Thoughts on pricing (yourself, products, and services)

Just finished a project, which gives me a few days to reflect, work on my personal business-plan, aka career philosophy, and write blog posts about pricing and stuff. A few months ago, I purchased the second edition of the book “The Strategy and Tactics of Pricing.” It’s a really good read, though also a complex one—I’m on page 80 of 450, and I started reading in December! That said, having been exposed to setting my own prices for the services I provide, also taught me a thing or two already.

Understanding pricing really means two things: understanding the numbers and understanding the psychology behind why people are willing to charge or pay x amount for something. The difficulty is mainly that information is incomplete. I can’t judge 100% what contextual factor made a customer decide to go the other way, or why the competition charges 3 x less than my product. At the same time, this fuzziness also means that pricing is not just a matter for the “finance guys,” it’s a matter of doing your homework, experimenting, and some instinct.

Pricing itself is a subject that is actually relevant to everyone [I'm excluding millionaires here, though they may consider the price of their yachts and Rolls Royce's sometime]. It’s something that matters when pricing yourself (what is a fair wage or fee for people to pay you?); when pricing products and services; and when considering paying for products and services (why does a certain price seem to high or like a good buy?).

Pricing yourself

According to my nice bible on consulting, there are three main ways that I can set my own prices. I can work on an hourly / weekly / monthly / etc. fee, I can charge a single fee for the whole project, and I can be paid for reserved time [aka, I set aside x amount of days per month for client y]. Consultants typically charge a lot and that is not for arrogance reasons. Rather, one factor is the amount of risk that you incur. By committing to one client, who may only need you for an undetermined amount of time, you risk forgoing other income. Hence you charge more per project. Something like reserved time over a longer period of time would be less risky, hence you can charge less for that.

Of course, it’s also a matter of what value you bring to the table, which is really a two-edged sword: is the value that you bring, the skill-sets that you have acquired (and which cost you money to acquire)? Or is it the value that your client attributes to it? It is always the latter, though if that value is lower than what it costs to produce it, you’re making a loss and should rethink your business.

Similarly, it should optimally be so that when you apply for a job, you have an estimate of the financial value that you bring to the company. This isn’t always made clear, often you have a salary-indication showing what you are worth to them, but your value-contribution may very likely be higher (or lower) than what is expected. Negotiating in such a situation requires sufficient knowledge about that value—yours and theirs.

Pricing products and services

The mechanics of pricing here is much the same, though perhaps simpler to understand. At least, from a cost-perspective, which should be just a matter of adding up the ingredients and the (wo)man-hours. But cost in itself does not tell you enough. For one, there are economies of scope and scale. Second, there are avoidable costs. And third, we live in a era where the cost of (re)production can often be minimal [I should note at this point, that the edition of the book that I bought is from 199X; a 4th edition came out in 2005, which, I imagine, approaches the digital economy more].

And of course there is also the matter of the competition (cost-based pricing only works well in monopolistic situations—”it costs what it costs, what are you going to do about it, punk?”) and, again, the value that the customer places on your product. But this kind of interplay can be really complex and is exactly why I decided to read this book.

A note on the avoidable costs part. Recently, I was looking for a laptop-bag and came across what I thought was a great deal. Everywhere I looked the bag cost €40. But one place had it for €25. Without thinking I added it into my basket [this is e-commerce] and wanted to order it. Until I saw that sending it would cost €20 [other's charged €5], bringing it to the same sum. This was actually a coincidence, as they charged €20 for sending other products as well. Why does one company charge much more than others for sending materials, but less for the materials itself? My acquired wisdom taught me that this is because it encourages people to buy lots of products at once. Because people buy a lot, the store has to store less inventory over time, which represents a saving that it can translate into the cost of its products.

The inventory cost is an avoidable cost that you, as a store, can tweak up, down, or away. Just like you can outsource certain parts of your operation, etc. etc., you can make decisions on an organisational level which will have an effect on your costs. And because your costs don’t matter to your customer, the value that he attributes to your product does, you have to change your costs and margins to match that picture. Did that make sense? I had to re-read that part of the book a few times to get it myself, sort of.

The price that you and I are willing to pay

While marketeers would like you to think that this is all a psychology game, it is in fact still a psychology + numbers game at this stage. When my income is low, making a purchase that consumes a large percentage of it, will make me very price-sensitive and vice versa. If I use an app that saves me x amount of time [allowing me to earn more money], then that app has a certain value to me relative to that.

But there are psychological aspects as well. My Mac, for example: I know it saves me time to do what I do (=financial value). But I also feel good about being on a Mac (=psychological value). Or the digital SLR I am planning to buy. I briefly browsed the second-hand market, but abandoned the idea because I value the security of buying a new product. My expertise in cameras is too low to place my faith in a second-hand camera, even if it is half price. Had the new Mac not come out recently, I would’ve probably bought a second-hand one, because I know about 10 different tests to make sure that it’s ok. The product’s reputation is a factor, but so is the customer’s expertise.

Setting a price is a matter of what value it has for a customer—real and imagined—and good marketeers can position their products wisely to convince customers of that.

Final thoughts

Don’t worry! Tech it Easy won’t become a pricing-orientated blog anytime soon. As interesting as it can be, it doesn’t quite hit that mainstream nerve, I don’t think. For me, it is just another puzzle to solve on the big canvas that is life. And perhaps, I made you curious about it also? If so, give me a buzz in the comments or send me a mail. As I’m here to learn, I’d love to discuss any questions you may have about this!

Vincent

Challenges of Collaborative Filtering

Previously Vincent wrote about collaborative filtering here on Tech It Easy and made a really good business case on the topic of user-generated content (UGC) versus Expert input. Here, I’ll go a bit more deep into the ways collaborative filtering is done and what are the challenges.

For simplicity, I have divided the ways to filter in two. There’s the Pandora way, where the approach is that a song can be explained by about 150 different genes and recommendations are (in very simple terms) other songs in the neighborhood in that multi-dimensional space. To accurately achieve this, they use expert opinions. Then there’s the Amazon, Last.fm, Netflix et al. way of clustering users with similar histories and recommending what other people in that cluster have liked.

The huge difference in these approaches is best illustrated by the fact that for the Pandora way to work, you don’t actually need any users. The expert’s role in the latter way is to somehow come up with a way to model these clusters accurately.

The latter is much more interesting, because it’s always a challenge to infer anything from user data. The Pandora way’s “only” major challenge is the assumption that people like similar things (ie. how big the searched neighborhood should be).

The other main reason for interest in the Amazon/Netflix way is, of course, money. The $ 1,000,000 Netflix Prize is, simply put, a hunt for a certain RMSE (root mean squared error). When described this way, some interesting questions arise.

 

For the record, I liked Napoleon Dynamite

One question I think is important is what’s the theoretical limit for accuracy in Netflix’s case. In other words, let’s assume that all users at Netflix rate fully rationally all and only the movies they have seen on a cardinal scale. That’s a pretty heavy load of assumptions and I’m pretty sure that’s not all. That’s why even though Netflix could accurately forecast the data it wouldn’t mean it mirrors users’ true preferences. So, what actually is this upper limit on accuracy, or lower limit on RMSE, in Netflix’s case is a good question.

 

For these reasons it shouldn’t be surprising that “just a guy in a garage”, a psychologist employing behavioral decision making assumptions instead of hard rationality, could get so good scores in the Netflix Prize. A pretty good story on that was in Wired a while ago.

