Category Archives: Business

The hidden challenges of channel marketing

Business No Comments

Channel marketing is an approach for growing sales by developing relationships with other companies (i.e. channels) that do the hard part of selling for you. One example you’ve probably seen is affliate marketing, where third parties sign up to provide leads in exchange for commissions. There’s many other examples from component manufacturing to distribution companies and retail.

What is seldom discussed in case studies (or sales pitches from affliate companies, for that matter) on the topic, is that while a channel marketing approach can be effective in triggering rapid sales growth, it also has some serious challenges that need to be addressed if you are going to succeed:

a) Pricing power – if somebody is sending you business in volume, chances are they will push very hard to get the best price possible (i.e. your margin will be lower). In addition, raising your prices later on may be challenging, particularly if a given channel represents a large volume of your business (and a useful channel almost always will).

b) Brand – if your “real customers” are actually your customer’s customers, chances are they’ve never heard of you. Unlike Intel, with their successful “Intel Inside” branding exercise, most companies that rely heavily on channels do not have the budget or marketing savvy to create a national television marketing campaign. Nor will their customers permit them to succeed (Intel was lucky that Dell signed on).

c) Inability to choose business – this is a particular issue in the service industry, where success may depend on the ability to turn down business that is not a good fit. It becomes difficult to turn away a project, for instance, when a channel that represents a significant percentage of revenues demands that it be undertaken.

d) Potential conflict of interest – there are several areas where channel marketing can lead to enhanced potential for conflict of interest; the customers of your customers may wish to approach you directly; paying commissions may result in business being directed inappropriately; differential pricing may result in your channels being angered if your direct customers obtain better pricing.

e) Excess growth – a channel approach may result in an inability to control the rate of growth, which has any number of inherent follow-on issues.

The take-away is that channel marketing, while a powerful tool that can be used to fuel growth (and also provide an entrée to otherwise inaccessible markets), does have some inherent risks, and these must be managed with care and foresight if this strategy is to succeed.

What’s next for Cisco?

Business Technology No Comments

While I’m on the topic of tech stocks, I was reading the comments on the following story earlier today (article). The general gist seems to be that Cisco has lost its way, and that its low valuation of late is part of an overall downward trend.

My immediate thought is that at its current valuation, and with its huge cash reserves (never mind market share, product lineup, patents etc), Cisco is actually a potential target for a takeover. The first candidate that came to mind was HP, but they’re unlikely to risk antitrust action (they bought 3Com a while back). A more likely candidate would be Oracle, who appear to be positioning themselves as HP’s most immediate competitor. I’m not sure I’m happy about the thought from a consumer’s perspective, but an Oracle-Cisco merger might make good business sense.

When will virtual currencies be useful?

Business Uncategorized World Wide Web No Comments

I currently have small amounts of money floating around in a variety of virtual currencies. In some cases, I can convert those currencies to other virtual currencies or to real world money (i.e. there’s a slow process to move paypal money into my bank account).

It occurs to me though that it would be very useful if I could pay real world bills (think groceries or mortgage) directly using virtual currency.

Before that can happen, there would need to be a lot more transparency (i.e. no grocery will accept magicbuxx if they don’t know how much they are worth, or whether they can in turn get value out of them), and a whole lot of big institutions like banks and payment portals would need to sign on too. There would also need to be physical mechanisms that can transfer the payments (i.e. the new mobile payment technology that is slowly being adopted by cellphone manufacturers would be helpful).

I wonder how we can make that happen. It would be very nice to be able to go to a restaurant with a pile of Facebook credits, or Bitcoins.

Evaluating Project Risk

Business Software Development No Comments
Risk Factory - by kyz - flickr.com Creative Commons

I’m interested to hear feedback regarding how other development companies measure project risk.

We currently track three general classes of risk (although in a very simplistic way) for a project:

1) Technical risk – how likely is it that we will run into something that we don’t know how to solve (or that can’t be solved as stated – or is generally insoluble).

