Rethinking the Tip Jar

I picked up some coffee the other day at Birch Coffee near our offices and encountered this tip jar (yes, I tipped for LOTR):

Tip Jars @ Birch

Aside from this being a creative way to ask for tips, I am willing to bet that this tactic is more effective than a standard tip jar.  Instead of asking explicitly for money, the staff here cleverly made tipping a game.  It was actually fun to tip the Brich folks, I got to simultaneously vote for my preference.  In it’s own way, this tip is about the tipper as well.

There are so many things in the world of business that are set up and executed without any creativity applied. This inspired me to try to rethink assumptions on monetization with some of our companies.

Retail is Dead, Long Live Retail

There’s a pretty good read in the Economist this week on ‘making it click‘ that convincingly makes the point that the Internet presents little opportunity for retailers.  This is an over-simplification of the point of the article.  The author also discusses opportunities to for traditional retailers to use the Internet and mobile in innovative ways to support their business, but overall it seems like the web is not a home for traditional retailers to make huge profits.

Terry Lundgren, the CEO of Macy’s, claims this isn’t true and that ‘omnichannel’ retailing will remain the future. He contends that catalogs, then tv selling, were both supposed to kill off retailers but never did.

Mr. Lundgren makes some good points, but dis-intermediating traditional retailers from the manufacturing chain is exactly what the Internet is made to do. People go to retailers because they can scoop up a bunch of brands and products from a single location.  This value proposition falls apart when moving from one store to the next is a click away.  I believe Amazon and Google Shopping are slowly proving this out.

I also think there are two contrary ideas when thinking about the web and retailing:

• There’s no point in having retailers if manufacturers can reach customers directly through the web because there are no opportunity costs associated with moving from one environment to the next, however
• There is still significant value in curating selections for customers and presenting products in an environment that helps them make good decisions. This was previously the roll of the publisher, but the current online advertising ecosystem doesn’t sustain great content.

There are billion dollar ideas buried somewhere in this sea change.  I think Pinterest is the closest to making a real play in curated commerce an I’m excited to see where it goes.

Segmentation and CRM

I recently had an experience with customer service at Apple that reminded me of lessons I’ve learned on segmenting customers.

My iPhone broke after a few months of use; the home button stopped responding. The last three months in my life have been hectic, so I just worked around the problem for a while.  By the time I got around to going to the Apple store, my warrantee had expired about a month earlier and the sales manager told me it would be $150 to replace it.

At the risk of sounding like a jerk, I spend a ton of money on Apple products. Between work and my personal computing, we have three Macbook Pros, two iPads, two iPods, two iPhones, a Mac monitor and a bunch of peripherals like keyboards, music, in-app purchases, etc. I’ve also been buying Mac products since the late 90s.  As I attempted to negotiate with the genius bar manager, I gave him the inventory list of Apple products that we have, to which he replied “well, we treat everyone the same”.

Really?!?

This is money left on the table in my opinion.  Every non-commodity supplier, not just service companies, should leverage some type of customer relationship management technology and/or processes to ensure that they don’t treat all of their customers the same.

Think about it from the Apple example:

A number of iPhone users purchase a single Apple product which is subsidized by a carrier.   A  lot of those customers will move to Android for their next phone.  Not all of them, but a bunch.  A one time iPhone consumer will gross $600 in revenue for Apple: $200 from the customer and $400 from AT&T. Apple runs a 26% profit margin, so for a one time apple purchaser, Apple will pull $126 in total profits from that customer, then say goodbye.

Assuming that I continue on my current Apple purchasing trajectory, I would probably get a new laptop every three years, a new phone every two, and a new tablet device every few years (let’s say four).  I’ll hopefully be around for a few more product cycles, but just taking the next 20 years that’s about six laptops that we can  round to $2,000 each, ten phones at $600 each and five tablets at about $600.

Assuming that prices don’t rise for 20 years (woohoo!), and using a discount rate of 8% (good luck finding 8% returns anywhere), then my present value in profits to Apple is about $3,000.  

