Thoughts and musings

This is my model for all B2B value propositions. I created it to better understand how our product is viewed by our customers. The important questions to ask are: what does your product accomplish for your customer, and what does that mean about the needs of your customers?

To my knowledge, there is no dominant social network focussed financial discussion. Why has a popular social community not been created for traders and/or investors? Is it because the community norms are not conducive to financial discussions or because the Blackberry dominated world of Finance does not provide the technology necessary? Perhaps the technographics of the target audience are not favorable. 

After a quick search I found that trading and investing communities do exist, but are primarily traditional forums. These communities do not have the ability to share rich media and are not based on or link to real world profiles (everyone is using screen names). Why is the finance community so far behind? 

I found this data and was surprised. If almost half of US online holiday shoppers used their tablet to make gift purchases last year, we can expect a much higher number again this year. 

This got me thinking about what in the B2B world could follow the same trend and came up with three important trends that I think we can expect to see with mobile and B2B businesses. 

Increasingly automated document flows. As the more employees are armed with smart phones and tablets, more work will be conducted through structured, automated work flows. For example the recording and processing of information from new applications and contracts will begin to be collected and processed by computers instead of people. 

The collection and organization of more information. Tablets and smart phones provide the opportunity to collect contextual information that can be used as inputs to make decisions. For example, an insurance company investigating in a new claim can use a client facing mobile application to prompt the client to submit photos, GPS location, video testimony, and other information pertinent to the insurance claim. 

This is the second of two posts discussing the strategies of Google and Apple in the smartphone market and what they mean for mobile software entrepreneurs and marketers. The last post explained Google's strategy, this will focus on Apple's.

If you look at market share data you will find that Android has a far larger market share than iOS. Some people credit “the power of open-source" and claim "Apple can’t compete with thousands of developers and free software”. While this thinking is correct in some senses, they miss the point: iOS doesn’t compete with Android. It's true, Apple won't ever sell more phones than Google again, but that's because they are not trying to.  

While Google makes money displaying ads to internet users, Apple makes money selling computers and smart phones. Their business revolves around and depends on building the highest quality product. Top quality hardware is combined with tightly integrated high quality software to produce an extremely high quality smart phone. This has been Apple’s strategy since the first iPod.

This is the first of two blog posts discussing Android and Apple's product development strategy and what that means for mobile software marketers. This post will focus on why Google built the Android platform.

Google earns a great deal of money owning and operating the largest ad network in the world, both mobile and traditional. Their advertising network is so expansive that if people begin spending more time online, they see more Google ads.

But Google faces a lot of competition. Bing, Yahoo, Facebook, Twitter, and a host of companies Google has never even heard of are competing to target and display ads online. They make Google fight for its users and Android is Google’s answer. By building a smartphone’s operating system Google controls the default suite of applications (search engine, email service, maps) which grows and protects their market share for those products. The more people using Android, the better. So in order to get Android in as many users hands as possible, Google gives it away to hardware manufacturers for free.

What does this mean for marketers looking to build mobile applications? The implications are found in Google’s incentives. Google wants as many Android phones in use as possible, and to achieve that allows the operating system to run on hundreds of different hardware sets, with hundreds of different versions of software. Google has also allowed independent application stores to open, which sell Android applications completely independently from Google. This all adds up to a platform that offers marketers massive reach and great flexibility as software developers and hardware manufacturers innovate with the platform.

Mobile software marketers rarely have the luxury of having the time and/or money to develop a product or application for each mobile platform from the outset. This constraint forces them to choose to develop their product for either (largely) iOS or Android. And when talking about making that decision, I find that most often people look to market share as the deciding metric. They see that Android has taken the top spot for smart phone sales, and conclude that development should start there. But is market share the right consideration? No, it isn't. At least in most cases.

Technographics are a market research tool built by Forester to categorize contributors to the online community. Above is Forester’s breakdown of business decision makers technographics.

As you can see above, business decision makers update their status or post updates far less frequently than the average person. But the same group is also almost twice as likely to publish a blog post or video and to organize the information they find. They are also much more likely to act as a critic through comments, ratings, and reviews.

