JCL Blog

Book Review: Game Change by Halperin and Heilemann

For me the Game Changer was Sarah Palin. How any serious contender for president of our country could pass her off as a qualified candidate was more than I could accept. And I was firmly in the McCain camp too. The account in Game Change put her vetting by the McCain staff at five days, which only reinforced my decision. How any 69 year old candidate for the highest office could spend only five days evaluating someone who could have authority over the nukes -- and still claim to be a serious person is beyond me. Someday I hope to be a Republican again. I believe that less government is better, the gun thing is disturbing but manageable, and I will count on the Supreme Court to maintain a woman's access to all birth control options. If the Republican party can regain some discipline and honestly face our challenges -- they can win back my vote.

Here are my take aways from the book:

Barack Obama was the only serious candidate (or person) in the race. Edwards, Giuliani, McCain, Clinton, Palin, and all the rest come off as seriously flawed and unfit people.
Discipline, discipline, discipline. Over and over Obama demonstrated his willingness to face his own issues and work hard to win.
Michelle Obama is a force to be reckoned with and the only spouse in the book that was not a liability.
The media has very little interest in providing the voter with the information necessary to make a considered decision.

If the authors are to be believed, and I have to wonder who can be believed anymore, Barack Obama is a capable and well intentioned person -- and by far the best of the choices we had for our President. So in that respect maybe our democratic/electoral process actually worked.

Here are some other book reviews you may find interesting:

You can buy the book from Amazon here.

A note on my book reviews: You may think I have never met a book I did not like. In fact I read a fair number of books that I would just as well forget and I do not write reviews of them. I call these book reviews, but I really think of them as notes of impressions I had while reading that I don't want to forget. I put in the links to the other reviews so you can get real critical thinking about the work from some true professionals.

A Helping Hand for the Search Engines

I sometimes get so caught up in the wealth of information available on the web that I lose sight of how far we still have to go in search. The other day I was helping someone unfamiliar with the web use a search engine to perform what should have been a simple task and it was a significant reminder of how undeveloped the search industry really is. Having been in the technology industry for some time now, I have a natural tendency to defend our machines. People new to using these tools have pretty lofty expectations -- "the computer can just do that, right?" Invariably my role goes from apologist to apologizer as I find myself saying: "well it is really a very complicated thing we are asking the computer to do..."

The Task: Use a Search Engine to Find a Restaurant

Not just any restaurant though, we wanted a place nearby, that served Latin American cuisine from a Spanish speaking country, from South (not Central) America. So sure, since our quest was a school project, our restaurant search was a little different than most - but not that different. And explaining to the uninitiated why any combination of: Seattle, Restaurant, Latin America, Spanish, Central America did not produce the desired results in any of the search engines was humbling. Defending the most used command line interface of our day by saying: "when I was a kid we didn't even have the web." didn't add much to the conversation either.

Our Solution: This is a "Short" cut?

After several attempts with results of either restaurants from other cities (in one case the third entry in the search results was for an establishment in New York) or an overwhelming list of Mexican eateries, or news about the earthquake in Chile, I developed a new strategy. We would search for recipes for dishes from Argentina, find one with a really distinct name, and search for that! Argentina because it had not just had a natural disaster, and distinct name so the search engines would not get too mixed up with unrelated results. Presto! Not really presto actually because this meandering route through 15 or 20 search queries took much longer than either of us wanted to spend. First to cooking sites, then to ethnic cooking sights, then to Argentinian cooking sights, then look through the recipes before deciding that "empanada" was just the right mix of common and unique for the search engines, then enter "Seattle Restaurant Empanada" and what do you know -- half way down the second page of results we found one that was only 10 miles away! At one point I had to wonder if there isn't a Latin American Restaurant section right in the Yellow Pages! I would never know of course because for the last ten years I have taken the phone books straight from my front porch to the recycle bin.

So all of this is to say that as enamored as we are with the tools we have today -- the truth is that their capabilities are severely limited. We are just getting started in search and someone could invent the next Google tomorrow.

Accelerating Innovation in the Land of the Telephone

In March of 1876, 134 years ago, Alexander Graham Bell was awarded the master patent on the electric telephone. There have been many advancements since then but in the age of the web, interesting and telephone have not really gone together lately. Interesting and mobile phone maybe -- but not your plain old landline phone. With the wide adoption of VOIP, however all of this is changing. Here is just a sampling of new and innovative telephone stuff out there:

Skype: Skype has been around for what seems like forever (7 years) and has just emerged from four years of ownership by eBay. Here is a formula for success: create free internet telephone company, sell to ebay for $2.6B ($1.9B in cash), go on vacation for a while, buy it back for $400M. Hats off to founders Zennström and Friis for pulling this off and not only is Skype going to live on, but we should expect them to retake the leadership position in the industry.