Device
Laptop	$14,000
Phone	$6,000
Tablet	$3,000
Total Revenue	$23,000
Total Profit (26%)	$5,980
Discount Rate	8%
Present Value of me, in profits, to Apple	$2,942

 

 

I’m consistently perplexed as to why companies work so hard to treat everyone the same, especially when they have so much data to work with from existing customers’ purchase behaviors. I made this discount model in two minutes using excel.  Apple has all of this data and is the biggest tech company in the world, but doesn’t bother to do anything with it.

I unwrapped my first Android phone today. It wasn’t an effort to spite Apple, and the reality is that I’ll continue to purchase a bunch of Apple products. With that said, it’s surprising to me that Apple and lots of other companies don’t make better decisions with the ocean of data that they have on their customers.  I believe there are big opportunities for companies that leverage customer data in smart ways and learn to extract full lifetime value.

The Rest of the Story: Revisiting 2011 Predictions

Happy New Year, all.  Here’s to another twelve months of limitless possibilities in 2012.

A year ago I wrote a post on predictions for 2011 and listed five meta-trends that I saw transpiring in the world of tech and media.  I thought it would be a good idea to bring them back up and discuss what happened and what didn’t.  It looks like the obvious stuff happened (although I would welcome contrarian viewpoints), but some of the more nuanced predictions fell flat.  Later this week I’ll write some predictions for 2012, but for now here’s some analysis on how this past year panned out:

Prediction 1: Exponential growth in the U.S. smartphone market.

This was the low hanging fruit of predictions and to a large extent it’s safe to say that this happened.  According to eMarketer,  aggregate U.S. smartphone penetration jumped from 26% in 2010 to 38% in 2011.  That’s the biggest jump we’ll see as adoption slows YOY through 2015.  Of particular interest is the increased adoption in the 35-44 and 45-64 cohorts of the population.  A big question we should ask is how this group intends to use smartphones in the coming years, and what types of mobile services can we offer them?

Prediction 2: An increase in mobile gaming, but a decrease in pay-for-app models.

This prediction largely played out as well (don’t worry, I’m wrong about everything else).  I think this graph from Flurry is the best visualization of the sea change that’s happening in gaming:

This graph came from a great piece written by Flurry’s GM of games, Jeferson Valadares,  who identifies why this strategy is useful to game developers.

Flurry data shows that the number of people who spend money in a free game ranges from 0.5% to 6% depending on the quality of the game and its core mechanics. Although this means that more than 90% of players will not spend a single penny, it also means that players who love your game spend much more than the $0.99 you were considering charging for the app.  And since you gave away the game for free, your “heavy spender” group can be sizable.

This ‘sizable’ group can drive the business value for your game, and the free-to-try model drastically lowers acquisition costs, keeping your funnel lean and activity high.  I expect this trend to continue for non hit-based games (think casual gamers) in 2012.

Prediction 3: Continued adoption of cloud-based productivity apps by businesses

2011 saw a number of companies make this bet in various industries, and I am confident that cloud-based applications will continue their adoption curve into 2012.  Was 2011 the breakout year for this change?  I think the jury is still out on that and I’ve had trouble finding hard data around this either way.  If anyone has real data on this in terms of customers or revenue I’d love to check it out.  The best piece I’ve found was this NYT article on SAP, but it doesn’t really size the market shift.

One observation that I had this year was that consumers are starting to bring their preferred apps into the workplace.  I didn’t see this as an entry point for enterprise businesses, but it looks like companies like Evernote and Dropbox are going to make their way into the workplace not through the traditional, long sales cycle that enterprise apps make to businesses, but through consumers just adding them on to their computers and demanding that they be permitted to use them.

Chris Dixon correctly points out that the user and the buyer in enterprise are different people, and I think that explains the drag in adoption pretty well.  We’ll see what happens in 2012, but this change is definitely on its way.