How should marketers use this information?

To engage B2B decision makers in the groundswell a marketer should focus on enabling content creation, commenting and criticizing, and information organization. A marketer is unlikely to succeed in building a social network dependent on frequent status updates or new posts.

People at work have a low conversationalist rating. This is intuitive. At work people act either as a problem solver or a process worker. Problem solvers spend time in the groundswell looking for information relevant to the problem at hand, but stop looking when the problem has been solved. Process workers are not paid to contribute to the groundswell, so they limit their groundswell activity.

What did we learn?

Hootsuite and Webtrends have integrated their products to give their users greater ability to track the effectiveness of social media campaigns. Messages broadcasted through Hootsuite can now be automatically analyzed by Webtrends to track the ROI of investments made in social media. This new integration can be used to justify social media investment and improve social media campaigns.

To justify any investment a manager must prove the benefit it brings to the firm. A simple and common way to do so is to find the financial return the company earns from the investment (the investment's ROI). To be worthwhile the investment should provide a higher ROI than alternative investments, while achieving the same objectives. By using Hootsuite and Webtrends to track click-through and conversions rates marketers can calculate the revenue generated from each post, and in turn the profit and use this information to prove their worth to their organization.

By tracking the success of each post marketers also have the ability to test different messages, formats, and content to build a more effective social media presence. A marketer can now send several versions of a message to several social networks and track which message and network combination generates the most revenue. The marketer can then maximize revenue by focusing their resources on that message and  network.

While tracking information of this type was possible before, this integration will save marketers a great deal of work. For example, later this month I will begin testing different messages on different networks for a client. We will run several experiments at once. This integration between Hootsuite and Webtrends would take care of setting up the tracking, and allow our team to focus on figuring out what the data means.

It is now possible to analyze every tweet every tweeted. The social media data company Gnip is offering access to every tweet ever written, giving anyone the power to analyze an immense amount of potentially valuable data. Only the Library of Congress has the same access.

Gnip expects their customers to use past tweets for research. They hope the data will be used to find correlations between tweeting activity and the outcomes of important events. They considers themselves the “plumbing” of online data analysis, and do not analyze the data themselves.

Gnip claims to have 90% of the Fortune 500 as clients, but how do their clients use the data? In one example, a marketer could study how past tweets affected product launches by studying the correlation between pre-launch tweets with post-launch sales. That understanding could then be used to predict the success of future product launches. In another example, Obama’s political campaign could analyze how Obama-related tweets correlated with his successful election in 2008 and then use that data to poll supporters in the 2012 election. Besides the prediction of events, the information could be used to collect product feedback, competitive research, or measure the success of marketing campaigns. 

I found a range of data on eMarketer that indicates LinkedIn is the most effective social media platform for marketers looking to generate B2B leads. Data from eMarketer shows that 61% of marketers who responded to a survey had acquired a customer using LinkedIn compared to only 41% from Facebook and 39% from Twitter.

Data from another study on eMarketer shows that 2.74% of traffic that comes from LinkedIn generates a lead while traffic from Facebook and Twitter only generates a lead .77% and .69% of the time respectively. This data indicates that if B2B marketers focus on LinkedIn they will see more than three times more leads per hit than with a focus on either Facebook or Twitter. I could not track down data that shows the number of leads each social media platform generates, but at the very least we now know that it is worth it to pay three times more for traffic from LinkedIn than from Facebook or Twitter.

When looking at buying a firm the most important thing to a private equity investor is whether or not the cash flows from the business can pay down the debt they needed to make the acquisition in the first place.

To explore the interest coverage concept, let's compare two investments made by different private equity firms: one made the first period and one made in the second. Let's assume that both investments were of a business worth $100 million dollars and both can borrow at 20%. Firm One put down 10%, and Firm Two put down 30%. Firm One borrowed $90 million and paid 10$ million; Firm Two borrowed $70 million and paid $30 million. Each year Firm One pays $18 million in interest, each year Firm Two pays $14 million. 

