Unless you’ve been living on another planet or alternative reality you’ve heard that Facebook is going public.
Facebook loves to position itself as users’ friend, with only their best interests at heart.
In his founder’s letter Mark Zuckerberg said “We don’t build services to make money; we make money to build better services.”
There is far more truth in the editorial comment, “This also seems disingenuous considering that Facebook’s biggest triumph is to help advertisers by mining user data to target ads and to train them to treat corporate brands like friends.”
The exception is the 845 million people who log in on Facebook’s mobile app, “We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.”
But I’m sure they’ll find a way.
How much personal data does Facebook collect?
Consider the disk sent to Max Schrems, a 24-year-old law school student, a Facebook user since 2008, who is spearheading a protest against “Facebook’s illegal practices of collecting and marketing users’ personal data, often without consent.”
The disk contained 1,222 pages of information.
That’s a very rich vein of ore for any marketer to mine.
Privacy is a far bigger deal in Europe.
Europeans demand more privacy than Americans and the EU is far more willing to enforce that desire than the financially beholden US Congress.
That makes international monetization more difficult.
The drive for monetization underlies everything Facebook does—but that’s not what’s bad.
What’s bad is their pretense that it isn’t true.
Facebook as a social force isn’t going away, but you would be wise to remember that Facebook is not your friend.
Branding. The term is everywhere. No longer reserved for a product it refers to the organization itself.
Creating a great brand is an understandable and, at times, even worthy goal, but after creation it’s necessary to care for the brand, AKA, brand management.
Sadly, more and more effort is being made to ‘Teflonize’ brands and brand management has morphed into brand spin.
Anyone who watches TV knows that Toyota is spending a million dollars a day improving quality and, hopefully, fixing a culture that lost its way.
Then there is BP and its so-so-sincere promise to stay in the Gulf until they make it right—yeah, sure. Business Week offers an excellent view on the impact of the spill long before the oil even got near the shore.
Then there is the most Teflonized brand in the world, the Catholic Church, which I wrote about from the perspective of leader vs. manager a few months ago. The oldest and richest organization on the planet seems to be impervious—a true master of spin brand management. After all, what other brand could withstand the global sex scandals that are rocking the world and still see revenues (donations) increase since January 2010?
The purpose of brand management is to keep a positive image in the public eye, no matter how egregious the actions involved.
This is more easily accomplished than you would think, given the vast majority of the public has a short attention span, poor memory, a greedy nature—Louisiana already wants to resume off-shore drilling—and that’s when they are paying attention.
Back around 1998, I was at a VC/entrepreneur event and in the course of a conversation I commented that I’d been working with startups for 20 years. A young idiot (as opposed to an old idiot) scornfully informed me that I couldn’t have been since startups were a result of the Internet and the web.
I guess idiocy still flourishes since I was recently informed by a thirty-something idiot that startups and innovation are a function of the web.
But innovation is actually the provenance of minds that think outside of conventional parameters, with or without tech.
They are minds that see beyond what’s being done now to what could be done, sometimes with a new product, but just as often with a new process.
Brothers John and Brendan Ready are two such minds. Their lobster fishing profession may be hundreds of years old, but that hasn’t stopped them from innovating not the catching, but the sales process.
They created Catch a Piece of Maine where you can buy an annual partnership for $2,995 per season to all kinds of variations from live lobsters to just the meat.
The Ready brothers have been lobstering since they were 16, started their seafood business around 2004 ago (at ages 22 and 25) and thought up this great value-add in 2007.
To my mind it’s the best of an all-around win, the Ready’s grow their business, the lobstermen earn more in a very hard profession, and the buyers have something totally unique to share among friends, clients and business associates.
Read any savvy business article and it will say that companies would find ways to keep innovating, because in bad times innovation is what keeps you in the game—whether legal or illegal.
Contrary to popular opinion, most drug lords are concerned about the same functions as other businesses—production, logistics and especially marketing.
In an article last year, Chris Harrison, chief illicit laboratory chemist at the Arkansas lab said, “The drug cartels operate just like any other corporation would — if they want to increase their market share, then they’re going to have to change something about it. This is just an evolution. They’ve saturated the heavy users, now they are moving onto some other people.”
