Marissa’s Brains and Steve’s Brute Force

I have never been pregnant so I am not going to comment on Marissa Mayer's condition or how it relates to her new job at Yahoo.  I have never been CEO of a multi billion dollar company either, but that is not going to stop me from commenting on what I am sure is going to be one of the most interesting meetings in the near future -- between Marissa Mayer and Steve Ballmer.

Microsoft and Yahoo have a complicated past and a complicated present and likely a complicated future.  This first meeting is going to be interesting for a number of reasons not the least of which is the way that Ballmer has targeted Google so intensely and for so long.  Now he is going to be sitting across the table from the devil herself, and she is exactly what he needs -- a smart experienced person with design sensibility and vision.

While he is realizing how she could help him, she is probably doing the same.  I don’t know anything about her willingness or ability to use brute force to crash through barriers, but Ballmer’s tendency to do so could be quite useful to her.

And they both have the same problem -- their own companies.  They each have an opportunity to use the strength of the other to influence their own teams.  Marissa can get Steve to beat her cranky board members into submission and Steve can get Marissa to get his team to stop fighting with each other and focus on the challenge at hand.

Crashing into Garbage in the North Pacific

Chris Jordan and his team have reached their initial fund raising goal for the Midway Film project.  The total raised is now over $105,000 and continues to climb.  The Midway Film project has gone from 0 to over 1,500 contributors in less than a month because this story about plastic in the ocean resonates with people from all over the world.

Here is the link to the latest update from Chris and his team -- presently on Midway Island.

Here is a link to the Midway Film trailer.

Also ongoing right now is the bi-annual Victoria to Maui sailboat race.  You can track the progress of the boats, that left Victoria BC, Canada on July 3 and are now over half way to Maui on the official web site here.  It is interesting to note that the sailors are on the look out for floating garbage from the Japanese Tsunami last year -- just now reaching the coast of North America.  

Here is a link to an intersting tracking site on USA Today.

Here is a link to the story about the sailors and avoiding the garbage.

Avoiding the Swamp

I am getting sued.  It is not the first time.  My two ex-wives sued for divorce.  Considering the arc of my 49 years, I suppose I should be happy that I have not been sued more.  Nevertheless, it is one of those things that cause introspection.  Why do these people hate me enough to sue me?  Divorces have their own set of problems, and even though the most recent one was fairly recent, luckily they are both in the past.  So it is my former employee suing me that has caused my wheels to spin and has me looking in the mirror and thinking about the choices I have made.  I believe we make our own way in the world and so I must consider what I have done to bring this about.  All roads lead back to me.

I Create False Hope

The world is complicated but I am still attracted to simple ideas.  Why just grow a company when you could double its size?  I would much rather say to my employees that they can have any job they want – as long as they want it badly enough and are willing to work for it.  Surely a step by step advancement path would be more practical and realistic, but it just does not light my fire.   Some employees have left my company angry because they did everything I asked them to do and my grand promises did not come true for them.  I can see their point. 

I am Often Indifferent

I enjoy my employees’ success, but it does not bother me as much as it should when they fail.  I believe that when they succeed it is to their credit not mine, and so it tracks that when they fail it is not my fault.  I have found that most people want it to be someone else that causes their failure so they have an external target for their anger.  There is no question that I could be more empathetic without taking ownership of someone else’s choices.  I am going to have to figure out how to do that.

I Still Believe in Fairness

I really like the structure of the “you split, I choose” method for dividing the last piece of pie.  Even if one of the pie pieces ended up being better, my sister and I always thought the outcome was fair.  The real world is not so simple, and some people do get paid more than other people.  Even though I have tried to approach every pay decision with an eye for fairness, there is no end to the anger and frustration associated with pay issues.  The reality is that there are a finite number of dollars available, and one employees gain is another’s loss, and neither of the parties involved got to participate in the pie splitting.

All relationships are complicated and employment relationships are the worst.  The employer has the power to hire and fire and set pay rates and often employees find it hard to take.  In the movies the hero is always the one that sticks it to the man, so I guess I should not be surprised that even in my little company we have people who consider it heroic to poke me in the eye.  Someday I may grow up and adopt my attorney’s view that that we live in a swamp and despite the putrid smell we must realize that law suits are part of the world we are in.  I plan to avoid this thinking for as long as possible.

