The Innovator’s Dilemma – why companies still don’t get it

Why do so many Fortune 500 companies fail with their innovation programs? Because they don’t address the three things needed for success – Keeping start-up “founders” involved, transparently managing internal politics, and being patient as the business scales.

Clay Christensen's seminal work, "The Innovator's Dilemma" (Harvard University Press, 1997) posited that companies have difficulty recognizing and dealing with disruptive changes to their business model because the efficiency built to scale their primary business is so efficient it creates a significant barrier to transformative innovation.

While there has been some criticism of his methodology, since its publication in 1997 we have seen several additional examples of companies that couldn't deal with disruptions that ultimately undermined their core business; Kodak, Borders and Nokia are just three that come to mind.

Many of these disruptions are the result of Internet and digital technology, and the pace of change in those industries has spiraled into an even faster pace of change across a host of businesses ranging from hospitality to media.  For example, in just the last 15 years the music industry’s dominant revenue stream has moved from selling CD's to individual songs online to now selling music as part of streaming services like Pandora and Spotify.

The question is, since Christensen's work is well known by CEO's, how come so many companies, from the Fortune 500 on down, continue to have a woeful success rate in scaling new businesses to address innovation in the marketplace? 

Having successfully worked as an intrapreneur launching start-up businesses or channels for most of my career, including stints at 3 Fortune 50 companies (GE, Citigroup, and MetLife), I’ve seen that  most big companies are pretty good at creating new products and processes to address changes in the marketplace.  This is particularly true for companies founded on technology and innovation, such as Xerox creating the first Graphic User Interface and the Mouse (built on work done at Stanford), and Kodak inventing digital photography.

The issue most company’s face is in selecting and scaling start-up businesses or channels.  Companies (particularly those in the Fortune 500) have had groups dedicated to innovation for decades, and had the resources to buy smaller companies which threatened their core business.  The problem arises when they try to scale the start-up or new company by integrating it with existing business units built for scale with a strong entrenched interest in maintaining the core business model.  Like anti-bodies that ward off a perceived disease, these vested interests, which are measured by delivering efficiency and the yearly P&L, are deep in the organization and they fight the flexibility and resources required to scale the new business.  

One example of this resistance to change was the reluctance to add a URL to Citi Cards Direct Mail so people could respond online to a card offer.   The Direct Mail marketing team thought that if the URL was added to the Direct Mail pieces, it would suppress response, as potential customers would be unsure if they should send back the application, call-in, or go online.  It took a year of testing before the individual Credit Card business units would allow the Internet team to make this change, but within 2 years 50% of Direct Mail response came through the Internet without suppressing overall response rates.

To successfully scale new businesses and channels to address disruptive change, CEO's need to do more than staff and fund an innovation group and then mandate when it should move over to the appropriate line of business.  They must take three actions while exhibiting patience to nurture new business opportunities through their start-up to scale adolescence:

1.    Keep Start-up Management/Founders Involved - While the creators of the new business or channel may not be the right people to help scale it, they need to help guide its evolution to insure that the essence of the new opportunity isn't watered down as compromises are made for the sake of efficiency or expedience.  This is particularly true when leveraging technology and operations, which at most large companies lack the flexibility and nimbleness needed to iterate new businesses. Many start-ups within large organizations outsource technology/operations to 3rd party vendors for that very reason. As the technology and operational infrastructure are brought back in house, features and functionality can be compromised to the point of ruining the start-up's effectiveness.  Steve Jobs was famous for insisting that new products, which he was often personally involved in developing, not be compromised as they scaled, despite the economic inefficiencies sometimes caused by staying true to the original vision. 

2.    Transparently Manage Internal Politics - Managers of core businesses are often baffled when precious resources - which could be used to incrementally improve their business with a more profitable return - are diverted to the start-up. When the start-up is moved to the core business to scale, this resentment can result in under-resourcing the start-up or forcing it to work within the core business' processes and procedures.  One way to avoid this is to track and incentivize core business managers to grow the start-up, even at the expense of investing in the core business.  This was done at NBC to help raise awareness of and interest in CNBC by providing media inventory on the network. To get the Citi Cards business units to allow marketing a new debt consolidation product to their cardholders (which threatened their highly lucrative revolving balances but which were being picked off by competitor products), I moved the P&L for the new product to the Citi Card business it came from.  For example, if I marketed to an AAdvantage cardholder, the Citi Card AAdvantage business unit got the financial benefit if the cardholder took the new product.  This aligned business interests internally, enabling the business to triple in receivables in consecutive years. 

3.    Be Patient - Growth Isn't Linear- For most companies, the new business inherently will take time to become "meaningful" compared to the core business, and will have setbacks.  At Citigroup, I had a manager dismiss the growth of the Internet channel, which went from 0 to 10% of new loan originations in less than 3 years, because its impact in the company’s P&L was "a rounding error".  A few years later, the Internet was significant contributor to Citigroup's business and an anchor for its banking business.  By rewarding year over year growth, celebrating milestones, and tracking results for the new business as part of yearly financial and strategic reviews, the momentum for the start-up can continue as it matures.  It is also critical to understand that without some failure, you cannot truly innovate or scale a start-up business.  The Direct to Consumer business at MetLife took several years to scale, but when two new products were launched based on customer feedback and learnings from previous setbacks, the business saw a marked step change in growth.