Meth may be extraordinarily profitable, but it tastes horrible—bitter, not particularly enticing and it’s illegal—which makes expanding your customer base difficult.
So the crooks have turned to innovation, adding color to emulate rock candy and fine-tuning the taste to increase the market.
These are classic approaches used by consumer products companies for decades to attract new customers—prunes became dried plums and the market exploded.
Dried plums are far more consumer friendly—as is meth that is sweet and tastes like strawberries or chocolate.
The innovations started a couple of years ago in small test markets, Idaho, Nevada, Missouri, Texas, Wisconsin, California, New Mexico, Minnesota and Washington state (where I live—oh joy), but thanks to a stupid hoax email are likely to spread.
The hoax email says that bags of “Strawberry Quick,” a type of meth that looks like rock candy, are being tossed into school playgrounds to hook the kids.
No, that’s not being done—yet.
But I have to wonder if the people who created the hoax cared that today’s hoax could become tomorrow’s drug marketing phenomenon.
consumer marketing has been using give-a-ways to introduce people to their products for decades; and
drug dealers have email, too—and they are big on innovation.
Because, according to CEO Tony Hsieh, “Our No. 1 priority is the company culture. Our whole belief is that if we get the culture right, then everything else, including the customer service, will fall into place.”
Zappos embodies everything I believe about culture being the bedrock of corporate success.
Not bad for a dot com startup that was given exactly one week’s worth of additional funds in which to turn itself around or be shut down.
But heaping more kudos on CEO Tony Hsieh isn’t the purpose of this post. Rather, I’d like your opinion of why cultures such as this are so rare.
Hsieh is a Gen Xer running a truly multi-generational company (I confirmed this by calling and chatting with a customre support person, not HR or an official source, just a worker) that hires based on cultural fit and skills—they carry equal weight.
The focus on culture is one reason that Zappos doesn’t have the generational management problems besetting so many companies.
The Zappos culture is a long way from rocket science and Hsieh isn’t shy about explaining how to duplicate it, so you tell me.
Who’s innovating? Why is it important to stay focused on innovation? How are companies doing it in today’s economy? Check out Business Week’s story on the 50 Most Innovative Companies and don’t miss the side bar on the 25 most innovative companies you’ve probably never heard about.
A second innovation commentary comes from consultant Peter Bregman who offers up and interesting perspective on why It’s better to be David in this economy than Goliath.
What’s happening in compensation these days aside from Wall Street bankers with dubious bonuses? Here’s the information for those of you wondering what CEOs are earning or whether it’s worth going for MBA.
That’s it for this week. Have a wonderful weekend and keep your eye on the innovation ball—that’s really what pays.
Roman soldiers were often paid in salt; this was so common that the Latin root for “salt” and “salary” is the same – sal.
As important as salt was in ancient ages, just so is data in the information age. Data is the raw material for information. Just as salt improves food, today data enhances the value of products and services.
In the two previous posts we explored how “the data is the business.” For many information age businesses, the collection, maintenance and distribution of data is, in fact, the primary revenue source.
But, based on questions from readers, I’m not getting through, so let me spell it out.
Every business collects, maintains, and distributes data.
The better businesses use data to enhance the value of their products and service.
The smartest businesses use it to generate revenue directly.
There are only two types of Databases…
At a high level, databases collect information about only two things – population identities or activity trails.
For instance, the company accounting system may be the original business database.
The balance sheet is a database of population identities – how many dollars in cash, accounts receivable, inventory, accounts payable, bank debt, equipment, and owner’s equity.
The income statement is a database of activity trails – what was the activity in sales, in collections, in payments.
The accounting system integrates these two databases into a unified view of the entire financial situation for the company.
The Census Bureau is the granddaddy of population identity databases; others include Monster.com (resumes), Dun & Bradstreet (small companies), Hoovers (public companies), MarketWatch.com (mutual funds), Google (websites and search words), to name just a few.
Databases of activity trails are just as common: stock price websites (stock price activity over time). FedEx, UPS and other shipping companies offer activity trail databases for every package they ship.
Of course, just like the accounting system integrates population identities and activity (audit) trails, the most powerful databases integrate population identities and activity trails. See if you can think of five or ten more.
