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10 Internet Biz Predictions For 2010 December 5, 2009

Posted by bernardlunn in Uncategorized.
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Brave or foolhardy? My 10 Internet Biz Predictions For 2010 by Twitter. Self-imposed brevity.

# 1. The US economy will have another dip and unemployment will stay close to current levels. The creative part of creative destruction does not keep pace with the destruction part.

# 2.The stock market will be up for the year, despite some nasty moments and despite a lousy economy, as interest rates will remain low

# 3.Return of the Internet IPO. Media heralds the “golden age of the Internet” but we are all careful not to utter phrases such as dot com that recall funneling $100 notes into a furnace.

# 4.LinkedIn IPO is the poster boy for the return of the Internet IPO perfectly timed for the combo of a lousy economy and rising stock market.

# 5.Facebook does NOT IPO and there is lots of Blogosphere chatter trying to figure out why not.

# 6.Twitter is acquired by either Microsoft or Google for an amount that creates a lot of talk about a bubble.

# 7.VCs find it easier to raise money in aggregate. But almost all the real returns go to a very small number of firms and most struggle for a sustainable role.

# 8.25% of the financial services industry find work doing something different and some of them will be very successful and create a lot of positive impact.

# 9.Google’s stock underperforms a broader Internet stock index as pundits focus on their lack of advantage in the golden triangle of social + mobile + real time

# 10.Do Not Track legislation roils the behavioral marketing market and the smart bets on monetization move to transactions and subscriptions.

(yes to math folks, this version does not restrict to 140 characters, pre TwitEdit)

Online Transparency: Mega Wave Building Now December 3, 2009

Posted by bernardlunn in Web 3.0 Semantic, capital markets.
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During the US Presidential election campaign, Google ran a series of amazing meet the candidates events that were broadcast online. They were the opposite of the sound bites on mainstream media. The candidates had plenty of time and were questioned by a highly intelligent audience. Barack Obama was one of the candidates (other ones worth watching IMHO are McCain and Bloomberg). There was one point that made me really appreciate the “audacity of hope”. It was when Obama was asked how somebody with so little experience in Washington could stand up to the special interest lobbies. His response (it is around 0.50 minutes on the video), which previewed what became Data.Gov, made my hair stand on end. Data.gov is real and in this video he describes the initial vision and mission.

Could Data.Gov Become Obama’s Greatest Legacy?

The question seems absurd. But listen to what Harold Wilson, Prime Minister of the UK for 8 years, described as his greatest legacy. Despite many high profile achievements at the pinnacle of power, dealing with big crisis and initiatives on the front page and prime time, he chose his work to create The Open University.

The Open University was founded on the belief that television and radio could bring high quality degree-level learning to people who had not had the opportunity to go to university.

At the time, the creation of the The Open University was lost amidst far more high profile news. But 40 years later all the high profile urgent stuff he worked on is simply material for the history books, while The Open University still has tremendous impact on the lives of millions by improving access to quality education.

Data.Gov will also take years to have a big impact. But it is a toothpaste out of the tube dynamic. Once the data is out, nobody can get it back in. And this is riding a massive wave of online transparency.  There is no need to fight entrenched interests – just ride a massive wave that will effortlessly wash away those entrenched interests and lobbyists.

The Decline Of Asymmetric Information Intermediaries In Consumer Markets

Online transparency is about taking away the power of asymmetric information from an intermediary. We have already seen this play out in consumer markets. Buyers now have access to much better data about pricing and costs. The most notorious intermediary exploiting information asymmetry was the car dealer. That game has changed forever.

Cars, houses, travel and many other big consumer markets now have the consumer in charge. Good data and social ratings have changed these markets forever. These are the big and complex purchase decisions for most consumers.  But the data is still totally simple compared to information about how laws are made in Washington and who influences how those laws are made and how they benefit from those laws.

The Big 3 Markets That Will Be Impacted By Transparency

These consumer markets are also really simple compared to these three big markets:

1. Scientific Technical Medical Publishing.

2. Capital Markets.

3. Healthcare.

The data that drives these markets is horrendously complex. And what happens in these markets really, really matters to all of us.

Enter Stage Right, The Semantic Web

The Semantic Web, the geeky guy that web 2.0 hipsters like to poke fun at, is about to enter the stage and finally has a big role to play.

The data complexity in these markets is overwhelming for a the “slap some HTML and Ajax on top of RDBMS” that is the de facto technical approach today. The best data modelers in the world cannot design upfront for these markets.

Obliterating Data Obfuscation

Software engineers use “obfuscation” techniques to deliberately hide the underlying code designs in order to prevent a user from making an illegal copy through reverse engineering. That is a reasonable objective. What is not reasonable is “intermediary obfuscation”, the deliberate obscuring of reality through layers of complexity and impenetrable jargon. Special interests use data obfuscation to protect their profits.