As any parent knows, adolescence is a difficult time when children establish their own identity distinct from the rest of the family.  Scaling start-ups is equally difficult and companies may lose patience as core business process and procedures look to absorb and inadvertently smother the new product, channel, or process. Companies must address and overcome The Innovator’s Dilemma by recognizing that scaling is even more crucial (and difficult) than starting a disruptive innovation, and requires an abundance of nurturing, patience, and protection.  After all, only as an “adult” can the start-up meaningfully contribute to the growth of the company and offset declines in legacy businesses.

Why companies need a Chief Digital Officer

At the beginning of 2007, the iPhone hadn't yet been launched, the iPad was a gleam in Steve Jobs eye, Pinterest didn't exist, and Facebook was a niche site for college kids with 15 million users. In roughly 5 years, the digital world has changed dramatically and, more importantly, the pace of change is accelerating given the rapid adoption curve of new devices and sites over the last 2 years.  Want proof?  Consider that  the Ipad is just over 2 years old, yet accounted for over a quarter of online retail sales last Christmas.  Or the rapid adoption of QR codes in both media and at Point of Sale.

This pace of change, combined with the fact that digital initiatives cut across multiple functional areas (Marketing, Sales, Technology, Operations, Customer Service, PR/Communications) has driven a growing call for a new, senior level role - The Chief Digital Officer (See Tim Bourgeois' article in CEO Magazine, or Maija Palmer's recent article for the FT - The Digital Career Switchover - sorry, you have to register to see it). Tim Bourgeois even provides a threshold at which point a company should hire a CDO.  If the company spends more than 5% on digital initiatives that cut across 3 or more functional areas, the company needs a Chief Digital Officer. The reason is simple - given the pace of change, having a flexible, cross-functional digital strategy is critical across three time parameters - 12 months, 24 months, and 36 months (beyond 36 months is almost impossible given the rapid rate of technological changes).  Having a senior level executive with the CEO's ear and keeping on top of the impact that emerging trends have on your business is critical to both the long AND short term success of the company.  Industry leaders such as Borders, Kodak, Blockbuster, and Blackberry have been destroyed due to underestimating the pace of change and adoption of new technology.

Digital doesn't fit neatly into any functional area.  Consider the following:

Marketing - The days of your brand, product, or service being defined by a 30 second TV spot or billboard are long gone.  How should you engage with customers across the purchase funnel (Awareness through advocacy)?  How do you use social media, mobile, crowdsourcing, loyalty/CRM programs, and other tools for digital customer engagement?

Sales/E-Commerce - Sales of products and services online are growing at double digits across virtually every category, and B2B sales have been accelerating.  But how does E-Commerce interact with physical retail?  How do you diversify existing distribution channels and place bets on emerging ones?  Pinterest wasn't on the radar 9 months ago and now is a leading sales generator for several retailers.

Technology - The move from local to Cloud based hardware and software over the last 3 years is revolutionizing technology, as is the move to increasing powerful mobile devices driven by employee adoption rather than business adoption (look at how iPhones and iPads are replacing Blackberrys in the workplace). How will the growth of voice recognition software affect business processes going forward (think SIRI)?


Operations - iPads have moved to the factory floor and into stores, supply chain initiatives are rapidly replacing proprietary networks with Cloud based resources, and customers are getting used to less paper and more online interaction.  But which SaaS companies are the best fit for a business?  Which ones will be around in 3 years?  Where is technology and process re-engineering going?  Given the long cycle times to re-engineer a part of the supply chain, are you sure choices being made a year or more out are the right ones?

Customer Service/Experience- The old adage was, if a customer is happy they'll tell 2 friends, if they're unhappy, they'll tell 10. With Social Media, that becomes thousands. Understanding customer expectations, leveraging advocates, and engaging with them to gain insights on process, product, and promotional improvements are critical for success in building the business.

PR/Communciations - PR leaders took the initiative a few years ago to "own" social media in most organizations, and have been successful using the Internet to optimize company communications for SEO and pickup.  In terms of Social Media however, the challenge has been that digital customer engagement goes well beyond communications to touch on customer experience and marketing, which has created conflicts within larger organizations over ownership and messaging strategy.

The new CDO has to work across all of these areas, and ideally has some level of experience in at 3 of the functions with respect to using digital platforms.  (S)he must be able to work cross-functionally, be a team player, and be comfortable that specific executional resources should reside within the appropriate department to maximize success.  Will this become an established C-level role within the next three years?  If not, companies risk the fate of being in the buggy whip businesses as cars fill the road.

5 Key Digital Trends in 2012

As the year comes to an end, with more sales online on Cyber Monday than in physical stores on Black Friday, I see 5 key trends that a CEO needs to plan for in 2012:

Key Trend 1 – Mobile is here and is being adopted faster than any new technology in history

While you can debate whether or not an Ipad should be considered a Mobile device (I do due to the portability and touch screen), the adoption of smartphones and the move of information consumption and buying from computers to mobile devices is staggering. The Ipad is less than 2 years old, yet there will be 50 Million in use in the US by the end of the year. Smart Phone penetration is over 44%, and this Holiday season over 15% of online purchases were made on a mobile device, over three times last year. The one millionth mobile app was released last week, a ten-fold increase from 2 years ago. 7.5 Million QR codes were scanned between Thanksgiving and December 4th this year, and 65% of smartphone users used their mobile device to find a business and make an in store purchase. Amazon offered a $5 credit if you used their Price Check app to scan a bar code in the store before a purchase. And 20% of all emails are now opened on a mobile device. Whether you are a physical retailer, a B2B company, a service provider, or a wholesaler/manufacturer, the accelerating pace of mobile adoption, which is a historical trend that seems to be following a Moore’s law type of pace, means that you can’t afford to wait to see how mobile sorts out. At a minimum, you need to have at least a test and learn mobile strategy in 2012 or risk falling behind competitors.