Google Voice: Still invitation only, and I have not been invited. From what I gather is is pretty cool. One phone number, take it with you anywhere, read your voicemails, view a list of your voicemails, and other features that make your telephone and voicemail as much like email as you can imagine. If you can get over letting Google into another area of your personal data -- then it could be a great service.

Phone.com: All the features you can imagine, conference calls, chat sessions, international, text voicemail, and more. It is not free, but it is cheap.

Ring Revenue: Described with a pretty good tag line: "Track Calls Like Clicks", this inbound call tracking service is innovative and a powerful tool for marketing departments. Call by call reporting has been around in the call center industry for a while, but only a few people do a good job with it. The founders of Ring Revenue came from web conferencing to mobile serivce provider CallWave.

Twilio: Want to turn your web site or web ap into a phone? The Twilio API delivers all of the functionality you need with simple code in HTML. This could be a turning point in the industry where anyone capable of writing a simple line of HTML can now have Click to Call functionality.

Vodburner: Be careful what you say on that conference call -- it could be on You Tube in 5 minutes if the person on the other end is using Vodburner. That is right, you can easily record both the audio and video of a video Skype call with Vodburner. Good for people like me who can't remember what I had for breakfast.

Jajah: Make phone calls on Twitter! Who would have thunk? (in Beta only right now). This service also let's you build a directory of local numbers for your international calls (essentially custom call forwarding to international) which is an interesting twist on long distance billing.

Stay tuned for many new interesting developments in an area some have written off as old and stuffy.

I Will Be at NXNW

This is not news because I live in the Pacific Northwest -- which is pretty much North by Northwest from anybody in the continental US. I have never been to South by Southwest (SXSW) -- which if you lost track starts tomorrow in Austin. What started over 20 years ago as a small music festival is now attended by over 10,000 people and has become somewhat of a pilgrimage for geeks. Speaking of pilgrimages and geeks, I have never been to Burning Man either. And there are plenty of other famous events like the Superbowl, or Sundance, or the Masters, or the Grand Canyon, or Davos, or TED that maybe one of these days I will get around to attending.

The interesting thing to me about each of these is they are all growing. Here we are at a time where we are increasingly able to sit at home and get minute by minute updates on big events. In some cases we can watch live streaming video, others we get the full video later but a sufficient update stream to keep pace remotely, and certainly within a week of the event we have more reporting and analysis than any human could consume. So despite the evidence that we are all better equipped to attend these events virtually than ever before more of us are attending in person than ever before.

I can think of two possible explanations for this:

Our increasingly virtual social existence is causing us to crave authentic social interaction and for some reason we choose large events as a way to satisfy the craving.
The expanded coverage has increased the overall awareness of these events to the extent that the growing number of new people interested in attending out paces the number of people that choose to stay home and attending virtually.

Each of these is working on me and so I suspect I will have to make time to get out more.

Until then, I will be following SXSW through the miracle of the streaming media. In addition to the Twitter updates and blog posts from the people I follow, I will be tracking the live work of Robert Scoble and Twit.tv. They are each great synthesizers of the tech geek world and if anyone can make you feel like you are there -- I think it would be these guys.

3 Strikes on Washington

I have been resisting the urge to weigh in on local politics. Today the flood of data became more than I could hold back.

Here is an article from the Puget Sound Business Journal last Friday where our State Legislature is considering taxing everyone with income over $200,000 in exchange for lowering the sales tax.
The union membership statistics were released Tuesday by the US Department of Labor: we are the 4th most unionized state in the country (20.2%).
Here are the numbers on high school graduation rates in our state as reported by the National Center for Educational Statistics: we are 34th in our ability to graduate students from high school (72.9%).

Sure there are states in worse shape than ours. I wonder how much farther down we are going to go before we figure out how to solve some of these problems.

No one ever wants to end on a sour note, so here is another article from the Puget Sound Business Journal: SeaTac was No. 1 in on time arrivals in January (86%)!

Same Words Different Meaning

One of the best parts of my job is meeting new people and throwing around ideas. Ideas are a big part of marketing and everyone has some they are working on. During these situations, particularly with someone I have just met, it is not uncommon for me to get well into the conversation and wonder -- are we really talking about the same thing? It is amazing. Two people in the same industry with the same native language with the proactive intent to effectively communicate -- well into a conversation and possibly not actually communicating at all.

