We’ve talked to a number of investor these last months and I can classify their questions into three categories:

• Intellectual Property Protection (IPP)
• Revenues
• and Operations

Revenues is a straightforward concept and reflects market potential, market share, and business-model. Operations can also mean business-model as that clearly affects your operations, it also concerns the team, and it very much concerns *the last mile*—a very detailed understanding of how your product comes of the “factory line” and goes into a customers hands (every step and every screw has to be planned out). And IPP, well IPP is something special.

Intellectual Property Protection refers to legal and other ways that you protect the innovation and knowledge that is built within your company and its people. It is not as straightforward as simply taking out a patent, copyright, or trademark, though those are usually the first avenues that investors will pursue when talking to you about IP. IPP can just as much come from keeping information tacit—inside the heads of your team—, developing systems that spread an innovation across many parts—e.g. the way technology companies prevent copying from factories they outsource production to, by only giving them parts to produce, but not the whole—, another systematic answer could be deep vertical integration, which ensures a higher quality of products and services than can be replicated by vertically smaller competitors (a strategy pursued by Apple and Starbucks), and last but not least: speed—in some industries it pays to just scale very quickly, rather than build a protective base around IP (a contrast between e.g. web and medicine).

But let’s get real for a second. You’re an inventor, you developed something new. The most obvious path to pursue is a patent. The first issue is cost, because taking out a patent is not cheap. Basically, by filing a patent in your country, you can protect yourself for a while because there is a period, 1-2 years, I believe, where you are filing it and it can serve as a type of legal instrument to prevent other companies from filing a similar patent. But in the end, you have to shell out maybe €5000 per country to protect your invention internationally—and those costs do not cover the legal cost or protecting a patent once it’s being breached. Let’s get real x 2: you’re a startup and while your technology may be innovative, it may not be what the market needs (which can relate to actual taste, but also to cost, to regulatory issues, etc.) and that means that your patent, if you decide to take it out, may not be worth squat. Let’s get real x 3: your invention may not be unique, at least not in its current form, and pursuing a patent in that case is not even feasible.

So practically speaking, what do you do? Just to be clear, I don’t have the final answer to this, though it is something I am constantly thinking about as a potential risk in our, a technology startup. So my interpretation and approach are entirely my own, but I am writing this to start a discussion more than to give the final answer.

The answer to me is all about strategy. IP protection has to make sense in the context of a longer term business strategy, long term meaning to me longer than 2 years and preferably longer than 5 (if you have an actual patent and it has market value as well, you have over a decade of protection). And IP, just like a business, is something that can be split up to cover different areas related to supply, to the manufacturing, to the end-product, to the service, etc. So the more broad and comprehensive your way of protecting your intellectual value is, the less it can actually be replicated by your competitors.

All IP concerns aside, it is sometimes of benefit to not protect the whole value chain. This is true in our business, which I will write about some other time, where we can split up our technology into core-components that are integrated into new solutions which act as a platform for more solutions. Locking off that whole chain is perhaps of some benefit, but in some ways we would like to have people innovate in their respective areas and for us to focus on developing better products out of that. My point is that IP protection should be seen as something that can be shifted to those areas most critical to your business and that new development in your industry is not necessarily something to be scared of. In the end, we are in the product business and if we can produce superior solutions for customers that outweighs comprehensive IP solutions.

So the conclusion is, even if you are developing a product that is not entirely novel, there are places in the value chain where you can still develop an IP solution. And if you are developing novel solution, it has advantages on both the supply and the market side, to not make your IP too restrictive and thus diminish your product potential.

3 people like this post.

Unlike

Seems like Facebook is teh new evil. The new Microsoft of the nerd epic. The biblical mark of the beast, the Windows-logo, has been replaced by Facebook’s like-button on a website.

But seriously. Facebook’s grab of their users is getting quite out of hand. Exposing more and more of stuff that could be argued to be personal information, pimping that stuff to other sites and companies… it’s not cool and it’s pretty dark in the grey area of abusing their users’ respect. The “evolution” of Facebook’s concept of privacy was best illustrated by Matt McKeon’s neat infographic.