Just like in my divorces, in the end the lawyers get the money, and even if there is some money left over for the angry person that hated enough to bring the suit, I believe he ends up the loser because he spent all of his time and energy drinking rotting ooze instead of living life.  Through this experience, I hope I am learning a few things about myself and exit the swamp without any incurable infections.  Time will tell I’m sure.

The Legacy of the Bread Clip

We cite the story of the bread clip whenever a buddy comes up with a business idea that is not sexy but could become ubiquitous.  I bet it was only yesterday that you heard yourself saying "You are a regular Folyd B Paxton" in response to a proposal for a handy belt holster for tooth picks.  After all, a person can get rich one one hundredth of a cent at a time -- as long as there are billions of times.

Floyd B Paxton, of Yakima, Washington is credited as the inventor of the bread clip.  I doubt anyone knows how many billions of bread clips have been made since that fateful day in the early 1950s, or if Floyd's Kwik Lok corporation made much money, but we can be quite sure that most of those bread clips are still in existence.  

If your sense of humor about this kind of thing is as warped as mine, you should check out this website that considers the bread clip a living organism that feeds off of the plastic bag.  They call them "occlupanids":

Since very little of occlupanid’s behavior has been recorded, its life cycle remains a mystery. Most scholars agree that occulpanids attach themselves to the plastic bags to gain nourishment. Plastic bags, when distended with matter, twist their anterior aperature (usually clockwise, but research is inconclusive), forming a tight stricture that ends in a halo formed by the fringe of the bag.

Actually, it would be much better if the bread clip was a living organism that ate plastic.  That is exactly what we need on this earth.  Unfortunately the bread clip is not biodegradable.  It takes thousands of years for them to decay.  That means that a single bread clip in the environment could be injested by and destroy dozens of animals as it and its sharp corners passes through one after another.

If you want to think more about this kind of thing, join us at the Midway Film project on Kickstarter:  6 days and $25,000 to go to make the goal so Chris Jordan can produce this incredible film.

If you are wondering how my no plastic July is going, the answer simply is not good.  This week I had to break down and get toothpaste, and the other day I was at the movies and ordered a water -- before I thought about that blasted plastic bottle.  Good thing I don't have much hair left to pull out.

Speaker Summary: Richard Stevenson

Film maker Richard Stevenson presented to Emerald City Rotary today about the work he is doing on the 5000 Days project.  After a quick introduction he showed a short film featuring just one of hundreds of kids he is creating video biographies for.  It was an inspiring story about Christian, an immigrant from Mexico who is living in Seattle, attended Shoreline High School, and making a life for himself.  After over ten years of working with these incredibly inspiring kids, and many more in the five countries where he has launched his project, Rick has learned that all middle school aged young people feel incredibly alone – and can be helped by knowing that everyone feels the same way.  The 5000 Days Project videos serve to communicate this learning to students and is being adopted as curriculum in several school districts including Shoreline and Issaquah. 

Here are some links should you wish to learn more:

5000 Days Project / Two Brothers Movie:  http://twobrothersthemovie.com/

Richard Stevenson Biography at The Film School:  http://thefilmschool.com/rick-stevenson/

Living Without Plastic: Mission Impossible?

Day 0 (my Costco trip before July started)

There is plastic everywhere.  There are some situations where avoiding plastic is pretty easy -- not buying bottled water, avoiding electronics with big plastic packages.  These situations are rare compared to the items where there does not seem to be any viable alternative but to buy the plastic.  Toothpaste, dish washing detergent, cheese, meat.  In some cases I had the choice between a plastic bottle and a glass bottle -- olive oil for example, but those situations were rare.  My month without buying plastic had not even started and it seems impossible.

Day 1 (yesterday)

Luckily I did not need to buy anything yesterday -- so I was able to make it through the first day of my quest without an outright failure.  It is really no victory because I did in fact just stock up with mountains of plastic at Costco.

Day 2 (today)

I may just make it through today for the same reason as yesterday.  But in the four days since I thought of this -- I have become accutely aware that our society will have to change significantly if we are going to be successful in reducing the use of plastics.

Remember this?

