Scott Savage’s Blog

Online media is growing up. All the big media players (News, Fairfax etc.) are currently fighting it out with the new kids on the block, online pure plays (Google, Microsoft, Realestate.com.au etc.). The prize is the rapidly growing pool of online advertising revenue, predicted to pass the US$50 billion mark next year. Historically the provider with the most content has attracted the most consumers, in turn attracting the most customers. Eventually this network effect lead to breakaway market leaders establishing dominance and gradually raising the market barriers of entry. Holding all the content was a licence to print money.

Slowly general search tools like Google and Bing, as well as vertical specific search sites like Zillow, started gaining momentum. They established themselves as “middle men”, generating advertising while helping people more efficiently find the content they were looking for. They were not interested in hosting or contributing content, but rather focused on the delivery of that content. They realised that the front-end distribution is where the money is at, not at the back-end creating content. Google in particular understands this, and the publishers do not. The publishers hate that Google News provides a beautiful user interface to access their content easily and for free, yet despite their threats they do not block Google’s bots because they need a strong online delivery channel and half their traffic comes from search engines.

This style of reluctant symbiotic relationship also appears outside news content, it is extending further into real estate and videos to name just a few. Microsoft are attempting to flip the relationship by making Bing Video index Google’s YouTube content and Google Maps is indexing real estate content.

The big media content creators have recognised one thing at least, for the partnership to work each participant has to have a stake in it’s success (or failure). Licencing deals, share stakes and other structures are occurring left, right and centre as the various players align themselves. This “sorting out” period has amusing side effects, like media companies being on both sides of the legal fence. Eventually the flurry of deals will subside and the media companies will realise that YouTube is no different to their old printing press and delivery operation, it is a necessary distribution channel that takes a commission. If your printing press operator decided to make your boring black and white rag and turn it into a glossy high end publication that successfully retailed at twice the price (despite having the same content) then good luck to them, in the end you benefit from a more valuable distribution channel.

For now we are faced with more sabre rattling by the media companies, constant partnership renegotiation’s and declining print revenues. As with any market forces, the digital media market will eventually reach an unsteady equilibrium. Some sort of duopoly with Google/Microsoft as the distribution channels, and the old media companies aligned behind them as the content creators. It is unlikely that the print rivers of gold will be seen in one place again, but sharing these rivers over a wider and more competitive landscape will benefit consumers. Sooner or later content producers will realise that revenue is a balance between consumption price and volume, withholding content only encourages piracy and other forces that undermine their progress to a fair and efficient new distribution channel.

Seth begins his speech by saying he is going to go fast. I was initially sceptical, but now I have watched this video three times and I am still finding resonating ideas within it.

A good product should sell itself. Good products will get recommended. A personal recommendation is more valuable than a website lead. And so the circle continues. Now back to watching the video again…

How many companies clearly define their culture and HR policy in a public way? Jack Welch of GE famously held the view that the bottom 10% of the company should be fired every year, but in the days of labor shortages that would be frowned upon. That’s why it was refreshing for me to see this slideshow from Netflix. Have a read for yourself, although be warned it is quite long and detailed:

So what do I think? Firstly it is awesome that a company publishes this kind of presentation, everyone should be proud of who they work for and have no problems articulating that to the public. I don’t think there are many companies who are so upfront, open and honest about who they are (in many cases even being aware would be a great start).

In particular I liked:

• “adequate performance gets a generous severence package” - provocative but also highly motivating to myself at least. There is nothing better than being in a team where you know everyone cares as much as you do, and nothing worse than putting your heart into something that sits in someone’s “to do” list.
• Brilliant Jerks -  the cost to teamwork is too high. I have had managers who make excuses for a brilliant jerk because they hate the thought of rehiring for a person that is currently letting them put their feet up.
• Rare Responsible Person – Doesn’t wait to be told what to do, Never feels “that’s not my job”. Everyone should pitch in, no-one should feel territorial. If I am struggling I will put my hand up and ask for advice, and I expect others to do the same and welcome my input.
• Value simplicity – No-one can manage lots of small products successfully. Focus on what works, and keep making it work even better.
• High Performance People make few errors - Hire well, trust your people to do their job. Don’t cotton wool bad people and have checks and balances to make sure they don’t do damage. That adds huge amounts of waste and overhead.
• Control through context- Managers should communicate a clear strategy and whatever happens within that strategy is up to the employee.

