New Trade Routes

Drawing digital pathways on the new trade maps.

Trade drives the way people interact.  People, products, money, and ideas follow the trade routes and impact everything in their path.  Keeping pace with the way trade routes are changing is essential to success or even survival.  New Trade Routes is working to better understand the changes so we can help our clients, investees, and grantees improve their chances of success.

 

Apple Gets 100% of its Profits from Channel Partners

Yesterday I proposed that some higher than expected percentage of Apple’s sales came from channel partners.  Today I propose that it is possible that 100% of Apple’s profit was actually paid by the resellers.  Here is my math based on Apple’s 2011 annual report:

 

Looking at iPhone sales alone – event though this under appreciates iPad sales through the carriers, and sales of other products through BestBuy and Walmart.  Apple sold 72 million iPhones in 2011 for total revenue of $47 Billion – 43% of all Apple revenue.  Last month the Wall Street Journal reported that US Carriers pay Apple an average subsidy of $400 per iPhone. 

Apple generated an average of $650 in revenue per iPhone – the channel partner is paying 61% of the purchase price of the device!  If this is true, Apple received $28 billion from its channel partners in iPhone subsidies – more than all of Apple’s profits for the year.

True, Apple can and does in some cases sell the iPhone without any subsidy.  But sales would be much less (like the WSJ reported in countries where the subsidy is not customary), and pricing would be under much more pressure.

Apple should be commended here – taking an industry where it is common to pay partners to sell for you and turn it into a situation where partners are paying more than half of the cost of product.

Can you imagine going into a car dealer and only paying 39% of the cost of the car, because the car dealer paid the rest to the manufacturer – all for a two year service contact! 

Every computer / phone / tablet maker out there wants a deal like this.  The question is, are the carriers going to keep doing it?

 

Apple Crushes It With Help from the Channel

Apple has widely been perceived as a company that operates outside of the reseller channel.  Its stores and web site sell directly to their customers and they have achieved meteoric growth without the help of the third parties that make the rest of the technology industry function.  The prevailing belief in the industry is that there is no way to get to such a large market without the aid of channel partners -- that number in the hundreds of thousands. 

The launch of the iPad gives us a good backdrop to examine if this is really true.  Does Apple sell directly to customers or through the channel?  Is there anything to learn from the recent success of Apple?  I propose that Apple sells through the channel and there are some specific things that can be learned.

First, Apple has an awesome web site and some 300 or so stores that generate an average of $50 million in revenue per store.  Apple generates more revenue per square foot than any other retailer – actually twice that of Tiffanies - the next most productive retailer.  Despite this incredible performance, in 2011 Apple generated 15% of its revenue through its stores, it pales in comparison to revenue generated by iPhone sales of 45% -- three times that of its stores.

iPhones are sold by Apples new channel partners – the wireless carriers.  If you add this to the sales by Apple’s other partners:  BestBuy (1,000 stores) and Walmart (2,500 stores) and it is starting to look like a significant portion of Apple’s incredible growth is fueled by its channel partners.

Apple 2011 Annual Report

Apple Wins Again as the World Moves to Tablets

Last week Apple championed the post PC era with the launch of the iPad Third Generation.  HP shot back that the PC is not dead.  I think both views can exist at the same time.  

Anyone who has found themselves in the role of family tech support person has been wishing for the post PC era for a long time.  In fact, most PC users have used remarkably few features of the PC.  Word processing, email, the web, and maybe a spreadsheet.  They don't care about where their files are located, how the machine works or stays healthy, have never installed anything, or backed anything up.  They are just not interested in the PC at all.  As soon as these people got smart phones their PCs go days or weeks without being touched.  Some overwhelmingly large percentage are these non PC users -- and for them the PC was a necessary evil -- they just wanted to send the email.  So Apple is right.

Anyone needing to connect to a corporate network, or that uses databases, or that builds things (web pages, databases, programs), is going to need a PC and because they are the type of person that loves new technoligy they are probably going to want a tablet too.  So HP is right.

According to Gartner, there were 93 million PCs shipped in Q4 of 2011.  According to Apple, they shipped 15 million iPads in Q4 of 2011.  They were just shy of HPs share (17 million) of the PC market.

Up until now, the iPad has been an extension of the users technology portfolio.  From now on, the number of users with just an iPad (or other tablet) is going to go up fast.  So Apple is going to win big and if Microsoft can get to the party with Windows 8, Microsoft will win big too.  The people selling PCs like HP and Dell are going to see their marketplace rotate significantly -- and probably decline.  All HP and Dell need to do is come to market with amazing Windows 8 tablets later this year.

It is going to be interesting.

Peace Gets My Vote

Every day the front page of the newspaper is dominated by campaign news or Iran/War news or both – and the election is still 8 months away!  I don’t know who I am voting for yet.  You may recall that Obama was the first Democrat I ever voted for.  I can say that a very large part of my decision, possibly the entire decision, will be based on the chances that the candidate will be able to keep us from entering yet another war.  Just about everyone seems to want to start another war in the middle east – so it is going to take some kind of a (enter favorite adjective here – strong, smart, resolute…) president to keep us out of the war.  It seems silly to make an argument against war, but if I have to I would say war is bad because people die and we spend our time and energy focused on the war and not on other problems at home – oh yeah, and it makes most everyone in the world hate us.

There are plenty of ‘people’ (I use the air quotes here because we now consider corporations as people) that feel it is in their best interest to start another war.  Here is my list of those beating the war drum:

 

  1. Politicians:  Sure seems patriotic to be over the top for the war
  2. Israelis:  It is clearly in their interest for the USA to fight the war for them
  3. Bomb Makers:  Anyone who makes a profit from war would clearly want war
  4. Newspapers:  Nothing like a good war to drive up interest in the news
  5. Anyone who hates the USA:  What better way to drive support for your anti USA organization (al-Qaeda) than to get the USA to drop a bunch of bombs (hopefully on the neighbors, but really, anywhere will do)

 

In what is a historic irony, our military is not all that wild about starting another war.  Normally, the US military would be leading the charge for war, but maybe lately those guys have seen too many brave young people march to their death for no reason and they now think the promotions and unlimited budgets are being paid for with too precious a currency.

So that is my measure.  The candidate that convinces me that he will do his best to keep us out of war will win my vote.

For those of you that think the threat of Iran getting nukes justifies war, The Economist recently did this piece that does a very good job of outlining the argument against going to war to prevent Iran from getting the bomb.

For those of you that think we should pre-emptively defend Israel, try this one from CNN.

For those of you that want a general background, try this one from The American Interest.

My Reading List: 2011

I got into a conversation about the books I read last year recently and that has inspired me to make a list.  So here you go:  The books I read last year. 

Actual Printed Books

  1. Fear and Loathing in Las Vegas by Hunter S. Thompson
  2. Hell’s Angels by Hunter S. Thompson
  3. Fear and Loathing:  On the Campaign Trail ’72

These books were not available on Audible or the Kindle otherwise I would have bought them digitally.  They are all interesting reads and in particular, the volume about the election of Richard Nixon was a great reminder that politics is not more screwed up now than it ever was.

Kindle eBooks

  1. Triple by Ken Follett:  A great story about how Israel may have gotten the bomb in the 70s.
  2. Lie Down with Lions by Ken Follett:  If you want to understand what conditions are like in Afghanistan – this is a good way to do it.
  3. One Click: Jeff Bezos and the Rise of Amazon.com by Richard Brandt:  Short because the story is still being written, but good background if you are planning on meeting Bezos.
  4. Steve Jobs by Walter Isaacson:  My review here.  No question the most inspiring book I read.  Made me want to be "insanely great" too.
  5. Public Parts by Jeff Jarvis:  OK book by the author of “What Would Google Do?” – which was better
  6. Paradise by Larry McMurtry:  Re-read this one, a great autobiographical story about a trip to the south pacific.
  7. Reamde by Neal Stephenson:  A real page turner and good way to get the feel for China.  Like many of his books, it is long and may not have needed to be.
  8. The Garden of Eden by Ernsest Hemingway:  Another re-read.  This is one of the better posthumously published works. 
  9. The fortune ant the Bottom of the Pyramid by CK Prahalad:  Did not make it all of the way through this book, but a good reminder of how big the rest of the world is.
  10. In the Plex by Steven Levy:  A great look what everyone means when they say Google is “engineering driven”.
  11. Unconditional Parenting by Alfie Kohn:  A wonderful book about how to constructively encourage your kids to do great things.
  12. Ender’s Game by Orson Scott Card:  Classic sci fi that I should have read a long time ago.
  13. The Frugal Superpower by Michael Madelbaum:  This is a must read for anyone who thinks we are at a crossroads.
  14. Common as Air by Hyde Lewis:  In the same vein as Free by Chris Anderson.  Essentially a primer to the new economy.
  15. Changing the game by David Edery: A good manual showing how to adapt computer gaming concepts to the real world. 
  16. The New Language of Marketing 2.0 by Sandy Carter:  Sandy Carter is a Maven at IBM and this book shows how big companies are looking at new media.
  17. Microsoft 2.0 by Mary Jo Foley:  Mary Jo Foley follows Microsoft for ZDnet and this book lists some of her thoughts about how Microsoft could/should reinvent itself
  18. You are not a Gadget by Jaron Lanier:  One of our renaissance men gives a look into the good and the dangerous about the digital age. 
  19. Work Hard. Be Nice. By Jay Mathews:  A must read for anyone thinking about our education system with a focus on the incredible work by KIPP.

Audio Books

  1. The Marriage Plot by Jeffrey Eugenides:  Another good novel by the author of Middlesex.  Great images, not really uplifting.
  2. The Beautiful and Damned by F. Scott Fitzgerald:  Thought it would be fun to have this classic on audio.
  3. The Great Gatsby by F. Scott Fitzgerald : ditto
  4. The Diamond as Big as the Ritz by F. Scott Fitzgerald: ditto – what a story this one is too.  If you have never read it – invest the hour.
  5. I Live in the Future and Here is How it Works by Nick Bilton:  The title is arrogant, but the book is really quite good.
  6. Macrowikinomics by Don Tapscott and Anthony D Williams:  I loved the first book, this one I only got half way through.
  7. Boomerang by Michael Lewis:  Of course my favorite book of the year is by Michael Lewis.  All of the episodes were great but I found the Iceland part to be the best.  My review here.
  8. The Information by James Gleick:  Quite dry, but if you are interested data, databases, privacy, new media – it is worth the effort to read this one.
  9. Bossypants by Tina Fey:  As my sister says, every so often you need some candy.  This is right up there with Born Standing Up.
  10. The Greater Journey by David McCullough: I love David McCullough, I think my life is too complicated to take the time to really think about Americans in Paris 150 years ago.
  11. On China by Henry Kissinger:  Boy did this guy take good notes!  A great reference book and it is not too hard to see around the bigger than life ego.
  12. The Social Animal by David Brooks:  I generally like David Brooks on the NewsHour and in his column more than in his books.  This one is good, but the fictionalization just did not work.  He sure has read a lot of brain science stuff though!  My review here.
  13. Dangerously Funny by David Bianculli:  A super story about the Smothers Brothers 3 years on CBS and all of the battles – if you are into the late 60s early 70s part of our history – this is a really good book.
  14. The Clockwork Universe by Edward Dolnick:  Who knew the history of calculus could be so interesting.  I have probably talked about this book more than just about any other book I read in 2011 – well, except maybe Boomerang.
  15. How the West Was Lost by Dambisa Moyo:  I did not make it more than a quarter into this.  By then she had made her point and it did not seem like continuing was going to bring any greater insights.
  16. All the Devils are Here by Bethany McLean and Joe Nocera:  Good fodder for the fire of the financial crisis and those who caused it (us!).
  17. Griftopia by Matt Taibbi:  Great book about how Wall Street is sucking the life out of our country.  No problem figuring out where the author stands.  

So there you have it.  39 books, 3 printed, and the rest about evenly split betweent the Kindle and Audible.   There were about 10 other books that I bought but did not read including some manuals that I just looked stuff up in.  I did not think a book should count if I did not take the time to get at least a quarter of the way through it.  There were two books that I got on Audible and the Kindle.  I did not list those twice, but that is an interesting study on whether these digital books are going to increase book sales or not.  I would much rather pay $10 each for an audio book and ebook (for a total of $20) instead of $20 for one printed hardback.  

Now if Amazon could just figure out how to sync them so when I open my Kindle it goes right to where I left off in my car on the audio book -- that would be amazing.

Doctors Paid to Make You Sick

The 800,000 physicians in the US comprise a large and intensely managed partner program for the drug companies.  We are about to find out how intensely managed as the Affordable Health Care Act (AHCA aka Obamacare) now requires the drug companies to disclose how much they pay your doctor to prescribe drugs to you.  It should not be a surprise that the drug companies pay doctors quite a bit, and those payments change doctor behavior.  So it should be no surprise to find that some people may be diagnosed with ailments they don’t actually have -- so the doctor can prescribe the pills and get the money.

Sales managers know that salespeople are “coin operated”.  Better performance from salespeople is purchased with commission plans that compensate for more sales, more upsells, more referrals, more attached sales, more anything.  Since our business is technology sales, and specifically channel partner programs, we think a lot about how to properly incent our client’s partners to sell more.  We have seen this produce intended (improved sales) and unintended (systemic cheating) outcomes.  Broadly speaking, generalized incentives are better than highly specific incentives when it comes to getting a constructive result.  Sure if you have to move one product by the end of the quarter and you don’t care about the long term effects – a specific incentive will do the job.  But if you want customers satisfied and loyal for the long term, working with partners to grow their business for the long term is better than quick hits.

Over incenting salespeople in technology might result in a consumer or company with an overly large hard disk or a bigger video card or a router with enough capacity for 10 years of growth.  Over incenting doctors might result in a generation of kids on Ritalin, parents on anti depressants, and in the worst case, deaths.  Here is more reading on the subject should you be interested:

 

 

Update one week later:  Great article in the NY Times today about the 3 million children on Ritalin -- and how there is not evidence that it helps!

Golden Opportunity for Microsoft

Microsoft recently reported that the Defense Department repels 250,000 attacks on its networks – every hour.  I suspect that Microsoft has more experience with hostilities in cyberspace than any other company.  I do not know of a published list of the biggest targets for hackers, but the US Government has got to be close to the top of the list, financial institutions are probably next, big companies like GE and P&G and GM have got to be up there too.  Literally every enterprise customer of Microsoft spends a great deal of time and money dealing with these attacks.  I also do not know how much of their budget is actually paid to Microsoft, but with the cloud offerings MSFT is now selling to big enterprises – the number must be growing.

It does seem like Microsoft badly wants to be a consumer focused company.  There is a security need at the consumer level too.  Our citizens may not have the designs of weapons, or the controls to the predator drones behind their personal firewalls, but knowing that half of all credit cards have been compromised by cyber attacks is enough to make the point that consumers have things to protect too.  Once again, Microsoft has more technical expertise and experience data on the consumer attacks than any other company. 

But… Does anyone really want to talk about security?  It does sound a lot like that annual call from the insurance agent who wants to talk about how to increase, well, his commission. 

The changes that Google made last week to further personalize search could be the opening that Microsoft needs to get the conversation going.  Google is increasingly showing you just you want to see – even if some of what you get in your search results comes from things you own – like pictures on Picasa web.  Desktop search never worked for Google or for Microsoft, but as more content migrates to the cloud, we can expect to see our personal, not public, items mixed in with public search results.  We cannot expect Google to be so foolish as to put Gmail into the personal search results, but Google+ posts are sometimes public and sometimes personal.  If these latest changes are meant to push Facebook and Twitter to make their content available for searching, and Google is successful, the line will go too far towards the personal end and consumers will be more than a little upset when their private Facebook posts are next to Wikipedia entries in the search results.

Microsoft could be the safe place to get search of private emails, documents, and photos.  I have Copernic Desktop Search installed on my Windows 7 machine and it is amazingly good.  And I am quite sure that neither Google or Microsoft or anyone else is building an index of my stuff on their servers.  I would trust Microsoft to do this work and the only reason I have a non-Microsoft product doing this is because even after hours of trying, I could never get the desktop search index to work on Windows 7.

My dream, and I suspect the dream of many other consumers, would be to have a company I trust, deploy a capable private search tool, and do it in a way that protects me from the outside (desktop search and security) and then take it to the next level – making all of my private stuff available across all of my devices, all while maintaining my security.

Tracking Every Pitch

There were many great parts to the book and movie Moneyball.  If you have not either read it or seen it – you should.  In addition to the great storytelling by Michael Lewis, the main theme resonates in our business and just about everywhere:  we now have the capability to track everything.  This may not seem like a big jump from the prior method of measurement by sampling, but it is a big big deal.  Sampling is the Nielsen ratings: where a small population of representative viewers track their TV habits and the results are applied to the total population.  The tracking everything equivalent is having every single set top box send in data for every single viewer.  The story in Moneyball helps to demonstrate the difference.  To know from sampling that a pitcher behind in the count is 25% more likely to throw a fast ball than anything else – could help you.  If you know from measuring everything that this particular pitcher is more likely to throw a fastball on the next pitch because you have a complete database of every pitch he has thrown in the past 5 seasons – well, that is different.

For the past decade, businesses have been making this same transition.  From sampling data about their customers to tracking everything.  The leaders in this revolution will win.  The businesses that understand this will jump very far ahead of their competitors.  The businesses that do not understand this will say that a statistically significant sample is the same as a complete database and will not go to the effort to track everything.  They will lose.  Some businesses, like the grocery stores, are tracking our every purchase, but I just don’t think they know what they have in the data.  Here is my post from last year on that topic. 

Governments will be in a unique position to capitalize on the data they collect.  A dramatic example of that is happening right here in the Seattle area with the tolls starting on the 520 bridge.  I can go online and see a record of every time my car has gone across the bridge.  Imagine the possibilities here!  Not only could parents or insurance companies learn about driving patterns, but some super smart PHD is going to figure out how to match up drivers for ride sharing – by evaluating the driving patters in the data.  Or I could sign up for a service that sends my family a text when my car passes the tolling camera – that calculates what time I will be home based on the other traffic data.

In our marketing services business, we started tracking every single interaction about five years ago.  Before that, the proprietary closed databases in many of our systems aggregated data – because storage space in the database was more valuable than individual activity records.  Sounds hard to believe given the current environment, but these old databases actually wrote over themselves every night – just to save hard disk space.  As a result we have pretty good predictive data on what will happen if we email an email address, or call a phone number, based on our past experience.  Using that experience data, we direct resources to the highest value activities first.  It is a game changing practice. 

Privacy experts say that this kind of customer data collection is an invasion and should be made illegal.  There definitely are steps that should be taken to protect the consumer and protect the data.  Increasingly however, customers are demanding that the businesses that serve them know their stuff.  Today there are many simple requests that I want in this area.  I want Amazon to tell me if I am buying a book for the second time.  I want the credit card department at my bank to realize that I already have a credit card and to stop calling me with new credit card offers.  I want Starbucks to know my order before I order it.  I want Delta airlines to know what seats l have sat in.  This is just the beginning.

Free HP OfficeJet Pro L7580 – slightly used, may not work

I have had this printer for a few years and it has worked pretty well.  Some time ago I stopped using the scanner because it was quite slow and I could not stand to have the bloated HP software on my pc.  Nevertheless, the machine has continued to print with only the driver installed on my PC – so it has been good enough.

Today however the device reached the end of its time with me.  Despite the fact that I use it quite regularly and replace ink cartridges a few times a year, today the printer informed me that my ink cartridges had expired.  Clearly this is a ploy to sell more ink cartridges.  The printer gave me the option to print anyway, but I had to agree that it would void my warranty.  So it is either an attempt by HP to sell more ink, or lower its warranty exposure, or both.  Either way, as a customer I really don’t like being treated this way.  I went ahead and pushed OK, but the printer still would not connect back to my PC.

I do have a second printer in the house, an Epson, that all of the sudden I like a lot more than the HP.  So the HP is out.  I probably won’t buy another HP product.  I will definitely never call HP to tell them.  Customer lost for life. 

It happens that today a friend asked me what type of computer to buy.  I did not recommend HP.  I also related this story, probably another customer lost – maybe also for life.

