Barcodes to Amazon via Mobile Phones.

FT.com/ Marketers stealth on web will not pay for long:

By Ben Richards and Faris Yakob, in today's FT

"In an age of unprecedented access to information, attempting to deceive consumers is more dangerous than ever before. Rather than trying to dupe consumers into receiving their messages by stealth, brands should do the reverse: to strike an open and honest bargain with the consumer, providing content, tools and experiences in return for engaging with their brand.Smart companies understand that today's web-savvy consumers can be as stealthy as brands.

"These stealth consumers set their web browsers to block advertisements; they use Epinions to find them the best products; they use Kelkoo to find the best prices. If a brand does not deliver, they use the web to air their grievances.

And here's the punch line...

"..It is the brands that embrace this stealth consumer that will thrive. Take Amazon in Japan. If you have a web-enabled camera phone (and almost everyone in Japan does), you can take a picture of a barcode on any product and send it to Amazon.co.jp. Amazon compares the code with its online database, and if it stocks the item, it will send you back the price, which is typically lower than the in-store one, and offer you the chance to place an order."

So... does it really make sense to spend advertising dollars on advertising, or maybe it makes more sense to spend the money on making a truly great product and delivering it with the minimum of hassle?

How can you recognize a tipping point?

Advertisers are struggling to reach webwise teens

Money talks, .......everything else follows.

Aline van Duyn, reports in the May 23 FT.
"A key moment of realisation for the industry came last year when Mr Murdoch grasped how dramatically the internet was changing the media business. Since his very public damascene conversion, embracing digital media has become a priority for all News Corp’s businesses, from television to newspapers to movies. The media mogul has spent around $1.5bn on acquiring internet companies.

On the same page, Richard Waters asks from San Fransciso...
"Are the drab text advertisements that appear on internet search engines a harbinger of what lies ahead for the entire $600bn global advertising industry? "

“...When people look back at search, it will be seen as one of the pivotal things that shifted how people think about advertising,” says Mr Armstrong.

"...Google has experimented with buying advertisements in print publications on behalf of its customers. This year, it bought a company that places advertisements on radio stations – a highly fragmented, difficult-to-reach market that in some ways resembles the search engine world."

And now for some of the Google- Mart implications. Same article,

"...Led by Wal-Mart, a group of advertisers under the auspices of the Association of National Advertisers this month set out to raise $50m for a pilot project to launch their own joint market for television time."

"...In a world where advertisers are used to buying in online auctions, things should be different. Media buyers such as Publicis, however, respond that advertising space is not a commodity and advertisers still want control over where their messages appear."

No doubt that advertisers want control over where their messages appear, but exactly why is advertising space not a commodity? Aside from the fact that the revenue stream for media buyers comes from their superior information about the marketplace.

"...Whether the traditional advertising industry is ready for the greater level of efficiency and accountability this implies is another matter. There is a general perception, says Mr Armstrong, that the industry “is overweight and a bit mushy. We’re replacing fat with muscle”.

So, maybe in the long, or maybe not so long, run, advertising dollars will be put into enhancing the customer experience. Making it better, faster, cheaper, more elegant, easier to use, taking less time and hassle.

The GME threatens any industry that is based on a control of information. We've been hearing the rumbles for the last few years, but it sure feels like the fault lines are going to erupt pretty soon.

Straight from Google's CEO

FT.com / Eric Schmidt, CEO Google- Let more of the world access the internet

Eric Shmidt talks about access in the FT. He says, "The democratisation of information has empowered us all as individuals. We no longer have to take what business, the media or indeed politicians say at face value. Where once people waited to be told what the news was, they can now decide what news matters to them, and increasing numbers are actually commenting on events themselves – creating blogs every second of every day."

And later in the column, "But people in general are extremely adept at telling the difference between products that are good or bad – or information that is right or wrong. Indeed it is the liberation of end users that has made the internet the success it is today."

And has created the threat to any enterprise that depends on an information advantage for it's success.

If you're not selling to consumers, you're selling dog food.

FT.com / By industry / Consumer industries - P&G upbeat over Wal-Mart strategy

Sorry but the FT only lets you read the first graph for free

The dog food business is a catch phrase for business that have revenue streams that are not connected to the value of their product to the consumer.

Some dog food businesses are very profitable, and have been very stable. But in an era of rapid change, they have a special problem. Like any well run business, dog food businesses (most of the B to B market) will be pushed to innovate primarily to better serve their customers. If their customers are not consumers, they are locked into the level of innovation demanded by their organizational customers.

The problem is that they are then dependent on sometimes a very slow moving intermediary. A good example in the automative space might be Delphi. Locked into GM, they are now being penalized for that symbiotic relationship. Perhaps they would have been better off if they were part of the Toyota value chain.