Prediction 4: Fragmented social networks

Last January I predicted that people would want more choice in how they share content and who they share it with.  This largely hasn’t happened yet on the web.  Facebook continues to grow at shocking rates considering the law of large numbers – I think they’re predicted to grow over 8% in 2012 according to eMarketer.  In defense of my prediction,  Google seemed to have thought the same thing and made a big bet on Google+ and the ability to develop ‘circles’, which are essentially micro-social networks.  We’ll see how this plays out in 2012.

Another note, when it comes to mobile I think we’re going to see an increase in demand for smaller networks.  Path reached over 1M users this year and released a beautiful iOS app.  Two mobile networks in the K2 Portfolio, Sonar and Tracks,  are both focused on unique mobile networks and are seeing incredible traction.

Prediction 5: Flat adoption of mobile coupons

This was flatter than most predicted, or hoped.  I think the best example of this lack of pickup would be Groupon Now: Groupon’s mobile solution. According to Yipit, when Now launched in May of 2011, Groupon predicted that mobile deals would represent 50% of Groupon’s sales within two years, but it has largely failed to deliver on that promise-  Now has been less than 1% of revenues in North america so far:

I don’t think there’s a question of whether or not mobile coupons will become a driving force for consumer behavior in the future.  However, timing is everything an 2011 was not the year for widespread adoption.

That’s is for 2011. Overall the big trends that we saw forming up a year ago have largely played out as predicted.  I’ll put some predictions around 2012 later this week.

Thinking Big

I love this vision slide from Zynga’s Road Show deck.

You cannot build a big company without thinking like this:

Processing Final: Twitter DataVis Application

I’m finishing up my class in computational media at NYU’s ITP program. I have to say, it’s been an awesome experience and it’s gotten me excited to learn Javascript as a next challenge. I’ll probably start at Code Academy and work my way into more advanced topics and lessons.

A few takeaways that I’ve gotten from the class:

1. The web is an awesome place of infinite possibilities.
2. Despite the current movement of learning everything for free online, having weekly assignments that I had to present in front of the class kept me on track and learning.  ITP also offered an environment that was conducive to creating, a community that was phenomenally supportive and a professor who kept the conversation moving forward.  I think educational solutions like Kahn Academy are helping to structure the online learning process, but nothing beats having to show up, sit down, turn your phone off and learn. I’m a huge believer in traditional classroom work and, while I think the Internet can definitely enhance the current model, it will never replace it.
3. Basic coding skills should be an absolute must for anyone who hopes to found a web-startup.  You don’t have to build your own site, but you need to understand the process.  The same is true for developers learning business development and strategy. For example, I am better at excel models because of this class, and I can better communicate with technical teams.  I plan to continue my investment in programming and I expect it to pay dividends in the future.

For my final we had to build something and present it.  I wanted to build something that helped me visualize data in a new way, and based on my experience in social I wanted to play around with the Twitter API.  So, I built an application that allows a user to put in a Twitter handle and then receive a sorted list of words used to @reply that handle,  sorted by frequency. Here’s a walkthrough of the application using Charlie O’Donnell’s handle (@ceonyc):

Here’s another visualization of @replies to Gary Vaynerchuck:

As you can see, it needs a bunch of work before it presents real value.  On the upside, I was able to dynamically access the Twitter API, pull and sort data, and display it.  I’m looking forward to continuing to build on what I started at ITP!

Joining the team at K2

I’m very excited to announce that I’ll be joining the team at K2 Media Labs on a full-time basis in the coming weeks.  K2 is an early stage private equity fund that invests in startups focused on the connected consumer.

The Company is a bit of a hybrid, in that it makes early-stage investments and also incubates companies in-house.  My day-to-day job will include working with CEO Daniel Klaus and Chairman Kevin Wendle on due diligence, planning and implementing strategies around new startup investments, as well as working in a supporting role with the current portfolio companies.  On the investing side I hope to build on what I’ve learned from Joe, Nikhil and the rest of the team at Softbank Capital, and from my time learning from Jerry Neumann at NEU VC.  From an operations perspective,  I’m hoping my time in business development, social marketing, product development, and my background in media & entertainment has given me a foundation of experience to be a value add to the incredibly talented group of entrepreneurs at K2.  I’ve spent lots of time selling services to businesses, and building in mobile and on Facebook.  While I still have limited knowledge and tons to learn, I hope that the skill set and network that I’ve built will be helpful to the entrepreneurs I will work with.