You know these pics as lolcats, but majority of Facebookers just think they are cute.

If you look at the new things Facebook is developing it’s easy to start thinking what are the real benefits to users? It’s all just exploitation. But that’s just the business model for web 2.0 social. Companies are willing to pay a lot to know what their target demographics like and how they behave and lots of other metrics that supposedly make their marketing more effective. They also want to have “presence” on the “social”. I have no experience with marketing industry so I’ve no idea how well this works.

Many internet pioneers were against any first legislation involving Internet, because the Internet was somehow “different”. They felt that these laws would restrict the “freedom” of the whole Internet. Yet, it’s clear that at least our consumer protection and privacy laws are not good enough. The German Federal Minister of Consumer Protection sent a letter to Facebook where her threat was that she’d get out of Facebook if Zuckerberg and his company don’t start to respect users’ privacy more. Seriously, is this how toothless even European consumer protection agencies are against Facebook’s rampant power grab?

One of the weaknesses of Facebook is that they’re centralized. This is why Google, Yahoo et al are working hard on social web that’s distributed. The problem is that this is not a competition where the best technology wins. So what if “web industry leaders” are quitting Facebook? Most of the Facebook’s userbase don’t know who they are and don’t care.

The strength of Facebook at this point is that it’s what pretty much everyone and their parents know how to use on the web. Even otherwise computer illiterate people feel at home with Facebook, like the ReadWriteWeb’s article on Facebook that people ended up when they searched for “facebook login” on Google demonstrated. Whatever the pioneers, early adopters, or any other web power users do to create “anti-Facebooks” does not matter, especially on the short term.

The internet has always been a scary place for newbies and it’s a shame how easily scammers can use Facebook as an attack vector. All the groups and pages that advertise free Farmville cash or an iPad for just doing these simple steps that compromise the whole computer… The problem is that it is difficult to distinguish these from the marketing agencies’ competitions on who can create the most “liked” “viral” astroturfed page and also by the simple fact that people tend to trust their friends’ judgment so these scams can get easily spread through the “social”.

From the web power users’ viewpoint the future is either a more interactive web, or the wet dream of every SEO and internet marketing expert – a web that stinks and where its users are just a crop for marketing analytics. We are idealistic and tend to believe in the power of technology, but the web is a commercial venture. Google isn’t exactly our friend (not even using the web 2.0 definition of the word), but it looks it is in their best interest to push for the same cause – a more open web.

It’s not that Google and others are doing this out of kindness for web users. It just makes business sense for them, Google makes money when more people use the web. And it’s not like Facebook is inherently evil – the exploitation of their userbase is a natural progression for any social network business, especially because their users are not willing to pay for the service in any direct fashion.

We can’t bluff Facebook about quitting our accounts, because we are not going to hurt ourselves here and they know it. For its users, Facebook does add value. But, there are limits on how much they can exploit this fact. What Google and others are trying to do is make Facebook redundant, unnecessary – but they’re still far from this goal.

This is why I would expect more from the people we have appointed to take care of our personal information in the society, the different national and international data protection agencies. Not just empty threats like Mrs. Aigner’s.

2 people like this post.

Unlike

As I argued in the comments in Vincent’s post about FarmVille, FarmVille is a role playing game (RPG). And pretty bad one at that. Like most RPGs, you don’t actually need any skills or develop any skill playing it yourself as your success is solely dependent on the amount of time you sink into it. You can get pretty good at FreeCell, but no matter how much time you spend in FarmVille, you won’t get “better” in it. But what most RPGs have at least is a story – even if most these days have left the ending pretty open. Contrast this to FarmVille which isn’t trying to tell you any story. In this sense it resembles a simulation, but that genre is usually characterized by depth and strategy which are nowhere to be seen in FarmVille, unlike, say, in SimFarm from 1993.