To cover their interest payments Firm One needs their business make at least $18 million a year in order to pay for the debt they took out to buy it. Firm Two needs their business to make $14 million a year.

What is interesting about this is that Firm One has the opportunity to make a much better return than Firm Two but they also take on much more risk.

Now let's say that both acquired companies produce $20 million in free cash flow per year. Both firms have interest covered. Firm One is at a higher risk because if something were to happen to the profitability of the business, EBITDA only needs to fall by 10% and they will not be able to meet their debt obligations; Firm Two's EBITDA would need to fall by 30% for them to not be able to meet their obligation. 

But let's assume that both operate for 5 years and grow their business's value by 50%. Both firms sell after 5 years for $150 million. 

Firm One has made 2 million each year from the cash flow that wasn't used to service debt ($10 million) and $50 million on the sale. Their total return is $60 million on a $10 million dollar investment - 6X return in 5 years (not bad!).

Firm Two has made $6 million per year ($30 million) and $50 million on the sale - $80 million profit. Better right? 

Obama has been talking a lot about Mitt Romney’s evil actions as a private equity investor. I’ve written a couple of posts here that explain how private equity firms work so that people can make their own judgements with a good understanding of the business model.

Private equity firms buy businesses with money provided by organizations like pension funds, hedge funds, wealthy individuals and other sources. They then resell those businesses at a profit. Private equity fund managers earn money by charging the pension and hedge funds to manage money. The basic fee is 2% of assets under management (the amount of money they manage) and 20% of any increase in value of the funds they manage.

An average private equity investment is owned for 5 years before being sold to another private equity firm, taken public, or sold to a strategic buyer. They usually by companies in mature industries with stable profits. Companies are paid for with a small cash investment and a lot of debt.

I often hear people talk about improving the way the World works. "We need to cut down our carbon emissions. The government should spend more money on education. The northern pipeline should not be allowed." These are important things to be talking about. But unfortunately many of these conversations end without inspiration. "It doesn't matter anyway, the government won't do anything about it. They don't listen to what we have to say."  And it's true, politicians don't pay attention to each of us. In fact, they don't pay attention to most people. But despite the many complaints, I don't blame them.

How could they listen to us? We each make up one voice of thirty million. It's easy to see how insignificant each individual is if we think about it that way. Imagine examining a dataset with thirty million data points. If you wished to examine each one, for only 30 seconds each, it would take you more than 28 years of continuous examination. It's  actually impossible for a politician to listen to anymore than only a very few of us.

So what should we do? 

Using the dataset example again, we can imagine taking the time to examine exceptional pieces of data. Maybe one data point somehow influences millions of other data points, or maybe it has some extraordinary quality. If that were true you would pay attention to it, maybe a lot of attention. To make change, we need to become those datapoints.  

When I heard that Facebook announced they would purchase Instagram for $1 billion, I started to wonder how Facebook justified the price they paid. Why $1 billion? Only a week earlier Instagram was valued at only $500 million. Instagram has 30 Million users, which means Facebook paid about $33.33 per user. Is that expensive? Maybe.

To figure it out you could try to work out how Facebook will earn more than $33.33 per Instagram user. But instead I took a look at how much users on other social media communities are worth.  

I took a look at LinkedIn, the only publicly traded company that I thought was comparable. (Public companies publish a lot more information about themselves than private ones and their value is updated constantly, so starting with LinkedIn makes sense.)

On their first day of trading, LinkedIn was worth $8.9 billion (their market capitalization), and had about 100 million users. That values each LinkedIn user at $89 dollars. More recently, at the beginning of 2012, their value was $6.2 billion, with almost 145 million users - a value of $42.75 per user. Clearly market fluctuations and other factors are affecting LinkedIn's value, but what is important is that compared to either valuation of LinkedIn, Instagram looks cheap. If Facebook can quickly grow Instagram's userbase, it will get even cheaper.