For the reasons above, it’s also pretty backwards to think that the problem is fitting the data into the algorithm, so I wouldn’t really call it a “Napoleon Dynamite problem” as NY Times did recently. But do note, that the “Pragmatic Theory” team interviewed in this article, just like “just a guy in a garage”, didn’t actually invent anything new, they just realized to use a method didn’t know or had forgotten about, in this case singular value decomposition. One such method is the Principal Component Analysis, which is available in pretty much any statistical software package available (no, Excel doesn’t count) (and yes, could think Pandora way as something similar to Factor analysis).

One difficulty in Netflix’s case it pretty much boils down to what’s in a number. Remember that in this case the teams work only on user rating data, but they are of course free to add more data from other sources as well. This doesn’t change the fact that the only user data they have are user’s ratings.

As a sidenote, I guess that one reason demographics aren’t used is legal issues. Vince pointed that things like the “Napoleon Dynamite problem” could be solved with more data like demographics and mood. Now, usually more data means just more problems, but let’s forget about that for this discussion.

On this topic, I recently listened to a really interesting lecture about modern consumer analysis by Petri Vasara from Pöyry consulting. They had come up with neat tool, ConsuNaut (PDF) to show what certain segments are doing at what times (comparing to the old “your target audience watches TV x hours day” way) and what was their mood etc. One “press release friendly” finding of this tool is that the Global Rush Hour, or when most of the world’s people are commuting, is at 18-19 Finnish time (UTC+2).

Anyway, back to the topic. What I also see as a problem is the actual “forecasting” part. Now, this doesn’t affect Netflix that much, because I assume that it is in their interest to get customers rent whatever movies, even – using the out-of-fashion term – “long tail”. Even more so if there are inventory costs involved. What happens when a new movie enters the pool? Remember, that for clustering to work, there has to be data, which is pretty sparse for a new movie. How long does it take for new movie’s recommendations to be accurate and how does it affect other recommendations?

In other words, how stable is the solution for the problem? How does seeing the latest James Bond, because everyone goes to see that, change the recommendations to someone who doesn’t like other action movies? Is he recommended Transporter 2? Is fan of Pixar movies offered Disney’s children’s animations, or worse yet, DreamWorks’ animations?

Not Madagascar 2

So, while Netflix way is about fitting data and finding clusters, Pandora bases it assumption on the idea that all music can be labeled accurately and objectively. The main criticism against this approach in my opinion is the post-modern philosophy of subjectiveness. Is there really one truth? (Also, how many genes does it need?)

I was attending a guest lecture by Andrzej P. Wierzbicki on “The Problem of Objective Ranking: Foundations, Approaches and Applications”, where he, for example, discussed the “dangers and errors of the subjectivist reduction of objectivity to power and money”. So he was painting with a broad brush, but there were lots of gems. He also noted that intersubjective rational ranking is difficult and full objectivity is impossible, which should demotivate the Pandora crowd a little.

So, what might at surface look like a statistical challenge is deep down much more cross-disciplinary and it goes all the way to our assumptions of reality. This is why it is important to keep in mind the most important thing, the end of all this – the business angle. It is not Netflix’s or Pandora’s interest to 100% accurately predict anything, they only need to do it well enough. Well, not Netflix’s anyway. The whole reason for improving Cinematch is purely economical, they have found out that people actually rent more if the recommendations are good (enough). There’s a reason they’re offering one million dollars for 10% improvement. I’d love to know how quickly that million pays itself back.

And, really, let’s face it. Most of the collaborative filtering things today are just toys so none of this really matters. There’s a lot of assumptions and approximations and the results are good enough for the purpose. For example, iTunes’ Genius is certainly flawed and limited, but it’s way better than normal random or shuffle play. But if you want to go that extra mile, then you see that the challenge gets exponentially more difficult.

To top it off, in the end there’s the age old problem of optimization, which is that on average, the solutions are “good”, but not “interesting” and definitely not varied. But to add “interestingness” we have to add uncertainty and that’s whole new world of pain (Allais paradox being the least)… but risk should have its rewards, shouldn’t it?

Kari Silvennoinen is a Ph.D student at Helsinki School of Economics and is currently working on behavioral decision making topics.

Some thoughts on Services-orientated Architecture (SOA)

Context: I’m currently in discussion with a number of companies that are involved with SOA-vending & -consulting. As a result, I’ve been studying up a little on this market and hope to learn more by writing about it. Note: Since I know, judging by the response to other articles on enterprise-software, this isn’t exactly the most sexy of topics, I expect the number of comments to be minimal.

Jeremy has already written about this topic (primarily in terms of Software-as-a-Service (Saas) and Software + Service (S+S)) before (here, here, and especially here), so I won’t go very deeply into it, but SOA is roughly defined as:

“guidelines that allow software developers to design systems in stand-alone chunks of computer code, each specifying the critical outcomes, performance metrics, and interfaces between a discrete activity and other services.” (Src: HBR, June 2008)

If that’s a little abstract, I see it as a selling you a ticket to Lego-land, where you can play with legos all you like, those lego-blocks representing individual applications that can be used by businesses through a web (SaaS) or hybrid (Software+Service) interface, and Lego-land being the SOA-system that integrates all of them for you. This is opposed to the historical approach of buying a lego-box, which you eventually replace by another and another (side-prediction: we will eventually see Lego-world online).

SOA’s value-proposition
While traditionally it has been so that in order to compete in a technological world, you have to be technological, the idea of SOA is to remove that element, instead allowing individuals and businesses to focus on what they do best. I, personally, like that very much.

Other, more measurable advantages are that it is dramatically more cost-efficient. If you imagine that 5+ years ago, every company had to either invest into a powerful wide-area network (WAN) to be able to centralise IT-services, or replicate islands of IT-systems for each business-location, SOA removes that idea entirely, using a freely available infrastructure, the internet, and removing the need to build IT anywhere, instead paying-as-you-go for singular services that an external provider hosts and distributes. Added to this is the idea that performance now becomes accountable, in the sense that it is covered by contracts (e.g. QoS or SLA), something that was much harder to do with a permanently employed IT-staff.

With all these advantages and several more, it is no surprise that, in 2007, over 50% of mission-critical IT-projects were estimated to be SOA-based, a figure which is believed to increase to 80% in 2010 (these figures are from Gartner and may be US-only).

SOA’s hurdles
While this sounds pretty great, anytime you’re talking about system-wide change, you have to consider that this will meet resistance and involve a great many stakeholders, i.e. take a lot of time. And the question is here, who will you talk to as an SOA-vendor? Will it be the business-side of your client, as you are selling easy-to-understand lego-blocks, or will it be the technology-side, as you are selling technology? This is a serious question, so please answer it in the comments!

Added to this, a SOA-deployment is a strategic issue for your customer, meaning that your selling-proposition will also need to include the option of strategic support, aka consulting-services. This means that technology-only SOA-providers (vendors) will likely have to work with third-party consultants that pick-and-choose the best SOA-package for their client.

Related to this, the lego-like quality of SOA, which promises values like agility, flexibility, price, and reuse, and several more, all very important in this recession-prone time, also mean that someone can quite easily replace your service with someone else’s legos. Arguably this is much less the case if you provide an architectural framework and focus on building ecosystems (create lock-ins). But that is easier said than done, and as such this is a field dominated by few big players that buy up smaller ones.

Some more things, which I haven’t researched, are the degree that open source is a factor/issue here, and different revenue-models.

Grasping the paradigm-change
On the customer-side, there’s two ways of seeing this trend. On the one hand, extreme efficiencies, which also follows Nick Carr’s view that IT is no longer a competitive advantage. On the other hand, you’re giving away a lot of responsibility, which can be bad in two ways.

One, you’re giving away a lot of power to an industry, which will continue to consolidate. It’s something that may not be a problem now, but may become one.

