SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Archive for the ‘Marketing’ Category

Why Do the Cool Kids Keep Missing the Tragically Knowable?

Posted by Bob Warfield on July 8, 2011

I just read an article on GigaOm about Facebook (Techmeme caught it too) app vendors being up in arms because Facebook’s new spam control was too strong and knocked out a bunch of legit apps.  It isn’t just Facebook, we read these stories constantly about various Valley companies.  Mostly they are companies that don’t have enough grey hairs so far as I can tell.  Twitter is another one that keeps thrashing around.

I don’t get it.  I’ve been spending a lot of time lately telling various Marketers that Marketing is a Product.  It has a UX, you want to delight your prospects with it, yada, yada.  I guess I need to be telling Product Guys that Products are Marketing after I read stories like this.  They can be A/B tested.  They can be trialed.  You don’t have to roll out changes wholesale and wait to see who screams, and then frantically roll back what doesn’t work.  In fact, it’s much better if you don’t.

Look people, in an online / social / connected / mobile / viral / cloud world, the distinction between marketing and product blurs to the point of being nonexistent.  It all carries a message and a User Experience that either strengthens or weakens your position.  And, it is all Tragically Knowable.

Talk to your customers.  Listen to your customers.  It isn’t hard to do.  You’re supposed to be Social Networks for Heaven’s Sake.  Once you get good at it, you’ll realize it’s actually a lot of fun.

Why screw around with your entire audience and momentum when you could do some tests and do what’s right?  I don’t care how brilliant the wunderkind at the top may be, they are wrong sometimes.  Save us poor customers and prospects the pain.  Life is short, we don’t need any more pain, and we’d like to get on with just loving your products if you’d let us.  Quit doing stuff that was Tragically Knowable.

Posted in Marketing, strategy, user interface | Leave a Comment »

Google: Stop the War on SEO and Get Some Better Algorithms

Posted by Bob Warfield on July 4, 2011

Interesting post on Quora (are they posts or questions?):

Is Google intentionally trying to kill rank checking (SERP lookup) by closing their Web API?

I found it as a result of doing some research on how to get Google search results programmatically–turns out you have to cheat as Google really is working overtime to obfuscate and deny programmatic search results.  They do this through Terms of Service that object to programmatic access and limiting their supported API to custom search for sites, which doesn’t return the search results you’d typically see.  Let’s leave aside the impact of personalization, which is also very hard to turn off, but which I think of as a relatively good thing according to my White Hat definition below.

This business of fighting against SEO is a bad thing born out of weak algorithms.

Okay, calling the algorithms bad and weak has got to be picking a fight with a company that prides itself on not doing evil and on algorithmic prowess.  What the heck am I on about now?

Let’s start with a very odd analogy.  Assume you’re trying to encrypt data.  At the same time, you want to create a tool that measures the strength of the encryption as simply as possible.  What would you do and what else would the tool be good for?

I would create a tool that measures the apparent randomness of the encrypted string.  The other thing the tool would be good for is as a metric for compression algorithms.  If a string is truly random, there is no apparent intelligence there–it is well encrypted.  If a string has any patterns to it whatsoever, those patterns could be exploited to learn something valuable about how to decrypt or further compress the string.  For example, “e”  is the letter that appears most frequently in English text.  If we don’t obscure that so letter frequencies appear random, we have a valuable clue for decryption.  If we don’t take advantage of the relative frequency of various characters, we have an inferior compression algorithm.  Either way, randomness is not a bad proxy to measure encryption or compression even though it doesn’t measure it directly.

What does this have to do with SEO, for Heaven’s sake?

Let’s differentiate White Hat (Good) from Black Hat (Evil) SEO strategies in a particular way to make the point:

Black Hat is gaming the system to provide an unfair advantage to search results that otherwise would be considered undesirable by searchers.

White Hat is understanding the system in order to gain insight into what searchers are doing to make it easier to find your valuable content.

Can you see where I’m going?

Content Farms are Black Hat.  They throw together a mish mash of relatively low value content in order to brute force their way to the top of search results.  We all know one when we click-through their links.  With Panda, Google is working hard to push them back down the results.

But, why, OTOH, is Google acting like it is Black Hat to want to understand how your pages are ranking against various queries so you can do better at designing pages users can find more easily?  The only way it could be Black Hat is if Google’s algorithms are not very good at understanding what good content really is.  So they have to keep changing things up to prevent gaming the content with slick strategies that can emphasize any old crap in the results.

Getting back to my encryption example, Google needs some sort of simple test to identify good content.  Perhaps all this personalization and +1’ing will do the trick.  But Google, while you’re wrestling with the problem, recognize one important thing:  Computers don’t understand Language!

Yes, I know you of all organizations must know that well, but you’re threatening to show a lack of understanding while throwing out the baby with the bath water in this war on SEO.  You’re denying legitimate content creators the tools they need to help you get their content into the right hands.  Meanwhile, the Bad Guys are not going to listen to your Terms and Conditions anyway.  They’ll figure out how to game you over and over again.  Why penalize the Good Guys in the process?

Lest you think you can win this arms race in any meaningful way, consider the difficulty of truly stopping the analysis of keyword rank.  All the players have to do is put their application in the Amazon Cloud or go to a P2P system to distribute the load across many machines and you’ll have no idea whether you’re facing one SEO Tool you could try to block or a zillion hand typed queries from legit searchers.

This talk of Clouds and P2P brings me to another thought–search engines of all kinds should take advantage of elasticity to add value.

The infrastructure of any search provider must have elasticity as search demand is not constant–it has ups and downs.  I first thought of this watching Amazon’s algorithms for making recommendations for what I should read next on my Kindle.  They’re better than nothing, but they’re actually not all that good.  I’m sure they’re missing out on the opportunity to sell me a lot more books based on how often I go root out books searching by hand, and how I usually go through a lot of their recommendations before I find something I really like.  I don’t know whether Netflix does a markedly better job, but I have been impressed that they run contests to see if anyone outside Netflix can come up with better results and then they try to add what they learn back into their engine.

Search engines should be asking what they could do with the extra cycles to improve search results.  There won’t be enough elasticity to improve all results.  Some of the problem with search engines is likely not that they don’t know better algorithms, but that they’re too expensive to implement at scale.  Perhaps the secret is knowing how and when to implement them to the extent they can in order to bring up the poor user experiences to better standards (or to optimize user experiences that are particularly valuable by some metric).  For an Amazon-style E-tailer, should they apply the extra cycles finding things for shoppers who are known to spend more?  Google could do the same, but that would be somewhat Evil in that organizing search results to increase ad click-through seems fraught with peril.  OTOH, what if Google invested the elastic spare time in more expensive algorithms focused on high volume searches that are known to produce lower quality results?

In terms of measuring result quality, they have a variety of proxies for that too.  They’re known to use live human reviewers sort of like Secret Shoppers (only I guess they’re Secret Searchers).  With all the toolbars and other gizmos out there measuring our every move, they can determine how long people spend on a search result’s page before popping back into to search to look at the next one.  Let’s not forget Personalization either.  Surely all of those signals can be put together to identify trouble spots where more powerful algorithms might be put to good use.