Free range animal farming at FarmVille

It is way too easy to categorise FarmVille as a “casual” game, but “casual” doesn’t need to mean games where you can’t lose, games which have zero learning curve and games that don’t offer challenge. A good example of “casual” game that always ends in the player “losing” and (hence?) offers a lot of challenge is Bejeweled. If I remember correctly, Bejeweled was the previous title holder to the biggest casual game ever.

The only challenges are achievements – and now collections. But there’s little, if any, social value in achieving them – unless you count boasting about them on your Facebook wall. And, unfortunately, the game doesn’t have level 13 Pig Warlocks.

There’s some irony that the main reason people play FarmVille, boredom, is also a main reason why people quit it. This boredom kicks in at about level 20 or so, where you start to realize that you have pretty much seen everything the game has to offer. The only thing left is the grind.

There are, of course, shortcuts to simple grinding. You can use farm machinery to do your activities faster, but they consume fuel (that, until recently, you could only refill by real money). Also, spending money allows you to get many benefits before non-paying players. And this is a problem, because many people don’t consider this “fair”. Offering players to pay to save time, however, is pretty crucial from business logic. The trap here is that the players who don’t feel comfortable paying start to feel that the only way to progress in the game is to spend real money.

FarmVille follows the RPG formula that the higher you have leveled, the more effort (= experience points) you need to reach next level. Granted, you have access to new things that might increase your “productivity”, but the mean time between levels is increasing. However, and this is the problem, the reward of leveling up remains pretty much the same. At some point, the perceieved benefit/effort ratio falls short. The trick is that at this point, the player has invested so much into the game that they might be more willing to pay real money to make advancing easier… if the rewards of leveling up are worth it.

The business logic of FarmVille dictates that the more you play, the better player you are for Zynga. It’s the curious logic of taxing your good customers, the discrimination for the information age. This is most evident if you look at how the experience points you get from crops depends on their harvest time. The shorter the harvest time (and so, how many times the player “needs” to play FarmVille), the more experience the player can gain in given time. As you can see, the relationship between these two variables follows an exponential distribution with pretty high correlation.

Harvest time is strongly correlated with experience points you can get in FarmVille

There's not much correlation between profits and harvest time, though.

As an interesting side note, the correlation between Harvest time and profit isn’t nearly as high and there’s a lot of variation. This neatly illustrates how the main metric in the game (from game designer’s perspective) is not profit, but experience points which are tightly tied to player retention. This also means that while there’s a wide variety of different kind of crops, there’s only a handful that makes any sense to use as the rest are strongly dominated. Oh, and the trees and the animals don’t make any sense given how scarce the land is and how much more profitable the crops are. The only reason to have either is for achieving ribbons – or self-expression (which you might have already guessed was pretty low on my priority list).

The other thing in FarmVille is that your game progress is also aided somewhat by the amount of friends you have. Whether these friends help you or not, is not necessasry, as only retaining a certain friend amount gives you benefits. The most important of these is access to larger farms. The social aspects of FarmVille can be divided into self-expression (how one designs one’s farm) and a coordination game of sharing gifts and other “loot”. The game design trick of “free gifts” is pretty clear after the player realizes that he or she needs a bigger farm to accommodate all the gifts. Contrast this “social gaming” to the title-holder of “most anti-social game ever”, World of Warcraft, in which (as far as I’ve understood) it is possible to “complete” the game alone, but playing with others is a key element to enjoy the game. In WoW the higher level players can help out lower level players, but in FarmVille the higher level players can gift some items to lower level players that lower player level players can’t gift. So, for some time the reciprocity logic didn’t really work in gifting, but this was recently fixed by introduction of “Mystery gifts” that are pretty much the only thing that makes sense for lower level players to send to higher level players.

So, what you are left in a more competitive sense of “social gaming” is the amount of ribbons you have collected, the level you have achieved and how pimped out your farm is. The element of achievements that you can accomplish as a group is zero.

