The New China Strategy

It’s easy to overlook when working on the web side of things, but a large number of VC firms had or still have a guy who helps companies with their “China Strategy”. That is, how to best leverage labor or manufacturing in the middle kingdom to make things cheaply to sell elsewhere. It’s helpful for engineers and founders who need to manufacture something, but don’t understand the ins and outs of Asian supply chains.

It would seem we’re about to enter into a similar era when it comes to the web. Over the next five years, most Internet growth isn’t going to be coming from the US and Europe. Forrestor reports (subscription required) that by 2014, one-third of worldwide Internet usage will come from BRIC countries (Brazil, Russia, India, and China). Additionally, only 13% of Internet traffic will be coming from the US and Canada by then.

This represents a huge shift in where web traffic will come from, and subsequently will force startups to begin looking at international audiences much earlier. Otherwise, they risk having their concept copied wholesale by someone in Russia or China before they can get there.

If the Internet is going to be one of the U.S.’s chief exports, as Fred Wilson has said, then it’s going to have to start adapting to international markets at an earlier phase. Investors may begin to start pushing companies to become internationally competitive at an earlier stage. We might see a return to this “China Strategy” mindset, but applied globally.

When competing on the international level, web companies face an entirely different competitive landscape than other companies. Whereas other industries have stricter IP and longer lead times that provide a natural disincentive, websites can scale more quickly and competitors can pop up overnight. As the world becomes continually flattened, it’s more apparent that no industry is safe from competition abroad. Web companies need to realize this just like every other industry has and adapt.

The Problem with Location-Based Services

I’ve been thinking a lot about location-based social networks like Foursquare and Gowalla. After seeing some of the numbers that came out recently regarding their user acitivity, I’ve been thinking about what drives that growth. I can honestly say that I have no idea.

If you think about it, location-based services haven’t been living up to their promise. I’ve been asked by numerous friends what I use these services for, and my standard line is something like “it’s a location-based social network, so I can see where people are at and meet up with them”. But I’ve thought about it and I’ve never once done that.

What I have done is checked in at places so that other people can see the cool stuff I’m doing. I’ve also checked in to get items or badges or whatever other virtual accomplishments they throw my way. I’ve also checked in to boost my early adopter cred. But I don’t think I’ve ever used one of these services to do something useful.

Ultimately the problem stems from them being too present-oriented. Case in point: the other day my friend and I, who are both on Gowalla, were trying to organize a trip for the Fourth of July activities in downtown Austin. Never once were we able to coordinate any of this over the service, nor were we in any way aided by it. The only thing we could’ve done would be to see if each other were both there and possibly meet up. But we were in the same car so that would be pointless.

There needs to be a way to broadcast your short-term plans and see if anyone you know is down. Like Plancast, but useful. Maybe you can propose them to different people, and invite them to join in, augment, or counter-propose something. And then people can see where you are in those plans and catch up. That’s where the check-ins would come in.

Additionally, people who broadcast their plans and are the real hub for their friends could be offered specials to include new locations in their plans. Maybe I always plan outdoorsy events and the Stand Up Paddle Austin Group wants to offer me a discount if I bring three friends. You could eventually glean the really interesting information of who’s driving people to do things and reward them for driving business your way.

Right now location-based services don’t really enhance your social life at all, they simply let you report it. By adding a future-oriented feature, you could work to recruit enough friends to make activities happen, and then spend your time actually enjoying doing stuff, rather than trying to see if anyone is nearby and whether you can get ahold of them somehow. You could even set it up similarly to Groupon, and if five people are set to come do an activity, suddenly, the deal is on and you can get a discount.

Those are some ideas I have on how to make these services more relevant to the general population. Right now, the services seem to be growing based on virtual goods and narcissism, of which I’m guilty of both. But for them to reach true mainstream status, they have to offer something more than just specialized tweets and the hassle of checking in when you go somewhere.

The problem with privacy

Privacy has been in the news a lot lately, courtesy of Facebook. I imagine that Facebook is probably used to this by now. Every time they change something, people threaten to leave. However, then they never do be because, lo and behold, all their friends are still on Facebook. Same thing as when you’re at a party and some weird stuff starts going down. If you don’t know anyone, you’ll probably leave. But if your friends are there, you’ll probably stick around.