Aside from the in-house team at K2 , the fund has a phenomenal group of investors and advisors. Overall, I could not be more excited by the opportunity to learn from this team.  There aren’t many opportunities to work on both the investment and operations sides of early stage businesses, so I feel incredibly lucky to be here and I can’t wait to hit the ground running.

I plan to invest more time and energy into this blog, posting more often on topics covering startup operations and early stage investing.  If you ever want to connect, you can find me at christian[at]k2medialabs.com, or on twitter @nycsteady.

Creative vs. Data: An Autumn Smackdown

Digital marketing strategy is changing the way consumer brands and enterprises have to think about content.  That’s been true for some time, but there are two main reasons why ‘this time it’s different’:

1. Like never before, data on the internet is so widely available with every activity, the desire to leverage it is (or should be) natural.  IBM released a study last week after interviewing over 1,700 CMOs globally.  The number one headache identified for their future?  The explosion of data that’s occurring in their worlds (incidentally, social media was number 2).  Over 70% of CMOs reported being underprepared to manage the data.  That’s a staggering percentage…
2. Media consumption habits have changed so drastically that the volume of content a brand must create in order stay relevant in real-time conversations has gone up exponentially, but the relationship between creative spend and measurable ROI has decreased.  In other words, everyone needs a higher volume of less expensive content than they used to.

My instincts and training, and the above data points, scream that using data is infinitely smarter in the long-run than using hunches to produce content.

The contrarian point, though, has its merits. For one, we’ve been using qualitative insights to sell things for centuries.  So what’s wrong with good content ‘just being good’? After all, doesn’t the insistence of data in everything we do take some of the magic out of the equation?  The most eye-catching  ideas I’ve seen come out of creative agencies were less about data and more about bright shiny objects.

I’ve been teetering lately between the idea of ‘creative’ content development versus data driven decision-making.   I don’t believe these are mutually exclusive, and the best future content creators will leverage data to create content, but there are some differences. Having spent some time on this, here’s what I’ve come to learn over time:

1. Bright shiny objects close deals.  Everyone wants ideas, a new hotness. Content experts with a high EQ and an intuitive understanding of  emotional pull have a tendency to win when it comes to meetings. There are a lot of biases in the way we present ideas that lend themselves to the ‘PRETTY-PICTURE-BOOH-MATH’ approach to marketing.  The first is that we’re still presenting creative concepts with meetings that we give titles like tissue sessions. Imagine walking into a pitch with a tissue covered board and unveiling a spreadsheet, then talking about segmentation.  Snoozer.
2. Data keeps business relationships alive.  After the party,  when the bright shiny object wears off,  marketers are always struggling to grasp ROI.  As I was writing this, I stumbled across this article on Moneyball for the Consumer Web that talks about how Rent the Runway employed data to determine the 19 variables that are important to their customers, including color, designer name, dress length, time of year, occasion/purpose, age of renter, body type, neckline, model wearing dress, price.  Now, let’s pretend you need to manage a Facebook Page for Rent the Runway, or write a blog,  or create content to get into other bloggers’ hands to help spread the word.  Do you think that having those 19 variables would be helpful in developing your content calendar?  I would imagine that one could write a few articles on each variable and build a post per week that would be relevant and keep the content flowing (and relavant).

So, from a marketing agency perspective, both elements are important, but I would venture to guess that we spend a disproportionate amount of money on bright-shiny objects, and not quite enough on the data side of our businesses.  I expect this to change drastically in the near future.