There’s got to be a better way than going to war against SEO in general.

Posted in Marketing | Leave a Comment »

There’s a New Sheriff in Town and His Name is “Content”

Posted by Bob Warfield on June 24, 2011

Just read a great top-level overview of Google’s Panda on SEOMoz.  If you haven’t been following Panda, or you’re not involved with marketing much, it is Google’s latest algorithmic attempt to minimize the ability to game search results.  This article is at a good level for CEO’s, Board Members, Investors, and other Interested Parties to understand the flavor of this huge watershed event for marketing on the web.  I’ve talked to a number of companies that were impacted by Panda.  In most cases, the impact hurt their search traffic because they’d been relying on SEO games to get the job done.  In a few, it has transformed their search traffic for the better.   Those few are companies that had been almost overly focused on content.

Google wants to interfere with the SEO strategy of manipulating search results mechanically by delivering search results that searchers actually like.  Towards that end, Panda lets Google blend in subjective evaluations of search results to tune up their search engine and start to de-emphasize those sites we all come across that aren’t really that enjoyable or even informative despite great search ranking.  This is mainstream when you start to see Dilbert cartoons about it, and it is life threatening for Google when we read that measurable amounts of web traffic have left the general web and gone to sites like Facebook.

Marketers should expect a lot more of this sort of thing over time.  It will be increasingly important to quit worrying about SEO voodoo and start publishing content people are delighted to find.   I have been saying to everyone that will listen:  Marketing is a Product.  It has a User Experience.  Make sure yours is one that delights would-be customers lest they not only tune you out but have an increasingly difficult time even finding your content.  First impressions will matter more and more as feedback loops like Google Panda and Social “Like” buttons that affect search results are not going to give you a second chance if you blow the first one.

If you’re running an established business that focuses most of its efforts on SEO manipulation, start thinking about how to ramp your content quality up quickly.  If you’re an entrepreneur thinking about bootstrapping a business or an investor wondering where to invest, you need to add another couple of tests to your framework for evaluating potential ideas:

–  Is this space crowded and noisy due to an abundance of great content, or is it one where there is a tremendous hunger for scarce content?

–  Does this company already have a track record for producing differentiated content that is driving traffic?

–  Does the company have content creation talent on board and does it understand how to use content effectively?

You want to be a big fish in a small content pond when you’re starting out if you expect to be noticed.  And importantly, it’s hard to farm out the best content until you have a critical mass of folks familiar with your market and products who want to contribute.  Make sure you have the ability to operate with great content until you’ve spanned that gap.

There’s a new sheriff in town, and his name is Content.

Related Posts

Small Businesses Need a Minimum Viable Marketing Strategy

Pitfalls of Free Content and an Inbound Marketing Strategy

Posted in bootstrapping, business, Marketing, strategy, venture | 1 Comment »

Small Businesses Need a Minimum Viable Marketing Strategy

Posted by Bob Warfield on May 18, 2011

I’ve taken to thinking that marketers should view marketing on the web as a product.  As I said in my post on the Pitfalls of Free Content and Inbound Marketing:

Marketing is a Product that has a UX and Competes Like Any Other Product

It’s easy to forget because we don’t charge for it that Marketing is a product too.  In particular, online marketing is increasingly indistinguishable from an online software product.  It has a User Experience that we want the consumer to be delighted with.  It has Business Logic and is the System of Record for critical Enterprise Value if you want to get all Enterprise Software about it.  Think about Marketing as a Product and you’ll find some breakthrough insights.

And don’t assume you don’t charge for marketing either.  You’re charging your customers the highest price they pay for anything you sell–you’re asking them to give you their trust.

If we’re going to think about Marketing as a Product, then the concept of Minimum Viable Product makes a lot of sense for Marketers to think about as well.  MVP is all about the idea of not building in every possible feature and refinement.  It’s about building as little as possible to make a product that you can get in front of customers sooner, so you can learn from their feedback.  Doesn’t that sound exactly like what marketers should be doing to avoid making mistakes that were tragically knowable?

I was reminded of all this while reading through a brief post and subsequent comments from Hubspot, called “How Valuable is Social Media, Really?”  In the post, some charts are presented that show Social Media produces very few inbound visitors but its conversion rate to leads may be higher.  Readers are implicitly invited to speculate that the obvious conclusion–Social Media is not valuable–might be wrong and follow on posts will reveal why.  I opined as how I saw it as an inventory problem:

We’ve got 4 to 8x the volume from the non-social and only a 50% better conversion.

It ain’t enough.

Reminds me of Bing. I get much better conversion from Bing searchers–makes me think it may be a better engine. But so many fewer show up than Google that it doesn’t matter.

Someone else raises the issue that the cost of getting the different kinds of visitors affects the ROI and therefore may change the picture.  But as I say, we have an inventory problem (potentially).  If I can only get x conversions from Social Media and that number is sufficiently low, that’s the inventory available for marketing dollars in this kind of program and it doesn’t matter what the cost is unless it is to make the program even less attractive (e.g. if there are too few leads AND they’re very expensive, we really don’t like this kind of spend).  Last aside, they talk about conversion to leads, but that isn’t conversion to revenue.  I have also remarked and believe that optimizing the wrong metric is the root of all marketing evil, so we may have been led down a primrose path on that one (though the $ money bags on the chart are a tacky misdirection if so, LOL).  What we want to optimize, in other words, is not leads but actual sales.  Marketing and Sales departments fight like cats and dogs over that one all day every day at nearly every company.

What does all this have to do with a Minimum Viable Marketing Strategy?

It’s a perfect example of why you need one–to avoid the distraction of programs that can’t produce enough results to make a difference even if the results that are produced may be good and cheap.  Put another way, when you are small, one more good, cheap, but relatively insignificant marketing program is just like one more good, cheap, but relatively unimportant feature on a product.  You don’t need the distraction, shouldn’t spend the time and money, and it won’t move the needle.  Cross it off the list until you are much bigger.  You’re looking for big hits.  Test as many small ones as you can until you find the big ones and then double down.  These numbers, at least what we have so far, don’t make Social Media look like a big hit for the business as described.

Lest we leave the subject thinking I am not a Social Media believer, let me just say that my own business experience suggest much better numbers are possible for Social Media.  For example, my CNCCookbook business is my test bed for these kinds of experiments and gets numbers more like this:

Minimum Viable Marketing

We can see that Social is generating quite a lot (15%) of the traffic to the site.  However, its conversion to leads is just the opposite of Hubspot’s numbers, being lower than many other sources.  Being a heavy content marketer, I’m of the opinion (unproven), that getting so many visitors is worthwhile and I will eventually nurture them to conversion.   In addition, I suspect referring sites link to me partially because of my content and partially because I have a following on the social communities peculiar to this space.  For example, I know a lot of machinists through the social who may then go on to connect.  FWIW, while I have tried Facebook, Twitter, and LinkedIn, and maintain presences on Facebook and Twitter for CNCCookbook, these are very poor sources of leads and visitors.  The richest sources are niche communities totally focused on the market CNCCookbook is in.