But this time Facebook seems to have attracted the ire of the mainstream media. Maybe they just sensed a story and jumped on it. Or maybe it seems like there’s a lot of anger at it. Either way, privacy is becoming more and more illusory, and Facebook is just pushing it further down its natural path.

There’s two things that are contributing to this. First, the concept of privacy has always been a tenuous one. It didn’t exist really until we had large cities. And that was only because it became difficult to keep tabs on everyone because there were too many people. The second thing is that the internet naturally trends towards connectedness. Look at libraries and academia. Books and articles are all interconnected. Academics always have to cite articles to have any credibility. They build upon what’s already there.

When these two trends converge, we begin to see things becoming less private. It’s almost the internet’s natural state. As we become more connected, we will naturally lose privacy. But in reality, we’ve already lost privacy, we just don’t know it.

As online privacy erodes, oddly enough we each get the chance to focus more on our online presence. Created content has a high probability of showing up first on a Google search. Untag bad photos of yourself. Comment on articles relevant to your industry. Unlike in the old days when we couldn’t control privacy at all, today we have a whole set of tools to help people see better what we want them to see. It just depends on if you’re smart enough to realize it.

MBA’s and Startups

Great article about the ongoing “does an MBA help you in a startup?” debate.

Basically says that MBAs are good for people who did something technical in undergrad. What about those of us who did business as an undergrad though? That’s my question.

Facebook vs. Google

I remember this past Christmas I mentioned to some relatives that Google sees services like Facebook and Twitter as competitors. The response was a universal “huh?”. I told them that you’re getting information from them both, and that makes them competitors. Their blank stares indicated that this really didn’t make any sense to them, but I reckon after Facebook’s announcements at F8 it might.

Facebook has basically said they want to make the web more friend-ly (pun intended). You can now take your friends wherever you go. Yelp and Pandora are great examples of this. Sure there are privacy concerns, but the web just got a whole lot more interesting for those who can stomach the changes.

Meanwhile, Google’s problem is that it has always been about indexing new information. That’s why they hire all those engineers. In their mind, there’s nothing that they can’t solve with more information. Gmail, Google Apps, Google Reader… All their products are free (or super cheap) because they want access to information.

Facebook realized that in reality, there’s now too much information. No amount of Google searches will tell you what your friends are up to or what they find interesting. They’ve decided that what people need and want is access to more relevant information. Who has information that you’re more interested in? Your friends, family, coworkers and people in your social network. The Google algorithm will never find that information.

Not that Google hasn’t tried. They saw the writing on the wall with social networks and pushed out Buzz to the masses. Although arguably they just wanted a way to index information faster, the product was a resounding bust. Instead of seeing what people were talking about or how they interact with information, they’re seeing the breadcrumbs of people who forgot to turn buzz off.

In the past, Search Engine Optimization has been a big part of every good website design. I think in the near future, Social Interaction Optimization might eclipse it though. With your facebook friends able to see you on every site, it’s more important to have things worth sharing as opposed to having a site that Google can crawl more efficiently. I’ll be interested to see what sort of best practices evolve to make people more likely to interact with your site.

So now the race is on. Facebook has decided to something really gutsy in order to become more relevant than Google. We’ll have to watch and see how it turns out.

The Marketer’s Dilemma

This is a video from The Story of Stuff that was released for World Water Day (3.22.10). It gives a brief overview of some of the problems surrounding the developed world’s obsession with bottled water. We buy tons of the stuff, the supply chain is terrible for the environment, almost none of the bottles get recycled, and then there’s the sheer ridiculousness of it all. Bottled water. They took something that we get super cheap, bottled it, and sold it to us.

And therein lies the problem. They manufactured demand for bottled water. They implied that other water wasn’t as good or safe to drink. This is different from making people aware of something that fits their demand (i.e. I’m going to buy bread anyways, you may as well try to convince me your bread is better). This is manipulating people to want something they don’t need. Worse yet, it’s manipulating people to want something they don’t need and already have. Unlike most luxury goods, which people don’t know they need until you tell them, this is something different. Imagine telling someone that they need a foreign made Lexus, instead of the brand new one they already have, that doesn’t drive as well and costs 2000 times as much. That’s what’s been done with bottled water.

