Category Archives: Random Musings

Thoughts on Steve

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Steve Jobs shows off iPhone 4 at the 2010 Worl...

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There are a lot of words being spilled about Steve Jobs. From effusive praise, to gratitude, to speculation about why and what and how, there is a great bloodletting of emotion underway. And while I am grateful for Steve Jobs, I believe we have yet to learn the most important lessons he may have to teach us. It won’t be until we gain the benefit of time and perspective, and of Steve letting us in one way or another, to know for sure. But this is my hope.

One of the things I love to do is read biographies. Churchill, Carnegie, Hearst, Welch, Iacocca, Jordan, Roosevelt. I love reading them because, if they’re any good, they get past the veil and the persona that we perceive during their heydays to the actual person. And with enough perspective they tell a story that is far more fascinating and human than the person in their prime ever was. This is what I hope for Steve Jobs. That time will reveal him to be far more interesting and dimensional than he ever would want us to know – that it will reveal him as a man, with faults and shortcomings and idiosyncrasies that make him more, us. And, in turn, us more him.

Every generation has great men that are celebrated and lauded by society and mourned when they step out of their accustomed role. We have a tendency to reduce these men into their most visible parts, to create a caricature of them that fits with how we’ve known them for so long. It’s a lie we tell ourselves to reinforce the emotion we’ve put into believing and championing these people. And frankly, it’s boring. Far more interesting are the complete, fallible figures that are the actual men behind the personas. This is what biographies get at, and where we really can learn from these great figures.

Take any of the above men, and their story upon first retirement is rather simple and one-dimensional. Whether it’s Churchill and World War II, Carnegie and the rail roads, Hearst and a media empire, Welch’s ruthless business acumen, Jordan’s athleticism or Roosevelt’s personality and leadership, the story is simplistic and attached to who we think these men are, not who they really turned out to be. And with time, they all come back to earth, their imperfections appear and their stories become far more richer and instructive.

Welch goes from being “the last great CEO,” a hero of scorched-earth wannabes trying to imitate his practice, to a man who sacrificed his relationship with his kids, made some dubious bets on unsustainable business units and frequently let his ego get in the way, in the name of growing GE. Jordan goes from a perfect athlete to a man crushed by the loss of his father with a gambling problem. And on and on. The true man is always more interesting than the idealized persona. Just like our fictional super heroes, it is not their crime-fighting alter ego that is interesting, it’s the mortal man behind the mask that holds the intrigue. Iron Man is boring after a few battles. Tony Starck is where the real interest and opportunity to learn lies.

The same is true for all of our historical ‘super heroes’, Hearst, Carnegie, Churchill, Roosevelt, Iacocca. Those who we think are perfect are more human than we can ever realize at the time – it’s only with perspective that we learn who they really are, and when they do their greatest teaching.

And so that is my hope for Steve Jobs. That when the hubbub dies down. When the spilling of words ceases and when the benefits of time and perspective are finally on our side, that we will learn who Steve Jobs truly is and understand his life and those lessons in a way that he would never conceive or approve. That we will be able to see him as the human that he is, and take his incredible gifts with his shortcomings, and use them to learn more about ourselves. That he will teach us, like the biographies of the other greats before and those yet to come, that the persona is not the man, that in the end he is fallible, he is mortal, and he is not perfect, just like us. And yet. And yet. He is Steve Jobs. I wish him well. I look forward to learning from him for a long time.

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Groupon’s Biggest Threats Won’t Come from the Web

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Now that Groupon has closed “Like, a Billion Dollars” it’s time for the company to get down to business. Mathew Ingram notes on GigaOm, that “now comes the hard part” for the company. And he’s right, now that you have the money it’s time to go out an execute and build a business that can provide a return on that level of investment. They’ve got competition and more and more wannabe’s are popping up with deal offers left and right. But the threat’s to be worried about won’t come from the Web companies. The threat’s to be wary of come from the yellow page directories themselves.

Ingram writes:

On top of Google presenting a competitive threat, there is also Facebook, which has experimented with Groupon-style discounts via Facebook Places, and could quite easily leverage its 600-million-user reach to compete with the company if it wanted to. And then there are competitors such as LivingSocial, the second-largest group-buying player, which recently got a $175-million investment from Amazon — another company that has the deep pockets and the reach to compete with Groupon — and Tippr, which has a white-label platform that allows merchants and website publishers to run their own Groupon offers, with Tippr handling all of the back-end and support.

And while, sure, Google and Facebook and LivingSocial pose legitimate threats from the online world, the fiercest competition is going to come from companies like AT&T YellowPages and Yellowbook. Because I believe that Groupon is going to go after the SMB business that is the lifeblood to those companies. I wrote earlier, when the $950 million news broke:

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won’t reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don’t ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

That’s where the threats and challenges will come from. Groupon is way out ahead of any of its web competitors; but now, to succeed at capturing a big chunk of the SMB market it has to go head-to-head with these massive companies that have sales teams, offices, infrastructure, relationships (oh, and experience) selling to SMBs. They’re the company that local businesses are comfortable investing with. Now, SMBs may not be happy with them, and their businesses may be dying; but they’re a force to be reckoned with and Groupon is going to have it’s work cut out for them to make their business a legitimate contender for the big chunks of SMB dollars currently being spent with YellowPages and the other directories.