There is really only one type of Database that really matters—yours
This is the key point. Your company already collects population data and activity trails for every product and service you sell. You have a database of all the products and services for sale (the sales catalog) and a number of databases that support those products—bills of material, inventories, historical demand, price histories, revisions, replacements, and a cluster of support products and services.
Your company also has a natural user and customer base for the data you collect. Customers, suppliers, service partners, and competitors all have a great interest in that data. So here already are the beginnings of a data business—a database and potential customers for that data.
A Few Small Bumps
Externalizing a database can be a significant challenge. It’s worth investing some time and even a few dollars in developing strategies for these key issues before rolling out your new business. A little planning and caution in building a good foundation will pay handsome rewards later.
Who owns the data? Does your organization have clear, unambiguous title to the data? For instance, are prices negotiated as confidential in certain supply and delivery contracts? If ownership is not clear, then how can you anonymize the data to honor the agreements? Can you change the agreements so that your ownership is clear?
How is the data refreshed? Data gets old. As the database grows data maintenance rapidly grows and soon exceeds data collection as the primary challenge. Some companies, such as D & B and Hoovers, use an army of employee agents to check and update the data.
Historically this approach worked, but the scale of modern databases has rendered the “internal data army” impractical. Consider two other approaches
automation and a
Automate the data collection and refresh. Google uses automation to refresh its database of websites. By some estimates Google has several million computers (really just CPU data blades) crawling the web to update its website database. Many other databases receive data feeds periodically from their sources. For instance, foreclosures.com gets feeds of foreclosure information from almost every county in the United States. The conversion and translation must be a nightmare, but the resulting database is incredibly powerful and a great business.
Motivate the user community to collect and refresh the data. With the emergence of web 2.0 and social networks, many companies are creating and using a user community to do data collection and refresh. YouTube.com, MySpace.com, Facebook.com, and LinkedIn.com are good examples of social network databases created and refreshed by user communities. Wikipedia.org, Jigsaw.com, and credit reporting agencies have created or adapted user communities specifically to provide business data. Travel websites such as Expedia.com use both automated data collection and business user communities to collect and present their databases of airline and hotel prices.
How do users access the data? Online access is rapidly emerging as the only method to sell data. Intermediated purchases, which require you to process the purchase request, are simply too expensive. Customers want instant access. Put the database online and develop search/selection capabilities that allow customers to find exactly what they want.
How do users pay for the data? A la carte or by subscription. Subscription is emerging as the preferred approach, both for data suppliers and data consumers. Tiered subscription access appears to be acceptable, so long as it is not too complicated.
The law on ownership and distribution of data is under construction. Quite simply, these are brand new businesses—often there are no regulations, limited historical precedents and even more limited applicable case law. And since the web is global, multiple national laws may apply. It’s complicated, so invest heavily in the two basic legal agreements—Purchaser Agreement and Contributor Agreement – to protect your company and your data. Limit your liability and do not compromise on your exclusive ownership. Others have found that shared ownership is simply an invitation to an ongoing dispute.
There is Wisdom in Metadata
If the data is the salt for the information age, then metadata is the spice. “Best selling, fastest growing, most popular, most expensive, Top Ten and cheapest” are all metadata lists generated from databases. What trends are hidden in your databases? What trends do your customers and suppliers track?
Track the trends in database businesses to identify the best opportunities for your company.
Again, please feel free to call me at 925.858.9017 or email firstname.lastname@example.org for clarification on any points.
Hope to see you in the Top Ten New Database businesses soon!
Back in the late 20th century the business model for dot-com businesses was “Attract the eyeballs (website visitors), and the business will follow.”
Many businesses executed that model, such as AOL, FlyFishing and an embarrassing host of others, almost all gone by now.
Over time the model of attracting eyeballs simplified to Google—just Google.
Since then Google has created an effective advertising model for websites that attract eyeballs. It’s called AdSense, and the model is very simple.
Attract a large number of visitors (eyeballs) and Google will monetize those visitors through its AdSense advertising program. Google selects ads that match the profile of visitors to your website, posts the ads on your site and shares a portion of the ad revenue with you.
Google keeps all the control and can limit your revenue.
Social networks and blogs are perhaps the poster children for this Adsense business. Social networks such as LinkedIn, Facebook, and MySpace generate revenue primarily from advertising.
