nearly non-existent in online social networks.  For the most part, when people share online, they share with everyone.

In the real world, sharing with everyone, without discretion, causes people to not like you.  Online, the lack of an easy discretion tool causes two other problems:

1. It creates a ton of "noise" -- unsolicited, superfluous information consumption
2. It prevents people -- especially adults, I would argue -- from sharing more online

Both of these are huge problems for social networking, and they're the reason I don't share more online.

It turns out that Google+ has a great solution to these problems.  They call it "Circles".  Take a look at the video below, it's only a minute.

I think Circles is a brilliant concept that has the potential to massively grow usage of social networks.  The challenge is of course that most people aren't on Google+ and I hear that ~80% of accounts are inactive.  Another challenge is that it takes a lot of time to build your circles and many people may not be willing to do that work.  Though I'm sure Google's technology and data could find a way to build Circles for you somewhat easily.

Regardless of whether or not Google+ takes off, the lack of discretion is the biggest problem with social networking and, in the long term, I'll be using the service that's easy to use, has the people I want to share with and facilitates simple discretion.

Statues of Steve Jobs

One of my management professors in business school once told my class that someday we'll see statues of Steve Jobs all over the United States.  

It was his view that Jobs literally saved the U.S. and its economy by recognizing the commercial potential of PARC's mouse-driven graphical user interface (GUI) back in the early eighties.  The invention of GUI led to the personal computer and put the U.S. in a position of power in the software and computing industry.  At a time when it seemed America was rapidly losing in every major industry (automobiles, electronics, manufacturing, etc.), winning in software and computing may be the reason the U.S. continues to be a global economic powerhouse (by most measures the list of the top software and technology companies is still dominated by American companies).

Regardless of whether he deserves the statues might be debatable, but his outrageous success as a businessman is not. The Economist had an article covering his resignation as CEO of Apple this week.  In it, they included a timeline of his career.  I pulled out a few examples and added some of my own to illustrate what an absolute business legend Jobs has been.  Amazing.

1976 - Co-founds Apple, launches first personal computer

1980 - Apple goes public

1984 - Launches Macintosh

1985 - Ousted as CEO after boardroom coup

1985 - Founds Pixar

1997 - Renamed Apple CEO

1998 - Launches iMac

1999 - Launches iBook

2001 - Opens first Apple Store

2001 - Launches iPod

2003 - Launches iTunes

2006 - Pixar sold to Disney for $7.4 billion

2007 - Launches iPhone

2010 - Launches iPad

2011 - Apple surpasses Exxon Mobil as most valuable company in the world

For more on Jobs, check out Jim Keenan's recent post that includes some of his favorite quotes on business. Some great stuff in there.

Disruption, Illustrated

I came across a two very neat examples of disruption over the past few weeks. The first is from Digital Music News and graphically depicts music distribution by medium since 1981, it's fascinating to watch cassettes and CDs grow exponentially and then disappear just as quickly.  Depending on your browser you may need to slide your mouse over the image to turn it on.

The second is from Chris Dixon's blog and illustrates recent disruption in the video game market.  Below are images of the instructions to play Angry Birds versus the most recent version of John Madden Football, arguably the most successful video game for the last ten years.

Over time the incumbent often builds complexity into its product to satisfy customers, to give them more.  But at the same time that complexity can leave new customers behind.  This creates the opportunity for a new entrant like Angry Birds to swoop in and provide a far more easy to use product for the majority of consumers.  At last check Angry Birds had sold more than 200 million downloads.

Angry Birds

Madden NFL 12

The Long Tail In Action

My favorite band, Micky and the Motorcars, is releasing a new album tomorrow titled, Raise My Glass. I'm pretty excited about it. I think I first discovered the band through Pandora -- they have a similar sound to many bands that I listen to.  I liked what I heard and bought a couple of albums and am now a huge fan.  I was finally able to see them live at the Bowery Ballroom here in New York last month.

Without the internet, I'm certain I never would've come across their music.  They're a little known "alternative country" band that doesn't get played on the radio even in Texas.  They currently have less than 9,000 Facebook fans (contrast that with U2's 10 million or Dave Matthews Band's 2.4 million).

I was thinking about buying their album and I realized that the purchase will be a perfect example of the "Long Tail" theory in action.  I built the graph below to help make my point.