Here is the more interesting thing to consider, though.  If you’re looking for the minimum viable marketing strategy for the CNCCookbook business, which programs should you focus on?  Which should you ignore?  FWIW, I have sorted the data series in order of most to fewest leads produced.

For example, the Paid category (largely Google AdWords) has a very high conversion, but doesn’t yield enough leads.  I spent months tuning it until I was only paying for clicks that actually yielded profitable business.  That mostly resulted in long tail keywords, which are cheaper to bid for than mainstream more generic keywords.  Unfortunately, they have an inventory problem–not enough long tail searches with profitable economics.  Will I keep running the AdWords campaign?  Yes, the work spent tuning is sunk cost.  But I won’t spend more time trying to improve AdWords other than to monitor that the ROI stays profitable and cut it back when it doesn’t.  In retrospect it wasn’t worth the amount of time I spent on it and shouldn’t have been part of the minimum viable marketing strategy for CNCCookbook.

For this business, the cutoff is after email.  It isn’t worth focusing on Bing (and I definitely wouldn’t buy ads there) or PPC.  My email is worthwhile, largely because it is low effort and consists mainly of periodically asking my customer base to refer their friends (hence the very high visit to lead ratio).

What I should do next is find some more things to test, and that’s what I’m doing.  Keep in mind, your mileage not only can but will vary–you have to test, test, test to know what works and what doesn’t.  Double down on what works, cut what doesn’t, and keep some powder dry to keep testing new things.  Cast your net wide and don’t get focused on going deep except in a very few areas that are well proven.


Small Businesses should look for a Minimum Viable Marketing strategy.  Don’t get distracted (as I did) trying to optimize programs that can’t possibly produce the results you need.  Run some tests and ask yourself how much improvement you would need to see in those tests before a program would be in your top 3 or 4.  PPC was never going to get there for me, so I never should’ve invested in improving those results.  It would’ve required hundreds of percent improvement, and I had proven viable programs already doing much better.  Focus on those and keep enough bandwidth to keep testing new possibilities.

Posted in Marketing, strategy | 3 Comments »

Pitfalls of Free Content and Inbound Marketing

Posted by Bob Warfield on May 13, 2011

Free SignLet me start this article by saying it’s not intended to be a negative article against free content or inbound marketing.  Rather, I want to talk about some of the strategic considerations when you use these tactics.   I believe wholeheartedly that, properly employed, there are no better tactics for building your customer base and getting the word out.  Let’s also define “inbound marketing”, at least for purposes of this post, as follows:

Inbound Marketing is giving away valuable content for free in order to attract an audience and earn the right to sell them something.

This may not be exactly what firms like Hubspot who are experts on the topic use, but it is how I think about it and it will work well for this discussion.

This post was motivated by some thinking that’s been going on in the back of my mind about inbound marketing that all bubbled to the surface when I read John Jantsch’s “When Free Becomes Free For All — 5 Reasons Free is Hurting Us All“.   Along with Seth Godin, John Jantsch is one of my top two favorite marketing bloggers. But, with this latest post, I think John has missed some key points and gone off the track.  Rather than debate his 5 points up front, I want to drop back and paint a more strategic backdrop for understanding the value of free and I also want to call attention to the alternatives.  To paraphrase Winston Churchill’s famous quote about democracy:

“It has been said that free is the worst form of marketing except all the others that have been tried.”

Let’s start from that premise when considering John’s proposition that too much free is damaging by asking, “What are the alternatives?”

Just enough free to get the job done and charge for the rest?

Pay walls?

Intangible costs and friction like registration landing pages you go through over and over again to get one white paper, webinar, or slide show at a time?

I’ll bet John will have a hard time defending those alternatives, I know I would.  As an aside, ironically, I had gotten a new Hubspot email (one of two this morning, easy there boys) offering me a white paper that looked valuable.  I clicked to the landing page and was immediately presented with an old style fill in the form to get the content.  Now I know you want to capture the individual’s contact information, get them on your house list, yada, yada.  But I’m on Hubspot’s list–they’re emailing me for cryin’ out loud and I haven’t opted out. They can tell I’ve clicked through with silent instrumentation.  This is an artificial and annoying barrier that cause me to think them slightly less enlightened and to click off the page and go on about my business.  They either did it that way through sloth or because they are trying to “qualify” me by making me do the work of reentering my information.  Either way, it cheapens the Inbound experience.  If you’re going to be Inbound, be inbound.  Once you get someone’s information, treat them as you would want to be treated.  End of rant, these guys should know better.

Distracting as it may be, the anecdote relates to John’s complaints about free.  Let’s talk about the 5 things he worries about (paraphrased):

It doesn’t hold the content consumer accountable.  

If it’s free, they can sign up and then no-show.  This is a variation on the VP of Sales contention that you have to charge a lot or the customer won’t respect you.  My problem with this perspective is it reflects artificial scarcity and a presumption about the stage that the prospect has reached that isn’t justifiable.  When you’re engaging in Marketing, you’re not yet at the stage where you’re entitled to demand a price.  You’re not ready to close a sale.  You’re earning the customer’s trust and any artificial scarcity or cost interferes with that trust, just as my experience with Hubspot made me trust them a little less.

With respect to artificial scarcity, the history of any market is a march to commoditization unless the participants find a way to create defensible unfair advantage that limits competition and creates artificial scarcity.  Other than via legal entanglement, content is not amenable to unfair advantage through limited availability because it can be reproduced and communicated too easily. Your only opportunity for unfair advantage is to make your content better than the other guy’s.  Leaving aside all that, think about monopolies, patents, record labels and other cases of successful artificial scarcity.  Do you want your marketing to reek of that?  As I said, you’re earning trust, not selling patent-pending titanium toilet seats to the Air Force.

It would be awesome to see my two marketing blogger idols, John and Seth Godin, debate this proposition.  My impression from Godin’s writing and tactics for self-promotion is that he totally gets this business of creating unfair advantage through better content and then making it even more unfair by aggressively giving it away until it goes viral.

Let’s turn this one around from a unpleasant problem to a prescription for success:

Make sure you are accountable for your content and it is so good that it is irresistible.  And then give it away.

That formula will knock the cover off the ball of Inbound Marketing every time if you can deliver.

Eroded Value

John’s description of this point is worth repeating:

When content is consistently given away it loses its value–not only for the producer, but also in the eyes of the content consumer. How good can something that’s free really be?

This lumps thoroughly researched, well-presented, useful content in with shoddily veiled pitch fests.

My problem with this argument is two-fold.  First, it goes down the traditional Mad Men marketing and sales path of assuming consumers are sheep.  I know it can be easy to fall into that trap, but John knows better.  Consumers are better judges of your content than that.  The ones that matter know a “shoddily veiled pitch fest” from useful content.  Go back and read the endless admonitions to content creators for Inbound Marketing about delivering value.  If you’re not delivering enough value that it’s obvious to consumers, you may have accidentally produced a pitch fest.  Blame yourself, not the consumer.  Value is in the eye of the beholder, not the author.