2) Bottom line risk – how likely is it that the project will cost too much to build (i.e. it won’t be profitable). Note that even projects that are not fixed cost (i.e. are billed on an hourly or some other type of flexible basis) can run into issues if they start to cost more than some unstated budget on the customer’s end. This type of risk is frequently the largest concern on our end of things, because (like many service organizations) our largest expense is staffing.

3) Customer risk – I’ve had customers go out of business, vanish, fire us etc in the past. There are frequently warning signs from the start that a particular customer may be more risky than usual. We’ve started tracking issues in a database to try to become more adept at evaluating this sort of risk.

How does your company measure and evaluate risk? Are there relevant categories missing from my list (VaR, Black Scholes etc aren’t really relevant to software development – I think).

HP Needs a BHAG (Big Hairy Audacious Goal)

Business Uncategorized 6 Comments
Flickr Creative Commons - Taken by kevindooley

A number of years ago, I read a book called “Built to Last”, by Jim Collins and Jerry Porras. The book, a classic of the genre, discusses a number of companies that the author feel to be “visionary” in nature. One of those companies is HP. The founders of the company built not just a company, but also a coherent internal culture, commonly called the “HP Way”. This has lead to the company being greatly admired in business circles.

The last few years have been rough on HP’s external image, in large part – I believe – unfairly. The past week has seen the second sudden departure of its CEO in only a few years. Both were due to scandal. While profitability has not been hurt (in fact HP is doing better than ever, with much credit to its recently departed CEO!), the stock has lately been pummeled in the markets.

Some of the commentary that I’ve read describe the most recent tenure as being one of building a solid financial foundation for the company. Which leads me to my point. What HP needs in its new leader is a vision for where the company should be moving technologically. Not just a specific set of goals, but something that is going to put fire in their bellies (and enthral their customers). In short, they need a BHAG – a Big Hairy Audacious Goal.

One possibility that comes to mind: HP is one of the largest manufacturers of electronics (both consumer and business) in the world. If they made a decision that in 3 to 5 years time, every single device that they manufactured would contain a wireless mesh device, they could theoretically blanket the entire world with free, decentralized, high speed internet connections. And by implication, free telephony and broadcast media. Yes, there are still big technical issues to address, and wireless mesh networks are still very much the realm of techy enthusiasts (and the US military, and also to some extent Google). But that’s the point of a BHAG. Yes, the telecom industry would scream (including likely some of HP’s board members – hey, I’m just sayin’) as their entire business model evaporated. Oh, and Apple might be in trouble as well – they make money on the telecom contracts for iPhones, not on the hardware. But imagine the sales pitch to consumers – buy our printers, our laptops, our telephones, and never pay for internet, telephone or cable TV ever again. Nice, eh?

Here’s another possibility: HP is already widely known for its environmentally friendly policies, and especially for its experience handling and recycling plastics. Imagine what effect a Fortune 500 company (with $100 billion plus per year in revenue) could have, if it would back a project like WHIM Architecture’s Recycled Island project? WHIM are trying to gather all of the waste plastic floating in the middle of the Pacific Ocean, and turn it into habitable land. I don’t know with any certainty if their economic projections are feasible, but there’s a potential for large profits from this type of venture.

There’s no doubt that there’s any number of highly talented people that can step into the chief executive role at HP. Let’s hope that whomever they chose will bring this kind of vision to the table, and that this remarkable company can quickly move beyond this temporary setback.

Business Lessons From Farmville – Part 2

Articles Business Social Media 8 Comments

Continued from Part 1 – http://lichtman.ca/articles/business-lessons-from-farmville-part-1. In Part 1 we discussed the idea that there are business lessons that can be learned from viral games such as Zynga’s Farmville.

2. Let Everybody Know

If you’re on Facebook, you are familiar with the extent to which Farmville pesters people who aren’t already playing it. I had actually blocked the application at one point, and only logged in after reading about how it had attracted 70 million users on a mainstream press website – which actually proves the idea that in advertising, repeating your message ad nauseum actually does pay off. Eventually.