Key Trend 2 – Digital customer engagement (formerly social media) will generate lead generation and have measurable sales impact

While Digital Customer Engagement (which ranges from Facebook to Customer Reviews to B2B blogs) has been an emerging factor for the last several years, 2012 will be the year it becomes trackable to measure true business impact. Whether it is leveraging LinkedIn groups and data to generate appropriate B2B leads, adding ratings and reviews to lift conversion rates, or starting a referral or loyalty program to enable your biggest fans to sell for you, it is critical to have a plan to leverage digital customer engagement to drive business next year. Mommy Bloggers are already making a good living by using their influence to market products and services to their readers, and 10% of people share their purchase on Facebook from the confirmation page of an E-Commerce site when that option is available. Finding a company or hiring a resource to help create a plan and track the results of digital customer engagement in 2012 will pay for itself if executed properly.

Key Trend 3 – Video, video, video (or whatever digital broadcasts should be called)

48 hours of video are uploaded to YouTube every minute, but more importantly video is playing a critical role in search and customer engagement. Whether it is online tutorials, product demonstrations, communicating key trends/whitepaper information, or just providing background information on a company or management, video will be an expectation of online customers in 2012. There is a reason television was the most dominant channel in terms of media consumption until the Internet recently surpassed it (due in large part to the consumption of television and movie content online). It is still the most powerful way to connect with a person in terms of a story or message, and the growth of animated videos to explain software as a service products has become standard (for a good example, check out http://www.hubspot.com). Unfortunately, a good online video (which shouldn’t be more than 2-3 minutes) can be expensive to produce, and not all CEO’s are comfortable in front of a camera. Think about how video can enhance your product message or create interest in your product and company, and get at least a few up in 2012.

Key Trend 4 – Data Management

The proliferation of online data, due to the power of cookie technology and increasingly powerful, cloud based servers which can crunch that data into actionable information, will be harnessed in 2012. Several companies are making inroads in terms of truly mastering online business intelligence, and we’ll see a standardization of dashboards based on business type and industry take hold by mid next year. While I don’t think we’ll see the “holy grail” of a dashboard documenting the business impact of all online and offline marketing efforts by the end of next year, we are getting closer. The key is not to just collect data, but to understand its implications and get recommendations on what actions to take to drive the business forward. Too many companies have collected multi-tab spreadsheets documenting traffic sources, on site activity, shopping cart abandonment, and customer purchase or engagement behavior without turning that data into insights. Next year, start with key business priorities and task internal or external analytics resources to figure out which data can be used to track those priorities and to provide insights on how to accomplish them. This should include a daily, weekly, and monthly dashboard with key trends/insights included to help manage and grow the business.

Key Trend 5 –The world is getting smaller

Quietly, the growth in cross-border purchasing and media/information consumption, particularly non-U.S. customers buying or interacting with U.S. based websites, has exploded. A typical U.S. business site gets 20% of its traffic from overseas visitors, and with credit cards and PayPal the payment vehicles of choice for the Internet, it is easy for an international customer to buy from a U.S. site. Cross border shipping is being figured out (check out i-Parcel.com as one example), as are translation services provided on a SaaS basis to translate your site on the fly (check out Smartling.com). Check your server logs or Google Analytics to see how much traffic is coming to your site from overseas customers. If your product or service has the potential for international distribution, 2012 is the year to start testing it.

Feel free to let me know your perspective on 2012 trends below.

Steve Jobs, Intuitive marketer

Steve Jobs great life and career ended today at the all too young age of 56. Whatever he was like as a person and a boss, you can't argue the fact that he will go down in history as a great man who is more personally responsible for the digital era than anyone else. Jobs not only tranformed computers and portable digital devices, he revolutionized music and animation, and his design and product development genius led Apple to become the most valuable company in the world. His impact was so great that people felt connected to him on a personal level, evidenced by the outpouring of sadness both when he left Apple and upon news of his death. The devices and services he created are so personally important to people, the emotional connection with them was extended out to Jobs as the creator.

At the heart of his genius, Jobs was an incredibly intuitive marketer. His distrust for research was legendary - he allegedly never got consumer feedback on any product or service, insisting that customer input was unnecessary and even counter productive. How can you get input on a product the customer doesn't even know he or she wants yet? As someone who believes in using analytics to improve marketing outcomes, and that customer research is a key part of understanding unmet needs, I can only envy Jobs ability to know what people will covet. He had a sense of how to make products so cool, people lined up at stores and happily paid a premium to get them (there were never direct competitors, just inferior alternative products that did some of the tasks of the Apple product). He was ruthless in his vision and his attention to design details (his name is on 313 patents, ranging from PC's to package designs to the glass staircase in Apple stores), controlling every aspect of product design and development as well as marketing.

He knew what people wanted before they knew - a graphical interface for PC's to make them easier to use (the MacOS), portable music devices holding thousands of songs that looked as good as they sounded (iPod), a tablet that is quickly putting paper based media out of business(iPad), animation that seemed to leap off the screen (Pixar). Sure he had some misses (notably the Next Cube), but when you swing for the fences every time up (and Jobs did), you have to put up with the occassional strikeouts.