The printing industry has a similar problem. Some publishers get it, many don't. But if you're customer is a publisher, the only responsible thing to do is to produce what the publisher is asking for. The problem arises when the publishing business model changes.

Wal-Mart and P&G are more exposed to the consumer market than most businesses. They both are driven towards ever imporving efficiencies, by competing in an open, transparent marketplace.

In The GME, business models that make their money from consumers are most incented to sustainable innovation..

Make things people want, and make it fun to buy it.

Let them eat bread.

Panera Bread, one of the leading "fast casual" restaurant chains in the US, will on Friday unveil plans for 25 per cent long-term earnings growth, marking the first time it has committed to such a target since going public in 1991.

...Its business model is based on growing demand for “speciality” or “artisan” breads, for which it can charge a premium price as consumers increasingly trade up from cheaper chains.

Panera bakes all of its bread at each of its almost 900 stores, which the company claims have more average sales per unit than Starbucks or dining chains such as Outback Steakhouse.

They place to watch for leading developments in the GME are the companies whose primary revenue source is consumers.

They have to satisfy the folks who are suppying the revenue stream. Those that find or create a profitable niche will do just fine.

World's Simplest Marketing Plan

Guy Kawasaki nails this. Note: This is a link to an MS-Word document.

Supply-chain and stock price

Interesting blog post from Christopher Koch about how investment analysts are taking a closer look at operational effectiveness. This post focuses on supply chain, but we expect to see this touch all industries, including financial services. Managing logistics (a la Wal-Mart) is a key locus of institutional value.

The Ultimate Question

Always insightful blog Adventures in Capitalism blogged a review of Fred Reichhold's new book "The Ulimate Question." It's a good summary and worth checking out. Essentially, it says the best metric for any business is the percentage of customers that would recommend it to a friend.

Reducing customer service costs through product focus and simplicity

The NYT had an interesting article today about GetHuman.com a website that publishes the secret codes that get you out of a phone tree and to an actual operator when you call big companies. A great example of the transparency of information in the GME. But even more interesting where these to quotes in the article from a Customer Service expert and a Banker:

'The reason people are dialing the 1-800 number is that they're having a bad experience in some other channel,' said Mark Hurst, founder and president of Creative Good, a consulting firm that advises companies on how to improve the customer experience. He is amazed, he said, at how difficult it remains on most Web sites for customers to do little things like revise an order or track a shipment. 'If e-commerce were much, much simpler,' he said, 'a huge percentage of these calls would never be made.'

JIM KELLY, chief customer service officer at ING Direct, the online bank with 3.5 million customers and deposits of nearly $40 billion, takes the case for simplicity a step further. ING Direct keeps its entire product line simple. It offers a small number of easy-to-understand products such as savings accounts, certificates of deposit and no-frills mortgages. The savings programs entail no annual fees or account minimums.

As a result, the average ING Direct customer calls the bank only 1.6 times a year. The calls that do come in are answered by full-time employees who don't rely on scripted answers and don't work under strict time limits.

'The key word for us is simplicity,' Mr. Kelly said. 'If you eliminate service charges and hidden fees, you eliminate most of the problems and complaints. Then the only reason for people to call is to do business. And those are calls you're eager to take.'

So, if your product is not confusing, people won't call with dumb questions. Sounds good to us!

Information Disadvantage and Value Added

Any part of any business that is based on information disadvantge is threatened. That includes both the large and small. Textbook publishers, traditional education delivery systems - including Universities, Colleges, Community Colleges and K-12, and of course newspapers are in danger of radical transformation.

Clay Christiansen,et al. outline a theory and strategy for thinking about sources of innovation, in Seeing What's Next. The chapters on the health and education business are particularly interesting.

So...business has to figure out how to "add value". Sometimes this concept becomes unduly complicated. "Value creation" is actually pretty straightforward. What can your business do for $x, that people will gladly pay $(x+y)?

The basic rule is that "better, faster, cheaper" always wins. But, as Apple has shown with the iPod, and that Starbucks has shown with their coffee, "cheaper" can be a very complex concept.

In the GME, in the developed world, people will gladly part with $, in order to pay for an experience they want.
And in the developing world, P&G has shown that you can make lots of money by selling single use shampoo in China for 2 cents.

The right product, for the right person, at the right time for the right price - produced and delivered at a profit.

The end of information disadvantage business models

Real estate agents, like travel agents before them, are under seige. As the Freakonomics guys pointed out in their book, real estate agents take advantage of their control over information (buying and selling prices in a particular area) to encourage their clients to sell as quickly as possible.

However, check out Zillow.com, which is seeking to end this monopoly.

The age of the knowledge-hoarder is over. Agents of all kinds must focus on services and other value adds...

Apple Enters The Education Market

According to published reports in the FT, Podcast pedagogy divides opinion at US universities, Apple is turning it's attention to education delivery systems.

Rebecca Knight reports that

For Kathryn Bowser, a 19-year-old biology student at Drexel University in Philadelphia, the best time to sit through a lecture on organic chemistry happens to be when she is riding the exercise bike at the gym.

The right product to the right person at the right time. It's the oldest rule about making money in the marketplace.

The core value of higher education is not the lecture series. Rather it's the continuing real world conversation among students, faculty and others in the community and the rich networks that grow in the college experience.

If the lecture can be delivered faster, better, and cheaper using new technology, it's not surprising that an innovative company is figuring out how to do it. And not surprisingly, there will be many Universities that will be frightened at the idea of reliquishing "control" of their "content". As were music companies, and book publishers.

But the relentless logic of the GME redefines value creation and disaggregates value packages that worked well in the last century, but have become less valuable in this one.

A central concept of the GME is that the monetizable value is timeliness and effectiveness. Any entreprise that can save time and increase effectiveness at the appropriate cost will find a sustainable business model. It just may not be the one they presently have.

If educational content can be delivered in less time, and be available when the student (consumer) is most ready to absorb it a business model will probably emerge that will allow that to happen.

Can Wal-Mart Become the Good Guys?

In yesterday's Financial Times there is a report entitled Wal-Mart Picks a Shade of Green

Jonathan Birchell reports,

"What if we used our size and resource to make this country and this earth an even better place for all of us?" asked Mr Scott, as he announced targets for reducing greenhouse gas emissions and cutting waste. He also committed the company to working with its suppliers to promote good environmental practices.

"That speech was the single most groundbreaking speech from the CEO of a major US company on the environment that I have ever heard," says oneleading US environmental activist.

This company has "customer-first" in it's DNA. In the 20th century "low prices everyday" was enough. A single focus and flawless execution wins.

When Wal-Mart starts changing it's tune, and presumably it's operational focus, something big is going on.

Google Innovates At the Bottom With Ad Sales

We will develop and expand this later, but one of the impacts of the GME is the potential that it provides to "innovate at the bottom of the pyramid" (as Clay Christensen terms it).

On of the most innovative things that Google did was to remove the transaction costs from buying advertising. By allow AdWords purchasing online with credit cards, and enabling people to see what kind of ad inventory was for sale and how much it costs in real time (IAI and RTR!), Google opened up the ad market to two new classes of customers:

1. People with small budgets who could not be profitably served through a traditional, salesman-based ad-sales process
2. (more importantly) people without the time or inclination to deal with an ad salesman.

Google allowed ad-buying in real time. No proposals, no call backs, no negotiation.

Does what you sell need the sales overhead you have? How much could you expand your market if you streamlined your sales process?

Values, Market Valuation and The Logic of Business

In today's FT it is reported that Google shares drop more than 16%.

It seems that Google made the grievous error of meeting their predicted profit goals, increasing their revenue 97% in the quarter to $1.29bn. But they did not exceed their projections, and fell from a 109% growth rate in the previous quarter.

They were rewarded by the stock market by a loss of $20 billion in their market cap.

On the face of it it sure seems there is something out of whack with stock market valuations.

Perhaps it's why George Reyes, CFO is quoted in the same article, as saying:

Google has broken with Wall Street tradition since it went public by refusing to issue predicitions of what its quarterly earnings are likely to be, arguing that this sort guidance encourages companies to take a short-term approach to managing their businesses.

In another part of the paper, the Lex Column, does make an important point,

Google’s earnings miss, coupled with last week’s decision to bow to Chinese censorship, have broken its sheen of immortality. Expect more volatility as investors get used to the idea that Google can, in fact, do wrong.

While I take issue with describing a predicted result as an "earnings miss", Lex does highlight that even the most massive enterprises are not immune from the discipline of the GME.

The only sustainable advantage is the relationship with the customer, and with IAI, that is an advantage that is put to the test every day. The "brand", which supplies the context of meaning in which the service/product is delivered, is critical to the value created for the customer. If the customer doesn't like you, the perceived value you give is threatened. And there are lots of competitors eager for a chance to do better.

The other important issue is that Google is not always good, and that Wal-Mart is not only bad. They are both merely business organizations driven by business incentives and trying to make sustainable profits. You can ask for no more or less.

Social Values and Google

John Gapper, in a column in yesterdays FT Google is putting its own freedoms at risk in China points out that

Making money by making the world a better place is nice work if you can get it. Google's founders are so convinced they combine the two that they made "Don't be evil" a founding principle. But what happens when business interests clash with ethics? That is occurring in China not only to Google, but to Microsoft and Yahoo and it ought to make Silicon Valley's finest worried.

Mr. Gapper goes on to talk about the conflicts between the power of Yahoo, Google, and Microsoft and the privacy and political issues that are inevitably emerging. Google seems to be the only search engine that resisted the US government's request for data, but all of them made arrangements with the Chinese government to gain access to the Chinese market.

He concludes,

...In these circumstances, the internet giants ought to tread very carefully. The benefits of an open internet, free from clumsy regulation and inquisitive authorities, have been huge. But they need not last and will be curtailed if the public loses faith in Google and others. China is a vast market but what does it profit an internet company if it gains the whole world and loses its soul?

The implication is that if Google "does lose it's soul" in China, they are at risk of losing their public and threatening some of the value they have created.

In the GME, if even Google is vulnerable to whether customers have faith in them , what might that mean for mere mortal companies?

IAI, RTR and Recruiting/Retention

A lot of thoughts that we've had around IAI and RTR is in the area of competition or customer acquisition/service. But an equally important impact, we believe, will be in recruiting and retention.

As the post-Google generation enters the workforce, they will have less patience for inaccessible information and slow bureaucratic processes than previous generations. Companies that can't meet their expectations internally may find that their highest value employees (and employees focused on RTR are nearly by definition highest value) are frustrated and difficult to retain.

Social Values and Wal-Mart

Wal-Mart has not been known for best practices in sustainable business practices. Born within the context of 20th century business models, they have ruthlessly maximzed their values within the incentives of those models.

It's at least plausible that the DNA of the company coupled with the fact that Wal-Mart focuses on serving customers at the bottom of the pyramid, bodes well - both for the company's continued success in the GME and the growth of widespread recognition of the benefits derived from using appropriate values to inform strategic business decisions.

In this Sunday's Financial Times it is reported that

Wal-Mart has committed itself to taking most of the fish it sells in North America from environmentally sound sources, in its latest initiative to improve its much criticised record on environmental and social issues.

This is a testament to the power of the GME and the incentives for expensive innovation that are implicit when business is focused on the needs of customers at the bottom of the pyramid.

The arguably most powerful company in the world is crtically dependent for its success on their customers' opinion of them. Since the North American market is quickly becoming merely an important niche market in terms of further growth, the issue of sustainable supply chains moves from strictly a "feel good" necessity to a "must have" business necessity.

Of course, the public pressure generated over the last three or four years has been the stick to get their attention. But if Lee Scott, et al, did not see addressing this issue as a critical business problem, they would not undertake the massive, and very troublesome, task of setting standards for a supply chain that includes 60,000 suppliers dispersed all over the globe.

The values required for success in the GME are, in important respects, the same values that can lead to addressing the most serious global problems.

But success is not a sure thing.

The disruptions created by new technologies often lead to economic reorganization that can create dangerous turbulence as civil society and government readjusts to new realites. It's certainly one way to think about the strains associated with the advent of industrialism at the turn of the last century.

The faster that business, civil society and government adjust, the less painful the transition. As the incentives of business success become increasingly aligned with the values needed for global success, the transition might be smoother.

Context is King and the Value of Design

The importance of design is a corollary of the idea of "context is king" .

IAI implies accessible information and technology. In 20th century business models, it's the lack of access, reflected in the high cost of getting it, that was an essential component of the value created by information and technology. RTR was only possible in a well managed large enterprise.

But in the GME, that basis for value creation is being replaced by the ability to execute in real time. In the communications industry, successful execution means traversing the "last mile". As shown by the history of the cable industy, getting the message from the street to the living room was the hard problem. The harder the problem, the greater the value created.

But the hard problem is a constantly moving target.

After billions of invested dollars, the tech for the last mile is now pretty much solved in the developed communites of the world. While that's still a relatively small market in global terms, it's significant. At any rate, the hard problem is shifting again - getting the message from the living room into a person's life.

That's the context for the next actionable hard problem.

iPods showed what happens when you solve the last mile problem. Apple's profits and success come from monetizing the value created by a design solution for a hard and actionable problem.

Creating value in the context of the last mile has always been the job of the great designers. Recognizing and monetizing that value creation is the job of great enterprises.

The importance of design

Chris Yeh has a good post on design as the compelling differentiator, which brings home the incredible transformation of the technology labor market in the GME:

A friend of mine is building a Web 2.0-type Web site. In the old days, this would have taken an entire team to build and operate. He's doing it on his own. In his spare time.

He designed the service, created a spec, and put it out to bid on Rentacoder...48 hours later, he's received a ton of bids, including some as low as $20. And that is not a misprint.

Of course, the $20 bidders are students in low-wage countries, but several reputable firms bid only slightly more, like $120.