What Zynga have done with Farmville is create a system that provides an immense number of opportunities for people who are already using the game to gain by telling other people about it. In addition to bugging people who aren’t already playing, it also provides – as mentioned above – innumerable ways of reminding people who are already playing it about its existence. This can be irritating, but it is clearly an exceedingly effective methodology for growing traffic.

A small number of the methods that they use to spread the news include:

  • Constantly requesting users to post announcements to their “streams” – every time a user achieves a milestone in the game – no matter how small – Farmville asks the user if they want to place a post on their stream (the list of updates shared between “friends” on Facebook). These announcements are essentially sales referrals – if somebody not playing the game sees hundreds of such announcements from their friends, possibly it may pique their interest.
  • Many posts from Farmville contain image “snapshots” of what a user’s farm looks like. These follow the notion of “show me, don’t tell me” – a picture is worth a whole lot of verbiage.

3. Build a Community

As mentioned briefly in Part 1, the notion of a community is very powerful in social networking applications. If the people that you are friendly with are all involved in a particular community, not only are you more likely to join, but you’re also much less likely to leave. Real world examples include religious institutions, multi-level marketing organizations, social clubs, charities etc etc. Many such organizations fulfill a social role in addition to any other role they may play, and for their participants this can be a powerful motivator.

The vast majority of online social applications pay lip service to the communal role – but in actuality they provide little incentive (or supportive functionality for that matter) for people to actually interact with each other.

One of the key reasons why Farmville has been so successful is that the communal aspect has been so well thought out – not only are there endless ways for people to interact in the game – it is difficult to progress without doing so. A few examples (and there are probably dozens of others) follow:

  • Neighbours – the game plays up the folksy notion of farmers chatting over a picket fence. Members can add other players as virtual neighbours in the game, and thereafter the game visually renders the neighbouring farms next to the player’s farm. Players are encouraged to visit their neighbour’s farms, and to participate in building up those farms via simple tasks (fertilizing their crops), for which they score points.
  • Many items in the game cannot be purchased from the “market” directly – they can only be given as gifts. Players are encouraged to give such gifts to their neighbours, and the receipt of such items triggers a polite request to send something back.
  • An interesting recent feature – barn raising. A player wishing to build a “barn” with which to store items can pay for the barn directly – or get it for free if ten of their neighbours are willing to help them. The process involves a large amount of voluntary messaging being posted to streams – and people’s in-boxes.

[To be continued in Part 3…]

Business Lessons From Farmville – Part 1

Articles Business Social Media 18 Comments
Day 312/365 - 8 Nov - FarmVille
Image by anshu_si via Flickr

I’m not generally recommending that you drop everything and play Farmville, but there are some interesting business lessons to be learned from the game. Possibly this blog entry will save you massive amounts of time – i.e. you can simply read on, rather than playing.

If you’re on Facebook, you’ve probably already been pestered by notifications from a game called Farmville, created by a company called Zynga. Possibly you’re already playing the game yourself. Over the past few months, the number of people playing the game has exceeded 70 million – for comparison’s sake, this is roughly the same as the total number of people using Twitter. Clearly they’re doing something interesting.

Generally speaking, Farmville falls under the category of “viral applications”. A viral app is one that seems to spread uncontrollably – just like a cold or flu bug does.

The key to “virality” has been documented elsewhere to great effect (just visit your local library or favourite guerrilla  marketing blog):

  • create something that is going to keep people interested (what’s usually called “stickiness”).
  • make sure that using it will work even better if the user tells their friends about it.
  • seed the application, website, or whatever with an initial set of users – probably friends of the owner.
  • watch it grow.
  • deal with scalability issues
  • figure out how to make money (!)
  • reproduce / duplicate the effect elsewhere

Very few applications make it to the final step, and there is definitely at least some element of luck involved – I’ve seen some great ideas fall flat for no apparent reason.