Finding great content is hard.  If it wasn’t there wouldn’t be so much controversy over search, there wouldn’t be so many bookmarking services, and there wouldn’t be a long tail.  The great content would be obvious, plentiful, and easy to come by.  Instead, there are relatively few Duct Tape Marketing or Seth Godin blogs, so we read them incessantly and don’t take them for granted.

This brings me to my second point–be aware of the state of the free content ecosystem in your space.   John Jantsch’s Duct Tape Marketing content plays in the most crowded on-line space that there is for great free content–marketing.  The bar in that space is absolutely sky high–so high there is almost no oxygen up there.  Social Media, Email Marketing, Inbound Marketing, Affiliate Programs, on and on.  There is lots of great marketing content available free.  Whenever a content market gets that big and there is so much great content available, value is eroded.  You can’t take it back by deciding not to give it away.  There’s too many struggling for competitive advantage by giving their great (or even pretty good) content away.  Markets are eating their own dogfood, drinking their own champagne, and practicing what they preach.  It’s tough love, but you better get over it.

I’ve come to believe this is a key strategic point for entrepreneurs to consider.   Not every space is as crowded as the Marketing space.  In fact, very very few are.  Most spaces are still very much starved for great free content.  For entrepreneurs, when you’re evaluating a space, do a careful evaluation on your chances of becoming an early Thought Leader there through your content.  You want to be a big fish in a small pond where the bar is set extremely low for your content.

Lowered Expectations

John says:

This creates an atmosphere where content producers can simply slap something together with little value because, “What are they going to do, ask for a refund?”

I’ve nothing new to say here other than that you are accountable for your content and you have to make it so good that it is irresistible.   If you don’t and you’re in a crowded content ecosystem like marketing, you’ll never be noticed.  May as well go buy banner ads on AOL or Yahoo.   If you don’t and you’re one of the first fish in a small content pond, you’ll be noticed but vulnerable to a fast follower.  You will also miss igniting the level of passion for your content that you may otherwise have had, which will slow people passing on and talking about your content and prolong the window for the fast follower to take you out.

Blocked Revenue

“When the expectation is that all of your content, speaking and presenting will be made available at no fee, your business’ greatest potential asset is cut off.”

First, if your only business is content, you need to think carefully about your strategy.  In the ideal case, you have something else you’re making the money on besides the content.  Inbound Marketing is a wonderful no-brainer if you do have something else to sell.

Second, even if you don’t have anything but content to sell, who says it’s all or nothing?  Will they pay to see you deliver your content directly?  Will they pay for you to apply the mind that produced that great free content to their problem?  Will they tolerate ads in the content?  Will they pay to have your content in a different format, perhaps one that’s easier to consume or more compact?  Thinking of books that are compendiums of content that already exists where curation and packaging is the value.

Seth Godin is a master of this.  He gives away books he’s actively selling.  He encourages buyers to give their book to someone else when they’re done reading it.  It works for Godin, why not others?

Community Buster

Having spent a fair bit of time in the Social Web both personally and professionally, this is one I totally do not understand:

When people are invited into a community where everything is free, there’s actually less chance of building a strong community. Community builds when there is value.

That has not been my experience in the least, and I’d like to see such a community to understand what it’s real underlying problems are, because they’re not due to “free”.  Let me give two strong examples:  Stack Overflow and Quora.   Everyone reading this must have heard of one or the other.  They’re completely free, they are strong communities by any measure I have ever seen, and they deliver huge value.

Free has some really odd dynamics where behavior and community are concerned.  People will polarize around and defend free in ways that you just don’t see for things people pay for.  Try to make your living attacking virtually anything Open Source and you will see.  Free begets fanaticism because it creates obligation.  If you give somebody something for free, they feel an obligation to reciprocate in some way.  If they pay you, however little, they have discharged that obligation.  This is problematic for companies that want to be the cheapest offering in their space.  To me, they attract the worst of all worlds.  They don’t get the fanatical support of free, and they’ve attracted a legion of penny pinchers who feel no obligation and who are ironically much higher maintenance than the sort who buy premium products.

People generally have good intentions.  Give them a lot of valuable free content.  Set them up in a free community where they can get free help and give free assistance and I have seen magic happen multiple times.  If you find yourself in a space where no such resource exists, stake it out quickly–it will turn into a gold mine and you won’t be sorry.

Conclusion:  Marketing is a Product that has a UX and Competes Like Any Other Product

It’s easy to forget because we don’t charge for it that Marketing is a product too.  In particular, online marketing is increasingly indistinguishable from an online software product.  It has a User Experience that we want the consumer to be delighted with.  It has Business Logic and is the System of Record for critical Enterprise Value if you want to get all Enterprise Software about it.  Think about Marketing as a Product and you’ll find some breakthrough insights.

And don’t assume you don’t charge for marketing either.  You’re charging your customers the highest price they pay for anything you sell–you’re asking them to give you their trust.

Posted in bootstrapping, business, Marketing, strategy | 2 Comments »

What are Customers Looking for From Social Businesses?

Posted by Bob Warfield on March 23, 2011

There’s a great conversation going on right now around what Customers are looking for from Social Businesses (e.g. what is Social CRM, really?) between Dennis Howlett, Paul Greenberg (via Dennis), Mitch Lieberman, and no doubt several others I haven’t yet tracked down.  It starts from a survey IBM did on what businesses think the value of being Social is versus what Customers think:

Social CRM PerceptionsLike any great discussion topic, there are layers of data and possible interpretations that become a Rorschach tableau on which to justify one’s personal predispositions; hence I won’t hesitate to share mine!

The money quote is the one Dennis plucked from Mitch’s piece:

Customers do not want a relationship with your business, they want the benefits a relationship can offer to them.

Ouch! Those darned selfish customers, we just want to be their friends!

OTOH, there is an evil part of me that speculates that an awful lot of our “friends” are not much less mercenary most of the time, particularly if they’re just business acquaintances, so why are we surprised?

The other reaction to the chart is that in terms of measuring whether customers want a relationship, they didn’t ask all the right questions and may not have interpreted the ones they did ask very well.  After all, “Feel connected” and “Be part of a community” are pretty much content free touchy feely BS.  What sort of person do you have to be to seek that sort of companionship in the bosom of a corporate entity?

OTOH, if I consider a more realistic view of Social Interaction, all the areas that scored big on learning seem perfectly Social.  And, when I look at “Purchase”, it makes me wonder what that really means.  Here is a chart from IBM that shows why Consumers go Social:

Why Consumers Visit Social Sites

Presumably, this is the chart we’re meant to compare and contrast with.  Let’s consider some of these categories and ask whether they have a place, even indirectly, in the business Social world.  Consider it a way to think differently about your Business Social efforts in order to increase engagement.

Connect with friends and family

The desire to “Feel Connected” and “Be Part of a Community” is evidently much less important in Business Social.  The corollary seems obvious: if you want to increase this motivation for connecting, get some friends and family in there.   Family is hard, but there are countless Social sites where people go to meet and interact with others who have similar interests.  When I was with Callidus, one of the most popular components of our User Conference was a session we called “Birds of a Feather”.   This was essentially a beer bash organized by industry vertical where customers could go compare notes.  The session had two parts.  First, we had our domain experts present, one at each table.  Their instructions were to listen and only chime in when nobody could answer a question.  They were told to act strictly as a resource and not to try to guide what was going on.  Second, we had a closed session where all the Callidus people left.  Customers were welcome to talk about us, our competitors, or whatever else they needed to in our absence.