Three Powerful Forces Driving Transparency

We are now seeing three powerful forces driving transparency:

  1. Political will from the leader of the largest economy in the world.
  2. Consumers and B2B buyers expecting transparency from sellers and rewarding the sellers who deliver it with more business.
  3. Semantic Web/Linked Data technology that is increasingly mature with many passionate proponents seeking a prime time role for the technology. In the capital markets, XBRL is the key enabling technology.

Online transparency is a mega wave to ride.

CIOs Think XBRL Impact Will Be Big (But It Is Not High On Their Priority List) December 1, 2009

Posted by bernardlunn in Uncategorized.
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I have developed a journalistic habit – try to find THE STORY. It is valuable habit when sitting through long conferences. You can learn lots of detailed stuff at conferences but it is too easy to get lost in the trees and not see the forest.

The story at the XBRL Conference jumped out at me when I saw two slides from a presentation by John Van Decker of Gartner. This generated the headline:

“CIOs Think XBRL Impact Will Be Big (But It Is Not High On Their Priority List)”

Of course headlines and sound bites can suffer from a different problem – oversimplification. So take a look at the underlying data as shown in the presentation slides. Specifically look at: John Van Decker, Vice President – Corporate Performance Management and Financial Management Systems, Gartner in Beyond The Mandate. See slide marked: Technologies that will have major impact.

# 1 at 37.1% is no surprise: Web Oriented Software. Actually that’s a catch-all term that includes almost all the other categories

# 2 at 29% is the big surprise: XBRL!

Add in the related # 3 at 24.8%: Governance Risk & Compliance (GRC) and you can see what is keeping CIOs awake at night. Arguably, XBRL is a tool to enable GRC:

XBRL + GRC = 53.8%.

To put this in perspective, check out the % for some “hot” subjects:

  • SAAS: 15.7%
  • Enterprise Mashups: 6.2%

OK, so much for the first part of the headline:

“CIOs Think XBRL Impact Will Be Big”

What about the second part?

“But It Is Not High On Their Priority List”

Look on the next slide labeled: XRBL adoption is SLOW!

For those relatively new to XBRL, the 1,2 and 3 relates to the SEC Mandate, where 1 is the first wave of filers. My takeaways:

  1. There is a lot of work to educate the 3rd wave of filers. 72% cite “lack of knowledge” (and therefore, not surprisingly lack of budgets or technology).
  2. Nobody has provided a compelling use case beyond the mandate, so the 1st and 2nd wave filers are not doing more than they absolutely need to in order to meet SEC mandates.

For more basic intro to XBRL, see my recent post and links on ReadWriteWeb.

Talking To John Hagel About Emergent Business Networks November 29, 2009

Posted by bernardlunn in Globalization, capital markets.
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John Hagel is one of the leading business strategists, author of The Only Sustainable Edge. I interviewed him back in July about the research he is doing at Deloitte into the dramatic and overlooked plunge in Return On Assets (ROA). When Deloitte contacted me again about some new data which dug deeper into ROA in different markets, I wanted to learn more about the background story. In conversation with John, the story emerged. The story is what big western companies can learn from Chinese companies about peer partnering in emergent business networks.

The Return On Asset Bombshell

The Big Shift research done by John Hagel and his team shows:

“U.S. companies’ return-on-assets (ROA) have progressively dropped 75 percent from their 1965 levels despite rising labor productivity.”

That is dramatic. If you had to select a single measure by which to judge the value delivered by a CEO, board, or management team, it would be return on assets. To quote from the Wikipedia entry:

“The return on assets (ROA) percentage shows how profitable a company’s assets are in generating revenue. This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control.”

And here is the bit that matters:

“Return on assets is an indicator of how profitable a company is before leverage.”

If you want to understand the financial meltdown that happened at the end of 2008, just think leverage, i.e. debt. Companies juiced up their earnings using leverage. They have been doing this more and more in the last 30 years.

What happens when you take that away? You get the return on asset bombshell that the Shift Index reveals. It is like taking steroids away from an athlete and then saying, “Now, how fast can you run 100 meters?”

Give Your Lobbyist A Bonus

In their latest research the Shift Index team looks at how this is impacting different industries:

“While virtually every industry that Deloitte examined has been impacted by the “big shift”, the first wave of industries currently feeling the most pressure include technology, media, telecommunications and automotive.  They also represent a ‘canary in the coal mine’ for industries that have just started to feel the effects of the Shift Index, including banking, retail and insurance.  Finally, the report also reveals that heavily-regulated industries like healthcare and aerospace & defense are the most insulated, at least for the moment.

The take way for investors? Place your money in markets where the government has erected the barriers to entry through regulation. The take way for companies in that fortunate position? Give your lobbyist a bonus!

But what if you work in technology and don’t think that regulatory barriers are either desirable or practical? You certainly need to do something dramatic if you look at the ROA data in your industry:

“In terms of the technology industry, the report reveals that a decline in ROA of nearly 70 percent, despite the highest gains in labor productivity in the U.S. This industry is also experiencing a level of competitive intensity that has magnified almost four-fold since 1965 and is 30% greater than in the rest of the economy.”

