Thoughts On The Tech Industry

What do Facebook and Muhammad have in common? Well if you can’t bring the mountain….

Recently, I had a chance to sit in on a Digital Media session at the Asia  America  MultiTechnology Association conference.  The panel was led by Mark Stevens of Fenwick and West who did his usual masterful job of teasing out some interesting tidbits from his panelists. They included Tim Kendall the Project Manager of Facebook's recently botched Beacon introduction, Yoon Lee of Samsung,  David Richter of DivX and Chris Corvalho of Lucas Films.

Needless to say there were a variety of views represented. They ranged  from US and Asian cultural differences that help explain variations in consumer electronics  adoption rates, to snide remarks about how this coming CES will once again be the year of the Digital Living Room  - something that seems to be a continuously moving target.    

Although I found some of these topics interesting, the real morsels of insight came from several points made by Tim Kendall of Facebook. These provided a few key signposts of how we may see Facebook evolve as it attempts to monetize its 58 million users.

Tim kicked off with a relaxed apology for the Beacon privacy debacle, echoing some of the points made by Mark Zuckerberg in the press recently.  As he said in his mea culpa,   "Beacon may go down as Facebook's biggest screw up."  He hoped this was the worst mistake they ever make.  They certainly learned a lesson from it. You might think this would have damaged Facebook, but so far it appears to be mostly a PR gaffe.  As comScore Media Metrix recently reported, Facebook had 20M visitors the week of Beacon’s announcement and 22 million for each of the two subsequent weeks.  It then rose to 25 million the week of November 25^th. We’ll see how the December numbers shape up.

One of the key points Tim made was how Facebook will evolve from a community site to a community that you can take with you as you travel the web. Imagine for a minute, as he explained, that you’re a member of the Facebook community. You decide to go to Netflix to pick up a video, say, Tom Cruise in Top Gun.  When you land at Netflix you identify yourself with a Facebook ID. Then before you finalize your selection, you decide to see who else in your community has seen the film and what they think of it.  Hmmm, more context, more relevance, more ad dollars. Repeat across multiple websites and presto, you have some serious incremental ad revenue.

So "If the mountain won't come to Muhammad, Muhammad must go to the mountain.” Or in Facebook’s case, if we can’t squeeze enough dollars out of our site alone, let’s take our revenue generation engine to the places where we can monetize the community to the hilt.

I’ll follow up in another blog entry or in an upcoming Milestone Group Quarterly with a discussion of 5-6 other key initiatives that Tim talked about. In the meantime, let us know what you think.

The Telecom Wallet or “How I learned to live with the Bomb”

A funny thing happened in the communication industry about 10 years ago.  A bunch of fancy guys decided that what the country needs is for all telecommunication services to come from each of them: as a single supplier to the consumer.  Why fight for a bigger piece of pie when you can fight for the whole pie?  In my last blog posting, I spoke about the Quadruple Play, in which Cable Companies and Telco’s, each want to provide all of a households communications services.  However, it took mergers, takeovers, buyouts, changes in the Telecom Acts, changes in administrations and many years for policy to allow these companies into a greater diversity of communication businesses.  Then the ability to combine those offerings efficiently took billing and customer care advances.  But we are there now.

A long time ago, a great friend and mentor of mine, Brad Hughes, introduced me to the concept of the Telecom Wallet.  He explained that phone companies were very interested in how much a family spends on all communications within a household each month. The sum of their telecom services was the Telecom Wallet.  Since I worked at Telephia (now Nielsen Mobile), this was a great concept to dive into with our survey tools.

One of my epiphanies (while sober) was that when I graduated from undergrad and got my first place, my telecom bill was $30/mo.  This covered a residential line and half a dozen LD calls.  When I got a steady check, I got basic cable for another $20/mo.  My Telecom Wallet was now $50 in 1985.  Currently, for my family of 4:  its $400/mo.  (In 23 years it has increased TWENTY-FOLD!) Believe it or not, I try to be frugal (no Satellite radio, no Onstar, only 1 premium cable channel, no GPS subscription, and TiVo was paid for years ago).  My Telecom Wallet could easily grow by another $200/mo. if I took my foot off the brakes this holiday season.

 

While this is my industry and passion, there is ticking bomb.  It lies in the essence of the Quadruple Play strategy.  I believe most people in America don’t know what their total Telecom Wallet (monthly cost) is.  They never lump all the elements into one pool and really look at it.  If they did, they would freak out.  An offering of a Quadruple Play forces a focus on the total Telecom costs which do add up fast.  This almost always forces the consumer to see the “$300 or $400 light” and do one of the following:  1) Reassess their expenses for Telecom and make cuts, 2) Shop for the best bundle once  there is an awareness of bundled offers, 3)  Do nothing at all (which is what most people are doing), or 4) Sign on because it will simplify thier life (the path least chosen).