What Zynga has done though is a very interesting example of a successful viral application, and there are a number of attributes that can be used elsewhere – not necessarily for games either.

1. Keep People Interested

The notion of keeping people constantly interested in an application is very helpful in building a virally marketed website or game. The longer a person’s attention is on something, the more opportunities the makers have to get them to tell other people about it, as well as there being more likelihood of selling the user something. Keeping people interested is not conceptually hard, but can be difficult to implement in practice; I’m seen a great many websites fall short in this regard. “Viral” without “sticky” often equals “flop”.

Zynga have done a few interesting things with regards to holding people’s attention. Some of them are general rules from the game builder’s playbook, and thus aren’t transferable to all products or services.

Some of the tactics include constantly changing items, seasonally based differences in the appearance of the game, new functionality as a user progresses in level, randomization (things like animals moving around on their own) – these are all things common to many successful online games. Maintaining a stream of new activity is actually quite difficult to carry out – as I’ve discovered in the past while working on other games. There’s a certain level of perseverance involved, along with rallying the developers – most of whom are probably feeling burned out at this point (again, past experience) and keeping the creative juices flowing.

Other interest-enhancing features include their gift exchange system – I’ll talk more about this in Part 2 – which a) ensures that certain things can only be accomplished with the help of friends, and b) provides a stream of requests to players inboxes to entice them to come back repeatedly.

Two last things of note:

By building a community, where players cooperate in longer term development with each other, Farmville makes it less likely that somebody will drop out. Community formation is a powerful tool to keep people coming back over and over.

Farmville also relies on people’s nostalgia for “the simple life” – not that farming is particularly simple in actuality.  The nostalgia factor can be a powerful tool for marketing to particular market segments.

[To Be Continued…]

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Business Internet

Business Customer Service 2 Comments

I think there’s a potential business plan in all this.

We moved a few days ago into our new offices, which we are sharing with CO4 Computing. Last week we had an (unnamed) internet DSL company put in a connection. We tested it on Sunday, and it was working perfectly.

By the time we actually moved in, it had stopped working. It turns out that the unnamed internet service provider above actually uses phone lines (in this case something called a dry loop, which is basically a phone line without a phone number attached to it) that they lease from [insert big phone company name here]. Some technician at the [big phone company] had decided that there was something wrong with the dry loop, and had randomly disconnected it (without – I might add – letting the DSL company know).

At the point in writing, we’ve been trying to get the DSL company to fix our internet connection for three days. The problem, of course, is that they are totally reliant on the phone company’s technicians in order to do this. The phone company won’t tell them what they are doing to resolve the problem, and furthermore won’t let them know a timeframe either.

In the meantime, I’m being stonewalled by the DSL company as well.

We also looked into going directly to the phone company (unfortunately they’re the only ones who have lines going into this building) in order to get internet service from them. Apparently there’s a two week delay before they can install it. That’s minimum two weeks, not an absolute timeline.

For home internet, I can get a technician at my door within two to three hours. For business though, getting a new internet connection takes two weeks, and fixing a broken connection can take days. I’m puzzled as to why anybody puts up with this.

QR Tags

Business Learning Uncategorized 12 Comments
QR Tag
QR Tag

The odd looking image here isn’t a Rorschach blot.

Its actually a QR code, something that is old news in Japan, but never quite managed to take off in North America.

In this particular case, assuming you had a QR code reader (in Japan apparently most cell phones do), the image encodes a link back to this website.

If you want one of your own, you can go here to get one: http://www.qrtag.net.

Now I just need to figure out how to get my phone to read them…

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What Business Would You Want To Be In?

Business 8 Comments

Quick informal poll:

If you were going to start a business today, what kind of business model would you use?

My personal answer: currently leaning towards some form of software as a service, utilizing some type freemium model. But then so is everybody else, right? I have more to say on this, but want to hear what you think!