mind this - by Lars Plougmann

Geeks with business acumen

Just like low wage countries are moving up the value chain in the global outsourcing game, geeks are moving up the levels of business models. I am half way through Carson's workshop The Future of Web Apps in London where both the scheduled sessions and hallway conversations with members of the conference audience are inspiring.

Last year, there was a fair bit of focus on the decreasing cost of launching a consumer web application (£30k was one of the figures mentioned). Today, Amazon CTO Werner Vogels boasted that computing power and storage were not free, but almost. He was speaking about the S3 (storage) and EC2 (processing) services and I didn't know whether to dismiss the 'almost free' claim as a marketing trick until later when a Belgian entrepreneur explained to me that a photo printing service he helped build on the web spent an average of €1 on storage per month.

With the basic plumbing reduced to a commodity, energy and cash are freed up to focus on ideas and innovation. And these days that often means how to cater for the community of people using a company's services. Last.fm, flickr and Digg were hailed as examples of applications with strong communities but all businesses have communities and the more engaged they are in the product or service the stronger the business potential. Even with a million or more customers, we heard examples of how the community was engaged to define the direction of an application, how to make a community police its own members and actions and how to capture behaviour and attention data to improve the quality of the experience for the individual as well as a tool in the fight against spam (social spam as it is known now).

I spoke to a developer who recently joined a generation-old business. It was soon clear to the management that he had arrived with a bunch of new ideas so he was asked to present to the board. The theme of his presentation was 'how to engage with our community of customers'. Today's geeks care about the social model, the customer experience and word-of-mouth marketing. These are at the base of many startups and the principles are permeating to existing businesses.

Or as we heard from venture capitalist fund Index, if there is no buzz about your product or service, consider changing your product instead of increasing your marketing spend.

As usual, I am taking notes from the sessions in mind map format (using MindManager) and publishing them under a creative commons (attribution) license.

Tags: FOWALondon07 FOWA future of web apps web apps web services innovation mind map community Tara Hunt Kevin Rose Bradley Horowitz Index Ventures

The rush to Second Life is like the internet in the mid-1990s

A nicely designed room with floating pods to sit in, seemed a lot more imaginative than CNET's facility where I previously attended a conference. This one was a meeting of Web Montag, a crowd of people (initially brought together by Tim Bonnemann but is now self organising) who share an interest in everything web; they  meet in cities across Germany, Silicon Valley and Second Life.

Sebastian Küpers of Pixelpark talked us through his presentation slides outlining Second Life demographics, economy and a few case studies: Nissan, Adidas, Reuters and others I had heard about before. But it was news to me when he mentioned PA Consulting Group, where I used to work as a management consultant.

PA took its time establishing a web presence in the 1990s: Several local offices had published their own websites before a global site was launched. For those of us advising clients about opportunities of the internet, not having a corporate website was a bit of a moot point.

In contrast, PA is amongst the first professional services companies to establish a presence in a virtual world. The architecture is light and airy while borrowing distinctive themes from the firm's HQ building, located in London's Buckingham Palace Road. Communicating with PA consultants' avatars present, I learned that the facility was designed by Rivers Run Red, a London-based brand consultancy whose Second Life clients include the BBC, Adidas and Disney. An official launch is planned for 29 November 2006.

Companies buy space in Second Life in order to market their brand (Dell, Adidas, countless others), be seen as innovative (Reuters and others), reach out to their alumni or other communities (IBM) or as a novel internal teleconferencing and social tool (Reuters). A few have set out to experiment with products or environments that are difficult to replicate in "real life".

It all reminds me of the beginnings on the web. Some of us will remember the fascination with typing some complicated url into an early browser only to see an image of a coffee pot in a lab in Cambridge. Soon after, companies scrambled to create websites: Little more than outtakes from their annual reports. But after countless experiments and a financial bubble, we have a web that we could not imagine living without today. Let the experiment continue.

Tags: Second Life virtual worlds web 2.0 webmontag PA Consulting Group marketing brand innovation

Spam, junk mail and telemarketing are here to stay

When we throw away junk mail without opening it we think "what a waste". But companies wouldn't use snail mail as a marketing channel unless the economics were in favour of it.

Example: I live in central London. I have an American Express card (one of the free ones, no annual fee). This morning I received a neat colour brochure "Three great reasons to visit London" offering three nights for the price of two at some top London hotels. The price quoted is £209 per night. But only one hotel offers that rate. The fine print reveals that the others charge £239 per night. And the quoted prices exclude VAT and 5% service charge.

What happened to data mining? It would be quick to establish that London residents are not the audience for London visits. My payments history should reveal that I prefer staying in budget hotels when I visit other cities.

The problem is one of economics and probability. At cost magnitudes of some £1 for a snail mail promotion, £10 for a telemarketing call and £0.00001 for a spam email, the required response rates are rather low before the campaign yields a result. We would rather be sold to via a personal letter and a follow up. Or as a concerted team effort from a supplier to win our business. But these approaches are likely to be in the range of £100 and £10,000 respectively.

The impersonal, blanket sales campaign is here to stay. But the clever companies will switch their strategies when they understand that in the future, stuff is bought rather than sold.

Tags: spam telemarketing junkmail markets 2.0 Amex data mining American+Express London

Markets 2.0 and Economics 101

Doc Searls talks about the intention economy as a future state of markets where marketing no longer means advertising and the interaction between supply and demand is about facilitating an efficient transaction. JP Rangaswami explained in his speech at the Reboot conference last week that in the economics of "Markets 1.0",

Advertising filled a gap because it was costly to research a product.