The graph shows album sales for Michael Jackson's Thriller versus Micky and the Motorcars album that comes out tomorrow.  Thriller has sold more than 50 million copies whereas Raise My Glass will probably only sell several thousand. Marketers used to think that they had to find the next Thriller, the next huge album, if they wanted to make money. So they virtually ignored acts that wouldn't deliver an enormous fan base.  But the Long Tail theory tells us that there's actually more revenue to be had in the yellow section of the graph (the tail); that is, relatively low sales volumes of millions of different albums.; i.e. albums from bands like Micky and the Motorcars.

Because of distribution and marketing limitations, it was impossible to execute on the Long Tail theory 20 years ago.  But with technology, specifically the digitalization of music, the Long Tail is now no longer just a theory, it's a reality, and I'm happy to be part of it.

Personalization Doesn't Work...Yet

Most of us know that a huge trend in e-commerce is the personalization of websites and email content.  You'll log-in into a site and you'll only see the things that you want.  You'll receive emails that are personalized to your interests, you'll only see the things that matter to you.

While this sounds wonderful, it simply doesn't work well right now.  By "well" I mean it isn't profitable.

Here's a perfect example.  iTunes knows literally EVERYTHING about my taste in music.  They know my favorite songs and artists and my least favorite songs and artists.  They know the artists and albums and videos I've purchased.  And those that I've viewed, but chosen not to buy.  They know enough to have give me the most personalized music shopping experience on earth.  

But what do I see when I log-in to iTunes?  Huge display ads for albums from Lady Gaga, Katy Perry and Pitbull -- three artists I've never dreamed of buying.

Same thing with Amazon.  They know everything about my online shopping habits but all I can see on the homepage is a huge display ad for the new Kindle.

The reason for this is simply that personalization doesn't work in the short term.  And marketing managers that decide what goes on the homepage need to hit their numbers this week and this month and this quarter.

I can almost imagine the conversation at Apple:

CEO: Hey, we know so much about our users, why don't we show them albums that are relevant to them on the homepage?  Won't they convert better?

iTunes Marketing Manager: Well yes, they'll convert better but the incremental revenue from the better conversion doesn't even come close to the incremental revenue we get in fixed marketing fees for putting Lady Gaga on the homepage.  In addition, Lady Gaga's label pays us a larger revenue share per album.  Also, if we sell 50,000 Lady Gaga albums this week, we get a $1 million bounty from her label.  So while our homepage to purchase conversion may increase with personalization, it simply won't make up for the marketing revenue we're getting by broadcasting her album to all of our users.

CEO: But won't this turn some users off?  Won't they go somewhere else if we don't show them what they want right away?

iTunes Marketing Manager: I suppose that's true, but hey, I have a big goal this month that I need to hit.  I can't worry about that now.

Of course I'm completely making up the facts and numbers in this conversation, but this is the logic that's driving decision making for many web services that can personalize but choose not to.  It simply isn't profitable yet.  And most companies aren't willing to make the short term sacrifice to provide a better shopping experience in the long run.

That said, I do believe at some point the large web services' personalization tools will get smart enough where the increases in conversions from personalizing a site will outweigh their fixed marketing revenue.  But it's pretty clear to me that that reality is pretty far off.

Linking Credit Cards to Deal Sites

Fred Wilson had a good post yesterday titled, Syncing Up Your Credit Cards.  In it he makes the case that there’s tremendous value coming from linking our credit cards with innovative web services.  He uses BillGuard and Foursquare as examples. I posted a comment on the post that triggered a pretty interesting discussion.  My comment points out how I believe that linking credit cards back to deal sites creates an enormous market opportunity for better ‘deal making’ and better merchant marketing.

Rather than reiterate the comment, I’ve posted a screenshot of it below.  I’d encourage you to go back to Fred’s post as there’s some very interesting discussion happening in the comments section.

3 Elements of a Marketing Email

Here are three very simple things that should be included in every marketing email you send.

1. Value Proposition (why should I care?)
2. Call to Action (why should I click?)
3. Urgency (why should I click right now?)

Ideally, they’d appear in that order.

Scaling an Internet Business

I built the chart below to illustrate a few points about internet businesses.