I’m not entirely sure that Facebook is the most fertily grounds for games, as the dominating functionality seems to be “the social” and exploiting one’s userbase. Game mechanics and social dynamics come second. This is why I believe that to experience “true” social gaming, one needs to invest some real money to buy a game. The “free” gaming model seems to denigrate too quickly into nickel-and-diming, see for example what happened with EA’s Battlefield Heroes – where again some of the players didn’t see the real money elements as “fair” after certain point.

The problem with FarmVille, in short, is that the business logic dictates the game design too much. The revenue incentives of Zynga make the game experience worse for the players, who are looking for more than killing time.

3 people like this post.

Unlike

What many of you might not know is that the reason Nokia became the biggest mobile phone manufacturer is because of Apple. When all their competitors were standing still, Nokia decided to think a bit differently. This story was one of the hidden gems in “Fast Strategy“, a book co-authored by Mikko Kosonen, a former executive at Nokia, and it tells the story how Nokia was able to challenge Motorola, Ericsson and other big players of yesteryear.

“When everyone saw mobile telephony as a professional service, Nokia’s leadership saw mobile phones as consumer – almost fashion – products. Rather than predict five or ten percent maximum penetration rate, Nokia quickly imagined everyone in the world having one – or why not several? – mobile phones for personal as well as professional use.” (page 3)

“[On the importance of strategic insight] Some insight may result from intense personal awareness and conviction, such as Pekka Ala-Pieitilä at Nokia being an avid Mac user and seeing the potential for Nokia to turn mobile phones into mass market consumer goods the way Apple was doing for personal computers.” (page 21)

One has to wonder why this Mac-love was only visible in the strategic thinking while Nokia’s Mac-support (PC Suite and other things) has been abysmal throughout the years.

So, what has changed so dramatically that blogs and business newspapers are declaring doom on Nokia? First of all, Nokia’s DNA changed the moment the became #1 mobile phone manufacturer in the world. Before that they were a challenger, trying out

The Nokia 1100, the best selling consumer electronics device in the world

different things and taking risks. But now they are playing defensive, trying to maintain their market share. According to Kosonen, Nokia is trying to counter this by being “strategically agile”.

But it isn’t just that. The backwaters of mobile innovation, USA, suddenly became relevant. I would argue that this is mostly due to Blackberry and iPhone and the huge domestic market. Also, one has to remember that the US is overpresented on the internet, so once the web broke through to mobile devices and Apple started to market the idea of software apps on mobile devices, things seemed to change a bit. Nokia has never been strong in the US, or for that matter in any market where consumers do not choose their own phones and where Nokia has never been able to work with operators. That’s probably the only thing that has been constant.

Couple of weeks ago yet another analyst group forecasted how Apple could pass Nokia in as soon as 2011. Now, this fantasy was based on how iPod users would convert to iPhone users and how Apple should launch low-cost iPhones (especially to developing countries) and sell customized ringtones and overall act in a non-Apple way (and eerily like Nokia). And yet, we’re still talking about smart phones which so far represent a tiny minority of total mobile market.

Sure, Nokia needs to get its act together, especially on the services front, but it’s too early to say that they’re doomed. Especially when you consider that Nokia is pretty strong in the developing countries. My prediction is that it’s not Nokia that will be irrelevant in the mobile phone market in the future, but the US market ‘s importance will fade and it is the mobile players that win elsewhere that continue to matter. The sheer size of mobile phone markets in Africa just boggles the mind.

In the new world of the mobile web, Nokia’s biggest problem is their own legacy, something that slowed Ericsson and Motorola down when Nokia was decided to bring mobile phones to the masses. Apple, on the other hand has shown that it can take advantage of market discontinuities in many different markets where traditional barriers to entry are crumbling down.

“For decades, the dominant players were EMI and RCA, and more recently Sony Music, which had built up the assets and capabilities … In today’s digital world, however, companies like Apple, which have none of the traditional music industry capabilities, are becoming leading players.”