For marketers, this represents a challenge. How do you know when you’re presenting something to people who could benefit from what you’re offering? Most of marketing is ‘manufacturing demand,’ so how do you know when it’s becoming unethical? It’s a fair question. If you’ve got some awesome new web service that will save people money or do something better, then you should market it relentlessly so people know about it. If you’ve got some awesome new social media site that people have never heard of or expressed a desire for, that’s fine (people will decide whether it’s worth their time on their own). If you create demand for something that people already have but convince that it’s inferior to what you’re selling, you’re either the greatest marketer ever, or a terribly unethical person.

It’s important for marketers to pay attention to what they’re doing and stick to what they’re comfortable with. If you’re marketing something you truly believe in and that will make the world a better place, well then get out there. If you’re marketing something to increase your market share and to sell things that no one needs, well then I don’t envy you in the least.

The Real Winner of Super Bowl Ads

It seems to be a uniquely American experience that many people watch the whole super bowl just to see some of the advertisements. Sure, they’re entertaining. They’re funny. They do crazy stuff. But one thing they don’t do is work.

It’s not their fault though. Most TV ads don’t work. The best they can do is to raise awareness. Maybe they get people talking. But when your commercial focuses on talking animals and crazy antics, you’re usually lucky if you remember what they’re even about. The only product that comes to my mind from the Super Bowl is Doritos. I know there were some beer commercials. Actually, I also remember the Coke one with Mr. Burns only because I’m such an avid fan of the Simpsons.

These ads have a very small impact on consumer decisions. Although, for most of these companies, they have a fundamentally average product and pumping more money into advertising is all they can do. People have really hit their maximum in terms of snacks, soft drinks, and beer intake. So since that market won’t be growing, all they can do is fight for their slice of that pie. There’s a very real sense that if they don’t spend this money, then their market share will erode.

Consumers are faced with more choices than ever before, so they no longer have to simply decide whether they want Miller, Coors, or Budweiser. They have a whole isle of beers to choose from. Most of the other options there are dramatically better as well. That’s a personal opinion, but there’s no need to settle for one of the top 3 when you can choose from hundreds of other options. Same thing for the everything else. We’re faced with plenty of other options for clothing, food, drinks and the like. Chances are that one of them will be something we like more. So the old standbys are left shelling out nearly $3 million dollars for 30 seconds of “hey, don’t forget about us!” It’s all rather pathetic.

It harkens back to how the network channels were overcome by cable channels that serve more of a niche interest. Viewers are free to move to wherever better shows are being shown and usually do. Nobody is loyal to just one channel. Likewise, it seems a bit crazy for companies to expect loyalty when they don’t offer anything worth being loyal to.

So who was the real winner of the Super Bowl ads? Nobody… well, maybe Pepsi.

Competing vs. Collaborating

There’s lots of talk about collaborative technologies in the news. Products like Google Wave, Skype, Cisco’s teleconferencing, and GoToMeeting all highlight the zeitgeist of businesses today: collaboration. Everyone believes that the success of their company can be improved if just more people in their organization collaborated. However, there’s a lot more to this than just providing an avenue for collaboration.

A recent piece in The New York Times shows how Microsoft has failed to innovate, mainly due to a competitive culture that has been fostered there. Innovation happens within, but it gets quashed by internal competition. While it’s easy to look at the dysfunction at Microsoft, it’s much more difficult to confront the issues within your own organization.

This story reminds me of anecdote from Franklin Covey, where he discusses a company that’s charging its employees to cooperate, but offering individual incentives to the highest performer. You’ve got to first organize the company to collaborate before the services really matter.

Collaborators have a strong interest in their personal beliefs and in the personal beliefs of others, whereas competitors only focus on their own benefits. We all dealt with kids like that on a sports team at some point, and it turns out they grow up. Being able to align the interest of competitors with the goals of the group or company becomes essential to get them on board.

There’s certainly a place for competition between organizations, but within organizations, it’s trickier. Do you really want your gaming and television departments competing against each other instead of working together (Sony)? Do you want different car lines working against each other instead of collaborating (any car manufacturer)? Before getting people to compete, think about what you’re trying to achieve. If there’s any benefits from them working together, it’s essential that any rewards are designed that way.