Two, delegating a problem does not necessarily solve it. Taking the retail-industry, the biggest problem here is logistical inefficiencies, caused by delays, unnecessary replication of processes, or otherwise. Here, SOA, as long as it spans across the value-chain of manufacturers-transport-retailers-customer, is clearly a good thing. But it still requires a solid understanding of how IT does and can help your supply chain reap better results, something an independent SOA-vendor may not do as well. My opinion here is purely hypothetical, but it may be worth investigating how the masters of retail (Wal-Mart, Tesco, Carrefour, etc.) solve it. And if this is a problem, I imagine it is elsewhere too.

The SOA playing field
This post is getting a little long, so I’ll briefly go into this. Following Forrester-graphs show the players in the integrating corner of things (consultants) and, on the right, the vendors (also note the time-difference (the second one is Q4 2007) and region). You can find the originals here and here.

Clearly this industry is very layered, with some offering the complete package, including strategic assistance, and others providing either the SOA or a part of it (SaaS or similar). There is a lot of movement in this field with players buying each other out or moving into related industries, either on the hardware or software-side.

Final thoughts
Because I’m not a soft-/web-ware guy, I’m still very much undecided whether to head in the software-only direction myself, though I see much merit for an integrated business-consulting + software-deployment approach, and I also prefer selling Lego-blocks to rubber-trees. Feel free to convince me of your points of view.

All of this was initial thinking of course, and as such I’m happy to hear if you have anything to add or if I made some obvious mistakes. Again, considering the relative unsexiness of this area, I don’t expect too much

Vincent

A lesson on Customer Service and Corporate Culture by Tony Hsieh, CEO of Zappos .com

I just discovered the eBay Speaker Series with allows eBay employees to meet with experts and leaders of the industry. I checked that I am allowed to blog about all these great conferences and since the answer is yes, I am really glad to be able to share them with you. Today, this conference was a paradise for my brain: everything seemed to fall into place, to make perfect sense. We had the chance of receiving Tony Hsieh, CEO of Zappos.com. For those who don’t know Zappos (and if it is the case, you’re probably European), it is the first online shoe retailer is the US, but before all, it is one of those companies completely shifting the paradigm in their approach of customer service. I pass quickly on Tony H.’s history which is anyway pretty impressive (cofounder of LinkExchange sold to MSFT for $265m, cofounder of an incubator which led him to Zappos) and on Zappos history (founded in 1999, now 1600 employees), but instead focus on Tony’s vision.

First, I was surprised by their mission: I thought that they would naturally choose “becoming the largest shoe retailer in the world” or “becoming the largest accessories retailer”. No, instead they chose something way more inspiring for customers and actionable by employees: “providing the best online experience possible”. Tony H. chose not to compete on prices, but on products and service instead, to drive repeat customers (very successfully strategy since 75% of purchases are from returning customers which on average have higher order size that first time ones). And how does it translate currently into their business? By a number of policies: free shipping and free return shipping, 365 day return policy, 24/7 1-800 number. Well, it seems interesting, but some e-tailers are doing the same, right? It seems that the differentiating factor is how these policies are implemented. For example, the number to reach the customer service is on every single page of the web site: Zappos wants their customers to call them, whereas other e-tailers try by all means to make you find your product or answer by your own. Tony H. mentioned that he sees the customer service as an immense branding opportunity, a unique way to speak directly to your customers. Customer satisfaction is the only focus: customer reps sometimes refer customers to competitors’ websites if Zappos is out of stock on a particular model. By the way, on this particular example, Zappos is only reproducing what local retailers, especially in small cities, have always done, but is doing it at a larger scale.

But what are the processes to achieve this customer satisfaction? I’ll pass quickly on a number of operational measures (reps don’t have a maximum call time to follow and are not incentivized on sales, warehouse run 24/7, inventory all products…) but instead focus on the culture. I am always skeptical when I hear a company saying that they rely on their culture to make things right: a nice sign with 10 really basic principles at the entrance of a corporate building has never helped me determine the strategy of a company. Even the really consensual Google’s “don’t be evil” is now questioned! But at Zappos, the difference is that the core values are really committable and that decisions, especially the crucial ones like hiring, firing and evaluating performance, are made in accordance with the culture. Notably, all employees spend 5 weeks in training to learn the culture, and customer reps are given $1000 to leave the company during the training if they feel that they don’t fit with the culture of customer satisfaction. And which impact does it make on the business? It seems that once you get the culture right, the decisions are much easier to make. Tony H. gave a lot of really good examples and I just picked one: a widow wanted to return shoes from her deceased husband, and the rep who managed the case took the initiative on her own to send flowers to the widow on behalf of Zappos. The widow was so moved by the gesture that she mentioned it during the funeral. Of course there is no guideline for this kind of situation, but having the right culture gives you confidence that your employees will do the right thing in terms of human behavior but also for the company (the widow and some members of the family are now repeat customers!).

But finally, what about the costs involved? Tony H. sees customer service as an investment and not an expense: Zappos has been profitable since last year but could have been profitable 4 years ago; instead, it invested in free overnight shipping and other aspects of customer satisfaction. But he is also extremely rigorous about ROI: whereas offering free shipping the same day would totally fit into the culture, it doesn’t make any sense from a business standpoint and therefore hasn’t been implemented.

I didn’t have time to ask the question about whether or not they plan to go global, because it would be a totally different challenge to maintain the same level of CS on a global scale. So if I’m lucky and Tony sees this article, I hope he’ll reply here

Getting hired by Amazon, Apple, …, Yahoo, ZDnet: tips and future hacks.

Trying to digest a cheesy crust pizza this noon, I was wondering if instead of a pizza I was carrying a baby. The good thing was that there would be two of us going back to work, even if the one was rather unqualified to give me hand. What a delight for my pizzababy to grow mentally through this early job! Apart from hanging around with Bruckner’s twins (le Divin Enfant) getting early to work will permit it to develop the working flexibility that parents preannounce and corporations tend to establish through rotation programs.

So, how often will it switch jobs? Every 3 years, two times a year, each month or…. why not several times a day?

Assumption: A job may less and less be outline of your style, status and skills, THE choice that you make in your self-creative youth and pursue with passion until your hands have shrunk and you mumble wisdoms on professional resilience to your children.

It seems (to me, to you too maybe?) that jobs get more and more project–centric, existing-skills based, time and locality indifferent.
with Theme-generated-tasks’ accomplishment  transforming into task accomplishment around a theme.

The digital business field, where change is well in advance, brings up a strong trend on segmentation of the classical notion of job.

Two examples on the internet can tell the story:
Amazon’s Mechanical Turk

and

Innocentive

These two companies propose a per task remunerated employment, amazingly different as regarding necessary skills.

Amazon’s Mechanical Turk mostly addresses the non qualified workforce and Innocentive the ultra specialized scientific one. The concept on both is that you’re hired on a per project basis, for a translation, to prove the Fermat Theorem or to fill in the ISO forms.

It is then highly important to have a personal job management system to handle contests you participate and your prizes, puzzle your profile and communicate with trusted professionals.

A sort of e-mployment survival kit to prevent you from e-xploitation.

This vast talent pool of potential Mechanical Turks, scientists and everyone between, also creates opportunities for providers of meta-HR services to aggregate and compose job particles into a real job.

Providers such as advisors, agents and therapists:
social engineers, serial trendsetters, legal timing planners for fringe technology testers (“get the trial before the action is criminalised with a law”), real life rehabilitation mentors (“get rid of Wii gestures when in the grocer’s”), tec-addiction therapists, viral marketing therapists/ digital image makers (banal already maybe), mini-krach recoverers, startup estate agents, other (attention, this is not a generic term, it can be a job where you are paid to differentiate and foster evolution), and so on.