In summary, it’s all about bringing technology to the masses. Apple did that for smartphones, but Nokia, inspired by Apple’s success bringing personal computing to masses, did and continues to do that for mobile phones. It’s just Nokia struggles with the US and smartphones for the rest of us. In Fast Strategy, Cisco’s Corporate Vice President Strategic Allainces, Steve Steinhilber is quoted to have said “…five years ago could Nokia really have expected Apple to be the main threat to their high end phone business?”

Like

Unlike

Ironically, this lesson comes from a manufacturer of hardware (mostly), Nvidia. In a “Stanford Entrepreneurial Thought-leaders” podcast lecture on the role of Vision when building companies, Jensen Huang, CEO of Nvidia says:

[ca. 30 min. in, responding to a question about how the culture of Nvidia was built]
At the core of our company’s success is innovation. A lot of companies say that innovation is important to their company. However, I don’t think you can fundamentally say that you want to nurture the spirit of innovation as a CEO, unless you have a culture of risk-taking. We have to encourage our all of our employees to take calculated risks.

It’s a matter of courage. Most people hate to fail. If you want to be successful, I would encourage you to develop a tolerance for failure. That doesn’t mean fail purposefully. Instead, I want you to try things even though it is impossible to calculate precisely that it would lead to success, that your instincts, your intuition are something you should follow. Where would we be today, without the intuition of our employees? So you have to have the tolerance for risk-taking.

The thing about failure is this. If you fail often enough, you might actually become a failure! Which is not the same as being successful [laughter]! So the question is, how do you teach someone how to fail, but fail quickly? And to change course, as soon as you know it’s a dead end? And the way to do that, is we call it “Intellectual Honesty.” We assess, on a continuous basis whether something makes sense or not. And if it’s the wrong decision, let’s change our mind!
…
…
That type of culture is very necessary in today’s environment, with competition coming all over the world, 24/7, especially for webservices, where ideas take no time to experiment. A particular company could throw out 20 ideas into the world. So unless you are thoughtful about risk taking, and being able to change your mind, react to market conditions, and being flexible, how are you going to stay alive?

You can almost see what I just described in the nature of older companies and in the nature of newer companies. The modern companies, look at Google, almost every single application is in Beta form! They’re trying all kinds of stuff, right? If they call it production, and it doesn’t work well, you guys would just be upset at them. So they call it BETA! So they can try a lot of things. And it it works, do more, and if it fails, get rid of it.

Innovation requires a little bit of experimentation. Experimentation requires exploration. Exploration will result in failure. Unless you have a tolerance for failure, you will never experiment! And if you don’t ever experiment, you will never innovate, you don’t succeed… You’ll just be a dweeb! That’s it!

And that’s why I dig the business of software. Not because I want to be a coder, but because it serves as an example, as an ideal of all the business ventures I want to do. The kind that encourage quick experimentation, developing and building on systems and infrastructures that allow for reducing the cost of failure, and increasing the chance of radical innovation.

Tons of other valuable lessons in that podcast, but this is the one I dug the most.

Vincent

Like

Unlike

A note: I’m not in software, I’m in startups—a topic for another day—, but these two are ideals that I strive for in any business. They were taken from a recent interview with Joe Spolsky of Fog Creek Software, on the Venture Voice podcast, a recurring classic in entrepreneurship podcasting.

1. you can launch low-cost, i.e. bootstrap your way to the top: Joe differentiates between those companies that need to get to critical mass fast (the Amazon’s and eBay’s of the world) and pretty much everyone else.
2. instead of making (often) senseless financial projections, you can throw it out into the world and use the infrastructure of the internet to monitor actual sales, and make forecasts based on actual data. Again, if you need external funding for things like launching a comprehensive marketing campaign, you’ll probably need to make some (senseless) projections.

I know, it’s a pretty basic set of principles, and there’s lot’s of other good stuff in the podcast as well, such as SaaS vs. licensed software, but these two are the ones for the books. It reminds me a lot of this recent blog post on the Lessons Learned blog, about “Validated learning about customers.”

