Separate the Diagnosing from the Curing

Ten years ago we spent a bunch of time and money on the Y2K problem. While it is impossible to know if there really would have been a problem at the change over from 1999 to 2000 -- the consensus at this late date is that we dramatically overstated the problem, and dramatically overspent on the solution.

Our military regularly overestimates the size of threats in an effort to bring about a response; either in terms of funding for the military or outright action. We know some form of this played into the Iraq war.

The financial bail out of 2009 was identified and addressed by same people, and those people were tied very closely to Wall Street.

Large food companies have boosted sales of their products, particularly in developing nations, through misleading marketing. So much so that the World Health Organization had to create guidelines to discourage the practice.  

Our pharmaceutical industry routinely convinces us we are sick and then sells us the cure. They are now busily convincing the rest of the world that they are sick too.  

We all need to be wary of anyone who both dispenses the diagnosis and profits from the cure.

Book Review: Home Game by Michael Lewis

I have liked Michael Lewis ever since Liar's Poker, and he did not disappoint in the New New Thing either. Moneyball is still on my list. I just finished "Home Game" and it was great. It is an easy one or two night read as long as you don't stop too often and read passages to your spouse like I found myself doing.

The opening story set at a resort pool in Bermuda was so hilarious that we (unintentionally) woke up the kids even though we were trying to keep a lid on it. I admire writers who can tell the funny stories and also just lay out the unflattering stuff too.

Micheal Lewis has quite a talent. I am so glad he did not get sucked into wall street all those years ago.

Here is a link to the book on Amazon: 

Two Big Speakers this Week

Two of the most iconic figures of our time took the stage this week. To someone who has been a student of public speaking since I took my first public speaking class in the 9th grade I am bound to find the performances interesting regardless of the content or context.  Add to this my interest in both technology and our nation and Wednesday was quite a day.

Steve Jobs Introduces the iPad

Technophiles and ordinary citizens alike are all hoping this is not the last new product presentation we get from Steve Jobs. His gifts are many and to see them on display is a thrill. He himself has raised the bar so high with the Mac, the iPod, and the iPhone that it seemed almost impossible for him to deliver yet another home run. Of course only time will tell on the success of the iPad but and I found the presentation to be short of my own expectations.

He did not help his credibility when he massaged the numbers to position Apple as the largest mobile devices company in the world. Comparing all of Apple's forward looking revenues to just the current mobile devices revenues of Sony, Samsung, and Nokia does not hold up to event the dimmest scrutiny. This illuminated the fact that he was really speaking to the already converted and I find that the underlying fabric of the whole presentation and product.

There were many references to how the iPad will interact with existing Apple products. This emphasizes the closed nature of the Apple environment, and with their own chip, the porting of existing iWork apps, the exclusion of flash, and the extension of iTunes into iBooks -- this is putting another layer of bricks on the wall around the Apple community. The fans are going to love it, but the product is not cool enough to be the catalyst to new conversions from other platforms.

Ahead of the announcement some had speculated that the device and deals with content partners would save the TV industry. It appears that was never part of the vision for the product. Featuring the NY Times was nice but incremental -- no revolution there. As a gaming platform bigger is better, but gamers are not going to make this their main device -- so I don't really see that as a big change either.

In the end I did not think Steve really was wowed by the product either. If they have sold 250 million iPods -- they clearly will sell tens of millions of these things. But the primary motivation will be for one Apple fan to tell another Apple fan that they have it.

I will get into my thoughts about the Apple upgrade cycle some other day, but that is another reason to not buy the iPad now. Apple will continue to innovate on the platform and 12 months from now the new version will be cooler, cheaper, and maybe not even backwards compatible with this one.

Regarding killing the Kindle -- since Steve proclaimed that ALL iPhone apps work out of the box on the iPad -- that means that anyone buying the iPad can read their Kindle books on the Kindle App for the iPhone. This is great news for Amazon. Amazon has never been a hardware company and I bet they make much higher margins on the books than the Kindle device. So iPad could mean more Kindle book sales for Amazon. Also, Jeff Bezos will be off the hook with the publishers now that Apple is in the biz. So I don't think the Amazon people are going to be unhappy about this.