Use The Simplest Word Available (and get the job done)

My most often cited example of this comes from about ten years ago. We were pitching a senior member of a medium sized technology firm on some ideas we had for making their channel partner program more effective. These were not exotic ideas and were based on our core inside sales services. In a nutshell we were proposing to use our call center capacity for hire to help them sell more stuff. After 45 minutes of lively dialog about our ideas, processes, reporting, success measures, and all the rest our prospect stopped us and said: "Thanks and I am sure you have a great system but we just spent a bunch of money on a new CRM system and we are not going to rip it out, so we are not interested." POW. We had not set the thing up right, he thought we were a software company, and all of our service speak just got translated in his head into that framework. Oh was that humbling and I can think of at least a dozen things we learned the hard way that day -- like the dangers of describing simple things with big complex words.

Here is a quote from Hemingway on the subject: "...He thinks I don't know the ten-dollar words. I know them all right. But there are older and simpler and better words, and those are the ones I use." We should always use the simplest words available.

Since then we have actually added software to our call center services -- so the job of describing what we do has gotten even harder. Like everyone in our business we need to work hard to speak plainly and directly. I struggle to find a good reason to talk about the Pareto Principal instead of the 80/20 rule. Sure you sound fancier, but isn't the goal to make your point? If the other person can't remember the difference between that and Parkinson's Law you may have lost them from the conversation for good.

On Speaking: Three Points

So far we have talked about The Frame, where you get your audience onto the same page with you, and The Take Away, where you attempt to actually deliver a message. This post will dig into the main points of your presentation. I propose that three points is the right number. There is no real magic to this because there are many examples of effective speeches with some other number of points. With three you have a chance that someone in the audience will actually be able to remember your points and use them to reconstruct your argument.

Just like with the Tell Tell Tell structure we talked about, the challenge is to reconcile the conflict between the need to be entertaining and the need to be repetitive enough to make your point. When you launch into a presentation and say you have three points there are several traps waiting for you:

Trap 1: Too predictable: Some people are going to immediately think that your talk is going to be over structured and boring. After all, most presentations have three points and by saying yours does too you risk being lumped in with the worst of them. Sometimes I make a comment about this by saying something about it like: "Three points may sound boring, but it's better than five!"
Trap 2: Hard to follow: Once you announce the three point structure, people will work to put your talk into that structure. So if you have sub points or anything else that would confuse the counting, you may end up with some distracted people wondering if you are on point 2 or 3. It is a good idea to tie your comments back to your structure often with reminders of what the first point was during the second point and a looking into the future about the third point that is on the way.
Trap 3: The points must support your argument: Anecdotes, asides, tangents, counter arguments, and other conventions have their way of sneaking into your presentation. Making these into points in your talk will dilute your effectiveness. When using these types of items -- which are often highly entertaining -- it is a good idea to change your tone, walk to a different part of the stage, turn off the visuals, or anything to indicate that this is a break in the action. And make sure that they are not the main points, but illustrations that bring your points to life. After delivering one of these, you can then get everyone back onto your structure by saying: "Ok, so back to our list" and then review the progress so far.

I highly recommend using three points for the reasons I listed above. Many of the great presentations I have seen follow this structure. The other day I saw an incredible use of this convention. The speaker started by saying I am here to tell you about three numbers: X, Y, and Z. He did not say he had three points, just that he was going to talk about three numbers, and he gave the numbers without any context. So he had set up his three points without sounding too conventional. He then proceeded to circle around the three numbers, adding information to each one. I visualized it like building three stacks of something, say quarters. Imagine a guy with a roll of quarters, he lays out three, and then he walks around them adding a quarter to each stack each time around.

By the end we knew those three numbers backwards and forwards and since they all supported his main point -- we had it down. It was a spectacular use of a very traditional three point presentation structure.

One Example of Irrational Exuberance Meets the Cloud

Disclosure: My company competes with Salesforce.com from time to time, but our product is a niche extension of what SFDC does and we have never claimed to be a replacement for their product. I doubt Mark Benioff has ever even heard of our 150 person company. This post can be read as negative on Salesforce.com -- buy my point is on the irrationality of the stock market more than on the performance of the company. Salesforce.com has done a great job blazing a trail in our industry.

Salesforce.com recently released their earnings and the trends I pointed out in my posting: Sales vs Engineering continue. In short it is another impressive performance. Growth, profits, and one amazing P/E! At Friday's close the stock was trading at a price earnings ratio of 114.5! Yow! The industry is listed at 21.8 and the S&P 500 at 20.5. I know there are some irrational investors out there but I just don't get this -- Salesforce.com trades at five times the P/E of the rest of the industry. No less than 14 analysis have the stock at a strong buy, 4 at moderate, and 14 at hold. Not a single analyst in the sell column.