• Ben! Excuse me.
• Mr. McQuire          
• Ben.              
• Mr. McQuire.               
• Come on with me for a minute. I want to talk to you. I just want to say on word to you, just one word.
• Yes, sir.
• Are you listening?
• Yes I am.
• Plastics.
• Exactly how do you mean?
• There is a great future in plastics.
• Think about it. Will you think about it?
• Ben! Excuse me.
• Mr. McQuire          
• Ben.              
• Mr. McQuire.               
• Come on with me for a minute. I want to talk to you. I just want to say on word to you, just one word.
• Yes, sir.
• Are you listening?
• Yes I am.
• Plastics.
• Exactly how do you mean?
• There is a great future in plastics.
• Think about it. Will you think about it?

It is hard to believe that this scene with Ben and Mr McQuire in The Graduate happened in 1967.  Back when toothpase came in an aluminum tube, and motor oil (and beer) came in metal cans.  It was only 45 years ago.  In this short time we have filled the oceans with plastic waste.  

If you have found a way to avoid buying plastic - leave me a comment and I will compile a master list.

Check in on Chris Jordan's Midway project here.  15 days and $58,000 to go.  Thank you to everyone who has contributed.

Here is an interesting story about fishermen, fishing for plastic in the north sea.

Solving the Tablet Puzzle

When I was a kid my mom taught me how to solve puzzles.  She said to find the corners first, then the edge pieces, then assemble the frame, then sort the pieces by color...  It was a sound process and surely was easier than randomly picking one of the 500 pieces out of the box and trying to figure out where it went.  From that experience I learned that solving the puzzle depended heavily on the sequence.

It is interesting to see how the four big players in tablets computers:  Apple, Amazon, Google, and Microsoft are each approaching their complex puzzles.  Just like doing puzzles with my mom, the sequence is everything.

The first entrant into the market was Microsoft - over a decade ago.  Bill Gates was correct that tablets were going to be big.  We now know that his vision was extraordinary.  Unfortunately, he was pulling one piece out of the box and there was really no hope of fitting it in with the other pieces.

Meanwhile, Steve Jobs was laying down the corners and the frame of his puzzle with the iPod.  It was a simple but amazing device that enabled users to do one thing:  carry 1,000 songs in their pocket.  At the time the next best solution held only 10 songs.  Then the iPod lead to the iPhone, the iPod Touch, all those apps and app developers, and finally the iPad.  That final puzzle piece was easy to place in the picture because so many other pieces were in place already.

At the same time, Amazon was creating an amazing shopping experience for books and everything else in the universe on its web site.  By the time it introduced the Kindle (same time as the iPhone in 2007) its puzzle was pretty well formed too.  The Kindle put hundreds of books in your pocket and there really was not another alternative.

Just after that, in 2008, Google introduced its Android Operating System and the Chrome Browser.  This story is a bit more complicated because Android was started outside of Google in 2003 and acquired by Google in 2005.  Either way, the Google puzzle was being assembled well before the Samsung Galaxy Tab was introduced in late 2010.  Add the proliferation of Android devices, 400,000 apps, and by the time we arrive at yesterday's announcement of the Nexus 7 a great deal of the Google tablet puzzle had been filled in.

It is true that there were a billion personal computers already running Microsoft operating systems when Bill Gates introduced his tablet in 2002.  Surely that would form up the Microsoft puzzle. Right? So why does it seem like Microsoft is just now pulling out the first puzzle piece with the Surface and holding it over a blank table?  Because Microsoft is trying to start a whole new consumer puzzle -- and all of its existing puzzle pieces make up an enterprise picture.  Yes we use the Windows OS at home -- but it has not created any more of an ecosystem than Phoenix BIOS -- which we all run at home too.

It is going to be tough for Microsoft to complete its consumer tablet puzzle.  The Surface may end up being a great device, it may get a great response from Microsoft's enterprise customers.  But it is going to be hard to put the pieces together for consumers.

Paper or Plastic?

I have been working with Chris Jordan on his Midway Film project for the past month and have decided that at the very least I have to try to not contribute so much to the problem of plastic in our oceans.  So for the month of July, my family and I are going to try to not to buy any plastic at all.  

Sure, asking for paper bags at the grocery store is a start.  But as I suspect I am going to find out later this week when we go to Costco, not buying plastic is probably impossible.  I will be reporting my progress here.