So Ingram is right, “now comes the hard part,” but while they’ll need to keep an eye on their web-brethren currently in the rearview; it’s their brand-new competition that will require the most scrutiny. The directories have lost enough already—they’re going to try to leverage their head start to deploy their own deal offerings, and that’s where the battle really lies for Groupon.

Will Beluga and GroupMe be this year’s big winners at SXSW?

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Beluga LogoThe SXSW prognosticating season was officially kicked-off by TechCrunch’s MG Seigler just the other day; and I’m ready to throw my hat in the ring with my picks for this year’s darlings. Of course, there’s no real way to predict this; and entrants are likely to come out of the woodwork between now and the start of SXSWi, but recent trends point to a few promising possibilities. In my opinion, the big winners are going to be the micro-social network applications and sites. Why? Because group texting services like Beluga, GroupMe, and others will help attendees cut through the noise of the conference and connect with those closest to them.

Why do I think that inherently non-viral products will catch on at SXSW? Recent history provides the best clues. The launches of Twitter in ’07 and Foursquare in ’09 are examples of how the interactive crowd embraces products that help them make a large, overwhelming conference seem more intimate and personal. Twitter and Foursquare, at launch, allowed users to connect in new ways; ways that leverage connections weak and strong, provide real-time, high-quality information, and help cut through the noise and clamor of a crowded environment. These tools and services gave people the ability to create a personal, custom experience for themselves in a very noisy and chaotic space. And while Twitter and Foursquare are much more open than Beluga or GroupMe, my picks provide the next evolution of delivering those same important elements.

Twitter broke at SXSW in 2007 and was widely used at the festival in 2008 as attendees surfed and Tweeted the #sxsw hashtag to find the parties, venues, impromtu gatherings and panels that were most noteworthy. In ’07, people used it as not only a communication tool, but as a networking and real-time information network. A network that connected like-minded folks with one another in a way that wasn’t possible before. And the rest is history as Twitter blew-up, becoming the preferred communication tool for the digerati and, with later help from Ashton and other celebrities spread to the early-majority crowd as well.

But as Twitter blew up, it’s utility for connecting at SXSW ’08 diminished. Too much noise. Too much pollution. It’s value as an information source remained; but the #sxsw hashtag became unruly and less valuable to help ferret out the best events. It opened up a new opportunity for Foursquare to provide that high-signal, that more personal, manageable connection that Twitter delivered the year before.

Foursquare launched and provided a similar noise-filtered way to connect with friends at SXSW ’09 and again at SXSW ’10. Interactive conference attendees used the service to find out where their friends were. And the SXSW-specific rewards only helped to make using the service more fun. With the Twitter stream polluted and the quality and ease of groking it for useful information diminished, Foursquare stepped in and provided a better filter on connections and information. We had gone from Scott “Laughing Squid” Beale Tweeting about being at a bar next door, to people just watching their friends check-in to venues and forming impromtu gatherings as those check-ins reached critical mass.

Last year, at SXSW, one of the best parties was not a planned party at all. Brian Solis and a small group of influencers checked-in at The Driskill Hotel and within an hour the place was packed. The word was out and the party swelled. After an hour you couldn’t move. The power and faults of a service like Foursquare were evidenced in one short moment. The service worked brilliantly, connecting members of those people’s networks and letting them know where their friends were without any additional coordination or communication. On the flip side, as the message propogated and grew, the event tipped from a small gathering to an all-out free-for-all. The utility of the service fell apart. It went from an intimate gathering to a ridiculously jam packed event. And, for the rest of the conference, many of those people checked in off the grid to keep a similar scene from repeating everywhere they went.

Robert Scoble recently asked how SXSW could regain the intimacy of the conference in face of the ever-growing crowds.

Me? I want to get more of those intimate experiences we used to have. I remember when the entire Web Standards Project fit at one picnic table. I remember having a fun conversation with a small group, all huddled around Craig Newmark in the rain at a BBQ place across the street. I remember being able to get into parties without being a VIP and last year the VIPs even had to wait in line at nearly every party. Heck, I remember when Scott Beale Tweeted in 2007 that he was sitting all alone in an empty pub and I joined him and had a leisurely beer at a picnic table with him and a few other friends. Those days are seemingly gone.

Scoble doubts that we can, because there is too much opportunity cost. I think he’s wrong. I think we can with better tools. It’s not that we’re attention-deficited people who can’t decide where to go and what to do (ok, we are,); but that the tools we have have become too bloated to be effective. Twitter and Foursquare have lost their ability to create those unique, intimate moments because we’ve bent them out of shape with oversized followings and over-subscription. I believe the next wave of services that succeed at SXSW will be those that bring that intimacy back – that allow us to navigate the crowded noisy environment of SXSW and give us a better experience because of it.

Scoble starts to get at it here:

It seems weird for me to say this, but I’m tired of going to big massive parties where you collect a lot of business cards but don’t have any good conversations to show for it. I now have enough business cards. I don’t need more. I bet many of you are in the same place. In fact, this year we’ve seen companies like Pip.io and Path come along and try to serve smaller “micro” groups. Path limits you from sharing photos with more than 50 friends. I’ve come to like that constraint, somewhat. It’s just that I wish I could share with many small groups.