1. The chart shows the virtuous cycle that comes from sites with user generated content.  YouTube's and Facebook's products are their users.  Their users generate videos and photos that make the site more valuable.  More value, more users, more value, more users.
2. This cycle doesn't exist as cleanly for deal sites.  Their product is deals that come from salespeople.  If they want more deals, they need more salespeople.  That's expensive (they have 4,000 of them).  Certainly, more users make their salespeoples' pitch better, but that cycle doesn't happen neatly.
3. Groupon has a a huge advantage when it comes to conversions.  People come to Groupon to shop; their deals (i.e. ads) are their product.   Conversely, people do not come to Youtube and Facebook to shop.  Their ads are a distraction.  Because Facebook and Youtube make money by distracting people from what they want to do on their sites, Groupon arguably has a more sustainable model.
4. Because Facebook's and Youtube's products are their users and Groupon's product is their salespeople, it's interesting to think about how much incremental value their engineers are adding.  Youtube and Facebook are mostly made up of engineers.

When you build a consumer internet business, don't assume that it's going to happen like it happened for YouTube and Facebook.  Think through whether your value will build on itself or if you need to buld it incrementally, the old fashioned way.  It's also crtical to think through where your scale is going to come from: users, salespeople, or engineers.  The answer isn't always clear.

It's Not Viral Marketing

I wrote about this in an earlier post, but I think it's worth a reminder. Viral Marketing is not:

Telling your friends to Tweet about your new site.

Posting about your upcoming concert on Facebook.

These are simply modern ways of doing old fashioned push marketing.

Viral Marketing is when:

1. one person tells two people about your product (3)
2. each of the two tells two more people (7)
3. each of the four new people tell two more people (15)
4. each of the new 8 people tell two more people (31)
5. each of the new 16 people tell two more people (63)
6. each of the new 32 people tell two more people (127)
7. each of the new 64 people tell two more people (255)

You get the idea.

Viral marketing is when word about your product spreads, naturally, like a virus; and frankly, without much effort from you. Other than making the product worth talking about.

Your Social Network Asset

Currently I have about 80 followers on Twitter, about 500 Facebook friends and about 500 LinkedIn connections.

There's some overlap between networks, but more or less with a few keystrokes I can send a message to 1,000 people that trust me and are attentive and willing to listen to what I have to say.

That is an asset. A social asset. Not only the captive and trusting audience but the ability to communicate to that audience in real-time, whenever I want and as often as I want.

Like any asset, I can make it more or less valuable over time, either by losing or gaining audience, losing or gaining trust, or losing or gaining attention.

I think it's worth thinking about this for a few seconds next time you want to post something you want people to support. Will it make your social network asset more or less valuable?

Email and E-Commerce

Fred Wilson had a post last week called Don’t Forget Your Logged-Out Users where he discussed how social media sites need to pay attention to the value they create for users that aren’t logged-in; i.e. Twitter allows you to see Lebron James’ Tweets without logging-in.

This is something I’ve thought about a lot in the context of e-commerce.  You need to be very careful about what value you provide to a user before you force them to authenticate (i.e. force them to give you their email address). 

Most web services drive the majority of their traffic through email – especially repeat traffic.  As a result, email capture for a new visitor is critical.  It’s hard to get a user to your site, it’s even harder to get them back – in most cases you need their email address to get them back.  An email address allows you to regularly market to that user to bring them back when you have a better or more relevant offer for them.

So when you think about how much value you provide to a user that isn’t logged-in, you need to consider the potential missed opportunity to capture that user’s email address.

I’ve found that when you put up a authentication page before allowing a first-time user to shop, you lose about 20% of visitors; most users came to your site to see what you have and they’re willing to take an extra step to see it.

I’ve also found that when a user comes a site, there’s about a 5% chance they’ll transact on the first visit. 

Think of it this way:

Scenario 1 – Authentication and email capture before user can shop

1,000 New Visitors

800 New Email Addresses

40 Transactions

Scenario 2 – No Authentication before user can shop

1,000 New Visitors

50 New Email Addresses

50 Transactions

Here’s the question to consider when making the decision on how much value to provide to users that aren’t logged-in to your e-commerce site: what’s more valuable to you, 10 transactions or 750 new emails?