Vincent

Like

Unlike

Just finished a project, which gives me a few days to reflect, work on my personal business-plan, aka career philosophy, and write blog posts about pricing and stuff. A few months ago, I purchased the second edition of the book “The Strategy and Tactics of Pricing.” It’s a really good read, though also a complex one—I’m on page 80 of 450, and I started reading in December! That said, having been exposed to setting my own prices for the services I provide, also taught me a thing or two already.

Understanding pricing really means two things: understanding the numbers and understanding the psychology behind why people are willing to charge or pay x amount for something. The difficulty is mainly that information is incomplete. I can’t judge 100% what contextual factor made a customer decide to go the other way, or why the competition charges 3 x less than my product. At the same time, this fuzziness also means that pricing is not just a matter for the “finance guys,” it’s a matter of doing your homework, experimenting, and some instinct.

Pricing itself is a subject that is actually relevant to everyone [I'm excluding millionaires here, though they may consider the price of their yachts and Rolls Royce's sometime]. It’s something that matters when pricing yourself (what is a fair wage or fee for people to pay you?); when pricing products and services; and when considering paying for products and services (why does a certain price seem to high or like a good buy?).

Pricing yourself

According to my nice bible on consulting, there are three main ways that I can set my own prices. I can work on an hourly / weekly / monthly / etc. fee, I can charge a single fee for the whole project, and I can be paid for reserved time [aka, I set aside x amount of days per month for client y]. Consultants typically charge a lot and that is not for arrogance reasons. Rather, one factor is the amount of risk that you incur. By committing to one client, who may only need you for an undetermined amount of time, you risk forgoing other income. Hence you charge more per project. Something like reserved time over a longer period of time would be less risky, hence you can charge less for that.

Of course, it’s also a matter of what value you bring to the table, which is really a two-edged sword: is the value that you bring, the skill-sets that you have acquired (and which cost you money to acquire)? Or is it the value that your client attributes to it? It is always the latter, though if that value is lower than what it costs to produce it, you’re making a loss and should rethink your business.

Similarly, it should optimally be so that when you apply for a job, you have an estimate of the financial value that you bring to the company. This isn’t always made clear, often you have a salary-indication showing what you are worth to them, but your value-contribution may very likely be higher (or lower) than what is expected. Negotiating in such a situation requires sufficient knowledge about that value—yours and theirs.

Pricing products and services

The mechanics of pricing here is much the same, though perhaps simpler to understand. At least, from a cost-perspective, which should be just a matter of adding up the ingredients and the (wo)man-hours. But cost in itself does not tell you enough. For one, there are economies of scope and scale. Second, there are avoidable costs. And third, we live in a era where the cost of (re)production can often be minimal [I should note at this point, that the edition of the book that I bought is from 199X; a 4th edition came out in 2005, which, I imagine, approaches the digital economy more].

And of course there is also the matter of the competition (cost-based pricing only works well in monopolistic situations—”it costs what it costs, what are you going to do about it, punk?”) and, again, the value that the customer places on your product. But this kind of interplay can be really complex and is exactly why I decided to read this book.

A note on the avoidable costs part. Recently, I was looking for a laptop-bag and came across what I thought was a great deal. Everywhere I looked the bag cost €40. But one place had it for €25. Without thinking I added it into my basket [this is e-commerce] and wanted to order it. Until I saw that sending it would cost €20 [other's charged €5], bringing it to the same sum. This was actually a coincidence, as they charged €20 for sending other products as well. Why does one company charge much more than others for sending materials, but less for the materials itself? My acquired wisdom taught me that this is because it encourages people to buy lots of products at once. Because people buy a lot, the store has to store less inventory over time, which represents a saving that it can translate into the cost of its products.

The inventory cost is an avoidable cost that you, as a store, can tweak up, down, or away. Just like you can outsource certain parts of your operation, etc. etc., you can make decisions on an organisational level which will have an effect on your costs. And because your costs don’t matter to your customer, the value that he attributes to your product does, you have to change your costs and margins to match that picture. Did that make sense? I had to re-read that part of the book a few times to get it myself, sort of.