So, how about this as a proposal:

Kill the big parties. Instead, follow Zappos’ lead. This year they hosted a bus. It could only hold about 30 people (it had its own bar, after all). But the time I spent on that bus is still my favorite experience at SXSW. Why? Because it forced a small handful of people to sit together and talk. Even if it was just for 15 minutes it was nice to have an intimate experience with a small number of other people.

And it’s Beluga and GroupMe that can bring that intimacy and limited connection to the table – and create the passionate followings that ignite services like these to broad influencer adoption and buzz required to tip one of these services in terms of awareness and users.

Out of the two I’m picking Beluga for two reasons. First, because you connect your account with Facebook you can see which of your Facebook friends is using Beluga and automatically send them a message or add them to a group.  This is going to help the viral spread of the service.  Second, the ability to add friends based on email address or phone, over just phone makes the service more early-adopter friendly and allows you to add friends who you may have connected with online; but are not necessarily friends with on Facebook or whose phone number you don’t have. This will allow more loosely-connected groups to form to make dinner and other plans at SXSW and then disband just as fast. (GroupMe also has expiring groups, which are very interesting for ephemeral groups.) Other groups will persist as back-channel mobile chat rooms that will be running as its own data layer on top of the Twitter feed, Foursquare check-ins and other conference noise.

The benefits of a limited circle are most obvious when we’re in high-density network situations like SXSW. Over-subscribed friend and follower counts limit the effectiveness of the tools. When you’re in tight quarters, when you’re looking for high-quality information over the noise, when you’re looking for that quiet dinner party with your friends, more isn’t better. Better is better. Beluga and GroupMe and others can help give us a better experience. Can bring the intimacy of SXSW back and will be the darlings of this year’s conference.

Update: had my Foursquare launch years off.  

Why Groupon Needs $950 Million More

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The blogosphere is abuzz over tech-darling Groupon’s proposed $950 million Series G round. Many people have asked “Why do they need all that money?” And while expansion is the obvious answer, it’s a bit more nuanced than that. Groupon knows that in order to grow at scale in the SMB market you need a big sales organization with feet-on-the-street in the markets you’re hoping to reach. If you look at the successful small business advertising providers—the one’s that own large chunks of the market—they all have large sales forces. And it’s the large sales force that has stood between many a great, local-business-focused business plans and actual success.

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won’t reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don’t ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

What Groupon is doing is something that no other tech company has done in recent memory—made a real run at securing a big chunk of the SMB market. Sure, new local-business-focused companies pop-up all the time. But most of them are either niche providers or they partner with the big existing yellow page providers to get access to their sales organization. They become a B2B channel provider leveraging the existing sales force because few can generate or raise the cash necessary to build a sales organization to go out and reach those SMBs directly.

Even mighty Google has taken this approach until now. They’re either unwilling to, or culturally unable to, commit to the SMB market with a massive sales force. Google has targeted savvy SMBs directly with AdWords solicitations; but has also worked aggressively to partner with yellow page companies to sell AdWords as part of existing yellow page bundled services, and often resold as CPM-based impressions (e.g. spend $2,500/month to get a quarter-page ad in the yellow book, a bolded listing with a photo on the site and a bucket of impressions driven by CPMs). And they’ve supported that initiative with direct mail, SEM (of course) and some print advertising as air cover to increase awareness and trial of AdWords through one channel or another.

But it was not until just last week that Google started outbound telesales direct to small business owners. That is a direct response to Groupon spurning their offer, and the realization that if they’re going to get serious about local business they can’t solve it with an algorithm. They need to put people toward the business unit to succeed.

All of this of course sheds quite a bit of light on the Groupon/Google negotiations and why the deal fell apart. I think what Groupon’s board realized (and kudos to them for this insight) is that Google—at its core—is not a sales-driven company. They don’t have the internal buy-in to be a hardcore sales organization and they’ve never committed the resources needed to make small business a booming success. They’ve tried to do it every other way except invest in a massive sales force. And I think Groupon looked at what has worked in reaching SMBs at scale and they realized it’s not arms-length. They realized that SMB advertising is still old school. It’s still knocking and dialing for dollars.

Groupon realized that what they needed is a sales-focused organization, not a technology-focused one. And tying up with Google would be a mistake, because at their core the two companies are fundamentally different in what they know about going to market. Google knows that it’s tech and better and more tech; Groupon knows that it’s how many calls can we make in a day. Groupon’s board knew it wouldn’t thrive under Google.

Additionally, Groupon knew that tying up with a dinosaur of a yellow page business was a bad idea too. The margins are non-existent, advertising dollars are shrinking and moving online, and most observers are waiting for someone to drag those pre-Internet monoliths out behind the wood shed and put a bullet in them. So the only logical step for Groupon, between their options, is to go out and build the sales organization they need that supports the tech organization that they are.

So while everyone oohs and ahhs at $950 million and will continue to talk about bubbles in the tech space; I personally think Groupon has made a very savvy decision to truly be one-of-a-kind, to be the first tech company to go hard after the SMB market—and win.