A combination of a middlejob with a classical one or the mix of various middlejobs could result in a steady plus variable income, mental coherence and growth, an optimised planning and a life-job balance.
On the “which?” the question is open. On the “how many?” 2 jobs maybe ok while 3 or more could definitely assure the statics of the e-mployement construction. …

Job- memo for my pizzababy: Exercise with 3 or more jobs, with an hourly basis frequency, vary the status. In case you need help call your agent.
After it was digested I went back to work.

Georgia

Developer to all-technical-staff ratio: 1:4 as a rule of thumb?

Here’s a quick question to all people used to either interact with or being part of software development teams.

Consider a software vendor, a good one, and its technical headcount. It is no secret that R&D teams aren’t made of software developers only. In order to be deployed successfully, architectures and code need to be tested by a QA department (QA = quality assurance) where professional testers run through thousands of automatized-or-not scenarii; documentation; technical support staff help the install base with potential regressions occuring during updates and coping with changing information system environments; localization project managers monitor translations of the software: and last but not least, application engineers actually parameterize the software at clients.

Now my question, how many technical staff should you account for every software development engineer? I figured out an average ratio of 1 to 4, that is to say, for every technical team of 100 there should be around 25 software developers actually hacking code.

I know there exists extremes but by and large, from what I’ve seen, I don’t think I’m too far from the reality with a 1:4 developer / all-categories-technical-staff ratio.

What do you think? Feel free to describe what the company does when sharing your experience, because, since there are very large discrepancies between, say, an SAP that manufactures ‘heavy’ enterprise software and any web application designer that may not necessarily run industrialized testing and that has no professional service department, we might not get nuances at first sight.

PS: the ratio will also depend on the maturity stage of the company: at Microsoft, [# of develops]/[develops + Microsoft Consulting Services staff + developer evangelists + localization engineers + testers (1 for each develop) + architects] approximately equals 1/4 (1 to probably 5 ot 6 adding documentation specialists; & 1 to much more if you consider the system integrator ecosystem that actually does the application engineering). But the company is rather mature and therefore can afford to focus on quality of execution rather than productivity in execution. Which probably wouldn’t be the case for an enterprise software startup for obvious resource reasons. Anything to share? Best and worse practices, per specific industry (Web 2 / UGC, Video Games, enterprise, affordable consumer traditional applications, etc.) most welcome. I need to test my own budgeting assumptions

Saul Klein on entrepreneurship in Europe, & myself on career starts everywhere

I usually don’t ’steal’ posts from others -especially without adding any value-adding comment, but I couldn’t help sharing this one – found on Richard’s blog thanks to Twitter (follow him). Here’s a very inspiring slideshow by Index Ventures VC & founder of Open Coffee Saul Klein:

The slideshow speaks for itself, doesn’t it? And even if you don’t chose to become an entrepreneur yourself at this very moment, in Europe or elsewhere, my take is that you should join an early-stage startup. Let me tell you a quick story about this.

The first time I thought of leaving MS to start a startup (a thought that never occurred again, believe it or not, before I actually walked out to either join another company or take the big plunge), I hadn’t even joined Microsoft. I was at Capital IT, a major VC forum in Paris, as a Microsoftee although I was due to join the company a few days later. There I met, for the first and last time so far, Pascal Mercier, a French fundraiser whose firm Aelios Finance is pretty successful at matching the best entrepreneurs and smart money (to my knowledge both angels & VCs). I was introduced as a recent graduate and the second we met, Pascal Mercier asked: “Why didn’t you choose to join a startup rather?”. The best answer I found was: “but I do work for startups!” Which I thought was true since 1) MS is just a damn successful startup (you would be surprised to see the easy-going startup atmosphere within the company); 2) I was part of the team that took care of emerging ISVs in France. Acknowledging reason #2 only I guess, Pascal nodded and we parted ways. I later realized though that working for startups, and working in a startup, are clearly two different things. When you represent Microsoft, you may call whoever you want and the door will be opened the next day. Your brand power is so strong that at the end of the day, you never know whether you achieved great things because you’re damn so good, or because your company is so powerful in its industry. As an entrepreneur, and I’ve been facing this issue already, you need to fight like a pitbull to get passed through the right person on the phone, and fight again to get an appointment. I should also mention that you’ll need to deliver the best pitch of your life, after waiting for an hour in the lobby without even being served a cup of coffee, to actually get to the point where you may pretend to try and sell your solution. This struggle for survival is real life and that makes entrepreneurs fully accountable for their success or failure.

The same rationale goes for early-stage startups, without a brand name yet: life will be tougher for sure than if you worked for a big name, but the impact you can have on such companies is huge (eg double revenues in 6 months, etc. something unachievable in an 85K-strong corporation like Microsoft – or even at Google, a 20K-strong company & definitely not a startup anymore). Whether you want to be an entrepreneur or join a larger group later in your career (or both), an unknown and yet ambitious startup is where you should start your career to acquire the right survival toolkit. By the way, did I mention the stock option plan?

My two cents…

Addendum 11am: check out comment #3 to discover how to spot startups that will pay you better than large corporations and resign from consulting, banking and Fortune 500 companies to join them!

5 free pieces of advice to Amazon, from a very unhappy customer

I consider myself a “power buyer” on Amazon – having ordered and read for the last decade or so between 20 and 30 books every year, for sums of money far from negligible, at least to me.

This being said, I’ve never been more unhappy about my experience as a customer. Here are 5 free pieces of advice from too faithful a customer:

1. The company pretends to invest millions in its customer relationship management systems, but why on Earth Amazon never implemented any Fidelity / membership program? Even the worse companies in the world, customer service-wise (yes you’ve recognized them, I’m talking of airlines), have membership /faithfulness programs. I would be delighted to gain some travel miles or free mp3 as a reward for being a long time customer.
2. Books purchased via the one-click purchase button should be automatically removed from one’s automatic recommendations, wish list & shopping cart. Why would you want to recommend a book already acquired and shipped to the actual same customer in the past? Today, you face a high risk of ordering a book twice because of that.
3. Amazon seems to consider that none can purchase a book anywhere else than on their store. I think users should be granted with the possibility to mark a book as already acquired (somewhere else), either on Amazon (they should make this automatic though, but I’m so desperate…) or elsewhere.
4. Even worse, when these books are already in the shopping cart (or mention “In your shopping cart” already), that is to say between my wallet and Amazon’s and their warehouse and my shelves, Amazon still finds ways to recommend them. Don’t they think I already know the book if it’s included in either my shopping cart or my wishlist?
5. This one is more a back office thing. But aren’t you guys all about dematerializing the bookshopping experience? So why can’t I find ‘.pdf’ed invoices in my “account info” space? I still need to keep these blue bills for ages: I know you legally have to send these, but why don’t you help us get rid of the tons of paper we receive.

And I’m not even mentioning transnational use of Amazon (if you acquire a book on Amazon.com rather than on Amazon.yourcountry login in with the same email address, it’s not removed from your country’s wishlist) or the interface here. Or… let’s mention it before we leave the floor: Amazon’s interface wasn’t so much more convenient back in 1997 or so than it is today. I’m surprised because every engineer from Amazon I’ve met was super bright, but if I were an e-Commerce entrepreneur today I would definitely embrace rich media and video category marketing as a paradigm to set a new user experience standard.

To everyone: as you will have understood, I’m not so happy with my experience as a customer on Amazon. Any alternative?