In the end, writing one big check to your Cable or Telephone Company for $400/mo. will negatively alter consumers’ buying behavior away from communication services in the short term.  I suggest that the Quadruple play go back in the closet for now.  One day soon, all the elements of the Quad Play will flow through a fat wireless pipe; each seperate service morphing into mere applications.  At that time, we will pay the meter for what flows through our pipe regardless of the device or location.

What is the power of the Quadruple Play?

The first I heard of the Triple Play (Telephone, Broadband-cable modem, Cable TV) was in 1999.  I was with SBC sitting in a market-wide (San Diego) meeting discussing our strategic levers across all product lines.  I represented the cellular/pcs business unit and the discussion centered on “how to combat the cable company’s Triple Play threat”.  Our solution was to have our own “bundle” to compete against theirs.  We would use the Telecom Triple Play: Telephone, Broadband-DSL, Cellular as our bundled offering. 

Seemed like a reasonable idea.  When consumers subscribed to all three services, we would give them a discount, and someday combine it all onto 1 bill.  By throwing cellular into the mix, we thought we would trounce those cable guys.  The program sunk like a lead weight.

It is 8 years later and I don’t bundle, do you?  Qwest Communications (formerly US West, where I got my start) has been clinging to a telecom Triple Play for nearly 6 years, AT&T sends high gloss/high fashion collateral to my house quarterly to pool my services and Verizon has been pushing bundled offering in its Telephone markets forever.  In offering a single bill & @10% discounts the Telco’s have not attracted many new takers relative to their total bases over time.  While the bundle has proven to be a good retention tool, it is not a net revenue generator at all.

Now we are entering the world of the Quadruple Play!  Cable Companies have added cellular to their offerings, while Telco’s have been getting into the Media space, both through a variety of partnerships.  Did you know AT&T has had this going for 2+ years and some of the cable companies have been offering cellular for about a year?

Guess what?  People aren’t biting.  Rich people don’t care about a single bill or a paltry discount.  Poor people can’t and won’t spend that much money on communications.  The middle class is shopping for the best value for the 4 services and saving more money by sending 2 to 4 checks a month to 2 to 4 communications suppliers.  They are saving more than the 10% by truly matching services to their needs. The Triple and Quadruple Plays are interesting and logical for the operators, but they don’t seem to get it from the consumer’s perspective.  For the rest of the story: Tune in next time to: “The Telecom Wallet” or “How I learned to live with the Bomb”

My Best Flight Ever (with wireless access)

When working for Birdstep Technology I needed to travel to Oslo and Stockholm often.  Since United’s partners were SAS and Lufthansa, I had to use them for at least the Nordic portions of my journey.  I hated this arrangement, because I could never get upgraded and because the Scandinavian airline food, thought tasty to Swedes and other low spice peoples, was horrible to me.  Pickled fish and hard boiled eggs with cabbage is Devil’s Island food.  However, the cure for my businessman blues was soon discovered.

I digress:  on flight to Europe, I could be the spokesman for Ambien.  If it were legal to do so, I would set up a kiosk in the SFO International terminal pushing $10 pills that guarantee no jet lag going over.  I always dozed perfectly and never remember the long trip east.  But on the flight back, I am always wide awake, bored, restless and anxious to get home. 

The exception was when I took a magical flight that had high speed internet access.  Connexion by Boeing was awesome.  I was in a zone of productivity and connectedness that I had never experienced.  Since I had my Skype and headset with me, I was making calls all over the world from my airplane seat (seemingly for free: $30/flight) and closing out e-mail threads from the past 3 months.  I as amazed by my new capabilities and freaked out all those around me who gazed upon my total bliss.  Business Class from Europe on United, became less of a premium than flying a wi-fi plane across the Atlantic in coach.  Sadly though, it all went away in an instant.

At the end of 2006 Boeing shuttered the operation due to huge losses to keep the satellite operation going.  Too few planes were retrofit with the $650K package, too few airlines signed up and too few people shelled out the $30.  It doesn’t seem that my $150 (over 5 flights) to the cause helped.

Yesterday JetBlue introduced limited in plane wireless through a company called LiveTV.  They started with only one plane in the fleet, but that should grow in deployment and wireless capabilities.  Several other US airlines (but not United) are in talks with Live TV, Aircell and Row 44 for in flight wireless offerings next year.  It is all good news.  While the general public has never liked the idea of listening to an annoying “loud talker” yak away on their cellphone in the row behind them, seeing a workaholic like me pounding away on a laptop or typing my micro messages into a handheld doesn’t seem to ruffle their feathers while they watch reruns of The Office and savor their 1 ounce of pretzels.