What Companies Are Showing The Way?

This all sounded rather gloomy. Deloitte is in the business of advising large companies. So I assumed that John must have some role models, some tech companies that were prospering in this hyper-competitive economy. Surely the only answer was not just “work in a highly regulated industry and hire a good lobbyist”?

Yes, John had some role model of tech companies prospering despite hyper intense competition. But their location surprised me. In the past the role models brought out by management consultants were almost all American, with an occasional European or Japansese company thrown in for good measure.

The role models that Jon mentioned where Chinese tech companies.

As A Historian I Should Know About Quoting The Source

When he described how they were working, it reminded me of the Chinese motorcycle companies that I had written about in my original post on “Emergent Business Networks“.

I mentioned that I had written about this earlier having been impressed by the story about Chinese motorcycle manufacturers in Wikinomics by Dan Tapscott. Oops! John told me that Dan got the story from him. As somebody who studied History at college, I should know better. So, by way of an apology, here is a link to John’s book – The Only Sustainable Edge.

Peer Partnering vs PR Partnering & Platform Partnering

These Chinese tech companies are “partnering” to build products way more efficiently than they could by creating everything in-house. Nothing new there you might think. Partnering is what we all do, right?

Partnering is perhaps one of the most overused and abused term in the business dictionary.

There are two predominant forms of partnership today:

  1. “PR Partnerships”. These are designed to make both partners look good and to get press but they don’t involve much real work or create significant revenue.
  2. “Platform Partnerships”. These are when a big company sets the rules in order to get small companies to create products for niche markets or to sell their product in niche markets. This is like calling a landlord/tenant agreement a partnership.

By contrast, the Chinese model is more like “Peer Partnership”. Each company is genuinely independent and each partnership is mission critical to both parties. This involves some hard-nosed negotiation.

Keiretsu 2.0?

Cynics might say “we have seen this movie before”. In the 1980s it looked like the Japanese model was going to dominate. Their networks of companies were called Keiretsu. The term became popular in the start-up world; Kleiner Perkins called their network of contacts a Keiretsu.

I asked John if the Chinese model was simply “Keiretsu with a Chinese Face?” John had clearly considered this and responded that the Japanese model involved equity cross-holdings (that’s why the model appealed to VC firms). The problem with that is that the equity position outlives the usefulness of the partnership. Rather than re-negotiating or ending the partnership, cross-holdings tend to lock them in well past their “sell by date”.

Chinese Jiu Jitsu

Necessity is the mother of invention. Chinese companies have grown despite lacking two critical things that we take totally for granted in the West:

  1. Intellectual Property (IP) protection
  2. Well developed capital markets.

The Chinese firms turned these weaknesses into advantages through their approach to partnering – classic Jiu Jitsu.

Large American companies may need to learn some of these tricks. We are entering an era that looks a lot like emerging markets when:

  1. Intellectual Property (IP) protection is threatened by the “perfect copy machine” of the Internet and the consequent move to open source, open data and open everything else.
  2. Capital becomes more scarce as debt leverage declines and equity investors demand a greater real ROA.

StartUps Know That Partnering Has To Be A Core Competency

The 3 golden rules of a start-up are focus, focus and focus. Startups know that have to focus on the one thing that they do better than anyone else partner with other companies for everything else. Some entrepreneurs now consider the art of partnering as a core competency.

It is possible that we are facing an interesting inversion of the norm. It used to be that start-ups studied at the feet of managers who used to run large traditional companies. “Teach me to manage oh great suited one”.

Now the big cats in the corner office are being asked to think more like a scrappy bootstrapped start-up in a garage in cheap location in America or an equally scrappy start-up in a dusty corner of Western China. It’s enough to make you throw up your 3 martini lunch!

A great bit of business journalism December 14, 2007

Posted by bernardlunn in B2B Media, Journalism.
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Read this article from Forbes:

“Internet II: Rebooting America
Michael S. Malone, 09.10.01

Getting real and getting it right.

The biggest economic boom in history is bearing down on us. “

Big deal, you might think. But check out the date (what happened the next day?). In late 2001 this was really far-sighted, clear thinking.

Now look at his concluding remarks:

“But with this announcement also comes a warning: We are not prepared for this impending boom. We have no way to support it, to nourish it, even to reap its benefits. What will happen to Internet II, the fulfillment of the technological revolution, when our order sits on a runway behind 60 other planes awaiting takeoff, or on a stalled interstate? And how many batteries will we need to surf the Grid in the dark?

Internet II is coming, but we aren’t ready. If we aren’t ready soon, we may have to wait until 2015 or 2020, and perhaps visit Frankfurt or Shanghai to see what we missed. “

Blogs, shmogs, great journalism still lives and makes a difference.