If you are interested in the project, here are a few things to check out:

Chris Jordan's TED talk about waste.

A post about how long plastic lasts (forever).

A post about the myths of plastic recycling (doesn't really work).

Another TED talk about plastic trash.

Later, maybe August, I am going to try to figure out how to responsibly dispose of the plastic I already have.

If you want to do something to help, but aren't quite ready to give up plastic, here is a link to Chris Jordan's MidwayFilm project's Kickstarter.

Microsoft's New Partners

Lost in the fracus about Microsoft and its relationship with its partners is the new partner relationships that invariably are going to emerge.  Microsoft has always been a partner focused company and will always be.  But the partners do change quite a bit.  Some people think that the partner ecosystem has a churn rate of as much as 30% per year.

Long time partners of Microsoft including HP and Acer have been quoted recently saying that were mystified about the move by Microsoft to develop the Surface and not consult them first.  Many have predicted, including me, that partners will ultimately produce most of the Surface devices.  The partners just may not be the ones that we think.

Apple did not start cold with the iPad.  First came the iPhone and more importantly, the iPod Touch.  In fact, according to the account in Isaacson's book, the iPad idea came before the iPod Touch and the work done on the iPod Touch was necessary to prove that the iPad idea was even viable, and of course to ensure that the product was insanely great.

Microsoft's OEMs might be frustrated with Microsoft's moves on the Surface, but they really should be looking at Samsung and HTC and maybe even Nokia.  They are the ones with the expertise to build a Windows 8 tablet that could compete with the iPad.

PC Mag reported this week that Samsung may be working on its own operating system just in case it needs it to compete with Microsoft and Google in the tablet market.  That is crazy talk.  

Oracle and IBM: Making Tracks in the Enterprise Market

The papers love to report on the consumer end of the tech industry.  All the while, a great deal of business is being done on the enterprise side.  Admitedly, the consumer angle is tough to resist because if I had put Apple on this chart it would be up 373% in this same time period.  So it is easy to see how journalists get drawn to Apple and the consumer business.  

This chart shows how the big enterprise players have performed over the past 5 years:

(click on the chart to go to Google Finance for a larger view)

Microsoft and HP, the two companies that are drawn to the consumer flame but also have a majority of their business in enterprise computing, have not done as well as Oracle and IBM -- who are completely focussed on winning the enterprise marketplace.   Microsoft just acquired Yammer - which shows a focus on business computing, but they also introduced the Surface, which is aimed back at the consumer.  

Now would be a good time to show the focus that Oracle and IBM have shown.  

More Apple Bashing Link Bait a the New York Times Today

David Segal should look for a job at the Huffington Post.  He is a good writer, and he knows some good link bait when he sees it.  Today he landed above the fold on the front page of the Sunday New York Times with a non news piece about the wages Apple pays its retail employees.

There are two significant problems with the article:

1. It implies that entry level employee pay should somehow be related to CEO pay,
2. It implies that entry level employee pay should somehow related to corporate profits.

Neither is true and proposing that Apple should pay its retail employees differently for any reason other than to compete effectively in the marketplace is preposterous.

As an exercise, let's imagine that the Apple board calls an emergency meeting to respond to this article.  A great deal has been written lately about how boards represent the interests of the shareholders, but for the sake of this hypothetical meeting, let's just pretend that the Apple board is higher quality than most boards and feels a responsibility to both the Apple shareholders and the Apple employees.

Here are the options I can think of for the board to consider:

1. Establish a metric that either increases employee pay or decreases CEO pay so that the two are closely correlated and don't get too far apart.
2. Establish a profit sharing plan that distributes corporate profits to employees.
3. Increase front line employee pay preemtively in an attempt to address employee dissatisfaction promted by Mr. Segal's reporting.
4. Decrease front line employee pay because the article ends saying that Apple has more applicants than it needs -- which indicates it pays too much.
5. Do nothing.  There does not seem to be a shortage of willing employees, and the quality of employees is more than adequate to do the job.

One economic fact that is not reported in the article, but warrants a mention here is that any change that increases the pay of the current employees will provide only a small and very temporary benefit to current employees.  The increased pay will attract more experienced, higher quality employees, that over time will displace the current employees.  