In Fight Club, Ed Norton says: “Business travelers have had disposable experiences when they reach their destination on a business flight.” With an ability to ‘opt-in’ to the world 30,000 feet below, you might view your experience differently when seated in rows 14-46 on a 4+ hour jaunt.

Caution: Tough Road Ahead

2008 is emerging to be relatively difficult market conditions for selling tech, and it appears buyers are re-thinking 2008 spending.   Seems IT buyers are cautious for a variety of factors.  Off the top of my head... oil is approaching $100/barrel, US markets are in financial turmoil (and related sub-prime crisis), there is an unresolved and costly war in Iraq and a very nervous situation emerging in Iran, an election year with a wholly unimpressive and undifferientiated field, and a very weak US dollar...  recession anyone?

What to do?  Our five themes as we head into 2008 for emerging tech, media and telecom clients:

• Focus - Use the 80/20 rule relentlessly - sales organization, customers, product development, cost structure, channel, etc.
• Right-size - Align your cost structure with predicted revenues, communicate to your teams another mean season is just around the corner
• Delivering - Make some tough choices organizationally who is delivering and who is not
• Partnering - Parter 'big'; find larger partners with existing capabilities you envy to access new markets and new channels
• Selling - Sell 'value' and 'ROI', get religion about it...  Don't pay it lip service, do it!

Thoughts?

Year of Wireless Data

This is finally the “year of wireless data!”  As an attendee of every major CTIA show for the past 12 years, I heard that announcement from the podium at every keynote speech since 1999.  Eight years later, it has finally come to fruition.  But why the seven years of false claims by the sages who supposedly knew the industry inside and out?

Some of it was self-promotion, some it was a true lack of reality, and most of it was wishful thinking.  However in all cases, the vision was dead on.  The actual turning point was in late 2005 when wireless convergence occurred after 6 year incubation.  The availability of:  High speed wireless data networks (WWAN’s), Devices (Smartphones, data cards & music phones) capable of operating on such networks that could be provisioned and updated over the air (OTA), and lastly, user friendly and robust applications for consumer and enterprise users.  It has taken another two years for most of the network operators to deploy their upgraded 3G networks.  In most of the top North American cities (with pops over 250,000) the roll-outs are complete.

In a recent CTIA study, for the first 6 months of 2007, US Wireless Data Revenues grew by 63% to $10.5B over the same period a year earlier.  That represents 15.5% of ARPU and nearly double from a year earlier.  These numbers are just the “the carrier take” of the pie.  When you factor in all the related businesses that also produced revenue off of this evolutionary step (Device Manufacturers, Software, Applications, Infrastructure, Tower and Content), I would estimate that the total ancillary revenue doubles that number just in the US alone for the period.

Is there a “gold rush” to this sector?  Absolutely!  Have the investments been justified? Most have!  Is it too late to get into this game?  No.  We are only seeing the tip of the iceberg in terms of “the relationship people will develop with their phones.”

IBM Bets Big On Security: Question Is How Big?

Talk has been elevated in security circles over the past few weeks since Val Rahmani of IBM announced they will spend $1.5B in the next 18 months on security technology and related initiatives.   We believe there are about 2,000 security pure plays globally, so theoretically IBM has a lot they could acquire; but will IBM acquire?  This little story popped up out of India today that leads to some speculation they could be building, not buying.  IBM has a huge channel, huge brand, near limitless resources, a ton of customers; and if I count correctly 200+ SKUs of security related products.  Across security, systems management and networking they've already purchased Tivoli, ISS, WatchFire, Consul and a ton of other stuff.  I think $1.5B is better spent on integrating what they have and going to market with a clear and compelling message how it all works together vs blowing their cash wad on a large deal or two.

Thoughts?

#9 - Perspicacity

A few days ago in this blog we kicked off a David Letterman style countdown 'Top 10 Revenue Mistakes Tech Companies Keep Making"....

Drum-roll please... #9.... Perspicacity: Is Management In Touch With It's Customers?....  (huh?) 

Management guru Peter Drucker once said that the purpose of business is to create and keep a customer.  We've been working with a lot of our clients on this theme, it's a deceptively simple idea.  To us, it's basically a question of  'is management in touch with the customers?'