I can think of no reason why this “Birds of a Feather” type interaction couldn’t be done in an online Social context nor why it wouldn’t be extremely popular.  Some vendor or other probably already does it and I am just not aware, so please chime in if you’ve heard of it.  In a broader sense, think about whether your Social CRM efforts are purely hub and spoke, meaning they force too much interaction with your company and not enough peer to peer to do very well in this context.  Get out of people’s ways and facilitate their getting to know one another.  Empower the gregarious networkers whether or not they are customers.  They will keep the party rolling.

Access News and Entertainment

This ranks pretty high on both scales.  If you haven’t already figured it out: content is king.  Give away as much valuable content as possible.  Call it Best Practices or whatever it takes, but be the best educator in your space and do it for free.  Free means not even pestering incessently for contact information.  BTW, at my last company, we had a Best Practice Community filled with content that went over extremely well.  Some of our highest landing page conversion rates came from the signups for the community.  People didn’t see a signup to join a community as egregious in the way a signup for a White Paper seems to be.


Several of the entries amount to “Sharing” of one kind or another.  Too often businesses see Social as just another direction to point the megaphone.  Are you giving your customers voices too?  Are they empowered to share?  Are they encouraged to share?  Are your customers actually trying to share and then getting shouted down or smothered by the people in your company that run the Social program?

This is one of the hardest things for businesses: giving up control to the customer, even just a little bit, doesn’t feel right.  But go talk to your best Salespeople.  Aren’t they good listeners?  After all, Social isn’t some High Priesthood that takes years of learning and arcane knowledge to master.  It’s just people.  Go ask people who are good with people how they’d solve a problem and then try that in the your online Social context.

Bottom Line

These are just a few thoughts about turning some of the Social Debate and information on its head to try to get new insights.

If your Social isn’t, well, Social enough, try thinking about it from your Customer’s standpoint.  Forget about what you want from them, give them what they want from you.  Establish reciprocity, and the rest will follow as best it can.  Forcing the issue won’t necessarily help and it may very well hurt.

Postscript:  The Pepsi Refresh Failure

In his post, Dennis refers to the Pepsi Refresh failure :

The Refresh Project accomplished everything a social media program is expected to: Over 80 million votes were registered; almost 3.5 million “likes” on the Pepsi Facebook page; almost 60,000 Twitter followers. The only thing it failed to do was sell Pepsi.

It achieved all the false goals and failed to achieve the only legitimate one.

While Ad Contrarian views this as Social Media’s massive failure, and an indictment on Social in general, I look at it differently.  I don’t think Pepsi’s problem is merely about what they measure or how they engage.  It’s a lot deeper.

How much do you and your friends talk about Coke or Pepsi?  I think the longest conversations I’ve ever heard happened because some restaurant had the wrong brand and someone made a snide remark afterward.  Is it any surprise that while such brands can bribe people in various ways to visit, that these people don’t really want to engage?  These Pepsi guys could’ve saved their $20M.  Rather than asking why Social didn’t increase sales, they could as easily have not spent the $20M on any marketing at all and wondered why it didn’t affect their sales.  Heck, if Coke would save the money they spend to advertise at the beginning of every movie I see I would thank them, “Like” them on Facebook, or whatever.

At some point I will do a post on what sorts of brands benefit from Social or not, but for starters, just observe whether parties who should be interested spend much time talking about it.

Similarly, Dennis in his post touches on some cultural issues companies may have that will ultimately prevent them from being very Social.  Some Company cultures are flat-out anti-social when you expose Customers to them.  But, these two points are peripheral to my main theme, which is to try to think out of the box or at least in your Customer’s corner of the box where Social is concerned.  You have a lifetime of monkey-see monkey-do formal marketing to overcome, but it’s worth it.

Posted in business, Marketing, Web 2.0 | Leave a Comment »

This Product Roadmap Kerfluffle is Getting a Bit Silly

Posted by Bob Warfield on March 18, 2011

In case you’ve missed it, there’s a big Kerfluffle on right now over whether SaaS companies should share a product roadmap with customers or not.  The charge against is led by Kashflow CEPO Duane Jackson, who says sharing your roadmap is flawed because:

– Reduces agility

– Creates expectations that make it harder to delight customers

– Introduces competitive risks

– Sets companies up for a fail if they have to change their roadmaps

Coming at it from the other corner is Dennis Howlett, who thinks it is “bonkers” not to share the roadmap and insists customers have a right to know and prudent customers will insist on knowing.  In a third corner is Ben Kepes, who seems to have decided that while the arguments to share make sense, the success of KashFlow and others (37Signals to name one high profile example), and because he says as a small business owner, he knows it just isn’t that important because the decision cycles are so much shorter.

I’m coming down on the side of Dennis and sharing the roadmap

I’m on the side of sharing for multiple reasons.

First, the arguments against sound an awful lot like companies are afraid their customers will have too much control.  Sorry, but that’s no way to partner with your customers, and I believe above all else that it is critical for you partner with your customers.  That is the road to delighting them.  Why live in fear of your customers when you could partner with them?

This all sounds so much like arguments I’ve heard from Product Managers against Social Product Innovation Sourcing (aka Ideastorms).  It sounds like the arguments I’ve heard against Social CRM.  “We’re afraid of what our customers might say or the standards they might hold us to under the public spotlight.”

Hey guys, get used to it.  The whole world now operates in that spotlight courtesy of the Internet and all the many ways it gives your customers to get the word out.  You can’t just choose not to participate, especially if your competition is wholeheartedly embracing it.

Second, having worked with customers of all shapes and sizes, from small to gigantic Fortune 500, I’ve never had a problem of having a customer back me into a corner I couldn’t get out of. You’ve read all the advice about authenticity, honesty, and candor with Social Media?  Guess what, the Social Media guys didn’t invent that stuff, it’s simply the right way to deal with your customers.  If I don’t have a roadmap that’s baked well enough I can talk about it, shame on me.  That means I’m waiting for some sort of Monkey-on-a-keyboard A/B testing to figure it out for me and that’s not going to happen.  That’s a vision-less product organization and it is doomed to be inferior for a lot of more fundamental reasons than lack of a roadmap.

If I can’t have a well-reasoned conversation with a customer wherein I explain the business reasons why I have to change my roadmap and they don’t get it and can’t abide it, shame on both of us.  Shame on me for being unable to sell it, and for not having delighted the customer enough elsewhere to get the benefit of a doubt.  Shame on the customer for being so high maintenance and not understand that their best course is for me to be successful and that means satisfying more than just them.  I will tell you in all honesty that’s never happened to me, despite having to break the news of roadmap changes more than once.

One of the best product managers I’ve worked with (Hi JP!) used to have a saying about this.  There are no stupid features and no “No’s”.  There is only prioritization, and that is fluid.