What did you get out of it? Does your company even have a policy or statement on culture?

I was looking for good Product Management reading material, and was referred by a friend to the book “Getting Real” by 37Signals.

What did I like?

This book gets straight to the point, there is no bullshit whatsoever and it makes no apologies for that. Equally there is no room for bullshit in the product; decide a goal, keep the budgets tight, keep the team tighter, listen to the customer (at least when they bang down the door) and just execute the hell out of what you are doing.

This book is a reminder that building a product is not just about technically executing. Many usability, sales, HR and marketing issues must be addressed to deliver a successful, well-rounded product. You need to reflect this well-rounded nature too, everyone should take support calls, think of usability, write blog posts etc.

What didn’t I like?

There are however some minor things I don’t agree with. I think exit surveys are valuable, there should be a formal suggestion gathering and prioritisation process and there is a limit to how much information you should place online. If you have a mass appeal, generic app then I think these rules are a little different to someone developing a niche app for a specific market. Apart from these few items, I was nodding the whole way through the book.

Conclusion

This book embodies the entrepreneurial spirit of today’s web app developers. Put your heart into the app, and then put your app out for everyone to see. If you are a motivated person who wants to focus your vision and energy, then this book is for you.

The initial temptation when pricing a product is to use cost plus pricing, where you add a mysterious comfort buffer to your costs to work out your rate card. Articles like this one where the author advocates that “I generally start at 10x and drop the x-factor down from there until I arrive at something that feels right” scare the crap out of me. Yes, I agree that costs are extremely important and that complexity is to be avoided at all costs, but seriously put some genuine thought and research into it.

 The key point to realise is that pricing is all based on the classic supply and demand curve. This has two huge impacts:

1. Pricing needs to take into account both supply (competitors) and demand (consumers)

Spend some time doing research on your competitors. Get their rate cards, not just word of mouth evidence. Your sales people will often be given rate cards by prospective customers, there is no vendor loyalty when a customer is negotiating hard and you should benefit from that where you can.  If it is a new product and you don’t think you have competitors, think again. You actually need a competitor. Humans decision making is an extremely relative process, so it is important to establish in the consumers mind who your competitors are and why they should change their mind. Take this TIVO example. There were no competitors when TIVO came on the market. The closest two existing products were a $100 VCR and a $1000+ computer. No prizes for guessing which device they compared themselves to.

Sometimes it takes a bit of trickery to associate your new product with the desired pricing benchmark. The most infamous case is cited in the book Predictably Irrational. James Assael was the “Product Manager” for Black Pearls, a product were not only completely unknown, but also proved unwanted. So what to do? 

 James Assael could have dropped the black pearls altogether or sold them at a low price to a discount store. He could have tried to push them to consumers by bundling them together with a few white pearls. But instead Assael waited a year … and then brought them to an old friend, Harry Winston, the legendary gemstone dealer. Winston agreed to put them in the window of his store on Fifth Avenue, with an outrageously high price tag attached. Assael, meanwhile, commissioned a full-page advertisement that ran in the glossiest of magazines. There, a string of Tahitian black pearls glowed, set among a spray of diamonds, rubies, and emeralds.

“The pearls, which had shortly before been the private business of a cluster of black-lipped oysters, hanging on a rope in the Polynesian sea, were soon parading through Manhattan on the arched necks of the city’s most prosperous divas. Assael had taken something of dubious worth and made it fabulously fine.”

Today this happens all the time. Apple introduced the iPhone at $599, then only 2 months after launch they cut the price by a massive $200 to $399. They set their price benchmark, and then slash the price to rapidly accelerate sales volumes with a heavily “discounted” offering. This brings me to my second point.