To make the purchase look even better, Facebook can leverage it's immense resources to grow Instagram's user base. Already Instagram became the most downloaded app on Apple's App Store because of the announcement. 

It's likely that Instagram is not yet profitable (LinkedIn is), but this sheds some light on how expensive Facebook's first major acquisition was. If anyone has any other thoughts on how to value Instagram, I would love to hear them.

A favorite blog post of mine, and one of my most popular, is one I wrote about night clubs creating a lemon market for dating (Why it isn't wise to look for a date at the bar). A friend of mine recently did their own analysis and it was so good that I've decided to share it. They asked me to keep them anonymous, so I haven't provided their name.

The below was written about individuals (of either sex) looking for dates at a night club or bar. 

There is not a single underlying "quality" for each person. Instead, suppose each of us has two kinds of quality: Outside and Inside.

Outside can be directly observed: it includes looks as well as displays of wealth (clothing, shoes, jewelry, watches).

Inside can only be assessed via conversation (intelligence, wit) and observing behaviour over time (loyalty, truthfulness).

At a nightclub there are some impediments to observing Outside (the dark, the strobes you mentioned) but Inside is almost entirely unobserved at the bar.

So what should we expect? People who are strong on Inside but weak on Outside should definitely avoid bars.

Since a strong outside is observable in non-bar contexts, people have high scores on Outside and Inside will do better at some place besides a bar.

But people who are strong Outside and weak Inside will do better at bars where their weak Inside is difficult to observe.

Whether night clubs can survive as an institution depends on a large enough population of high quality Outsides that don't mind foregoing inside quality in their partners.

On the bus today a young woman sitting across from me started talking to me. She said "I know people don't usually start a conversation with a stranger on the bus, but I do." I looked up at her and smiled, not sure how to react. I started a conversation not to be rude. 

She told me she was from Texas and was having a hard time making friends in Vancouver, after living here for six months. According to her, people in Vancouver are far less friendly than people in the Southern United States; and in Texas it's normal to introduce yourself to a stranger one day, and be hanging out with them the next day. At home she said, that is how she has made most of her friends. Apparently people here  think she is hitting on them (which is what I thought...), but she said we are misreading her. 

Wether or not she is hitting on Vancouver's most eligible bus-travelling bachelors isn't important, but the question "do we live in an unfriendly city?" is. 

She thought the reason Vancouverites act unfriendly is a fear of interrupting a stranger's day, or a concern that we will somehow upset them. She was a bit demeaning, insinuating we are too polite for our own good. 

That was the third time in the past weeksomeone has told me Vancouver isn't a friendly place. Each time I have defended our city, accusing the person of not trying hard enough, or acting unfriendly towards Vancouver's sociable population. But this testimony from a stranger was somewhat more convincing.

What makes it hard for me to believe, is that I don't have trouble meeting people or interacting with strangers. But after reflection, I've realized I don't practice what I preach. For example, I don't have a single friend whom I met as a stranger in public and I'm uneasy giving my phone number to someone I just met - like today. When I got the feeling she wanted me to offer my contact information, I began planning my escape.  

Is Vancouver really an unfriendly city? I'm not sure, but I'm disappointed in myself for refusing to give the stranger on the bus an opportunity to be my friend. The really important question is: would I start a friendship with that person if it happened again? Would you?

I'd be interested to hear from people who have moved here from other places in BC, in Canada, or around the World. To be honest, I don't think I would.

A few months ago I had an opportunity to have dinner with a consultant that worked with Lululemon when the company was in its early stages. One of the things we talked about is building a company to be many times larger than you actually expect it to be. I’ve been thinking about this idea and want to share my initial thoughts.

What does it mean to build the company to be much larger than you plan it to be?

It means to build processes, attitudes, and a culture that would support your company even if it was many, many times larger than it is.

Why is this a good idea?

If you are constantly planning to be much bigger than you are, you might actually end up getting there.

Processes that would support a much bigger company than yours are processes that can operate without your involvement.

If your processes are like those of a much bigger organization then maybe your CEO will be more like those of larger organizations too.