If Context Isn’t King Yet, It’s Certainly the Heir Apparent

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Google announced at Le Web that they are working on providing search results without users needing to search. Path has limited your social graph to 50 people. Facebook is working hard on its groups, lists and messaging features. Google has tried to buy Groupon and Yelp. Amazon invested $175 million in LivingSocial. Twitter recently launched People Like You. Companies like My6Sense, Curated.by and Storify are popping up everywhere. Jason Kottke and Frank Gruber have two massively trafficked web sites, where they primarily link people to other content. What do they all have in common with one another? They all are an attempt to bring context to an ever-more crowded, noisy and cluttered world.

Context Restores Value to Connections

As the Web gets more connected and crowded, the concept of connections have diminished in inherent value, quickly become commodities. Not sure you agree? Here’s a quick test. Go to LinkedIn, find a co-worker, and ask them about one of their random LinkedIn connections. Chances are they can’t tell you where that person works or remember how they met them. Same thing on Facebook. In the race to connect many users have destroyed the value of their connections by treating them all the same (a limitation of the networks when we first joined.) And when we can’t easily distinguish one connection from another we run into all sorts of issues, from diminished connection with those we really want to stay connected with (I can’t tell you how many of my brother’s status updates I miss, replaced with a steady diet of random weak tie updates) to privacy issues (why can’t I treat my coworkers differently than my former fraternity brothers?)

Context helps to restore the value of these connections by parsing the important ones out of network. All connections are not the same, and should never be treated as such. By helping users provide context to their connections networks like Facebook are hoping to restore the utility of smaller, stronger connections that have been diminished by unwieldy, weak-tie networks that pervade social networking sites.

Facebook has been hard at work with groups. Which allows users to create smaller, intimate groups based on particular connection attributes (family, work, interests,) aka context, that creates more value and brings more utility to the network. I can now connect with and share things with my family members, like photos of my son, easily and privately within the group structure. Something I couldn’t do before very easily. By allowing me to add context to my network I’m able to get more out of it on Facebook.

Path takes a different approach on a similar dynamic. By limiting your connections to 50, they’re ensuring that your network consists of strong connections only. Strong connections create greater intimacy, privacy and add an immediate layer of context that governs how the service is used. My Path is two people right now. Me and my girlfriend. And that’s perfect for me. Because our Path is our photo diary. I don’t need to share it with the world. Path’s forced context creates a quiet, intimate space, much like the Facebook groups does. Path adds another layer of context via its primary functionality. Being almost completely app-based, Path combines the context of location and mobility with privacy and photos. Those layers of context create value for the user. Which leads us to location as an important context.

Context Drives Local Discovery and Commerce

The rush to local buying sites like Groupon, LivingSocial, BuyWithMe and others heralds the arrival of the local context layer being successfully applied to the Web. Yelp was the early pioneer, building social elements onto the local context layer on the Web. Google, Amazon and countless other Web companies are dying to crack the local commerce nut. And now, by applying the local layer to the social web it seems like we’ve reached a tipping point of moving local commerce online. Google gets the importance of connecting social context to local context. That’s why they were happy to shell out $6 billion for Groupon. Amazon gets it too, which is why they invested $175 million in a company with only ~10% of all group buying web traffic.

The local and social context layers drive commerce because it finally connects where we live with what we do and who we know on the Web. And the results are staggering and this connectivity is only beginning. And it’s not just group buying, it’s what every location based service, like Foursquare and Gowalla are trying to solve in their own way too.

These context layers added to online commerce drive confidence and intimacy. It makes the universe of possibilities smaller, more relevant and easier to act on. The context is the key to local web commerce.

Context Drives Content Discovery

Information overload is old news. I’m not even going to rehash the problem; but suffice to say words like “curation” don’t get worn out in information-poor environments. We are swimming in a sea of content. The majority of content, even more so than connections, has become commoditized to a point of uselessness. The advent of publishing technologies has helped content explode, but the tools to deal with this over-abundance are now just starting to get traction. Whether it’s My6Sense which learns what is interesting to you based on your past consumption, or a tool like Storify which lets human editors pull out and arrange Tweets into coherent conversations and storylines, they are trying to serve a massive need for context applied to our content.

Twitter is also trying to up the value of your Tweet stream by pointing to people who are like you, that may up the signal in a stream that is hard to cobble together one connection at a time. I can tell you from experience that it’s hard to craft an inbound Tweet stream of value at any scale. This is a big problem that Twitter needs to solve to help grow the service and make it relevant for less sophisticated users who don’t have the expertise, time or inclination to curate a group of people they follow that gives them the best experience they can get on the network. Twitter is trying to bring context to who you follow and what your Tweet stream looks like in response.

It’s not just machines and services either that are applying context to the content white noise. The ability to curate content, to create and apply an interesting and consistent context filter, is becoming more valuable than the content creation itself. People like Jason Kottke, the folks at Brain Picker and Boing Boing (among others,) are known, and valued, more for their ability to filter, surface and bring context to the endless firehose of content than of their ability to create it. They are the new editors of the Web. While mainstream print and network news have lost relevance these new editors are picking up the reigns of their offline counterparts, and providing much needed guidance to an audience that struggles just to keep up with the torrent of content, good, bad, farmed and malicious.