Learning Processing….and So Much More

When you finish up at Stern you’re allowed to take a ‘free’ class (I hesitate to say it’s free because you’ve already made a tremendous investment in the MBA, but you don’t pay specifically for the credits to one class).  I took advantage of our ability to go outside of Stern and I signed up for the Introduction to Computational Media Course at the Interactive Telecommunications Program school in Tisch.  To say it’s been enriching to spend Tuesday evenings in the ITP school would be an understatement.  Learning new skills in a creative environment has really helped me in all aspects of my work.   I don’t think that I could have identified what I would gain from being in the class before taking it,  but looking back it’s very clear to me that this has been a immensely valuable experience.

There’s a mentality that I think a lot of upcoming business executives accept that is career-limiting.  I believe that there’s an over-emphasis in our graduate level schools on gaining depth within a functional area,  or only focusing on training and coursework that directly relates to your career path.  While I agree that’s the primary purpose of a graduate degree, I think a lot of value can be unlocked by learning completely new things that at first glance appear unrelated to your current skill set and career goals, especially courses that are creative in nature.  Intro to Comp Media has been that experience for me.  For everyone outside of an academic program, I’d encourage you to check out a skillshare class.

Back to my rudimentary coding skills. Processing is a computer language that’s primarily used by visual artists.  For our last assignment, we had to create a ‘chance composition’ using the object-oriented approach to development.  I made a pretty ridiculous looking space ship that meanders it’s way through some random stars.  Overall, nothing to write home about.  However, re-learning some of the fundamentals of coding has really helped me communicate with the real developers that I work with on a daily basis, and it’s been a great experience to get outside of my comfort zone.

Connecting the Dots

A couple weeks ago when Steve Jobs announced his retirement, I did a little research to try to sum up my takeaways from his success.  One of his stories was about taking a calligraphy class in college, and how that class gave him enough knowledge in the subject to create font sets in the first Apple products (which were later copied by Microsoft for Word).   At the time when he took that class, he had no idea how or why that class would be useful. Only when Jobs looked backwards he was able to connect the dots.

Jobs’ belief that ‘you can only connect the dots looking backwards’ struck me when I heard it, probably for the same reasons that it resonates with all of us. We all like to believe that everything we do has a deeper meaning, that every experience is building to a purpose and therefore no time and energy is ever truly wasted.  I like to think that way on a personal level,  but I also think this can be applied to entrepreneurship and product development.

Businesses are products of several environmental inputs:  the entrepreneurs behind them, the industry that they serve, the macro-economy, the trends at the time, customer needs, etc.  I believe many budding entrepreneurs, especially in the MBA communities, spend a lot of time thinking about these inputs and putting them into their business plans.  I think this is smart work to do.   You want to make sure that the market exists and is big enough to make your effort worthwhile.  With that said, there’s a limit to the value of doing this exercise and very few people seem capable or willing to take the next step, which I believe is creating a minimum viable product for early adopters to see and give you feedback on.   There’s a limited amount of planning that can be done in the startup phase, and much of entrepreneurship is based on experience and a ‘hunch’ that there’s some white space where you’re attacking.  5% of your learning will happen in the business planning process, 95% of it will happen when you start building.

In software, this process is called iterative development, or the agile method.  Here’s a quote from the wiki page:

The basic idea behind the agile method is to develop a system through repeated cycles (iterative) and in smaller portions at a time (incremental), allowing software developers to take advantage of what was learned during development of earlier parts or versions of the system. Learning comes from both the development and use of the system, where possible key steps in the process start with a simple implementation of a subset of the software requirements and iteratively enhance the evolving versions until the full system is implemented. At each iteration, design modifications are made and new functional capabilities are added.

Creating a feedback loop that includes early adopters will allow you test many of the assumptions that you’ve made in your business plan.  It also allows you make changes to your business model based on what you’ve learned.  When we built Crowdstream, we weren’t really sure what was going to resonate with artist managers or with fans.  It took four iterations to get it closer to right and we’re still iterating.  The product that we have today is vastly different from the product that we originally designed, but looking back its easy to connect the dots.