People have called him a modern Thomas Edison or Leonardo Da Vinci, and they are valid in terms of his record of invention. But I think the world has also lost one of it's greatest intuitive marketers, and it will be a long time before we see another one like him.

Google is a complete failure - the need for curation

Google is a complete failure. Not as a business venture, although if it doesn't fix the shortcomings of search I don't think it will be nearly as profitable in 5 years. Not in terms of technology. Google has terrific search algorithms that usually do very well finding everything important related to a keyword or search string. No, it is a failure in curating the results of what I'm looking for so that I get the EXACT result I'm interested in within the first three listings. Instead, I get literally millions of results. Student Loan generates over 31,000,000 results. Travel to Costa Rica (a personal favorite), 186,000,000 (as an aside, I'd love it if I could skip to the very last page of results to see what's there). You used to at least be able to use the "I'm feeling Lucky" button (although honestly I rarely got lucky), but with Google Instant, I'm not sure that is even an option anymore. And with businesses dedicated to gaming search (and as a consultant I've advised clients to do the same), Google is fighting a losing battle using technology. The opportunity has given rise to Blekko and others that actually use human beings to provide better search and curation, which is truly ironic given that Google put Yahoo's manually curated search out of business during the last decade.

I'm not just picking on Google and search however. The same things goes for finding customized content. I get half a dozen newsletters a day to keep up with digital media and E-Commerce, and it takes far too long for me to sort through them to find out the key stories I need. Groupon keeps sending me Brazilian Wax offers (which sounds pretty painful), even though I haven't clicked on one in a year. What is desperately needed is professional curation, and I'm not sure technology alone can do the trick. I've written a few times about the New York Times and the value it provides curating news for me (http://lewisgoldman.blogspot.com/2009/01/why-nytimescom-should-charge.html). The Times decides what is on the Front Page based on the gut feel of their editors, not based on any statiscal model. Same goes for Travelzoo, which culls the best travel deals on the web and sends 20 of them to me every week. Curation is clearly the next big opportunity in terms of Internet and Mobile content, and those who understand it will be the next wave of winners. If you'd like to see how powerful it can be, try the search I did for Student Loan on Google, Bing, and Blekko. Google and Bing's top organic results are both studentloan.com, which is the URL I secured for Citigroup when I was running E-Commerce for their lending businesses in the late 1990's. Its a great site, but lets face it, its goal is to get you to apply for their Student Loan. On both search engines, Citigroup is followed by Sallie Mae, another student loan lender. Blekko's top two results - a Government run site about Student loans and a blog with great Student Loan information. Neither are perfect (top choice should be Finaid.org in my opinion, having worked in the industry a few times), but both are at least providing information rather than selling a product.

The businesses and sites that can curate and provide relevant results quickly will be the big winners. I don't know anyone who has time to go through 31 million sites.

The Pivot

The Pivot. That key moment when a business needs to change its business model, target, product - sometimes all three - dramatically to either survive or thrive. At larger companies, it can be wrenching to acknowledge that it is needed and even more difficult to follow through. The entire enterprise is build around a business model, and the realization that it's not working anymore is akin to (especially if the founder is still in control) to acknowledging their beautiful child has turned into a monster as an adult. Kodak had to transform itself with the rapid demise of film cameras (see http://buswk.co/8EEIae for an overview, http://bit.ly/mVcA63 for the details from a financial standpoint, and http://bit.ly/g5Hpmf for the most recent update). Jeffery Hayzlett is making a nice career writing books and lecturing about Kodak's success. IBM also pivoted, moving from a hardware to a services company. But for every big company success, there are legions of failures, in some cases because the pivot to the new business didn't match the speed at which the old business model was collapsing (GM and Chrysler, which survived only because of US bailouts, are two examples. So is Borders, which didn't get a bailout). To a large extent, that's what is happening in publishing today, particularly to newspapers. Newspapers are a Baby boomer item - people under the age of 35 simply don't read them in there paper form. I wrote a couple of years ago that the New York Times was making a critical mistake not charging a subscription fee (http://lewisgoldman.blogspot.com/2009/01/why-nytimescom-should-charge.html), which they finally corrected more than a year later. Their most recent financial results touted 224,000 online subscribers in the first quarter of launch. They've even started to advertise the digital version seperately from the print subscriptions. With the Ipad version, you'll see an acceleration of digital subscribers and, most importantly, re-engagement with a younger demographic which will pay off in advertising dollars. To complete the Pivot, they need to acknowledge their print version is for Boomers, increase the typeface (Please!), and focus on stories and news that that demo is interested in reading.

While big companies have trouble with the Pivot, start-ups can also struggle with it. The biggest impediment tends to be the passion and focus of start-up CEO's. They had a vision which they sold to investors, employees, the press, customers. Admitting that vision either won't work or is missing a bigger opportunity is an admission of failure, and many start-up founders struggle and delay the Pivot as a result. Having worked in business that wouldn't or couldn't Pivot, both big and small, it's clear to me that acknowledging the need for a pivot and then moving as rapidly as possible towards the new business model is critical for success. Otherwise competitors without the baggage of another business will pass you by.