The community creates the content that attracts the eyeballs, and the eyeballs attract the advertisers.
Blogs are only a little different. For a blog the author creates the content, rather than the community. But after this, the model is the same. The content attracts the eyeballs, and the eyeballs attract the advertisers.
Write a compelling blog and the eyeballs/advertisers will come.
Unfortunately this is a model for a lifestyle business, not a long-term business. Over time the competition increases and Google lowers the payout, so the revenue decreases.
Is there an alternative to the model of ever-declining revenue from Google Adsense?
Yes, create some old-fashioned value from the data itself.
The medium is the message. –Marshall McLuhan, 1964
The network is the computer. –John Gage, VP, Sun Microcomputer, circa 1982
The data is the business. –Richard Barrett, 2009
Previously I reviewed some aspects of new business models that are emerging to accommodate new employee-employer relationships.
Business models are also changing in response to many factors. In this post we will explore business models where “the data is the business.”
In these models, the underlying data has become as valuable, or often even more valuable, than the product or service itself. While it sounds a little odd, these examples amply demonstrate the considerable value of the data itself. In some cases the data is the product, but in other cases, the data is ancillary to the service and only over time did the supplier begin to understand the value of the data, and then to package, promote, externalize and even sell the data itself. A few examples:
Package Shipping and Supply Chain Logistics
FedEx pioneered overnight delivery, but quickly discovered that customers really wanted proof of delivery even more than overnight delivery. Proof of delivery (POD) has perennially troubled the shipping industry; the receiver claims the packages have not arrived and the shipper says “Yup, we delivered it”—leaving the sender in the middle with neither the product nor the payment. After being swamped by POD requests, FedEx went online with its package tracking service. Now you can watch your package move through the FedEx system—its location recorded by scanners at each stop in the delivery chain.
Soon after, UPS and the entire shipping industry followed suit. Shipment tracking has become a cornerstone of the supply chain (logistics) management industry, leaving suppliers no place to hide except in their all-to-visible performance.
The Power Grid
Companies producing and delivering electric power have long since mastered the ability to track and measure the performance of their production and distribution systems with SCADA (system control and data acquisition). Now they are installing smart meters which can not only track power consumption minute-by-minute, but can report it back to the company SCADA system through an internet system on the electric power lines. Soon they expect to impose “time-of-day” pricing to capture the value of power demand during peak times.
Solar City, a regional installer of solar power systems in the southwest, offers a performance monitoring service to each of its customers for a small fee. The monitoring service not only tracks system performance, but eventually will have the capability to reconcile power production with credits from the electric company purchasing the power. Solar City charges its customers for this data collection and monitoring service as part of a comprehensive maintenance package. Within a few years Solar City expects the database of solar power production to have significant value to power companies themselves and other agencies interested in tracking aspects of green power.
Tracking Consumer Preferences
Many companies make a business from tracking and measuring consumer preferences. AC Nielsen, now Nielsen Media Research, started tracking the habits of radio listeners back in 1942.
Jigsaw Data Corp has harnessed a social network to create its database of business contacts, which Jigsaw then sells to business contact consumers such as marketing departments. With a database of over 12 million contact records (really complete business cards) Jigsaw cannot even begin to keep each contact record up to date much less to continue expanding the database. Instead, Jigsaw has developed a network of over 300,000 contributors, who earn points by adding to the database and updating individual records when a person changes a job, or telephone, or title, or email.
Of course, the mother of all data businesses is Google. Its AdWords business, tiny paid ads displayed in the right-hand column in response to a user’s search words generates well over 90% of Google’s revenue. The AdWords process is amazingly simple. The power comes from harnessing the search-word data and tracking the click-thru performance of each AdWord.
Incorporate Data In Your Business
Does your company collect data in the normal course of business? Of course it does. That data has significant value to the right audience. Consider these questions to make a business out of your business data:
What data do you collect from customers, suppliers, partners?
How can you develop the data collection into a fee-based service?
How would another business use that data?
How can you package your data for consumption by others?
As you contemplate selling data you will encounter a host of questions regarding original ownership, distribution rights, payment models, privacy, and protection. But when you have created valuable data, building the data business will provide years of fun, challenge and profit.
Let me know how your team is making a business out of data. Ask your questions here or you can email me directly at email@example.com.