Third, let’s talk about the competition.  Are they truly that clueless that they don’t have their own roadmap that’s pretty similar to your own?  Particularly when it comes to things customers are asking you to sign in blood for?  Don’t you think their customers are asking them for the same things?  Of course they are.  Those areas are not secrets and you’re kidding yourself if you think they are.  On things that are truly visionary and innovative, precisely the kinds of things you don’t want the competitors to know about because they’re not thinking of them, who says you have to share the whole roadmap?  There’s your opportunity to delight customers and confound the competition right there.

Things your audience is begging for are not plums waiting for you to pick and hold up for the adulation of the crowds.  They’re cases you got blind sided and should’ve paid closer attention to.  Fixing them is the elimination of a negative, not the creation of a positive.  If you think otherwise, you are the man to be in charge of innovation at Microsoft, because that’s always been their problem.

Best Practices for Sharing Product Roadmap

Okay, so let’s get past the argument and talk about how best to share product roadmaps, because there are some important ingredients to maximizing the benefits of the practice.

1.  Everyone does not get to share the roadmap and it isn’t public. As SVP Engineering/CTO, I have insisted that deep roadmap dives be presented by the CTO and/or Product Managers and not by Sales.  Roadmap entries need a firewall separation from the negotiation and sales process.  Getting to see the roadmap is a tightly vetted process.  Only real serious customers who are also good customers get to see it.  We will not drop it on leaflets out of airplanes to every lukewarm lead that comes along.  The salesperson that wants a Roadmap Briefing for their customer has to make an impassioned plea for why that makes sense.

2.  The roadmap is high level. It talks about areas of focus at the 20,000 foot level, and it calls out just a very few key features for each area of focus.  Features you’re absolutely certain you must have as part of the area of focus, and are therefore unlikely to change unless the whole focus changes.  It is not a detailed Market Requirement Document replete with UI mockups, giant bulleted feature lists, and all that stuff.  It’s just enough so that if the customer says they need “X”, you can tell them when you will be focusing on that area, ask to understand the exact problem they’re trying to solve, and render an opinion on when you might (or frankly might not) attempt to solve the problem.  The goal of such discussions is to assist the customer with the phasing of their own roadmaps, and to help them to understand whether the strategic direction they’re moving in matches your own direction.  In other words, is this marriage going to get better, or are we really destined to go our separate ways?

3.  We do not change the roadmap as part of a negotiation. We accept input that will be factored in, but we’re not going to talk about the outcome until post-sale.  This is a strong ingredient in selling what we have, or at least what we’re firm we intent to build.

4.  The roadmap is fluid.  Get the disclaimer out there right up front.  We’re not here to negotiate contractual obligations.  We’re hear to share our best thinking, and that can change based on new information.  We will promise not to act arbitrarily and capriciously, and to communicate well.  But we will also promise to be good businessmen intent on maximizing overall customer satisfaction as best we can.

5.  We do not talk much about how the features will work. Instead, we talk about the problems we intend to solve.  Benefits, not feature roadmaps.  These are not joint UI and Architecture design sessions.

6.  We’re very honest about not doing something, and very diplomatic about how we say “No”.  Product roadmap sessions are not the time to say “Yes” no matter what.  They’re the time to get some cards on the table and understand the problem the customer is really trying to solve.  If it’s a problem you think many of your customers have to solve, there is a strong business reason to tackle it, and you should say so.  If you don’t you need to get that out front too.  There are really a couple of different key “No’s” to be able to deliver:

–  This doesn’t make good business sense for very many of our customers, so therefore we aren’t going to go there.  If we hear more requests for it, we might revisit.

The subtext, particularly for smaller companies, is that the customer should want you to be successful by working on areas with the broadest demand.  Discuss this candidly and you will have implicitly helped that customer to understand their problem better too.  I have more than once seen a customer walk out of the discussion and wonder whether they might deep six the idea themselves if nobody else was doing it.  Customers know when they’re being unreasonable.  Those customers that know it and don’t care may not be the customers you want to divert your whole roadmap to satisfy anyway.

–  This makes sense, but it can’t be done immediately.  We’ll slot it into the roadmap, but it will be out there a ways.

Do not talk about your roadmap for more than 4 quarters out.  Anything beyond that is baloney anyway.  So the worst case answer is, “Yes, that makes sense, but it won’t be this year.  We’ll keep you in the loop and work with you as our roadmap unfolds.”

More than one very smart person has said negotiations don’t start until you say “No”.  Be honest with your “No’s” and your customers will respect your candor more so than the sucking up, even if they are handome and powerful men.  You may scare the odd sales person along the way, but they’ll recover when the customer decides to trust because they’ve had a real conversation with you and buys as a result.

Follow those 6 Best Practices, and you and your customers will be very happy that you’ve chosen to share your roadmaps.  Pray your competition decides not to share theirs.  Guess which meetings will make the customer feel like they have a better partner?


Posted in business, Marketing | Leave a Comment »

Black Hat Social Marketing (aka Maybe Scoble Was a Little Bit Right About Authenticity)

Posted by Bob Warfield on March 15, 2011

I have to admit: when Scoble blew up over the idea that the Facebook comments adopted by Techcrunch might reduce authenticity, I was convinced he was wrong.  The premise is a simple one: the Facebook commenting system forces you to leave comments under your real name.  The theory is that a lot of people will be afraid to say what they really think for fear of angering Techcrunch, which can make or break startups with their bully pulpit posts.

But then I happened to notice a weird thing in Eric Schonfeld’s Techcrunch article lambasting Adobe’s Wallaby for being weak.  It was the usual sort of Apple Fan Boy post you see so often on Techcrunch and a few other places.  He hated Wallaby, a Flash to HTML 5 translator, because it has limitations on which Flash features it can translate and there are bugs that can crash the browser.  Never mind that said limitations might be limitations of HTML 5’s current maturity not to mention the crashing of the browsers when fed HTML directly conflicts with Steve Jobs assertion that it was Flash doing the crashing.  I didn’t really expect much, but being a Flex developer and a great fan of the platform, I was out reading the articles on Wallaby and this was the only negative one I saw in my Google Reader.

So how did Scoble get to be a little bit right?  Well, of course you have to read the comments on Techcrunch.  They’re the real value on Techcrunch as I see it.  The posts are sort of like the Hockey Game and the comments are the Fights.  You’re there for the Fights, not the Hockey Game, silly!

One of the posters, Steven Sacks (hey, we get to know his real name), points out:

Ever since TechCrunch switched to Facebook comments, all their anti-Flash posts have a slew of comments supporting Flash. Prior to this, all the anti-Flash post comments were predominantly anti-Flash. Good to see all those anonymous posters don’t have the guts to post under their real names AND can’t write negative comments under numerous names.

Sure enough, there were a ton of comments, all but one were pro-Flash and very negative on Techcrunch as I write this.

That’s fascinating.  OTOH, I look at Scoble’s argument, and it seems obvious that if you can’t be anonymous and you want to say something negative, you might hesitate.  But here were folks not afraid to use their real names when trashing the mighty Techcrunch, and they were nearly all pro-Flash.  Where had all the Apple Fan Boyz in the commenting audience gone?