I suppose the logic must be to pay in advance for growth. A quick look at the articles referencing Salesforce.com from this last week alone and you would think CRM was just getting started and the buy ratings are based on the incredible growth. I just don't see that either. It is true that salesforce.com is highly scalable because it offers hosted software and adding a new customer does not cost them much in terms of manufacturing cost. However, the thought that this cost is lower than other software companies is not true. Sure they don't have to ship anything -- but neither do any other software companies. The cost in added bandwidth required for a new customer of a hosted solution like Salesforce.com probably exceeds the cost of delivering an executable over the web as typical software companies do now. The whole industry operates on a very low marginal cost for adding another customer. Once the software is developed all software companies (yes Salesforce.com is a software company) keep 90%+ of each additional dollar.

What matters then is the cost of selling. When your product is nearly free to produce, the biggest expense is either R&D or Sales. And Salesforce.com takes the cake in high sales cost. Salesforce.com spends 50 cents of every dollar it takes in on selling costs. This has been the case from the very beginning. The fans must argue that awesome growth costs money and when Salesforce.com decides to slow growth, they will be able to radically reduce sales spending and the profits will skyrocket. So let's dig into that thought a bit. Over the past three years the company has had an impressive growth rate. Even now, growing at over 20% per year is impressive. But 2008 was 50% over 2007 and the deceleration is steady however you run the numbers. All the while the sales spending is keeping pace with the growth -- last quarter it was 48%.

Here are some other interesting ratios:

Salesforce.com spends 5 times as much on sales as it does on research and development.
Salesforce.com spends $2.50 on sales for every $1 increase in revenue.
Salesforce.com spends $170,000 on sales per employee per year -- that is every single employee in the whole company.

In the last earnings release conference call Salesforce.com indicated that growth will be declining further to 17% and they are continuing to hire more salespeople. So the cost of new business acquisition is going up even further.

So here is what I conclude. High sales cost is heroin. If you stop doing it there will be serious consequences. The only logical explanation for the steady investment of 50% of revenue on sales is that no economies of scale in selling have emerged. This company sells to the enterprise and enterprise selling is hard and expensive work. It is not like consumer companies that go viral and all of the sudden the product starts selling itself. They spent $600M last year to produce 20% growth and in 2008 they spent $375M to grow 50%.

So while it is possible that no new competitors will come on the market, no setbacks to cloud computing in general will occur, and Oracle and Microsoft will continue to give up marketshare, I have to think that this valuation is about as good as it is going to get for Salesforce.com. I think even Salesforce.com agrees in that last year they took advantage of their incredible market cap to raise $500M in debt and now sit on a $1.7B pile of cash.

More on Disclosure of my interests: I do not hold and of Salesforce.com's stock nor do I hold a short position.

The Problem with Specialty Publishers

The technology industry, like every industry, has a group of publishers serving it. These specialty publishers are facing even more pressure than the publishing industry overall and it is showing in the quality of their reporting -- particularly when they are reporting on their advertisers. Take this example from Channel Insider yesterday:

The Story:

Starting with the headline: "Tech Data's Recession 2009 Strategy Pays Off" Jessica Davis quotes Tech Data's CEO Bob Dutkowsky as saying the company's fourth quarter was exceptional. She goes on to paint a picture of Tech Data just as Tech Data presented themselves to her. The main points: Tech Data's revenue was up in a down market; Tech Data's profits were up; Tech Data walked away from undesirable business. From the article you gotta think that this Bob Dutowsky is one amazing CEO.

The Rest of the Story:

So let's dig into the numbers a bit. Q4 Revenue: As reported in Channel Insider, Tech Data's Q4 revenue was great: $6.28B vs. $5.71 -- and increase of 10% over the previous year. The other three quarters were all down 18%, 16%, and 8% for a total of the year including the killer Q4 of DOWN 8%. The article says revenue was UP 8.2% even when accurately stating the revenue figures. I take this as an indication of just how far the author was swept away by the press release, and the fact that no one else read the article before it was posted. The rest of the industry was down 1.8%. Ingram Micro (IM) was down 14% and Synnex (SNX) was down 1%. So Tech Data is doing better than some, worse than others, and worse than the industry. To their credit, they did pull out some pretty good net income in a tough environment.

It appears that the investment community looked at the data instead of taking Channel Insider's reporting at face value because the stock fell about $3 on the earnings announcement on 3/2. Eric Savitz at Barrons on 3/2/2010: "Tech Data: Q4 Beats; But Stk Slides As Q1 Outlook Disappoints"

If these publications are going to survive a good place to start would be better reporting.

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".

Avoiding the Al Gore Syndrome

I am sure Al Gore is a good guy. But I did not vote for him because I just could not imagine 4 or more years of him wagging his finger at us. The same holds true for his writing. I have tried several times now to get through his opinion piece from the Sunday NY Times and I just cannot do it. Frankly I did not make it all of the way through his movie either. I think he probably is right -- but it is just not fun to read. The same is true for Michael Moore movies – in the first half I get the message and the second half is unbearable. It does not matter if I agree with the argument or not, once it is clear that the model is: argument, supporting point, repeat, how many cycles do I need to endure?