Playing against 5 Aces December 6, 2007

Posted by bernardlunn in Globalization, India, start-ups.
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NOTE: THIS WAS WRITTEN IN 1997
I wrote this article 10 years ago, having spent a lot of time in India at that time. I have written the “10 years later perspective” and posted that to Read Write Web.

American software companies dominate the competitive landscape. Americans have no genetic advantage over Indians, a fact that is proven again and again by Indian immigrants to America. No, the advantage is environmental not genetic. America is a much, much easier environment within which to create great software companies. American companies start life with 5 major advantages – their 5 Aces:

1. A large domestic market
2. Access to intellectual capital
3. Reliable, low cost telecommunications
4. A culture that rewards innovation and risk taking
5. A well developed venture capital industry

If you were playing poker, that would be like having 5 Aces. Yes, I know you cannot have 5 Aces but, American companies have so many advantages that it almost seems like cheating. Stacked up against all those Aces, India has only one good card to play, an abundant supply of well-trained software engineers at reasonable rates. Sorry guys, America has the better hand.

So should Indian companies give up the dream of creating killer apps and just stick to Y2K and other low value work? Well let’s look at some of those Aces in more detail first:

A large domestic market.
America has a vast domestic market that serves as an ideal springboard for global ambitions. Unfortunately India’s domestic market does not serve the same purpose.

There are many brave companies creating software products for the Indian market. They are the unsung heroes of the business. Usually they have tiny revenues and therefore they never appear in the usual roll call of Indian software champions. Yet what they are doing is far harder than shipping a bunch of engineers off to USA, which is still the primary activity of TCS, Infosys et al

Let’s face it, India is a tough market. Indian buyers assume that foreign products must be better. In fact Indian software gets much more respect internationally than it receives at home. The local vendor typically only gets a look in at the low end of the market, where price is the main consideration. For example, a lot of Indian companies are going after the “low end ERP market” because the giants such as SAP are not interested in this segment, at least yet. Will any of these domestic companies make it into the big time before SAP and other global players decide that the low-end market is worth tapping? This is a tough game that has been called “picking up peanuts in front of a steamroller”.

This lack of respect works both ways. The big Indian software companies contrast the wealth of opportunities in USA and Europe with the slim pickings in the domestic market. They naturally put their best people on international projects, treating the domestic market as a training ground at best. This is a vicious circle. Indian industry, which is facing its own struggle to become world class, is not keen to be treated as second best.

Access to intellectual capital
Intellectual capital is the reason why a healthy domestic market is so important. Intellectual capital is much more important than revenues. You can have a world class software company that has no revenues from India. You cannot have a world class company without world class intellectual capital.

Intellectual Capital usually comes from customers. Think about how most new software products get built. The process usually starts with a visionary customer who wants to make a major impact on their business by using new technology. Looking around the market they see no off-the-shelf product that meets their visionary demands. So they tie up with some bright software guys. The visionary customer is more concerned with innovation than size and understands that innovation usually comes from small companies with no vested stake in the old way of doing things. So small, innovative software companies get their first break.

Look at virtually any software company and this is the pattern you will see. Bill Gates, received his first break through a contract from IBM to deliver DOS. Other giants such as SAP and BAAN follow a similar pattern.

When people in India talk about intellectual capital and the Indian software industry, they tend to focus on technology. They point out that most technological innovations come from the USA and that this puts India at a major disadvantage. In fact, this is only a minor issue. The latest version of Visual Basic or whatever is available in India at much the same time as it is launched in America. Through the Internet you can research all the latest technologies and download what you need.

No, the intellectual capital gap relates to industry. You need customers that are innovators and world leaders in the area of Supply Chain Management or Derivatives Trading or Electronic Commerce and these are hard to find in India.

There is one industry where India has innovators and world leaders (or nearly) and that is software. Maybe that visionary customer is in your own back yard. There is a huge population of software engineers in India that is always looking for innovative ways of doing their job more productively. Maybe the Indian “killer app” will be a new software productivity tool?

Reliable, low cost telecommunications
When Bill Gates was being wooed by the high and mighty in Delhi, he was often asked, “what should the Government do to ensure that India becomes the next software superpower?”

Rather than respond with a whole laundry list of initiatives, his answer was very succinct: “make the telephones work”.

Telephones are the single greatest tool used by the software industry. Telephones provide the means to reach your market, to transfer software to your customers and to access all that intellectual capital on the Internet.

Coming from Europe and America I took reliable, affordable telephones for granted. When I started calling on Indian companies I became all too familiar with a young lady telling me that “all lines on this route are busy. Please call back after some time”.

If you have always lived in India your reaction is probably a fatalistic “so what…that’s life…keep on trying”. Well I was selling rather than buying and so I did keep on trying. What if I was buying? What if my next calls were to companies in Israel and Russia where I got through the first time? Would I have persisted in trying to buy from India? Probably not.

A culture that rewards innovation and risk taking
There was a story in Fortune magasine recently where the big consulting firms, prestigious names like McKinsey, Anderson, Booz Allen, were complaining that they were having a hard time attracting the pick of the MBA crop. Why? Because the best and brightest wanted to work in tiny start-ups in Silicon Valley where they can make a difference.