In a world where we find our own news, we are now in desperate search for our own editors. The software, companies and people who can create context for us that was lost when we ditched network TV for the blogosphere and statusphere are the ones that are creating new value for us on the Web. We’ll see more software like My6Sense, more context-driven M&A like Google and Amazon, and more Jason Kottke’s and Frank Gruber’s as we look for better ways to apply important context to the content that continues to come, like a never-ending avalanche down the hill. It will be these people, software and companies that will thrive and that will win in the next wave of the Web. Because more than great content we need great editors. Content’s days as King are numbered. Context is the new heir apparent, and the overthrow couldn’t happen soon enough.

Google Gaga for Groupon’s Growth

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The rumors started Sunday night with a note from Vator News that Google acquired Groupon for $2.5 billion. Now Kara Swisher over at BoomTown puts the number of the Groupon Google Deal at $5-6 billion. Whatever the number, the reasoning behind it is clear. Google is in a desperate hunt for revenue growth. Groupon is the fastest growing business on record. Google wants to finally crack the local nut after years of battling for SMB dollars with yellow page directories, Groupon is a sensation among small business owners. Those two factors make Groupon a must win for Google, and they’re willing to pay a premium for it.

Image representing Google as depicted in Crunc...

Image via CrunchBase

Google needs Groupon for growth. Google has no doubt been on a tear, but in 2009 they slowed, dramatically. Google advertising revenues grew 59% YOY in 2007, 29% in 2008, and just 8% in an admittedly tough economy in 2009. And in 2010, it looks as if advertising revenue will grow somewhere in the neighborhood of 15% if Q4 revenues are in the ballpark of the rest of the year. And while most companies would love to see this track record of growth, it can’t be satisfying to Google execs who have seen companies like Apple see their revenues and market caps up big. And even private companies like Facebook and Twitter are reporting big gains in users, big gains in advertising revenue (with Facebook’s purported $1 billion in revenue this year) and getting impressive private valuations.

It’s clear. The battle for web dollars is on. Google is turning more into a utility with good but not great growth while the aforementioned high fliers are getting the growth, the spotlight and the valuation. For Google, Groupon is the perfect antidote. An infusion of growth for a company that really has no other answers.

Think about it for a minute. Google’s big acquisitions YouTube and DoubleClick are not growth centers. Heck, YouTube is specutively a break even business unit at best. Their enterprise apps, mail, and other products are seeing user growth; but not revenue growth. And Google’s recent spate of product launches (refinements to search, HotPot, etc.) don’t point to any new revenue champs coming from internal teams. All this leads to Google looking for growth, and there is no better growth story on the Web right now than Groupon.

Groupon is enjoying 50% margins and an estimated $50 million per month in revenue. That’s a shot in the arm for Google’s bottom line. And Groupon isn’t even operating at scale yet. They’re still rolling up knock-offs, hiring sales and copywriting staff like crazy, and innovating on the product side to bring Groupon to everyone. And even if small businesses lament Groupon and even if Groupon’s not a great marketing strategy for business, it’s popular, it’s easy and it works to drive numbers to local businesses. And Google, for all it’s done on AdWords and Places has not been able to capture the imagination of small business like Groupon has.

For small business owners Google is hard and confusing. AdWords is competitive, expensive, requires keen oversight and intensive setup to get right. And even after doing all of that, the search query volume for “Pomona pet store” just isn’t high enough to drive real traffic and business to small business. And as anyone in the directory business can tell you, it’s not about branding, it’s not about being findable, it’s all (and I mean all) about making the register ring. Yellow page companies have been chasing this grail for years, with click to call technology and in-depth customer reporting, all in a desperate effort to tie results back to spend. And while Google has a much clearer ROI path and performance model, they can’t drive foot traffic, phone calls and new customers like Groupon can (and like the Yellow pages used to.)

But the yellow pages are expensive with high monthly minimums, and even with the advent of new performance plans on things like search and click to call, the industry doesn’t have a strong way to drive new business in waves (like Groupon) or have clear ROI reporting in line with Google’s.

Which gets us back to Groupon, because Groupon solves the two problems that Google and the yellow pages don’t solve. They get awareness, and lots of it. The Groupon rushes are famous by now. Google can’t generate demand like that, they can only help to harness existing demand and drive it in your direction. They can’t make more people search for teeth whitening; but Groupon can set off a wave of people who suddenly realize they need to brighten up their incisors. Groupon also has the low cost and the yellow pages can’t compete with that; their monthly minimums come and go every month for the entire year. Groupon, in contrast is pay for performance. You only pay for each person that buys, although, you pay out the nose.

When you put it all together, Groupon is a sexy, sexy target for Google. For all of Groupon’s misgivings, it’s a hot company; a big growth opportunity and a model that small businesses get and like, for the most part. So if Groupon is the right play for the company that wants to be the yellow pages of the Internet, the next question becomes the price tag. At $5 billion, this is no small potatoes, and represents Google’s biggest M&A deal ever. The questions are numerous – will Groupon be able to maintain margins in the face of stiff competition (currently at %50, the answer is NO,) will Groupon be able to scale efficiently, will Groupon be able to continue it’s growth? Not likely and not likely. There are only a handful of companies that have successfully cracked the local nut, their names are AT&T, SuperPages, Local Insight Media, Dex and a handful of others; all have large sales forces, and all have low margin, low growth businesses. Interestingly, most have had to reorganize via some form of bankruptcy or acquisition. Can Groupon buck that trend? Questionable. But they do have things going for them that yellow page companies don’t, like no cost of goods and production of books as massive cost centers.