The ignored digital baby boomer

I'm a digital immigrant, as are all Baby Boomers. We grew up with 5 or 6 channels of TV, black phones with cords, and 8 Track tapes. Defined as people born between 1946 and 1964, Baby Boomers are the largest segment of the US population, have the most wealth (despite the setbacks of the last few years), and should have more available time to spend online given their kids are grown and some are approaching retirement (ok, maybe not so much given the economy). For the first time in history, there are more people over the age of 65 than under 5. But reading about technology and business, it seems that the Baby Boomer generation which got so much attention in the 1980's and 1990's has disappeared. They're not on Foursquare, they don't tweet. They've learned to text, at least those with teenagers, and they like iphones but still don't use the mobile web very often. They watch TV on, well, a TV. And the vast majority of startups don't seem to be targeted to them.

Fact is, Facebook only became big when the baby boomers started going on and using it. Zynga's games, particularly Farmville, took off when 40 and 50 something women became obsessed about getting a tractor. The growth of Flash Sale sites (and to a lesser extent daily deal sites) have been driven by boomers. And LinkedIn's valuation (and value) is a direct result of baby boomers connecting with one another. Baby boomers drive the Internet economy, but there is still a dearth of products and services specifically targeted to support them. For example, a recent report indicated that the most expensive keyword to buy on Google is Insurance. Think Gen X or Gen Y is driving that? Boomers have been distracted for the last decade dealing with paying for kids in college and aging parents, with little help from the Internet. Where is a a one stop resource for elder care? A good financial planning site besides Mint? Advice on funeral preparation to help with dealing with lost parents. When marketers start to figure out products and services for Baby Boomers, you'll see another step function jump in E-Commerce and Internet advertising revenue.

Great uses of Mobile

I've struggled with smartphone versus desktop Internet for a while, but now I'm seeing some great uses of mobile that truly address customer needs. My new favorite is a simple SMS txt service - CooCoo (266266) - offered by Metro North. You txt where you're going (for example, Grand Central or GCT to Larchmont), and it gives you the next four trains to that station (departure and arrival). When you're in New York and on the run, its a lot better than fiddling with a paper schedule. They now offer cross-street information through the same service. Now wouldn't it be cool to offer plane and Amtrak information in the same way? How about movie times (for example, Clearview Cinema, Mamaroneck and back comes the next two showings of each movie. Or do it by movie through Fandango by just inputting the movie).

Another good one is "Skip the Line", a trivia game created by Ask.com in conjunction with Six Flags (http://bit.ly/imaQAy). Game does just what you'd expect - you answer some trivia questions successfully, and you get to move up the line at a Six Flags ride. Great use of geolocation to solve a customer pain point. Of course, you have to have an iphone and download the app to play.

These two, plus seeing my daughter's friends obsessively "check in" via Foursquare to get local coupons and freebies, have made me a lot more bullish on mobile.

Crowdsourcing a revolution

On February 11, a revolution in Egypt culminated in President Hosni Mubarak resignation as President. As stated by CNN, "Inspired by a revolt in Tunisia and a page on Facebook", over 18 days mass protests coordinated predominantly through social media and cell phones (Twitter, Facebook, texting) brought down a dictatorial leader who had been in power for 30 years. The role of Social media in Mubarak's downfall has been hotly debated. On the one hand are the legions of news media outlets and bloggers who view Egypt as the first (but not the last) crowdsourced revolution (see The Instrumental Role of Social Media in Egypt on http://www.cbsnews.com/8301-503544_162-20030611-503544.html and E. B. Boyd's How Social Media Accelerated the Uprising in Egypt in Fast Company http://www.fastcompany.com/1722492/how-social-media-accelerated-the-uprising-in-egypt). They argue that the speed and efficiency of the revolution was directly attributable to the social media tools available to the drivers of the revolution, disenfranchised 18-24 year old Egyptians. If not for these tools, Mubarak would have rounded up and captured the leaders of the movement before they got traction with the general populace, and he'd still be in power today.

On the other side of the debate are those who feel social media's role is grossly overstated(see Malcolm Gladwell's article "Does Egypt need Twitter" in The New Yorker http://www.newyorker.com/online/blogs/newsdesk/2011/02/does-egypt-need-twitter.html#ixzz1CwFMDA3b, and Jaikumar Vijayan of Computerworld at http://blogs.computerworld.com/17810/is_the_role_of_social_media_in_egypt_being_overstated). They point out, quite rightly, that crowd based revolutions have occurred throughout history (French Revolution anyone?) without any electronic social media tools.

While both sides have a valid point, it is clear that crowdsourcing and social media tools played a key role in the overthrow of the Government. With the speed of news dissemination and the ability to engage others quickly for protests, social media played a key role in moving from first protest to resignation within 18 days while providing a level of anonymity for the leaders until momentum clearly pointed to Mubarak's downfall. The key point here is anonymity for the leaders of the movement. With obscure Twitter and Facebook ID's, Mubarak's secret police didn't know who to round up. Traditionally despots have found and silenced opposition leaders before they could gain traction. In this case, without cooperation from two US based companies several thousand miles away, they couldn't find the individuals to arrest and interrogate. Finally, Social media tools are public (Twitter is publishing "Tweets from Tahir", a book of tweets that occurred during the revolution), which provides international support, sympathy, and ideas to help a movement succeed.

It took 4 years for the French Revolution to move from the storming of the Bastille to beheading Louis XVI. Wonder how much faster it would have happened today?

Why The Daily will work

Newscorp launched the first iPad specific media property, The Daily. It's the first major news publication to be designed from the ground up specifically for the iPad, and while its success or failure will be determined in the marketplace, I think it will work. Because it is designed from the start to present information the way the reader/viewer wants it, with video, pictures, text, and interactive elements seemlessly woven together, it will be more engaging than a series of articles. While the business model matches the offline world (dual revenue stream from subscriptions and advertising), the design isn't linear. It was built to move where your interest takes you, and you can drill down into stories and images for more detailed information (see the video at http://www.thedaily.com/). The only thing that needs to be enchanced are the social media aspects (you can post to Facebook and Twitter, but I'd like to see reader comments added), but that is a nit.