Increasingly customers expect the products they buy to work.  If a replacement can be had for a few hundred dollars it just does not make sense to spend the time and effort required to get support and repair it.  If HP is monitoring complaint calls, or unresolved support incidents as a way to measure its customer satisfaction, I will not show up on any of those measures.  Silently and precipitously however, the company is losing customers.  Some may never return.

The first US based person to put their shipping information in the comments section of this blog post will get the printer.  I will pay the shipping to anywhere in the US.  I would also gladly send it back to HP – so if you are listening HP – just let me know.

Be Insanely Great -- or Go Home

Steve Jobs was widely considered one of the best salespeople ever.  Who else could have sold the music industry on iTunes?  However, he also recognized the downside of too much dependence on salespeople: Here he describes it to Walter Isaacson:

…The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesmen, because they’re the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company. John Akers at IBM was a smart, eloquent, fantastic salesperson, but he didn’t know anything about product. The same thing happened at Xerox. When the sales guys run the company, the product guys don’t matter so much, and a lot of them just turn off.

Google also does salespeople differently. Here is a great post from Charlie Warner describing the differences.    Like Apple, Google seems to recognize that salespeople are important, but all companies have to work to ensure that the salespeople do not steal all of the oxygen at the company.

Salesforce.com spends half of its revenue on sales and marketing.  They also spend very little on R&D.  Here is a post I did comparing sales to R&D spending at the leading technology firms.

I think all customers are in one of two states.  They either believe that the product or service they are getting is unbelievably great, or they believe there must be something better out there.  Every company should employ this measure of customer satisfaction.  The danger is to think that the customer is happy because they are still paying the invoice.  There are many customers who do not complain, but are still looking for an insanely great solution.  When they find it, they will not go to their current vendor and say:  do you want to compete to keep my business?  They just leave.  

Products must be insanely great to compete in the marketplace. 

China Buys the New York Times

Even though I am a conservative at heart, my favorite newspaper is the New York Times.  They have always been the one newspaper that is actually trying to do a good job – until now. 

I recently converted my digital only subscription to digital plus Sunday delivery and I have been surprised to see twice in the last month that the China Daily has purchased two page advertising spreads in the Sunday edition (these advertisements do not appear in the digital editions).  China followers are quick to dismiss this a as a cheap trick, but those who are less likely to realize the extent the Chinese government (who prints the China Daily) will go to deceive its readers will not. I am surprised that there has not been more of an outcry from the protectors of Journalism.  Is this old news or something?  Here is the only article I could find.

Just as Goldman Sachs will likely be successful with its new philanthropy campaign, the Chinese government will likely win over many readers with its New York Times partnership.  Until now I had hoped there would be customers who the New York Times would actually not take money from.  We should all brace ourselves for what comes next, because if the precarious state of the newspaper industry has brought us this, next we will get something even worse.

If there is a newspaper with a “Chinese wall” (ha ha) between advertising sales and editorial decision making, it should be the New York Times.  Recently, this article appeared.  I wonder what kind of phone calls it generated. 

Michael Lewis recently pointed out in Boomerang that Germans by their nature believe in order and process and cannot escape the idea that everyone else does too.  When Moody’s said that the bonds were AAA – the Germans actually believed it.  When they turned out to be toxic junk – the Germans were actually surprised.

The Chinese believe that their paper is full of lies, and when they find out that Americans actually believe what is printed in their paper – they will be surprised.  The Chinese also believe that when you pay someone money, they do what you ask them to do.  So when the China Daily calls up the New York times and asks that they no longer print negative articles about China – they will actually be surprised when the New York Times says they will not.

Well, I am still a subscriber.  But I will be getting my China news somewhere else.  Anyone have any suggestions?  Al Jezerra English?

Update:  Post from the Nieman Lab at Harvard on the subject.

Book Review: Boomerang by Michael Lewis

Michael Lewis is one of my favorite authors. His magic is the ability to rapidly become an insider on a subject, without losing the perspective of an outsider.  He is an Earthling that sees the world through the eyes of a Martian.  Or a bond trader that sees Wall Street through the eyes of main street.  His latest work, Boomerang, takes us on a tour of what he is calling the new third world.  This is great irony capitalizing on the recent fashion of using the term “developing nation” instead of the term “third world”.  It is no longer correct to count the worlds.  Counting or not, we have leap frogged in the backward direction - over the developing nations.  His tour of countries worse off than the third world starts in Iceland, and goes to Ireland, Greece, Spain, Germany, and well, California. 

The recurring theme is examining what people do when told they are in a room full of money and:  “The lights are out, you can do whatever you want to do and no one will ever know.” It’s a great mental picture that takes all of a half second to absorb.  Lewis makes it even more powerful by applying it to nations.  “Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak. Icelanders wanted to stop fishing and become investment bankers, and to allow their alpha males to reveal a theretofore suppressed megalomania. The Germans wanted to be even more German; the Irish wanted to stop being Irish…”

The section on Germany was particularly interesting as Lewis investigated that culture’s fascination with human waste, which made them particularly vulnerable to the toxic waste products being packaged by our people on Wall Street.  It will be a long time before anybody anywhere in the world ever trusts Americans again.  WMD + Abu Ghraib + Goldman Sachs = Americans are liars. Our reputation could not be repaired even if we had the money to do another Marshall Plan.  Looks like we are going to be sewing Canadian flags on our backpacks for many years to come.