2007: Tops and Flops

For our first post in 2008, what about looking back at 2007 ? Any decent tech-related blog should go through the ritual overview of last year’s tech headlines. However, feeling quite lazy today, I finally chose to come up with a (personal) list of the big winners and losers of the year elapsed, which is a less exhaustive yet quicker way of recollecting the main events of the twelve last months.

Let’s begin with the flops:

1) Netscape. Last October, the last version of Netscape, Netscape Navigator 9, was released. In fact the browser was no more than a revamped version of Firefox 2 – fair enough, the Mozilla project was launched by Netscape after all. But apart from a tiny number of geeks or nostalgics, the Internet users did not see the point in using it rather than Firefox and its thousands of available plugins. Even the buggy Safari made larger inroads in the PC market. AOL finally discontinued the browser at the end of 2007 and announced it would no longer develop newer releases. RIP Netscape, Long Live Firefox !

2) YouTube users. In 2006 many people and corporations discovered YouTube. In 2007, many people and corporations tried to use YouTube to their own benefit, mainly for promotional purposes. The result can be just disastrous, like this EU-sponsored video.

3) DRMs. Since the DRMs were first introduced many pundits were skeptical about its virtues. After all these systems were mutually incompatible, introduced unwanted restrictions (such as preventing you from ripping music on CDs, which is absolutely legal as long as CDs are kept for a personal use, etc…).

Step by step, the vast anti-DRM movement strenghtened in 2007. EMI was the boldest major, the first to disavow DRMs, soon backed by music industry giant Apple (which also happens to sell PCs). Universal followed, and now Warner may have hammered the last nail in the DRMs coffin. SonyBMG, anyone ?

4) Apple TV. Steve Jobs is always bragging and this is becoming quite unbearable. Yet there is a subject on which he should really shut up right now: AppleTV. This expensive and limited multimedia set-top box was a massive failure, such a failure that in fact Steve Jobs refused to unveiled the sales figures of the little marvel. In fact the whole concept of multimedia set-top boxes seems quite lousy or at least immature for now. It might become more interesting when people finally get HD TVs though.

5) Optimus Keyboard. The vaporware of the year? In fact this next-generation keyboard, with keys that are actually tiny screens displaying dynamic pictures, was highly expected – and not only by the fools who pre-ordered it in May 2007. The product is still “in development”as of today…

Runner-ups: Mac OS X Leopard, Windows Vista

Not everything is gloomy in the high-tech world. Here are the Tops:

1) Facebook. With almost 60 million active users and a valuation well above the $10bln, everything is rosy for 2007’s most successful social network. Despite some recent mistakes, Facebook might very well be the next Google.

2) iPhone. OK, it has no 3G nor GPS, the touch keyboard isn’t convenient, and Apple’s third party application limitation policy is just loathesome. Yet the iPhone generated a huge buzz for Apple, sold quite well, and instantly unlocked the industry – competitors just have to innovate or lower prices. Why complain ?

3) Wii. The epitome of Blue Ocean strategy, the Wii turned out to be a considerable success this year, with almost 5.8 million units sold. The production facilities just cannot follow.

4) Zune. Zune’s latest avatars, which seem to have been more than inspired by the highly successful iPod, are quite decent MP3 players. So decent that they made it to the top-list of Amazon’s best sales last November. But since one of our flagship contributors no longer works for Microsoft, there is no need to insist to much on that point now.
5) Tech IT Easy. With a steadily growing reader base, we are happy to say that Tech IT Easy finally succeeded in finding its place amongst the blogosphere, and satisfying our readers. We hope 2008 will see even more improvements, blogposts, recruits, comments, and an even larger traffic.

Runner-ups: Twitter, Netvibes, Blackberry.

What is your list then ?

Bubble or not bubble?

That is the question…

Video not available anymore, find it here.

What do you guys think?

via LittleGirl

Amazon’s Jeff Bezos on strategy & innovation (not Kindle-related!)

I’m writing this post for two reasons. One is that I am incredibly interested in the subject of leadership and try to learn about it in whatever way I can. A second reason is that, even though my main focus on my blog is food and retail, what Matthias calls “old economy” (thanks Matthias!), I try to also be very aware of “the past, present, and future of this industry,” and (internet-)technology plays very much a part in the future of retail.

In terms of leadership, Amazon’s Jeff Bezos is a good person to study—a man who created perhaps the most iconic garage-based venture since Apple, and who managed to not only take his company, Amazon, public, but also stay on as CEO until now, something that is rare amongst founders. In terms of retail, Amazon is itself great company to study. It has transformed the book-industry, and is doing amazing work in terms of providing infrastructure for web-based infrastructure. And, even though they are not as yet selling any books in the Netherlands. I’m hoping that SEPA, to be introduced next year, will change that.

Before I continue, this is not really a Kindle-related post. While we’re on the subject, however, let me say that I’m a big fan of ebook-readers. At the same time, there are certain advantages to paper-reading, which I’m especially experiencing since I started my own blog—namely that I can write on them. I know I can take notes on Kindle, but it’s not the same. And I think the price-point of either the device ($400), or the books (a $10 intro-price), or both, is just too high for something that can be produced in mass and has no printing-, and hardly any distribution-costs attached to it.

Speaking of notes, I took some while reading a nice HBR-interview with Jeff Bezos, in which he discusses his take on strategy, innovation, customers, … and not Kindle. I’ll share these, and my thoughts on them, with you now.

Innovation at Amazon
There are generally two types of innovation, the radical kind and the incremental (or process) kind. My general belief is that, while retail on the internet radically transformed the way we shop, and will continue to do so, ultimately it is an evolution in process. Instead of giving our credit-card to the clerk, we type in a number behind a screen, etc. etc. And, since the internet has taken off, this kind of process-innovation has become much more prevalent. Now, instead of clicking 5 times to buy a product, I can click once: yay! Before you ask, “so what is ‘radical’ innovation to you?” I’ll just say: “Space, flying car, people living under water, that kind of stuff. So get busy!”

Amazon has of course just announced the Kindle, which could be interpreted as an innovative move. But again, what will make this innovation shine, if it does, is Amazon’s incredible process-strength, namely that they can deliver the device to nearly every household in the Western world at beautiful economies of scale. For now, these are paying of for Amazon, but knowing their business-model, it’s pretty certain that this will pay off for consumer too… eventually.

What I like about Amazon (and got from the interview) are that they have an incredible experiment-based culture and generally take a long-term view—both rare with public companies. In terms of experiments, these are encouraged on a company-wide level, and due to the nature of experiments, are both had to predict and not unknown to fail. One example of an experiment which became an enormous, but unplanned, success, is the Amazon-associates program.

As far as time-frame is concerned, innovations at Amazon usually take 5-7 years before they make any meaningful impact on the company’s economic situation. This is a big risk and is offset in a number of ways. One is to minimise the costs of experiments. Amazon has a web lab just for that purpose, which undertakes these experiments on a massive scale, collects real usage data on what works best, and is constantly trying to push the costs of these experiments down. Again, taking a long-term view, it helps when building innovation on things that won’t change in the next 5-10 years. For Amazon, these are basic customer preferences, such as: choice, low prices, and fast delivery (hello Kindle?).