Clearly the Apple board will not actually call a meeting, and the result of the article will not be any of the options that increase the pay of the current employees.

I am the CEO of a small company that has a large percentage of front line employees.  We live and die by the performance of our employees and work very hard to find, recruit, and retain extraordinary people.  From time to time we get into this very same discussion.  Invariably the discussion comes when our profits go up.  At times we have had profit sharing plans that distribute some of our profits to front line employees.  In my experience, those plans are not a good investment because employees decide to come work for us by evaluating our environment and the base pay.  A dollar distributed in profit sharing does not earn the company a dollar in value, because potential employees logically discount the potential of profit sharing as it is uncertain.

In lean years, it is common for owners of companies to pay more into the company than they extract in wages or dividends.  This economic reality should not have any bearing on employee wages either.  I have never heard of a company that has been successful recruiting great talent by telling them that during lean years they will have to pay to come to work.

The marketplace sets wages for employees quite efficiently.  David Segal and the New York Times knows that quite well.  Taking a swing at Apple on the front page is great link bait though.

This Just In: Microsoft Screws Its Partners (or so the media says)

The media loves a fight and the media is quite good at making sure there are plenty of fights to report on.  It is true that Microsoft could have done a better job of getting its partners onto the Surface bus before it left the station, but it would certainly have sacrificed the secret, and the surprise.  And the media also loves a good surprise.

Ordinarily I would put links here to articles supporting my thesis that the media is itching for a MS vs Partners fight, but there are so many articles I could not pick.  Just search for "Microsoft Partners Surface" and you will see what I am talking about.

By the time Surface gets to market in the fall, this will all be forgotten.  Here are some more specific predictions:

Will Microsoft let partners sell the Surface?  Right now it is being reported that the device will only be available in Microsoft stores and on the Microsoft web site.  I find it hard to believe that Microsoft will prevent its partners from selling the device.  So I predict, that if MS can make enough of them, partners will be able to sell them too.  Who knows, maybe MS is in the middle of big deal negotiaitons with Best Buy, or even Verizon, and so they cannot announce the distribution deals yet.

Does Microsoft want other great Win 8 tablets on the market?  Microsoft did not refer to the Surface as a reference design, but I think it is a reference design.  If the product is a hit, Microsoft will not be able to make enough of them.  If it is a dud, no one will care.  So Microsoft must want other PC makers to enter the market.  In fact there is nothing Microsoft can do to prevent it.

Will this put Win 8 at the front of the line?  To date the predictions in the business market have been pointing to wide adoption of Windows 7, and not so much for Windows 8.  I do not think this will change that.  Windows 7 is a great product and businesses are not going to jump to Windows 8 for this.  It will be a great addition to the windows line, and now a business can give an exec a Surface running Windows 8 instead of an iPad.  The billion or so installed PCs currently running earlier versions of windows, including 200 million still running XP, will be upgraded to Windows 7 (if possible) or not upgraded at all.  

All around, great job Microsoft.  You have introduced a credible competitor to the iPad.  Microsoft Partners are better off today than they were a week ago -- and I am sure the partners know it.  

Year 11 of the Tablet Wars

USA Today has this good piece on Microsoft's complicated history with tablet computing.  Just goes to show that having the idea is not enough -- even when you are Bill Gates!  

Microsoft has been doing the tablet thing since at least 2002 and with its announcement this week of the new Surface, has a credible competitor to the iPad.  Here is a pretty good treatment on Engadget covering the launch event.  It is hard to get too excited without a deliver date or price.  And when Steve Sinofski had to trade out his frozen Surface for a new one -- the pain was palpable.  

Despite the long drawn out history and the incredible lead Apple has already established, this is going to be a very intereting fight.  There are two contrasting views that I can think of:  Consolidate or Extend.

Apple Wins if it Continues to Extend

Apple has done an amazing job of getting customers to extend their personal computing infrastructure to yet another device.  We have all walked down the isle of the plan and seen an iPad at every other seat -- and practically every seat in first class.  We know however that while many of these people may no longer travel with their PCs, they still own them.  If Apple can continue to extend to the iPad -- Apple wins.