I doubt that the consulting firms face the same problem in India. The best and brightest would flock to the status and safety of the big firms rather than face the uncertainty of a garage start-up. Without the best and brightest, Indian software will not hit the big time.

The difference is a culture in the USA that rewards innovation and risk taking. There are so many role models for the budding entrepreneur to emulate. Indeed high tech entrepreneurs in America receive almost as much attention as the Indian cricket team!

The role models are available in India and some of them, such as Shiv Nadar and Narayana Murthi, receive a lot of press attention. It is increasingly clear that software is one of the industries where India can become world class and this will help to attract the best and brightest.

America has a very healthy attitude to risk and failure. Start-ups are risky by nature. A lot will fail. Does a young engineer in America, leaving a failed start-up find doors closed and people and looking at him in a funny way? Not usually. Indeed most people would assume that the person has learnt some valuable lessons and will succeed next time. Magazines are full of people who tried numerous ventures before hitting on the successful formula.

A well developed venture capital industry
Venture Capitalists in Silicon Valley vie for the opportunity to tell their story to first year students at Stanford University. They hope that the bright kid with dreams will come to them first. Can you imagine this happening at an IIT?

Actually, yes I can imagine that! Venture Capitalists are thirsty for new ideas and don’t care where they come from. There is plenty of Venture Capital right here in India looking to invest in software ventures. OK, there are not as many as in the USA, but how many do you need? You only need one to fund your venture.

The talk about a lack of Venture Capital in India is misguided. Talk to some of the Venture Capital firms operating in India and you get a rather different story. “Indian software companies do not understand Venture Capital. We have plenty of money to invest. What we lack are good business plans promoted by credible and seasoned management teams.”

You need to understand the Venture Capitalists and talk to them in their language, but that is the subject of another article. If you have the right idea and the right management team, you will get funding.

So should you continue to play when your competitors have 5 Aces? Maybe it would be more sensible to stick to bodyshopping.

“Insanely great products”, as Steve Jobs calls them, are not created by sensible people. They are created by obsessed individuals, who forge ahead when everybody is telling them that they are crazy. There are entrepreneurs in India today who can turn those 5 Aces to their advantage and add the Indian advantage of abundant low cost talent.

There are great software companies that grew up outside of America. Look at SAP from Germany, BAAN from Holland, Business Objects from France and Checkpoint from Israel.

These companies treat America as their home market. They raise capital in America, have most of their customers in America and bring in American management talent to help them to better understand this key market. In other words they make those 5 Aces work for them and not against them. You had better take those 5 Aces and make them your own and do it quickly, because American companies are taking the one Indian Ace, your talent. Most of the major US software companies are setting up 100% owned subsidiaries in India in order to tap Indian engineering talent. That Ace no longer belongs exclusively to Indian companies.

If you think that the situation looks tough from India, look at Israel. Israel is tiny compared to India and does not share India’s English language advantage. Yet Israel received over $800 million in high tech Venture Capital from the USA last year, more than any other country and far more than India.

So, yes it is possible to create killer apps outside America. It is possible to create them right here in India. Do you have the ideas and the drive to make this happen? Do you know where you want to go but lack a road map? The Dataquest “In search of India’s Killer App” series of articles will give you a road map.

In our next edition, Bernard Lunn will describe the financing options for entrepreneurs, helping you to have fruitful discussions with Venture Capitalists and Angel Investors.

LinkedIn and Facebook Prediction Market November 19, 2007

Posted by bernardlunn in social networks.
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I posted Read Write Web about recent LinkedIn momentum from my personal experience and then responded to the Facebook fans with a Poll where people can predict who will win this game.

Seeing the results will be interesting. I have made a note in my Blackberry calendar to check what has happened.

The data from these kind of prediction polls could be valuable if done on a big enough scale. People will tend to contribute as everybody has a secret Nostradumus just itching to show how they can foretell the future. In a market where the prediction of enough people actually impacts the prediction that could be interesting.

Alibaba and B2B media October 26, 2007

Posted by bernardlunn in Uncategorized.
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While reading rather depressing news about B2B Media firms like Cygnus it is pretty wild to see news about a B2B Media firm raising $100bn in orders from institutional investors for its planned $1.5bn capital raising.

Yes, Alibaba is described as e-commerce not B2B Media, but what have they done other than build a database and add some software to enable better integration into user workflow? This is classic “rich data” and all B2B Media firms in the USA are sitting on similar goldmines.

Yes, as Warren Buffett pointed out on the same day, Chinese stocks are overvalued, but this is still a really good business even if you scaled back the valuation hype by about 90%.

Mahalo is Web 2.5 – its official October 4, 2007

Posted by bernardlunn in India, Web 3.0 Semantic, social networks, start-ups.
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Jason Calacanis tried spinning Mahalo as Web 3.0 and got flamed all around the Blogosphere. Being a savvy promoter and ex publisher I am sure he is tickled pink at the free attention he got for his start-up.