There have been many great reviews of the book.  Here are links to a few of them:

NY Times:

The Guardian:  

Forbes

Washington Post

Seeking Alpha:  

As I do with many books, I listened to this one on Audible.  It was another great production, this time read by Dylan Baker.

Conditions for Real Change

David Brooks posted an interesting piece this week showing how we are in an unusual situation with both parties losing favor with the voters.

We can see our nation getting more polarized every day, but this is the first time I have thought about how the polarization is hurting both sides.

Here is an interesting poll showing one example of how the people fueling the fire are impacting their constituents:  Fox News viewers less informed than people that consume no news at all.

Add to this the way the the Occupiers are shining a bright light on inequality and the growing number of people that are giving up hope of earning a living, and we could be approaching a time where real change could happen.  I am not talking about the kind of real change that is easy, measured, and pleasant.  

I am talking about the kind of change that Michael Lewis chronicles in his new book Boomerang.  Here is the part about what is happening in Vallejo CA, and could happen to other parts of our country.

Meanwhile those jokers in DC are arguing over who is to blame for the demise of the Supercommittee...brother.

Book Review: Steve Jobs by Walter Isaacson

In 1990 Michael Lewis wrote his now famous book: Liars Poker. His intent was to expose the bad behavior of people on Wall Street and help to bring an end to the steady stream of our best and brightest wasting their abilities in a parasitic business. To his surprise, his book just added fuel to the fire and all of these years later we still lose bright and motivated and capable minds to the pit of greed.

This 571 page book reads like a 200 page book because it is well researched and well written and the subject is familiar to all of us. I read it on my iPad -- a device I did not know I needed until after I got it and that I spend several hours a day with now. In fact, I am writing this review on my iPad.

It will be interesting to see how history views Walter Isaacson's latest master work: Steve Jobs. Of course everyone is talking about it and I have put some links to other reviews below. The common thread in the commentary about the book is to marvel at the fact that even though his own life was shaped by his adoption, Steve Jobs was still able to abandon his own daughter. The barefoot thing, the diet thing, and the personal hygiene thing also seemed to get a fair amount of attention.

To me the biggest question posed by the book is whether Steve Jobs was successful despite his narcissism, or because of it. This is the central question because a great many young entrepreneurs are right now reading the book and getting ready to emulate Steve Jobs. I hope they are learning to operate at the intersection of Liberal Arts and Technology, and to have an uncompromising focus on design and quality. I fear they may be encouraged to put themselves in the absolute center of their universe and make everyone else feel less than adequate. Will this book encourage the next generation to belittle co-workers, send food back at restaurants, and put themselves before their own children?

I have said before that I believe Steve Jobs was the best CEO we have ever seen. There is no question that he created amazing products and a company that will not only survive, but will thrive for years -- just by coasting on the lead he built before is death.
The pain he inflicted on those that loved him was also of epic scale. At the end, he knew he was dying, and even then, he could not connect with his daughters. I hope that legacy is forgotten.

Here are my take aways from the book:

  1. Narcissistic Personality Disorder is real and Steve Jobs had it.
  2. A passion for simplicity and quality has to start at the top.
  3. Leadership makes a big difference.

Here are other reviews of the book:

I hope that 20 years from now we look back and find many companies built by young people that were inspired by Steve's passion for great products and design. It would be even better if they learned how to do that by building up the people around them.

Great Marketing is Self Propelled

A few of us at the office are participating in the Movember fund raiser to benefit mens health -- specifically Livestrong and the Prostate Cancer Foundation.  Clearly worthy causes, and also just plain fun to participate in.

I am making pretty good progress half way through the month, moreso on the not shaving than on the fund raising:  so if you want to make a contribution, click here!

Participating in this effort has been so fun and easy that it has made me think about the greatest self propelled marketing campaigns of all time.  

Ad Age has a list of the top 100 Advertising Campaigns of all time.  The top 5 are the ones you would expect:

 

  • Volkswagen
  • Coca Cola
  • Marlboro
  • Nike
  • McDonalds

 

Those are great, but hardly self propelled.  Maybe "Just Do It" but even that has some serious investment behind it.

I am reading the Steve Jobs biography now so I can't go without mentioning the "Think Different" campaign he created with Chiat/Day when he came back to the company in 1997.  That has to be on the list.

For me though, there has never been a campaign quite as effective as washing your hands after using the restroom.  Sure it is not as exciting as the 1984 superbowl ad, but think of the beauty of the thing.  

I am no biologist, but of the germs we want to kill when washing our hands I bet only a fraction of them origniate in the restroom.  What makes the campaign so elegant is that everyone has to go multiple times per day, and the sink is right there.  It would be a tall order to launch a campaign to convince people to wash their hands after shaking hands or after coughing or sneezing or touching a door knob.

Anyway, Movember.  Check it out.  It is propelling itself into a great movement -- now with over 800,000 people participating. 

Last Mile to the Channel Partner

Just like with other networks, the Last Mile connecting a Partner Network to its Partners is expensive and complicated.