These insights got me thinking about what happens at the micro level: The buying decision and how it is influenced.

In micro economics, an exchange (say, money for a product) happens when the utility of consumption of the product exceeds the utility of the money. Measure utility in monetary terms and we can do away with the tedious 'utility of money' bit. That is simple, but actually too simple. We don't know the utility of a product before we get to use or consume it, so we are dealing with expected utility and, as usual in economics, this is where things get more interesting.

The consumer's idea of utility can be represented as a probability distribution. It is a necessary condition for an exchange to take place that the mean of the probability distribution (the expected utility) is higher than the price. But if part of the probability distribution sits below the price point then the transaction may not happen anyway - that is, if the consumer is risk averse.

At least it may not happen right away. The consumer can reduce the variance of the probability distribution by researching the product. But research is costly, both in terms of time spent and sources consulted. So how much research should we do? Again, economic principles have a precise answer for that: Continue researching until the marginal benefit of research dips below the marginal cost. From a practical viewpoint it means consulting the lowest cost sources that give the best ideas about the utility of a product. The first three sources you consult are likely to influence your idea about a product (and hence sharpen up the probability distribution) more than sources no. 21, 22 and 23.

Various sources are at our disposition when we want to find out more about a product, some examples are:

• advertising (free)
• opinions of people in your network (low cost)
• independent test reports and analyst reports (medium to high cost)
• a poll of consumers of that product (high cost)

And this is where Markets 2.0 kick in, fuelled by technology, transparency, structured and unstructured publishing, better software, search engines, collaboration and the internet's amazing ability to aggregate. Because the cost of research is coming down. On Amazon, every product is presented next to a poll of people's opinions about the product - quantitative and qualitative. On numerous websites that have established themselves as independent and authoritative, test and analysis is available for free (for example, I would never buy a digital camera without consulting dpreview.com). Through email and IM you can reach out to your personal network and ask for advice.

With the collapse in research costs we are back to Doc's intention economy. Consumers form their buying intentions irrespective of advertising and they appear on the market with intent to transact. Very traditional mechanisms brought them to this stage: ask your friends, ask the experts, and tap into aggregate data from the ones who already know - but all of it is now embodied in databases, software and a network that makes it possible.

The winners in the intention economy will be the ones who can detect intentions when they are advertised [excuse the pun] and act quickly to fulfill them.

(Note: While I have used the term 'consumer' above, I believe the same effects are present in business-to-business and financial markets as well. Probably more on that later.)

Tags: Markets 2.0 transparency Doc Searls JP Rangaswami Reboot8 intention economy micro economics

Trendy vodka, staple gin

The recently launched Google Trends joins a group of new tools that dip into the web's powers of aggregation. Let's look at what Google Trends and two other trend services can tell us about the consumption patterns of vodka and gin. (But don't expect the level of analysis provided by the WHO's Global Status Report on Alcohol [PDF] or Onalytica's innovative slicing of massive data sets.)

The first thing we notice when asking Google to compare search trends for vodka and gin is that vodka appears to be more popular than gin. Both spirits exhibit spikes in the Christmas and new year holidays. When we zoom in on a single month we see that gin searches are fairly constant while the interest in vodka fluctuates in a regular pattern with peaks around the weekends.

The same pattern is reflected, maybe even amplified, when we look at blog postings (querying Blogpulse and Icerocket): Vodka is the popular choice with significant spikes around the weekends. These services track the frequency with which somebody expresses something about gin or vodka as opposed to Google's tracking of searches.

Google's Trend service allows a geographic perspective on search frequency. Besides searches in English, vodka is popular amongst speakers of Swedish, Danish and Finnish.

The ability to dip into up-to-date aggregated data sets used to be a privilege of those with money to buy market research. The new services, typically free or cheap, make it easier for small suppliers to get to know their customers and their habits. Or for the health authorities to understand addiction patterns. After ten minutes of analysis, using only freely available stats, perhaps we can build conjectures about, say, marketing vodka and gin brands. Direct your vodka messages to the weekend party crowd but get your gin ads through to those enjoying a Tuesday tipple.

Tags: Google Trends trends Google  search vodka gin alcohol statistics

Transparency in Dresden

Note to self to swing by Dresden to see VW's 2002 final assembly plant for their Phaeton model. Called the "transparent factory" it sports a visitors' gallery with views of all aspects of assembly. The process is nice to look at, with maple wood floors and maple wood conveyor belts serving ergonomic workstations.
The transparency pays heed to recent management theories and supports the marketing for the Phaeton by developing the story about a hand-built quality car. And it supports the story about Volkswagen as a forward-thinking, employer-friendly car manufacturer with nothing to hide.
The intentions have produced something that looks pleasing to the eye.

Froogle goes mobile

When I bought my copy of Freakonomics in Border's bookshop on Oxford Street, the price tag said £20 but it turned out to be reduced to £16. How was I to know that I could have bought the book at Tesco for less than £12?
Google's price check service Froogle has gone mobile, so if you carry a phone that is less than a few years old, price checks can be carried out on the go. Point your phone to wml.froogle.com (or wml.froogle.co.uk in Britian) and search for the item you are interested in.
For sure, most of us can afford to pay a bit more here and there, and researching prices is extra work. But I have never enjoyed being taken advantage of because of informational asymmetries so Froogle will be a favourite link on my phone.
As usual with mobile technologies, Japan points us to what we can expect in the future. A service there allows shoppers to photograph the barcode of an item with a mobile phone camera and get price information returned in a text message.