Bottom line - The Daily is the start of a new wave in publishing, and I applaud Newscorp for making the investment and taking the risk.

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Social Networks and the Ah Ha moment - from Serendipity to systematic research

Remember your first focus group. I'll admit that my memory is a bit fuzzy. I think it was sometime in 1985 when I was working at Foote, Cone, and Belding, an advertising agency. We were listening to people discuss laundry detergent, looking for that "Ah ha" insight that would help us reposition Dynamo and make it relevant again. As the respondents gave their feedback on different positioning concepts (recommended by DuPont as effective at preventing future stains!), we sat in the back room eating M&M's and hoping for that great quote, that key moment when someone said just the right thing for us to move forward with advertising.

Now 25 years and literally hundreds of focus groups later, it all seems so quaint in the world of digital social networking. Thanks to Facebook, Twitter, Survey Monkey, and a host of other tools, we no longer have to rely on the serendipity of catching an individual respondent at just the right moment. You can survey virtually all of your customers, or at least the ones that matter most, and get their insights in a systematic way through sentiment analysis or harvesting verbatim comments and organizing them by keywords. The biggest challenge is no longer collecting - every customer comment about your brand or product is captured digitally for all eternity. The challenge now is sorting. At 1800flowers.com, we did bi-weekly customer surveys with thousands of respondents, and the challenge was always how to review the answers to open ended questions. Like Google, algorithms are being developed to sort, parse, and refine the customer comments, like panning for gold in a stream. These algorithms can help provide a ranking system to be used systemically for product positioning, new product development, loyalty building programs, and improvements in customer experience. Qualitative has become Quantitative, and as a result we now have "Ah ha" moments to choose from as long as we are willing to invest the resources to find them.

Intimacy and your mobile phone

No, it's not a joke about the vibrate function. The relationship people have with their mobile phone (or device, since 40% have smart phones with the number climbing rapidly) is a much closer one than with their TV, Computer, video game, ipad, or any other consumer electronics product. It's part of their wardrobe, an essential item they won't leave home without. One former colleague of mine used to joke that her husband and son called her Blackberry "the precious", reflecting that it was as important to her as the famous ring was to Gollum in Lord of the Rings. If I want to discipline my kids, the only thing that works is threatening to take their phone away (Losing TV, Internet, video games, dinner - all are ineffective in scaring them). Your mobile device has your carefully selected ring tone, your music, your contacts, your long running IM or BBM conversation with your best friend (two years and counting!), pictures of your kids, funny videos, and all of the information you'll need to find a restaurant, buy clothes on sale, or settle a bet on who was the female lead in "Dirty Dancing" (Jennifer Grey). Based on several surveys (including one indicating 2/3rds of people sleep with or near their cell phones - http://bit.ly/aK50yf ), people would be most disturbed to lose their phone above any other possession - over house keys, car keys, or even their wallet.

So what does this intimacy mean in terms of marketing? It means the expectation of personalization and relevance is higher for a cell phone than any other device. Spam text messages are intrusive, not just irritating. Irrelevant ads annoy - they aren't just ignored. An advertiser has to earn a relationship with a cell phone customer. That means giving them something relevant and of value. It means recognizing what's relevant to THEM, not just what you want to push. On virtually all smart phones, there is no way to identify and track the user, making it very difficult to do targeted advertising (I'm on the advisory board of a company called Collider Media that has patent pending technology to solve this problem by identifying customers through matching the device ID to an individual via a database look up, all while adhering to the strictest privacy guidelines. For more information, check out www.collidermedia.com). Successful mobile advertising will provide relevance and create a tighter relationship with existing customers by providing personalized service, offers, and information. Perhaps it's a coupon specifically for a product the customer frequently buys ($2 off a Venti Carmel Frappuccino for me please - sorry, its a weakness). Maybe a geo location play (the $2 off offer is good at the Larchmont Starbucks on Palmer Ave). Finally, information relevant to me (My friend Steve is at that Starbucks right now - would you like to let him know you'll be stopping by?)

Looking at smart phone advertising through the lens of its intimate relationship with its owner raises the bar for the advertiser in terms personalization. But the payoff is increased effectiveness. Now I'm off to pick up that Frappuccino :)

Engagement - who cares how many fans you have if you're not on their newsfeed

According to AllFacebook.com (touted as the Unofficial Facebook Resource), Starbucks (14,748,880 as of 10/8/10), Coca-Cola (13,262,027), Oreo cookie (10,693,331) and Skittles (10,289,154) have the highest number of fans (technically number of people who like the company/brand and link to it like a friend) of any non entertainment company or brand. They are the only consumer brands in the top 30, and all have done extensive marketing and promotion to attain their lofty status. But what does it mean for a company to have millions of fans? How does it generate value? Can you calculate an ROI?