I have to admit I rather liked his definition of Web 3.0:

“Web 3.0 is defined as the creation of high-quality content and services produced by gifted individuals using Web 2.0 technology as an enabling platform.”

Leaving aside the entirely correct view that all this versioning is just silly (it is silly, but methinks it is here to stay, the concept of continous evolution is too messy to grasp, we need defined phase transition points), Calacanis is just a bit wrong. What he described is Web 2.5. I think he is onto something big with Mahalo and it is a potentially great model, particularly with a few million more knowledge workers coming on stream from “the countries formerly known as emerging markets”. Mahalo is an interim step and brilliantly timed.

The reason is that the real Web 3.0 when we combine the Web 2.0 user generated social web with STRUCTURE (like we had in all those boring 30-year old databases) is a technically very, very tough thing to pull off. There are some big attempts such as Freebase and Radar Networks but these are very early stage.

So the interim, using humans rather than relying solely on algorithms, will be a great business model. It might not be Mahalo that pulls it off. But the basic idea is bang on target IMHO.

What amazes me is that the Mahalo concept was not invented in India.

B2B Media strategy for the people formerly known as audience September 20, 2007

Posted by bernardlunn in B2B Media, Online Advertising, social networks.
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Let’s call this the Prince strategy (“artist formerly known as Prince”, sorry!) We have called them readers, subscribers, eyeballs, circulation, audience, listeners, friends and community. Coming up with another term would almost certainly get it wrong and needlessly cause people to change their business cards yet again (Circulation Manager to Audience Manager to Community Manager?) So Prince it is. At least it sounds respectful ☺

Paul Conley has a good comment on yesterday’s NYT articles on the future of media and the implications for B2B Media. The message, B2B Media is missing the boat. This is not a minor issue for B2B Media CEOs. It looks like we may be heading for another recession and it is not clear that the boats are in good shape for a storm that may be a lot fiercer than the last one.

I have to make two warnings about this post. First it is rather long. Sorry, as Oscar Wilde said, I did not have time to write a shorter letter. Second it is not a feel-good post, more like a wake-up call, so please read it when you are feeling robust! However please do persevere as I will propose a strategic direction, not just ask a bunch of awkward questions.

Advertising gets cut in a recession because, as Sam Wanamaker famously said, “50% of my advertising is wasted I just don’t know which 50%”. So the marketing manager defending her ad budget (in a grueling meeting to discuss “what do we cut to hit the CEO’s 10% cut mandate”) has a hard time coming up with the numbers to justify holding the line for your titles. That’s when your ad sales executive gets the dreaded call.

In the past, traditional advertising has always bounced back after the recession. It’s probably going to be different in this cycle, because there is an alternative that is measurable. Advertising will always bounce back, but some types may not. A cyclical trend (from growth to recession) amplifies a secular trend (to measurable advertising). Whether it is behavioral targeting or search engine targeting based on a the “database of intentions” or any of the other myriad schemes dreamed up by Web 2.0 techies flush with VC cash, it is all about measurable, accountable ROI.

That marketing manager can now say “OK we will cut total ad spending by 10%, cut traditional media by 80% and allocate what’s left to the measurable alternatives we have been piloting and see if that moves the revenue needle”. She at least keeps her job.

This is not about print versus online. All those statistics about the tipping point where B2B online revenues exceed print revenue are beside the point. Online CPM advertising is no more measurable than print display advertising. Attempts to measure CPM effectiveness through clicks are extremely counterproductive. The click-through cost will look incredibly weak compared to SEM and you will end up rather defensively saying “no, actually, it is all about brand impact and you cannot measure that”.

Nor is the answer a knee-jerk response that we can “deliver more leads”. That will help short term and may need to be done, but at best it will be playing catch-up with Google; you cannot beat them on lead volume. There has to be a strategy that leverages the genuine sources of competitive advantage within B2B Media and that “moves to where the puck is headed” (as the ice hockey loving CEO of Sun liked to say). Or as my cricket-loving friends in India and England like to say, “get off the back foot”.

A forward-looking strategy has to face up to an ugly word – “deportalization” – and the harsh reality that it represents. This word signals the decline of destination sites, caused by the ability of search engines to find whatever you want reasonably easily. As a quick reality check, look at your own online habits. This affects first generation online sites as well as traditional media. Why go to multiple job sites such as Monster and HotJobs when a vertical search engine like Indeed or Simply Hired can do the job for you?

So your online site, the hopes and dreams of the company and recipient of all the forward-looking investment dollars, may not be the source of competitive advantage that you need.

The sources of competitive advantage for B2B Media are simply not what they have been in the past:

  • Content? Not any more. We are awash in content and software is getting better every day at automatically searching it, aggregating it and displaying it in meaningful ways.
  • Brand? People don’t search for information by brand.
  • Bundled deals? The online only guys don’t have print and events so we can put together a compelling package deal? If this does not hit the measurable ROI objective, bundling is simply cross-subsidization that leads to internal conflicts and lower returns on the components of the package.
  • Advertiser relationships? Unless you can show measurable ROI, the relationships will fade.