2. Pricing is not a straight line, linear pricing models do not work with scale

Apple also slashed  the iPhone price after only 2 months to drive those critical initial sales volumes as early as possible. As your production scales your costs are exponentially falling, especially when a product is being brought to market for the first time. This also reinforces why cost plus pricing is an impossible task, to be accurate your price would need to be different for each individual unit you sell. 

This scaling effect will also cause problems on the demand side. Put simply, cost plus pricing will cause you to over-price your product when there is a weak market and will cause you to under-price your product when there is a strong market. Again this is due to the curved nature of the demand curve, a straight line simply doesn’t fit.

Prices represent single points on a graph, so how do you create points that form a curve? You need an end-to-end product portfolio.

Conclusion: Plan an end-to-end Product Portfolio

The first key is to segment your target markets. You then need to set a goal for what you would like to achieve in that market (low end market share, diversify customer profile, leverage brand etc.) and scope a product to suit both. If you understand your target market you are understanding the demand curve, by figuring out what you have to offer you can determine the supply side of the curve. Add-ons are a great example of being able to target different markets without straying too far from your core focus.

How many add-ons should you have? The paradox of choice suggests that 3 to 6 choices is about the right number, otherwise the customer starts to get overwhelmed with the sheer number of comparison decisions being made.

You can make things even easier for the customer. 37Signals recently blogged how a simple (and not so subtle) change of their account selection screen to promote a particular product from their range greatly helped people make a quick no-fuss decision.  Even the order of the pricing can have a big effect, so don’t start thinking that once you have a price that you are finished!

In the end your rate card need to be treated just like your product itself, you need to keep testing it against the market and making sure you are still fitting the curve. Simple delivery and accounting practices help here, so don’t overcomplicate things.

MasterChef has been a huge surprise hit in Australia. The TV ratings have been sensational for Channel 10, with an average of 1.96 million viewers nationally (not bad from a total audience pool of just over 20 million). What keeps this average so high? The key, ironically, is the stickiness created by the side dishes. The MasterChef website gets an equally, if not more, astonishing 2 million views per week.

This website content is what keeps people engaged. Full show episodes stream very quickly from the site not long after screening, letting you catch up if you have missed an episode or just feed your addiction. Every recipe on the show is uploaded and available for those at home to have a crack, and beautiful images are cycled past the viewer. The taunt of “Can you master this MasterClass dish?” next to a picture of a beautiful coffee eclair is a great teaser to engage those at home.

The engaged community that has been built can be confirmed on Twitter. There doesn’t seem to actually be an official MasterChef twitter account, but that hasn’t stopped loyal fans creating unoffical ones and swamping Twitter with comments about how hungry they are, which recipes they love and who they want to get kicked off. The episode finished over an hour ago, but tweets are still coming in faster than one per minute. I really hope someone is monitoring this community really closely, what a great way to get feedback on the franchise directly from your customers.

Even if they are not monitoring the Twitter community, they will at least be monitoring their public forums. Yet another nod to the importance of communities in building a loyal following behind a brand. Over 30,000 posts proves that people are enjoying it, and breaking down the forums by participant gives a great selection criteria for the next season’s contestants (rumoured to be celebrities). Finally, they also have a Digg-like rating system on each recipe, so again the community can feel engaged and contribute back to itself.

How do you then cash in on this community? The product integration with Coles is subtle yet very effective. Recipes have a cost from Coles listed below them, for example this tasty soup is a mere $3.50 per serve. The PDF that you print to take to the shops of course has a Coles logo in the top right corner, as well as any notes about whether Coles stocks the item or not. They could have even taken this to the nth degree by having “MasterChef Prefilled Shopping Carts” from Coles Online, what armchair chef doesn’t want the ingredients delivered straight to their house? Even better, you could pre-empt the episode and deliver the Mystery Box challenge ingredients on the night of the Mystery Box episode! Now that would be challenging our engaged community.

The only thing that Channel 10 have done wrong, is screen Biggest Loser USA directly after MasterChef on a Sunday night. Then again, for some reason Biggest Loser makes me hungry too…

Telstra went all quiet after they got kicked out of the National Broadband Network tender, apart from a few whimpers about not caring anyway.

Everyone thinks the value is under the ground, in the pits around the nation. More specifically the value is in the copper, or rather it is if you are proposing the cheapest possible national roll out via VDSL. Telstra has been under investing in this asset for at least 20 years, so maybe the value isn’t really there?

One way or the other this asset will end up back in the NBN’s hand, and Telstra has always known that and milked it for every cent it can. It will eventually lose it though; through a Telstra’s lawyers dead hands, structural separation of Telstra, a massive compensation package or some combination of the above.

This is all part of the plan and a distracting safety net as far as Telstra is concerned. This was revealed this week with Telstra’s decision to upgrade its cable network to 100Mb/s, hidden in the fact that now they will deliver PSTN calls over the cable. Optus have been doing this for a while to avoid Telstra copper, but ironically Telstra is now trying to avoid copper too. They want to make sure no spare cent ends up in the hands of the new NBN owner.

So what’s next for Telstra? Telstra will lose the copper lines, keeping their high margin fibre customers (migrating them off copper PSTN lines) and getting a nice gift from the government to give them breathing space. Next steps are to capture as many high margin Metro customers as possible, and clean up the rest with NextG (maybe delivering VoIP over NextG?).

In the end though, Telstra’s plan will only work if the customer’s embrace it. A patriotic duty to support a national network will be hard pressed to overcome the Telstra brand and aggressive marketing and retailing. The economies of scale are being pressed from every side possible.

InsideCRM posted a good article on the top 5 reasons why a CRM system increases in importance during a recession (the US is in one, it is only a matter of time before Australia and others admit they are in one too).

For me, the key is working smarter not harder. When unemployment starts creeping up people start getting stressed about their jobs and start burning the midnight oil. Here is how a CRM helps you achieve more without burning yourself out:

1. You can slice and dice your customer data to target the customer segments that aren’t suffering so much or have fallen through the cracks in the past.
2. Customer retention is easier as you can track and schedule catch up emails, meetings or calls.
3. Customer wide cross-sell strategies can be more easily implemented and coordinated.

Many companies have implemented a CRM system because it is easy to demonstrate reduced data entry, documenting customer complaints or managing product inventory. During a recession, companies should be looking at the analytical and other tools that have gathered dust within your CRM during the good years.

So what are some facts that can motivate you? Improving customer retention by 5% can boost profitability by 25% to 95%. Sales force automation and a consistent sales process has been shown to increase sales per representative by 30% over a three year period. Still not enough reasons?

Well what are the top 3 reasons why now is a great time to go through a CRM implementation?

1. CRM retailers are hurting like everyone else, prices are better than ever.
2. Excess capacity within the business can be used to scope, build and train on a new system.
3. Business model change is slowing as new entrants fail to gain VC or other funding. This gives you some breathing space to document your current business model and tighten the screws.

There are a ton of Gen Y related articles being written these days, it seems everyone is trying to grapple with this ‘problem’. I read an article today on the MyCareer website which I thought was more perceptive than most, probably because it actually had quotes that I could relate to. The key quotes for me were:

(Gen Y) have always had security, shelter, money and they are
expecting the same things in their work,” he says.

“You find gen Y is choosing employers based on the types of training and development programs in place, but more importantly on the types of leaders that are in an organisation.

I guess my take on it is that although we take some things for granted (you only have to look at the unemployment figures to understand that), what really makes us tick is a clear development path. Keep challenging, training and giving responsibility and we will provide larger and faster ROI than you have seen before.

I guess the downside is that this progression has the ability to corrupt as well, and spoilt brat syndrome scares the pants off some employers. Clearly some writers have had bad experiences, but I would like to think that this was the exception rather than the norm. So don’t spoil your Gen Y with salary and cute projects, give them real challenges and keep up the communication and respect. Is that so complicated?