There are three more core-attitudes, which I think have a big impact on the way innovation takes shape at Amazon. One is, to always ask the question “why not?” According to Bezos, the biggest mistakes at Amazon come from not doing something, rather than taking the risk. And asking “why not?” instead of “why should we do it?” opens up a whole other universe of possibilities. Similarly, there are lot of difficult decisions that Amazon has had to make over the years, such as allowing reviews on their site. The vital question there was “what is better for the customer?” Last, but not least, I like this line in regards to making experiments a success: “Be stubborn on the vision, and flexible on the details.“

Strategy at Amazon
The other part of innovation is execution, some of which was already discussed above. Much of decision-making comes out of the way a corporate culture is shaped. Some cultures are hierarchical, some are flat, some are individualistic, some are collective. From my understanding of things, Amazon has both a departmental structure (which would suggest some hierarchy) and takes decisions collectively. Both senior management and departmental management have mechanisms through which this collectivity manifests itself. Seniors meet once a week for four hours and once-twice a year for a two-day meeting. Homework is assigned before and the latter type of meeting deals mostly with long-term issues. Department-management has a similar system.

Some more general characteristics of corporate culture were mentioned in the interview, namely that they can be incredibly stable over time, and are self-perpetuating in the sense that they attract people who like that culture (and repel those that don’t). While a company’s corporate culture is probably the hardest to replicate, and can thus be a tremendous competitive advantage, the rigidity of the culture can both mean that there are limits to what it can do (and should do), and it can sometimes hamper innovation during turbulent times. At the same time, a culture can by nature be open to change, which should overcome some rigidity.

A few weeks ago, on my blog, I wrote a post on Porter’s five forces in which I outlined what I think matters in strategy, but also that it pays off to stay close to customers. Jeff Bezos shares a similar view-point, for a number of reasons. One, customer-needs change more slowly than a lot of other things, e.g. tech; and two, following the competition doesn’t work well in fast-changing environments, e.g. tech. A third point is that being too competitor-focussed can result in a passive attitude once a certain dominance has been reached in an industry. You can argue about this either way, but when you look at certain large companies (no names), this “hey, we won, so why innovate?”-attitude, is definitely one that is recognisable.

One way that Amazon tries to stay close to customer-needs is by enforcing rotation. Every new employee has to spend time in their fulfilment-centres with the first year, every two years, employees have to do two days of customer service, and everyone has to be able to work in a call-centre. That includes Jeff Bezos.

Finally, he also had some advice as how to survive the transition from the founder of a start-up, to the CEO of a multinational, public company. It’s simple (yeah right!). When you start, the main question is “How?”; as you grow, the question is “What?”; and when you’re huge, the question becomes “Who?” There you go, the secret to being the leader of a big company.

Final thoughts
One of the weaknesses of secondary information, such as what came from this interview, is that I (and you) have to trust everything that is in the article. I can’t ask follow-up questions and can’t tell, by body-language, tone, or otherwise, whether some points are more important than others, or more true than others. Therefore I try to be careful to treat each piece of information as part of a greater whole. In other words, I may come across information that conflicts with what Bezos said in the interview. If it’s noteworthy, I’ll write a new post about it. One piece of important data, released perhaps a month after the interview, is the release of Kindle, which, as mentioned, I am sceptical of.

Two things I learned from the interview is that innovation takes time, especially to make it economically viable, for both the business and the consumer. In my opinion Kindle, in order to fit the philosophy of Amazon (which is not Apple after-all), has to drop in price, as do the books. It’s a matter of ethics, of being customer-focussed, and of being a process-innovator. I can only assume, that over the next years, this is exactly what will happen.

The other thing I learned is to constantly be open to innovation that can benefit the customer. This point has been made many times in the words above, yet it bears repeating. A company can be incredibly rigid, the bigger it becomes. Competition can become incredibly threatening. Technology can change from one day to the next. But what doesn’t change is that customers will pay you for products that make them happy. And I fear that a lot, a lot of businesses have forgotten that as they became big, arrogant, and focussed on anything but what customers want.

Finally, while I may be focussed on “old economy” topics, I think Amazon teaches some interesting lessons on how to remain high-touch in a high-tech environment. As such, this certainly won’t be the last time I touch upon the topic of technology in retail.

Further reading
If you’re interested in the topic of leadership, you mean also want to check out a list of free podcast-interviews with a number of CEOs, ranging from Google’s Eric Schmidt to, indeed, Jeff Bezos, which I posted on Tech IT Easy a few months ago. Worth a listen. Oh, and don’t forget to check out the original article on HBR.

Vincent is a co-author on Tech IT Easy. You can find all of his posts here, or check out his food & retail blog, updated nearly every day, and where this article is mirror-posted.

The Euro vs. Dollar double gambetto for high tech corporations

 In chess, a gambetto – say it with an Italian accent, consists in sacrificing a piece at the beginning of a game to gain a competitive position on the exchequer – for example through the control of the center of the chessboard or one of the long diagonals.

Getting back to business (we’ll get back to the gambetto later), it is very common to say that the state of an economy is reflected by the strength of its currency when the Euro currency is weak – and hence that the economy of the EU are in poor shape. However, when the Euro gets stronger, companies and officials claim that corporations are constrained in their efforts to export goods and services and that the situation should be reversed or the EU will soon enter an economic turmoil.

I think this is all too easy and bullshit.

God Dollar used to be the only viable currency in international trade, until the Euro came out of nowhere in January 2000 (2001 for actual pocket coins and bills). The European Union is the world’s largest consumer market, and a gateway to the Middle East and Africa for American companies. Although the Dollar still dominates international transactions of goods (slightly) and financial transactions (easily), the Euro has emerged as a tangible alternative considering the political stability of the region.

Consequently, the Euro vs. US Dollar exchange rate has kept growing insanely from 1 EUR = USD 0.85 in mid 2000 (1 EUR = 1.19 USD on January 1st 2000) to 1 EURO = USD 1.47 USD today. Althoug I acknowledge the trickiness of the situation for export businesses, high tech or not, I see very few corporations have implemented hedging strategies or make proper use of forward contracts – which is a shame. Still, instead of lamenting, I believe economic decision makers of both the US and the EU should roll up their sleeves and act in such a way (hell yeah I’m even givin’ lessons now, love blogging…):

For US High Tech companies: go for internationalization. Acquiring hardware, software, telco devices, consumer electronics and services labeled in USD has never been cheaper. So why wait? I’m pretty sure any potential buyer would understand this reasoning. A weak USD is a fantastic opportunity for American exporters to thrive abroad, and win strategic, long-term projects. It doesn’t matter whether the profitability of these projects is low: what matters is to build reputation on new markets, or to highlight your competitive advantage against local players. Remember, the gambetto? Be ready to sacrifice a few cents today (anyways, the dollar rates so low that it’s no big loss whatsoever) to be in the real race when that moment comes.

For European high tech ventures: shop for intellectual property and talents in the US since the Euro has never been so strong against the US Dollar – which will make acquiring quality companies cheap, and build production capability in China and India (or go and get cheap but excellent developers in Eastern Europe, before the Euro comes there, or Israel) to reduce the cost of goods sold, enhance their competitiveness and therefore be ready for a shift during harsher economic times or win back market share on their competitors’ behalf. EU corporations, especially the big ones, find it hard to tear the P&L from the balance sheet and should learn to make better investments. Remember when the VCs said that few large European high tech corporations had a real, sound external growth strategy? Even though making the quarter may seem tough because of a strong Euro, acquiring today technologies that will generate tomorrow’s revenues boils down to ’sacrificing’ a small slice of the pie to weaken the competition, and build a better product offer for tomorrow. Gambetto again.

Now waiting for the Chinese Yuan to offer a third way…

12 non technical tips to design kick ass software architectures

I actually learnt what software architecture means something like 9 months – when Jean-Sébastien and Pierre discussed the architecture of CartoReso and I was listening, eyes wide opened not understanding the slightest bit of what was going on. However, it didn’t take long for me to realize how crucial designing a smart and robust architecture is in making the implementation of a software product strategy successful though.