I believe that B2B Media has one critical, fundamental source of sustainable competitive advantage and it is summed up in word – trust. The old joke about the Internet – nobody knows you are dog – is still true. Authenticity, rigor and ethics matter when somebody needs to make a quick judgment call on “can I trust this source to help me make an important decision?” This is not about translating the print brand online. This trust is earned every day, on every page.

Trust leads to attention, which is the new coin of the realm. The attention economy is a simple take on the never-to-be-repealed law of supply and demand. When the supply of content explodes and demand remains constant, attention is what matters. Note that attention is not simply eyeballs. Trust is the difference. In the B2B world the ideal of trust is 30 minutes of a CIO with a $100 million discretionary budget reading an article/white paper/blog with rapt attention as if his company depended on it.

Unfortunately the critical, strategic need to protect this trust bangs right up against the urgent, equally critical need to show a measurable ROI now and boost revenues now by delivering more leads.

This short-term imperative leads B2B Media firms abuse their audience by:

  • bunching telemarketing calls around audit cycles so everybody is pestered at the same time,
  • giving the email list to anybody who wants it internally,
  • renting the list with email and phone numbers to anybody who will send a check,
  • contacting people multiple times by email, phone and post without even being able to answer the question how many times we have contacted that person,
  • contacting them again in different ways for print, online and events,
  • contacting them again on behalf of a webinar, survey or whatever else we have just sold to the “people formerly known as advertisers”.

This is a long way from the world that publishers grew up in and that has fundamentally been the same for about 100 years before the Internet. In that world, I read a magazine and nobody has the faintest idea what I am thinking about, unless I write and post a letter to the Editor and only rather eccentric people did that. As readers we liked that. As advertisers we had learned to live with it. As publishers we felt no conflict of interest and knew that as long as we created interesting content the business was fine.

Strangely enough for a self-confessed technophile who is pushing to the future, I believe that B2B Media needs to return to this old-fashioned anonymity. The reason is trust. If we lose that we have nothing. So I agree with the editorial purists represented by Paul Conley.

We are about to witness the loud noise and mess that happens when an irresistible force meets an immovable object.

The irresistible force is personalization. This is the key to online research productivity. Personalization technology cuts through the clutter and saves time. The firm that delivers personalized content sits at the top of attention economy food chain; all other content is “drive-by commodity”.

The immovable force is privacy. The privacy backlash is building. Today it is only techies who are aware of the issue and where it is headed, but when mainstream users get spooked by a few more high profile or highly personal cases, we will see consumer backlash and then, with politicians on the bandwagon, more regulation.

The fact is, as niche content producers, B2B Media cannot win the personalization game on the current rules. Behavioral advertising networks (in future all advertising networks will work this way) have access to Prince’s behavior across hundreds of high volume sites and Google sees every search that Prince does. You cannot compete with that.

You can compete based on trust. Personalization is based on data provided by Prince. There are different types of data and they have different values (skip this if you already know it):

  • Volunteered data. This is the most valuable, because it is freely given in exchange for something of value. A controlled circulation magazine works this way; the qualification form is a form of “contract” between reader and publisher, mediated by BPA. Unfortunately the value of a print magazine is declining (the same content is available online without registration) so it is increasingly hard to get people to fill in those horribly long qualification forms that seem like they are from another era (they are). Also publishers are breaking the relationship of trust (although not the letter of the contract) by too much contact. However there maybe ways to get Prince to volunteer data based on a different contract – more on that later.
  • Observed behavior data. This is what behavioral targeting networks do. They observe your online behavior – through cookies – and infer interest that they sell to advertisers. It is very powerful stuff and kind of spooky when done right. I watched the Tacoda founder present by asking a quiz to see what would be the best predictors of propensity to rent a car from Alamo and it was weird things like the person had visited sites about funerals (a relative has died and I need to visit the family and that involves renting a car); as I recall, other predictors included renting a romantic movie and visiting NFL sites. The point is that a) this is an imprecise and evolving science b) it can be very, very wrong in hilarious ways and c) it can be bang on target in such a way that it spooks the user.
  • Derived data. This has been a staple of consumer marketing for decades. This simply derives Lifestyle/Lifestage assumptions from known data such as zip code, age and occupation. This does not infringe privacy. Nor does it enable personalization. It simply allows basic segmentation such as Baby Boomers want content about travel, health and investments.

The key to getting more volunteered data is a new contract with Prince that will encourage him/her to volunteer more data. A contract, whether verbal, legal, online or just implicit, is something representing trust. B2B Media needs a new contact that goes beyond the controlled circulation print model. Online there is no contract at all. We just serve up content and then serve up banner ads to whoever turns up. This “no contract” model was based on the desperate desire to get online visitors and the fear that asking for anything would turn them away. Online the move is to make it even easier with initiatives such as Open ID and Data Portability.