The price that you and I are willing to pay

While marketeers would like you to think that this is all a psychology game, it is in fact still a psychology + numbers game at this stage. When my income is low, making a purchase that consumes a large percentage of it, will make me very price-sensitive and vice versa. If I use an app that saves me x amount of time [allowing me to earn more money], then that app has a certain value to me relative to that.

But there are psychological aspects as well. My Mac, for example: I know it saves me time to do what I do (=financial value). But I also feel good about being on a Mac (=psychological value). Or the digital SLR I am planning to buy. I briefly browsed the second-hand market, but abandoned the idea because I value the security of buying a new product. My expertise in cameras is too low to place my faith in a second-hand camera, even if it is half price. Had the new Mac not come out recently, I would’ve probably bought a second-hand one, because I know about 10 different tests to make sure that it’s ok. The product’s reputation is a factor, but so is the customer’s expertise.

Setting a price is a matter of what value it has for a customer—real and imagined—and good marketeers can position their products wisely to convince customers of that.

Final thoughts

Don’t worry! Tech it Easy won’t become a pricing-orientated blog anytime soon. As interesting as it can be, it doesn’t quite hit that mainstream nerve, I don’t think. For me, it is just another puzzle to solve on the big canvas that is life. And perhaps, I made you curious about it also? If so, give me a buzz in the comments or send me a mail. As I’m here to learn, I’d love to discuss any questions you may have about this!

Vincent

Like

Unlike

If that phrasing sounds a little weird, let me explain. Over these last three days, I’ve been watching Dharmesh Shah’s really great presentation on what he knows about startups, in which he talks, amongst other topics, about the attention economy vs. the wallet economy. If you haven’t already, you should really check it out!

The attention economy is based on eyeballs, on non-paying visitors to your site or users of your app that, through some magical reasoning, will translate into clicks on advertising, eventually leading to income to you the entrepreneur. I call that magical because no one I know of actually clicks on adverts.

The wallet economy is based on eyeballs with little hands reaching out of it that hold cash with which they pay you. I serve product A, it costs $20, you pay, I just gained $20 (minus cost of goods sold). The feedback is instantaneous and you don’t have to wait for X000 customers to land on your site and 0.000X% of them clicking on adverts.

This is pretty much the way the world has always worked, with the exception of newspapers and, arguably, the internet is one big newspaper (seriously lacking in editors).

It’s very easy to go the attention route, because it’s very easy to build soft-/webware in the first place. When you start a business in the real world, you make real investments, usually with the help of external funding like banks, that want to see a real return on their money. When you start a “digital” startup, you need a PC, you need to know some code, you need to spend $20 on a domain and $10-50 per month on hosting. The pressure isn’t there to really push for every dollar of income, because you aren’t feeling the banks et al. pushing down on your back. As a matter of fact, you can just set up a service, and go pursue another career, waiting for it to magically attract enough eyeballs to make you millions.

It’s nice, in theory, but it’s not what entrepreneurship is about. Entrepreneurship is like the film “There will be blood.” Life is tough, you have to fight for every drop of oil, people hate you and you will probably end up killing (=divorcing) a member of your family in the process.

And that kind of work deserves the instant gratification that cash for your product provides.

The end. Have a nice weekend, y’all!

Vincent

Like

Unlike

I only have a second to write this. Recently ReadWriteWeb asked about what Twitter’s business-model is. More recently, a rumour came about that Twitter will start monetizing in 2009, shortly after the company saw a CEO-change.

In a discussion about the RRW-article on FriendFeed, I wrote the following:

The real value of Twitter for companies and their customers is that they get instant feedback on their products and vice versa. I just have to say one bad thing about a brand, and I get a rep talking to me about it (from Skype to 37signals). It’s like Getsatisfaction, except distributed. Ironically, twitter-search made that happen.

Could this be a key-factor in how Twitter will try to make money? And, if so, are there comparable metrics that could give an indication as to the company’s value? I’m thinking that with Twitter’s reliance on search-results, perhaps a comparison could be made with Google’s early business-model?

What do you think?

Vincent

Like

Unlike