This being said, there’s a number of things one should know when it comes to software architecture design applied to an entrepreneurial context. I acknowledge I’m brand new to this domain, but software architecture has been the one thing I’ve been focusing on in the last 4 months: the sun could rise without me having read at least a few pages on the topic. So, here are my 11 non-technical takeaways. There you go:

1. Think strategy, not technology. Strange? Maybe. The goal of software architecture is to embed you strategy into your product. Keep that in mind. And keep strategic analysis informal: week-long brainstorms between founders will perfectly do. Keeping the strategic analysis informal shouldn’t prevent you from going the extra mile digging deep though. Be tough-as-nails, cold-blooded and if necessary, surround yourself with razor-sharp, nit picky colleagues that will pinpoint what deserves to be pinpointed
2. Think intellectual property, especially if you’re small and weak. You don’t want the big guys to steal from you. Ooosh, I was almost forgetting. See this pizza-and-coke Linux guy in your team unwilling to think of patents as anything else than evil? Yeah, I know, he’s smart, nope, very smart and you don’t want to argue with him. But fight him with words until he understands intellectual property is key in a knowledge warfare industry where some countries (like China) are more equal than others when it comes to IP. The guy’s smart so it will take a lot less time than you expect as of now.
3. Think interface and user experience first, also called Think take your time. Don’t start coding from day one. What you should do is draw the screens of your applications. Each screen. With all the buttons, everything. Think of the human – machine interface first. Paradoxically, the longer you’ll wait, the faster you’ll get it done. Procrastinate. Do actually your best in procrastinating. You’d better walk slow in the right direction than run fast in a dead end. Unfortunately, true geeks can’t help coding. So refrain them from doing so by all means – including, if necessary, use violence and blackmail their families.
4. Think world-class engineers, or don’t think – or even think of thinking ever. Pick up the best – and trust me that’s easier to say than do. One smart develop does the work of ten lame programmers so do it, whatever it takes. And give out stock options, be generous about it: startup developers jump from one failed startup to another. Finding for once a good horse to ride is a rare, unique opportunity to make a home run and stop worrying about money for a while. These guys are the ones who deserve it most.
5. Think division of labour. Software architecture helps you parallelize the work load between developers to make all different groups working on all different parts finish on the same date. Believe me, there’s nothing more beautiful than assembling parts of code processed by different brains, clicking on ‘compile’, and see it run. However, do not believe you can then take a nap: the hardest thing in software isn’t to have a program that compiles properly. I would tend to say the hardest bit lies in packaging your software (never did it so I should just stop here). You’ll come up first with a broad drawing of the different software layers depending on the number of floors of your software (eg data / infrastructure; application; presentation – the SOA trend tends to divide the application layer into two, technical and a functional, subcomponents) – which ease work breakdown structuring. For instance, those with some good taste (or the least bad taste) will deal with the interface, others with the client side, the remaining ones will work on the server side. As an example, in CartoReso, Jean-Sébastien dealt with lower layers hacked in C (he was the most knowledgeable in NMap, the open source brick on which we decided to build on), Pierre with the application engine and with integration / build / project management (since he was in charge of the middle layer) and my humble self with the interface. But a broad drawing isn’t enough. You may then decide to fine tune your architecture and delve into the details of each layer. This work is necessary when dealing with large software development teams: regression risk finds itself lowered when everyone knows what it has to do and each method is clearly owned by a lead someone.
6. Think flexibility. Lay the groundwork for future evolutions: you’re not building a software for today or even tomorrow. Think long term. A fashionable way of implementing flexible architectures is to go for modularity – like Dassault Systems does: you don’t acquire one standard piece of software, you just build your own DS software by picking the modules you need in their catalog. Interestingly enough, Dassault Systems‘ pricing catalog follows the way the architecture was thought, hence creating a perfect alignment between marketing and engineering which I believe is an industry best practice. Why? Well, Dassault Systems happens to fulfill the dream of all software vendors: it sells generic software that matches specific needs.
7. Think lock-in. The new release of Firefox sucks: it crashes thrice a day and every time I try to download something. so I’ve decided to drop it for Safari on my Vista Mac at home and IE7 on my Vista laptop at work. But I find it REALLY hard, as I loved these little del.icio.us taggers or icons to subscribe to RSS readers embedded in the URL bar. Firefox has achieved to lock me in (well, not quite, but so far it did): the number of available plug ins prevent me from dropping Firefox until I find a solution (FYI, there exists IE7 plugins on windowsmarketplace.com). Lock-in has long been the one major issue with Google: it is now solved since Google login eases access to other Google web applications via Ajax menus. The powerful lock-in strategy execution usually reflects the value of the underlying platform – and the value of a platform equals the value of its ecosystem.
8. Think proprietary control of a widespread standard Look at Adobe Acrobat’s .pdf format, or Microsoft Office applications (used to be .doc, .ppt and .xls, and now, with Open XML, it’s .docx, .pptx, and .xlsx). Once you’ve set the standard, the value of your software increases dramatically because it takes long for an installed base to migrate to a new standard. This simple phenomenon is called inertia. The hardest bit here is to become the standard. Which can be achievved running faster than everyone and remain in stealth mode (invisible from the big ones) as long as possible. Easier said than done.
9. Think competition. Don’t mess with large corporations. If they are after you before you’ve proved your architecture is hard to replicate, they’ll make an announcement stating they’re soon to release a similar software, which will slower sales for your software, and come up, probably a little late, with something similar and sell at a loss, which will inevitably kill you. If your architecture is strong, elegant and patented, then the big one will realize it costs a lot to replicate (developers, patent breaking risk, time frame, etc.) and will think of acquiring either you or one of your competitors. This is how big corporations now innovate and trust me, software architecture audits aren’t piece of cake. Should they choose to acquire a serious competitor, sell your company before you get to die. Indeed, once the big one has the same product as you do and i) you’re alone, independent and weak; ii) you haven’t set the standard yet, the usual path followed to reap you off the map is that it will sell a similar product to yours for cheap, probably at a loss, if not for free – and the only thing you can do to compete is do the same too. Right? But think twice: your software product is your only cash cow whilst the big one on the other side of the river generates revenues from a large product portfolio. You’ll henceforth die before your large competitor does, no matter how much money you’ve raised.
10. Think first things first: your project needs an architecture too. “Right” order is: 0) idea + slideware demo 1) quirky demo for funding + recruitment purpose that you’ll throw away as soon as you’ll get seed funding + recruitment + strategic analysis 2) seed funding (angels) + software architecture 3) functional specs + user interface design + feasibility + technical requirements + development schedule 4) prototype started all over again from scratch 5) series A + refined proto + then start the marketing machine (road map, channel, trade shows, PR, buzz, and all that jazz), hand it to the CEO and prepare for release crunch time: documentation, support, help, manufacturing, shipping, etc.. Don’t worry though, things never happen as such. Expect the unexpected: the story never ends up as planned in the scenario.
11. Think interoperability: since you can choose, choose the most appealing role of the play: the white knight. In order to play White Knight, you need to look like a honest broker, even though you’re not. Think of Firefox’s ‘we’re gonna free the web from Microsoft’-approach: they run on all major platforms, support a massive number of external applications (like iGraal) as a platform, is translated in a number of languages by a community, etc. and at the end of the day, Mozilla makes 60 million dollars per year, whilst Google makes much, much more (Mozilla runs Google as a default search engine), and locks you in with little apps like del.icio.us tagger. So, to recapitulate Mozilla Firefox’s set of best practices (I should say right here that Microsoft is very good to at implementing such strategies, I can answer questions on this if you like), your product should be multi platform (start with Windows (90% installed base is convincing enough), then move to Mac OS, then move to Linux), be multi language-ready (it’s not so complicated to support Chinese, Japanese, Arabic and Russian unless you think about it afterwards, and then it’s a nightmare), and opened to external developers through a game of APIs: it will generate a buzz, make your company look sexier and hence ease new hires, and last but not least create value on your software by developing what you don’t have time to develop yourself. If you can use freeware code, do it; if you can purchase code for flat fees, do it; don’t pay flat royalties for source code down (eg US$ 15 per product sold), go for pay-per-deployment revenue % royalties instead – ie 1% of unit price; too risky. Make sure you don’t start depending on a partner though: don’t get locked-in yourself. At the end of the day, a good interoperability execution of strategy will strengthen your bargaining position with potential partners who will then realize you have the ability to choose to support them, or not. And then you’re the one calling the shots.
12. Think robustness. Like Criteo, software with crème-de-la-crème architectures never break because of the load (the post, in French, I’m pointing to basically says their full .NET software resisted torture)