This tracks back to my post yesterday about who is writing. An expert with too much ax to grind makes for some pretty dull reading. I want to figure out how I can write about subjects I know well, and am biased about, without turning off my reader. I suspect this is why biographies are generally more popular than autobiographies.

In an effort to somehow address this issue, I have posted my biases on my About Me page. My thinking here is to expose and acknowledge any agenda I might have and hopefully move beyond ringing that same bell over and over and maybe even to expose some interesting insights.

I want my writing to be interesting and valuable to my readers. I want it to be the kind of content I would like to read. Hey, I even want it to capture my current thinking so I can read it again in the future.

If you have thoughts about how I can improve my writing -- don't hesitate to post them here.

Who is Writing

Anyone who reads should be interested in what is happening in the media industry right now. Anyone interested in that should follow “Rebooting the News” where Dave Winer and Jay Rosen talk weekly about the business of writing things. I have been following their podcast for the last couple of months and have benefited tremendously. Check it out.

This week Dave Winer brought up the topic of the places he would like to get his news and started me down a path of thinking about who writes what and why I write. Here are some ways to categorize the authors you read and thoughts about the roles one can take while writing.

Expert: I will go with Malcolm Gladwell’s description of an expert from Outliers – 10,000 hours or 10 years. The problem with experts however is it is very difficult to obtain the expertise without also taking on a bias. I write often about things I consider myself an expert in. Using Gladwell's measure I consider myself an expert in Technology Marketing (13 years), Organization Leadership (13 years), Education Philanthropy (20 years), The Computer Industry (25 years), and Boating (40 years). I also have more than 10,000 hours in commercial real estate, public speaking, and sailboat racing, but don’t do enough currently to consider myself an expert. Unfortunately, every post is bloated with my bias. Some posts may even have an agenda. Right now I am not sure if this is a bad thing.

Interestingly the 1997 book “The Elements of Journalism” list as the forth element: “its practitioners must maintain an independence from those they cover”. So I do like to read things written by experts, but there is always a bias to contend with. Just think of Al Gore’s piece on the Opinion Page of the NY Times this Sunday. Clearly he has the 10,000 hours, but we are getting a healthy helping of bias with that expertise. And back to the is this a bad thing idea - Al Gore drives me crazy with his agenda. Right or not the way he delivers his expertise chafes.

Reporter: Dave Winer also has a post where he referenced The Giant Pool of Money created by This American Life. He clearly outlines the benefits of consuming content reported by professionals. Only a fool would attempt to name the top reporters. Just think Woodard and Bernstein and before you know it the list is 100s long. New media has introduced us to amateur reporters. Amateur as in not paid - although we are all too aware of amateur in the other sense. Although “The Elements of Journalism” does not use the word trust in its list – a reporter cannot add value without the trust of the reader and a professional works a lifetime to build that trust. This is why we referred to Walter Cronkite as the most trusted man in America.

A good reporter does not need to be an expert in anything but building trust and reporting. We benefit from the craft because it is an absolute pleasure to read and for the lack of bias. A professional reporter with access to multiple experts of varying biases is a recipe for a meaningful contribution.

First Hand Accounts: In the case of a developing or breaking story nothing can beat being there. New media tools give us access to people “on the ground” in proximity to natural disasters, wars, political unrest, special events, and many other stories as they unfold. These people do not need to be experts, or professionals, as long as they are there and can relate what is happening. Any person on the street in Iran, Haiti, or Chile with a mobile enabled Twitter account qualifies – and even better with a camera.

The triple play of access to experts, professional reporting skills, and first hand proximity is what wins the big prizes and delivers the unforgettable pieces.

Opinion: By definition opinion is heavy on bias. Done well it may include an argument supporting a position. Like the stories major publications put above the fold, the choice of opinion topics says a great deal about a publication’s views because the number of opinion pieces in a paper are often limited by resources or the space on the page. Conversely, a great deal of blogged content is opinion, and there are not space constraints on the web. The choice of topics does say something about the author – as long as there isn’t so much of it that the meaning fails to shine through.

Gonzo / Satire / Skewering: Jon Stewart is the new Cronkite? Here the NY Times takes a look at the popularity of the Daily Show, where they don’t claim to be journalists, experts, on site, or anything but funny. There are many points well made through satire from Vonnegut to South Park. Unfortunately it is only a short leap from well crafted satire to the culture that is all too common of late where flaming the people on the other side is spewed out as if it was contributing to the discourse. I think Jon Stewart is a rare talent. I would put him in the comedian bucket. Not sure what bucket to put Glenn Beck in – but not journalism.