Information as an Asset

What we think of as value has gone a fundamental shift in the last couple of decades. Traditional “Blue-Chip” stocks have always been companies the produced something physical or offered a clear service. However, that notion is changing.

Google gets most of its value from information. It offers services for free in order to get more information from consumers. Then all it does is sell ads. Well, it’s got a few other income streams, but a large majority is derived from ad sales. It’s just extremely accurate in the ads it sells. Is it strange that one of the most innovative companies in the world that offers great technologies to everyone for free is really just a large ad sales company?

Well, that could be derived from anthropological reasons. Historically, people only sold physical objects. Songs and stories couldn’t be copyrighted because they belonged to everybody. Intellectual property was a difficult concept to wrap your head around. If you sold a chair, why couldn’t someone else make a chair with the same design?

This really isn’t so different from other business models that offer something free in hopes of being able to make money of you later. CD and book clubs used to offer the first few items at an extreme discount to get people onboard, and then charge much more. Food producers often give the first item free in hopes that you’ll buy more. Restaurants offer happy hour specials to get you in the door and then hopefully sell you some appetizers or full meals.

What’s different today is that it’s intangible. Free services in hopes that you’ll click on ads that are targeted right at you. It seems like a great way to go broke. But Google made it work. Additional information is always useful, and can give quite an advantage to people. However, we still aren’t used to thinking of it as an asset that you can make billions of dollars from. There’s a reason libraries don’t sustain themselves, right?

In this information age, we have to recalibrate how we view value. If a company is able to take existing information and create insights into it, then it’s got an asset. If it can make money off said insights then they’ve got a good asset. It’s a bit unnatural to view companies this way, but it’s something to begin to think about as our economy continues to advance.

Citizen Journalism and Social Media

First, a caveat. This isn’t a political blog. Not by a long shot. I’ve written those before and it just gets my blood pressure high. But this does address a political issue and takes a stand on that issue. For me it’s pretty clear, but for others not so much. If you disagree, that’s fine. But I’m trying to examine a larger issue here.

Last week, the Supreme Court issued this surprising decision about corporate political spending. Overturning over a hundred years of legal precedent, they’ve decided to allow corporations the same amount of first amendment protection as a person and let them spend directly on political campaigns, just not directly for the candidate. In essence, if a company doesn’t like a candidate, they can spend from their corporate accounts to see to it that person is defeated. This creates a number of problems:

• It could stifle innovation, as large companies with entrenched interests can support politicians to stop new companies from gaining traction
• It allows for foreign individuals to now have a much greater impact on US national elections
• It enables corporations an even larger sphere of influence on the political system (at a time when we really need less)

So for all of these downsides, I’m not despairing. What this would likely mean would be increased spending on advertising. Mainly TV commercials. However, political ads are basically exercises in marketing individuals. Their positions as well, but mainly them. And while commercials continue to evolve, people seem to evolve faster. And political ads have plenty of people watching them in the blogosphere and at places like factcheck.org that break them down.

Advertisements used to focus on the actual product, now they focus more and more on lifestyles. However, people are realizing this. Often campaigns target different micro-demographics in order to make people feel as though everyone else they know is voting a certain way. Products do the same thing. Buy this product and enjoy a different lifestyle. However, especially with campaigns, it’s easier than ever to go against the flow.

This quote really sums it up:

“The only security of all is in a free press. The force of public opinion cannot be resisted when permitted freely to be expressed. The agitation it produces must be submitted to. It is necessary, to keep the waters pure.”    –Thomas Jefferson to Lafayette, 1823

We’re now in a world with more free speech and free press than ever imagined by the founders of the USA. It’s as though everyone can have a newspaper and town crier. It’s much louder, but everyone can keep everyone else in check. Social media and blogs enable anyone to call out hypocrisy. If companies decide to enter the political fray, it’ll be obvious. Everyone can shout it from the rooftops. If someone sets up a fake company to run money through to support a candidate, a freedom of information request can easily expose what’s happening, and a blogger can get it out to the masses.

If the supreme court’s decision had happened 20 years ago, it would’ve had a much more devastating effect. Without free and cheap communication platforms, people would just be left to their own devices and cliques to discuss these elements. But in this day in age, we have enough smart and savvy people to keep political ads in check. Companies are free to spend their money, but just like television ads, they’re getting more expensive and less effective everyday.