So is $5-6 billion worth it to Google? Buying growth is expensive and companies will pay a premium for it. Just look at Disney’s acquisition of Marvel for $4 billion, all in the name of growth among tween and teenage boys. For Google and Groupon, time will tell; but I think the answer is yes, because Google needs growth, Google has the resources to scale Groupon and Google can leverage the wonderful world of advertiser bundles to sell things like places, tags, and AdWords to advertisers who make Groupon just part of their advertising/marketing mix. I argued that Groupon is not a marketing strategy; but Groupon, combined with thoughtful search, and other localized online marketing can be a part of a coherent small business marketing strategy. Google has all the pieces to deliver that value.

Let me know what you think.

Groupon is Not a Marketing Strategy

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Groupon‘s UK Managing Director Chris Muhr opined today that the reason Google would want to purchase Groupon was because Groupon has “…something that Google does not have and no one else has and that we have really tapped a new market,” but is it really a new market or have the just tapped into the greed and laziness of businesses who long for days of old media? I think it’s the later, which is why the idea of Groupon is at once appealing and dangerous to small businesses and brands all over. But first a bit of background.

How Groupon Works - Groupon highlights one business in each city every day with a sale that’s too good to pass up. (They also have “side deals” and Groupon Stores, but we’ll focus on the main deal here.) Usually 50% or more off retail price of a service or item. They like to focus on a price range that makes the item easily bought on impulse and guide businesses to try to stay under $50 for the best results. So if you sell wine for $30 a bottle they’ll want you to offer it for $12-$15 on Groupon. Then Groupon takes 50% of every transaction successfully processed through the offer. So to continue the example, if you sell wine for $30 regularly, you’ll put in on Groupon at $12 and you’ll end up with $6 per bottle sold. They’ll also set a tipping point for the deal to be activated (the “group”" in Groupon) and will also let you cap your deal at a certain amount of sales. It’s pretty easy to see that if you don’t have much margin built into your product, you’ll be in the red on every sale, depending on how you structure your Groupon. And if you can give up 75% of revenue and still make a profit, it’s likely going to be a very small one, which means you need to sell a lot of units to make any money.

So, then why does a business use Groupon? Businesses use Groupon because they can drive a large number of visitors to a store location with a single event. They hope that the new customers reached by Groupon will buy additional items above what is advertised (if you’re losing money on your Groupon this is considered a “loss leader” strategy,) and/or you hope that they become loyal customers that come back. But I also think they use Groupon because they’re lazy. That’s right. Lazy. And here’s why.

Groupon works a lot like a newspaper ad used to. You find the biggest circulation possible, you make an appealing offer and you hope that you get customers that will come in and like your business. It’s the old “spray and pray” model of marketing that worked so well in the days of mass production and mass consumption. Get it in front of them and they will buy. It takes little thought, little effort. It doesn’t take cultivating relationships, building a brand or finding customers who really need your service. It’s the laziest form of marketing out there.

If you’re a business you have four critical attributes that help drive sales: your brand, your prices, your awareness level and your location. There are of course many more; but let’s look at these four for a moment.

Your Brand – If you have a strong, growing brand, you don’t need Groupon. Your brand drives customers, customer loyalty, word of mouth marketing and strong margins. You can charge more, spend less on advertising and focus on growing your brand through unique experiences and high quality products. It’s a virtuous cycle, but one which few companies get into and fewer still that can maintain it.

Your Prices - If you don’t have a strong brand but you have incredibly low prices then you’ve defined yourself as the low cost leader, you’re first in the race to the bottom and you know you’ll live a life of low margins and need to move a lot of units to make up for it. You also aren’t ideal for Groupon because you probably have a brand associated with being the low cost leader, and Groupon’s pricing structure doesn’t work well in a low margin world (as outlined above.) If you’re priced in the middle of the market you really don’t have a lever for sales on prices because customers can go to the low cost leader.

Your Awareness Level – Among your customer base your awareness level is what drives repeat visits, word of mouth and new customer acquisition. If you have great awareness, if everyone knows that you’re the only 24 hour locksmith or the only tux rental place in town then you’ve got great awareness. If you’re one of 12 women’s clothing stores, like a Chico’s in a strip mall somewhere, you’re awareness level isn’t great. Groupon starts to sound like a good idea here.

Your Location - Unless you’re a virtual retailer with a strong ecommerce presence, you’re really limited to the surrounding area for your customers. How far they’re willing to travel to get to you is a function of all three above. Groupon makes sense here too.

So if you’re a middling business with little or no brand, little or no price differentiation, and a fixed customer base that is more or less only growing with the population in your area, then you have only a few levers to pull to make your business go. You can go about the hard work of building a brand in your community. Connecting with core customers, building word of mouth by creating an amazing experience, or demonstrating expertise above and beyond the competition. Or you can cut your prices, be the unbeatable low cost leader and price match anyone else. People know that they’ll get the lowest price from you and that goes a long way. Or you can increase your awareness by advertising, sponsoring events, etc. Or you can open more locations, a capital intensive process that may or may not work for your business.