Microsoft Wins if Consolidation Happens

Microsoft's new Windows 8 operating system, that hits the market in the fall, will be optimized for tablet devices -- including the new Surface, to be built and sold by Microsoft itself.  Clearly Microsoft is positioning this device to be both the tablet and the PC.  To the extent that Microsoft can consolidate the market back from PC + iPad to a Win 8 PC only --  Microsoft wins. 

Either way, this will be very interesting to watch.

Apple Jumps Back Into The Channel

Michael Dell used to say that the channel was the gift that just kept on giving -- and it was not meant as a compliment.  A few years back Dell changed course and now has over 100,000 partners.  In truth, partners were always a big thing to Dell.  Only they would tell their customers what to buy and when the Dell boxes came in, the "partner" would show up make everything work.  Now those people actually are Dell Partners.

Apple has also gone without the channel for much of its history preferring to let the products speak for themselves and the fans to figure out how to set everything up.  Recently however, Apple has started courting partners more directly than we have ever seen before.  

Here is an article about it from the website: Redmond Channel Partner.

Here is a link to the intro page on:  Apple's website.

So now that Apple finds itself deep in the business environment as a result of the BYOD movement in IT, they are making an effort to take full advantage.

This will be interesting to watch.  One thing Apple has always had as a result of their independence from partners or business customers it the ability to make their products without having to consider large customers.  Microsoft, along with all of the enterprise focussed vendors, have for a long time had to collaborate with partners and customers on their product roadmaps.

Apple has not been very collaborative about this kind of thing in the past.  So new muscles will have to be built.

Quality Propels Itself on KickStarter

It seems that everyone has an opinion on crowdsourcing.  Some say it is going to liberate the artists, others say that scammers will ruin it.  

My observation is that the crowd has the ability to recognize quality and that good projects get funded.

Here are two examples:

Chris Jordan's Midway Project

Chris is a very talented and successful photographer who has launched an incredible project featuring the albatrosses on Midway in the north pacific ocean.  You can learn more about Chris here. You can see the a video treatment of the idea here. And you can contribute on KickStarter here.  In two days he is already at 238 backers and nearly $15,000 of his $100,000 goal.  

Neal Stepheneson's Clang

Neal Stephenson is one of my favorite authors.  Cryptonomicon is one of my favorite books of all time and I liked Reamde quite a bit too.  He wants to revolutionize swordplay in video games and has launched an effort called Clang.  Check it out here.  In two days he has over 3,000 contributors and is about to push past $200,000 on the way to his $500,000 goal.  

It is hard to watch either of these pitches and resist getting involved.  And getting involved has never been easier.  

Chris Anderson's List

Chris Anderson also spoke at the HP Discover event last week where he presented an inspiring list of the things the young people now entering the workforce want / expect.  He was careful to point out that with considering the current reality that these things can be delivered through employee owned devices (phones) that the new creative class will get these things whether employers deliver them or not.

Top 10 expectations of the new creative class:

1. Mobility...work anywhere but still have hallway conversations and other serendipity
2. Openness...don't even try to hide the truth or even spin it
3. Technology is a personal statement...what is your tech saying about you?
4. Featherweight apps...do one thing very well...less is more
5. Cloud first...they don't care how hard it is to get there from here...they are already there
6. Sync...Dropbox...ambient communication that just works
7. Social Media...Dunbar limit hits media.
8. Unstructured in a structured way...Evernote
9. Security, trust and scale matters...gmail 2 step verification 
10. Blurred lines forever...wherever you go, there you are.

Sounds awesome to me.  Where to I sign up!  Hire the new creative class!

Jeffrey's Law

Jeffrey's Law:  We will always want more than Moore.

This Jeffrey is Jeffrey Katzenberg of DreamWorks fame, and he shared at the HP Discover conference last week that does not think that Moore's law is moving quite fast enough for his needs.  Moore's law is propelling the computers so fast that most computer people think that the pace of change will not be sustained for much longer than this year and next. But Mr. Katzenberg is not saying that he thinks it is going to slow down, he believes that even if the computer industry does continue to double the number of transistors on a chip every year -- it will not be fast enough growth for him.

What he knows, after 40 years in the movie business, is that every time the computers get faster, he thinks of even more ways to use that speed.  And soon computers are going to be using computers to make movies...