In what we euphemistically call the Litmus Test of Managerial Customer Intimacy, we created a brief checklist below (with examples) to ascertain of management is in touch with customers (or if they're simply faking it)

• Percent of Exec Team time spent with customers and prospects? - Take a lead from Dave DeWalt, the newly appointed CEO at McAfee.  When Dave took the helm of this $1B security pure play, he immediately embarked on a '100 Customer, 100 Day' road trip.  One key result of that initiative was customer feedback about some McAfee product deficiencies which then led to a strategic acquisition.
• CEO at Chief Sales Officer? - Look no further than CEO Phil 'Dunk' Dunkelberger at PGP.  Try getting a hold of this guy the last month of the quarter (you won't unless you're writing PGP a check); you'll find Dunk on the road pounding the pavement with his team.
• Level of 'customer sensory skills' amongst the management team? - Remember the old PC reseller MicroAge?  It's now called KST Data and going very strong at $1B/year in revenue.  EVP Field Operations Mark 'Eddie' Edson has a reasonably narrow customer base for a company this size and he likes it that way.  His team goes very deep with a few few large clients, listens intently, and delivers precisely on customer requests and requirements.   The customer sensory skills amongst his management team is unrivaled.
• Win/Loss information in excruciating detail? - John Street and Pete Khanna at MX Logic have this one wired.  With 20,000+ customers in the SMB space and a very broad channel, they have a wealth of data they regularly pour through and mine for strategic insights how best to grow revenue.
• Customer 'fingerprints' all over new products? - Check out CEO Loic Le Meur of Seesmic.  From the first day this company launched, Loic and his team have very deliberately and intently designed the product from prospective customer input.  Let your customers vote on the next feature?  You bet.  We don't think a startup has ever driven it's product strategy so deeply by customers than the way Seesmic has.
• Breadth and depth of customer evangelism stories? - CEO Terry Gold of Gold Systems is the high water mark here.  Each time I visit their Boulder offices I get a tour down several hallways which are literally filled with framed and unsolicited customer feedback stories.  It's their 'Customer Wall Of Fame'.  Terry has molded an entire company culture around this one very visible manifestation of customer intimacy.

These are great examples of exemplary companies that are exceedingly in tune with their customers and prospects.   If you want to be intimate with your customers and prospects, it's simply a checklist if your company is walking the walk.  We're proud to work with these companies and to know them.

Stay tuned.

PaddysValley Tour Silicon Valley

Chris, Gary, Krishnan and I just hosted 25 Irish entrepreneurs in the Web 2.0 space who humbly refer to themselves as 'PaddysValley'.  They are visiting/touring the Valley this week to network, understand how to best raise capital, how to build/scale their Web 2.0 businesses, how to partner (and to shop given the €/$ exchange rate!)  Their trip this week to the Valley includes visits with Microsoft, Google, Facebook, Seesmic, SocialText, Ning... and Milestone Group!  It was really exciting to hear how switched on and plugged in this group was.  I applaud them all getting organized to coming across and making the investment, it'll pay dividends for all of them in the months and years to come.  I got a Guinness out of the deal, t-shirt that is.  Next time I'm in Europe, I'm definitely making a trip to Ireland to meet up with this group again, and collect on a 'real' Guinness, the one with the fancy shamrock foamy bit on top!  Good luck PaddysValley, you're all on the right track!

#10 - Precision and Practicality

My colleague Chris Kocher and I were having lunch the other day with a prominent VC at one of those swanky Bay Area eateries only the in-the-know crowd have programmed into their iPhones.   Talk turned to revenue and how VC's continue to be frustrated that 50% or more of all venture money ultimately gets spent on sales and marketing efforts.  This VC asked us, "so what are the revenue related mistakes you see tech companies continue to make as they try to scale?".  Funny you should ask that Mr. VC, I just gave a presentation on the East Coast a few weeks back on that very subject.

In the spirit of a David Letterman-like 'Top 10' list, we'll periodically post in this blog a countdown of the 'Top 10 Revenue Mistakes Tech Companies Keep Making".   So without further adieu...

#10 Precision and Practicality: 'Common Mistakes In The Pipeline' - Any quick review of a sales pipeline can typically reveal a myriad of problematic issues.  (Lack of) Precision and Practicality, we call it.

• Little (or no) persistence in demand generation capability
• Lack of understanding how long the sales process really is (and it varies by vertical)
• Not correctly aligning a 'sales process' (yours) to a 'buy process' (who you're selling to)
• Inaccurate/incomplete qualification process - failure to qualify out!
• Poor forecast methodology
• Overly optimistic sales teams
• Channel conflict

The disconnect between a companies revenue plan and what's actually in a pipeline can often times be a very large delta.  The seven items above, if properly managed, can yield dramatic performance improvements in the pipeline.

Stay tuned.