Or, you can Groupon. Because with Groupon you don’t need to do any of that. You just spray and pray. Cut the prices on an item and let Groupon do the rest. But is that really it? Do the customers come back? Do the customers care that you exist? Do the customers remember who you are and where to go the next time they need something you provide? There are plenty of Groupon disaster examples on the Web that say “No.” Because without thoughtful marketing in place, Groupon is just a flash in the pan.

In the PR trade they say “Getting on TechCrunch is not a PR strategy.” I say “Getting on Groupon is not a marketing strategy.” And it’s where I think Chris Muhr is wrong. Google provides the savvy, thoughtful marketer a lot more than Groupon ever could. It provides the people willing to invest in their brand, their customer experience and their awareness with an avenue to showcase their business to people actually looking for them, not just people looking for a rock-bottom deal.

This goes for big brands as well as small businesses. If your brand is flagging, and you’re undifferentiated among your competitors Groupon is not going to solve your woes. It doesn’t matter how many gift cards you sell if you can’t convert those customers into repeat customers and advocates of your brand. And if you don’t fundamentally change your brand and the customer experience then Groupon will be nothing more than crack for your marketing department. Because each time you run a Groupon you’re high will be a little less than the last time and your hangover will be a little worse. For every Groupon you run, you dilute your brand a little bit. Do it once and it’s a marketing stunt. Do it over and over and you begin to redefine the value of your product or service. You hurt your brand and any differentiation you had. You’ve chosen the low cost leader, commodity approach. Prepare to accept the consequences.

So can Groupon work? Absolutely. Is it the right answer? Maybe once. Is it a strategy? Absolutely not. Is it easy? Too easy. Small businesses and big brands should focus on reengineering their customer experience from the web site to the warranty service. And when that is done then, maybe, it’ll be time to shout it to the world with Groupon. But more likely, the people that have been blown away by the change in your service will have already told the people you want to reach. Don’t be lazy. Do your job. Your brand and your bottom line will thank you.

Photos are the Love Letters of the Social Web

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Instagram, Hipstamatic, Path, the list goes on and on. Photo taking, editing and sharing apps are gaining momentum right now as more and more people use quick photos to communicate with their friends and family. Years after Flickr and Facebook reinvented the photo as a shared, social object, these new apps are transforming how we communicate, from short text-based status updates to candid, interesting photos. Some people are wondering why these photo sharing apps are so en vogue right now, but I think the answer is pretty simple – people want more than text to express themselves. As the on-board cell phone camera technology has improved pictures have become a more viable and attractive way for people to express themselves online. With our new cameras and better upload ability photos have become the new love letter for the web.

We’ve talked about the “statusphere” since the dawn of Twitter. Short text bursts were our our only option if we wanted to participate in the social web. But they were lacking. Sometimes, words just don’t do it. Text is great for relaying information, facts, quotes, etc. but photos are a much more emotional. They not only serve an information need, they serve an emotional and phatic need as well. These facets are often missing in text form, or if they’re there, aren’t nearly as profound or effective.

So now, instead of typing what we’re doing, we’re sharing what we’re doing visually with these apps. Our phatic expressions previously text-based, are being replaced, and in a hurry. The rush to join Instagram and the rest of the photo sharing/taking apps is a direct response to this emotional void that photos fill that text just can’t touch.

For example, I share photos with my girlfriend throughout the day. We snap pictures of what we’re doing, our kids, our workspaces, our shopping carts, our friends, and more. These aren’t award winners and they won’t end up on the mantle; but they’re a powerful way to say “I’m thinking of you. I wish you were here. I love you.” A picture of my son coloring is far more emotionally engaging than a text message that says “we’re coloring,” and that is what makes the photo sharing so appealing to us as users.

But there’s another thing going on here. Because people could MMS well before Instagram came along and they could share on Flickr and BBS’s long before that. And I think the secret ingredient is the filters that come on these apps. Because when you take a photo you’re documenting an event; but when you add a filter to the photo you’re adding a mood and personality to the moment. You’re marking it for posterity. You’re able to add what the camera can’t see. You’re making each picture special. And that last step is what makes sharing so interesting. In some way, you’re able to idealize the moment, and that makes sharing far more interesting for both the sharer and the recipients. It isn’t just cold reality captured by an unforgiving, inhuman lens. Rather, it’s the scene as it appeared in your mind (to some reasonable approximation anyway,) and you’re able, in some small way, to share your life the way you see it.

And people love this. Because it’s their editorial touch on the reality captured by the camera. And it lets them put their voice into the picture. The picture and it’s alterations say as much about the person as anything else they share.

This ability to alter the mundane into something special resonates with users again and again and again. We see this behavior and rapid adoption whenever a company can add an extra layer of meaning on top of an everyday item. For example, it’s not Starbucks coffee, but what the coffee and logo say about the drinker and how it makes that person feel. It’s the design of the Mac and the aluminum casing and what that says about the person holding the laptop.

And now these photos are capturing and conveying that same idea. It’s not the photo necessarily, its presenting the moment the way we choose to represent it, and what that says about us and who we are and the life we choose to lead. The photos are love letters to the people we love and care about and to ourselves. They make the mundane significant and add importance to what we experience, big and small.