Certainly there is some tangible value to having fans as a company or brand. Starbucks leverages their Facebook page to provide special offers to drive store traffic, get customer feedback, tout events (Pumpkin Spice Latte photo contest anyone?), and engage customers in product development and promotions. They also use it to tout their social good advocacy efforts (as does Coke). Interestingly enough, they don't push you to "friend" them. Coke, Oreo, and Skittles all route you through their app page which requires you to friend them, allowing them to see your profile and friends. The applications are fun (Create your own DRSL team on the Oreo cookie page , Fan downloads and contests on the Coke site, and Mob the Rainbow on Skittles), but based on the numbers only a small percentage of the fans (less than 2%) seem to be participating. More telling, the Wall comments (which would get exposure on fan pages to their friends) are relatively sparse given the number of fans. While all of these sites are adding friends at a rapid click, how is it impacting their sales and brand?

The key to social networking and engagement is not the number of fans, but their level of engagement. How often are they interacting with the brand? What are they posting about their experience with you on their own walls? Are they using other social networking channels such as Twitter to spread the word about an app or offer? These metrics are far more important that the number of fans who "friended" a brand to enter a sweepstakes or get a discount. The true success of social networking for a brand or company is to provide a forum for brand advocates to communicate with you and influence others into behaviors desired by the company. At 1800flowers.com, we started a "Spot a Mom" movement last year with bloggers which we spread to Facebook and Twitter. The goal was to get people to "spot" different types of moms (Green thumb mom, Pet lover mom, Mom of a mom, etc.) leading up to Mother's Day, as part of our marketing strategy to leave no mom behind and ensure all of them get flowers on the highest transaction day of the year for the Floral business. While we only had around 25,000 fans, we were able to influence over 6 million potential customers and exceeded our projected business goals by 9%.

The key with Social Networking is to connect and marshal your core, loyal, passionate fans to get the word out and influence their friends. Whether that's 6 people or 6 million, those are the fans you truly want to be your "friend".

P-Comm - Participatory Commerce and the next wave of Social Marketing

Its been called Crowdsourcing, Social Merchandising, Social commerce, and a host of other names. My favorite name for it is Participatory Commerce (P-Comm), which I'd love to take credit for (I will take credit for the shortened version - P-Comm), but Mark Pincus (founder of Tribe Networks and Zynga, which counts Mafia Wars, Cafe World and Farmville among its addictive online games) coined the phrase in October of 2005. Essentially, it means that the classic one way model of the marketer developing his/her product or service in a lab or back room, and then using mass marketing with a lowest common denominator messaging strategy to sell it to consumers is quickly disappearing in several categories.

In the era of social networking, everyone is not only a critic, but can also become part of the product and marketing process. Some of the key aspects of Twitter reflect P-Comm, as their users created or defined many of the key elements of the service (including the name Tweets, #tags, and retweeting). The founders stepped back and let the users decide how their service should evolve, and then fostered initiatives that seemed to gain traction. Data indicates that ratings and reviews improves conversion rates on E-Commerce sites, as 70% of online consumers indicated they trusted opinions posted by other visitors (Nielsen Global Online Consumer Survey, 7/09). Blogs attract over 80 Million unique visitors, and mommy bloggers have become a key marketing partner for advertisers looking to reach mothers (At 1800flowers.com, we worked with Mommy bloggers to launch our Spot a Mom campaign last year, with strong results). Youtube has enabled anyone with a digital camera (or digital phone) to create their own mini-movies, and the world is a better place now that everyone can share the antics of their adorable pets. Last, but certainly not least, Facebook has reconnected millions of former roommates, boyfriends, girlfriends, and stalkers while providing a steady stream of what is going on in their lives.

P-Comm will take social networking and E-Commerce to the next level. How about asking your customers to create a new product or service for your company? Or asking them what offer they'd find compelling? Maybe they could develop your logo as part of a contest? We've already seen user generated commercials which advertisers have aired on the Superbowl, so why not outsource your advertising to your most loyal customers? The opportunities to have your customers create products, services, offers, and messages that are relevant to them turns one way marketing around and creates ownership. And if customers feel part of the process of creating and marketing your product or service, they'll be more loyal and more likely to provide the most effective marketing ever created - positive word of mouth.

ROT (Return on Time)

To paraphrase the Rolling Stones, "Time, is NOT on my side". With multiple e-mail accounts, Facebook updates, Tweets, Texting, cell calls, and, oh by the way, the demands of the Real World, we don't have enough time. Same is true at work. I recently calculated I was spending over 5 hours a day just on e-mail (I'm fixing that one). So with time becoming an increasingly rare commodity, it is as important to look at ROT when evaluating an investment as it is to look at ROI. Exploring that new product or partnership, revising that presentation one more time, having a meeting to discuss an issue - are they worth it? You need to look at the time spent on something through the same lens as spending hard dollars. Because the opportunity cost of your time might be even more valuable than an out of pocket investment. Are you getting the time to just sit back and think about how to move your business forward? Are you meeting with a vendor who just might be the next Google or Facebook and would offer you to get you in on the ground floor? Is there an agency who might have a game changing idea for you business? You'll only know if you meet with them, and you'll only have time to meet with them if you spend less time on low ROT activities.

Go to where the people are

Retailing hasn't always been as simple as setting up a store, either physical or virtual, stocking up with merchandise that people wanted at a price they were willing to pay, and then marketing to let customers know you were open for business. Centuries ago, merchants had to go where the people were. They'd stock carts with goods that weren't readily available and then go from town to town selling them, pricing them at whatever price they thought the customer was willing or could afford to pay. They'd go to town squares, churches, synagogues, barn raisings - wherever people gathered - so they could sell what they had brought into town. They'd get to know their customers, building relationships over the years. They'd be welcomed as an honorary member of the village (unless someone felt cheated, in which case they'd be run out of town). It was social, relationship based commerce, and it continued with Avon, Tupperware, Pampered Chef, and other door to door and house party retailers.