Going forward, I am going to pay closer attention to these categories as I read and I suspect it will cause me to seek the rest of the story more often.

The Real Reasons for Advertising

It was right here in Seattle in March of 1922 that Remick's Music Store purchased the first radio advertisement on station KFC, some months later on August 28, 1922 the Queensboro Corporation in New York City advertised apartments for rent on WEAF. In those days the results were dramatic. The ads that worked -- really worked, and those that did not were not renewed. By worked of course, I mean produced more sales. Back then you advertised to get more sales. Now the reasons are more complicated.

There are whole books about how and why to advertise. Here are my thoughts about the real reasons:

Surface New Opportunities: Of course an advertisement cannot actually sell anything. Even on the web, an ad can only deliver the prospective customer to the web site. The selling is up to the advertiser. Some sales are a quick order processes - buying a movie ticket on Fandango for example - but most involve a sales process beginning with the new opportunity and ending with real revenue. So even today the number one reason to advertise must be to drive new opportunities into your sales pipeline.
Improve name recognition (build the brand): Brands are important and advertising can introduce people to your brand. Interestingly, Millward Brown just released their survey of the most trusted worldwide brands and Amazon.com got the #1 spot in the USA. I would venture to say that Amazon.com somehow achieved this without advertising. "Advertising is the price you pay for having an unremarkable product or service," said Jeff Bezos at the 2009 Annual Meeting as reported by the Seattle PI.
Defend against the competition: Every industry has a publication that is central to their universe. This publication, whether on the web or in print, has the trust and the eyeballs of just the people you want to sell to. An advertiser can work to exclude their competitors from the publication as part of their agreement to advertise. But only as long as the company continues to advertise. So if you want to keep the competition out of a publication, just advertise.
Make the sales department think marketing is doing something: Sales is measured by revenue, marketing is measured by.... well we still don't know. Marketing should be measured by the delivery of new opportunities to sales. Absent the ability to track such a thing, most companies resort to measuring marketing by the perception of performance. Advertising is visible and leaves a perception.
Get recognized at industry events: Companies like to get recognized just as much as people do, or for that matter, just as much as movie people do. What if you could get an academy award for your movie just by spending a few extra dollars advertising? Luckily the academy works hard to prevent that kind of thing. If you want to get recognized in your industry, advertise with the people who give out the awards.
General employee feel good stuff: We have come to think of the people that run Google as logical, quantitative types. So why spend the big bucks for a super bowl ad when 70% of the searches done in the world are already done on your site? To make sure your employees feel great about working at Google. It worked and it only cost $2.5M.

I am not trying to say that companies should not advertise. There are cases where advertising is absolutely the right tool for the job, but you must know what the job is. I wrote another post about Getting the Digital Dollars that proposes that as advertising gets more measurable -- sales of advertising will actually increase. I still think that is true.

Companies that can measure the impact of their advertising on specific new opportunities in their pipeline will be rewarded.

Here are some other lists of reasons to buy advertising:

The Newspaper Association of America

The Newspaper Association of American (web)

San Diego Radio Broadcasters Association

How Data Changes the Idea of Insurance

The more we know the less we need insurance. The whole idea of insurance is to protect oneself against an unknown potential loss. Insurance works because of pooled risk. A group of people with diverse risks contribute into a pool. The funds paid by those not experiencing a loss are paid to those who experienced the loss. Along the way the insurance company gets paid a bit for managing it all. This applies to all insurance of course. Hear are some thoughts about health insurance.

People were much more willing to accept this structure when they were reminded daily of the risks inherent in life and their general inability to avoid those risks. Insurance companies were much more likely to be satisfied with this arrangement at a time when they had no way to know who presented the greatest risk to the pool.

All of that is different now. Many people believe they have enough data about their exposure to risks -- that they may not need insurance at all. When employees pay their full healthcare premium they can easily see that they are paying out more every month than they are getting in benefits. Combine that with a sense of security regarding potential risk and you get a pretty good explanation for some of the 50 million uninsured in the US. The fact that 27% of those aged 18-29 are without insurance and 28% of those making under $36,000 go without insurance -- compared to the national average of 16% -- leads me to believe that many of the uninsured could afford insurance. A study conducted by Mark Pauly of the University of Pennsylvania and Kate Bundorf of Stanford, concluded that nearly three-quarters of the uninsured could afford coverage but chose not to purchase it. (this last sentence was lifted from this article on the Cato Institute web site).

The greater ability to analyze data has given insurance companies the hope of making money off of every customer -- instead of the pool. This can be done through the all too common tactic of just denying every claim -- which ends up contributing to more individuals opting out. It can also be done by gathering more and more data about the risk associated with each additional insurance customer and customizing the pool to have as little risk in it as possible.