All channel partner programs have infrastructure designed to manage the relationship with partners.  From the simple to the sophisticated, this infrastructure accomplishes a variety of critical tasks including registering partners, enabling them with sales materials and support, delivering leads, tracking performance, managing certifications, and many other functions.  These processes and systems are in effect a network of sales and marketing people and PRM/SFA databases and applications.

To function, all networks must reach their customers and a partner program network is no different.  The link between the network and the customer is called the last mile, and just like with a phone network, the last mile is the most challenging because the investment required to reach a new partner is uneven, and in many cases will never pay off.  Extending the phone network to the last farm on the road will never make financial sense – that is why the FCC has made the phone company provide service to everyone.

Companies have tackled the last mile problem with their channel partners in three distinct ways:       

  • Invest everywhere and dominate the market (Microsoft)
  • Invest heavily in obviously high value partners (HP)
  • Make the partner come to the network (Google, Amazon)

These differences are logical when taken in the context of gross margins.  Microsoft and other software companies have the highest gross margins, so they can spend much more than everyone else.  HP and the hardware companies have much lower margins, so they have to be more careful to invest only where they know it will generate additional sales.  Google and Amazon and other similar businesses have many more partners, and their transaction size is much smaller – making anything other than a fully automated approach hard to justify.  It is just not possible to cater to the individual needs of partners if there are millions of them.

As the technology industry evolves and these companies move into new markets, they will have to adapt to new margins and transaction sizes.  This will be much easier for companies working up the list, than those working down the list.  Those with skills developed in low margin and small transaction sized businesses will have to learn to invest more in the last mile – learning to spend more is enviable compared to those who have to learn to spend less.

To Correlate

cor·re·late:  (verb) to have a mutual relationship or connection, in which one thing affects or depends on another.

We live in a time when the relationship between cause and effect in sales and marketing is known more than ever.  We measure the actions, we count the reactions, and we try to do more of the things that get us the biggest reaction.  In sales and marketing, the reaction we want is revenue.  It sounds easy, but the fact is, even with all of this progress, we still waste half of all spending on sales and marketing and we still do not know which half is wasted.

This is the kind of thing I write about from time to time, and in looking back I found this piece about measuring that shares some ideas about targeting, landing, and measuring effectiveness in marketing campaigns.  Many other people write about measuring the effectiveness of sales and marketing so if you are intrigued by this kind of thing, you will have no shortage of material to read.  The balanced scorecard has been around since the 90s and is likely one of the best methodologies for making measurements central to performance management.  With all of these measures, why has the relationship between sales and marketing spending and revenue growth not changed?  

Some would say that the recession has reduced revenues.  I think it is that our capacity to measure has for some time exceeded our interest in measuring.  Finding the truth is hard when one is not looking for it. 

Here are some reasons this may be happening:

 

  • The Rise of Integrated Marketing: There are many ways to reach customers and marketers are employing them in overlapping ways.  The overlap fogs the cause and effect.
  • Carrot and the Stick:  An increased emphasis on pay for performance compensation structures, and an increased focus on cutting headcount has made the very people measuring effectiveness unwilling participants.  Everyone wants to be part of the good story, and everyone runs from the bad story.
  • Grab and Go Mentality:  Large company marketing departments move people around often, so people grab onto the best metrics, claim responsibility, get promoted and repeatability is never tracked.

 

Small companies that don’t know how to sell die – so evolution is alive and well in small companies. In large enterprises however, these behaviors are deeply ingrained and not likely to change.  

Two Great Presentations at SMB Nation

I am attending smb nation in las vegas this weekend and it has been a great show.  I will be presenting a little bit later today, and I will post my comments here with a link to the slide deck.  

Yesterday I was lucky enough to sit in on two great presentations that sparked an addition to my presentation.  Here are some notes:

Anurag Agrawal in his presentation about mobility and SMB:

Top three issues for SMB customers:

  1. Reduce Operating Costs
  2. Enter New Markets
  3. Improve the Effectiveness of Sales and Marketing

Dave Michels in his presentation about Voice:  Voice is an IT service now

I thought these points were notable because we are seeing the same thing in our business.  In IT it is easy to think we are all about the technology, but in fact, the customers don't care about technology, they care about the growing their businesses.  If we want to sell technology we have to answer the question:  "...yes but, what does that do to grow my business?"  
Some will say that this is solution selling and we have been doing that forever.  I agree, but sometimes the solutions we are selling take on a life of their own, and get too far away from growing our customer's businesses.
In the case of Dave Michels comment -- "Voice is an IT service now",  the point is again that the customer does not care that telephone systems used to be sold and supported by different people.  The customer just wants to grow their business.  There are many big things that phones can do now and someone needs to be bringing those things to the SMB market.

Lessons from Alaska Airlines

Recently I found myself in the common situation of wanting to adjust the time of a flight I was taking to the Bay Area.  Alaska Airlines makes this quite easy and I am willing to pay the $75 change fee for the flexibility.  Everyone wins.  I get just the flight time I want and Alaska gets a few more of my dollars.  This time however, the earlier / later flight buttons did not come up during the web check in process. 

I like Alaska Airlines.  I don't fly enough to get to their highest points status every year, but I am usually enough of an MVP to get a few perks.  I am also quite familiar with their web site, so when the option to go earlier or later was not presented I thought the web site must not be working right.  So I called customer service.