However that online “no contract” model does not enable a new contact with “the people formerly known as advertisers, list renters, webinar sponsors, exhibitors and so on”. To avoid confusion with the other Prince, I will simply call them Marketers. That new contract needs to put B2B Media back in the central position in their budgets and plans that was enjoyed in the halcyon days before the Internet.

That is not easy but it is possible.The lives of publishers have become more complex. The lives of marketers have become even more so. I have spent more years as a marketer than a publisher, so I remember when the choice of marketing tools was much less, but also when the “noise” that one had to compete with to get one’s message across was way, way less. Marketing in an ADD (Attention Deficit Disorder) world is hard.

Publishers can help, by rigorously enforcing their contract with Prince and then delivering Prince to the marketer in a way that is win/win for Prince and marketer.Lets get back to those precious leads that every marketer wants. Targeted lead generation enabled a B2B Media firm focused on technology to raise $100 million in the midst of the technology nuclear winter in 2002 and to “exit” with a successful IPO in 2007.

So all we need to do is crank up white paper registration and business reply cards and other lead gen techniques?

Not really, because these “pulled” leads are random for the marketer. We don’t know how many we can get at what time intervals and what the lead quality will be. So the sales team doesn’t bank on them to make their numbers. So leads trickle in and fall on the floor; 80% of leads are wasted, with no follows up. For a lead to get followed-up, it must be the right lead (relevant interest, right decision-maker, in the right market segment), with the right information about the lead and it needs to get to the right sales person in the right division and region and all of that has to happen today so the sales guy can call while the lead is still hot.

Now look at what happens to the leads that do actually get followed-up. The sales guy makes a call or sends a mail or does both at different times. In the best case, Prince really is a lead; he has a budget and an immediate need for a product sold by that sales guy. In that best case, it takes multiple rounds of tag to set up an online demo, presentation or telephone call. In the worst case, the lead is not really a lead (another vendor, early stage curiosity or just plain mistake).

The cost to follow up on bad quality leads is high; it is better to have no leads than bad leads. Most sales guys complain that marketers deliver bad quality leads. If publishers can deliver good quality leads they will win the undying love of marketers and sales people – and that’s worth big money.

There are three keys to delivering that lead quality on a consistent basis:

1. Allow the marketer to define lead quality – what companies and job titles they want and what product categories and how they want to make contact. From this define an economic value for a lead that meets the criteria. This economic value can be way, way higher than we think as publishers. A highly relevant lead for a $1m sale is worth how much?

2. Allow Prince to do all the research he needs on your sitewith total privacy. (using your content and content from other sites aggregated through your tools). Do the hard work to make their research easier. Go beyond Search to (Re)Search. Research is what Prince is really doing online. Don’t sell enhanced listings and any other type of paid listings type that distorts the value of the information. Allow Prince do all this totally anonymously and to determine when and how he wants to make contact with a vendor and how he wants to make contact and what sort of person that he wants to speak to at the vendor (e.g CTO not sales guy, which the vendor will do if Prince is a CIO with a big budget). Let Prince state a specific need; that has real value to the marketer. Never, ever give out any data about Prince without their express and specific agreement to do so for that vendor and that situation. Build that trust. This has been called “Vendor Relationship Management” and it was – sort of – what the analyst firms like Gartner used to do, except that they got paid by both parties and lost their credibility. The Internet puts power into the hands of the user/buyer/Prince. Work for the one with the power and get their trust. This does work for the marketer as they get a genuinely interested lead and don’t waste time on unqualified prospects.

3. Arrange the first meeting. That simple last step cuts out all that wasted lead problem and the lead follow-up telephone/email tag cycle. That pushes the lead way deeper into the marketing funnel and thus significantly raises the value. Arrange the right contact at the vendor based on the level of seniority and position of Prince. The first meeting will be online. It can be a publisher-mediated webinar where Prince could still elect to be anonymous (we can determine the value of that Prince but we don’t identify the name), or it can be a one on one webinar for that Prince only or a marketer mediated webinar that has multiple prospects attending that could enable some interesting dialogue between the prospects.

Those three steps are not easy. They are particularly tough for a traditional media firm with all kinds of legacy interests and relationships to protect. This reminds me of the old joke about the driver who stops in the country to ask a farmer for directions to Dublin and the farmer replies “Bejesus if you be wanting to get to Dublin I would not want to start from here“. This would be easier for a start-up. Which may indicate that this should be given to a skunk works team. If not you have to get everybody – print, online, events, editorial, sales, IT, finance – all pulling in the same direction while at the same time hitting all those immediate targets. It does not often happen that way.There is a lot of database building, cleaning and restructuring to do and that cuts across current organizational boundaries. There is lots of process reengineering to be done. There is lots of technology to be licensed, developed or partnered. However this is all easy if the organization is really aligned to meet this strategic goal.