So far, I only have two working hypotheses:

First, maybe the Apple guys just didn’t get there yet.  Only problem with that is that the Techcrunch post went out several days ago, so they had time to mobilize.  That hypothesis is looking sketchy.

Second, maybe Techcrunch was being gamed.  What if a whole bunch of those anonymous Fan Boyz were actually just a very small number of people who disappeared once the veil of anonymity was no longer available?  Wouldn’t it be fascinating to know who they were?  Employees of an Adobe competitor even?

It’s fascinating to consider the impact on perception if you can scare up a virtual cyber mob any time you want to say anything you want and nobody is the wiser.  Maybe we’re seeing some evidence that just as there is Black Hat SEO, there can be Black Hat Social Too.

I actually don’t think Facebook is the cure for bad comments, but the dynamics we see here are fascinating.

Related Articles

4Chan founder says anonymity is authenticity.  I’ve decided the authenticity is a function of what’s being discussed.  Yes, there are topics where anonymity begets authenticity.  But as we’ve seen above, there can also be topics where anonymity begets manipulation.

Scoble does a good job explaining how anonymity hurts.

Posted in apple, Marketing, strategy, Web 2.0 | Leave a Comment »

Efficient Marketing Means Doing Something Different

Posted by Bob Warfield on March 9, 2011

Startups have to solve three problems to succeed:

1.  They need a great product.

2.  They need a business model that results in profitable growing revenue.

3.  They need an efficient marketing model that results in a profitable growing customer base.

As Om Malik’s great post on business models and Twitter points out, too many companies are exclusively product-centric.  They’re focused on #1.  But just adding #2 isn’t enough either.  You also have to get the word out, and as a startup, you can’t afford the luxury of advertising as your medium.  You need Efficient Marketing.

By “Efficient Marketing”, I mean marketing that doesn’t cost much in relation to the value it delivers.  It’s marketing that is profitable from day one.  You know, the kind of marketing startups and bootstrapped companies have to do, but also the kind of marketing larger companies want to do.

Efficient marketing only happens when you do something different.  Something the rest of the crowd isn’t doing so much of.  Marketing is about standing out and getting noticed, and that’s hard to do if your marketing plan is the equivalent of standing in the middle of Times Square at midnight on New Year’s Eve and trying to make yourself be heard.

What are some examples of Efficient Marketing, and what are the ramifications of thinking about “Doing Something Different?”

First, on doing something different.  It’s ironic that most of us go through life studying what successful folks did and trying to emulate that success by doing the same thing.  The irony is that most of the time, when the successful folks did it, they were doing something different.  By the time we get around to copying them, it’s no longer unique, but we still wonder why copying their formula verbatim doesn’t work.  In this case, the old saw about insanity being the expectation of a different result when we do the same thing tells us that Marketing takes a little bit of craziness.  We expect the same result when we do the same thing, but we should be doing something different to get that successful result!

Assuming that last bit hasn’t gotten you completely confused, let’s delve into Marketing Differently.

As my loyal readers know, I am a huge proponent of Content Marketing.  Content Marketing is still relatively rare, though it is rapidly gaining in popularity.  It is a sub-genre of what Hubspot calls “Inbound Marketing.”  If you make the decision to lead with Content Marketing, you’re already doing something different from the masses.  But, consider how much further you might take it.  Instead of leading with a conventional corporate web site that’s all about you, how about leading with your content that’s all about delivering the value of the content free to people who might one day become your customers?  That’s pretty different, and you can go much further down that path than the Carbon Fiber Gear folks.

If you’re going to focus on Content Marketing, you’ll want to make sure your content has the opportunity to be different.  Are you in a space where there isn’t a lot of quality content available?  Some markets are better about that than others.  The first one to bring premier content to a market lacking in good content will be a big winner that’s hard to unseat because they have the benefit of inertia (they’re in everyone’s blog readers and already receiving the newsletters) and network effects (everyone is already referring others to this wonderful source).  So in the spirit of the 3 problems a startup must solve, check into whether your proposed business has the opportunity to excel with content.

As I have mentioned in the past, App Stores are another way to market differently or market different, as Apple might say.  But not all app stores are equal.  While they are relatively new, and a lot of companies have benefited by being early to the App Store craze, some are getting very crowded.  You’re no longer doing something different if you’re counting on a listing in the Apple app store to get your product noticed.

What to do?

Check this great article on how one game developer is finding the Android store to be more profitable than Apple (thanks Techmeme for bringing me this one!).  According to the article, “Spacetime, which is supported largely by in-app purchases, says its Android users generate 30 to 50 percent more revenue than its iOS users do.”  30 to 50 percent is huge, but why does it happen?  I love the money quote from Gary Gattis, Spacetime’s CEO:

“Android’s a smaller pond for apps right now,” he says. “The support on the Google side has been much more tangible — they’re really trying to nurture the gaming community.”

Bingo–right now, being on Android is doing something different.  As a result, Gattis says Spacetime has stopped advertising on Apple entirely and thrown their whole marketing budget behind Android.  That too is something very likely different.  Most companies love the idea of balanced scorecards–a little bit here, a little bit there, spread the risk.   Unfortunately, where marketing and a lot of other business is concerned, unless you’re already big and protecting your position, spreading the risk isn’t your job.  Take exceptional risk by doing things different and doing them big.  Double down on what works and try another experiment when it doesn’t work.

We’ve got Content Marketing, choosing the less popular App Stores (and potentially platforms), what about some of the common patterns?  For example, stealth launches.  I’m not a big fan.  First, you should be building content day one to attract the audience who will eventually buy your products.  Second, it’s been done to death.  There’s even a service now to automate it for you. With respect to Scoble and LaunchRock, how much is your startup going to accomplish if it does the same thing the last 1000 startups have done and uses a service to homogenize the experience on top of it?

Let’s try some more, rapid fire bullet style:

–  In an age where business views customers as “people with our money in their pockets”, what happens if you take a different and refreshing view of your customers.  By now you must have heard the Zappo’s story of exceptional Customer Service.  Others are catching on, but there’s still plenty of opportunity to be different in how you treat customers.

–  Advertising:  If you must advertise, you’d better do it where others aren’t.  That means finding the long tail keywords if you plan to use AdWords.  Keywords that others haven’t discovered so your ads run where they’ll be noticed and can be placed very cheaply.  How about advertising in specific online forums where your tribe may be found?  This can work if your tribe is focused and there isn’t already a ton of advertising there.  Running a bunch of ads on Facebook probably won’t quality.

–  E-mail campaigns:  Not a big fan of email to get noticed.  In this age of Spam, it’s too easy to do yourself more harm than good.  As a tool to nurture your audience after they’ve asked to be on the list and could opt out at any time, it works.  But look for ways to make your mailings different in some way.

–  Social Media:  Yeah sure, but the opportunity to be different is fast dwindling as everyone gets focused on the new new thing and it suddenly becomes the tired old thing.  As with email, figure out how to be different with Social Media, and realize that folks on the receiving end are even tougher about Social Spam than Email Spam.  What can you offer that is genuinely fresh and isn’t just gaming the Social Web?