As I would expect from Alaska Air, I got right through to a customer service person who said that it would be more than the original cost of my ticket to change the time.  The person was friendly, but offered no explanation.  The message was:  The situations was what it was.  I was disappointed because my travel plans were not working out the way I wanted, and my favorite airline was falling a few notches.

Again, I do appreciate a good customer experience and Alaska Air usually delivers. They also make a good effort to run their airline the way I would run it, with a focus on the customer and on quality.  They also run it in a way that often is profitable, which is deserving of our respect in an age where the Wall Street types are sucking the life out of many of the airlines - ala Gordon Gekko.

So, disappointed, I went back to the web site to check in and fly the time that no longer fit my schedule.  Imagine my surprise when the web site was now asking for volunteers to fly at a later time – just what I wanted!  Well close.  I wanted to fly later, but I did not want to have to show up at the time of my scheduled flight and find out that I may have to wait around the airport for a few hours until a later time.  A quick check on the Alaska Air reservations page showed that there were seats available on the later flights.  OK.  I want to go later, Alaska wants me to go later, and there are seats on the later plane – a great opportunity for everyone to win.

Unfortunately for all of us, customer service, even though they were friendly and answered fast, still told me I would have to pay big bucks to change. 

For many years the airlines have been out front in the quest for both efficiency and customer loyalty.  They achieve efficiency by reducing the mechanics of consuming their service to policies that can be carried out by travel agents, call center agents, and increasingly the customers themselves.  They generate customer loyalty by offering benefits that are difficult to reproduce elsewhere (increasing the cost of switching), and just plain making their high value customers feel good.  The airlines understand that people do business with people they like.

My company manages relationships between large technology companies and their resellers.  Since there are hundreds of thousands of these resellers, we have become experts in making policies and carrying them out efficiently.  Our clients depend on their partners for most of their revenue, so we are quite sensitive to the traps that invariably arise when trying to be both efficient and build lasting relationships.

This background may make me more interested than the typical person in my experiences as a customer.  Every interaction with a vendor is an opportunity to discover things to do and unfortunately often not to do. 

My experience with Alaska Airlines was a good reminder that we have to be careful not to let our pursuit of efficiency degrade the customer’s experience, or even worse, prevent an outcome that even Alaska Airlines wanted.  Here is a quick list of three lessons we can learn from this episode:

  1. Use Available Information:  Each time I called into the call center, the customer service person should have seen my status level and other interesting things about me.  A world class company would know at that moment that I am using slightly less of their service this year than last, that I was recently on flights that had been delayed – where vouchers were given out – and maybe even that the voucher I had been given was not redeemed.  All of these indicators point to an opportunity for Alaska Air to regain ground recently lost in our customer relationship.
  2. Empower Humans to Intervene:  The fact that I was taking the time to call should have been a signal to Alaska Airlines.  The fact that I called twice in two days about the same issue should have been a trigger to the person handling the issue to make an extra effort.  These days, companies get very few opportunities to talk one on one with their customers.  The fact that the customer service people either did not know or did not care about this situation was a lost opportunity for a high quality interaction with what might even be a high value customer.  Once engaged, who knows what the outcome might have been?  My company does not have a company wide purchasing agreement with Alaska Air – I don’t know if they do that kind of thing, but it could be valuable to Alaska Air.  After all, many of my employees are more loyal to Southwest or Virgin than to Alaska Air.  Also, I have never really understood how the Alaska Air lounges work.  I know that I have to purchase a membership, but no one has ever asked me to do so, and every time I walk past the lounge I think I should figure that out one day. 
  3. When All Else Fails – Empathize:  In the end, there may not have been anything that could have been done to put me on a later flight and relieve the overbooked nature of the flight I was on.  Such “facts of life” are common in the real world.  A great deal of good will could have been gained if Alaska Air’s customer service people had just said they were sorry that a solution was not available.  Saying I had to buy the ticked all over again – take it or leave it – really benefited no one.

Of course I am grateful to Alaska Air for the many times they have provided me with safe, reliable, and friendly travel.  I also appreciate this reminder to check in and make sure our policies are not needlessly degrading our client relationships. 

It would be much more fun to have gained this insight without having to waste most of a day traveling at an inconvenient time. But hey, managing relationships at scale is a difficult business.

A Facebook for Government Transparency

We want to know more about the way our government works and we want the government to know less about what we are doing.  Unfortunately, right now the trend is going the other way. But what if it did not?  Right now governments use Facebook to follow their citizens.  This is pretty widely documented in countries with poor human rights records like Syria.  We can only hope that Facebook is putting significant effort into keeping our government from turning Facebook into the ultimate citizen watching system.  Ironically, in America where Facebook was created, we are the ones that are supposed to have access to the doings of our government and our government is not supposed to have access to our private lives. 

Imagine a Facebook for government.  Each representative would have a page.  All associations ("friends") between elected officials and donors and lobbyists would be listed.  All meetings, emails, phone calls, and flows of money would be cataloged and displayed for anyone to see.  It would be a citizen’s dream: transparent representation.  Right there on your representative's "wall" would be their attendance and voting record.  Cool. 

Who wouldn’t want such a thing?  Well, what honest government would not want such a thing?