He explained that every animated movie now has 3 billion renditions, and takes 400 people 5 years to make.  So I can see his point:  Gordon Moore, despite his amazing foresight, is just not moving fast enough for Jeffrey Katzenberg.

Taking the P out of Freemium

The numbers in the Freemium business model are similar to direct mail.  2% of the users buy.  Fortunately for the businesses selling their services through the Freemium model, serving the 98% is about as cheap or maybe even cheaper than sending out direct mail pieces.  Better yet, the cost of servicing the users that don't pay is offset by selling access to them and their data to advertisers.  

All good?  Yeah!  But wait, what happens when some other company swipes the 2%?  In an emerging marketplace where new entrants create new sectors and then have them all to themselves, this all works great.  But as the market matures and competitors flood in, it is pretty easy to see how there could be a company that gets the Premium customer and does not have to give away their service to 98 out every 100 users.  

What if small businesses try out cloud storage with DropBox, but when it comes time to pay, go to Box? Box bills itself as the enterprise version of DropBox and it could play out that users perceive that it would be silly to pay DropBox when they could get an enterprise version at Box.  Maybe this is why Box has been able to raise $150 million even while Google is entering the market with Google drive and Microsoft is entering the market with Skydrive.  Could those companies be serving as Freemium providers just driving Premium users to Box?

This is what Apple has done.  They dominate the Premium part of the hardware market and their share of the profits in the industry far exceeds their share of the market.  

Sales Incentives, Can't Seem to Live With or Without Them

Steve Jobs talked about the balance between product design and sales/marketing (as recounted in the Walter Isaacson biography) where he describes the arc of company evolution from great product creation to an over dependence on sales and marketing.  The latter being the death of great technology companies like IBM and Xerox.  Jeff Bezos is famous for saying that advertising is for companies that don't have good products.  Of course neither sentiment is completely true.  Great products still need sales and marketing and advertising is often a necessary tool employed to drive demand for a great product. 

In my post Market Like an Engineer I proposed that people running marketing departments should encourage the virtues often found in an engineering culture in their marketing departments.  The desire to create something truly new, the open sharing of knowledge, and the pursuit of critical customer feedback is often missing in the sales and marketing culture.  These virtues suffer when the prevailing mindset is that salespeople are coin operated. 

Over compensating on revenue drives out collaboration and the pursuit of the truth.  Executives are forever tweaking compensation models to discourage these behaviors.  Nevertheless, we regularly see glowing departmental revenue reports that merely chronicle a shift in revenue recognition from one department to another, or the quarterly selection of the "good" numbers cherry picked from pools of mediocre performance.  It is just as common for the company to pay big bonuses the next quarter when this phantom revenue shows up in yet another department -- even though overall sales have not increased at all.  It is no wonder leaders like Steve Jobs and Jeff Bezos want to spend as little as possible on sales and marketing.  Those crazy incentives seem like they always produce unintended consequences, but at the same time seem essential for creating action.

The Freemium Highway Is Changing Your Town

When I started my company in the mid 90s one of the big consulting firms wanted to charge me $83,000 to design a process for selecting a PBX/ACD for the call center.  They seemed to think it was business as usual, so I guess some companies actually paid them to do things like that.  The implication was that the cost to run the selection process would be an even bigger number, but I never learned the details because I was already out the door.

Now I can just go to RingCentral.com and sign up for a free trial and be on my way.  No money to the consultants, no million dollar hardware purchase, no multi year maintenance contacts, no waiting six months through an expensive implementation process to see if it will work at all.  We have come a long way in 15 years.

It seems that just about everyone is offering a free service as an enticement to check out their stuff.  In some cases it is for a limited time and others limited functionality, but getting the technology needed to start a new company or start a new project is cheaper and easier than ever.

So in this new universe, what is that channel partner's (the consultant) role? They probably still get big companies to pay big money to design processes and implement them, but it is clear that they are not as essential to the selling process.  The new Freemium model is an interstate highway right past their town.  Cars may can get off and buy stuff, but they don't have to slow down.

Companies are finding expense reports showing purchases at amazon.com that are not books.  Their employees found the line at the IT department for a new server to be too long, so they just went to AWS and rented one.  Where is the channel in that purchase?  The cars on that highway didn't even need to stop for gas.