Idealizing these moments is what makes these photos the love letters of our time, and what makes these apps so popular.

There are important ramifications for this change in behavior from a business and social media strategy standpoint as well. As more people share and engage around photos brands will have to find a way to participate in this preferred way of sharing content online. The Daily Beast reported that photos and videos get more interaction on Facebook than text updates. Images and videos get more comments and likes than text updates (on average,) which puts them in more Top News streams and in front of the customers they’re trying to reach. How can brands adapt to this? By sharing more photos and video of course – photos with an emotional appeal that resonates with their customer base.

It goes beyond just social sharing though, and has much broader implications for product design and development. How do you let your customers express themselves in a way that resonates with them, that helps them depict an ideal/romanticized version of their world? How do you give customers lightweight ways that they can take the raw product and add their idealized filter to it to make it truly one-of-a-kind, truly theirs? How can you help your customers portray not just their reality, but the reality in their mind’s eye?

Increasingly we are able to share more about our lives via text, photo and video. And increasingly we can craft and present our lives to be displayed perhaps not as they are in the harsh light of objective reality; but in the idealized vision of our own emotional lens. And products, like Path, like Instagram, that give us the ability to capture that state and to share with our loved ones and the world that our life is filled with interest and wonder and love are the ones that will continue to succeed in the social space. They say photos are worth a thousand words. In an age when people proclaim that SMS, Twitter and status updates are killing our language, these photos show that expressing our love to those we connect with and care about is healthier than ever.

Woz: Android Will Dominate Mobile. Jobs: Yawn.

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Steve Wozniak told reporters yesterday that Android would become the dominant smart phone platform, not the iPhone. Of course, this got the tech blogs in a buzz, with Woz’s Apple ties and the classic open vs. closed platform debate making this quip juicy link bait. But I couldn’t help but think that Steve Jobs sees this quote and just yawns. Literally.

Does anyone think that 1) Jobs is worried about Android becoming the dominant OS or that he wants the iOS on every phone and 2) that Android’s destiny is preordained? I don’t think so.

If we define “dominant” by the number of devices carrying the OS, then there’s no way that Jobs is worried about it. Look at the market caps of Apple and Microsoft. Look at the install bases of both. Jobs knows that winning doesn’t mean putting your device in every hand. It means creating a profitable ecosystem and customer base that wants to pay a premium for a premium product. The idea that Apple would suddenly want to be the commodity leader in the ultimate commodity technology market completely ignores Apple’s strategy since Jobs’ return to power. Apple is about premium products, premium experience. It’s not about OEMs, licensing across a million platforms and trying to get every single member of the mass consumer market using their products.

If Android becomes the largest share of mobile phone OS installs it has little impact on Apple as a company, and less still on their mobile product strategy. Of course, they want to get people into the walled garden and let them know how nice and cozy it is so that they’ll grow their customer base – but they aren’t trying to be the Windows of the phone world, that hasn’t been their corporate strategy to date, and there’s no reason to think it will be in mobile now.

Jobs knows that being the commodity leader is not being the market leader. But giving Android the commodity crown now is also flawed. Android has a long way to go before regular users will adopt it, recommend it and use it.

Woz makes the mistake of equating “more features” with greater product desirability by the market. We know, from countless historical examples, that this just isn’t true. In fact, I’d argue that a more limited OS is more desirable to most consumers. Take my mom for example. She just wants a phone that works. She doesn’t want a phone that works like her PC. She HATES her PC. It takes forever to load, is still filled with garbage from OEM installs of anti-virus trial offers and doesn’t offer a seamless experience in any shape of the word. The last thing my mom wants in her pocket, when she needs to make a call, is another implementation of her disaster of a PC experience.

This is where it will be difficult (not impossible, just difficult) for Android. How do you keep the user experience high on a device that should just “work like it’s supposed to?” People have learned that computers crash, have performance issues and are generally a pain. But people have learned that the phone just works. Just like cars. Just like electricity. Consumers will get frustrated if the Android marketplace and software emulates the PC experience. They won’t adopt it in large numbers.

And if the Android market isn’t secure there will be a public perception problem about the safety of installing apps. We’ve already had the stories of malware in the Android App store. These will take hold and create challenges for the OS in public adoption. Users aren’t sophisticated enough to navigate this themselves, and when people start losing business contacts due to viruses on their phones the backlash will follow.

So while the tech industry can crown Android now, and call it the soon-to-be dominant OS I can see the folks at Apple, Jobs particularly, sitting back and yawning. Knowing that 1) it doesn’t matter if it does come true and 2) it’s not guaranteed to, anyway.

Update: Apparently Woz was misquoted and basically sums up what I said above in his response here:

According to Steve, that’s about it — he says he’d “never” say that Android was better than iOS, and that “Almost every app I have is better on the iPhone.” Woz did say he lightly prognosticated that Android would become more popular “based on what I’ve read,” but that he expects Android “to be a lot like Windows… I’m not trying to put Android down, but I’m not suggesting it’s better than iOS by any stretch of the imagination. But it can get greater marketshare and still be crappy.” He’s not shy, that Woz — listen to him say it all for yourself after the break.