As we progress down this road, we leave the realm of insurance and enter into the realm of expense management. Maybe if we just let the industry evolve on its own, we will end up with more and more individuals responsibly managing their health care expenses on their own.

Would You Pay $4 Per Hour for Healthcare?

We do. I suspect just about every other company in the US that is actually trying to provide healthcare to their employees is paying over $3 per hour and many probably pay even more than the $4 that we pay. A high wage individual may be willing to pay more for healthcare than a low wage individual, but the cost does not change as income levels change. So this is a much bigger issue for low wage earners than the others. Most employees don't think about this all that much because they don't participate very much in paying the bill. Many economists argue that if healthcare costs go down, wages could go up. If that did happen, the low wage earners would benefit the most because a $1 per hour increase for someone at minimum wage is a 13% pay increase.

It will never happen because there is no one in DC representing the interests of the employee. Our government cannot control healthcare costs because they don't want to. They are beholden to the very people (health insurance industry) that would be hurt by cost containment. It is never going to happen.

The only shred of good news in the whole story is our government is also highly unlikely to pass any reform, so we may be able to avoid a whole bunch of pork piled on our broken system.

US Savings Rate: Headed Over 10%?

For a long time we have had one of the lowest savings rates in the world. Even now, we are just about 4%.

What drives the savings rate? Are we motivated by what is better for our country (to own our own government debt instead of China)? Of the nations tracked by the OECD, the savings rates ranged from 17.9% in Spain to 1% in Australia. If you sort the list by savings rate there is a direct correlation to the stability of the economy and government. Translation: people save more when they have low confidence in their government.

So great news for the US, our savings rate is going up!

Book Review: You are not a Gadget by Jaron Lanier

Rant, Rant, Rant, Definitions, Octopus. It is an unual pattern for a book, but I absolutely recommend "You are not a Gadget" for anyone who thinks about technology and its impact on our lives. I have heard some critics say that this book answers a non-problem. Well, some time ago the problems we face today were not as obvious as they are now. We are lucky to have people like Jaron Lanier to shine a light on issues we are creating for ourselves. This book has caused quite a stir and many great reviews have been written (see links below). Here is what I got out of it:

The Rants: There is no question that the first half of the book is quite a rant against the way we are subjugating ourselves to machines. It may go on a little long, but it is absolutely necessary. An issue must first be described before it can be addressed. In short he points out that computers are far from, and never will be, human. The notion of artificial intelligence and more importantly our attraction to it is a threat to humans reaching their potential. He gives many good examples and none of the companies in the web 2.0 world are spared. You can try to argue against this idea, but right in the middle someone will pass by you speaking into their iPhone in the only idiotic sounding language that the Google voice to text machine can understand, and you will see the point. We are willingly reducing ourselves to a composition that the much inferior computers can relate to.

Definitions: Lanier then gets into some definitions. Despite the validity of the rants, I was pretty glad when we arrived at this part of the book. Computationalism is defined as: "...the world can be understood as a computational process, with people as a subprocess." Logical Positivism: "is the idea that a sentence or another fragment -- something you can put in a computer file -- means something in a freestanding way that doesn't require invoking the subjectivity of a human reader." Realism: "...humans, considered as information systems, weren't designed yesterday, and are not the abstract playthings of some higher being, such as a web 2.0 programmer in the sky. My take away: The last one is the authors recommendation to not get sucked in. Since we have to elect to become subservient to the machines -- we should have the the power to avoid it. Thus the reason for the rants -- because unless we see the problem we are unlikely to wish to avoid it.

Octopus: Lanier then goes on to talk about how our brain interacts with odors, how that differs from sight and sound, and how it will be a long time before computers can smell. Then on to finches and how they sing alot more once they achieve assured mating, and a bit on how language interacts with the brain. This leads to a discussion of Neoteny: the extent to which a species can survive from birth -- essentially 100% nature, or conversely must rely on learned behaviors after birth -- nature plus nurture. OK, so on to the Octopus. Here the author describes the incredible capabilities of an octopus to conceal itself by such elaborate camouflage where its entire skin is a canvas painted with great detail to match its highly complex surroundings. All of this is accomplished by the brain of the octopus understanding its surroundings and then somehow conveying the image to its "display" surface in a blink. Even more amazing when you consider that the octopus is 100% nature -- not learning anything from mom after birth. Just try that you web 2.0 developers!

Overall I am taken by Jaron Lanier. He is a good writer, knows volumes about a wide variety of subjects in a true renaissance way. I was lucky enough to hear him speak in person and I would recommend that as well. We are fortunate to be reading his book at a time when computing has not yet advanced to the point where it is even harder to perceive the problem. Sure it seems ridiculous now to allow ourselves to be defined by Facebook, but a few Moore's law cycles from now we may find we have met the machine halfway -- and that would be a shame. One last quote: "At the end of the road of the pursuit of technological sophistication appears to lie a playhouse in which humankind regresses to nursery school." Let's at least resist the urge to go there.

Other reviews I recommend:

To buy the book on Amazon

Science vs. Spray and Pray

The recent decline in advertising spending is not only attributable to the great recession. It is also evidence of the marketing industry getting serious about pursuing measureable results. The days of spray (money) and pray (for increased sales) are fast coming to an end and this is a good thing.

The companies that figure out how to measure every step from campaign to revenue are going to have a very large advantage over the others. By developing a measurement construct that can be trusted, marketers will get the ability to employ a process that looks more like the scientific method.

The scientific method: develop a hypothesis, invent an experiment to test it, conduct the experiment, and evaluate the results. In the end you get a conclusion about the efficacy of the hypothesis – and the experiment can be repeated to produce the same results.

When applied to marketing campaigns such a construct proves its value because resources can be invested in creating and testing of new marketing ideas. And when something works it can be repeated and scaled.

Unfortunately, marketing departments that do not have a trusted measurement construct, meaning they cannot measure each step from campaign to revenue, must resort to measuring whatever they can and it often works like this: look for something good in the numbers, look for a marketing activity that could have created the good thing in the numbers, and quickly construct an argument demonstrating the connection between the activity and the outcome. Unfortunately, this does not produce repeatable results.

Worse yet, it creates the illusion of real measurements so progress towards a trusted measurement construct is drained away.

The central challenge to anyone wishing to be more scientific about their measurements is that the initial investment in building the trusted measurement system does not in itself produce any revenue for the company. With good leadership it can be done and the companies that do so will be well rewarded.

The Economist: Is America Ungovernable?

Last week the Economist magazine posted the question to its readers: Is America Ungovernable?

Their main point was that the party in power had more power than any administration in memory and still could not get anything done. The comments back from readers followed the lines you would expect: the R's blame the D's and visa versa. The Economist circled around and said that in fact the government is working. A very interesting debate indeed.

I would say that we are generally not worried enough about the future of our country. Properly motivated we know we can solve any problem. Each entity involved today is mostly focussed on getting some for themselves -- the political parties want more power, the politicians want to be re-elected, industries want the paying field tilted in their favor, and companies really cannot do anything but look out for themselves. Everyone must know the trend is unsustainable, but so did everyone when they were buying tech stocks in 1999 or real estate in 2007. Sure it will end someday, but I will get mine and get out before it happens.

We can only hope that we will wake up to the precariousness of our situation and turn our attention away from personal greed and to fear for the survival of our country. Then we can get down to the business of governing.

New York Times Death Watch

I love the New York Times. It has been my newspaper of choice for many years. I used to pay $50 per month for 7 days a week home delivery, but in the past few years my travel schedule caused me to cut my subscription to Sundays only which is $30 per month. For a while I also read it on my Kindle for $13 a month (in addition). But when I broke my Kindle I had to cancel that. I was crazy enough to buy one of those, but not two. I also love the NY Times Reader – which is free to all subscribers.

All of this is to say that when the NY Times puts up its paywall in 2011 – I will clearly pay whatever it costs. However, the increased revenue from me and others NY Times fans like me will not save the paper and the decline will start. The only question is how long it will take for them to reverse the policy – I for one cannot imagine them riding the thing all of the way into the ground.

The big question for me is will they ride it down far enough to lose the columnists. Here is the sequence of events that I see:

1) Paywall up (now to include the NY Times Bloggers too): Sometime in 2011.

2) Readership down, revenues up: Hard to dispute this, there is no way a paywall will increase readership and it will generate some revenue.

3) Print readership down, online readership down: There is no way the paywall will cause me to go back to daily delivery of the print edition – and if they are not getting it from me, they are not getting it from anyone. At the same time everyone who now links to stories will stop doing that because they don’t want to send their readers to a subscription page. I never link to WSJ stories for this reason.

4) Advertising revenue down: As soon as the advertisers realize they are reaching fewer people, they will stop advertising, or stop paying as much to advertise.

5) Columnists defect: To me the NY Times is Thomas Friedman, David Brooks, Maureen Dowd, Paul Krugman, and sometimes Frank Rich – who knows why he gets twice the column inches of the others – but that is a story for another day. Columnists want to be in the conversation. Once behind the paywall they will be removed from the debate. The times will have even less money so even if the columnists would stay for more money, the NY Times will not be able to pay it.

6) Columnists go, I go.

The timing of this will be very interesting. Who knows what contractual obligations the columnists have, but if I were the publisher of the Post, or the LA Times, or any other paper, I would be talking to these incredible assets right now – and they probably are.