President Obama Calls it Like it is

It has been quite a year for the President. The vitriol between the parties has left everyone diminished and the independents in between seem to jump back and forth every day. It will be years before we understand how the decisions made by our well intentioned President re-shape our universe. Getting out of the financial crisis by turning from bank regulator to bank owner, and getting out of the war by putting more of our people in harms way, are hard things to explain even when over half the members of the choir are your own.

The good parts came when the President focussed our attention on the reason we need to make changes: The "How long should we wait? How long should America put its future on hold? ...I do not accept second-place for the United States of America." sequence hit the target right in the middle. All of the references to the things we are going to do -- particularly those laced with details like forgiving student loans in 20 or 10 years or $20 billion in savings in government spending next year -- do not resonate at all because we are skeptical about our government's ability to do anything. With the possible exception of sending tax dollars to special interest groups on Wall Street and the Pharmaceutical companies -- there is very little evidence that our government can do anything.

One year into his term, the repeated claim that the problems were not created on his watch, were tiresome and hurt his credibility.

Our President did rise to the occasion however and he showed his resolve calling out the "Deep and corrosive doubts about how Washington works." His proposal to put all earmarks on the web is bold and would be a big step in the right direction. His willingness to get some of the mud on himself by calling out the broken nature of our political process is great leadership. President Obama believes that the government can do good work. He has called out the bad stuff, committed himself to do something about it, and I believe his intentions are honorable.

We should not give up hope and all of us should do what we can to contribute to his success.  

People are not Computers

Last week a very interesting book came out, "You Are Not a Gadget" by Jaron Lanier. I am about half way through it and will post a review on this page soon. I had the good fortune of meeting Jaron this morning when he make a short presentation at Emerald City Rotary Club in Seattle. Here are the two main thoughts I took away from his talk and the discussion after:

People are not Computers (or visa versa)

The book goes into this in great detail, but Jaron does a good job of encapsulating the danger of thinking of computers as capable beings. He uses Facebook as an example of a system that we may think tracks in parallel with humans. He went on to point out that Facebook does not come very close to approximating the richness of human relationships. If we give Facebook enough authority in our society we will subject ourselves to its inadequacies. If we subject ourselves to Facebook, and Facebook cannot approximate real life, we will start to limit ourselves in real life to only the things that Facebook can recognize. So what you ask?

In America we are all big fans of reinvention. We built our country on the idea. Those of us that grew up before Facebook never thought twice about creating a whole new self if it suited us. We may not have gone as far as Don Drapper, but I know I tried on many personalities before I decided who I was. It is true that Facebook cannot stop us from doing that (or anything), but we can stop ourselves from doing it because we are worried about how it will be represented on Facebook.

We are giving away both ends of the value creation chain

Some time ago we came to the conclusion that inventing was the place to be, and the making could be done somewhere else. This follows our belief that labor is the main component of making and that ideas are the main component of inventing and we want to be the idea people. Some time later, about ten years ago, we decided that ideas should be free. We decided that writing, music, software, and many other pursuits of the mind should be shared freely (on the Internet) and that money would be made some other way. Sure these two changes were separated by about half a century. So we can forgive ourselves for not connecting them together. But now that we don't make things, and we give our ideas away for free -- what part of value creation do we own?

I am really looking forward to getting to the end of the book because Jaron has made some pretty good arguments that we are driving the bus right off the cliff. I for one don't want to go off the cliff. When I get to the part about what we should do -- I will report back. I suspect education and privacy will be involved.

Here is a link to Jaron Lanier's web page.  

Please do not hesitate to leave your comments.

Paying for Things We Don't Need

I travel a fair amount and like anyone who encounters the TSA regularly, I have reduced the number of things I bring with me as much as possible. This has been a great exercise, because for a quick trip I just do not need much stuff. As a society, we probably need more constraints like this because we have gotten out of the habit of making well considered purchasing decisions.

One of the things I started leaving behind was shaving cream. I did not know if it was a liquid, and the can was clearly over 3 oz. Indstead I used plain soap from the hotel and for me it worked just fine. Soon I was not using shaving cream at home either. It had always bothered me that the company that made it was "innovating" by making it difficult to dispense just the amount of product that I needed. By some miracle of engineering the can always shot out about twice as much as I needed. Fortunately I don't need them at all now.

I was an early adopter of an IP phone service. I tried it out and it worked OK, but then the hardware failed - and well, we never cut over. After paying for the service even though we were not using it for several months, I called to cancel. The company charged me $35 just to cancel my account -- even though they could plainly see that I had no activity on my account. They got my $35 -- but I am no longer a customer.

Here are some other examples of commerce in our daily lives that may not be adding any value.

• Retailers will sell you a warranty on just about anything -- and their business model is to fulfill as little on the warranties as possible.
• Many health insurance companies deny every claim the first time around -- just to see how badly you want them to pay.
• Stock brokers will charge you a fee for an account that goes unused.
• A fairly high percentage of gift cards go unclaimed -- which is pure waste for the purchaser and pure profit for the seller.

How much of our GDP is based on waste like this?

As consumers we should think more about what we buy. As shareholders we should make sure we don't own shares in companies that have revenues earned this way.

Sales vs Engineering

We are coming into earnings season and accordingly we have the chance to look at the financial reporting of companies in our industry. IBM and Google both posted their numbers last week and that got me to thinking about one of my favorite subjects -- how companies choose to spend their money. Specifically I am interested in how much a company spends on sales and marketing, how that compares to engineering (R&D), and how they each compare to the amount of money a company has available.

We know that gross profit as the amount a company has available to spend on all things not associated with delivering their products or services to customers. There are essentially four places this money goes. General and Administrative, Sales and Marketing, Research and Development, and Profit. A company cannot survive without just the right balance of each of these four things. So I thought it would be interesting to take a look at how eight well known companies in the technology industry choose to spend their money.

Here is a graph comparing the companies on sales cost as a percentage of gross profit. Google has made a big point that their products are so good they sell themselves. They clearly are backing that up with good performance. They are only spending 13% of their gross profit on sales and marketing. The only company spending less is Amazon at 11%. One could argue that insufficient investment is sales will show up in slower growth rates -- but both Google and Amazon are defying that with 8% and 20% growth rates respectively. Salesforce.com is also growing at 20%, but is spending 57% of its gross profit on sales and marketing. So I think you want to be on the left end of this chart -- spending enough to grow the company but not too much.

Anyone wishing to have products that are so good they can sell themselves should be investing in R and D. One of the highest impact decisions a CEO can make is allocating resources between sales and engineering. The temptation is to invest more in sales because the results will show up faster there. But a company that starves its engineering effort in order to invest in short term sales results will pay the piper later. Here is a graph showing R&D spending as a percentage of gross profit. I think the left side of the chart is where you want to be for long term health in the company.

Once we add the two together, it is interesting to see that Apple, Google, and Amazon end up on the good (left) end of the chart. And all three of them are also turning in impressive growth numbers. The stock market agrees with this analysis because these three companies are on the high end of P/E ratios as well. Strangely, the highest P/E ratio of all is for Salesforce.com -- a staggering 110. I don't get this. To me it seems like Salesforce.com is having to try very hard to generate revenues by spending 57% of its gross profit on sales and is investing less than anyone in R&D. Could be a correction in the works there.

Finally, I think sales spending and engineering spending diverge in one significant area. Sales should always be compared to near term revenue, but investments in engineering can in some cases be disassociated with current revenues. In other words, size does matter here and this is where we see Microsoft flex its muscles. Microsoft is not spending the highest percentage of gross profit on R&D, but it is way ahead of the pack on total dollars committed -- over $9 Billion! This is a full 50% more than the next biggest number which is IBM -- who has 4 times the employees and two times the revenues.

Microsoft is spending six times as much as Apple. So far Apple has been the premier innovator -- something that will be hard to forget this coming week. But don't count Microsoft out yet.

Motivated People Win

Thomas Friedman has a good column in today's NY Times  where he points out that our President needs to generate more jobs and he suggests a few ways to do it. I think he is right, we need more jobs, but I am not sure his suggested approach of using the highest office to create a million new ventures in a "Start-Up America" will work.

The winners in the new economy are going to be the people that are the most motivated. Motivated people try harder, find their way to education, find their way to capital, and overcome the many many hurdles any new business encounters. Right now the most motivated people are not in our country. So if we want to win as a country, we have to motivate the people that are already here, or let some new people in.

Another SMB Move by HP

In my January 5 post on predictions I listed the line between consumer and business as one of the interesting things to watch in 2010. In the last few weeks, HP has been made a few announcements that seem to be focussed on this very issue. First they entered into a partnership with Microsoft to promote cloud computing to SMB and yesterday they announced a new sales and marketing effort called SMB Exchange to go after what they have estimated to be a $55 billion market in the US. As the market in between the consumer and business, SMB has always been tough to tackle. True it is not as fragmented as the consumer market where there are just as many decision makers as there are PC sales, but the dollars add up almost as slowly.

Of the approximately 150 million people employed in the US, half of them work for the roughly 120,000 companies with 500 or more employees. So if you want to sell computers to the 75 million users on the big business side -- you only have to target 120,000 companies. If you want to sell to the other 75 million users -- you have to pursue over 6 million targets. This is why companies like HP rely so heavily on channel partners to reach the SMB market, and presumably why HP has launched this effort. Working down from the 500 employee line, there is probably $55 billion in IT spending in the 700,000 businesses that employ between 20 and 499 people. Even this is a daunting number without partners.

So to those that are thinking that HP intends to cut their partners out of the market, take comfort in knowing that no matter what HP does in Rio Rancho, they are not going to be able to cover this entire market. In addition, there are 5 million businesses in the under 20 employee market up for grabs. Many economists have been thinking that this is where the hiring is going to happen when the recovery finally turns into more jobs. It will be interesting to see how our industry works to take advantage of that trend.

You Can't Kill Me -- I'm Rich

One of my favorite authors for casual reading is Larry McMurtry. The Texas native is best know for his western novels including Lonesome Dove. In 2002 he wrote the first of the Berrybender novels set in the 1830s about a very rich English family on an adventure up the Missouri River. Lord Berrybender and his subjects were seemingly oblivious to the danger they were exposed to; as if they felt protected by their aristocracy. Funny thing though, the people of the new American west didn't care that they were aristocrats from England.

They did make some preparations for the trip -- including towing a separate boat behind their steam driven paddle wheeler -- just to carry the wine. The Berrybenders were stunned when they found that some Native Americans would happily kill them, and those that were not interested in murder felt free to just take their wine.

We now find ourselves cast as the Berrybenders. We do not fully understand the way the rules are changing and feel entitled to continue to enjoy our status and lifestyle. I just hope we don't find ourselves frozen in the middle of the river without enough food and no idea what to do next.

Book Review: Work Hard. Be Nice. by Jay Mathews

This lively and easy read about two Teach for America teachers who go way beyond their two year commitment and well above the call of duty to change lives is an inspiration for anyone who has been exposed to public schools in the US. The stories about overcoming amazing resistance by students, parents, other teachers, and administrators to give kids a chance of success are a delight to read and at the same time a reminder of how daunting the job of education reform is.

Their creation, the Knowledge is Power Program (KIPP), is a combination of teaching methods, parent involvement, longer school hours and calendar, and incredible passion by the teachers. Some of their ideas are cool, but the passion part really impacted me. These guys really put themselves into their work -- absolutely immersed. Yes they are smart, but the 24 X 7 commitment to success and refusal to accept failure is what I think made the difference.

Now over 20,000 kids are enrolled in KIPP schools across the country.

Bill Gates posted a great review of this book on Monday.

Here is a link to the book on Amazon

Google is China: Only the stakes are higher for China.

The recent tension between China and Google has focussed our attention on the contrast between these two organizations. However, anyone capable of suspending their own perspective will find some similarities too. Here are a few I can think of:

Long Term Perspective

Both organizations take the long term perspective. China is 30 years into a plan that spans a century or more and Google is a decade into theirs without any sign of letting up. Both organizations focus intently on stability in leadership, China with a one party system and carefully crafted power transitions, and Google with a two tiered corporate governance structure that insulates the leadership from typical wall street pressures.

Driven by Engineering Minds and Data Decisions

Google is famous for collecting data on everything and using it to make better decisions. They believe there is a better way to do just about everything and the new ways will be discovered by those that are willing to try new ideas and measure everything. China is a student of their own experiences and everyone else's. They know good ideas are out there and are willing to bring them home and try them out. China measures everything too.

Growth Attracts Attention and Invites Compromises

Both organizations are experiencing very rapid growth and as a result have attracted the attention of the world. Everyone else wants to be around these growing entities and are often times willing to make significant sacrifices in order to do so. Many companies have compromised their values in order to do business in China. Many have exposed their intellectual property in order to gain access to a market that contains 25% of the world's population. Similarly, individuals and companies alike have turned large volumes of data over to Google. This data about users and their behaviors, that used to be considered private, is Google's biggest asset.

Willing to Accept Collateral Damage

China and Google both know that the growth and change they are navigating through will be painful. China jails its dissidents, and Google has disrupted industries resulting in significant employment dislocation. The leaders of both organizations are able to maintain their focus on their plans without being distracted by the human factors. It may be unfair to equate China's human rights abuses to Google's impact on the newspaper business but the point here is that neither leadership team shows any sign of diverting from their mission because a few lives are impacted.

The Stakes are Higher for China

So far China has raised the standard of living for 500 million people to above the poverty line. The largest and fastest advancement by any nation ever. The mind numbing volume and significance of the choices the leaders of China have had to make to bring about the rise of their nation is awe inspiring. Each misstep has had very real consequences -- in extreme cases measured in the loss of life due to starvation or unrest. The ascension to power and prosperity in our own country pales in comparison. On this scale the stakes at Google really don't register at all.

Motto or not, Google is stunned when it finds us worried they will do evil things with our data. The Chinese leadership is less naieve about the way the world reacts to its policies. They step in a careful and calculated way through their priorities, and work to influence our view of them. They know we view them through the lens of our perspective and so they study us to better understand how we see the world. Someday they will address the things that bother us including piracy and human rights. Until then, we should spend more time studying China so we can pursue mutual interests and compete more effectively.

And the spying and cyber attacks...what about them? I bet the Chinese have a long way to go to catch up our our level of sophistication in these areas. The CIA and the NSA are tough acts to follow.

Old Channels meet New Channels

Channel marketing in the tech industry is not really all that new -- unless you compare it to car dealerships.   I often refer to the network of automotive "channel partners" when speaking about how the intermediated sales model works.  The next few years in the automotive sales and marketing business are going to be very interesting as the marketplace gets more fragmented and cars gain more technology.  It was pretty hard to miss Ford at CES this year!

Tech has had a hand in automotive sales peripherally for a few years now.  Every time a car was considered or not considered on the basis of iPod integration -- Apple had a very large impact on auto sales.

Todd Bishop has posted a good article in TechFlash  on some technology companies from the Pacific Northwest that are leading the way in this convergence of the auto and tech businesses.  It is only a matter of time before the sales and marketing elements of these industries also start to blend together.

Book Review: Too Big to Fail by Andrew Ross Sorkin

It took a while but I finally finished Too Big to Fail. This is a big book about the 2008 financial melt down and bankruptcy of Lehman Brothers.  The author does an amazing job of taking us through events in 2008 that we have already heard so much about. He makes the book work by recreating the conversations between the players in such a lifelike way that you feel you are there. Sure he did a great deal of research -- but part of me has to think there was a fair amount of artistic license taken. Even so I highly recommend the book and I have a much better understanding of our financial system and these events from reading it.

Key take aways:

• When you hear "That will never happen" -- look out! Ten years earlier the geniuses at Long Term Capital Management were saying that about interest rates, and this time it was real estate. Who knows what it will be next time, but when the markets start to think that naturally occurring cycles are no longer occurring naturally -- go to cash fast.
• Henry Paulson is not as bad a guy as I thought. The then Treasury Secretary was on the top of my list of corrupt people before reading the book and by the end I came to the conclusion that he was not such a bad guy. Even so we would be fools to think his bias towards Goldman Sachs was completely neutralized -- clearly his being there helped that firm.
• Goldman Sachs is a truly remarkable firm -- not so much remarkable as in good but remarkably good at what they do. And what they do is take care of themselves. Their tradition of sending their retired leaders to Washington is pretty smart. They were also smart enough to see the water draining out of the system and made repeated significant efforts to protect themselves -- both by using their influence and raising mountains of capital.
• Street fighters like Dick Fuld of Lehman Brothers are not well equipped to make it through a catastrophe like this credit crisis. His major weakness was his long string of successes fighting against everyone and prevailing. It left him with no friends and no way to see the truth in what was happening.
• The people in the government are at a distinct disadvantage. The smartest ones have ties to their former firms so they can't really be trusted to look out for the public and the ones without wall street experience don't really know what is going on.

Here are some other reviews of the book.

Business Week

The Independent

New York Times

The Economist

In the end the point of the title comes out. The only way we are going to solve the many problems of our financial industry is to figure out how to make sure no one is Too Big to Fail. The author does not address that in the book.

You can find the book on Amazon.com by clicking this link.

Another good book in this vein is When Genius Failed.

Microsoft and HP

Yesterday Microsoft and HP announced a deeper partnership through which they intend to offer solutions based on Microsoft Software and Hewlett Packard hardware with an emphasis on cloud computing. Hard to know what this really means and the reporting I have seen does not offer much in granular detail other than to recount that they intend to spend $250 million on the exercise.

Here are some thoughts on what could be significant about it:

Microsoft's strength is in the enterprise. If this deal pushes cloud solutions aimed at small business and consumers to HP it could be a good thing -- particularly since it would help Microsoft stay focussed on its strengths. Some of the reporting on the announcement mentions that there is an enterprise element to the HP partnership. I really don't get that. Microsoft and HP both have big ongoing relationships with enterprise customers and I just cannot imagine the companies throwing that business into this bucket.

HP is no Google in terms of consumer focus, but is well positioned to deliver the broader marketplace. So there is a chance HP could make it work.

Who else is impacted? As with many of these deals, the people not in the deal are as important as those named. The most significant is Dell. We do not know how this deal changes the relationship between Microsoft and Dell. We will have to keep an eye on that. Other players like VMware and Cisco will also be interesting to watch in the context of this deal.

So initially I think it is a good move by Microsoft. The downstream execution and the reaction of the other related companies will determine if is a winner of an idea. Either way, there will be more to this story.

China is Not Like Us

Two of my favorite subjects, Google and China, collided in a big way yesterday.  With the media industry all lit up over the event, I doubt I can add much new commentary except to say that this is going to be very interesting and 30 days from now it is going to look much different than today.  

I may be able to add a little value by directing traffic to the best coverage I have seen.  I will leave the New York Times and Wall Street Journal off of my list because I am sure everyone has already read those articles.

First: I have to cite Mark Anderson's newsletter posting on January 4th as not only timely but a bright light on our blindness to China's nature.  He writes a paid newsletter and I would encourage anyone interested in technology to subscribe.  You can learn more at Strategic News Service.  Here is a quote from his China piece:

In summary, China should not be treated as though it were just another fast-growing free-market nation, with inevitable road bumps making things a bit uncomfortable; it isn’t. China is a top-down, completely controlled system, running on a zero-sum economic model made to produce one winner, and many losers.

You can read this article on Mark's Blog.

We are clearly enabling the behavior we are getting from China.

Second: The Economist thinks Google may not be doing the right thing.  I think those in Europe prefer things to move a little more slowly -- so this is not that surprising.  The Brits have been active in China for a lot longer than we have -- so I am sure they have a point.

Third:  Robert Scoble has a good piece on our attraction to China and why we often compromise our standards in order to do business there.

So I hope our eyes are open and we see China as it is -- and we must resist the urge to think of China as a reflection of ourselves.  China has no interest in being like us, but they are perfectly willing to let us think they are.

Build it and They Will Come

Anyone with electricity, and probably many without it, know that Google introduced the Nexus One phone last week.  Early reports indicate it is a pretty cool phone, and in typical Google style, they are going it on their own by offering the phone direct to the customer.  Of course a cell phone is of diminished utility without a cell phone carrier -- but selling phones "unlocked" is not a new business model -- just new in the USA.  

Google is proud of its engineering heritage and has held long and tight to its belief that sales and marketing are not important.  It appears that may also be true for their view on customer service.  After all, with good engineering, products will sell themselves and there will not be any need for customer service.

Setting the bar at self selling perfect products is pretty high indeed -- so the Google story is getting even more interesting.  PC World reported last Friday that the customer service calls are starting -- so stay tuned!

Just like in the Field of Dreams, Google built it, and here they come.  Let's just hope they don't have any questions.

Fair and Balanced

First let me say, I am a conservative minded person who voted for his first D in the last presidential election because I could not believe the R's picked Sarah Palin -- among other foibles. Even though the fundamentals of my politics are more in line with the Wall Street Journal, I like the style of the New York Times much better and always look forward to the Sunday edition. Years ago when I started reading the New York Times I thought I was doing so to better understand the other team's perspective. Now I find the R's tactics so nauseating that I can barely make it through the WSJ opinion page in one sitting.

OK. On to the point of this posting. There is a front page piece in the NY Times today by David Carr and Tim Arango on Roger Ailes, the head of Fox News. There must have been at least one person in the NY Times news room that wanted to paint Ailes as the man behind the Custer Hill Club. Those of you that are not Nelson DeMille fans should know that the brains and money behind the Custer Hill Club in DeMille's 2006 novel, Wildfire, considered himself such a true patriot that he felt a plan to detonate nukes in two American cities was a small price to pay provided it caused the White House to nuke 128 Arab targets in the post 9/11 version of mutually assured destruction. The charred wreckage in the wake of Fox News is not as measurable with a Geiger counter, but it is measurable.

To the credit of the New York Times however, the article is well done, and carries no discernible bias. In fact the article points out some left leaning tendencies in the Murdoch family -- including possibly Rupert himself -- that most readers would not have known about. Well done New York Times. Maybe Fox News will reciprocate with some fair and balanced reporting of their own. 

Convergence

All of us are watching the convergence of the telecom and computing industries from a vantage point so close to the action that we often miss the larger implications. The more cell phones get to be like computers the more we have to wonder about the role of the carriers. You know, the carriers are those guys that are processing billions of cell phone calls and mountains of data. The iPhone has accelerated their entry into the computing industry and the netbook and the Google phone push things along even faster. This is going to push the carriers into the channel marketing mix -- which will be an opportunity for some and a threat to others. The carriers could bring a very interesting new layer to our industry in 2010.

In addition, let's not forget the cable companies and their competition with You Tube and the fight over net neutrality.

If that is not enough, add in the Panasonic, LG, Direct TV, and Skype partnerships bringing down the price of video teleconferencing over the web and you have another dimension -- I have lost count -- is this the 4th or the 5th dimension of the telecom and computing convergence?

Yow!  This is going to be interesting.

Here are a couple of news stories on the Skype announcements:

Information Week             PC Magazine

Getting the Digital Dollars

It is often said in the advertising business that all advertisers know they are wasting half their money, they just don't know which half! Ken Auletta's new book "Googled" features this truth front and center. The book does a great job of showing how Google is working hard to eliminate inefficiency in the advertising market. The newspapers and other media types are all up in arms because they make a living out of selling both halves. The "Trading analog dollars for digital dimes" quote of NBC Universal CEO Jeff Zucker in Auletta's book is repeated over and over as the media industry tries to hang on to its current business model.

So does this mean that the advertising industry is going to get cut in half as soon as Google (or anyone) illuminates all of the waste? Clearly the media people in "Googled" think so - but I think not. Exposing and eliminating the waste will reduce the cost of customer acquisition. If half the money is being wasted due to the opacity of the industry, and all of the waste can be eliminated -- the cost per acquisition will also be cut in half.

This is the dream of the marketing VP. Not because the VP wants to cut the advertising budget in half -- but because at a lower cost per customer acquisition the budget will go twice as far -- and the overall volume of advertising will go up dramatically. It could even go up by more than 2X! No doubt advertising spending will rotate away from ineffective or non-quantifiable methods and towards measureable methods. But the total spend should go up as advertising gets more efficient.

We are all getting better and better at measuring the cost of acquiring each additional customer. Some might say it was more fun before when we just spent a bucket of money and got a bucket of customers. Measuring the cost of each new customer is definitely hard work. But it is getting easier all of the time and now we often can measure the cost of each additional acquisition. Data driven decision makers know the maximum amount they can spend acquiring a new customer. So they know when to stop an advertising or marketing campaign: when the cost of the next customer acquisition is higher than the maximum allowable cost. More efficient advertising means more advertising because it will take much longer before the maximum is reached.

True companies without the ability to measure their effectiveness will fail and jobs will be lost. I argue that more value, more new companies, and more jobs will be created on the measureable side of the equation and not just in advertising. A company with lower customer acquisition costs -- can acquire more customers for the same amount of money. More customers equals value and job creation.

What about brand building you ask? Isn't brand building non measureable by definition? That is also a great subject...
... let's just give the brand building dollars to the not for profit sector.

Book Review: Googled by Ken Auletta

A hastily written but fact filled book about the disruption Google is enabling in the media industry. The author takes full advantage of his deep connections in the media business and the people cited in the book would make quite a rolodex. Published in 2009 it covers through the fall of 2009 with pretty good depth of both the challenges Google presents to its competitors and the challenges Google faces itself. As anyone would do on Monday morning, the author has a habit of making decisions in the past seem obviously brilliant or not so -- when in fact they must have been more complicated at the time.

Key take aways:

• The main groups impacted by Google are the big ad agencies, content providers from newspapers to movie makers, platform owners from Microsoft to Amazon to eBay, and just emerging -- the carriers. 
• Google considers itself the most customer focussed company on the planet and considers its customers to be the web user - not the advertiser. Google will lose the trust of the customer if it ever reverses these relationships. 
• Google has 150 products and only one makes it any money. 
• Google thinks YouTube is its next big thing. 
• Google is inspired by the inefficiency of the sales process and believes that through better process engineering it can lower or eliminate the inefficiency of sales. It wants to be the salesforce for any large industry.  

Links to other pretty good reviews of this book:

NY Times Book Review

NPR Book Review

TechCrunch Book Review

Washington Post Review

I think it is worth the time to read it.  The line that sticks with me is turning analog dollars into digital dimes.  You can find the book on Amazon.com by clicking this link.