In the modern age, the rise of mass merchandisers changed mobile commerce to destination commerce. People started going to retailers, searching out what they want to buy rather than waiting for it to show up at their door. Retailers knew that if they marketed, they would come (or they could send them a catalog so they could shop at home), and having a relationship with your customer was secondary to having a range of products at appropriate prices. The Internet started the same way. Sites were built, banner ads were purchased, people came and shopped. Like catalogs, they used e-mail and affiliate programs to reach customers in their virtual homes or at sites they were surfing, always bringing them back to their site store.

Now that the the Social Web has transcended teens to include baby boomers, it is time to consider going back to bringing the store to where the people are and building community based relationships. Stores need to be within social networking sites, offering products relevant to customers while they interacting with them in their virtual villages. You need to be welcomed in, allowing people to discuss what you are offering, both positive and negative, and even allowing people to haggle if they want. But by engaging with them in their "town square", you have an opportunity to bring back the connection the shop cart owner had with his customers. It is the era of "social commerce". How will your business adapt?

The future of content

Leveraging content assets across new, revenue generating distribution channels is a critical challenge for media and entertainment companies as the nature of media consumption shifts. The days of consumers enjoying TV, music, video, film, radio, and print content in the forms created by media companies, at the times programmers or editors wanted to deliver the content, and at the price the company choose to charge for it have faded rapidly over the last 10 years. It started with print media, as newspaper circulation eroded, replaced by real time Internet news sites and ultimately customized, on demand or streamed news feeds. It was followed by the record industry, which ignored customer demand for downloadable, individual songs and as a result saw a rapid decline in CD sales. Radio listenership has declined, with the rise in pod casts, ipods, and streaming music. Finally, over the last two years, it has expanded to video content, which is quickly shifting to the web and mobile and gaming platforms.

What this means for media companies is that they need to rethink their content and how to distribute it. Customers want their media on demand or streamed to them, to their computer and, perhaps more importantly, their mobile device. They want it on their schedule, not the media companies. They want it in time frames that work for them - 2 minutes, 5 minutes, 30 seconds. And they start with the assumption that if there is advertising (and sometimes even if there isn't), it should be free. For publishers facing significantly lower online CPM's, which are under pressure by ever expanding inventory, the math of purely ad supported online content doesn't currently work except for niche and technology oriented content. For publishers to succeed, they need to revalue their content by considering charging for it. Paid circulation magazines and newspapers generally commended higher rates than free publications because they illustrated customer loyalty and engagement while helping to defer costs. As content migrates online, smart publishers will figure out how to successfully parse their content and get readers to pay for at least some of it, creating a second revenue stream.

Social Media and E-Commerce - Fad or Fundamental Change - Interview with Steven Groves and Guy Powell

Check out my interview on "Social Media and E-Commerce - Fad or Fundamental Change" at http://www.iirusa.com/upload/wysiwyg/2010-M-Div/M2208/downloads/MeasureUp_LewisGoldman.pdf

Why nytimes.com should charge a subscription fee

The New York Times is one of mankind's great contributions. The paper not only features outstanding writing, terrific investigative reporting, and engaging, interesting, intelligent opinions and news, it does so consistently every day. It is one of a handful of newspapers that provides content so truly unique and special that people across the country (and throughout the world), not just from New York, are willing to pay for it with their own remote subscriptions. Except they don't have to. Despite the fact the paper is for sale in virtually every major city across the country (and many worldwide), subscriptions for the Times, like virtually every other newspaper, have been declining. With the recession and the related decrease in advertising revenue, and the rise in paper and other costs, the Times has gotten squeezed and as a result has sold assets and cut back staff. Thus the paper's competitive advantage, its world class reporters, are under siege as revenue decreases while costs have risen. Online ad revenue hasn't come close to picking up the slack, and the economy, once again, hasn't helped with online sponsorships.

My brother-in-law lives in Texas, graduated from Stanford, and subscribed to the Times for years until he decided that it wasn't worth it. Every article, op ed piece, review, photo (and many additional articles, pictures, videos, as well as blogs not available in the print edition) could be viewed for free at nytimes.com. In addition, the archives are free, so he can look up any article written over the last 20 plus years on any topic with the search engine. Going to Italy and want to look up that story you saw a few months (years) back on Turin - you can find it in seconds.

My mother once said (in another context), why buy the cow if they're giving away the milk for free. Rupert Murdoch announced after he purchased the Wall St. Journal that he was going to eliminate subscriptions and build up the advertising revenue by opening up wsj.com and building traffic. Then he started looking at the numbers, and even before the economy tanked not only decided to continue with the hybrid free/paid business model, he invested in pushing subscriptions. The fact is there is no Internet law or sacred truth that all content should be free - and in fact there is significant technical and business to business content that is currently offered only with a subscription. The Times has terrific content which people should (and will) pay for, and the company needs that revenue stream to insure that they can continue to invest the resources to deliver their best in class product every day. In fact, the Web has added the additional burden of delivering updates and new content as news happens through the day and night, requiring more journalists to cover a truly 24 hour news cycle, not to mention managing blogs and adding videos, both of which are unique to the web.

As you can see, I love the New York Times. I'd hate to think that the product's best years are behind it, and that we will lose one of the best sources of news and analysis in the world. So if they charge a subscription fee, I'm happy to be one of the first to sign up.