–  Snail Mail:  Marketing moves in cycles as the herd seeks to do something different to improve response rates and cut costs.  Snail Mail direct marketing has been around forever, so it has probably seen more of these cycles than any other venue.  If you can strike at a time when the Snail Mail Direct tide has ebbed, you can stand out.  You’re going to have to do something different with the piece you mail and you’re going to have to test it to see whether there has really been an ebb and you can stand out.

–  Viral Marketing:  Everybody loves the idea.  It’s so compelling.  And so hard to realize when it’s your turn to try.  It may be too late to catch this train, unless you can come up with something that is different.  Many people are starting to complain they’ve hit the wall with viral signups.  Many platforms no longer make it easy to go viral on their coattails.  Find a way to be different if you want to succeed here.

The next time you’re sitting in a meeting, hashing through marketing programs, ask, “What’s different?”  If the answer is, “Well this worked for XYZ, they got really big on it,” ask yourself whether it’s too late to jump on that bandwagon because what XYZ did is no longer different.

Ask, “What are we doing to be different?”

Posted in bootstrapping, business, Marketing, strategy, venture | 6 Comments »

Does the Internet Mean There Can Only Be One?

Posted by Bob Warfield on March 8, 2011

I read with interest today Hubspot’s coverage of their new monster VC round.  They’ve raised a $32M Series D monster round from Sequoia, Google, and Salesforce–certainly an all-start cast.

There’s a lot of interesting data in these announcements, such as Hubspot’s view of what market shares look like for the Marketing Automation category:

If true, and we should wait to hear what the other vendors have to say before concluding it is, it suggests Hubspot is blowing away their competition at Eloqua and Marketo, and not by just a little.  That’s pretty big news too.

But there was one part of these announcements that really caught my eye.  Brian Halligan says:

In industries formed prior to the internet, oligopolies naturally formed where there is a market leader holding 20% market share, a 2nd place competitor having 18% or so, a 3rd having 15%, etc.  In industries that have formed in the last 10 or so years, the opposite seems to be happening where the winner takes all (or at least 80% of the market cap in that given industry).  A few examples include Amazon, VMWare, Zappos,, Google, and even Groupon.

Dharmesh Shah follows with:

For the following leading companies, see if you can name the #2 player and #3 in their category.  You have 30 seconds, I’ll wait:

  • Amazon
  • NetFlix
  • VMWare
  • eBay

Difficult, isn’t it?  Chances are you struggled a bit with coming up with the #2 and failed completely to come up with #3.  The point here is, as these tech categories evolved, the #1 player became so dominant that we often don’t even know who #2 and #3 are.

I don’t know about you, but I’m skeptical about this new “rule”.  There’ve been so many “rules” that the Internet has supposedly changed in some form or fashion.  I think it’s worht delving into this one.  First, is it really true that there can be only “one”, or is there something about this list or this environment that makes it a temporary abberation?

First, we could as well have asked whether there can be “only one” SaaS company in each category.  Certainly that market is closer to what HubSpot is than these companies they’re holding up as examples.

While there are not tons of companies, there is often more than one public SaaS company in a category.  I’m going to call that a strike against the “only one” hypothesis.  But, I will point out, that it is very difficult to fund a new SaaS company today and they take a lot of capital.  It may very well be that a factor at work here that has nothing to do with the Internet is the funding environment.  VC’s today are focused on companies that can be bootstrapped before they bring their millions to bear.  HubSpot got their first capital before we had fully entered that era.  It would be hard to found a company today on a slide show and team, which is where most of the SaaS world started.  So that’s a factor that has changed, but that could change back.  Personally, I think that when VC’s get tired of funding 12 different add-ons to each popular service, each with no perceivable barrier to entry, and each at the mercy of services like Twitter, they may start to look for opportunities with more substance than the usual Consumer Internet Plays that need no marketing.  From that perspective, the more firms like HubSpot that succeed, the better.  But, for the time being, we’re immersed in Dot Com Bubble 2.0 as huge valuations roil around us in markets where “there can only be one.”

Second, some of these companies mentioned have profound network effects.  That’s an ideal reason for there only to be one.  eBay is the best example.  I did an auction e-commerce business called PriceRadar that was aimed at delivering some cool optimal merchandising and selling tools for online auctions.  When we started there were circa 8 auction houses and more being announced all the time.  There were going to be not only huge horizontal auctions like eBay, but every major Internet service would have one (like Yahoo!), and there would be vertical auctions for industry (DoveBid).  Within 2 years very little was left except for eBay.  That’s how strong the network effects are for that business.  Netflix has network effects.  How many subscriptions to movies will a household tolerate?  Amazon may have network effects.  They are the online superstore merchandise-wise, they control some key franchises like books, they sell readers that read their books and create further network lock-in, and Clouds may have network effects due to latency.

The upshot of network effects is that there is a very short window for competitors to respond.  If they don’t, the compound interest associated with the network effect and the lock in makes it impossible to catch up.  That should be a sobering thought if you’re competing in a market with network effects, but it isn’t clear to me that Hubspot is.  Do companies plug and unplug their marketing automation software?  To some extent they do.  I was given that perspective by no less an authority than a key executive at one of the three Marketing Automation companies I’ve mentioned so far in this post.  Color me skeptical about network effects for these guys.

What else leads to just one?

Platforms, which are related to network effects.  Sometimes they become so pervasive you must deal with them.  Google owns search.  Facebook is another.  The network effects aren’t as striking as eBay’s when you deal with a platform, but it is a function of needing to be compatible with the status quo and it being too hard to reinvent all the wheels you get with the platform.  Oracle and SAP have platforms in this sense.

What about VMWare?

That one is pretty easy–there are VM managers that are just as popular as VMWare, but they’re Open Source.  You could argue MySQL was just as popular as the big DB vendors, but never hit their revenues because they were Open Source.  This is a scary thing about building a business around Open Source–you may succeed without getting much for it.  It’s very tricky to find exactly the right balance that ignites passion while delivering profits.

How about properties like Groupon?

Man, hard to believe they won’t see a #2 and #3 that make good money.  Living Social is already on that road.  Moreover, there’s been a spate of articles lately that are finally recognizing that coupons aren’t really even all that unique and they may not be the best thing for you and your customers in terms of fostering a long-term relationship.  It’s like the world started switching from newspapers to online media and forgot to bring their coupons along.  So, wow, Groupon is great, I have coupons again!  And then pretty soon we’ve got coupons coming from 18 different mailing lists, we’ve got flash shopping sites, we’ve got small businesses getting hit with tons of visitors who buy below cost and then never come back, and we realize we weren’t missing all that much.

I’m not buying “there can only be one”.  There may only be one if the others don’t get moving soon enough, and the Internet may shorten that window, but that’s all it does.

What do you think?

Related Articles

David Raab, longtime marketing automation expert, raises a little heck with the idea that the game is over, there can be only one, and it is Hubspot.  He also pointed to the little inconsistency in Hubspots graph of lead sources which shows email and not inbound to be the lion’s share.  That caught my eye too.  Read David’s article to see what Dharmesh had to say on that one (good explanation).

Posted in business, cloud, Marketing, strategy, venture | 2 Comments »

%d bloggers like this: