Did You Know that Netflix Runs on AWS?

CloudFair 2012 ended yesterday and I was lucky enough to see about a dozen of the presentations.  It was a good show with many well thought out pitches. Some were more educational, some more evangelical, some fell flat. 

I find it interesting to find the theme in any convention.  Here is what emerged for me during CloudFair 2012:

1. The Cloud is Real:  It scales, it is cheaper, it slices, it dices.
2. IT Departments are Dinosaurs:  Some presenters tried to defend IT departments by explaining why they are in a tough spot. But everyone agreed that IT departments are in the way.
3. Some Cool App Runs on our Stuff:  Google had the royal wedding, AWS has Netflix, Everybody has a validating customer.  If you doubt it, here is a juicy chart about traffic or here is a customer quote about how we saved the day.

Who attends these conferences?  The premise is that the audience is the potential customer.   Which could be either the IT Department or the end user inside a business.  If not that maybe channel partners that already work with the potential customer.   The potential customer is the IT department.  How it got to be cool to blast the customer is beyond me.  Last I checked, the IT department still had the budget.

The Pursuit of Customer Loyalty

I love speaking to groups so yesterday was a great day for me.  The setting was an internal planning meeting for one of our clients, the subject was creating customer loyalty, and the context was customer service.  I speak in front of groups fairly often and this one turned out to be particularly fun because the people were clearly passionate about the subject and were eager to jump into the conversation.  The title of my presentation was Five Assumptions that Drive Loyalty, and when I say assumptions I am talking about assumptions we need to make about the customer.  They are:

• The Customer is Smart
• The Customer is Well Intentioned
• The Customer Values Their Time
• The Customer Has Friends (power)
• The Customer Will Share With Them (will use it)

These assumptions are so obvious that they really don’t need much explaining.  However, they are not that easy to accomplish.  Making your customers wait in line is a clear way to tell them that you think your time is more valuable than theirs – and we all hate waiting in line.  Despite this, no one has figured out how to get hundreds of people onto an airplane without making them wait in line.

During the presentation I was also able to squeeze in two other of my favorite points:

• Customer / vendor relationships can only be in one of two categories (buckets):  “Unbelievably Great” or “There Has To Be A Better Way”.  There is no middle ground.  Any company that accepts the middle ground of “Good Enough” is only deceiving themselves – because their customers are absolutely in the “There Has To Be A Better Way” bucket.
• Companies must find structures for their businesses that naturally promote positive relationships.  Blockbuster’s late fees cause everyone to look for an alternate solution.  It is not that Blockbuster is unjustified in charging the late fees, because clearly they have to get their movies back.  It is that the late fees drive the customers away.  Netflix found a way to build a movie rental business without late fees – and their customers are very loyal as a result.  I suppose their amazing execution also helps.

In the discussion a number of very interesting ideas surfaced.  This of course is the most fun part about getting 150 smart and energetic people into a room – ideas just appear and there is a pretty good chance that no one might have come up such great thoughts sitting alone in a room.  Here are the three ideas I like the most in our conversation:

• Customers are loyal to companies that manage their information well.  In its simplest form this means not making the customer give basic information over and over, but rapidly accelerates to using customer history to improve the experience.  Log on to Amazon.com and you can easily see your entire purchase history, and Amazon.com is also using that data to make recommendations to you about what you might like to purchase next.
• Customers are loyal to companies that trust them.  If you lose one of Netflix’s DVDs, just tell them, and it is no big deal.  I bet many customers find the lost DVDs later and actually return them – even though they do not have to.
• Customers will pay.  Customers are exhausted by poor quality free things and are ready, willing, and able to pay for quality.

We ended the hour talking about the companies that do a great job creating loyalty in their customers.  The list included:  Zappos.com, Netflix, Apple, Amazon.com, and Starbucks.  Don’t be shy about adding to the list.

Deloitte Brings Us Back to Earth

If you have not already read the 2010 Media Predictions recently published by Deloitte -- I recommend it highly.  Leave it to a venerable firm with its feet on the ground to help me gain some perspective on the world we live in.  I was shocked and swayed by several of their predictions and the common thread was:  those of us in the tech industry should remember that the "other half" is really the "other 95%" and they are the customers.  Here is what I mean:

Deloitte Predicts:  "Linear's got legs: the television and radio schedule stays supreme"

What?  There are people out there that still watch TV according to the schedule?  I thought the DVR took over in 2007!  Well it turns out that 90 percent of all TV is consumed according to the schedule and at the rate of between 20 and 30 hours per person per week.  The DVR people only watch 90 minutes a week.  So the schedule dominates.

Deloitte Predicts:  "The shift to online advertising: more selective, but the trend continues"

Well this is an easy one -- online advertising is going to continue to take marketshare.  Just when I am thinking that this is hardly a prediction they point out that by increase they mean going from 10% of the market to 15% over the next 2 years.  With the overall market contracting, this is really not much of a change.  Again, the web is cool, but advertising is a big industry and the web is still the infant.

Deloitte Predicts:  "Publishing fights back: pay walls and micropayments"

They predict that all of the huff and puff around paying for written content on the web will fizzle this year -- I happen to agree.

Deloitte Predicts: "Video-on-demand takes off -- thanks to the vending machine"

Look out Netflix -- here comes the ...... vending machine?  The prediction is that by the end of 2010 there will be 30,000 DVD vending machines in place and a capacity to deliver 1.5B DVDs per year.  This is quite a number -- and even if it does come true it looks like it might at best match Netflix's rental volume.  I suppose the question hinges on how to define Video-on-demand.  Getting a DVD in the mail is hardly on-demand, but driving to the vending machine is not either.  So this prediction is kind of a dud for me except that it reinforces the point I took away:  when you look at the whole market -- things just are not changing that fast.

Do download the article.  There were several other interesting points on eReaders, TV - Web convergence, Music, and 3D TV.  It does not seem like the theme was intentional, but each prediction reinforced the point:  even the most developed marketplace in the world is still dominated by relatively old technology.  Plenty of room for expansion in our market -- as long as we can break out of selling only to our "half".