Expect a bunch of technical takeaways this time as soon as I feel ready for it.

About visualization tools

Some people manage to analyse and remember information by writing, hearing or visualizing it. I am definitely part of the latest type.

This is why I am really interested in tools appearing on the web to visualize some experiences like shopping, search and social networking.

Some of these tools serve a practical purpose whereas others focus more on the artistic experience, but the frontier between the two interpretations seem to become more and more irrelevant.

I have made a quick selection of some tools I discovered on the net for different uses:

1) Shopping: it is proven (don’t remember the source but it is quite obvious) that starting a product search with images improve conversion rate. I can personally confirm this assessment as I buy more books on when I use Blackdogair (visual tree of Amazon’s recommendations) than when I simply go on Amazon as I rapidly get lost trying to explore every combination. For lifestyle products, Browsegoods totally stimulates impulse purchase: if you’re a woman and click on the “shoes” category, the vision of thousands of great shoes will definitely drives you crazier than traditional browsing putting in evidence prices rather than images!

2) Search: visualization of search results can cater to some unconscious users’ expectations. For example knowing how many search engines references this result, knowing at first sight if the result is a picture, a video or text, understanding how the different results are linked to each other. This is exactly what Touchgraph offers by clustering results and clearly indicating sources and connections. I also heard that SearchCrystal isn’t bad (even if I haven’t tried it) notably because it shows with different shapes results appearing in different numbers of search engines, as a proxy of relevance.

3) Social networking: this field is probably the one where visualization tools are the most artistically involved, which may lead to think that these visual representations are just “gadgets”, like for example the Facebook Friends Wheel. But, apart from artistic projects, some of them are more useful, to visualize the structure of your network: how people are connected, what are the “clusters” in your network for example. Again, Touchgraph provides a great and customizable tool to do that (the image in this article is the visual representation of the core of my network), including the links between people thought pictures’ tags.

Understanding networks (being recommendations, search results or communities) has always involved visual representation (essentially with basic lines and points), so this is not surprising to feel familiar with these tools. Jérémy always tells me that a great chart is worth thousand words, so he should agree with this article

Fidji SIMO is a co-author on Tech IT Easy, who preferred looking at images than reading text when she was young; it might have left marks! You can find out more about her on this blog’s initial announcement or her blog.

Coolblue.nl – business structure, long tails, and growing in Europe

My first, no second, Dutch article since I started here. Shocking!

I’m fascinated by company structures, as you may well know, particularly those that promote a higher customer satisfaction (making a difference) and growth (on a higher scale). As I’m no internet-guy (I don’t program, I use), and I really am more focussed on “hard” and the front-end of businesses, “long tail” concepts are usually pretty far from my sight. Still an article in the Dutch Marketing Tribune on Cool Blue struck my eye, partly because it won the Dutch  entrepreneurship award for 2006, and also because that is where I bought my first (Creative) mp3-player. And like many online retailers, it benefits from long-tail principles.

Let me start with business structure and how this affects the end-result for customers. Cool Blue, similar to a publisher, is really just an umbrella-company, split up into a number of specialised mini-stores (see pic) . Instead of having a warehouse full of electronics shoved into the face of customers, they instead make it simple. Want a PDA? Go to PDAshop, want an MP3-player? MP3shop. Etc. By using simple relevant names, instead of a global brand-name, less effort needs to be done to educate the market. It also makes life easier for customers, who usually tend to shop with a single device in mind.

Cool Blue is from Rotterdam, founded by a group of fellow students from my university, Erasmus University of Rotterdam, aka. Rotterdam School of Management. The company was started in 1999, while “long tail” became hot in 2003. So it is definitely a forerunner there. Very quickly (we’ll probably review the book later), Long Tail theory comes from the field of statistics, and stipulates that when there is great variety and little in fixed and variable costs, equal or more revenue can come out of niche products than than top-sellers. More on the theory can be found on Chris Anderson’s blog.

Andersen based this theory on businesses like Rhapsody, an online music-retailer, yet this applies to a lot of other businesses also. How Cool Blue fits this theory is as follows. To start, the company likely has a shared logistical backbone, allowing for lower costs and higher diversity than a single specialised store would have. By offering separate store-fronts, it also appeals to the single-minded customer, who usually tends to look for that one device, but may also be needing a wide array of accessories. And, even though the front-end is split up, the management-strucure is very flat, allowing for quick changes to be made per store. Each store also employs its own personnel, translating into quick and superior customer-service, even for niche-products.

This model doesn’t seem quite as efficient as an Amazon + search engine combo, yet at the same time it seems more avant-garde. Why, if the internet is virtual, must we emulate the warehouses from the real world? Just like specialised sites, like Etsy, seem more comfortable and personal to shop in for art than big & busy eBay, can a business not recreate this feeling internally as well? I think Cool Blue is succeeding here, by leveraging synergies on the backbone and the cheap costs of setting up multiple internet-stores on the front-end.

What about international expansion? In a fairly logical fashion, the first country Cool Blue is expanding to is Belgium, most similar in culture and language to the Netherlands. If it can reap sufficient talent and experience there, I expect expansion into countries like Germany and France will be relatively seemless also. But it took a while, and I imagine that this move was not an easy step.

I mentioned before that I think expansion in Europe is a mini-nightmare. Sure, we have the European Union, still there are both administrative, cultural, and linguistical barriers to overcome. The traditional advantage of European businesses expanding, over the US-variant, is that they are confronted with these barriers sooner, making them more adept at overcoming them. The disadvantage is that, except  perhaps for Germany, France, and Spain, you don’t have a large home-market to offset any learning-costs that could arise. Another disadvantage is that globalisation is no longer new. Plenty of business is global now and much data is being shared among them, making the learning-curve a little less steep. There is also the internet, which makes some, though not the cultural and linguistically aspects, nor some of the legal ones, irrelevant.

How can European business compete then? The easy route would be to move to a large market quickly. The not so easy and more exciting route would be to leverage some of the advantages that globalisation brings, such as logistic and marketing synergies, with some of the advantages of localisation, such as understanding local culture better and offering a superior customer service. In the end, many global and internet businesses lack greatly in the latter department, offering what I think is a gap in the market.

Whichever path they chose, good luck to Cool Blue with their future ventures!

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This article was inspired by a Dutch article in Marketing Tribune, the first Dutch magazine I enjoyed reading from start to finish.
Vincent is a co-author on Tech IT Easy, who’s resolution it is to spend more time discussing European (technology-)business-economics (We’ll see). You can find out more about him on this blog’s initial announcement or on his site.